Interim Results
Air China Ld
31 August 2006
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this announcement, makes no representation as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss whatsoever arising
from or in reliance upon the whole or any part of the contents of this
announcement.
AIR CHINA LIMITED
(a joint stock limited company incorporated in the People's Republic of China
with limited liability)
(Stock Code: 753)
ANNOUNCEMENT OF INTERIM RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2006
The board of directors (the 'Board') of Air China Limited (the 'Company')
announced the unaudited interim results of the Company, its subsidiaries and
joint ventures (collectively, the 'Group') for the six months ended 30 June
2006, with comparative figures for the corresponding period of last year, as
follows:
FINANCIAL INFORMATION
A. Prepared in accordance with International Financial Reporting Standards
('IFRSs')
Unaudited Condensed Consolidated Income Statements
Six months ended 30 June
2006 2005
RMB'000 RMB'000
Notes (Unaudited) (Unaudited)
Air traffic revenue 3 18,394,962 15,602,712
Other operating revenue 4 1,535,945 1,335,820
Turnover 19,930,907 16,938,532
Operating expenses
Jet fuel (7,063,679) (5,061,760)
Take-off, landing and depot charges (2,415,696) (2,172,296)
Depreciation (2,664,606) (2,456,709)
Aircraft maintenance, repairs
and overhauls (633,412) (548,508)
Employee compensation costs (1,670,027) (1,413,632)
Air catering charges (653,836) (610,343)
Aircraft and engine operating
lease expenses (950,835) (637,757)
Other operating lease expenses (129,461) (118,011)
Other flight operation expenses (1,664,662) (1,572,899)
Selling and marketing expenses (861,264) (692,452)
General and administrative expenses (330,164) (256,820)
Total operating expenses (19,037,642) (15,541,187)
Profit from operations 5 893,265 1,397,345
Finance revenue 6 568,853 267,467
Finance costs 6 (909,473) (903,392)
Share of profits less losses
from associates 107,837 151,301
Profit before tax 660,482 912,721
Tax 7 (182,829) (270,329)
Profit for the period 477,653 642,392
Attributable to:
Equity holders of the parent 457,974 591,253
Minority interests 19,679 51,139
477,653 642,392
Dividend:
Interim 8 - -
Earnings per share attributable to
equity holders of the parent:
Basic 9 4.9 cents 6.3 cents
Diluted 9 N/A N/A
Unaudited Condensed Consolidated Balance Sheet
30 June 2006 31 December 2005
RMB'000 RMB'000
(Unaudited) (Audited)
NON-CURRENT ASSETS
Property, plant and equipment 50,142,552 47,190,728
Lease prepayments 1,060,388 1,072,066
Interests in associates 1,427,707 3,793,957
Advance payments for aircraft and
related equipment 7,140,767 7,329,322
Due from CNAHC 481,813 531,813
Deposits for aircraft under operating leases 257,786 222,945
Available-for-sale investments 22,266 22,266
Deferred tax assets 347,330 498,371
60,880,609 60,661,468
CURRENT ASSETS
Financial assets 261,859 127,659
Trade receivables 2,727,769 2,764,475
Inventories 1,010,442 851,315
Prepayments, deposits and other receivables 1,103,651 762,435
Pledged deposits 186,747 176,575
Non-pledged deposits with maturity of
more than three months when acquired 7,620 97,375
Asset held for sale 2,616,362 -
Cash and cash equivalents 2,366,573 2,248,386
Due from CNAHC 299,738 474,216
Due from other CNAHC group companies 47,207 38,039
10,627,968 7,540,475
TOTAL ASSETS 71,508,577 68,201,943
CURRENT LIABILITIES
Financial liabilities (25,149) (1,791)
Trade payables (4,990,313) (4,601,364)
Bills payable (773,485) (327,937)
Other payables and accruals (3,417,799) (4,168,435)
Dividends payable to CNAHC and CNACG (147,905) -
Provision for major overhauls (54,417) (18,721)
Air traffic liabilities (1,821,388) (1,476,619)
Tax payable (14,937) (421,077)
Obligations under finance leases (2,149,297) (1,954,873)
Bank and other loans (12,580,815) (10,401,170)
Due to CNAHC and CNACG (133,680) (133,680)
Due to other CNAHC group companies (32,728) (40,471)
(26,141,913) (23,546,138)
NET CURRENT LIABILITIES (15,513,945) (16,005,663)
TOTAL ASSETS LESS CURRENT
LIABILITIES 45,366,664 44,655,805
NON-CURRENT LIABILITIES
Obligations under finance leases (8,444,754) (8,078,671)
Bank and other loans (12,898,148) (12,822,879)
Long term payables (315,359) (352,880)
Deferred income (987,438) (1,025,910)
Provision for major overhauls (775,355) (635,718)
Provision for early retirement benefits
obligations (182,026) (189,141)
(23,603,080) (23,105,199)
NET ASSETS 21,763,584 21,550,606
Represented by:
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
Issued share capital 9,433,211 9,433,211
Reserves 10,873,630 10,659,030
20,306,841 20,092,241
MINORITY INTERESTS 1,456,743 1,458,365
TOTAL EQUITY 21,763,584 21,550,606
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Air China Limited (the 'Company') was incorporated as a joint stock
limited company in Beijing, the People's Republic of China (the 'PRC'
or 'Mainland China'), on 30 September 2004. The Company's H shares are
listed on The Stock Exchange of Hong Kong Limited (the 'Hong Kong
Stock Exchange') and the London Stock Exchange.
In the opinion of the directors, the Company's parent and ultimate
holding company is China National Aviation Holding Company ('CNAHC'),
a PRC state-owned enterprise under the supervision of the State
Council.
The unaudited condensed consolidated interim financial statements of
the Company, its subsidiaries and joint ventures (the 'Group') 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 ('IASs') and Standing
Interpretations Committee interpretations approved by the
International Accounting Standards Committee that remain in effect. In
particular, the unaudited condensed consolidated interim financial
statements of the Group comply with IAS 34 Interim Financial Reporting
and the disclosure requirements of the Rules Governing the Listing of
Securities on the Hong Kong Stock Exchange.
The unaudited condensed consolidated interim financial statements of
the Group have been prepared on a historical cost basis, except for
the measurement at fair value of financial instruments in accordance
with IAS 39 (amended 2004) Financial Instruments: Recognition and
Measurement.
The unaudited condensed consolidated interim financial statements do
not include all the information and disclosures required in the
audited annual financial statements, and should be read in conjunction
with the Group's audited annual financial statements as at 31 December
2005.
The principal accounting policies adopted in the preparation of the
unaudited condensed consolidated interim financial statements of the
Group are materially consistent with those followed in the preparation
of the audited annual financial statements of the Group for the year
ended 31 December 2005, except for the adoption of the following new
IFRSs and revised International Financial Reporting Interpretation
Committee ('IFRIC Interpretation') which have become effective for
accounting periods beginning on or after 1 January 2006.
IAS 39 Amendment Cash Flow Hedge Accounting of Forecast
Intragroup Transactions
IAS 39 Amendment The Fair Value Option
IAS 39 and IFRS 4 Amendments Financial Guarantee Contracts
IFRIC - Int 4 Determining whether an Arrangement
contains a Lease
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.
IAS 39 Amendment for the fair vale option restricts the use of options
to designate any financial asset or financial liability to be measured
at fair value through the income statement.
IAS 39 and IFRS 4 Amendments for financial guarantee contracts require
that financial guarantee contracts are initially recognised at fair
value and are subsequently 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'.
IFRIC - Int 4 provides guidance for determining whether an arrangement
is, or contains, a lease that should be accounted for in accordance
with IAS 17 'Leases'.
The adoption of the above revised IFRSs and new IFRIC has no material
impact on the Group's unaudited condensed interim consolidated
financial statements.
2. SEGMENT INFORMATION
The Group's operating businesses are structured and managed
separately, according to the nature of their operations and the
services they provide. Each of the Group's business segments
represents a strategic business unit that offers services which are
subject to risks and returns that are different from those of the
other business segments.
Currently, the Group's business segment information is divided into
the following four business segments:
(a) the airline operations segment comprises the provision of air
passenger and air cargo services;
(b) the engineering services segment comprises the provision of
aircraft engineering services which include aircraft maintenance,
repair and overhaul services;
(c) the airport terminal services segment comprises the provision of
ground services which include check-in service, boarding service,
premium class lounge service, ramp service, luggage handling
service, loading and unloading services, cabin cleaning and
transit services; and
(d) the 'others' segment comprises the provision of air catering
services and other airline-related services.
Intersegment sales and transfers are transacted with reference to the
selling prices used for sales made to third parties at the then
prevailing market prices.
Business segments
An analysis of the Group's revenue and operating results by business
segment for the six months ended 30 June 2006 is as follows:
Airport
Airline Engineering terminal
operations services services Others Eliminations Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Sales to external
customers 19,385,010 203,968 218,827 123,102 - 19,930,907
Intersegment
sales - 343,730 - 38,224 (381,954) -
Total revenue 19,385,010 547,698 218,827 161,326 (381,954) 19,930,907
PROFIT FROM
OPERATIONS
Segment results 728,568 68,191 77,539 18,967 - 893,265
An analysis of the Group's revenue and operating results by business
segment for the six months ended 30 June 2005 is as follows:
Airport
Airline Engineering terminal
operations services services Others Eliminations Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE
Sales to external
customers 16,569,472 131,518 131,484 106,058 - 16,938,532
Intersegment
sales - 407,386 - 86,140 (493,526) -
Total revenue 16,569,472 538,904 131,484 192,198 (493,526) 16,938,532
PROFIT FROM
OPERATIONS
Segment results 1,213,647 96,697 61,945 25,056 - 1,397,345
Geographical segments
The following tables present the consolidated revenue by geographical
segment for the six months ended 30 June 2006 and 30 June 2005:
For the six months ended 30 June 2006
Asia
Hong Kong/ North Japan/ Pacific,
Domestic Macau Europe America Korea others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Unaudited) (Unaudited) (Unaudited)(Unaudited)(Unaudited)(Unaudited) (Unaudited)
REVENUE
Sales to external
customers and
total revenue 10,759,364 1,285,141 2,476,880 1,594,705 2,116,483 1,698,334 19,930,907
For the six months ended 30 June 2005
Asia
Hong Kong/ North Japan/ Pacific,
Domestic Macau Europe America Korea others Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
(Unaudited) (Unaudited) (Unaudited)(Unaudited)(Unaudited)(Unaudited) (Unaudited)
REVENUE
Sales to external
customers and
total revenue 8,521,194 1,165,547 2,321,126 1,326,233 2,047,609 1,556,823 16,938,532
3. AIR TRAFFIC REVENUE
Air traffic revenue comprises revenue from the airline operations
business and is stated net of business tax. An analysis of air traffic
revenue is as follows:
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Passenger 16,502,697 13,927,279
Cargo and mail 1,892,265 1,675,433
18,394,962 15,602,712
Pursuant to various PRC business tax rules and regulations, the Group
is required to pay business tax to the local tax bureaus at the
following rates:
Type of revenue Applicable business tax rate
Air traffic revenue 3% of air traffic revenue (all inbound
international and Hong Kong and Macau
regional flights are
exempted from business tax)
Other operating revenue 3% to 5% of other operating revenue
PRC business tax incurred for the six months ended 30 June 2006 and
2005, netted against air traffic revenue amounted to approximately
RMB428 million (unaudited) and RMB372 million (unaudited),
respectively.
4. OTHER OPERATING REVENUE
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Bellyhold income from a joint venture 699,904 711,910
Aircraft engineering income 203,968 131,518
Ground services income 218,827 131,484
General aviation income 80,278 94,522
Air catering income 62,335 65,539
Government grants:
(i) Recognition of deferred income 38,472 38,472
(ii)Others 57,551 9,676
Service charges on return of unused
flight tickets 48,086 34,502
Cargo handling service income 29,444 33,005
Sale of materials 5,595 5,839
Import and export service income 10,880 5,974
Training service income 9,437 9,832
Aircraft and related equipment lease income 561 14,834
Gain on disposal of items of property, plant and
equipment, net - 170
Others 70,607 48,543
1,535,945 1,335,820
5. PROFIT FROM OPERATIONS
The Group's profit from operations is arrived at after charging:
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Loss on disposal of items of property, plant and
equipment, net 9,021 -
Derecognition of unamortised major overhaul
costs in property, plant and equipment 71,427 222,000
Amortisation of lease prepayments 10,155 9,780
6. FINANCE REVENUE AND FINANCE COSTS
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Finance revenue
Exchange gains, net 200,422 175,459
Interest income 30,338 37,006
Gains on fuel derivatives, net 338,093 55,002
568,853 267,467
Finance costs
Interest expense 952,716 903,392
Less: Interest capitalized (43,243) -
909,473 903,392
The interest capitalisation rate represented the cost of capital from
raising the related borrowings and is approximately 4.5% (2005: Nil)
per annum.
7. 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 the rate of 17.5% (2005:
17.5%) on the estimated assessable profits arising in Hong Kong during
the period.
The determination of current and deferred income tax was based on
enacted tax rates. Major components of income tax charge are as
follows:
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Current income tax:
Current income tax charge
- Mainland China 25,115 50,204
- Hong Kong 6,673 4,604
Deferred income tax:
Relating to origination and reversal of
temporary differences 151,041 215,521
Income tax charge for the period 182,829 270,329
Share of tax attributable to joint ventures, which are accounted for
in the Group's consolidated financial statements through proportionate
consolidation, amounting to RMB21,307,000 (unaudited) (2005:
RMB29,303,000 (unaudited)) is included in the income tax charge for
the period.
Share of tax attributable to associates amounting to RMB5,343,000
(unaudited) (2005: RMB20,746,000 (unaudited)) is included in the
'Share of profits less losses from associates' on the face of the
unaudited condensed consolidated income statement.
8. DIVIDEND
In accordance with the articles of association of the Company, the net
profit after tax of the Company for the purpose of dividends payment
is based on the lesser of (i) the net profit determined in accordance
with the accounting principles and the financial regulations
applicable in Mainland China; and (ii) the net profit determined in
accordance with IFRSs.
The proposed final dividend for the year ended 31 December 2005 was
approved by the Company's shareholders on 12 June 2006.
The board of directors of the Company does not recommend the payment
of an interim dividend for the six months ended 30 June 2006 (six
months ended 30 June 2005: Nil).
9. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT
The calculation of basic earnings per share for the six months ended
30 June 2006 is based on the net profit attributable to equity holders
of the parent for the six months ended 30 June 2006 of approximately
RMB457,974,000 (unaudited) and 9,433,210,909 ordinary shares in issue
during the period.
The calculation of basic earnings per share for the six months ended
30 June 2005 is based on the net profit attributable to equity holders
of the parent for the six months ended 30 June 2005 of approximately
RMB591,253,000 (unaudited), and the weighted average number of
approximately 9,412,073,189 ordinary shares in issue during the
period, 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 the
period.
Diluted earnings per share amounts for the six months ended 30 June
2006 and 30 June 2005 have not been disclosed because no diluting
events existed during these periods.
B. Prepared in accordance with PRC Accounting Rules and Regulations ('PRC
GAAP')
Consolidated Income statement
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Revenue from principal operations 20,865,759 17,642,197
Less: Costs of principal operations 17,548,251 14,772,687
Taxes and surcharges on principal operations 521,200 432,495
Profit from principal operations 2,796,308 2,437,015
Add: Profit from other operations 142,420 125,280
Less: Operating expenses 1,074,902 877,492
Administrative expenses 896,529 793,380
Finance costs 739,020 743,346
Profit from operations 228,277 148,077
Add: Non-operating income 25,025 21,696
Subsidy income 57,552 9,677
Investment income/(losses) (26,213) 103,822
Less: Non-operating expenses 35,598 33,156
Total profit 249,043 250,116
Less: Income tax 46,014 119,696
Minority interests 55,749 97,004
Net profit 147,280 33,416
Consolidated Balance Sheet
30 June 31 December
2006 2005
RMB'000 RMB'000
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and bank balances 2,818,507 2,744,162
Accounts receivable 2,930,808 3,063,390
Other receivable 1,283,497 869,164
Prepayments 84,480 36,284
Interest receivables - 1,016
Subsidy receivables 201,120 107,460
Inventories 1,230,633 1,090,692
Deferred expenses 100,312 114,729
Total current assets 8,649,357 8,026,897
Long-term investments:
Long-term equity investments 2,314,902 2,316,815
Differences on equity investments 818,931 869,019
Long-term debt investments 48,509 48,995
Total long-term investments 3,182,342 3,234,829
Fixed assets:
Fixed assets, at cost 58,518,430 54,173,359
Less: Accumulated depreciation 8,356,733 6,247,726
Net book value of fixed assets 50,161,697 47,925,633
Less: Provisions for impairment in fixed assets 60 60
Net book value of fixed assets after impairment50,161,637 47,925,573
Construction-in-progress 9,678,929 9,368,638
Total fixed assets 59,840,566 57,294,211
Intangible assets 497,063 506,023
Total assets 72,169,328 69,061,960
30 June 31 December
2006 2005
RMB'000 RMB'000
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term loans 9,655,429 7,477,498
Bills payable 733,485 327,937
Accounts payable 5,321,738 5,003,444
Domestic air traffic liabilities 381,395 353,822
International air traffic liabilities 1,448,883 1,123,702
Receipts in advance 33,270 68,318
Wages payable 260,530 498,838
Welfare payable 202,088 217,804
Taxes payable 464,924 861,806
Other creditors 1,213,218 1,872,495
Dividend payable 147,905 -
Other payables 401,565 365,419
Accrued expenses 827,232 810,299
CAAC Infrastructure Development Fund payable 119,341 120,595
Long-term liabilities due within one year 5,377,900 5,133,430
Total current liabilities 26,628,903 24,235,407
Long-term liabilities:
Long-term loans 10,488,189 10,182,992
Corporate bonds 3,000,000 3,000,000
Long-term payables 1,058,261 953,097
Obligations under finance leases 8,444,754 8,078,671
Total liabilities 49,620,107 46,450,167
Minority interests 2,808,615 2,771,771
Shareholders' equity:
Share capital 9,433,211 9,433,211
Capital reserve 8,505,439 8,505,379
Revenue reserve funds 362,884 362,884
Including: Statutory public welfare fund 101,371 101,371
Retained profits 1,505,198 1,582,711
Exchanges differences arising on retranslation of
foreign currency denominated financial
statements (66,126) (44,163)
Total shareholders' equity 19,740,606 19,840,022
Total liabilities and shareholders' equity 72,169,328 69,061,960
Reconciliation of the Group's financial statements prepared in accordance
with PRC GAAP and IFRS
Reconciliation of net profit attributable to the Group under PRC GAAP and
IFRS:
Six months ended 30 June
2006 2005
RMB'000 RMB'000
(Unaudited) (Unaudited)
Net profit attributable to the Group recorded in
financial statements prepared under PRC GAAP 147,280 33,416
Deferred taxes (151,041) (215,521)
Effect on adjustment of costs of fixed assets (82,171) (82,195)
Effect of depreciation and amortisation arising
on revaluation of assets 249,836 251,754
Effect of amortisation of differences on equity
investment arising on investments in
Hong Kong Dragon Airlines Limited
('Dragonair') and Jardine Airport Services
Limited ('JASL') 22,308 22,307
Reversal of amortisation of differences on equity
investment on other investments 17,830 17,830
Early retirement benefits 7,116 2,891
Government grant (307) 8,672
Capitalisation of major overhaul expenses of
aircraft and engines 190,339 426,000
Others 56,784 126,099
Net profit attributable to the Group recorded
in financial statements prepared under IFRS 457,974 591,253
Reconciliation of equity attributable to the Group under PRC GAAP and
IFRS:
30 June 2006 31 December 2005
RMB'000 RMB'000
(Unaudited) (Audited)
Equity of the Group attributable to the
shareholders of the Company recorded
in the financial statements prepared
under PRC GAAP 19,740,606 19,840,022
Deferred taxes 347,330 498,371
Differences in net book value of fixed
assets equipment 970,403 1,052,574
Effect of asset revaluation (1,660,317) (1,910,153)
Unamortised differences on equity
investments in Dragonair and JASL 759,378 737,071
Early retirement benefits (182,025) (189,141)
Government grant (416,462) (416,155)
Capitalisation of major overhaul expenses
of aircraft and engines 498,397 311,058
Others 249,531 168,594
Equity of the Group attributable to the
shareholders of the Company recorded
in the financial statements prepared
under IFRS 20,306,841 20,092,241
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITIONS
Overview
The first half of 2006 was a crucial period for the Company. Despite the adverse
impact of the sustained surge in international jet fuel prices, the Company
maintained its leading position in the domestic aviation industry and made
substantial progress in strategic cooperation, broadening financing channels,
planning construction of hubs and routes as well as internal operation, which
laid solid foundation for the Company's further development and the realization
of its strategic goals.
In the first half of 2006, the Company and Air China Cargo totally completed
330,700 flight hours, representing an increase of 18.8% compared to the
corresponding period last year; the daily utilization of aircraft was 10.4
hours, representing an increase of 0.2 hour compared to the corresponding period
last year. Passenger traffic of 14.554 million persons and cargo and mail
traffic of 383,499 tonnes, representing an increase of 15.6% and 12.6%
respectively compared to the corresponding period last year, were also
completed. Passenger load factor was 73.8%, representing an increase of 1.9
percentage points compared to the corresponding period last year. The cargo and
mail load factor was 54%, representing an increase of 0.5 percentage point
compared to the corresponding period last year.
The Group generated revenue from air traffic businesses amounting to RMB18.395
billion, among which, revenue from passenger services was RMB16.503 billion,
representing an increase of 18.5% compared to the corresponding period last
year; revenues from cargo services was RMB1.892 billion, representing an
increase of 12.9% compared to the corresponding period last year. Under the
stern circumstances of sustained high oil price, the Company proactively took
measures to enhance efficiency and save fuel and comprehensively conducted cost
control management. The Company's current cost of traffic per tonne-kilometre is
RMB0.5 below the average cost among other domestic airlines. In the first half
of 2006, the Group generated profit of RMB458 million attributable to
shareholders and sustained its leading position among domestic airlines.
During the reporting period, the Company maintained a clean record of safe
operation. The incident sign rate per 10,000 flight hours was 0.09 (while it was
averagely 0.27 for the industry) and the material error rate per 10,000 flight
hours was 0.27, which enable Air China to maintain a leading position in the
industry in terms of safety.
Consolidated Profit Attributable to Equity Holders of the Company and Profit
from Operations
For the six months ended 30 June 2006, profit attributable to equity holders of
the Company amounted to RMB458 million, representing a decrease of 22.5%
compared to the same period in 2005; profit from operations was RMB893 million,
representing a decrease of 36.1% compared to the same period in 2005. The
decreases in profit attributable to equity holders of the Company and profit
from operations of the Group were mainly due to the rising jet fuel price.
The unaudited condensed consolidated interim financial statements include the
operating results of all subsidiaries of the Company. During the reporting
period, the share of net profits from associates was RMB108 million,
representing a decrease of 28.7% compared to the same period in 2005, primarily
due to the decrease in profits from three associates, namely Dragonair, Shandong
Aviation Group and Shandong Airlines.
Profit Contribution by Business Segment
For the six months
ended 30 June
2006 2005 Change
RMB'000 RMB'000 (%)
Airline operations 728,568 1,213,647 -40.0
Engineering services 68,191 96,697 -29.5
Airport terminal services 77,539 61,945 25.2
Others 18,967 25,056 -24.3
Profit from operations 893,265 1,397,345 -36.1
Earnings Per Share
For the six months ended 30 June 2006, the Group's earnings per share was
RMB0.049, representing a decrease of 22.2% compared to RMB0.063 for the same
period in 2005. This was mainly the result of a significant decrease in the
consolidated profit attributable to equity holders of the Company compared to
the same period last year due to the effect of rising jet fuel price.
Operating Revenue
For the six months ended 30 June 2006, the Group's operating revenue (including
air traffic revenue and other operating revenue) was RMB19.931 billion,
representing an increase of 17.7% compared to the same period in 2005. The
increasing demand in the domestic aviation market and the continuous expansion
of our transportation capacity made substantial contribution to the increase in
revenue from our airline operations. Revenue from passenger services of the
Group were subject to the seasonality of the aviation industry in the PRC. The
peak season of the aviation industry falls between July and October each year
with the highest demand for passenger services during that period. As such, the
Group's revenue from passenger services in the second half of the year is
generally higher than that in the first half.
Revenue Contribution by Business Segment
For the six months
ended 30 June
2006 2005 Change
RMB'000 RMB'000 (%)
Airline operations 19,385,010 16,569,472 17.0
Engineering services 203,968 131,518 55.1
Airport terminal services 218,827 131,484 66.4
Others 123,102 106,058 16.1
Operating revenue 19,930,907 16,938,532 17.7
For the six months ended 30 June 2006, revenue from engineering services
increased by 55.1%, primarily due to the increase in engineering work provided
to external parties; and revenue from airport terminal services increased by
66.4%, which was primarily due to the change in the settlement method of ground
services income in Beijing International Airport (from the previous
revenue-sharing to franchise fee).
Revenue Contribution by Geographical Segment
For the six months
ended 30 June
2006 2005 Change
RMB'000 RMB'000 (%)
Domestic 10,759,364 8,521,194 26.3
Hong Kong/Macau 1,285,141 1,165,547 10.3
Europe 2,476,880 2,321,126 6.7
North America 1,594,705 1,326,233 20.2
Japan/Korea 2,116,483 2,047,609 3.4
Asia Pacific, others 1,698,334 1,556,823 9.1
Operating revenue 19,930,907 16,938,532 17.7
The Group's operating revenue is mainly generated from airline operations and
the increase of 17.7% of operating revenue in the first half of 2006 was mainly
due to the significant increase of revenue from airline operations in the
domestic market.
Operating Expenses
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. For the
six months ended 30 June 2006, the Group's operating expenses amounted to
RMB19.038 billion, representing an increase of RMB3.496 billion or 22.5%
compared to the same period in 2005. Rising jet fuel costs was the main reason
for the increase in operating expenses. The rise in jet fuel costs was
attributable to the increased fuel consumption and the substantial increase in
jet fuel prices. The increase in aircraft maintenance, repair and overhaul
expenses was attributable to the addition of 9 aircrafts by operating lease and
significant increase in maintenance work.
Principal Operating Expenses
For the six months
ended 30 June
2006 2005 Change
RMB'000 RMB'000 (%)
Jet fuel 7,063,679 5,061,760 39.5
Take-off, landing and depot
charges 2,415,696 2,172,296 11.2
Depreciation 2,664,606 2,456,709 8.5
Aircraft maintenance, repairs
and overhauls 633,412 548,508 15.5
Employee compensation costs 1,670,027 1,413,632 18.1
Air catering expenses 653,836 610,343 7.1
Analysis of Assets
As at 30 June 2006, the Group had total assets of RMB71.509 billion,
representing an increase of 4.8% from 31 December 2005, in which the current
assets accounted for 14.9%, or RMB10.628 billion, while non-current assets
accounted for 85.1%, or RMB60.880 billion. Among the current assets, cash and
cash equivalents increased by 5.3% to RMB2.367 billion from 31 December 2005,
while trade receivables amounted to RMB2.728 billion, which was similar to that
of 31 December 2005. Among the non-current assets, properties, plant and
equipment amounted to RMB50.143 billion, representing an increase of 6.3% from
31 December 2005.
Assets Mortgage
As at 30 June 2006, the Group mortgaged certain aircrafts and properties with an
aggregate carrying amount of approximately RMB29.421 billion (compared with
RMB26.958 billion as at 31 December 2005) pursuant to certain loan and lease
agreements.
Debt Structure of the Group
(Unit: in RMB 100 million)
Obligations under
Bank borrowings finance leases
30 June 31 December 30 June 31 December
2006 2005 2006 2005
Repayable within 1 year 125.81 104.01 21.49 19.55
Repayable over 1 year 128.98 128.23 84.45 80.79
A significant portion of the Group's debts will fall due within one year. The
Group expects to meet its liabilities with bank loans, internal resources and
other resources as they fall due. The Group is not exposed to any insolvency
risk. Part of the proceeds from the issuance of A Shares will be used to repay
bank loans incurred for the payment of purchase price of aircrafts in previous
periods, which can help optimizing the debt structure of the Group.
Gearing Ratio
As at 30 June 2006, the Group's gearing ratio, which represents total
liabilities divided by total assets, was 69.6%, up 1.2 percentage point from
68.4% as at 31 December 2005. The proceeds from the issuance of A Shares will be
beneficial to reduce the gearing ratio of the Group.
Interest Expense
For the six months ended 30 June 2006, interest expense of the Group slightly
increased from RMB903 million in the same period last year to RMB909 million,
which was approximate to that of the previous year.
Interest Cover
For the six months ended 30 June 2006, earnings before finance revenue and
finance costs (including interest expense, interest income, exchange
gains/losses and net gains on fuel derivatives), enterprise income taxes, share
of profits less losses of associates and depreciation ('EBITDA') as computed
under IFRS, divided by interest expense, was 3.9 times, compared to 4.3 times
for the same period in 2005. The significant decrease in interest cover was
attributable to the significant decrease in operating profit resulting in a drop
in EBITDA.
Capital Commitments and Contingent Liabilities
As at 30 June 2006, capital commitments of the Group increased by 25.9% from
RMB38.514 billion as at 31 December 2005 to approximately RMB48.498 billion,
primarily due to commitments in the purchase of certain aircraft and relevant
flight equipment to be delivered in the coming years, and for the construction
of certain properties.
Details about contingent liabilities are set out in note 20 of the unaudited
condensed consolidated interim financial statements.
Liquidity and Capital Resources
The Group finances its working capital needs through cash inflows from operating
activities and bank loans. Like many other airlines in the PRC, the Group has
been operating with a net current liabilities position. As at 30 June 2006 and
31 December 2005, net current liabilities of the Group were RMB15.514 billion
and RMB16.006 billion, respectively. The increase in net current liabilities was
primarily due to an increase in bank loans.
Capital Expenditure
For the six months ended 30 June 2006, the capital expenditure of the Company
amounted to RMB3.836 billion. The Company's total investment in aircraft was
RMB3.223 billion, including a prepayment of RMB1.392 billion for purchasing
aircrafts from 2006 onwards.
The capital expenditure incurred for other investments was RMB613 million, which
mainly involved the improvement of first class and business class cabins of
certain aircrafts and other infrastructure investments projects such as Air
China base project, ancillary projects of the No. 3 Terminal of Beijing
International Airport as well as certain long-term external investment.
Objective and Policy of Financial Risk Management
The Group is exposed to the fluctuations in jet fuel price during its ordinary
operations. International jet fuel prices have been historically, and will in
the future continue to be, subject to price volatility and fluctuations in
supply and demand. The Group's strategy for managing its jet fuel price risk
aims to provide itself with protection against sudden and significant price
increases. Subject to the applicable laws of the PRC, the Group started to
engage in fuel hedging transactions in March 2001. The subjects of hedging
instruments were mainly Singapore jet fuel and Brent crude oil derivatives that
are closely linked to jet fuel. In the first half of 2006, the Group applied
hedging to 39.4% of the spot jet fuel procured during the period, and the net
gain on jet fuel derivatives was RMB338 million.
The Group adopted 'natural immunity' method to achieve a matching structure of
income and expenses by adjusting the proportion of its liabilities in foreign
currencies. The Company will continue to avoid exposure to the risk of exchange
rate fluctuation by adopting a strategy that matches the income and payment in
certain principal currencies. In the first half of 2006, the Group's net
exchange gains amounted to RMB200 million.
Outlook for 2006
The Company will use its best efforts to actively achieve its strategic goals
and fulfill its promise to the shareholders and become one of the most
recognized mainstream airlines in the PRC, as well as being the leading airlines
company in terms of value, profitability and international competitiveness.
Despite the high pressure caused by the cost of jet fuel prices, along with the
continuous development of China's economy and the rapid growth of aviation
industry, the Company will continue to improve the Company's strategic
positioning, operational workflow and internal management by means of strategic
co-operation, cost control and operational efficiency improvement to keep the
Company's healthy profitability.
REPURCHASE, SALE OR REDEMPTION OF THE COMPANY'S SECURITIES
Neither the Company nor any of its subsidiaries had purchased, sold or redeemed
any of the listed securities of the Company in the first half of 2006.
INTERIM DIVIDEND
No interim dividend will be paid for the six months ended 30 June 2006. The
undistributed profit will be accumulated for a one-off payment by year end. It
is currently expected that the distribution ratio will range from 15% to 30% of
the distributable profit.
MATERIAL EVENTS
On 22 May 2006, The Company entered into a memorandum of understanding with the
Star Alliance, and formally declared its intention to join the Star Alliance and
started to make comprehensive preparation to satisfy 57 conditions prior to
joining the Star Alliance in the access period.
On 8 June 2006, the Company, Cathay Pacific Airways Limited ('Cathay'), China
National Aviation Company Limited ('CNAC Limited'), CITIC Pacific Limited
('CITIC Pacific') and Swire Pacific Limited ('SPAC') entered into a
restructuring agreement, in respect of which a joint announcement was made.
Pursuant to the agreement, the parties reached agreements in the following
issues: SPAC and CITIC Pacific will sell approximately 40.13 million and
approximately 359 million Cathay Shares to the Company at a price of HK$13.50
per share, respectively; Cathay will subscribe for approximately 1,179 million
additional issued H shares of the Company at a price of HK$3.45 per share;
Cathay will acquire 82.21% Dragonair Shares that Cathay did not hold at an
aggregate price of HK$8.221 billion. Upon the completion of transactions, CNAC
Limited will receive 289 million additional issued Cathay Shares and HK$433
million in cash. Upon the completion of the aforesaid transactions, the Company
and CNAC Limited will directly hold shareholdings in Cathay as to 10.16% and
7.34%, respectively, by which the Company will become the substantial
shareholder of Cathay.
On 21 June 2006, the Company and CNAC jointly announced that after the
completion of the abovementioned restructuring agreement, Air China will launch
the privatisation of CNAC at a price of HK$2.80 in cash per CNAC share. If the
privatisation is approved and implemented successfully, the Company will at most
pay HK$3.227 billion for the privatisation, and CNAC will then become the
Company's wholly owned subsidiary and be delisted.
POST BALANCE SHEET EVENTS
On 9 August 2006, the Company successfully issued 1,639,000,000 A shares of
RMB2.8 each in mainland China, which were listed on the Shanghai Stock Exchange
on 18 August 2006. CNAHC, the controlling shareholder of the Company, has
undertaken that upon the listing and trading of A shares on Shanghai Stock
Exchange and up to 31 December 2006, CNAHC will, subject to the market price of
A shares falling below the issue price, increase its shareholding by acquiring
shares through the secondary market at a price not lower than the then market
price of A shares in accordance with relevant regulatory requirements so as to
restore the price of A shares to the issue price and the accumulated increase in
shareholding of CNAHC will not exceed 600 million A shares. On 17 August 2006,
the China Securities Regulatory Commission granted a waiver to CNAHC in respect
of its obligation to make a general offer arising from the abovementioned
potential increase of shareholding.
On 22 August 2006, the Company's extraordinary general meeting, foreign
shareholders class meeting, and domestic shareholders class meeting passed the
resolutions in connection with the afore-mentioned restructuring agreement in
respect of restructuring of shareholdings among the Company, Cathay, CNAC, CITIC
Pacific and SPAC, which will be implemented upon approval from the relevant
authorities.
On 29 August 2006, the Company successfully issued short-term commercial papers
with an amount of RMB2 billion in Mainland China to institutional investors in
the inter-bank bond market. The Company intends to use the proceeds from the
above issuance for its working capital and to optimize its whole debt structure.
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 (the 'Code') contained in Appendix 14 to the
Rules Governing the Listing of Securities on the Stock Exchange of Hong
Kong Limited (the 'Listing Rules') throughout the first half of 2006,
except for the following deviations:
Relevant code provision Deviation and considered reasons or
subsequent compliance
1 Code provision A.1.3 The board of the Company notifies directors for
requires, a prior notice board meetings 10 days before the date of the
of at least 14 days meeting. The Company's above practice of notice
shall be given to all of meeting is due to, according to PRC regulations,
directors to attend a ten-day prior notice to directors is enough.
regular board meetings.
Artice 98 of the Company's Articles of Association
was amended to allow board meetings (other than
extraordinary board meetings) to be held with a
14-day prior written notice to all directors. The
amendment to the Articles of Association was
approved in the extraordinary general meeting held
on 28 March 2006 and will become effective after
relevant approval is obtained.
2 Code provision E.1.2 Mr. Li Jiaxiang, Our Chairman, had to attend the
requires, among other signing ceremony for the Framework Agreement
things, the chairman of with Boeing and was therefore unable to attend
the board should attend the 2005 annual general meeting of the Company.
the annual general
meeting.
2. Compliance with the Model Code
The Company adopted its own code of conduct regarding directors' securities
transactions on terms no less exacting than the required standards set out
in the Model Code. After having made specific enquiry, the Company confirms
that all of its directors and supervisors have complied with the required
standard set out in the Model Code contained in Appendix 10 to the Listing
Rules throughout the first half of 2006.
The Company's own code also applies to its supervisors and relevant
employees. CNAC, which is a subsidiary of the Company listed in Hong Kong,
confirms that all of its directors have complied with the required standard
set out in the Model Code throughout the first half of 2006.
DISCLOSURE REQUIRED BY HONG KONG STOCK EXCHANGE LISTING RULES
In compliance with paragraph 46 of Appendix 16 to the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited (the 'Listing
Rules'), the Company confirms that, save as disclosed herein, there has been no
material change in the existing information regarding the Company in relation to
those matters set out in paragraph 46(3) of Appendix 16 to the Listing Rules
from the information in relation to the matters disclosed in the 2005 Annual
Report of the Company
REVIEW BY AUDIT COMMITTEE
The audit committee of the Company has reviewed the interim report for the six
months ended 30 June 2006 and the Company's unaudited condensed consolidated
interim financial statements and the accounting policies and practices adopted
by the Group.
By order of the Board
Air China Limited
Zheng Baoan Li Man Kit
Joint Company Secretaries
Beijing, 31 August 2006
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
This information is provided by RNS
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