Air China Regulatory News (AIRC)

24 Jul 2006 07:02

Air China Ld24 July 2006 The Stock Exchange of Hong Kong Limited takes no responsibility for the contentsof this announcement, makes no representation as to its accuracy or completenessand expressly disclaims any liability whatsoever for any loss whatsoever arisingfrom or in reliance upon the whole or any part of the contents of thisannouncement. AIR CHINA LIMITED (a joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock Code: 753) Proposed A Share Issue SUMMARY Proposed A Share Issue In connection with the Company's proposed A Share Issue, the Company hassubmitted a draft of the A Share Prospectus to the CSRC in support of theCompany's application. The A Share Prospectus will contain consolidatedfinancial information of the Group for the Relevant Periods prepared under PRCGAAP and has been available for investing public's review on the CSRC's websitesince the late afternoon of 21 July 2006. To enable shareholders and investorsto better understand the material differences between the consolidated financialinformation of the Group for the Relevant Periods prepared under IFRS (the basison which the figures in the accountants' report, and the figures in theconsolidated financial statements incorporated in the Company's published annualreports for the years ended 31 December 2004 and 2005 were prepared) and thoseprepared under PRC GAAP, this announcement presents the consolidated financialinformation of the Group for the Relevant Periods prepared under PRC GAAP and areconciliation of the Net Profit/Net Assets, each attributable to equity holdersof the Company prepared under IFRS to those prepared under PRC GAAP. 1. PROPOSED A SHARE ISSUE Reference is made to the section headed "Proposed A Share Issue" in theCompany's circular dated 13 February 2006 (the "Circular"). The proposed A Share Issue will comprise the allotment and issue of not morethan 2.7 billion A Shares to institutional and public investors in the PRC. Theoffer price for the proposed A Share Issue will be determined based on the PRCsecurities market conditions at the time when the A Share Issue takes place andin accordance with the applicable CSRC regulations. The offer price will not belower than 90% of the average closing price of the Company's H Shares on theHong Kong Stock Exchange during the Price Consultation Period of the A ShareIssue. The proposed A Share Issue is subject to the approval of the relevant regulatoryauthorities (including the CSRC) and hence, there is no assurance that theproposed A Share Issue will proceed. Shareholders and investors are advised toexercise caution in dealing in the H Shares. Further details of the A Share Issue will be disclosed by the Company in thenewspapers in the PRC when the A Share Issue materialises and, in accordancewith the Listing Rules, relevant information will be disclosed by the Company inthe newspapers in Hong Kong concurrently. The precise timing of the A Share Issue would depend on a number of factors.Subject to obtaining the relevant approvals and market conditions, the Companyintends to proceed with the A Share Issue as soon as possible. 2. CONSOLIDATED FINANCIAL INFORMATION PREPARED UNDER PRC GAAP FOR THERELEVANT PERIODS AND RECONCILIATION OF NET PROFIT/NET ASSETS OF THE GROUPPREPARED UNDER PRC GAAP TO THE NET PROFIT/NET ASSETS ATTRIBUTABLE TO EQUITYHOLDERS OF THE COMPANY PREPARED UNDER IFRS As part of the submission that the Company has made to the CSRC applying forapproval for the A Share Issue, a draft of the A Share Prospectus was alsosubmitted to the CSRC which contains consolidated financial information of theGroup for the Relevant Periods prepared under PRC GAAP. The A Share Prospectushas been available for review by the investing public on CSRC's website sincethe late afternoon of 21 July 2006. To enable shareholders and investors to better understand the materialdifferences between the consolidated financial information of the Group for theRelevant Periods prepared under IFRS (the basis on which the figures in theaccountants' report, and the figures in the consolidated financial statementsincorporated in the Company's published annual reports for the years ended 31December 2004 and 2005 were prepared) and those prepared under PRC GAAP, theconsolidated financial information of the Group for the Relevant Periodsprepared under PRC GAAP and a reconciliation of the Group's Net Profit/NetAssets, each attributable to equity holders of the Company prepared under IFRSand PRC GAAP are set out as follows. Consolidated Net Profit of the Group for the Relevant Periods as of 31 December2004 and 2005 prepared under PRC GAAP For the year ended/as of 31 December 2005 2004 2003 RMB RMB RMB Revenue from principal operations 40,081,238,004 34,845,699,600 24,446,735,653Less:CAAC InfrastructureDevelopment Fund - - 247,177,609 Net revenue 40,081,238,004 34,845,699,600 24,199,558,044Less:Cost of principal operations 32,014,850,658 26,016,601,301 19,175,577,433Business tax and surcharges 971,425,138 861,075,289 271,594,997 Profit from principal operations 7,094,962,208 7,968,023,010 4,752,385,614Add:Profit from other operations 222,005,075 92,810,278 345,030,489Less:Selling expenses 2,232,450,843 1,813,692,714 1,446,320,857Administrative expenses 1,853,179,616 1,744,115,889 1,234,270,169Financial expenses 840,048,430 1,806,323,386 2,479,073,187 Operating profit/(loss) 2,391,288,394 2,696,701,299 (62,248,110)Add:Non-operating income 146,121,832 117,864,650 61,652,216Subsidy income 52,784,421 112,333,024 70,723,364Investment income 69,538,653 426,444,967 124,962,198Less:Non-operating expenses 101,161,523 130,341,054 35,111,953 Profit before income tax 2,558,571,777 3,223,002,886 159,977,715Less:Income tax 642,353,985 381,069,423 20,065,489Minority interests 206,930,837 280,992,846 (75,517,197) Net profit for the year1 1,709,286,955 2,560,940,617 215,429,423 1. Net profit for the year as used by the Group under PRC GAAP iscomparable to net profit of the Group attributable to equity holders of theCompany under IFRS. Consolidated Net Assets of the Group as of 31 December 2004 and 2005 preparedunder PRC GAAP Total assets 69,061,959,812 67,846,183,680Total liabilities 46,450,167,333 48,174,419,724Minority interests 2,771,770,238 2,658,067,993Net assets attributable to equity holders of the Company 19,840,022,241 17,013,695,963 Reconciliation of the financial statements of the Group prepared under PRC GAAPand IFRS Net profit of the Group attributable to equity holders of the Company For the year ended 31 December 2005 2004 2003 Notes RMB RMB RMB According to the financialstatements prepared under PRC GAAP 1,709,286,955 2,560,940,617 215,429,423Deferred taxes (i) (277,713,317) (607,823,621) (33,846,798)Dilution gains on investments (ii) - 410,136,740 -Impact of difference in cost offixed assets on depreciation (iii) (164,391,052) (172,263,978) (173,157,510)Depreciation and amortisationarising from the revaluation of assets (iv) 535,663,228 200,617,456 -Amortisation of equity investment (v) 44,614,415 45,961,035 45,961,035differences arising from theinvestments in Hong Kong DragonAirlines Limited and JardineAirport Services LimitedAmortisation of equity investment differences arising from other (vi) 35,651,996 8,947,960 -investmentsSupplementary pension benefits (vii) - 39,135,890 53,928,000paymentsProvision for early retirement benefits obligations (viii) 6,046,599 3,409,230 (15,271,937)Gain/(loss) on financial (ix) 125,867,987 (28,000,000) 69,000,000instrumentsAdjustment for difference inexchange gain recognised (x) - (17,525,813) -Adjustment for government grants (xi) 6,417,376 (13,943,074) (15,072,819)Net profit of BJ Catering and SW (xii) - 9,205,000 18,994,673CateringAdjustment for sharing of profits/(losses) of associates (xiii) 53,409,088 (7,311,406) 33,291,074Adjustment for capitalisation ofmajor overhaul of aircraft and engines (xiv) 311,058,311 - -Others 20,342,633 (45,521,867) (39,651,078) According to the financialstatements prepared under IFRS 2,406,254,219 2,385,964,169 159,604,063 Net assets of the Group attributable to equity holders of the Company As at 31 December 2005 2004 Notes RMB RMB According to the financial statements prepared under PRC GAAP 19,840,022,241 17,013,695,963Deferred taxes (i) 498,371,108 776,084,425Difference in net book value of fixed assets (iii) 1,052,573,801 1,216,964,853Impact of revaluation surplus on net assets as at year end (iv) (1,910,152,700) (2,445,815,928)Equity investment differences and its amortization arising from the investments in Hong Kong Dragon Airlines Limited and Jardine Airport Services Limited (v) 737,070,707 692,456,292Provision for early retirement benefits obligations (viii) (189,141,437) (195,188,036)Difference on net asset value of financial instruments (ix) 125,867,987 -Adjustment for difference in exchange gain recognised (x) - -Adjustment for government grants (xi) (416,154,898) (422,572,274)Adjustment for net asset value of catering companies (xii) - (165,582,661)Adjustment for sharing of net asset value of associates (xiii) 122,558,451 69,149,363Adjustment for capitalisation of major overhaul of aircraft and engines (xiv) 311,058,311 -Others (79,832,747) 9,063,283 According to the financial statements prepared under IFRS 20,092,240,824 16,548,255,280 Notes: i. In accordance with IFRS, deferred taxes should be recorded. Inaccordance with PRC GAAP, the Company records corporate income tax when it ispayable. Hence, no deferred taxes are recognised in the financial statementsprepared under PRC GAAP. ii. In accordance with PRC GAAP, for the purpose of establishing a companytogether with other investors, the valuation surplus of the assets contributedto that company as capital contribution should be recorded as capital reserve.In accordance with IFRS, such surplus should be recognised in the incomestatement. Hence, the Group recorded a dilution gain of RMB330,221,877 oninvestment in Air China Cargo Co., Ltd. for the year ended 31 December 2004. In addition, in accordance with the basis of preparation of financialstatements under IFRS (note xii below), BJ Catering and SW Catering areaccounted for as directly-held joint ventures of the Company up to November 2004whereby the Company transferred the equity interests in BJ Catering and SWCatering to a wholly-owned subsidiary of China National Aviation CompanyLimited, a subsidiary of the Company. Thereafter, BJ Catering and SW Cateringbecome indirect joint ventures of the Company and this resulted in a dilutiongain of RMB79,914,863. However, in accordance with the basis of preparation offinancial statements under PRC GAAP, the acquisitions of shareholdings in BJCatering and SW Catering by cash under acquisition method were completed inNovember 2004. Hence, no dilution gain was recognised in the financialstatements prepared under PRC GAAP. iii. The difference in the original cost of fixed assets is mainly due tothe fact that fixed assets, denominated in foreign currency, acquired before 1January 1994 were translated to RMB at the exchange rate required by thegovernment (i.e. the government-regulated official rate at that time) under PRCGAAP. In accordance with IFRS, swap centre rate obtained from the PRC foreignexchange swap centre at the date of purchase of the aforesaid fixed assets wasused to translate the fixed asset amount. This resulted in a difference in theoriginal cost of the fixed assets recorded in the financial statements preparedunder PRC GAAP and the financial statements prepared under IFRS. iv. In accordance with the accounting policy established under IFRS, assetsshould be recorded at historical cost. Hence, the revaluation surplus and itsamortisation recorded under PRC GAAP should be reversed in the financialstatements prepared under IFRS. v. The amortisation of equity investment differences arising from theinvestments in Hong Kong Dragon Airlines Limited and Jardine Airport ServicesLimited recognised under PRC GAAP should be reversed under IFRS. vi. The amortisation of equity investment differences arising from theacquisitions of the shareholdings in three catering companies, Shandong AviationGroup Corporation and Shandong Airlines Co., Ltd. should be reversed under IFRS. vii. Upon incorporation of the Company, the Company's employees are nolonger entitled to any supplementary pension benefits. Hence, prior to theincorporation of the Company, the cash payments of all supplementary pensionbenefits (the amount in excess of the defined contribution pension benefits paidto the social insurance authorities) made to employees should be reversed in thefinancial statements prepared under IFRS. viii. In accordance with IFRS, early retirement benefits obligations shouldbe fully provided and recognised immediately as and when the employees apply forearly retirement. There is no such requirement under PRC GAAP. ix. In accordance with IFRS, the financial assets and financial liabilitiesarising from fuel derivatives contracts should be measured and recorded at fairvalues on the balance sheet date. There is no such requirement under PRC GAAP. x. In accordance with IFRS, the exchange gain arising from the unificationof PRC exchange rates on 1 January 1994 was recognised by Aircraft Maintenanceand Engineering Corporation, Beijing in its income statement. In accordance withthe regulation under PRC GAAP, such exchange gain could be carried on thebalance sheet as a long term payable and recognised as a gain upon theliquidation of the company. The joint venture agreement of Aircraft Maintenanceand Engineering Corporation, Beijing was matured in 2004 and hence AircraftMaintenance and Engineering Corporation, Beijing recognised the exchange gain inits income statement in 2004 prior to the extension of the joint ventureagreement in 2004 as if the original joint venture agreement was finished. xi. In accordance with IFRS, government grant of assets and subsidiesshould be recorded as government grant receivable or recognised as assets. Inaddition, deferred income should be recognised on the balance sheet and incomeshould be recognised in the income statement on a straight-line basis. Inaccordance with PRC GAAP, upon the receipt of government grant of assets, assetsand capital reserve should be recorded on the balance sheet. Cash subsidy incomereceived from the government should be recorded in cash and bank balance on thebalance sheet and recognised as income in the income statement when received. xii. In accordance with the basis of preparation of financial statementsunder IFRS, as the shareholdings of BJ Catering and SW Catering were ultimatelyowned by China National Aviation Holding Company, the shareholdings in BJCatering and SW Catering were considered to have been held by the Company from 1January 2003 in the financial statements prepared under IFRS. In accordance with PRC GAAP, the Company only completed theacquisitions of the shareholdings in BJ Catering and SW Catering by cash inNovember 2004. Hence, the shareholdings in BJ Catering and SW Catering wereconsidered to have been held from November 2004 in the preparation of thefinancial statements under PRC GAAP. xiii. Adjustments were made to the financial statements of associates inaccordance with IFRS. xiv. In accordance with IAS 16 (amended 2004), major overhaul of aircraft andengines should be capitalised and depreciated. 3. Future Significant Capital Expenditure Plan The following table sets out the current projected capital expenditure plan ofthe Company from 2006 to 2008: In RMB million 2006 2007 2008 Total Fleet Expansion and Enhancement 9,356 9,739 12,589 31,684Others 2,401 1,511 1,321 5,233Total 11,757 11,250 13,910 36,917 The Company currently projects that it will incur capital expenditure ofapproximately RMB36,900,000,000 before the end of 2008, of which approximatelyRMB31,700,000,000 will be used for the fleet expansion and enhancement of theCompany. DEFINITIONS In this announcement, unless the context otherwise requires, the following termsshall have the following meanings: "A Share Issue" the proposed issue of not more than 2.7 billion A Shares by Company to qualified institutional investors as approved by CSRC and investors including domestic individuals, legal persons and etc. who have opened accounts at the Shanghai Stock Exchange (except those prohibited from subscribing for the shares by the applicable laws and regulations at the time of the A Shares Issue), which are proposed to be listed on the Shanghai Stock Exchange "A Shares" the Domestic Shares which are proposed to be allotted and issued by the Company to qualified institutional investors as approved by CSRC and investors including domestic individuals, legal persons and etc. who have opened accounts at the Shanghai Stock Exchange (except those prohibited from subscribing for the shares by the applicable laws and regulations at the time of the A Shares Issue) and listed on the Shanghai Stock Exchange "BJ Catering" Beijing Air Catering Co., Ltd. "Company" Air China Limited, a company incorporated in the People's Republic of China with primary listing on The Stock Exchange of Hong Kong Limited and secondary listing on the Official List of the UK Listing Authority "CSRC" China Securities Regulatory Commission "Director(s)" the director(s) of the Company "Group" the Company, its subsidiaries and joint ventures "H Shares" overseas listed foreign shares of RMB1.00 each in the share capital of the Company which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars and admitted to the Official List of the UK Listing Authority and are admitted for trading on the market for listed securities of the London Stock Exchange "Hong Kong Stock Exchange" The Stock Exchange of Hong Kong Limited "IFRS" International Financial Reporting Standards "Listing Rules" The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited "PRC" the People's Republic of China, excluding, for the purpose of this circular only, Hong Kong, Macau and Taiwan "PRC GAAP" Accounting principles and the financial regulations applicable in the PRC "Price Consultation Period" the period commencing from the date the Company makes the preliminary offer document relating to the A Share Issue publicly available and ending on the date on which the book building process with the institutional investors is completed "Relevant Periods" means the years ended 31 December 2003, 2004 and 2005 "RMB" Renminbi, the lawful currency of the PRC "Shareholders" holders of Domestic Shares, Non-H Foreign Shares and H Shares "SW Catering" Southwest Air Catering Company Limited By order of the Board Air China Limited Zheng Baoan Li Man Kit Joint Company Secretaries Beijing, 24 July 2006 As at the date of this announcement, the Directors of the Company are Messrs LiJiaxiang, Kong Dong, Wang Shixiang, Yao Weiting, Christopher Dale Pratt, MaXulun, Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* andJia Kang*. * Independent non-executive Director of the Company This information is provided by RNS The company news service from the London Stock Exchange