Close

Form 6-K CHINA SOUTHERN AIRLINES For: Apr 27

April 27, 2022 7:57 AM EDT

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

April 27, 2022

 

 

CHINA SOUTHERN AIRLINES COMPANY LIMITED

 

 

68 Qi Xin Road

Guangzhou, 510403

People’s Republic of China

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ☐            No  ☒

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

 

 

 


China Southern Airlines Company Limited (the “Company”) published the following announcements on April 25, 2022 on the Hong Kong Stock Exchange’s website at:

https://www1.hkexnews.hk/listedco/listconews/sehk/2022/0425/2022042501459.pdf, in relation to the annual report 2021; and

https://www1.hkexnews.hk/listedco/listconews/sehk/2022/0425/2022042501554.pdf, in relation to the notification letter.

The announcements in English are included as exhibits to this Form 6-K.

Certain statements contained in these announcements may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company’s filings with the U.S. Securities and Exchange Commission. You should not place undue reliance on these forward-looking statements. All information provided in this announcement is as of the date of this announcement, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

CHINA SOUTHERN AIRLINES COMPANY LIMITED
By:  

/s/ Xie Bing

Name:   Xie Bing
Title:   Company Secretary

Date: April 27, 2022

Exhibit 99.1

CONTENTS

 

About Us

 

2

Definitions

 

4

Corporate Profile

 

6

Corporate Information

Operating Results

 

9

Principal Accounting Information and Financial Indicators

 

17

Highlights of the Year

 

20

Management Discussion and Analysis

Corporate Governance

 

53

Report of Directors

 

75

Changes in the Share Capital, Shareholders’ Profile and Disclosure of Interests

 

83

Directors, Supervisors, Senior Management and Employees

 

97

Corporate Governance Report

 

111

Environmental and Social Responsibility

 

119

Important Matters

 

136

Related Information of Bonds

 

150

Risk Management and Internal Control

Financial Report

Financial Statements Prepared under International Financial Reporting Standards

 

155

Independent Auditor’s Report

 

160

Consolidated Income Statement

 

161

Consolidated Statement of Comprehensive Income

 

162

Consolidated Statement of Financial Position

 

164

Consolidated Statement of Changes in Equity

 

165

Consolidated Cash Flow Statement

 

166

Notes to the Financial Statements

 

274

Supplementary Financial Information

 

277

Five Year Summary

 

 

1


DEFINITIONS

Unless the context otherwise requires, the following terms should have the following meanings in this report:

 

Company, CSA, China Southern Airlines    China Southern Airlines Company Limited
Group    China Southern Airlines Company Limited and its subsidiaries
CSAH    China Southern Air Holding Company Limited
Xiamen Airlines    Xiamen Airlines Company Limited
Guizhou Airlines    Guizhou Airlines Company Limited
Zhuhai Airlines    Zhuhai Airlines Company Limited
Shantou Airlines    Shantou Airlines Company Limited
Chongqing Airlines    Chongqing Airlines Company Limited
Henan Airlines    China Southern Airlines Henan Airlines Company Limited
CSAGA    China Southern Airlines General Aviation Limited
Hebei Airlines    Hebei Airlines Company Limited
Jiangxi Airlines    Jiangxi Airlines Company Limited
Finance Company    China Southern Airlines Group Finance Company Limited
Logistics Company    China Southern Air Logistics Company Limited
CSAGPMC    China Southern Airlines Group Property Management Company Limited
Nan Lung    Nan Lung Holding Limited
SACC    Shenzhen Air Catering Co., Ltd.
SACM    Southern Airlines Culture and Media Co., Ltd.
SPV    Special Purpose Vehicles exclusively set up by China Southern Airlines and its subsidiaries for leased aircraft
Sichuan Airlines    Sichuan Airlines Co., Ltd.
PRC    The People’s Republic of China
CSRC    China Securities Regulatory Commission
NDRC    National Development and Reform Commission
SASAC    State-owned Assets Supervision and Administration Commission of the State Council
CAAC    Civil Aviation Administration of China
IATA    International Air Transport Association

 

2


Daxing Airport    Beijing Daxing International Airport
SSE    Shanghai Stock Exchange
Stock Exchange    The Stock Exchange of Hong Kong Limited
Articles of Association    Articles of Association of China Southern Airlines Company Limited
Listing Rules    The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Model Code    The Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Corporate Governance Code    Corporate Governance Code as set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
SFO    Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)
Available Seat Kilometers or “ASK”    the number of seats available for sale multiplied by the kilometers flown
Available Tonne Kilometers or “ATK”    the number of tonnes of capacity available for the transportation multiplied by the kilometers flown
Available Tonne Kilometers – passenger    the number of tonnes of capacity available for the carriage of passenger multiplied by the kilometers flown
Available Tonne Kilometers – cargo    the number of tonnes of capacity available for the carriage of cargo and mail multiplied by the kilometers flown
Revenue Passenger Kilometers or “RPK”    i.e. passenger traffic volume, the number of passengers carried multiplied by the kilometers flown
Revenue Tonne Kilometers or “RTK”    i.e. total traffic volume, the load (passenger and cargo) in tonnes multiplied by the kilometers flown
Revenue Tonne Kilometers – cargo or “RFTK”    i.e. cargo and mail traffic volume, the load for cargo and mail in tonnes multiplied by the kilometers flown
Revenue Tonne Kilometers – passenger    the load for passenger in tonnes multiplied by the kilometers flown
Aircraft Utilization Rate    Flight hours that aircraft can service during specified time
Passenger Load Factor    RPK expressed as a percentage of ASK
Overall Load Factor    RTK expressed as a percentage of ATK
Yield per RPK    revenue from passenger operations divided by RPK
Yield per RTK    revenue divided by RTK
Yield per RFTK    revenue from cargo and mail operations divided by RFTK

 

3


CORPORATE PROFILE

Guangzhou and Beijing

Two comprehensive international hubs

The Group’s fleet size ranked first in Asia and at the forefront of the world.

The Company’s headquarters is located in Guangzhou. It has 18 branches in Beijing, Shenzhen, and other cities and 8 holding aviation subsidiaries including Xiamen Airlines. The Company has set up CSAGA in Zhuhai, and has set up 21 domestic offices in Hangzhou, Qingdao and other places, and 53 overseas offices in Sydney, New York and other places. By the end of the reporting period, the Group has operated a total of 878 passenger and cargo transport aircraft including Boeing 787, 777, 737 series, Airbus 380, 350, 330, 320 series and ARJ21. The Group’s fleet size ranked first in Asia and at the forefront of the world. The Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from the CAAC, in June 2018.

 

4


In recent years, the Company has striven to construct two comprehensive international hubs in Guangzhou and Beijing, and a network-based airline has gradually taken shape. In 2021, the Company continued to drive the high quality development of Beijing hub and developed six express routes including the Guangzhou-Shenzhen-Chengdu route. The market share of Daxing Airport reached 45.9%. Meanwhile, the Company continued to strengthen the integrated construction of the Guangdong-Hong Kong-Macao Greater Bay Area, consolidate and intensify market control in the Guangdong-Hong Kong-Macao Greater Bay Area. The market share of domestic departure capacity in Guangzhou, Shenzhen, Zhuhai and Huizhou reached 38%. The Company actively developed the Pearl River Delta hub airport. The Company accelerated the strategy in Hainan Free Trade Port, consolidated and intensified market control in the major cities in Hainan, and promoted the landing of the industrial projects.

 

5


CORPORATE INFORMATION

 

Chinese Name:    中國南方航空股份有限公司
Chinese Short Name:    南方航空
English Name:    China Southern Airlines Company Limited
English Short Name:    CSN
Legal Representative:    Ma Xu Lun
Registered Address:    Unit 301, 3/F, Office Tower Guanhao Science Park Phase I, 12 Yuyan Street, Huangpu District, Guangzhou, Guangdong Province, PRC
Contact Address:    China Southern Air Building, 68 Qixin Road, Baiyun District, Guangzhou, Guangdong Province, PRC
Place of Business in Hong Kong:    Unit B1, 9th Floor, United Centre, 95 Queensway, Hong Kong
Website of the Company:    www.csair.com
Telephone:    +86-20-86112480
Fax:    +86-20-86659040
E-mail:    [email protected]
APP:    China Southern Airlines
WeChat Official Account:    China Southern Airlines
Sina Weibo:    http://weibo.com/csair
WeChat QR Code:    LOGO
Place of Listing of A Shares:    SSE
Short Name of A Shares:    南方航空
Stock Code of A Shares:    600029
A Share Registrar:   

China Securities Depository and Clearing Corporation Limited, Shanghai Branch

Floor 36, China Insurance Building, 166 Lu Jia Zui East Road, Shanghai, PRC

Place of Listing of H Shares:    The Stock Exchange
Short Name of H Shares:    China South Air

 

6


Stock Code of H Shares:    01055
H Share Registrar:   

Hong Kong Registrars Limited

17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong

Place of Listing of ADR:    The New York Stock Exchange
Short Name of ADR:    China Southern Air
Stock Code of ADR:    ZNH
ADR Registrar:   

BNY Mellon Shareowner Services

P.O.Box 505000

Louisville, KY40233-5000, USA

Domestic Legal Adviser:    Dentons Law Offices, LLP (Guangzhou)
Overseas Legal Adviser:    Jingtian & Gongcheng LLP
Domestic Auditors:    KPMG Huazhen LLP
Overseas Auditors:    KPMG (Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance)
Controlling Shareholder:    China Southern Air Holding Company Limited
Principal Bankers:   

China Development Bank

The Export-Import Bank of China

Bank of China

Agricultural Bank of China

China Construction Bank

Designated Website for Information Disclosure (H Shares):    www.hkexnews.hk
Place Where Annual Report is Made Available for Inspection:    The Board Office of the Company

As at 30 March 2022

  

Directors

Ma Xu Lun

Han Wen Sheng

Liu Chang Le

Gu Hui Zhong

Guo Wei

Yan Andrew Y

  

Supervisors

Ren Ji Dong

Lin Xiao Chun

Yang Bin

Authorized Representatives under the Listing Rules:

  

Ma Xu Lun

Xie Bing

Secretary to the Board and Company Secretary:

   Xie Bing

Securities Affairs Representative:

   Xu Yang

 

7


SAFETY

Enhance System, Intensify Working Practices, Control Risks

 

8


PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORS

I. PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORS OF THE GROUP AS AT THE END OF THE REPORTING PERIOD

 

(I)

Principal Accounting Information

 

     Unit: RMB million  
     2021      2020      Increase/
(decrease) %
 

Operating revenue

     101,644        92,561        9.81  

Net loss attributable to equity shareholders of the Company

     (12,106      (10,847      11.61  

 

     As of 31 December      Decrease %  
     2021      2020  

Equity attributable to equity shareholders of the Company

     67,851        69,584        (2.49

Total assets

     323,211        326,383        (0.97

 

(II)

Principal Financial Indicators

 

     2021      2020      Decrease %  

Basic losses per share (RMB/share)

     (0.75      (0.77      (2.60

Diluted losses per share (RMB/share)

     (0.75      (0.77      (2.60

 

9


II. SUMMARY OF OPERATING DATA

 

     For the year ended 31 December      Increase/
 
     2021      2020      (decrease) %  

Traffic

        

Revenue passenger kilometers (RPK) (million)

        

Domestic

     148,223.63        140,135.20        5.77  

Hong Kong, Macau and Taiwan

     152.48        239.14        (36.24

International

     4,050.18        13,065.78        (69.00

Total:

     152,426.29        153,440.11        (0.66
  

 

 

    

 

 

    

 

 

 

Revenue tonne kilometers (RTK) (million)

        

Domestic

     14,389.54        13,720.92        4.87  

Hong Kong, Macau and Taiwan

     25.48        30.19        (15.60

International

     6,793.68        7,053.76        (3.69

Total:

     21,208.71        20,804.88        1.94  
  

 

 

    

 

 

    

 

 

 

RTK – passenger (million)

        

Domestic

     13,124.43        12,390.86        5.92  

Hong Kong, Macau and Taiwan

     13.48        20.91        (35.54

International

     359.50        1,138.30        (68.42

Total:

     13,497.41        13,550.07        (0.39
  

 

 

    

 

 

    

 

 

 

 

10


     For the year ended 31 December      Increase/  
     2021      2020      (decrease) %  

RTK – cargo (million)

        

Domestic

     1,265.11        1,330.06        (4.88

Hong Kong, Macau and Taiwan

     12.01        9.29        29.30  

International

     6,434.18        5,915.47        8.77  

Total:

     7,711.30        7,254.81        6.29  
  

 

 

    

 

 

    

 

 

 

Passengers carried (thousand)

        

Domestic

     97,717.02        93,911.34        4.05  

Hong Kong, Macau and Taiwan

     147.75        213.22        (30.71

International

     639.89        2,731.48        (76.57

Total:

     98,504.66        96,856.04        1.70  
  

 

 

    

 

 

    

 

 

 

Cargo and mail carried (thousand tonnes)

        

Domestic

     765.34        817.51        (6.38

Hong Kong, Macau and Taiwan

     12.19        9.12        33.66  

International

     664.42        634.19        4.77  

Total:

     1,441.95        1,460.83        (1.29
  

 

 

    

 

 

    

 

 

 

 

11


     For the year ended 31 December      Increase/  
     2021      2020      (decrease) %  

Capacity

        

Available seat kilometres (ASK) (million)

        

Domestic

     205,437.17        193,935.93        5.93  

Hong Kong, Macau and Taiwan

     463.01        550.91        (15.96

International

     8,021.64        20,235.13        (60.36

Total:

     213,921.82        214,721.97        (0.37
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATK) (million)

        

Domestic

     23,431.06        22,182.70        5.63  

Hong Kong, Macau and Taiwan

     61.20        70.71        (13.46

International

     10,025.45        11,638.87        (13.86

Total:

     33,517.70        33,892.28        (1.11
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATK) – passenger (million)

        

Domestic

     18,489.35        17,454.23        5.93  

Hong Kong, Macau and Taiwan

     41.67        49.58        (15.96

International

     721.95        1,821.16        (60.36

Total:

     19,252.96        19,324.98        (0.37
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATK) – cargo (million)

        

Domestic

     4,941.71        4,728.46        4.51  

Hong Kong, Macau and Taiwan

     19.53        21.13        (7.59

International

     9,303.50        9,817.71        (5.24

Total:

     14,264.74        14,567.30        (2.08
  

 

 

    

 

 

    

 

 

 

 

12


     For the year ended 31 December         
     2021      2020         

Load Factor

                 Increase/
(decrease)
percentage
points
 

Passenger load factor (RPK/ASK) (%)

        

Domestic

     72.15        72.26        (0.11

Hong Kong, Macau and Taiwan

     32.93        43.41        (10.47

International

     50.49        64.57        (14.08

Average:

     71.25        71.46        (0.21
  

 

 

    

 

 

    

 

 

 

Overall load factor (RTK/ATK) (%)

        

Domestic

     61.41        61.85        (0.44

Hong Kong, Macau and Taiwan

     41.64        42.70        (1.06

International

     67.76        60.61        7.16  

Average:

     63.28        61.39        1.89  
  

 

 

    

 

 

    

 

 

 

Yield

                 Increase/
(decrease) %
 

Yield per RPK (RMB)

        

Domestic

     0.46        0.41        12.20  

Hong Kong, Macau and Taiwan

     1.46        1.05        39.05  

International

     1.61        0.96        67.71  

Average:

     0.49        0.46        6.52  
  

 

 

    

 

 

    

 

 

 

Yield per RFTK (RMB)

        

Domestic

     1.18        1.36        (13.24

Hong Kong, Macau and Taiwan

     13.74        8.93        53.86  

International

     2.83        2.47        14.57  

Average:

     2.58        2.27        13.66  
  

 

 

    

 

 

    

 

 

 

Yield per RTK (RMB)

        

Domestic

     4.88        4.34        12.44  

Hong Kong, Macau and Taiwan

     15.23        11.06        37.70  

International

     3.64        3.84        (5.21

Average:

     4.49        4.18        7.42  
  

 

 

    

 

 

    

 

 

 

 

13


     For the year ended 31 December     

Increase/

 
     2021      2020      (decrease) %  

Cost

        

Main business cost per ATK (RMB)

     3.47        3.22        7.76  

Flight Volume

        

Kilometers flown (million)

     1,317.85        1,304.67        1.01  

Hours flown (thousand)

        

Domestic

     1,935.98        1,835.82        5.46  

Hong Kong, Macau and Taiwan

     3.78        4.88        (22.58

International

     170.60        236.51        (27.87

Total:

     2,110.36        2,077.21        1.60  
  

 

 

    

 

 

    

 

 

 

Number of flights (thousand)

        

Domestic

     822.25        786.17        4.59  

Hong Kong, Macau and Taiwan

     2.27        2.71        (16.17

International

     18.80        33.58        (44.00

Total:

     843.32        822.46        2.54  
  

 

 

    

 

 

    

 

 

 

 

Note:

Discrepancies between the column sum are due to rounding of percentage numbers.

 

14


III. SUMMARY OF FLEET DATA

As at 31 December 2021, the scale and structure of fleet and the delivery and disposal of aircraft of the Group were as follows:

 

    Unit: number of aircraft  

Aircraft Models

  Number of
aircraft
purchased
    Number of
aircraft
under
finance
lease
    Number of
aircraft
under
operating
lease
    Delivery
during the
reporting
period
    Disposal
during the
reporting
period
    Total
number of
aircraft at
the end
of the
reporting
period
 

Passenger Aircraft

           

A380 Series

    4       1       0       0       0       5  

A350 Series

    6       6       0       4       0       12  

A330 Series

    4       29       7       0       5       40  

A320 Series

    116       95       123       10       1       334  

B787 Series

    4       25       10       2       0       39  

B777 Series

    1       14       0       0       0       15  

B737 Series

    161       72       166       0       2       399  

EMB190

    6       0       0       0       3       6  

ARJ21

    6       6       0       6       0       12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Freighter

           

B777 Series

    7       7       0       0       0       14  

B747 Series

    2       0       0       0       0       2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    317       255       306       22       11       878  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Aircraft Model

  Number of
aircraft
purchased
    Number of
aircraft
under
finance
lease
    Number of
aircraft
under
operating
lease
    Number of
aircraft
under
bailment
    Total
number of
aircraft at
the end
of the
reporting
period
 

Civil Helicopter

    16       0       7       5       28  

 

15


From 2022 to 2024, the delivery and disposal plan of aircraft of the Group will be as follows:

 

     Unit: number of aircraft  
     2021      2022      2023      2024  

Aircraft Models

   Number of
aircraft at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
 

Passenger Aircraft

                             

Airbus

                             

A380 Series

     5        0        5        0        0        0        0        0        0        0  

A350 Series

     12        4        0        16        4        0        20        0        0        20  

A330 Series

     40        0        0        40        0        2        38        0        2        36  

A320 Series

     334        12        0        346        13        5        354        0        10        344  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Boeing

                             

B787 Series

     39        3        0        42        7        0        49        0        0        49  

B777 Series

     15        1        0        16        0        0        16        0        0        16  

B737 Series

     399        39        2        436        37        0        473        27        5        495  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

                             

EMB190

     6        0        0        6        0        0        6        0        0        6  

ARJ21

     12        8        0        20        10        0        30        10        0        40  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Passenger Aircraft Sub-total

     862        67        7        922        71        7        986        37        17        1,006  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Freighter

                             

B777 Series

     14        1        0        15        2        0        17        2        0        19  

B747 Series

     2        0        2        0        0        0        0        0        0        0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Freighter Sub-total

     16        1        2        15        2        0        17        2        0        19  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     878        68        9        937        73        7        1,003        39        17        1,025  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The delivery and disposal plan of civil helicopters will be as follows:

 

     2021      2022      2023      2024  

Aircraft Type

   Number of
aircraft at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
     Delivery      Disposal      Estimated
number at
the end of
the period
 

Civil helicopter

     28        1        3        26        0        0        26        0        0        26  

 

Note:

The introduction and disposal plan of the fleet of the Company may be subject to adjustment based on future agreements and delivery of aircraft.

 

16


January

The “Green Flight” project of China Southern Airlines was awarded the first “Golden Key – SDG Solutions” Champion by the Ministry of Commerce, and the on-demand dining service of “Green Flight” has reduced over 2,000 tonnes airline meals wastage.

March

China Southern Airlines flights carried nearly 1.5 million doses of Sinovac COVID-19 Vaccine from Daxing Airport to Phnom Penh, Cambodia, successfully completing the first flight of international vaccine transportation support task of Daxing Airport.

April

China Southern Airlines opened “Beijing-Guangzhou Shuttle” and “Beijing-Shenzhen Shuttle”, and built the Company’s “Sky Shuttle” regarding core business of Beijing hub.

April

A 7-year-old boy got his arm twisted and has been in critical condition. China Southern Airlines swiftly decided to “open the door” for second time, which gained the golden time for the boy, as well as praise from all walks of life.

May

China Southern Airlines, as the “designated air carrier” of China International Consumer Products Expo, provided “affinity and refinement” services to the Expo.

June

China Southern Airlines, based on HUAWEI Harmony OS, was the first domestic airline company to launch atomized service cards, constantly improving the convenience of passengers’ travel.

 

17


July

China Southern Airlines launched the “baggage home” (行李到家) in six domestic trunk airports including Guangzhou and Beijing, offering more efficient and convenient baggage service experience to passengers.

August

CSA Cargo Co., Ltd. (中國南方航空貨運有限公司) was awarded the “Air Carrier Certificate”, becoming the cargo airline with public air transport carrier qualification of China Southern Airlines.

September

China Southern Airlines’ engineering technology branch was established. It aims to be an integrated management entity of maintenance business, providing high-quality aviation maintenance services to customers around the world.

November

China Southern Airlines announced the action plan of emission peak and carbon neutrality, coordinating and considering cost reduction, promoting the Company’s high-quality development and leading the aviation industry to move forward in a low-carbon way.

December

China Southern Airlines Flight CZ3122 from Daxing, Beijing to Guangzhou landed smoothly at Guangzhou Baiyun International Airport, marking the realization of 2021 aviation safety year for China Southern Airlines.

 

18


COST CONTROL

Establish a Long-term

Mechanism for Lean Control of Cost

 

19


MANAGEMENT DISCUSSION AND ANALYSIS

The Group continued to improve pandemic prevention and control mechanism, gave top priority to aviation safety, actively responded to the operation challenges, accumulated new drivers for high quality development.

Ma Xu Lun

Chairman

I. Business Review

(I) Discussion and Analysis of Operations

In 2021, the global economy rebounded significantly from the low base in 2020. According to the World Economic Outlook issued by the International Monetary Fund, the global economy experienced a growth of 5.9% in 2021. China’s economic development and pandemic prevention and control maintained a leading position in the world. Its construction of a new development paradigm moved a new step and high quality development made new progress. The economy of China grew at 8.1% for the whole year, the economy growth rate ranked at the leading position among major economies, and the GDP exceeded RMB110 trillion.

In 2021, the global aviation industry presented a recovery momentum, and travellers were more confident and willing to travel around. However, as affected by COVID-19 pandemic (the “pandemic”), the passenger transportation and cargo transportation of the global aviation continued to differentiate, with passenger transportation maintaining weak recovery and cargo transportation maintaining high growth. Under the repeated impact of the pandemic, China’s aviation industry showed the trend of gradual recovery and improvement. During the year, the total traffic turnover volume, passenger traffic volume, and cargo and mail transportation volume recorded 85.7 billion ton-kilometers, 440 million passengers and 7.32 million tonnes, respectively, representing a year-on-year increase of 7.3, 5.5 and 8.2 percentage points, respectively The Group continued to improve pandemic prevention and control mechanism, gave top priority to aviation safety, actively responded to the operation challenges, accumulated new drivers for high quality development. During the reporting period, with the joint efforts of the management and all staff, the Group achieved 2.11 million hours of safe flight, served approximately 98.50 million passengers, and made a new record in operating results of cargo transportation. The “Green Flight” of the Company was awarded the first “Golden Key” Champion by the Ministry of Commerce, and the Company was awarded the First Brand in Aviation Service Industry by the Ministry of Industry and Information Technology in China Brand Power Research for 11 consecutive years.

 

20


Promoted Full Coverage of Vaccination and

100% Completion of Booster Injection

1. Pandemic Prevention and Control

During the reporting period, the Group resolutely implemented the responsibilities for pandemic prevention and control, and continued to improve the pandemic prevention and control working mechanism. With reference to the national pandemic prevention and control policies, we updated and improved the Company’s pandemic prevention system and measures in a timely manner; we put a premium on the prevention of imported pandemic from overseas, advanced the pandemic prevention check points, ensured the pandemic prevention management and control for inbound tourists, formulated guidelines for the whole-process pandemic prevention for international flight crew; we actively coordinated with national pandemic prevention and control measures, promoted full coverage of vaccination and 100% completion of booster injection for international flight crew and personnel in high-risk positions. During the reporting period, the Group actively coped with the pandemic challenge, protected and quarantined approximately 50,000 crew members, organized the pandemic prevention training to all staff and organized to conduct more than 1.90 million nucleic acid tests. The Company’s special flight for COVID-19 vaccine transported more than 130 million doses of COVID-19 vaccines within and across the borders.

 

21


Implemented Over

1,120

Revenue increase and

Cost-Reduction Measures

2. Safety Management

During the reporting period, the Group continued to enhance safety quality, commenced special work for safety system improvement, work style construction and rectification, and safety risk management and control. We further carried out a three-year campaign of rectification special work for safety production, pushed forward the construction of seven safety systems, formulated and improved safety management system; we utilized digitalised concept to constantly enhance safety management level, promoted and applied professional system for safety management; we conducted work style rectification special work and promoted the obviousness of work style issues by using technical means.

3. Management Response

During the reporting period, the Group closely followed the changes in the pandemic, made every effort to enhance operating efficiency. We adhered to positive and flexible operation strategy, emphasised “two matching and two strengthening”, that is matching the capacity with the market, matching the load volume with the load cost, strengthening the revenue management, strengthening customer base. We adjusted the pace of capacity introduction, continuously optimized feet structure, implemented different strategies based on the pandemic evolvement; we adjusted the deployment of transport capacity in a timely manner, proactively captured time slot resources; we increased the utilization rate of real estate and promoted the refined management of real estate. During the reporting period, we seized opportunities in the freight market, constantly innovated sales mode, and expanded warehousing, e-commerce trade and other innovative businesses, organized 7,023 freight flights converted from passenger aircraft, completed cargo and mail transportation volume of 1.442 million tonnes and made a new record in the operating results of cargo transportation.

 

22


4. Hub Network

During the reporting period, the Group further advanced its hub network strategy, accelerated the construction of two comprehensive international hubs in Guangzhou and Beijing. We continued to establish the Guangzhou-Shenzhen integrated hub, deeply cultivated in the Greater Bay Area market, further enhanced flight time slot coverage for the Greater Bay Area market; we drove the high quality development of Beijing hub, constantly propelled the construction of Daxing express route, developed 6 express routes including the Guangzhou-Shenzhen-Chengdu route and comprehensively enhanced the operating quality of Daxing Airport. We coordinated the expansion of Hainan Free Trade Port market and proactively pursued new time slots; we expanded route network by joint operation of airline network and signed new cooperation agreements with 7 business partners including Juneyao Airlines and Loong Airlines.

5. Lean Control

During the reporting period, the Group continued to improve the long-acting mechanism of cost control. We continued to carry out lean cost management special activities, implemented over 1,120 revenue-increase and cost-reduction measures, and the Company gradually formed a consensus on lean control; we positively pursued preferential policies and commenced taxation planning; we continued to improve procurement system and control the procurement expenses; we continued to optimize the Company’s debt structure, expanded diversified financing channels and lowered financing cost; we prevented and resolved risks in terms of oil prices, exchange rates, interest rates, and receivables, to ensure the security of the Company’s funds.

Maintained Leading Position in the industry in flight on-time performance rate for

6 Consecutive Years

 

23


6. Operation Service

During the reporting period, the Group continued to improve operation quality, and enriched the service brand connotation. We carried out specific improvements actions on flight on-time performance, emphasized on the implementation of key measures to enhance operation efficiency, maintaining a leading position in the industry in terms of flight on-time performance rate for six consecutive years; we established AOC, GOC video collaboration platforms; we strengthened services management and control, established dynamic adjustment mechanism for pandemic service standard, strengthened the management of service quality in relation to flight adjustment within three days; we are the first in China to launch the baggage combined transport service, namely “baggage home” (行李到家) and “air-metro” (航空-地鐵). During the reporting period, the Group ranked No. 12 in Skytrax World Airline awards, and the first among major airlines in China.

We are the First in China to Launch the Baggage Combined Transport Service

Namely “Baggage Home” and “Air-Metro”

7. Reform and Development

During the reporting period, the Group made progress in deepening reform and implemented its development strategies one by one. We formulated the overarching approach for high quality development, coordinated and prepared the development plan for the “14th Five-Year Plan”; promoted downward penetration of governance reform, developed authorization management system from the Board to the management; deeply drove the adjustment and optimization of five major structures for fleet, market, manpower, industry, assets and liabilities; thoroughly promoted the contractual management of the tenure system, promoted the downward penetration of the market-oriented operation mechanism; propelled the development of “marketization, integration, industrialization and internationalization” of aircraft maintenance; proceeded with the non-public issuance of shares. During the reporting period, the Group outperformed the three-year reform action plan and formed the branch of engineering technology and the corporate governance structure has been constantly improved, the adjustment and optimization of the five major structures have achieved initial results, and the Group has moved a solid step for high quality development.

The “Green Flight” Project

Reduced Over

2,000 Tonnes

Airline Meals Wastage

in Aggregate by Service

on Demand

8. Social Responsibility

During the reporting period, the Group firmly promoted the green flight concept, boosted the development of rural revitalization and proactively performed social responsibility. We actively responded to the requirements of peak carbon and facilitated energy-saving and carbon reduction of aircrafts by optimizing air routes, managing aviation oil, reducing aircraft weight and other measures; the “Green Flight” project reduced over 2,000 tonnes airline meals wastage in aggregate by service on demand; the Group continued to improve environment management system and formulated Work Plan for Green Development, to reduce the use of plastics and accelerate the research and development of and actively promote advanced and applicable plastic replacement products. We continued to put more resources in rural revitalization and brought more than 40,000 impoverished people out of poverty.

 

24


(II) Industrial Position of the Company during the Reporting Period

1. Information of Development of International and Domestic Aviation Industry

(1) Development of International Aviation Industry

Passenger demand recovered slowly and the loss narrowed. According to data released by IATA, the global aviation industry has been constantly affected by the COVID-19 pandemic. In 2021, the global passenger traffic demand decreased by 58.4% as compared to the whole year of 2019 in terms of RPK, and increased as compared to 2020, among which, the international passenger transport demand decreased by 75.5% as compared to 2019. The industry-wide loss was expected to be US$51.8 billion, representing a year-on-year decrease of US$85.9 billion. The passenger load factor was 67.2%, representing a decrease of 15.4 percentage points as compared to 2019.

Cargo transport showed a strong demand and revenue achieved significant increase. According to data released by IATA, in 2021, the air cargo demand increased by 6.9% as compared to 2019 and increased by 18.7% as compared to 2020. Due to the insufficient global passenger transport demand, fewer aircraft providing belly-hold capacity, labor shortage caused by pandemic, the capacity for cargo decreased by 10.9% as compared to 2019. The cargo revenue recorded a significant increase and the cargo revenue of global airlines is expected to increase to US$175 billion.

The recovery of the industry faces continuous challenges. According to IATA, in 2021, the COVID-19 pandemic continued to have a huge impact on the global aviation industry. Global airlines significantly reduced costs and continued to adjust their businesses. IATA expected that the global aviation industry will remain in the red in 2022, and situation will remain grim. However, in view of the positive travel intentions of passengers, the industry is expected to recover gradually.

 

25


(2) Development of China Aviation Industry

According to the data released by CAAC:

In 2021, China’s civil aviation achieved a total traffic volume of 85.7 billion ton-kilometers, a passenger traffic volume of 440 million and a cargo and mail transportation volume of 7.32 million tonnes, representing a year-on-year increase of 7.3, 5.5 and 8.2 percentage points, respectively. By the end of 2021, the whole industry completed an investment of RMB115.0 billion throughout the year, representing a year-on-year increase of 6.4%. The number of certified transportation airports nationwide amounted to 248. The flight on-time performance rate in the China’s civil aviation industry reached 88%, maintaining over 80% for four consecutive years. In China, 29 airports were able to realize ID card access, 66 airports were able to apply face recognition technology, and 40 ten-million-level airports opened “Easy Check (易安檢)” service.

2. Features of Aviation Industry

(1) The development level of civil aviation industry is an important display of the comprehensive national strength

The civil aviation industry is an important strategic industry of the national economy. On one hand, its development level reflects the modernisation level, economy structure, opening level and other conditions of a country or a region. On the other hand, it is an important indicator to measure the national or regional economic competitiveness.

(2) Civil aviation industry is featured with commonality

Civil aviation industry plays a role that other transport methods cannot replace in promotion of international communication, providing service for public travel, emergency rescue and disaster relief, and many other social and public services. Aviation passenger transport is the basis for the development of the tourism industry and a safeguard for international political, economic and cultural communications. Aviation transport is routinely used for international transoceanic passenger transport. Aviation cargo transport is a must for the development of trade, logistics, high-tech and many other industries and the basis for the development of courier and postal industry.

 

26


(3) Civil aviation industry is featured with high degree of technology content

Civil aviation industry is featured with high degree of technology content, long industry chains and advanced technology-integration. The development of the civil aviation industry provides vast room for the technological innovation of related fields. Especially, the upstream aviation manufacturing industry may drive the development and innovation of material, metallurgy, chemical, mechanical manufacturing, special processing, electronics, information and many other industries. It is a strategic industry and forerunner high-tech industry for a country’s economic development and an important symbol of a country’s modernization, industrialization, science and technology, and comprehensive national strength.

(4) Civil aviation industry is featured with high risks and high investments

On one hand, high risks are reflected in uncertainties in air transport. The unsafe risk sources are very complex and diverse. There are many uncontrollable factors. Once there is any problem, the consequences are unthinkable. On the other hand, air transport is largely affected by political and economic situations, natural disasters and pandemic. The COVID-19 pandemic has caused a significant impact on the global aviation industry. At the same time, fluctuation of exchange rates, interest rates and aviation oil price will also affect the profits to a large extent. High investments are reflected in that airlines need to make huge investments in fixed assets, including investment in capacity input, infrastructure and technology reconstruction, among which, the cost of introducing aircraft, operation cost, and maintenance cost are huge. Airlines also need to input a huge fund for supporting infrastructure, facility, equipment and technology transformation.

 

27


3. Industrial Position

The Group is the biggest airline in China with the largest fleet, the most extensive route network and the largest annual passenger throughput. As at the end of reporting period, the Group has operated a total of 878 passenger and cargo transport aircraft including Boeing 787, 777, 737 series, Airbus 380, 350, 330, 320 series, ARJ21, etc.. The fleet of the Group ranked first in Asia and at the forefront of the world. In June 2018, the Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from the CAAC.

In recent years, the Company has striven to build two comprehensive international hubs in Guangzhou and Beijing, and a network-based airline has taken shape gradually. In 2021, the Company continued to drive the high quality development of Beijing hub and developed six express routes including the Guangzhou-Shenzhen-Chengdu route. The market share of Daxing Airport reached 45.9%. Meanwhile, the Company continued to strengthen the integrated construction of the Guangdong-Hong Kong-Macao Greater Bay Area, consolidate and intensify market control in the Guangdong-Hong Kong-Macao Greater Bay Area. The market share of domestic departure capacity in Guangzhou, Shenzhen, Zhuhai and Huizhou reached 38%. The Company actively developed the Pearl River Delta hub airport. The Company accelerated the strategy in Hainan Free Trade Port, consolidated and intensified market control in the major cities in Hainan, and promoted the landing of the industrial projects.

(III) The Business of the Company during the Reporting Period

1. Principal Business

The scope of business of the Company covers: (1) provision of scheduled and non-scheduled domestic, regional and international air transportation services for passengers, cargo, mail and luggage; (2) provision of general aviation services; (3) provision of aircraft repair and maintenance services; (4) acting as agent for domestic and international airlines; (5) provision of air catering services (operated by branch office only); (6) engaging in other airline and airline-related business, including advertising for such businesses; (7) engaging in other aviation businesses and related businesses (limited to insurance agency business; personal accident insurance); provision of airline ground services; civil aircraft training (operated by branch office with proper licence); asset leasing services; project management and technical consultancy services; sales of aviation equipment; travel agency business; merchandise retail and wholesale; health and medical examination services (For all projects subject to approval in accordance with laws, the business activities can only be carried out after obtaining approval from relevant authorities in accordance with the laws.)

 

28


2. Operating Model

The Company, based on starting point and objective of the building of an world-class air transport enterprise and guided by the development goals of the “14th Five-Year Plan” and the Long-Range Objectives Through the Year 2035, further focuses on quality and efficiency, and has determined the overarching approach for quality development featuring “adhering to five concepts of development, implementing five strategies, promoting six campaigns, and achieving six transformations”.

The Company adheres to the “five development” concepts of safety, high quality, innovation, cooperation and sharing; focuses on the “five strategies” in relation to hub network, ecosystem, innovation-driven, lean management and control, and brand management; carries out “six campaigns” on promoting safety production, grasping major strategic opportunities, deepening reforms in key areas, enhancing management to first class, optimizing and adjusting five major structures, improving service quality; and strives for “six transformations” from speed-oriented to quality-oriented, from comprehensive market expansion to exploring key areas, from a relatively single industry to high relevance and diversified industries, from planning management and control to market operation, from the traditional business model to digitalization and ecological circle, and from extensive management to refined management.

(IV) Analysis on the Core Competitiveness during the Reporting Period

The Company’s five core competitive strengths have begun to take shape, including its powerful and well-rounded scale and network advantages, its network development pattern with Guangzhou-Beijing as its dual core hubs, its resource synergy capabilities combined with integrated operation and matrix management, its influential, high quality brand service and comprehensive leading information technology standards.

1. Powerful and well-rounded scale and network advantages. The Company had the largest fleet in China and advanced fleet performance. The Group has the densest network by forming a developed route network covering China, and the rest of Asia, and effectively connecting Europe, America, Australia and Africa. With the largest volume of passenger traffic, the Company is the first airline in China with its amount of passenger traffic exceeding 100 million. At present, the Company has 18 branches in Beijing, Shenzhen and other cities and 8 holding aviation subsidiaries, including Xiamen Airlines. Establishment of branches and subsidiaries could better coordinate resources including local market, airports, large customers, channels and media, and supply transiting customers to the hubs. Meanwhile, the Company has set up 7 regional marketing centers, 21 domestic offices and 53 overseas offices in all continents. The Company has formed a comprehensive sales network with branches, holding subsidiaries, regional marketing centers and offices.

 

29


2. Constantly enhanced the network strategy with Guangzhou and Beijing as core hubs. By focusing on the construction of route network structure with hubs as the core, strategic markets as the key and market development as support, CSA has striven to build two comprehensive international hubs in Guangzhou and Beijing to achieve two-wheel drive, thereby establishing a new profit model and development mode, and gradually develop a network-based airline. In 2021, CSA deeply cultivated in the Guangdong-Hong Kong-Macao Greater Bay Area, creating a new pattern of central and local cooperation and endeavored to build the Guangzhou hub into a model of an international aviation hub co-constructed with provinces and cities. Presently, CSA has nearly 50% of market share in Guangzhou, making positive contribution to the construction of a world-class city cluster and international technology innovation center for Guangdong-Hong Kong-Macao Greater Bay Area and the construction of “Belt and Road Initiative”. At the same time, CSA insisted to build Beijing hub with high quality. In 2021, the time slots of Daxing Airport exceeded 45%, becoming the largest main base airline, thus providing favorable conditions and resources for the development of the hub. CSA comprehensively advanced the strategic layout of hub network, and has further improved its institutional mechanisms and supporting resources to form a new development layout with “Guangzhou Hub in the south and Beijing Hub in the north”.

3. Constantly improved control and resources interoperability of integrated operation. With its scale of having multiple bases, hubs, models and fleet, the Company has formed an initial control pattern of “headquarters for overall management, branches and subsidiaries, regional marketing center, offices for execution, matrix unit for construction”, enabled more concentrated core resource, powerful coordinated command and timely dynamic responses, so as to enhance efficiency of resources distribution. Since the construction of the integrated operation, CSA has strengthened the platform construction and consolidated the support system through a sound management mechanism, and basically formed an integrated operation management framework of “centralized management and control, efficient decision-making, smooth communication, and coordinated system”, which has significantly improved flight operation efficiency. CSA continued to deepen the reform of marketing, strengthened capacity matching with the market under the epidemic, and enhanced marketing service quality management and the construction of customer management system, so as to continuously optimize its marketing management and control layout.

 

30


4. Striving for the world’s first-class brand service. CSA launched the construction of integrated service, built a first-class international service brand, and continuously improved service quality. Its brand influence has continued to increase at home and abroad. In 2021, by providing “humanized, digitalized, refined, personalized and convenient” air travel quality service, CSA realized “people enjoying travelling, goods delivered smoothly”. The flight on-time performance rate of the Company has maintained leading position in the industry for six consecutive years. The Company comprehensively performed political and social responsibilities including providing guarantees for material tasks, revitalizing rural areas and energy conservation and emission reduction, which strongly demonstrated the positive images of “Sunshine CSA” and “responsible state-owned enterprise”. The major support tasks in terms of transportation of anti-epidemic personnel and supplies have been successfully completed and the domestic vaccines were promoted to the world.

5. All-rounded leading position of information system. CSA has always attached importance to corporate information construction and has an information technology team composed of over 1,000 experts, which lays a solid foundation for relevant research and development. By constructing and reconstructing several IT systems, such as the new version of official websites, mobile APP, WeChat platform, B2B, etc, the Company has formed passenger marketing, operation control, ground services, aviation safety, cargo transport, corporate management, public platform and many other systems, providing strong support for the strategic transformation and business development of the Company achieving the information construction accomplishments that are generally accepted in the industry. The digitalization construction focusing on digitalized customer, digitalized employee, digitalized process and digitalized company proceeded steadily, and the data management capacity of data center enhanced constantly. The Company has comprehensively promoted the landing of “Ecosphere strategy”, and fully created mobile user end one-stop service platform. At present, the concept of “a hassle-free journey with one mobile device” has been fully realized, and the key indicators, such as number of APP activations and number of the social media followers, continue to lead in the industry.

 

31


Han Wen Sheng

Vice Chairman and President

(V) Safety Assurance Input

During the reporting period, the Company always insisted on the principle of “safety first”, continued to promote the safety system governance capacity, continued to improve the construction mechanism of work style on safety and focused on safety risks management.

First, we continued to promote the safety system governance capacity. We continued to build and improve the safety management and control system, updated safety assessment programs as well as reward and punishment measures, improved the effectiveness and pertinence of safety training, set up the chief pilot’s office, and strengthened safety system governance capacity.

Second, we improved the construction mechanism of work style on safety. We strengthened the facilitation effect of safety culture, continued to create a working atmosphere that emphasizes on safety in production and enhanced the management and control of process. We continued to promote the identification of safety issues and conducted cockpit sound monitoring and route safety auditing. We completed the installation project of monitoring equipment of cargo hold, which effectively contained damages to the cargo hold. We promoted remote monitoring means and improved safety monitoring efficiency.

Third, we focused on safety risks management. We strengthened the joint prevention mechanism for safety risks, focused on controlling various common safety risks, actively promoted safety performance management, established a sound performance indicator system for safety performance, promoted the construction of the safety information platform, and focused on the promotion of operational risk control and the system development of electronic flight bag.

II. Financial Performance

Part of the financial information presented in this section below is derived from the Group’s audited consolidated financial statements that have been prepared in accordance with IFRSs.

The net loss attributable to equity shareholders of the Company of RMB12,106 million was recorded in 2021 as compared to the net loss attributable to equity shareholders of the Company of RMB10,847 million in 2020. The Group’s total operating revenue increased by RMB9,083 million or 9.81% from RMB92,561 million in 2020 to RMB101,644 million in 2021. Passenger load factor decreased by 0.21 percentage point from 71.46% in 2020 to 71.25% in 2021. Yield per RPK increased by 6.52% from RMB0.46 in 2020 to RMB0.49 in 2021. Yield per RTK increased by 7.42% from RMB4.18 in 2020 to RMB4.49 in 2021. Operating expenses increased by RMB7,229 million or 6.63% from RMB109,111 million in 2020 to RMB116,340 million in 2021. Mainly affected by the impact of the COVID-19 pandemic on the aviation industry, operating loss of RMB9,929 million was recorded in 2021 as compared to operating loss of RMB11,864 million in 2020.

 

32


III. Operating Revenue

 

  

 

 

    
     2021      2020         
     Operating revenue     Percentage      Operating revenue     Percentage      Changes in revenue  
     RMB million     %      RMB million     %      %  

Traffic revenue

     95,279       93.74        87,027       94.02        9.48  

Including: Passenger revenue

     75,392          70,534          6.89  

– Domestic

     68,656          57,793          18.80  

– Hong Kong, Macau and Taiwan

     223          251          (11.16

– International

     6,513          12,490          (47.85

Cargo and mail revenue

     19,887          16,493          20.58  

Other operating revenue

     6,365       6.26        5,534       5.98        15.02  

Mainly including:

            

Commission income

     2,677                2,771                (3.39

Ground services income

     326          210          55.24  

General aviation income

     572          508          12.60  

Hotel and tour operation income

     538          390          37.95  

Cargo handling income

     864                507                70.41  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating revenue

     101,644       100.00        92,561       100.00        9.81  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Less: fuel surcharge income

     (673        (1,259        (46.54
  

 

 

      

 

 

      

 

 

 

Total operating revenue excluding fuel surcharge

     100,971          91,302          10.59  
  

 

 

      

 

 

      

 

 

 

Substantially all of the Group’s operating revenue is attributable to airlines transport operations. Traffic revenue accounted for 94.02% and 93.74% of the total operating revenue in 2020 and 2021, respectively. Passenger revenue and cargo and mail revenue accounted for 79.13% and 20.87%, respectively, of the traffic revenue in 2021. During the reporting period, the Group’s total traffic revenue was RMB95,279 million, representing an increase of RMB8,252 million or 9.48% from the same period of prior year, mainly because of the increase in passenger revenue and in cargo revenue. The other operating revenue of the Group is mainly derived from commission income, hotel and tour operation income, general aviation income, cargo handling income and ground services income.

The increase in operating revenue was primarily due to an increase in passenger revenue by 6.89% from RMB70,534 million in 2020 to RMB75,392 million in 2021. The total number of passengers carried increased by 1.7% from 96.86 million passengers in 2020 to 98.50 million passengers in 2021. RPKs decreased by 0.66% from 153,440 million in 2020 to 152,426 million in 2021.

Domestic passenger revenue, which accounted for 91.07% of the total passenger revenue in 2021, increased by 18.80% from RMB57,793 million in 2020 to RMB68,656 million in 2021, mainly due to the maturity of COVID-19 prevention policies in the PRC and the number of passengers carried by domestic flight increased by 4.05% as compare to 2020. Domestic passenger traffic in RPKs increased by 5.77%, while passenger capacity in ASKs increased by 5.93%, resulting in a decrease in passenger load factor by 0.11 percentage point from 72.26% in 2020 to 72.15% in 2021. Yield per RPK increased by 12.2% from RMB0.41 in 2020 to RMB0.46 in 2021.

Hong Kong, Macau and Taiwan passenger revenue, which accounted for 0.30% of total passenger revenue, decreased by 11.16% from RMB251 million in 2020 to RMB223 million in 2021. For Hong Kong, Macau and Taiwan flights, passenger traffic in RPKs decreased by 36.24%, while passenger capacity in ASKs decreased by 15.96%, resulting in a decrease in passenger load factor by 10.47 percentage points from 43.41% in 2020 to 32.93% in 2021. Passenger yield per RPK increased from RMB1.05 in 2020 to RMB1.46 in 2021.

International passenger revenue, which accounted for 8.64% of total passenger revenue, decreased by 47.85% from RMB12,490 million in 2020 to RMB6,513 million in 2021, primarily due to the continuous impact of overseas COVID-19 pandemic and the restriction of cross border traveling policy not lifted yet. For international flights, passenger traffic in RPKs decreased by 69.00%, while passenger capacity in ASKs decreased by 60.36%, resulting in a decrease in passenger load factor by 14.08 percentage points from 64.57% in 2020 to 50.49% in 2021. Passenger yield per RPK increased from RMB0.96 in 2020 to RMB1.61 in 2021.

 

33


Cargo and mail revenue, which accounted for 20.87% of the Group’s total traffic revenue and 19.57% of total operating revenue, increased by 20.58% from RMB16,493 million in 2020 to RMB19,887 million in 2021. The increase was mainly attributable to the increase of demand for freight, especially international freight, due to the impact of COVID-19 pandemic.

Other operating revenue increased by 15.02% from RMB5,534 million in 2020 to RMB6,365 million in 2021. The increase was primarily due to the increase of ground services income, general aviation income, and hotel and tour operation income, and cargo handling income.

IV. Operating Expenses

Total operating expenses in 2021 amounted to RMB116,340 million, representing an increase of RMB7,229 million or 6.63% comparing to that of 2020 because of the increase of various traffic expenses. Total operating expenses as a percentage of total operating revenue decreased from 117.88% in 2020 to 114.46% in 2021.

 

     2021      2020  

Operating expenses

   RMB million      Percentage
%
     RMB million      Percentage
%
 

Flight operation expenses

     45,569        39.17        37,545        34.41  

Mainly including:

           

Jet fuel costs

     25,505                 18,797           

Aircraft operating lease charges

     920           977       

Flight personnel payroll and welfare

     10,763                 10,232           

Maintenance expenses

     12,162        10.45        13,375        12.26  

Aircraft and transportation service expenses

     21,147        18.18        18,743        17.18  

Promotion and selling expenses

     4,705        4.04        5,007        4.59  

General and administrative expenses

     3,663        3.15        4,088        3.75  

Depreciation and amortisation

     24,241        20.84        24,590        22.54  

Impairment losses on property, plant and equipment and right-of-use assets

     2,597        2.23        3,961        3.63  

Hotel and tour operation expenses

     423        0.36        317        0.29  

External air catering service expenses

     368        0.32        333        0.31  

Financial institution charges

     74        0.06        84        0.08  

Cargo handling expenses

     398        0.34        400        0.37  

Others

     993        0.86        668        0.61  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     116,340        100.00        109,111        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

34


Flight operation expenses, which accounted for 39.17% of total operating expenses, increased by 21.37% from RMB37,545 million in 2020 to RMB45,569 million in 2021, mainly resulted from the increase of jet fuel cost, which increased by 35.69% from RMB18,797 million in 2020 to RMB25,505 million in 2021. The increase in jet fuel cost was caused by the increase in jet fuel price in 2021.

Maintenance expenses, which accounted for 10.45% of total operating expenses, decreased by 9.07% from RMB13,375 million in 2020 to RMB12,162 million in 2021.

Aircraft and transportation service expenses, which accounted for 18.18% of total operating expenses, increased by 12.83% from RMB18,743 million in 2020 to RMB21,147 million in 2021. The increase was mainly due to an increase in the amounts of take-off and landing as well as navigation fees and ground service related staff costs.

Promotion and selling expenses, which accounted for 4.04% of total operating expenses, decreased by 6.03% from RMB5,007 million in 2020 to RMB4,705 million in 2021. General and administrative expenses, which accounted for 3.15% of the total operating expenses, decreased by 10.40% from RMB4,088 million in 2020 to RMB3,663 million in 2021.

Depreciation and amortisation, which accounted for 20.84% of the total operating expenses, stayed at the same level in amounts as compared to 2020.

Impairment losses on property, plant and equipment and right-of-use assets, which accounted for 2.23% of the total operating expenses, decreased by 34.44% from RMB3,961 million in 2020 to RMB2,597 million in 2021, mainly due to the impairment provision for aircraft and related equipment.

V. Operating Loss

Operating loss of RMB9,929 million was recorded in 2021 (2020: operating loss of RMB11,864 million).

VI. Other Net Income

Other net income slightly increased by RMB81 million from RMB4,686 million in 2020 to RMB4,767 million in 2021.

VII. Income Tax

Income tax gains of RMB2,894 million was recorded in 2021 (2020: income tax gains of RMB3,368 million was recorded), as the Company recorded operating loss as impacted by the COVID-19 pandemic, and recognised deferred income tax asset for tax losses.

 

35


VIII. Liquidity, Financial Resources and Capital Structure

As at 31 December 2021, the Group’s net current liabilities was RMB73,124 million. For the year ended 31 December 2021, the Group recorded a net cash inflow from operating activities of RMB7,688 million mainly due to the improvement of the operation, a net cash outflow from investing activities of RMB15,820 million mainly due to the increase in the purchase of self-owned aircrafts, net cash inflow from financing activities of RMB4,186 million mainly due to the non-public issuance of shares and public issuance of convertible bonds of the Company in the same period last year, and the absence of such event in the current period, which in total resulted in a decrease in cash and cash equivalents of RMB3,946 million. The decrease in cash and cash equivalents was mainly due to the decrease in the scale of financing for issuance of shares, bonds and long-term and short-term loans.

The Group’s liquidity is dependent on its ability to maintain adequate cash inflow from operations, and its ability to obtain external financing to meet its debt obligations as they fall due and to meet its committed future capital expenditures. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. As at 31 December 2021, the Group has obtained credit facilities of RMB295,683 million in aggregate (31 December 2020: RMB315,452 million) granted by several banks and financial institutes, among which approximately RMB204,051 million was unutilised (31 December 2020: RMB228,188 million). The Directors of the Company believe that sufficient financing will be available to the Group.

The analysis of the Group’s total interest-bearing liabilities are as follows:

Composition of total interest-bearing liabilities

 

     31 December
2021
     31 December
2020
 
     RMB million      RMB million  

    Lease liabilities

     102,749        121,213  

    Borrowings

     96,267        78,233  

    Long-term payable

     291        385  

Fixed rate interest-bearing liabilities

     144,553        130,072  

Floating rate interest-bearing liabilities

     54,754        69,759  

Analysis of interest-bearing liabilities by currency

 

     31 December 2021      31 December
2020
 
     RMB million      RMB million  

USD

     43,778        52,862  

RMB

     152,429        142,545  

Others

     3,100        4,424  
  

 

 

    

 

 

 

Total

     199,307        199,831  
  

 

 

    

 

 

 

 

36


Maturity analysis of interest-bearing liabilities

 

     31 December 2021      31 December
2020
 
     RMB million      RMB million  

Within 1 year

     78,816        61,123  

After 1 year but within 2 years

     37,942        27,805  

After 2 years but within 5 years

     55,761        61,751  

After 5 years

     26,788        49,152  
  

 

 

    

 

 

 

Total

     199,307        199,831  
  

 

 

    

 

 

 

Interest expense and exchange gain/(loss)

Interest expense decreased by RMB514 million from RMB6,716 million in 2020 to RMB6,202 million in 2021, mainly due to decrease in interest expense on lease liabilities.

Net exchange gains of RMB1,575 million was recorded in 2021, as compared with a net exchange gains of RMB3,485 million in 2020. Net exchange gain was primarily attributable to the exchange difference arising from the lease liabilities denominated in USD, along with the depreciation of the U.S. dollar against Renminbi.

The Group’s capital structure at the end of the year is as follows:

 

     31 December 2021     31 December
2020
    Change  

Total liabilities (RMB million)

     238,703       241,252       (1.06 %) 

Total assets (RMB million)

     323,211       326,383       (0.97 %) 

Debt ratio

     73.85     73.92    
Decreased by 0.07
percentage point
 
 

The Group monitors capital on the basis of debt ratio, which is calculated as total liabilities divided by total assets. The debt ratio decreased by 0.07 percentage point compared to that of the end of 2020.

IX. Major Charge on Assets

As at 31 December 2021, no property, plant and equipment of the Group (31 December 2020: Nil) were mortgaged for bank borrowings.

 

37


X. Commitments and Contingencies

Commitments

As at 31 December 2021, the Group had capital commitments (excluding investment commitment) of RMB64,243 million (31 December 2020: RMB66,996 million), of which, RMB54,662 million (31 December 2020: RMB56,547 million) related to the acquisition of aircraft and related flight equipment and RMB9,581 million (31 December 2020: RMB10,449 million) related to other projects of the Group.

The Group had investment commitments as follows:

 

     31 December
2021
     31 December
2020
 
     RMB million      RMB million  

Authorised and contracted for:

     

Share of capital commitments of a joint venture

     185        405  

Capital contributions for acquisition of interest in an associate

     171        —    
  

 

 

    

 

 

 
     356        405  
  

 

 

    

 

 

 

Authorised but not contracted for:

     

Share of capital commitments of a joint venture

     24        26  
  

 

 

    

 

 

 
     380        431  
  

 

 

    

 

 

 

Contingent liabilities

 

(1)

The Group leased certain properties and buildings from CSAH which were located in Guangzhou, Wuhan, Haikou, etc. Although such properties and buildings were used by CSAH before being leased to the Group, as known to the Group, such properties and buildings lack adequate documentation evidencing CSAH’s rights thereto. Pursuant to the indemnification agreement dated 22 May 1997 entered into between the Group and CSAH, CSAH has agreed to indemnify the Group against any loss or damage arising from any challenge of the Group’s right to use the aforementioned properties and buildings.

 

(2)

The Group entered into certain agreements with CSAH in prior years to acquire certain land use right and buildings from CSAH. The change of business registration of such land use right and buildings are still in progress as of the date of this report. CSAH issued letters of commitment to the Company, committing to indemnify the Group against any claims from third parties to the Group, or any loss or damage in the Group’s operation activities due to lack adequate documentation of the certain properties and buildings, without recourse to the Group.

 

(3)

The Company and its subsidiary, Xiamen Airlines, entered into agreements with certain pilot trainees and certain banks to provide guarantees on personal bank loans amounting to approximately RMB696 million (31 December 2020: RMB696 million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December 2021, total personal bank loans of approximately RMB181 million (31 December 2020: approximately RMB221 million), under these guarantees, were drawn down from the banks. During the year, RMB2 million has been made by the Group (2020: Nil) due to the default of payments of certain pilot trainees.

 

38


XI. Reconciliation of Differences in Financial Statements Prepared under PRC GAAP and IFRSs

(I) Difference in net loss and equity attributable to equity shareholders of the Company

in financial reports disclosed under IFRSs and PRC GAAP

Unit: RMB million            

 

     Net loss attributable
to equity shareholders of
the Company
     Equity attributable
to equity shareholders
of the Company
 
     2021
January to
December
     2020
January to
December
     31 December
2021
     31 December
2020
 

Amounts under PRC GAAP

     (12,103      (10,842      67,616        69,346  

Adjustments under IFRSs:

           

Government grants (a)

     1        /        (5      (6

Capitalisation of exchange difference of specific loans (b)

     (8      (9      39        47  

Adjustment arising from the Company’s business combination under common control (c)

     /        /        237        237  

Income tax effect of the above adjustments

     2        2        (8      (10

Effect of the above adjustments on non-controlling interests

     2        2        (28      (30
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts under IFRSs

     (12,106      (10,847      67,851        69,584  
  

 

 

    

 

 

    

 

 

    

 

 

 

(II) Explanation of differences between PRC GAAP and IFRSs

 

(a).

In accordance with the PRC GAAP, assets related government grants (other than special funds) are deducted from the cost of the related assets. Special funds granted by the government and clearly defined in the approval documents as part of “capital reserve” are accounted for as increase in capital reserve. Under IFRSs, assets related government grants are deducted to the cost of the related assets. The difference is resulted from government grants received in previous years and are recognised in capital reserve under PRC GAAP.

 

(b).

In accordance with the PRC GAAP, exchange difference arising on translation of specific loans and related interest denominated in a foreign currency is capitalised as part of the cost of qualifying assets. Under IFRSs, such exchange difference should be recognised in income statement unless the exchange difference represents an adjustment to interest.

 

(c).

In accordance with the PRC GAAP, the Company accounts for the business combination under common control by applying the pooling-of-interest method. Under the pooling-of-interest method, the difference between the historical carrying amount of the acquiree and the consideration paid is accounted for as an equity transaction. Business combinations under common control are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established; for this purpose, relevant comparative figures are restated under PRC GAAP. Under IFRSs, the Company adopts the purchase accounting method for acquisition of business under common control.

 

39


XII. Capital Needs for Maintaining the Existing Business Operation and

Completing the Investment Projects under Construction

 

Commitments

  

Contractual arrangement

  

Time schedule

  

Financing

methods

Commitments in respect of aircraft, engines and flight equipment of RMB54,662 million

  

Authorised and contracted

  

RMB33,165 million within 1 year (inclusive of 1 year);

  

Own funds or debt financing

     

RMB15,093 million after 1 year but within 2 years (inclusive of 2 years);

     

RMB6,404 million after 2 years but within 3 years (inclusive of 3 years);

     

Nil after 3 years

Investment commitments of RMB356 million

  

Authorised and contracted

  

RMB356 million within 1 year (inclusive of 1 year)

  

Own funds

Other commitments of
RMB9,581 million

  

Authorised and contracted

  

Not applicable

  

Own funds or debt financing

Upon prediction on the cash flows for the eighteen months ending 30 June 2023, the Group is of the view that the Group will have sufficient funds to meet the needs for working capital and capital expenditures during such period. The Group’s ability to pay off the payable due liabilities mainly depends on the Group’s net inflow of working capital and the ability to obtain external financing. As for future capital commitment and other financing demand, as of 31 December 2021, the Group has obtained a maximum credit line of RMB295,683 million for 2021 and subsequent years from several PRC banks, of which, the unused bank credit lines reached approximately RMB204,051 million. The Group believes that it will be able to obtain such financing.

XIII. Analysis of Operational Information from Industrial Perspective

(I) Major information of operations

 

Models

   Average age
(years)
     Daily utilization
rate (hours)
     Passenger
load factor (%)
     Total
load factor (%)
 

Passenger aircraft

           

A380 series

     9.7        3.95        57.21        50.80  

A350 series

     1.4        5.99        66.92        40.86  

A330 series

     8.0        5.17        70.19        45.80  

A320 series

     8.3        6.98        69.90        62.48  

B787 series

     5.0        6.77        62.88        44.44  

B777 series

     5.2        1.58        65.33        36.84  

B737 series

     8.4        7.27        73.92        65.76  

EMB190

     8.9        4.26        82.18        59.94  

ARJ21

     0.9        3.51        75.06        74.38  

Freighter

           

B777 series

     8.2        14.85        /        81.64  

B747 series

     19.4        0        /        0  

Average

     8.0        6.96        71.25        63.28  

 

Note:

the above daily utilization statistics excluded 34 B737MAX grounded due to short operation period.

 

40


(II) Capital arrangement for introducing aircraft and related equipment during the reporting period

 

     Unit: number of aircraft  
     Capital arrangement         

Models introduced during

the reporting period          

   Operating lease      Finance lease      Purchased      Number of aircraft
introduced during the
reporting period
 

A350 Series

     0        0        4        4  

A320 Series

     0        0        10        10  

B787 Series

     2        0        0        2  

ARJ21

     0        3        3        6  

Total

     2        3        17        22  

(III) Capital expenditure plan and relevant financing plan for aircraft and related equipment during 2022-2024

 

Capital expenditure commitments
of aircraft
and related equipment

  

Contractual arrangement

  

Time schedule

  

Financing methods

Commitments in respect of aircraft, engines and flight equipment of RMB54,662 million

  

Authorised and contracted

  

RMB33,165 million within 1 year (inclusive of 1 year);

RMB15,093 million after 1 year but within 2 years (inclusive of 2 years);

RMB6,404 million after 2 years but within 3 years (inclusive of 3 years).

  

Own funds or debt financing

(IV) New flight routes during the reporting period and future launching plan

During the reporting period, the Company launched new domestic routes including Guangzhou-Shijiazhuang-Zhangjiakou, Guangzhou-Hohhot–Hailar, Guangzhou-Jingzhou, Guangzhou-Heze, Beijing Daxing-Xi’an, Beijing Daxing-Fuzhou, Beijing Daxing-Nanchang, Beijing Daxing-Gan Zhou, Beijing Daxing-Holingol and other routes around the Guangzhou-Beijing core hub, and continued to improve the route network. For international routes, as affected by the “five ones” policy and the “One Country, One Policy” of the CAAC, the international flights of the Company maintained at low level during the reporting period. In 2021, the Company has not launched any new international route and the recovery will depend on policy adjustments.

In 2022, with an aim of maximizing marginal contribution, the Company will increase capacity in the domestic market and improve the quality of revenue from international routes. For domestic routes, we plan to launch Guangzhou-Quzhou, Guangzhou-Hechi-Mianyang, Guangzhou-Linfen-Changchun, Guiyang-Wuhan-Quzhou, Harbin-Heze-Kunming, Urumqi-Xining-Kunming, Zhuhai-Xinzhou-Changchun, Changchun-Qingdao-Taizhou, Shenyang-Shiyan-Huizhou, etc.. For international routes, we will gradually recover flights, increase frequency and launch new routes depending on policy adjustments.

 

41


XIV. Analysis on Investments

(I) Major equity investment

Nil.

(II) Major non-equity investment

Nil.

(III) Financial assets carried at fair value

 

    Unit: RMB million

Stock code

 

Abbreviation

  Initial
Investment
cost
    Equity
ownership
(%)
    Carrying
value at the
end of the
period
    Profit and loss
during the
reporting
period
    Changes in
owners’ equity
during the
reporting
period
   

Accounting item

 

Sources of the
shares

000099

  Citic Offshore Helicopter Co., Ltd.     9       0.48       25       3       /    

Other non-current financial assets

  Purchase

601328

  Bank of Communications Co., Ltd.     16       0.013       43       4       /    

Other non-current financial assets

  Purchase

N/A

  China Air Service Ltd.     2       1.00       1       /       /    

Other non-current financial assets

  Capital increase

N/A

  Aviation Data Communication Corporation     1       2.50       26       (1     /    

Other non-current financial assets

  Capital increase

00696

  Travelsky Technology Limited     33       2.25       523       1       (131  

Other investments in equity securities

  Establishment

N/A

  Haikou Meilan International Airport Co., Ltd.     100       2.35       40       /       (45  

Other investments in equity securities

  Capital increase

Total

      161       /       658       7       (176   /   /

XV. Major Assets and Shareholding Disposal

During the reporting period, there were no disposal of any major assets or equity investments by the Company.

 

42


XVI. Analysis on Major Subsidiaries and Joint Ventures and Associates

(I) Major operational data of major holding aviation subsidiaries of the Group:

 

Name of subsidiaries

   Number of
aircraft
     Proportion
(%)
     Number of
passengers
carried
(thousand)
     Proportion
(%)
     Cargo and mail
carried (tonne)
     Proportion
(%)
     RTK
(million)
     Proportion
(%)
     RPK
(million)
     Proportion
(%)
 

Xiamen Airlines

     209        23.8        26,124.6        26.5        193,024.5        13.4        3,907.0        18.4        38,130.0        25.0  

Shantou Airlines

     16        1.8        2,290.4        2.3        13,809.3        1.0        290.4        1.4        3,056.1        2.0  

Zhuhai Airlines

     16        1.8        2,028.2        2.1        10,650.9        0.7        305.9        1.4        3,252.2        2.1  

Guizhou Airlines

     20        2.3        2,852.2        2.9        20,249.4        1.4        399.3        1.9        4,151.2        2.7  

Chongqing Airlines

     30        3.4        3,738.5        3.8        14,129.7        1.0        464.9        2.2        5,010.5        3.3  

Henan Airlines

     30        3.4        3,805.5        3.9        26,866.8        1.9        489.9        2.3        5,094.7        3.3  

 

Note:

The operational information of Xiamen Airlines includes operational information of its subsidiaries, Hebei Airlines and Jiangxi Airlines.

1. Information of Xiamen Airlines

Xiamen Airlines was established in August 1984 with registered capital of RMB14 billion. The legal representative is Wang Zhi Xue. The Company holds 55% of the shares in Xiamen Airlines; Xiamen Jianfa Group Co., Ltd. and Fujian Investment Group Co., Ltd. also hold 34% and 11% in Xiamen Airlines, respectively.

In 2021, Xiamen Airlines earned operating revenue of RMB21,037 million, representing an increase of 1.75% as compared with the same period of the previous year; and net loss of RMB938 million was recorded as compared with net loss of RMB181 million for the same period of the previous year. As at 31 December 2021, Xiamen Airlines’ total assets amounted to RMB51,912 million, and net assets amounted to RMB19,530 million.

2. Information of Logistics Company

Logistics Company was established in June 2018 with registered capital of RMB1.818 billion. The legal representative is Liu Zubin (劉袓斌). The Company holds 55% of the shares in Logistics Company.

In 2021, Logistics Company earned operating revenue of RMB19,659 million and a net profit of RMB5,693 million, representing an increase of 27.68% and 41.86%, respectively. As of 31 December 2021, Logistics Company’s total assets amounted to RMB14,170 million and net assets amounted to RMB10,574 million.

(II) Information of other major joint ventures and associates

 

Name of investee companies    Nature of business    Registered capital      Proportion of shares held at the
investee companies (%)
 
                 Direct      Indirect  

1. Joint ventures

           

Guangzhou Aircraft Maintenance Engineering Co., Ltd.

  

Aircraft repair and maintenance services

     USD        65,000,000        50        0  

MTU Maintenance Zhuhai Co., Ltd.

  

Aircraft repair and maintenance services

     USD      163,100,000        50        0  

2. Associates

           

Finance Company

  

Financial services

     RMB  1,377,730,000        41.81        6.78  

SACM

  

Advertising agency services

     RMB     200,000,000        40        0  

Sichuan Airlines

  

Airlines transportation

     RMB  1,000,000,000        39        0  

 

43


China Southern Airlines

Satisfaction to Perfection

XVII. Industry Landscape and Trend

In 2021, the COVID-19 pandemic continued to spread around the world and caused huge impact on the global air transport industry. Global airlines significantly reduced costs and continued to adjust their businesses. In 2021, global demand for air travel increased and showed a recovery trend, and air cargo carriage experienced a strong growth, which provided support for airlines. IATA expects that the net loss in the global aviation industry will be US$51.8 billion in 2021.

IATA expects that the global air transport industry will remain in the red in 2022, and airlines around the world face problems including international air travel restrictions, continuous impact by COVID-19 pandemic and high leverage rate.

The global civil aviation industry has gradually shown new development trends after suffering from the huge impact of COVID-19 pandemic:

(I) The global aviation industry may enter a new round of restructuring

Large airlines may get out of trouble by obtaining government assistance, and the possibility of less powerful airlines being acquired by large airlines or even going bankrupt is greatly increased. After the reorganization, the global aviation industry will be more capable of responding to risks and challenges.

 

44


(II) The long-term prospects of the aviation industry are bright, but the short-term recovery process is diversified

IATA predicts that by 2036, the global aviation industry will provide over 98 million jobs and create an output value of more than US$5.7 trillion. The aviation industry will play an irreplaceable role in the recovery of the global economy. However, as affected by the different international travel restriction policies in different economies and the unbalanced allocation of vaccines all around the world, the recovery of aviation industry differentiated in different regions.

The COVID-19 pandemic in 2021 continued to impose a huge impact on China’s civil aviation industry. However, in the long run, there is still huge room for the development of the industry. It is embodied in the following three aspects:

 

1.

Huge market potential

China’s civil aviation industry witnesses an average annual growth rate of passenger turnover of 11% in the first 10 years of 2020. However, the per capita air travel is only 0.47 time, while the per capita air travel in the United States is basically stable at 2.3-2.7 times, which is equivalent to 5-6 times of that in China. It is expected that China’s civil aviation transportation market will continue to maintain a middle and high-speed growth with great development space during the “14th Five-Year Plan” period. IATA predicts that by 2036, the total air passenger traffic of China will reach 1.5 billion.

 

2.

China’s development strategy and macro policies are conducive to the development of aviation industry

The development strategies implemented in China has greatly expanded the development space for the aviation industry. According to the Guidelines on Developing Comprehensive Transport Network (《國家綜合立體交通網規劃綱要》) issued by the Central Committee of the Communist Party of China and the State Council, the comprehensive transport network will reach about 700,000 kilometers by 2035. The aviation network has the potential for continuous improvement, and the construction of global and regional logistics network system will see new opportunities. The Outline of Action for Building a Civil Aviation Power in the New Era (《新時代民航強國建設行動綱要》) issued by the CAAC clearly defines the goal of building a civil aviation power in an all-rounded way by the middle of this century. China’s civil aviation is marching towards the construction of a multi-sector civil aviation power. In addition, a series of policies such as the “Belt and Road Initiative”, the construction of the Xiong’an New Area, Guangdong-Hong Kong-Macao Greater Bay Area, Shenzhen’s pilot demonstration area, and the strategy of Hainan Free Trade Port foreshadow the broad development prospects of the aviation industry.

 

3.

New development pattern promotes high-quality development

China took the global lead in economic development and pandemic prevention and control in response to hundred-year changes and the century pandemic, and made new progress in building new development pattern, which provided a better macroeconomic environment for aviation industry development. During the “14th Five-Year Plan” period, China’s civil aviation will seize the new development stage, completely, accurately and thoroughly implement the philosophy of new development, build new development pattern, take the high-quality development as the theme, construct the first-class infrastructure system, develop the first-class air service system, improve the eco-friendly green development system and implement the strategy led by technological and innovation.

 

45


XVIII. Development Strategy of the Company

The Company, based on starting point and objective of the building of an world-class air transport enterprise and guided by the development goals of the “14th Five-Year Plan” and the Long-Range Objectives Through the Year 2035, further focuses on quality and efficiency, and has determined the overarching approach for quality development featuring “adhering to five concepts of development, implementing five strategies, promoting six campaigns, and achieving six transformations”.

The Company adheres to the “five development” concepts of safety, high quality, innovation, cooperation and sharing; focuses on the “five strategies” in relation to hub network, ecosystem, innovation-driven, lean management and control, and brand management; carries out “six campaigns” on promoting safety production, grasping major strategic opportunities, deepening reforms in key areas, enhancing management to first class, optimizing and adjusting five major structures, improving service quality; and strives for “six transformations” from speed-oriented to quality-oriented, from comprehensive market expansion to exploring key areas, from a relatively single industry to high relevance and diversified industries, from planning management and control to market operation, from the traditional business model to digitalization and ecological circle, and from extensive management to refined management.

XIX. Business Plan in 2022

Looking forward to 2022, the trend of the global pandemic still has relatively highly uncertainty, and measures for pandemic prevention and control of different countries differentiated gradually. The prospects for economic recovery in both developed countries and developing countries are uncertain. According to the forecast of the International Monetary Fund, the global economy is more fragile than expected. The global economy growth for 2022 is expected to be lowered to 4.4%.

China’s economic development encounters three pressures, namely demand reduction, supply disruption and anticipation weakening. In 2022, China will insist on the overall basis of prioritising stability and pursuing improvement in stability, accelerating the building of new development pattern, comprehensively deepen reform and opening up, adhere to innovation-driven development to drive high quality development, and keep taking supply-side structural reform as its main task, to coordinate pandemic prevention and control and economic and social development.

Facing the complicated and changeable environment both domestically and abroad, the Group will proactively participate in the construction of a strong country in the new era and support China’s civil aviation in building a strong country of civil aviation. Besides, the Group will coordinate pandemic prevention and control and management response, stick to high quality development and spare no efforts to build the Group into a world-class air transport enterprise with global competitiveness.

 

46


(I) To stick to scientific and precise prevention and control, and strengthen normalized

management of pandemic prevention and control

The Group will stick to scientific and precise prevention and control, and assume its main responsibility for pandemic prevention and control. We will pay attention to the situation of pandemic prevention and control, and follow the requirements of each regulator to dynamically adjust measures for pandemic prevention and control; we will strengthen pandemic prevention training and the supervision and inspection of epidemic prevention, and strengthen the awareness of responsibility for pandemic prevention and control; we will manage passengers and staffs according to their classifications, so as to implement precise prevention and control; we will continue to amend working system for pandemic prevention and control, improve working mechanism to achieve scientific prevention and control; and we will continue to control the risk of imported pandemic and whole-process monitoring of passengers, to implement normalized management of pandemic prevention and control.

(II) To put safety first, and prevent and dissolve safety risks

The Group will build a sustainable and high quality safety, and by taking the deepening the construction of seven major safety systems as its core, strengthen responsibilities, controlling risks and managing process. We will strictly implement safety responsibility, improve the construction of safety system; improve safety training system, reform flight training management system, implement maintenance skill improvement training; perform dual prevention mechanism of safety risks classification and control and the identification and management of potential safety hazards, to propel the construction of operation risk control system; strengthen safety performance management and application, to drive the digital transformation of safety process management; to promote the construction of safety system by means of innovative technologies. In 2022, the Group will ensure its continuation in aviation safety as in past years.

(III) To ensure management response, and spare no effort to improve business performance

The Group will pay close attention to the pandemic situation and changes in the aviation market, and adjust operation strategies in a timely manner. We will increase inputs in domestic transportation capacity, optimize international layout, continue to enhance market control, optimize market structure, spare no efforts to pursue time slot resources, and establish management system for high-value clients and to consolidate the cooperation with airlines; we will capture the opportunities in the international freight market to improve the utilization rate of freighters and do well in international in-bound market and belly-hold operation; an improved product system will be established to expand group customers and increase freight flights converted from passenger aircraft; we will accelerate the construction of freight hubs to establish Guangzhou-Shenzhen integrated hub, strengthen Shanghai Pudong hub and enhance the operating quality of Beijing Daxing hub; we will promote the sustainable development of warehousing, e-commerce trade, supply chain management and other new businesses.

 

47


(IV) To establish a long-term mechanism for cost control, and enhance the ability to resist risks

The Group shall establish a long-term mechanism for cost control to found a solid foundation for high quality development. We will continue to conduct projects of “Golden Idea Makes Benefits”, comprehensive improvement of budget management, market-based accounting, digitalised finance, goal setting and benchmarking management, etc. and optimize the business-based variable cost management system; we will expand financing channels to realize diversified and low-cost financing, continue to optimize debt structure; proceed with non-public issuance of shares, to constantly optimize assets and liabilities structure; strengthen the management of financial risks and finance risks; strengthen centralized control of funds to ensure the security of capital chain; and continue to invigorate idle assets and real estate.

(V) To improve operation quality, and build a first-class brand service system

The Group will continue to improve operational efficiency and service quality. We will strengthen the management ability to the operation and dispatching system at all levels, and promote the digitalised and intelligent transformation in operational area; improve the whole chain management mechanism for jet fuel, to drive the data-based transformation of fuel saving control and constantly lower fuel consumption per ATK; we will establish a customer-oriented service quality management system, to manage the service quality during the whole process, and promote the integration of service with marketing and operation, so as to develop “Humanized, Digitalized, Refined, Personalized, Convenient” service. We will strengthen the brand image of “Affinity and Refinement”, further enhance brand management capacity, formulate and optimize the management standard of corporate identity system.

(VI) To intensify reforms, expedite the implementation of strategies and create momentum for development

The Group will deeply promote the reform of systems and mechanisms, to ensure that the critical strategies for high quality development are implemented gradually, and continue to explore development space. We will complete the reforms of three systems, to realize the full coverage of tenure system and contractual management of staff; deepen reform of aircraft maintenance to build aircraft maintenance brand; promote the implementation of “Double Hundred Action” and “Innovative Technology Reform Demonstration Actions”, continue to improve the modern enterprise system with Chinese characteristics, and perform the powers and functions of the Board; establish “Sunshine Purchase” system to drive the construction of standardized procurement; we will proceed with the construction of hubs in high quality, grasp the opportunities arising from the development of Greater Bay Area, continue to expedite the “Four Integrations”; continue to promote the adjustment and optimization of five major structures, deeply proceed the building of business ecosystem and establish products lines by focusing on “food, accommodation, transportation, entertainment, travel and shopping”. We will accelerate the deployment in Hainan Free Trade Port, to drive the implementation of projects in freight, air catering, general aviation and e-commerce industries.

 

48


XX. RISK FACTORS ANALYSIS

(I) Macro Environment Risks

1. Risks of Fluctuation in Macro Economy

The degree of prosperity of the civil aviation industry is closely linked to the status of the development of the domestic and international macro economy. Macro economy has a direct impact on the economic activities, the disposable income of the residents and the import and export trade volume, which in turn affects the demand of the air passenger and air cargo, and further affects the business and operating results of the Group.

2. Risks of Macro Policies

Macroeconomic policies made by the government, in particular the adjustment in the cyclical macro policies, such as credit, interest rate, exchange rate and fiscal expenditure, have a direct or indirect impact on the air transportation industry. In addition, the establishment of the new airlines, the opening of aviation rights, routes, air ticket fares and other aspects are regulated by the government, and the fuel surcharges pricing mechanism is also formulated by the government. The changes in the relevant policies will have a potential impact on the operating results and the future development of the business of the Company.

(II) Force Majeure Risks e.g. Pandemics and Natural Disasters

The aviation industry is subject to a significant impact from the external environment, abrupt public health emergencies, such as serious pandemics, natural disasters such as floods, typhoons and volcanic eruptions, terrorist attacks, international political turmoil and other factors. These risks will affect the normal operation of the airlines, and thus bringing unfavourable effect to the results and long-term development of the Company.

(III) Industry Risks

1. Risks of Intensifying Competition in the Industry

Faced with ever-changing markets, if the Company fails to effectively enhance its ability to predict and adopt flexible sales strategies and pricing mechanisms, this may have an impact on the Company’s goal of achieving expected returns. With regard to the introduction of transportation capacity, rapid growth of industry capacity and the slowdown in market demand has become increasingly significant. If the Company fails to establish a corresponding capacity introduction and exit mechanism, it may have a material adverse effect on the Company’s operating efficiency. In terms of exploring the international market, if the Company fails to further improve the operational quality of international routes, it may affect the Company’s operating income and profit levels.

 

49


2. Risks of Competition from Other Modes of Transportation

There is certain substitutability in short to medium range routes transportation among air transport, railway transportation and road transportation. With the improving high speed rails network, if the Company fails to develop an effective marketing strategy to deal with high-speed rail competition, it may affect the Company’s operating efficiency.

(IV) Risks of the Company Management

1. Safety Risks

Flight safety is the prerequisite and foundation for the normal operation of the airlines. Adverse weather, mechanical failure, human error, aircraft defects as well as other force majeure incidents may have effect on the flight safety. With big size of aircraft fleet and large amount of cross-location, overnight or international operations, the Company was confronted with certain challenges in its safety operation. In case of any flight accident, it will have an adverse effect on the normal production and operation and reputation of the Company.

2. Information Safety Risks

The information safety situation is becoming more and more severe. If the Company fails to manage the information safety affairs at company level or a higher level, increase input of information safety resources, and strengthen the information safety management, the Company’s safety, production, operation, marketing, service, etc. may be affected, as a result of which the Company may be affected and suffer losses.

3. Risks of High Capital Expenditure

The major capital expenditure of the Company is to purchase aircraft. In recent years, the Company has been optimising the fleet structure and reducing the operational cost through introducing more advanced models, disposing obsolete models and streamlining the number of models. Due to the high fixed costs for the operation of aircraft, if the operation condition of the Company suffered from a severe downturn, it may lead to the significant drop in the operating profit, facing financial distress and other problems.

(V) Financial Risks of the Company

1. Risks of Fluctuation in Foreign Currency

Renminbi is not freely convertible into foreign currencies. All foreign exchange transactions involving Renminbi must take place either through the People’s Bank of China (“PBOC”) or other institutions authorised to buy and sell foreign exchange or at a swap centre. Substantially all of the Group’s lease liabilities are denominated in foreign currencies, principally US dollars, Euro and Japanese Yen.

 

50


Depreciation or appreciation of Renminbi against foreign currencies therefore affects the Group’s results significantly. In particular, fluctuations in exchange rate of US dollar against Renminbi will have a material impact on the Group’s finance expense. Assuming risks other than exchange rate remain unchanged, the shareholders’ equity of the Group will increase (or decrease) by RMB322 million and the net loss of the Group will decrease (or increase) by RMB322 million during the reporting period in the case of each and every 1% increase (or decrease) of the exchange rate of RMB to US dollar at 31 December 2021.

2. Risks of Fluctuation in Jet Fuel Price

The jet fuel cost is the most major expenditure for the Group. Both the fluctuation in the international crude oil prices and the adjustment of domestic fuel prices by the NDRC has big impact on the cost of the Group. Although the Group has adopted various fuel saving measures to decrease the fuel consumption volume, provided there is significant fluctuation in the international oil prices, the operating results of the Group may be significantly affected. Assuming that the fuel oil consumption remains unchanged, in the case of each and every 10% increase or decrease on average in fuel price during the reporting period, the Group’s operating expenses would increase or decrease by RMB2,551 million for the reporting period.

In addition, the Group is required to procure a majority of its jet fuel domestically at PRC spot market prices. There is currently no effective means available to manage the Group’s exposure to the fluctuations of domestic jet fuel prices. However, according to a “Notice on Questions about Establishing Linked Pricing Mechanism for Fuel Surcharges of Domestic Routes and Jet Fuel” jointly published by the NDRC and the CAAC in 2009, airlines may, within a prescribed scope, make its own decision as to fuel surcharges for domestic routes and the pricing structure. The linked pricing mechanism, to a certain extent, reduces the Group’s exposure to fluctuation in jet fuel price.

3. Risks of Fluctuation in Interest Rate

Since the civil aviation industry is featured with high investments, the gearing ratio of the airlines is generally high. Therefore, the interest rate fluctuation resulting from the change of capital in the market has a relatively greater influence on the Group’s financial expense, so as to further affect the Group’s operating results. During the reporting period, assuming all other risk variables other than interest rate remained constant, 100 basis point increase (or decrease) of the Group’s comprehensive capital cost would decrease (or increase) shareholders’ equity of the Group by the amount of RMB328 million and increase (or decrease) net loss of the Group by the amount of RMB328 million during the reporting period. As at 31 December 2021, the gearing ratio (defined as total borrowings divided by total equity) of the Company was 114%).

 

51


SERVICE

Reinforce Affinity and Refinement,

Make an Image of Rich Advantages

 

52


REPORT OF DIRECTORS

The Board of the Company hereby presents this annual report and the audited financial statements for the year ended 31 December 2021 of the Group to the shareholders of the Company.

Business Review

The Group is principally engaged in airlines operations. The Group also operates certain airlines related businesses, including provision of aircraft maintenance and air catering services. The Group is one of the biggest airlines in China. In 2021, the Group ranked first among all Chinese airlines in terms of number of passengers carried, number of scheduled flights per week, number of hours flown, number of routes and size of aircraft fleet. For the business conditions of the Group in 2021 and major risks faced by the Group as well as the business plan of the Group in 2022, please refer to the section headed “Management Discussion and Analysis” in this annual report. The Group has prepared the financial statements for the year ended 31 December 2021 in accordance with IFRSs. Please refer to pages 163 to 276 of this annual report for details. For the key financial indicators of the Group, please refer to the sections headed “Principal Accounting Information and Financial Indicators” in this annual report.

Dividends

Considering that the Company suffered an operating loss for year of 2021, which does not meet the conditions for profit distribution as required under the Articles of Association, the Board did not recommend any payment of cash dividend or conversion of capital reserve into share capital or other profit distribution of the Company for the year of 2021. The abovementioned proposal is still subject to the approval of the 2021 annual general meeting of the Company.

Five-Year Financial Summary

A summary of the results and of the assets and liabilities of the Group for the five-year period ended 31 December 2021 (prepared under IFRSs) are set out on page 280 of this annual report.

Bank Loans and Other Borrowings

Details of the bank loans and other borrowings of the Group are set out in note 36 to the financial statements prepared under IFRSs.

Interest Capitalisation

For the year ended 31 December 2021, interest expense of RMB701 million (2020: RMB363 million) was capitalised as the cost of construction in progress and property, plant and equipment in the financial statements prepared under IFRSs.

Property, Plant and Equipment

Property, plant and equipment of the Group and movements of property, plant and equipment during the year ended 31 December 2021 are set out in note 19 to the financial statements prepared under IFRSs.

 

53


Major Customers and Suppliers

The Group’s aggregate revenue from the top five customers did not exceed 30% of the Group’s total revenue in 2021. The sales to the top five customers was RMB4,148 million in total, representing 4.08% of the total sales in 2021, of which no sales were made to related parties.

The Group’s purchases from the largest supplier was RMB7,630 million, representing 15.23% of the Group’s total purchases in 2021. The purchases from the top five suppliers was RMB19,435 million in total, representing 38.78% of the total purchases in 2021, of which purchases from related parties was RMB4,598 million, representing 9.18% of the total purchases in 2021. During the year, none of the directors, their closed associates or any shareholder of the Company (which, to the knowledge of the Directors, owns more than 5% of the total issued shares of the Company) had any interest in these top five suppliers.

Relationships with Customers and Suppliers

The Group understands that it is important to maintain good relationship with its suppliers and customers to fulfill its long-term goals and maintain the leading position in the market.

The Group fulfilled sincere service concept and systematically improved the whole process service experience of passengers. We have innovated the service mode and improved the service experience of delayed passengers in terms of sales, service and information acquisition. We have implemented the requirement of “affinity and refinement”, and introduced two-cabin “family service 360” products. We promoted the baggage tracking program in an all-round way and became the first airline in Asia obtaining IATA baggage tracking compliance certification. We implemented the upgrade of “China Southern e-Travel”, and the paperless self-service during the whole process to bring more convenient travel experience to passengers. During the reporting period, we continued to promote the construction of customer touch point and scenes, enriched and improved the QR Code on the plane, WIFI in the airport, digital lounge, digital cabin and other products and services, so as to lay a good foundation for the ecosystem scene construction in the future.

The Group continued to explore how to improve its supplier management mechanisms. Since 2018, the Group issued and continuously revised the Measures for Supplier Management to promote classification and hierarchical management of supplier, gradually established and improved the supplier assessment system, revised Supplier Evaluation Workflow, Supplier Information Verification Implementation Measures and other documents, and encouraged suppliers to actively assume social responsibility by continuously standardizing its cooperation with suppliers. Meanwhile, we communicated with suppliers regularly, took the advice and suggestion of suppliers to better improve its work.

During the reporting period, there had been no material or significant dispute between the Group and its suppliers and/or customers.

 

54


For the year ended 31 December 2021, the Group had following major customers and suppliers:

 

    

Unit: RMB million

 

Name of customers

   Operating
revenue
     Percentage as
total operating
revenue (%)
 

Customer 1

     1,097        1.08

Customer 2

     902        0.89

Customer 3

     853        0.84

Customer 4

     693        0.68

Customer 5

     602        0.59
  

 

 

    

 

 

 

Total

     4,148        4.08
  

 

 

    

 

 

 

 

     Unit: RMB million  

Name of suppliers

   Purchase      Percentage as
total purchase
(%)
 

China National Aviation Fuel Group

     7,630        15.23

South China Blue Sky Aviation Fuel Co., Ltd

     5,691        11.35

MTU Maintenance Zhuhai Co., Ltd.

     2,474        4.94

Guangzhou Aircraft Maintenance Engineering Co., Ltd.

     2,124        4.24

China Aviation Fuel (Beijing) Airport Aviation Oil Co., Ltd

     1,516        3.02
  

 

 

    

 

 

 

Total

     19,435        38.78
  

 

 

    

 

 

 

Based on the nature of the Group’s business, the Group has not relied on major suppliers or customers. For details of the customer services of the Group, please refer to the analysis on market and service under “Management Discussion and Analysis” section in this annual report.

Taxation

Details of taxation of the Group are set out in notes 16 and 29 to the financial statements prepared under IFRSs.

Enterprise Income Tax of Overseas Non-Resident Enterprises

In accordance with the relevant tax laws and regulations in the PRC, the Company is obliged to withhold and pay PRC enterprise income tax on behalf of non-resident enterprise shareholders at a tax rate of 10% when the Company distributes any dividends to non-resident enterprise shareholders. As such, any H Shares of the Company which are not registered in the name(s) of individual(s) (which, for this purpose, includes shares registered in the name of HKSCC Nominees Limited, other nominees, trustees, or other organisations or groups) shall be deemed to be H Shares held by non-resident enterprise shareholder(s), and the PRC enterprise income tax shall be withheld from any dividends payable thereon. Non-resident enterprise shareholders may wish to apply for a tax refund (if any) in accordance with the relevant requirements, such as tax agreements (arrangements), upon receipt of any dividends.

 

55


Individual Income Tax of Overseas Individual Shareholders

In accordance with the relevant tax laws and regulations in the PRC, when non-foreign investment companies of the mainland which are listed in Hong Kong distribute dividends to their shareholders, the individual shareholders in general will be subject to a withholding tax rate of 10% without making any application for the entitlement for the above-mentioned tax rate. However, the Company is a foreign investment company and, as confirmed by the relevant tax authorities, according to the Circular on Certain Issues Concerning the Policies of Individual Income Tax (Cai Shui Zi [1994] No. 020) (《關於個人所得稅若干政策問題的通知》 (財稅字[1994]020)) promulgated by the Ministry of Finance and the State Administration of Taxation on 13 May 1994, overseas individuals are, as an interim measure, exempted from the PRC individual income tax for dividends or bonuses received from foreign investment enterprises.

Investors of Northbound Trading

For investors of the Stock Exchange (including enterprises and individuals) investing in the A shares of the Company listed on the SSE (the “Northbound Trading”), the Company will withhold and pay income taxes at the rate of 10% on behalf of those investors and will report to the tax authorities for the withholding. For investors of Northbound Trading who are tax residents of other countries and whose country of domicile is a country which has entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, those enterprises and individuals may, or may entrust a withholding agent to, apply to the competent tax authorities of the Company for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the paid amount in excess of the tax payable based on the tax rate according to such tax treaty will be refunded.

Investors of Southbound Trading

Pursuant to the relevant requirements under the “Notice on the Tax Policies Related to the Pilot Program of the Shanghai Hong Kong Stock Connect (Cai Shui [2014] No. 81)” (《關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知 (財稅[2014]81)), for dividends received by domestic individual investors from investing in H shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect, the company of such H shares shall withhold and pay individual income tax at the rate of 20% on behalf of the investors. For dividends received by domestic securities investment funds from investing in shares listed on the Hong Kong Stock Exchange through Shanghai-Hong Kong Stock Connect, the tax payable shall be the same as that for individual investors. The company of such H shares will not withhold and pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax themselves.

Reserves

Movements in the reserves of the Group during the year are set out in the consolidated statement of changes in equity in the financial statements prepared under IFRSs.

Subsidiaries

Details of the major subsidiaries of the Company are set out in note 23 to the financial statements prepared under IFRSs.

 

56


Purchase, Sale and Redemption of Shares

Neither the Company nor any of its subsidiaries purchased, sold or redeemed any shares during the year ended 31 December 2021.

Pre-emptive Rights

There is no specific provision under the PRC laws or the articles of association of the Company regarding pre-emptive rights, which requires the Company to offer new shares to existing shareholders in proportion to their existing shareholdings when there is issuance of shares.

Permitted Indemnity Provision

The Company did not have any arrangement with a term providing for indemnity against liability incurred by the Directors or the Supervisors during their tenure.

The Company has purchased insurance to protect Directors and senior management against legal actions arising from corporate activities.

Audit and Risk Management Committee

The Audit and Risk Management Committee of the Company has reviewed and confirmed the audited financial statements of the Group for the year ended 31 December 2021.

Compliance with Laws and Regulations

Laws and regulations that have a significant impact on the operations of the Group include: Civil Aviation Law of the People’s Republic of China, Opinions of the State Council on Promoting the Development of the Civil Aviation Industry, Regulation on the Civil Airport Administration, Regulation of the People’s Republic of China on Civil Aviation Security, Provisions on the Administration of Flight Procedures and Minimum Operation Standards for Civil Airports, Provisions of the CAAC on the Administration of the Transport of Dangerous Goods by Air, Provisions of China’s Civil Aviation Business Permits for Domestic Routes and Provisions on the Business License for Public Air Transport Enterprises.

For the year ended 31 December 2021, the Company strictly followed the laws and regulations mentioned above to ensure safe operation of the Company, and to secure its slots execution rate and flight punctuality rate to reach the standard. The Company applied new routes and slots according to laws and returned back in a timely manner any unused traffic rights. No punishment was imposed on the Group by any regulatory authorities which caused material impact on the operation of the Group.

For the year ended 31 December 2021, the Group had complied with laws and regulations that had material effect on the operation of the Group.

 

57


Management Contracts

For the year ended 31 December 2021, no contracts concerning the management or administration of the whole or any substantial part of business of the Company were entered into or existed.

Contract of Significance

Save as disclosed in the section headed “Connected Transactions” below, during the year ended 31 December 2021, none of the Company or any of its subsidiaries entered into any contract of significance with the controlling shareholder or any of its subsidiaries other than the Group, and there was no contract of significance for the provision of services between the Group and its controlling shareholder or any of its subsidiaries other than the Group.

Directors and Supervisors’ Interests in Transaction, Arrangement or Contract of Significance

Save as disclosed in the section headed “Connected Transactions” below, none of the Directors, Supervisors or entities connected with the Directors or Supervisors had a material interest, either directly or indirectly, in any transaction, arrangement or contract of significance to the business of the Group subsisting at any time during the year ended 31 December 2021 or at the end of the year to which the Company, its holding company, or any of its subsidiaries was a party.

Directors and Supervisors’ Rights to Acquire Shares or Debentures

During the year ended 31 December 2021, neither the Company nor any of its subsidiaries was a party to any arrangement that would enable the Directors or Supervisors to acquire benefits through acquiring shares or debentures of the Company or any other body corporate, and none of the Directors or Supervisors or any of their spouses or children under the age of 18 were granted any right to subscribe for the equity or debt securities of the Company or any other body corporate or had exercised any such right.

Directors and Supervisors’ Interest in Competing Business

As at 31 December 2021, none of the Directors, Supervisors or any of their respective associates had engaged in or had any interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

Sufficiency of Public Float

According to the information publicly available to the Company, and within the knowledge of the Directors as at the latest practicable date prior to the publication of this annual report, the Company had maintained sufficient public float as required by the Listing Rules throughout the year ended 31 December 2021.

 

58


Connected Transactions

The Company entered into certain connected transactions with CSAH (the controlling shareholder of the Company) and other connected persons from time to time. Details of the connected transactions of the Company conducted in 2021 which are required to be disclosed herein under the Listing Rules, are as follows:

 

(1)

De-merger Agreement

The De-merger Agreement dated 25 March 1995 (such agreement was amended by the Amendment Agreement No.1 dated 22 May 1997) was entered into between CSAH and the Company for the purpose of defining and allocating the assets and liabilities between CSAH and the Company. Under the De-merger Agreement, CSAH and the Company have agreed to indemnify the other party against claims, liabilities and expenses incurred by such other party relating to the businesses, assets and liabilities held or assumed by CSAH or the Company pursuant to the De-merger Agreement.

Neither the Company nor CSAH has made any payments in respect of such indemnification obligations from the date of the De-merger Agreement up to the date of this annual report.

 

(2)

Continuing Connected Transactions between the Group and CSAH (and its Subsidiaries)

 

A.

SACM, which is 60% owned by CSAH

(1) The Company entered into a new Media Services Framework Agreement (“Media Services Framework Agreement”) on 27 December 2018 with SACM to renew the media services provided by SACM to the Group under the original media services framework agreement entered into by the Company and SACM with a term of three years on 30 December 2015, for an additional term of three years, commencing from 1 January 2019 to 31 December 2021.

Pursuant to the Media Services Framework Agreement, the Company has appointed SACM to provide exclusive advertising agency services, the plotting, purchase and production of in-flight TV and movie program agency services, channel publicity and production services, public relations services relating to recruitment of air-hostess, services relating to the distribution of newspapers and magazines and printing, production and procurement services in relation to media such as thermal boarding passes. The service fee for the media services to be provided to members of the Group by SACM and its subsidiaries are determined based on, among others, the prevailing market price. Pricing are based on prevailing market price and agreed upon between the parties for each transaction on arm’s length negotiations in accordance with the following pricing mechanism: (a) if there are prevailing market prices for same or similar types of services in the same or similar locations of the services being provided, the pricing of the services shall be no less favourable than the terms obtained from independent third parties and such prevailing market price evaluated; or (b) if there are no such prevailing market price in the same or similar locations, the service to be provided by SACM Group shall be on terms which are no less favourable than the terms which can be obtained by the Group from independent third parties within the PRC market. The Company will satisfy the service fee by its internal resources.

In view of the increase in demand for services to be provided by SACM to the Group under the Media Services Framework Agreement, the Company and SACM entered into a supplemental agreement on 29 November 2019 to revise the annual cap for the Media Services Framework Agreement for the year ended 31 December 2019 from RMB150 million (excluding tax) to RMB200.9 million (excluding tax). Pursuant to the Media Services Framework Agreement and supplemental agreement, the annual caps for each of the financial years ended 31 December 2019, 2020 and 2021 are RMB200.9 million, RMB170 million and RMB190 million (excluding tax), respectively.

 

59


For the year ended 31 December 2021, the transaction amount of the Group for media services was RMB131 million.

(2) As the Media Services Framework Agreement is about to expire and the transactions contemplated hereunder will continue, the Company entered into the new Media Services Framework Agreement on 28 December 2021 with SACM (the “New Media Services Framework Agreement”), to renew the media services provided by SACM to the Group under the Media Services Framework Agreement for a further term of three years from 1 January 2022 to 31 December 2024.

Pursuant to the New Media Services Framework Agreement, SACM Group agrees to continue to provide the Group with (i) agency services for collecting, editing and distribution for the Group’s internal publicity media and platforms; (ii) exclusive advertising agency services for the Company and advertising agency services for the Company’s wholly-owned or controlled subsidiaries; (iii) agency services for the planning, procurement and production of entertainment content in the application software of the Group’s in-flight entertainment system; (iv) supply services for CSA Mall; (v) recruitment public relations services; (vi) newspaper placement services; and (vii) other media services. The service fees for media services provided by the SACM and its subsidiaries to members of the Group are determined by reference to market prices after arms-length negotiations between the parties. The market prices are determined in the following order: (a) the prices then charged by independent third parties providing similar services under normal trading conditions in or in the vicinity of the place where such services are provided; or (b) the prices then charged by independent third parties providing similar services under normal trading conditions within the PRC. The Company will assign staff to check prices and terms offered by independent third parties for similar products or services (usually through online price comparison tools).

Pursuant to the New Media Services Framework Agreement and supplemental agreement, the annual caps for each of the financial years ending 31 December 2022, 2023 and 2024 are RMB240 million, RMB261 million and RMB282 million (excluding tax), respectively. For details, please refer to the announcement of the Company dated 28 December 2021 in relation to the New Media Services Framework Agreement.

 

B.

Finance Company, which is 51.416% owned by CSAH

On 27 August 2019, the Company entered into a New Financial Services Framework Agreement (the “Financial Services Framework Agreement”) with Finance Company, in order to renew the financial services provided by Finance Company to the Group under original financial services framework agreement entered into by the Company and Finance Company on 29 August 2016 for a term of three years. The term of the agreement is three years, starting from 1 January 2020 to 31 December 2022.

Under the Financial Services Framework Agreement, financial services provided by the Finance Company to the Group including deposit services (“Deposit Services”), loan services (“Loan Services”) and other financial services (“other financial services”). Both parties agreed that: (1) the Finance Company shall accept deposit of money from the Group at interest rates not lower than interest rate set by the PBOC for the same term of deposit. The Finance Company will in turn deposit the whole of such sums of money deposited by the Group with it with state-owned commercial banks and listed commercial banks to control the risks; (2) The Finance Company shall make loans or provide credit line services to the Group and the entering into of separate loan agreements upon application by the Company during the term of the Financial Services Framework Agreement, and the Finance Company shall not charge interest rates higher than the interest rate set by the PBOC for the similar term of loans. The total amount of outstanding loans extended by the Finance Company to the CSAH Group (excluding the Group) must not exceed the sum of the Finance Company’s shareholders’ equity, capital reserves and money deposit received from other parties (except the Group); (3) Upon request by the Company, the Finance Company shall also provide other financial services to the Group, including financial and financing consultation, credit certification and other relevant advice and agency services, insurance agency services, and other businesses which are approved by China Banking and Insurance Regulatory Commission to be operated by the Finance Company by entering into separate agreements. If the Company is approved to issue bond, the Finance Company can accept engagement by the Company to provide bond issuance or underwriting services, subject to the entering into separate agreements. The fees charged by the Finance Company for the provision of other financial services shall be fixed according to the rate of fees chargeable prescribed by the regulatory institutions such as the PBOC or the China Banking and Insurance Regulatory Commission.

 

60


Pursuant to the Financial Services Framework Agreement, each of the maximum daily balance of deposits (including the corresponding interests accrued thereon) placed by the Group as well as the maximum amount of the outstanding loans provided by the Finance Company to the Group (including the corresponding interests payable accrued thereon) for each of the three years ending 31 December 2020, 2021 and 2022 shall not exceed the Deposit Services Cap which is set at RMB13.0 billion, RMB14.5 billion and RMB16.0 billion, respectively, on any given day. The deposits placed by the Group with Finance Company were RMB12,621 million on 31 December 2021 and did not exceed RMB14.5 billion on any given day during the year ended 31 December 2021.

The provision of loan services by the Finance Company to the Group would constitute financial assistance by a connected person for the benefit of the Group, which are on normal commercial terms or better, and such loans are not secured by the assets of the Group, therefore the provision of the loan services by the Finance Company to the Group is exempt under rule 14A.90 of the Listing Rules from all reporting, annual review, announcement and shareholders’ approval requirements.

In respect of the other financial services to be provided by the Finance Company to the Group, the Company expects that the total fees payable by the Group to the Finance Company will not exceed RMB5.0 million for each of the three years ending 31 December 2022, which fall within the de minimis threshold set out in rule 14A.76 of the Listing Rules, therefore the provision of the other financial services by the Finance Company to the Group is also exempt from the reporting, annual review, announcement and shareholders’ approval requirements of the Listing Rules.

 

C.

CSAGPMC, a then wholly-owned subsidiary of CSAH

The Company has entered into the new Property Management Framework Agreement (the “Property Management Framework Agreement”) with CSAGPMC on 21 December 2020 for a term of three years from 1 January 2021 to 31 December 2023 to renew the property management transactions under the original property management framework agreement entered into by the Company and CSAGPMC on 19 December 2017 for a term of three years.

The property management and maintenance services to be provided by CSAGPMC under the Property Management Framework Agreement include (i) ensuring that the Company’s facilities in the production area, office area and living area of the old Baiyun Airport area, the China Southern Airlines building, the new Baiyun Airport and their surroundings are kept in an ideal condition and that the equipment in those areas are in normal operation; (ii) managing and carrying out maintenance in the old Baiyun Airport area, the China Southern Airlines building and their surrounding properties; (iii) managing and carrying out maintenance in the properties rented by the Company in the China Southern Airlines base and the terminal building of the new Baiyun Airport; (iv) managing and carrying out maintenance in the 110KV electrical substation in the new Baiyun Airport; (v) managing the operation of and carrying out maintenance in the high and low voltage transformer and distribution equipment in the Guangzhou freight station; and (vi) providing the water and electricity charge agency services.

 

61


The management and maintenance services fee shall be determined at an arm’s length basis between both parties and determined by multiplying the building area of each relevant property by the comprehensive property management unit fee of the applicable type of property as agreed by the parties. The comprehensive property management unit fees of the various types of properties shall be determined by the Company and CSAGPMC (i) with reference to the special circumstances in relation to the usage by the Company of such properties; (ii) according to the building areas of the various types of properties of the Company; and (iii) in combination with the comprehensive base service fees of the same types of properties in the market and other adjustment factors. The management and maintenance services fee charged should not be higher than the one charged by any independent third parties in the similar industries.

The annual cap for management and maintenance services fee payable pursuant to the Property Management Framework Agreement is set at RMB167 million for each of the three years ending 31 December 2021, 2022 and 2023, respectively. For the year ended 31 December 2021, the property management and maintenance services fee incurred by the Group amounted to RMB154 million pursuant to the Property Management Framework Agreement.

On 15 February 2022, CSAH completed the disposal of 95% interest in CSAGPMC to China Merchants Property Operation & Service Co., Ltd., an independent third party to the Company. Subsequent to the disposal, CSAH only holds 5% of the interest in CSAGPMC and CSAGPMC will no longer be a connected person to the Company. As such, the transactions contemplated under the Property Management Framework Agreement ceased to be a continuing connected transaction of the Company following the disposal.

 

D.

SACC, which is 50.1% owned by CSAH

(1) The Company entered into a new Catering Services Framework Agreement (the “Catering Services Framework Agreement”) on 27 December 2018 with SACC to renew the catering services provided by SACC to the Group under the original catering services framework agreement renewed by the Company with SACC for a term of three years on 30 December 2015 and extend for a term of three years, commencing from 1 January 2019 to 31 December 2021.

Pursuant to the Catering Services Framework Agreement, the service fee for catering services transaction mainly include four parts, i.e. in-flight meal boxes fees, service fee, in-flight supply service fee and storage management fees. The in-flight meal boxes fees are the main charging item, the determination of which is in accordance with raw material costs, labor costs, management fees, tax and fixed profit rate in the corresponding proportions of 35%, 35%, 10%, 10% and 10%, respectively. Other charges will be determined based on applicable items such as rental, labor costs, facilities depreciation costs and management fees. For the labor costs, it will be determined by reference to the average wage of the previous year issued by the Shenzhen Municipal Government. The various service fee charged by SACC should not be higher than the fees charged by any independent third parties in the similar locations providing similar services. The Company will fund the services fee wholly by its internal resources.

The annual caps for each of the three financial years ended 31 December 2019, 2020 and 2021 are RMB231 million, RMB266 million and RMB306 million, respectively.

For the year ended 31 December 2021, the service fee paid by the Group to SACC was RMB84 million.

 

62


(2) As the Catering Services Framework Agreement is about to expire and the transactions contemplated hereunder are expected to continue, the Company entered into the new Catering Services Framework Agreement (the “New Catering Services Framework Agreement”) on 28 December 2021 with SACC to renew the catering services provided by SACC to the Group under the Catering Services Framework Agreement for a term of three years, commencing from 1 January 2022 to 31 December 2024.

The service fees for the continuing connected transactions contemplated under the New Catering Services Framework Agreement mainly comprise four parts, i.e. meal fees, service fees, in-flight supply service fees and storage management fees. The meal fees, being the main part, are determined with reference to raw material costs, labor costs, management fees, tax and reasonable profit rate in the corresponding proportions of 38%, 38%, 12% and 12%, respectively. The reasonable profit rate will be determined based on the recovery of business from the pandemic and the industry environment. Other parts of the service fees are determined based on, where applicable, rental costs, labor costs, facilities depreciation costs and management fees. The labor costs will be determined with reference to the average wage of the preceding year published by the Shenzhen Municipal Government. The relevant departments of the Company will set upper price limit for meals according to the local price level and the consumer price index in Shenzhen, and with reference to the catering standards of similar routes and the catering prices of similar routes of other airlines. The final meal fees shall not exceed the upper price limit set by the Company.

Pursuant to the New Catering Services Framework Agreement, the annual caps for each of the three financial years ending 31 December 2022, 2023 and 2024 are RMB200 million, RMB230 million and RMB265 million, respectively. For details, please refer to the announcement of the Company dated 28 December 2021 in relation to the New Catering Services Framework Agreement.

 

(3)

Trademark License Agreement

The Company and CSAH entered into a ten year trademark license agreement dated 22 May 1997. Pursuant to which CSAH acknowledges that the Company has the right to use the name “南方航空 (China Southern)” and “中國南方航空 (China Southern Airlines)” in both Chinese and English, and grants the Company a renewable and royalty free license to use the kapok logo on a worldwide basis in connection with the Company’s airlines and airlines-related businesses. Unless CSAH gives a written notice of termination three months before the expiration of the agreement, the agreement will be automatically renewed for another ten-year term. In May 2017, the trademark license agreement entered into by the Company and CSAH was automatically renewed for ten years.

 

(4)

Leases

The Group (as lessee) and CSAH or its associates (as lessor) entered into lease agreements as follows:

 

A.

The Company and CSAH entered into an indemnification agreement dated 22 May 1997 in which CSAH had agreed to indemnify the Company against any loss or damage caused by or arising from any challenge of, or interference with, the Company’s right to use certain lands and buildings.

 

B.

The Company and CSAH entered into the new Asset Lease Framework Agreement (the “Asset Lease Framework Agreement”) on 21 December 2020 to continue (i) the asset lease transactions contemplated under the original Asset Lease Framework Agreement entered into by the Company and CSAH as at 26 January 2018 for a term of three years; and (ii) the asset lease transactions contemplated under the CSA Building Asset Lease Agreement entered into by the Company and Guangzhou Southern Airlines Construction Company Limited (a wholly-owned subsidiary of CSAH) as at 19 January 2018 for a lease term commencing from 1 January 2021 to 31 December 2023.

 

63


Pursuant to the Asset Lease Framework Agreement, CSAH agreed to (i) lease certain properties, parking lots and equipment assets such as machinery equipment, transportation equipment and electronic equipment located in various cities such as Nanyang, Wuhan, Changsha, Beijing, Urumqi, Guangzhou and Zhanjiang held by CSAH or its subsidiaries to the Company for the purposes of civil aviation and related businesses of the Company; and (ii) lease certain lands located in Nanyang, Wuhan, Guangzhou and Zhanjiang by leasing the land use rights of such lands to the Company for the purposes of civil aviation and related businesses of the Company.

The annual aggregate amount of rent payable by the Company to CSAH under the Asset Lease Framework Agreement for each of the three years ending 31 December 2021, 2022 and 2023 is RMB346.2905 million, which was determined with reference to the Rental Assessment Results. For the year ended 31 December 2021, the rent incurred by the Group amounted to RMB323 million pursuant to the Asset Lease Framework Agreement.

According to IFRS 16 – “Leases”, the Group, as the lessee, shall recognise a lease as a right-of-use asset and a lease liability in the consolidated statement of financial position of the Group. As such, the proposed lease transactions contemplated under the New Asset Lease Framework Agreement should be regarded as an acquisition of asset under the definition of transaction set out in rule 14.04 (1)(a) of the Listing Rules. The aggregate value of the right-of-use asset recognised under the proposed lease transactions contemplated under the New Asset Lease Framework Agreement is RMB934,921,570.17.

 

C.

On 30 December 2019, the Company entered into a new Property and Land Lease Framework Agreement (the “Property and Land Lease Framework Agreement”) with CSAH to renew the property and land lease transactions under the original Property and Land Lease Framework Agreement entered into by the Company and CSAH with a term of three years on 16 December 2016 for a term commencing from 1 January 2020 to 31 December 2022. Pursuant to the Property and Land Lease Framework Agreement, CSAH agreed to (i) lease certain properties, facilities and other infrastructure located in various cities such as Beijing, Shenyang, Chaoyang, Dalian, Changchun, Harbin, Jilin, Urumqi and overseas locations held by CSAH or its subsidiaries to the Company for office use related to the civil aviation business development; and (ii) lease certain lands located in Shenyang, Chaoyang, Dalian, Changchun, Harbin and Urumqi by leasing the land use rights of such lands to the Company for the purposes of civil aviation and related businesses of the Company. The annual rental is determined after arm’s length negotiation between the parties, based on the fair market rental of the relevant properties, facilities, infrastructure and lands. In addition, CSAH agreed that the annual rental shall not be higher than the prevailing market rental for properties, facilities, infrastructure and lands located at similar locations. The annual aggregate amount of rent payable by the Company to CSAH under the Property and Land Lease Framework Agreement for each of the three years ending 31 December 2020, 2021 and 2022 is RMB96.78 million, which was determined with reference to the Rental Assessment Results. For the year ended 31 December 2021, the rent incurred by the Group amounted to RMB83 million pursuant to the Property and Land Lease Framework Agreement.

According to IFRS 16 – “Leases”, the Group, as the lessee, shall recognise a lease as a right-of-use asset and a lease liability in the consolidated statement of financial position of the Group. As such, the lease transactions under the Property and Land Lease Framework Agreement should be regarded as an acquisition of asset under the definition of transaction set out in rule 14.04 (1)(a) of the Listing Rules. The aggregate value of the right-of-use asset recognised under the lease transactions under the Property and Land Lease Framework Agreement is RMB259,335,413.67.

 

64


D.

On 27 April 2017, the Company entered into a finance lease agreement in relation to one Airbus A321 aircraft (the “A321 Finance Lease Agreement”) and a finance lease agreement in relation to one Airbus A330-300 aircraft (the “A330 Finance Lease Agreement”, together with the A321 Finance Lease Agreement, the “Relevant Finance Lease Agreements”) with Guangzhou Nansha CSA Tianru Leasing Co., Ltd. (“CSA Leasing Company”), an associate of CSAH, respectively, pursuant to which CSA Leasing Company agreed to provide finance leasing to the Company in relation to one Airbus A321 aircraft and one Airbus A330-300 aircraft, respectively, in accordance with the terms and conditions of Relevant Finance Lease Agreements.

Under the A321 Finance Lease Agreement, (1) the lease term is 12 years, commencing on the Delivery Date of relevant aircraft, (2) principal amount is not more than 100% of the consideration for the purchase of relevant aircraft, (3) the applicable interest rate will be 21.6% float down of the interest rate for RMB loan for above 5 years set by the People’s Bank of China and the rental fee is the repayment of the principal amount and the interest under such Finance Lease. The total amount of rental fees payable to CSA Leasing Company is not expected to be more than US$80 million (which is equivalent to approximately RMB552 million), (4) the handling fee for the relevant aircraft shall be paid to CSA Leasing Company in one lump sum prior to the Delivery Date, which is estimated to be of no more than US$293,150 (which is equivalent to approximately RMB2,022,735), and (5) upon the expiry of the lease term, the Company is entitled to purchase such aircraft back from CSA Leasing Company at RMB10,000.

Under the A330 Finance Lease Agreement, (1) the lease term is 12 years, commencing on the Delivery Date of relevant aircraft, (2) principal amount is not more than 100% of the consideration for the purchase of relevant aircraft, (3) the applicable interest rate will be 21.6% below the interest rate for RMB loan for above 5 years set by the People’s Bank of China and the rental fee is the repayment of the principal amount and the interest under such Finance Lease. The total amount of rental fees payable to CSA Leasing Company is not expected to be more than US$170 million (which is equivalent to approximately RMB1,173 million), (4) the respective handling fee for the relevant aircraft shall be paid to CSA Leasing Company in one lump sum prior to the Delivery Date, which is estimated to be of no more than US$634,700 (which is equivalent to approximately RMB4,379,430), and (5) upon the expiry of the lease term, the Company is entitled to purchase such aircraft back from CSA Leasing Company at RMB10,000.

The total rental fee and handling fee for the Aircraft Finance Leases shall not exceed US$250.93 million (which is equivalent to approximately RMB1,731.42 million).

For the year ended 31 December 2021, the rental fee and handling fee paid by the Company to CSA Leasing Company under the A321 Finance Lease Agreement and A330 Finance Lease Agreement were RMB1,260 million and RMB3 million, respectively. Up to 31 December 2021, the Company paid the total rental fee and handling fee to CSA Leasing Company under the A321 Finance Lease Agreement and A330 Finance Lease Agreement to the extent of RMB4,846 million.

 

E.

On 10 October 2019, the Company entered into the 2020-2022 Finance and Lease Service Framework Agreement with CSA International Finance Leasing Co., Ltd. (“CSA International”), an associate of CSAH to renew the transactions under the 2018-2019 Finance and Lease Service Framework Agreement entered into on 17 October 2017 by the Company and CSA International, for an additional term of three years from 1 January 2020 to 31 December 2022.

 

65


CSA International agreed to continue to provide finance leasing service to the Company in relation to the Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment, as well as the operating lease service to the Company in relation to certain aircraft, helicopters and engines, as and when the Company considers desirable, in the interests of the Company and the Shareholders as a whole in accordance with the terms and conditions of the 2020-2022 Finance and Lease Service Framework Agreement and the relevant implementation agreements contemplated thereunder.

 

  (1)

Subject matter under the Finance Lease Transactions under the 2020-2022 Finance and Lease Service Framework Agreement contains the Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment (comprises part of the aircraft, Aircraft Related Assets and Aviation Related Equipment in the Company’s introduction plan (“introduction plan”) from 1 January 2020 to 31 December 2022, subject to adjustment from time to time). According to the introduction plan, the number of the leased Aircraft will be no more than 50, 51 and 41 for the years ending 31 December 2020, 31 December 2021 and 31 December 2022, respectively (subject to adjustment from time to time). Under the Finance Lease Transactions, the aggregate principal amount shall not more than 100% of the consideration for the purchase of the subject matter (including the aircraft, the Aircraft Related Assets and the Aviation Related Equipment), the applicable interest rate will be further determined and agreed by the Company and CSA International with reference to the results of the Company’s requests for proposals or other bidding processes in respect of financing of the aircraft, Aircraft Related Assets and Aviation Related Equipment satisfying certain prerequisites. The rental fee is the repayment of the principal amount for the subject matter and the interest under the Finance Lease Transactions.

The lease period of the subject matter under the 2020-2022 Finance and Lease Service Framework Agreement will be agreed upon entering into the individual Finance Lease Agreements. Based on previous similar transactions, the lease period of the Leased Aircraft under the separate Finance Lease Agreement(s) would be 10-12 years. Based on the common practice of the aviation industry, the lease period of the Leased Aircraft Related Assets would be 12 years. The respective handling fee for each of (i) the Leased Aircraft and Leased Aircraft Related Assets which is not more than 1% of the principal amount for each of the Leased Aircraft and Leased Aircraft Related Assets; and (ii) the Leased Aviation Related Equipment which is not more than 1.5% of the principal amount for each of the Leased Aviation Related Equipment shall be paid by the Company to CSA International prior to the commencement of the respective Delivery Date or on the agreed date after the respective Delivery Date. Upon the payment of the last instalment of rental fee by the Company to CSA International for each of the relevant Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment, the Company is entitled to purchase the relevant Leased Aircraft, Leased Aircraft Related Assets and Leased Aviation Related Equipment back from CSA International at a nominal purchase price for such subject matter.

Based on the assumption that (i) the maximum aggregate transaction amount (including the principal, interest and handling fee) of the aircraft (excluding helicopters) finance lease transactions shall not exceed 60% of the aggregate amount (including the principal, interest and handling fee) of all the aircraft planned to be introduced under the Company’s introduction plan from 2020 to 2022; (ii) the maximum aggregate transaction amount of the finance lease of the Aircraft Related Assets shall not exceed total amount of the Aircraft Related Assets to be introduced under the Company’s introduction plan from 2020 to 2022; and (iii) the maximum aggregate transaction amount of the finance lease of the Aviation Related Equipment shall not exceed total amount of the Aviation Related Equipment to be introduced under the Company’s introduction plan from 2020 to 2022, the proposed total rental fee (including principal and interest) and handling fee under the Finance Lease Transactions are US$5,140 million (or the equivalent amount in RMB), US$5,039 million (or the equivalent amount in RMB) and US$4,434 million (or the equivalent amount in RMB) for the three years ending 31 December 2020, 31 December 2021 and 31 December 2022. Pursuant to IFRS 16, the Finance Lease Transactions by the Company (including the wholly-owned or controlled subsidiaries of the Company or their wholly-owned or controlled subsidiaries) as lessee under the 2020-2022 Finance and Lease Service Framework Agreement will be recognised as right-of-use assets, the proposed caps for the Finance Lease for the years ending 31 December 2020, 2021 and 2022 under the 2020-2022 Finance and Lease Service Framework Agreement are US$3,922 million (or the equivalent amount in RMB), US$3,833 million (or the equivalent amount in RMB) and US$3,385 million (or the equivalent amount in RMB), respectively.

 

66


The total rental fee (including principal and interest) and handling fee for finance lease transaction under the 2020-2022 Finance and Lease Service Framework Agreement was RMB2,311 million for the year ended 31 December 2021. The calculated right-of-use assets by discounting the above mentioned total rental fee (including principal and interest) and the handling fee was RMB1,869 million.

 

  (2)

Subject matter under the Operating Lease Transactions under the 2020-2022 Finance and Lease Service Framework Agreement contains the aircraft, helicopters and engines in the Company’s introduction plan through operating lease from 1 January 2020 to 31 December 2022. The rental fee will be further determined and agreed by the Company and CSA International with reference to the results of the Company’s requests for proposals or other bidding processes in respect of leasing of aircraft, helicopters and engines satisfying certain prerequisites.

During the lease period, CSA International has ownership of the aircraft, helicopters and engines and the Company has the rights to use the aircraft, helicopters and engines. Upon the expiry of the lease period, the Company should return the aircraft, helicopters and engines to CSA International.

Based on the assumption that (i) the maximum aggregate transaction amount (including the principal, interest payable and handling fee) of operating lease transactions of the aircraft and helicopters shall not exceed 50% of the aggregate amount of all aircraft planned to be introduced under the introduction plan; and (ii) the maximum aggregate transaction amount of the operating lease of the engines shall not exceed total amount of the engines planned to be introduced under the introduction plan, the proposed maximum annual rental fee under the Operating Lease Transactions are US$135 million (or the equivalent amount in RMB), US$255 million (or the equivalent amount in RMB) and US$368 million (or the equivalent amount in RMB) for the three years ending 31 December 2020, 31 December 2021 and 31 December 2022, respectively, and proposed maximum total rental fee under the Operating Lease Transactions are US$1,385 million (or the equivalent amount in RMB), US$1,213 million (or the equivalent amount in RMB) and US$1,201 million (or the equivalent amount in RMB) for the three years ending 31 December 2020, 31 December 2021 and 31 December 2022, respectively. Pursuant to IFRS 16, the Operating Lease Transactions by the Company as lessee under the 2020-2022 Finance and Lease Service Framework Agreement will be recognised as right-of-use assets, the proposed caps for the Operating Lease for the years ending 31 December 2020, 2021 and 2022 under the 2020-2022 Finance and Lease Service Framework Agreement are US$1,116 million (or the equivalent amount in RMB), US$961 million (or the equivalent amount in RMB) and US$949 million (or the equivalent amount in RMB), respectively.

 

67


The Company has paid the rental fees (namely actual amount of rental fees payable to CSA Leasing by the Company every year, including twelve-month rental fees for current aircraft, helicopters and engines as well as newly added aircraft, helicopters and engines during the year) of RMB150 million based on the Operating Lease Transactions under the 2020-2022 Finance and Lease Service Framework Agreement for the year ended 31 December 2021. The total amount of rental fees of newly added aircraft, helicopters and engines (leases from CSA Leasing by the way of operating lease by the Company every year with lease term ranging from two to twelve years) and the calculated right-of-use assets by discounting the above mentioned total rental fee during the year ended 31 December 2021 were nil.

 

(5)

Share Issuance in 2020

On 27 December 2019, the Company’s 2019 second extraordinary general meeting, the 2019 first class meeting for holders of A shares, and the 2019 first class meeting for holders of H shares considered and approved the resolution to issue to CSAH not more than 2,453,434,457 A shares (including 2,453,434,457 A shares) (“A Share Issuance”) and to enter into the A shares subscription agreement with CSAH and the resolution to issue not more than 613,358,614 H shares (including 613,358,614 H shares) to Nan Lung (a wholly-owned subsidiary of CSAH) (“H Share Issuance”) and to enter into the H shares subscription agreement with Nan Lung. The proceeds from the A Share Issuance was utilised in the procurement of aircraft and the repayment of the Company’s borrowings, and the proceeds from the H Share Issuance was utilised to supplement the general working capital of the Company. For details of the A Share Issuance and the H Share Issuance, please refer to the Announcement of the Connected Transaction in respect of the Non-public Issuance of A Shares and Non-public Issuance of H Shares of the Company published on China Securities Journal, Shanghai Securities News and Securities Times and the website of the SSE on 31 October 2019 and the announcement on Connected Transactions in respect of Proposed Share Issuance of the Company published on the website of the Stock Exchange and the Company on 30 October 2019.

On 15 April 2020, the Company issued 608,695,652 H shares in total to Nan Lung at the issue price of HK$5.75 per H share pursuant to the subscription agreement dated 30 October 2019 entered into between the Company and Nan Lung. The net price of each new H share issued under the H Share Issuance was HK$5.74 per H share. The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

Gross proceeds and the use of proceeds from H Shares Issuance:

 

Gross proceeds from

H Shares Issuance

(HKD)                         

  

Intended use of the proceeds as

previously disclosed

   Utilised proceeds as
of 31 December
2021 (denominated
in RMB)
     Unutilised proceeds
as of 31 December
2021 (denominated
in RMB)
    

Expected timeline

for the use of

unutilised proceeds

3,499,999,999

  

Supplement of general working capital

     3,499,999,999        0      Not applicable

 

Note:

The total amounts of funds raised from 2020 Non-public Issuance of H shares were HKD3,499,999,999, equivalent to RMB3,178,664,999.09 based on the middle exchange rate of 1:0.90819 of HKD dollar against RMB on 15 April 2020. After deducting the issuance expenses of RMB3,570,544.56, the net proceeds raised was RMB3,175,094,454.53.

On 18 June 2020, the Company issued 2,453,434,457 A Shares in total to CSAH at the issue price of RMB5.21 per A Share pursuant to the subscription agreement dated 30 October 2019 entered into between the Company and CSAH. The net price of each new A Share issued under the A Share Issuance was RMB5.21 per A Share. For details, please refer to the announcement of the Company published on the website of the Stock Exchange on 18 June 2020. The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

 

68


Gross proceeds and the use of proceeds from A Shares Issuance:

 

Gross proceeds from

the A Share Issuance

(RMB)                         

  

Intended use of the proceeds as

previously disclosed

   Utilised proceeds as
of 31 December
2021 (RMB)
     Unutilised proceeds
as of 31 December
2021 (RMB)
    

Expected timeline

for the use of

unutilised proceeds

12,782,393,520.97

  

Procurement of aircraft

     7,195,237,293.60        2,080,848,019.82      On or before 30 June 2022
  

Repayment of the Company’s borrowings

     3,500,000,000.00        0      Not applicable

 

Note:

The total amounts of funds raised from 2020 Non-public Issuance of A Shares was RMB12,782,393,520.97. After deducting the underwriting expenses of RMB2,000,000.00 (including VAT), the net cash subscription amount actually received was RMB12,780,393,520.97. After deducting other issuance expenses of RMB4,308,207.55 (including VAT) paid by the Company from the net cash subscription amounts, the actual net proceeds raised was RMB12,776,085,313.42.

 

(6)

A Share Convertible Bonds Issuance

On 14 May 2020, the thirteenth meeting of the eighth session of the Board of the Company considered and approved, among others, the relevant resolutions on the issuance plan of the convertible corporate bonds in the total amount of not more than RMB16 billion (including RMB16 billion) which are convertible into new A shares and proposed to be issued by the Company within the PRC (the “A Share Convertible Bonds”) and the possible subscription for the A Share Convertible Bonds by CSAH.

On 15 October 2020, the Company has completed the public issuance of 160 million A Share Convertible Bonds in the total amount of RMB16 billion with a nominal value of RMB100 each and the initial conversion price of RMB6.24 per share, out of which CSAH subscribed for 101,027,580 A Share Convertible Bonds.

Pursuant to the approval by the Self-discipline Supervision Decision [2020] No. 355 issued by the SSE, the A Share Convertible Bonds were listed on the SSE on 3 November 2020 with the bond abbreviation of “Nanhang Convertible Bonds (南航轉債)” and the bond code of 110075. The closing price of each bond on that day was RMB117.

On 21 April 2021, the conversion of the A Share Convertible Bonds was commenced, with the conversion price being RMB6.24 per share and the conversion period being from 21 April 2021 to 14 October 2026.

On 18 June 2021, CSAH converted all the A Share Convertible Bonds held by it, with a nominal value of RMB10,102,758,000, into A shares of the Company, with the number of shares converted being 1,619,031,728 shares. Upon completion of the conversion, CSAH does not hold any A Share Convertible Bonds. Immediately following the completion of the conversion, CSAH and its concert parties held in aggregate 10,880,881,085 RMB ordinary shares and overseas-listed foreign shares of the Company, representing 64.20% of the total shares in issue of the Company.

The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

 

69


Gross proceeds and the use of proceeds from A Share Convertible Bonds:

 

Gross proceeds from

the A Shares issuance

(RMB)                         

  

Intended use of the proceeds as

previously disclosed

   Utilised proceeds as
of 31 December
2021 (RMB)
     Unutilised proceeds
as of 31 December
2021 (RMB)
    

Expected timeline

for the use of

unutilised proceeds

16,000,000,000.00

  

Purchasing aircraft and aviation equipment and maintenance projects

     4,904,844,932.90        5,674,758,986.82      On or before 31 December 2022
  

Introduction of spare engines

     589,584,801.07        10,415,198.93      On or before 31 December 2022
  

Supplementing working capital

     4,800,000,000.00        0      Not applicable

 

Note:

The total amounts of funds raised from 2020 Public Issuance of A Share Convertible Bonds were RMB16,000,000,000.00. After deducting the underwriting expenses of RMB17,691,726.00 (including VAT), the net cash subscription amount actually received was RMB15,982,308,274.00. After deducting other issuance expenses of RMB2,704,354.28 (including VAT) paid by the Company from the net cash subscription amounts, the actual net proceeds raised was RMB15,979,603,919.72.

As of 31 December 2021, the A Share Convertible Bonds with a nominal value of RMB5,896,593,000 were outstanding. If the outstanding A Share Convertible Bonds were fully converted during the reporting period based on the conversion price of RMB6.24 per share, the Company would have issued approximately 944,966,826 A shares and the total issued shares of the Company would have increased to approximately 17,893,404,854 shares, while the shares held by the controlling shareholder of the Company, CSAH, would have decreased to approximately 60.81% of the total issued shares of the Company. The A Share Convertible Bonds may be conditionally redeemed by the Company during the conversion period. It is expected that the full redemption of the outstanding A Share Convertible Bonds would not have material adverse impact on the financial and liquidity position of the Company. Please refer to note 18 and note 27 to the financial statements and the section headed “Related Information of Bonds – II. Corporate Convertible Bonds” for the dilution impact on loss per share may be brought by the full conversion of the outstanding A Share Convertible Bonds during the reporting period and other details of the A Share Convertible Bonds.

 

(7)

Proposed Share Issuance

On 29 October 2021, the Board resolved to put forward to the EGM to approve the A Shares Subscription Agreement (“A Shares Subscription Agreement”) and the connected transaction in relation to the proposed issuance of 803,571,428 new A Shares to CSAH (“A Share Issuance”) at the A Share Subscription Price, payable in cash. The total funds to be raised from the proposed A Share Issuance will be not more than RMB4,500 million (including RMB4,500 million), which will be utilised to supplement the general working capital of the Company. On the same day, the Board also resolved to put forward to the EGM to approve the H Shares Subscription Agreement (“H Shares Subscription Agreement”) and the connected transaction in relation to the issuance of not more than 855,028,969 new H Shares (including 855,028,969 H Shares) to Nan Lung (a wholly-owned subsidiary of CSAH) (“H Share Issuance”, together with “A Share Issuance” referred to as “Proposed Share Issuance”) at the H Share Subscription Price, payable in cash. The total funds to be raised from the proposed H Share Issuance will be not more than HK$1,800 million (including HK$1,800 million), which will be utilised to supplement the general working capital of the Company. The A Share Issuance and the H Share Issuance are not inter-conditional upon each other. The new A Shares and the new H Shares to be issued under the Proposed Share Issuance will be allotted and issued pursuant to the general mandate.

 

70


The A Share Subscription Price shall be the higher of (i) 90% of the average trading price of the A Shares as quoted on the Shanghai Stock Exchange in the 20 trading days immediately prior to the date of the announcement regarding the Board resolutions approving the A Share Issuance published on the website of the Shanghai Stock Exchange (i.e., 30 October 2021, the “Price Benchmark Date”), and (ii) the latest audited net asset value per Share attributable to equity shareholders of the Company (rounded up to the nearest two decimal places). The average trading price of the A Shares in the 20 trading days preceding the Price Benchmark Date equals to the total trading amount of A Shares traded in the 20 trading days preceding the Price Benchmark Date divided by the total volume of A Shares traded in the 20 trading days preceding the Price Benchmark Date. Where there are any ex-right or ex-dividend events, including distribution of dividend, bonus issue, rights issue, and transfer to share capital from capital reserve, during the period from the balance sheet date of the Company’s latest audited financial report to the date of issuance of such new A Shares, the abovementioned audited net asset value per Share attributable to equity shareholders of the Company will be adjusted accordingly. The average trading price of the A Shares in the 20 trading days preceding the Price Benchmark Date is RMB6.22 per Share. As at 31 December 2020, the audited net asset value per Share attributable to equity shareholders of the Company (ex-dividend) was RMB4.52. Based on the abovementioned pricing principles, the A Share Subscription Price is RMB5.60 per Share.

The H Share Subscription Price shall be the higher of (i) the average trading price of the H Shares as quoted on the Stock Exchange in the 20 Hong Kong trading days immediately prior to the date of the Board meeting approving the H Share Issuance (i.e., 29 October 2021, the “Board Meeting Date”), and (ii) the latest audited net asset value per Share attributable to equity shareholders of the Company in HK$ calculated based on the central parity rate announced by the People’s Bank of China on the Board Meeting Date for the new H Shares (HK$1=RMB0.82164) as at the issuance of the new H Shares (rounded up to the nearest two decimal places). The average trading price of the H Shares in the 20 Hong Kong trading days preceding the Board Meeting Date equals to the total trading amount of H Shares traded in the 20 Hong Kong trading days preceding the Board Meeting Date divided by the total volume of H Shares traded in the 20 Hong Kong trading days preceding the Board Meeting Date. Where there are any ex-right or ex-dividend events, including distribution of dividend, bonus issue, rights issue, and transfer to share capital from capital reserve, during the period from the balance sheet date of the Company’s latest audited financial report to the date of issuance of such new H Shares, the abovementioned audited net asset value per Share attributable to equity shareholders of the Company will be adjusted accordingly. The average trading price of the H Shares in the 20 Hong Kong trading days preceding the Board Meeting Date for the new H Shares is HK$4.68 per Share.

The proceeds from the Proposed Share Insurance, after deduction of expenses for issuance, will be utilised to supplement the general working capital, which will help enhance the capital strength and asset volume of the Company and alleviate the pressure brought by capital demand from the daily operation of the Company. At the same time, the availability of the raised funds will help consolidate the Company’s foundation of business development, strengthen the Company’s core competitiveness and profitability, promote the sustained and rapid growth of the Company’s principal business, and provide capital guarantee for the Company’s further expansion and growth, which has important strategic significance for the realization of the Company’s long-term sustainable development.

The A Shares Subscription Agreement shall take effect after the satisfaction of the following conditions:

 

(1)

the approval of the Board and the approval at the extraordinary general meeting of the A Share Issuance under the A Shares Subscription Agreement have been obtained;

 

(2)

the approval by the board of directors of CSAH or the regulatory authority stipulated in the articles of association of CSAH of the subscription of the new A Shares to be issued under the A Shares Subscription Agreement by CSAH has been obtained; and

 

(3)

all necessary licences, authorisations, permits, consents and other forms of approvals from the relevant approval authorities, including but not limited to the competent authorities supervising the state-owned assets and CSRC, for the A Share Issuance contemplated under the A Shares Subscription Agreement have been obtained.

 

71


The H Shares Subscription Agreement shall take effect after the satisfaction of the following conditions:

 

(1)

the approval of the Board and the approval of the shareholders of the Company at the extraordinary general meeting of the H Share Issuance under the H Share Subscription Agreement have been obtained;

 

(2)

the approvals by the respective boards of directors of Nan Lung and CSAH of the subscription of new H Shares to be issued under the H Share Subscription Agreement by Nan Lung have been obtained;

 

(3)

all necessary licences, authorisations, permits, consents and other forms of approvals from the relevant approval authorities, including but not limited to the competent authorities supervising state-owned assets, CSRC and the Stock Exchange, for the H Share Issuance contemplated under the H Shares Subscription Agreement have been obtained; and

 

(4)

the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the new H Shares to be issued.

On 28 December 2021, the aforesaid Proposed Share Issuance was considered and approved at the Company’s 2021 second extraordinary general meeting.

On 18 March 2022, the Company announced that it has received the approval issued by the CSRC to issue not more than 855,028,969 overseas listed foreign shares (H shares).

Annual Confirmations

The Company has confirmed that the execution and enforcement of the implementation agreements under the continuing connected transactions above for the year ended 31 December 2021 has followed the pricing principles of such continuing connected transactions.

The independent non-executive Directors of the Company have confirmed to the Board that they have reviewed all non-exempt continuing connected transactions and are of the view that:

 

(a)

those transactions were conducted in the ordinary and usual course of business of the Group;

 

(b)

those transactions were entered into on normal commercial terms or better; and

 

(c)

those transactions were conducted in accordance with the relevant agreement governing them on terms that were fair and reasonable and in the interests of the shareholders of the Company as a whole.

 

72


The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 (Revised) “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued their unmodified letter containing the auditor’s findings and conclusions in respect of the continuing connected transactions disclosed by the Group in the Annual Report in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditor’s letter has been provided by the Company to the Stock Exchange. The Company’s auditor has indicated that:

 

(a)

nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions have not been approved by the Company’s board of directors.

 

(b)

for transactions involving the provision of goods or services by the Group, nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions were not, in all material respects, in accordance with the pricing policies of the Group.

 

(c)

nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions were not entered into, in all material respects, in accordance with the relevant agreements governing such transactions.

 

(d)

with respect to the aggregate amount of each of the aforementioned continuing connected transactions, nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions have exceeded the annual cap as set by the Company.

Save as disclosed above, none of the other related party transactions as disclosed in note 50 to the financial statements prepared under IFRSs constituted connected transactions or continuing connected transactions which are required to be disclosed in accordance with the Listing Rules. The Company has complied with the disclosure requirements of Chapter 14A of Listing Rules in respect of the connected transactions and continuing connected transactions.

Donations

For the year ended 31 December 2021, the Group made donations for charitable purposes with an amount of RMB17.28 million.

Designated Deposits and Overdue Time Deposits

As of 31 December 2021, the Group’s deposits placed with financial institutions or other parties did not include any designated deposits, or overdue time deposits for which the Group failed to receive repayments.

 

73


Material Litigation

As at 31 December 2021, the Group was not involved in any material litigation.

Subsequent Events

On 29 October 2021, the Company entered into the Conditional Subscription Agreement in relation to the Subscription of the A Shares under the Non-public Issue of A Shares of China Southern Airlines Company Limited with CSAH, and entered into the Conditional Subscription Agreement in relation to the Subscription of the H Shares under the Non-public Issue of H Shares of China Southern Airlines Company Limited with Nan Lung Holding Limited (“Nan Lung”). The Company proposed the non-public issuance of 803,571,428 A Shares to CSAH (“the A Share Issuance”). The total funds to be raised from the A Share Issuance will be not more than RMB4,500 million (including RMB4,500 million). The consideration shall be made by CSAH in full by cash. Meanwhile, the Company proposed the non-public issuance of not more than 855,028,969 H shares (including 855,028,969 H shares) to Nan Lung (“the H Share Issuance”). The total funds to be raised from the H Share Issuance will be not more than HKD1,800 million (including HK$1,800 million). The consideration shall be made by Nan Lung in full by cash. Both of the A Share Issuance and the connected transaction contemplated under H Share Issuance were approved by the Extraordinary General Meeting of the Company on 28 December 2021. The Company announced that it had received the “Acceptance Notice of the Application for Administration Permission” issued by China Securities Regulatory Commission (“CSRC”) for the A Share Issuance and H share Issuance on 10 January 2022 and 11 January 2022, respectively. On 18 March 2022, the Company announced that it had received the Approval on Issuance of Overseas Listed Foreign Shares by China Southern Airlines Company Limited (Zheng Jian Xu Ke [2022] No. 497) issued by the CSRC. As at the date of this report, the A Share Issuance is under review by the CSRC.

Auditors

A resolution is to be proposed at the forthcoming annual general meeting of the Company for the appointment of KPMG Huazhen LLP to provide professional services to the Company for its domestic financial reporting and internal control reporting, U.S. financial reporting and internal control reporting for the year 2022 and the appointment of KPMG to provide professional services to the Company for its Hong Kong financial reporting for the year 2022. There has been no change in the Company’s auditors in the past three years.

By order of the Board

Ma Xu Lun

Chairman

Guangzhou, the PRC

30 March 2022

 

74


CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTS

 

I.

CHANGE IN SHARE CAPITAL

 

(I)

Changes in Shareholdings

 

1.

Changes in Shareholdings

Unit: Share

 

          31 December 2020            31 December 2021  
          Number of Shares      Percentage
(%)
     Increase/(decrease)
during the year 2021
Number of Shares
    Number of Shares      Percentage
(%)
 

I.

  

Shares subject to restrictions on sales

             

1.

  

RMB ordinary shares

     2,942,637,115        19.20        (489,202,658     2,453,434,457        14.48  

2.

  

Overseas listed foreign shares

     1,209,621,577        7.89        (1,209,621,577     0        0  
  

Total

     4,152,258,692        27.09        (1,698,824,235     2,453,434,457        14.48  

II.

  

Shares not subject to restrictions on sales

             

1.

  

RMB ordinary shares

     8,111,520,431        52.91        2,108,338,291       10,219,858,722        60.30  

2.

  

Overseas listed foreign shares

     3,065,523,272        20.00        1,209,621,577       4,275,144,849        25.22  
  

Total

     11,177,043,703        72.91        3,317,959,868       14,495,003,571        85.52  

III.

  

Total number of shares

     15,329,302,395        100        1,619,135,633       16,948,438,028        100  

 

2.

Description of Change in Shares

The Company publicly issued RMB16 billion Convertible Bonds with the bond abbreviation of “Nanhang Convertible Bonds (南航轉債)” on 15 October 2020. The Company’s controlling shareholder CSAH subscribed “Nanhang Convertible Bonds (南航轉債)” of RMB10,102,758,000. The conversion of the “Nanhang Convertible Bonds (南航轉債)” was commenced on 21 April 2021. On 18 June 2021, CSAH converted all the “Nanhang Convertible Bonds (南航轉債)” of RMB10,102,758,000 held by it into A shares of the Company through Shanghai Stock Exchange, and number of shares being converted was 1,619,031,728. As of the end of the reporting period, the total number of shares being converted by the holders of “Nanhang Convertible Bonds (南航轉債)” except CSAH was 103,905 shares.

During the reporting period, the number shares subject to restrictions on sales in the share capital of the Company reduced by 1,698,824,235, among which the 489,202,658 A shares non-publicly issued by the Company to CSAH on 26 September 2018 was lifted due to the expiry of the lock-up period.

In the above table, the 1,209,621,577 foreign listed shares of the Company subject to restrictions on sales as at 31 December 2020 included (i) 600,925,925 H shares (“2018 Subscription Shares”) owned by Nan Lung as a result of the subscription of the non-public issuance of H shares of the Company in 2018, while Nan Lung undertook that the 2018 Subscription Shares shall not be listed or traded on any stock exchange, or transferred within 36 months from the completion date of the issuance thereof (i.e. 11 September 2018) and such commitment period has expired during the year ended 31 December 2021; and (ii) 608,695,652 H shares (“2020 Subscription Shares”) owned by Nan Lung as a result of the subscription of the non-public issuance of H shares of the Company in 2020, while Nan Lung undertook that the 2020 Subscription Shares shall not be listed or traded on any stock exchange, or transferred within 36 months from the completion date of the issuance thereof (i.e. 15 April 2020). Considering that the 2018 Subscription Shares and the 2020 Subscription Shares are not subject to restrictions on sales in nature, the 2018 Subscription Shares and the 2020 Subscription Shares were reclassified as the Company’s foreign listed shares not subject to restrictions on sales during the year ended 31 December 2021.

 

75


3.

Other Information Considered to be Discloseable by the Company or Required to be Disclosed by the Securities Regulatory Authorities

On 29 October 2021, as approved by the third meeting of the 9th session of the Board of the Company, the Company non-publicly issued 803,571,428 A Shares to CSAH, with gross proceeds raised not more than RMB4,500 million (including RMB4,500 million), and non-publicly issued not more than 855,028,969 H Shares (including 855,028,969 H Shares) to Nan Lung, with gross proceeds raised not more than HK$1,800 million (including HK$1,800 million). For details, please refer to the announcement Connected Transactions in respect of Proposed Share Issuance and Proposed Amendments to the Articles of Association in relation to the Proposed Share Issuance disclosed by the Company on the website of the Stock Exchange on 29 October 2021.

As of the date of the report, the Company received feedback from the CSRC on the Company’s non-public issuance of A shares and made written reply and public disclosure to the feedback of the CSRC. For details, please refer to the relevant announcement disclosed on the China Securities Journal, Shanghai Securities News and Securities Times and the website of the SSE on 29 January 2022.

As of the date of the report, the Company received the Approval on Issuance of Overseas Listed Foreign Shares by China Southern Airlines Company Limited issue by the CSRC. For details, please refer to the relevant announcement disclosed on the Stock Exchange on 18 March 2022.

As of the date of the report, the aforesaid non-public issuance of A shares is still in the progress of review by the CSRC. The Company will continue to fulfill its disclosure obligations pursuant to relevant requirements.

 

(II)

Changes in Shares Subject to Trading Restrictions

Unit: Share

 

Name of shareholders (in full)

  Number of
shares subject
to lock-up at
the beginning
of the year
    Number of
shares
unlocked

during
the year
    Increase in
number of
shares

subject to
lock-up
during
the year
    Number of
shares subject
to lock-up at the
end of the year
    Reasons for lock-up     Date of
unlocking

China Southern Air Holding Company Limited

    489,202,658       489,202,658       0       0      


Non-public Issuance of
shares subject to
trading
restrictions
 
 
 
 
  27 September
2021

China Southern Air Holding Company Limited

    2,453,434,457       0       0       2,453,434,457      


Non-public Issuance of
shares subject to
trading
restrictions
 
 
 
 
  19 June 2023

Total

    2,942,637,115       489,202,658       0       2,453,434,457       /     /

 

76


II.

Issuance of Securities During the Reporting Period

Unit: RMB

 

Type of securities and derivatives

  Issuance date   Issuance price (or
interest rate)
    Amount issued     Listing date   Amount approved
for public trading
    Ending date of
transaction

Other derivatives

The second tranche of Ultra-short-term Financing Bills of the Company in 2021

  25 January
2021
  RMB   100 (2.50%)     RMB   2.0 billion     28 January
2021
  RMB   2.0 billion     25 March
2021

The third tranche of Ultra-short-term Financing Bills of the Company in 2021

  22 January
2021
  RMB   100 (2.50%)     RMB   3.5 billion     27 January
2021
  RMB   3.5 billion     25 March
2021

The fourth tranche of Ultra-short-term Financing Bills of the Company in 2021

  26 January
2021
  RMB   100 (2.53%)     RMB   2.0 billion     29 January
2021
  RMB   2.0 billion     27 April
2021

The fifth tranche of Ultra-short-term Financing Bills of the Company in 2021

  4 February
2021
  RMB   100 (2.50%)     RMB   2.0 billion     7 February
2021
  RMB   2.0 billion     2 April
2021

The sixth tranche of Ultra-short-term Financing Bills of the Company in 2021

  5 February
2021
  RMB   100 (2.45%)     RMB   3.0 billion     9 February
2021
  RMB   3.0 billion     8 April
2021

The seventh tranche of Ultra-short-term Financing Bills of the Company in 2021

  20 February
2021
  RMB   100 (2.48%)     RMB   1.5 billion     24 February
2021
  RMB   1.5 billion     20 April
2021

The eighth tranche of Ultra-short-term Financing Bills of the Company in 2021

  24 February
2021
  RMB   100 (2.40%)     RMB   3.0 billion     26 February
2021
  RMB   3.0 billion     30 March
2021

The ninth tranche of Ultra-short-term Financing Bills of the Company in 2021

  18 March
2021
  RMB   100 (2.53%)     RMB   3.0 billion     23 March
2021
  RMB   3.0 billion     20 May
2021

The tenth tranche of Ultra-short-term Financing Bills of the Company in 2021

  22 March
2021
  RMB   100 (2.53%)     RMB   3.0 billion     25 March
2021
  RMB   3.0 billion     25 May
2021

The eleventh tranche of Ultra-short-term Financing Bills of the Company in 2021

  26 March
2021
  RMB   100 (2.58%)     RMB   2.0 billion     30 March
2021
  RMB   2.0 billion     24 June
2021

The twelfth tranche of Ultra-short-term Financing Bills of the Company in 2021

  13 April
2021
  RMB   100 (2.41%)     RMB   5.0 billion     16 April
2021
  RMB   5.0 billion     10 June
2021

The thirteenth tranche of Ultra-short- term Financing Bills of the Company in 2021

  16 April
2021
  RMB   100 (2.48%)     RMB   2.0 billion     21 April
2021
  RMB   2.0 billion     15 July
2021

The fourteenth tranche of Ultra-short–term Financing Bills of the Company in 2021

  20 May
2021
  RMB   100 (2.22%)     RMB   3.0 billion     25 May
2021
  RMB   3.0 billion     22 July
2021

The fifteenth tranche of Ultra-short-term Financing Bills of the Company in 2021

  8 June 2021   RMB   100 (2.16%)     RMB   2.0 billion     10 June
2021
  RMB   2.0 billion     6 September
2021

The sixteenth tranche of Ultra-short- term Financing Bills of the Company in 2021

  25 June
2021
  RMB   100 (2.24%)     RMB   4.0 billion     29 June
2021
  RMB   4.0 billion     26 August
2021

The seventeenth tranche of Ultra-short-term Financing Bills of the Company in 2021

  25 June
2021
  RMB   100 (2.20%)     RMB   1.2 billion     29 June
2021
  RMB   1.2 billion     27 July
2021

The eighteenth tranche of Ultra-short–term Financing Bills of the Company in 2021

  12 July
2021
  RMB   100 (2.22%)     RMB   4.2 billion     15 July
2021
  RMB   4.2 billion     9 September
2021

The nineteenth tranche of Ultra-short–term Financing Bills of the Company in 2021

  20 August
2021
  RMB   100 (2.23%)     RMB   3.0 billion     24 August
2021
  RMB   3.0 billion     17 February
2022

The twentieth tranche of Ultra-short- term Financing Bills of the Company in 2021

  20 August
2021
  RMB   100 (2.07%)     RMB   3.0 billion     24 August
2021
  RMB   3.0 billion     21 October
2021

The twenty-first tranche of Ultra-short-term Financing Bills of the Company in 2021

  20 August
2021
  RMB   100 (2.07%)     RMB   2.0 billion     24 August
2021
  RMB   2.0 billion     21 October
2021

The twenty-second tranche of Ultra–short-term Financing Bills of the Company in 2021

  25 August
2021
  RMB   100 (2.03%)     RMB   2.0 billion     27 August
2021
  RMB   2.0 billion     25 October
2021

 

77


Type of securities and derivatives

  Issuance date   Issuance price (or
interest rate)
    Amount issued     Listing date   Amount approved
for public trading
    Ending date of
transaction

The twenty-third tranche of Ultra-short-term Financing Bills of the Company in 2021

  27 August
2021
  RMB   100 (2.10%)     RMB   1.5 billion     31 August
2021
  RMB   1.5 billion     25 November
2021

The twenty-fourth tranche of Ultra-short-term Financing Bills of the Company in 2021

  7 September
2021
  RMB   100 (2.25%)     RMB   2.0 billion     9 September
2021
  RMB   2.0 billion     6 December
2021

The twenty-fifth tranche of Ultra-short-term Financing Bills of the Company in 2021

  7 September
2021
  RMB   100 (2.42%)     RMB   3.0 billion     9 September
2021
  RMB   3.0 billion     5 January
2022

The twenty-sixth tranche of Ultra-short-term Financing Bills of the Company in 2021

  8 September
2021
  RMB   100 (2.17%)     RMB   1.0 billion     10 September
2021
  RMB   1.0 billion     7 December
2021

The twenty-seventh tranche of Ultra-short-term Financing Bills of the Company in 2021

  24 September
2021
  RMB   100 (2.55%)     RMB   2.0 billion     27 September
2021
  RMB   2.0 billion     24 March
2022

The twenty-eighth tranche of Ultra- short-term Financing Bills of the Company in 2021

  19 October
2021
  RMB   100 (2.10%)     RMB   3.0 billion     21 October
2021
  RMB   3.0 billion     17 January
2022

The twenty-ninth tranche of Ultra- short-term Financing Bills of the Company in 2021

  19 October
2021
  RMB   100 (2.25%)     RMB   1.5 billion     21 October
2021
  RMB   1.5 billion     17 March
2022

The thirtieth tranche of Ultra- short-term Financing Bills of the Company in 2021

  21 October
2021
  RMB   100 (2.70%)     RMB   4.0 billion     25 October
2021
  RMB   4.0 billion     18 July 2022

The thirty-first tranche of Ultra- short-term Financing Bills of the Company in 2021

  22 November
2021
  RMB   100 (2.49%)     RMB   1.5 billion     24 November
2021
  RMB   1.5 billion     21 April
2022

The thirty-second tranche of Ultra- short-term Financing Bills of the Company in 2021

  27 December
2021
  RMB   100 (2.17%)     RMB   2.0 billion     29 December
2021
  RMB   2.0 billion     24 March
2022

The thirty-third tranche of Ultra- short-term Financing Bills of the Company in 2021

  27 December
2021
  RMB   100 (2.19%)     RMB   1.0 billion     29 December
2021
  RMB   1.0 billion     26 April
2022

The thirty-fourth tranche of Ultra- short-term Financing Bills of the Company in 2021

  24 December
2021
  RMB   100 (2.30%)     RMB   2.6 billion     29 December
2021
  RMB   2.6 billion     26 April
2022

The first tranche of Medium-term Notes of the Company in 2021

  19 July 2021   RMB   100 (3.17%)     RMB   1.0 billion     22 July 2021   RMB   1.0 billion     19 July 2024

The second tranche of Medium-term Notes of the Company in 2021

  26 September
2021
  RMB   100 (3.09%)     RMB   3.0 billion     29 September
2021
  RMB   3.0 billion     27 September
2024

The third tranche of Medium-term Notes of the Company in 2021

  18 November
2021
  RMB   100 (3.20%)     RMB   3.5 billion     23 November
2021
  RMB   3.5 billion     21 November
2024

The fourth tranche of Medium-term Notes of the Company in 2021

  27 December
2021
  RMB   100 (2.90%)     RMB   1.5 billion     29 December
2021
  RMB   1.5 billion     27 December
2024

The first tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2021

  24 September
2021
  RMB   100 (2.42%)     RMB   0.5 billion     28 September
2021
  RMB   0.5 billion     23 February
2022

The second tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2021

  27 September
2021
  RMB   100 (2.50%)     RMB   0.5 billion     29 September
2021
  RMB   0.5 billion     24 March
2022

 

78


III.

Particulars of Shareholders and De Facto Controller

 

(I)

Total Number of Shareholders

As at the end of the reporting period, total number of ordinary shareholders of the Company was 154,765. As at 28 February 2022, total number of ordinary shareholders of the Company was 138,452.

 

(II)

Particulars of Shareholdings

 

1.

Particulars of the top ten shareholders

Unit: Share

 

Particulars of the top ten shareholders

Name of the shareholders (in full)

   Increase/
(decrease) during
the reporting period
    Total number of
shares held at
the end of
reporting period
     Shareholding
percentage
(%)
     Number of
shares subject to
trading
restrictions
     Status of pledged, marked
or frozen shares
     Capacity of shareholders
   Status of shares      Number  

China Southern Air Holding Company Limited

     1,619,031,728       8,600,897,508        50.75        2,453,434,457        Nil        0      Stated-owned legal
entity

Nan Lung Holding Limited

     0       2,243,271,577        13.24        0        Nil        0      Stated-owned legal
entity

HKSCC Nominees Limited

     (101,000     1,750,361,857        10.33        0        Unknown        /      Overseas legal entity

Hong Kong Securities Clearing Company Limited

     27,164,384       655,125,781        3.87        0        Nil        0      Overseas legal entity

China National Aviation Fuel Group Corporation

     (60,263,319     422,695,951        2.49        0        Nil        0      Stated-owned legal
entity

China Securities Finance Corporation Limited

     (8     320,484,148        1.89        0        Nil        0      Stated-owned legal
entity

American Airlines, Inc.

     0       270,606,272        1.60        0        Nil        0      Overseas legal entity

China Structural Reform Fund Co., Ltd.

     (46,882,483     194,019,933        1.14        0        Nil        0      Stated-owned legal
entity

Spring Airlines Co., Ltd.

     0       140,531,561        0.83        0        Nil        0      Domestic non-stated-
owned legal entity

Guo Xin Central Enterprise Operation Investment Fund Management (Guangzhou) Co., Ltd. – Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP)

     0       70,006,275        0.41        0        Nil        0      Domestic non-stated-
owned legal entity

 

79


2.

Particulars of the top ten shareholders not subject to trading restrictions

Unit: Share

 

Particulars of the top ten shareholders not subject to trading restrictions  

Name of Shareholders

   Number of tradable
shares not subject to
trading restrictions
     Type and number of shares  
  

Type of shares

   Number  

China Southern Air Holding Company Limited

     6,147,463,051      RMB ordinary shares      6,147,463,051  

Nan Lung Holding Limited

     2,243,271,577      Overseas listed foreign shares      2,243,271,577  

HKSCC Nominees Limited

     1,750,361,857      Overseas listed foreign shares      1,750,361,857  

Hong Kong Securities Clearing Company Limited

     655,125,781      RMB ordinary shares      655,125,781  

China National Aviation Fuel Group Corporation

     422,695,951      RMB ordinary shares      422,695,951  

China Securities Finance Corporation Limited

     320,484,148      RMB ordinary shares      320,484,148  

American Airlines, Inc.

     270,606,272      Overseas listed foreign shares      270,606,272  

China Structural Reform Fund Co., Ltd.

     194,019,933      RMB ordinary shares      194,019,933  

Spring Airlines Co., Ltd.

     140,531,561      RMB ordinary shares      140,531,561  

Guo Xin Central Enterprise Operation Investment Fund Management (Guangzhou) Co., Ltd. – Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP)

     70,006,275      RMB ordinary shares      70,006,275  

Explanation of the related party relationship or concert party relationship of the above shareholders

    



CSAH held aggregate 2,279,983,577 H shares of the Company
through its wholly-owned subsidiaries in Hong Kong, namely Nan
Lung and Perfect Lines (Hong Kong) Limited. The Company is not
aware of any other related party relationship between other
shareholders.
 
 
 
 
 

 

3.

Particulars of the top ten shareholders subject to trading restrictions and the conditions of trading restrictions

Unit: Share

 

No.

  

Name of the shareholders

   Number of
shares held
subject to
trading
restrictions
   Listing status of shares which are subject to trading restrictions
   Eligible listing time    Number of new
listed shares
  

Conditions for trading
restrictions

1

  

China Southern Air Holding Company Limited

   2,453,434,457    19 June 2023    2,453,434,457   

Non-public Issuance of shares subject to trading restrictions

Explanation of the related party relationship or concert party relationship of the above shareholders

   CSAH held aggregate 2,279,983,577 H shares of the Company through its wholly-owned subsidiaries in Hong Kong, namely Nan Lung and Perfect Lines (Hong Kong) Limited.

 

4.

Strategic investors or general legal entities becoming one of the top ten shareholders of the Company as a result of placing of new shares

Nil.

 

80


IV.

The Controlling Shareholders or De Facto Controllers

The chart below indicates the ownership and controlling relationship between the Company and de facto controllers:

 

LOGO

 

81


V.

Disclosure of Interests

As at 31 December 2021, to the best knowledge of the Directors, chief executive and Supervisors of the Company, the following persons (other than the Directors, chief executive or Supervisors of the Company) had interests or short positions in the shares (the “Shares”) or underlying shares of the Company which are required to be recorded in the register of the Company required to be kept under section 336 of the SFO:

 

Name of shareholders

 

Capacity

 

Types of
Shares

  Number of
Shares held
    % of the
total issued
A Shares
(Note 5)
    % of the
total issued
H Shares
(Note 5)
    % of the
total issued
share
capital of
the
Company
(Note 5)
 

CSAH (note 1)

 

Beneficial owner

  A shares    

9,404,468,936 (L)

(note 1)

 

 

    74.21     /       55.49
 

Interest of controlled corporations

  H shares    

3,135,012,546 (L)

(note 2)

 

 

    /       73.33     18.50
    Subtotal     12,539,481,482 (L)       /       /       73.99

Nan Lung (note 1)

 

Beneficial owner

  H shares    

3,135,012,546 (L)

(note 3)

 

 

    /       73.33     18.50

American Airlines Group Inc. (note 4)

 

Interest of controlled corporations

  H shares     270,606,272 (L)       /       6.33     1.60

Notes:

 

1.

As at 31 December 2021, CSAH was directly interested in 9,404,468,936 A Shares of the Company, which included 803,571,428 A Shares subscribed under the A Shares Subscription Agreement. As at 31 December 2021 and up to the latest practicable date, those A Shares have not been issued.

2.

As at 31 December 2021, CSAH was indirectly interested in 3,135,012,546 H Shares of the Company through its controlled corporations Nan Lung and Perfect Lines (Hong Kong) Limited, a wholly-owned subsidiary of Nan Lung, which included 855,028,969 H Shares subscribed under the H Shares Subscription Agreement by Nan Lung. As at 31 December 2021 and up to the latest practicable date, those H Shares have not been issued.

3.

As at 31 December 2021, Nan Lung was interested in 3,135,012,546 H Shares of the Company, which included the indirect interests in the 31,150,000 H Shares held through Perfect Lines (Hong Kong) Limited, its wholly-owned subsidiary, and the direct interests in the 3,103,862,546 H Shares (which included not more than 855,028,969 H Shares subscribed under the H Shares Subscription Agreement. As at 31 December 2021 and up to the latest practicable date, those H Shares have not been issued).

4.

American Airlines Group Inc. was deemed to be interested in 270,606,272 H Shares by virtue of its 100% control over American Airlines.

5.

The percentage was calculated according to the relevant total issued A Shares of 12,673,293,179 A Shares, total issued H Shares of 4,275,144,849 H Shares and the total issued Shares of 16,948,438,028 Shares of the Company as at 31 December 2021.

Save as disclosed above, as at 31 December 2021, so far as was known to the Directors, chief executive and Supervisors of the Company, no other person (other than the Directors, chief executive or Supervisors of the Company) had an interest or a short position in the shares or underlying shares of the Company recorded in the register of the Company required to be kept under section 336 of the SFO.

 

82


DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES

 

I.

Directors, Supervisors, Senior Management

 

(I)

Changes in the Number of Shares held by Directors, Supervisors and Senior Management and their Remuneration

During the reporting period, the Directors, Supervisors and senior management of the Company were as follows:

Unit: Share

 

Name

 

Position (note)

 

Gender

  Age    

Appointment

date for the

term of office

  Expiry date
for the term
of office
  Number of
shares held as
at the
beginning of
the year
    Number of
shares held as
at the end of
the year
    Increase or
decrease of
shares during
the year
    The total
remuneration
before tax
received from
the Company
during the
reporting
period
(RMB0’000)
    Had received
remuneration
from related
party of the
Company

Ma Xu Lun

 

Chairman

  Male     57     21 December 2020   up to date     0       0       0       0     Yes
 

Executive Director

      8 May 2019   up to date          
 

President

      18 March 2019   22 June 2021          

Han Wen Sheng

 

Executive Director

  Male     55     8 May 2019   up to date     0       0       0       0     Yes
 

Vice Chairman

      22 June 2021   up to date          
 

President

      22 June 2021   up to date          

Liu Chang Le

 

Independent Director

  Male     70     30 April 2021   up to date     0       0       0       13.33     No

Gu Hui Zhong

 

Independent Director

  Male     65     20 December 2017   up to date     0       0       0       15.33     No

Guo Wei

 

Independent Director

  Male     59     30 April 2021   up to date     0       0       0       13.33     No

Yan Andrew Y

 

Independent Director

  Male     64     30 April 2021   up to date     0       0       0       13.33     No

* Zheng Fan

 

Independent Director

  Male     66     20 December 2017   30 April
2021
    0       0       0       2     No

* Tan Jin Song

 

Independent Director

  Male     57     26 December 2013   30 April
2021
    0       0       0       5     No

* Jiao Shu Ge

 

Independent Director

  Male     56     30 June 2015   30 April
2021
    0       0       0       5     No

Ren Ji Dong

 

Chairman of Supervisory Committee

  Male     57     28 December 2021   up to date     0       0       0       79.81     Yes
 

Supervisor

      28 December 2021   up to date          
 

Executive Vice President

      7 May 2009   29 October
2021
         

Lin Xiao Chun

 

Supervisor

  Male     50     8 May 2019   up to date     0       0       0       80.19     No

Yang Bin

 

Supervisor

  Male     53     24 November 2021   up to date     0       0       0       31.93     No

* Li Jia Shi

 

Chairman of Supervisory Committee

  Male     60     8 May 2019   28 December
2021
    0       0       0       0     Yes
 

Supervisor

      30 June 2009   28 December
2021
         

* Mao Juan

 

Supervisor

  Female     49     20 December 2017   24 November
2021
    0       0       0       61.23     No

Zhang Zheng Rong

 

Executive Vice President

  Male     59     10 August 2018   up to date     0       0       0       0     Yes

Luo Lai Jun

 

Executive Vice President

  Male     50     18 March 2019   up to date     0       0       0       0     Yes

Wu Ying Xiang

 

Executive Vice President

  Female     48     29 June 2020   up to date     0       0       0       0     Yes

 

83


Name

 

Position (note)

 

Gender

  Age    

Appointment

date for the

term of office

  Expiry date
for the
term

of office
  Number of
shares held as
at the
beginning of
the year
    Number of
shares held as
at the end of
the year
    Increase or
decrease of
shares during
the year
    The total
remuneration
before tax
received from
the Company
during the
reporting
period
(RMB0’000)
    Had received
remuneration
from related
party of the
Company

Yao Yong

 

Executive Vice President

  Male     52     20 April 2021   up to date     0       0       0       0     Yes
 

Chief Accountant

                 
 

Chief Financial Officer

                 

Cheng Yong

 

Executive Vice President

  Male     59     21 August 2018   up to date     0       0       0       181.76     No

Wang Zhi Xue

 

Executive Vice President

  Male     61     3 August 2012   up to date     0       0       0       0     No

Su Liang

 

Chief Economist

  Male     59     27 December 2007   up to date     0       0       0       93.10     No

Chen Wei Hua

 

Chief Legal Adviser

  Male     55     16 June 2004   up to date     0       0       0       92.40     No

Li Shao Bin

 

Chief Training Officer

  Male     57     21 June 2019   up to date     0       0       0       89.26     No

Xie Bing

 

Secretary to the Board

  Male     48     26 November 2007   up to date     0       0       0       91.72     No

Feng Hua Nan

 

COO Flight Safety

  Male     59     15 August 2014   up to date     0       0       0       171.61     No

Luo Ming Hao

 

Chief Pilot

  Male     59     28 March 2018   up to date     0       0       0       168.34     No

Zhu Hai Long

 

Chief Operation Officer

  Male     58     30 December 2020   up to date     0       0       0       168.49     No

Wu Rong Xin

 

Chief Engineer

  Male     50     7 January 2022   up to date     0       0       0       0     No

Li Tong Bin

 

Chief Engineer

  Male     60     30 April 2014   7 January
2022
    0       0       0       110.89     No
 

Executive Vice President

     

14 September 2015

  7 January
2022
         
 

 

 

 

 

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

Total

  /   /     /     /   /     0       0       0       1,488.05     /
 

 

 

 

 

 

 

   

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

Notes:

 

1.

According to performance appraisal plans of the Company, partial remuneration of some Directors, Supervisors and senior management of the Company shall be delayed based on evaluation results, total remuneration set out above includes such delayed remuneration;

2.

The total remuneration shown in the table above include social insurance, common reserve fund and corporate pensions, among which part of the social insurance for the year 2020 enjoyed deductions in accordance with the government policies, and the upper limit of the social insurance and common reserve fund payment base in 2021 has been uniformly raised according to the governmental policies. Therefore, the total contribution amount of the social insurance and common reserve fund increased in 2021;

3.

Mr. Cheng Yong, Mr. Feng Hua Nan, Mr. Luo Ming Hao and Mr. Zhu Hai Long serve as pilots, so their remunerations are inclusive of crew allowance, and their flight time increased in 2021; Mr. Ren Ji Dong’s remuneration was paid by CSAH since November 2021, Mr. Yang Bin’s remuneration was paid as supervisor of the Company since November 2021, Ms. Mao Juan ceased to be supervisor of te Company since November 2021; Mr. Wu Rong Xin’s remuneration was paid as chief engineer of the Company since January 2022, and Mr. Li Tong Bin retired in January 2022;

4.

*represents personnel who have already resigned as at the end of the reporting period.

As at 31 December 2021, none of the Directors, Chief Executive or Supervisors of the Company had interests or short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to the SFO (including interests or short positions which are taken or deemed to have under such provisions of the SFO), or which were required to be recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code as set out in Appendix 10 to the Listing Rules.

 

84


(II)

Changes in Directors, Supervisors and Senior Management of the Company

During the reporting period, changes in the Directors, supervisors and senior management of the Company were as follows:

 

Name

  

Position

   Change    Reason of change

Han Wen Sheng

  

President

   Appointed    Appointed by the Board

Han Wen Sheng

  

Vice Chairman

   Elected    Elected by the Board

Liu Chang Le

  

Independent Non-executive Director

   Elected    Elected by the general meeting

Guo Wei

  

Independent Non-executive Director

   Elected    Elected by the general meeting

Yan Andrew Y

  

Independent Non-executive Director

   Elected    Elected by the general meeting

Ren Ji Dong

  

Supervisor

   Elected    Elected by the general meeting

Ren Ji Dong

  

Chairman of Supervisory Committee

   Elected    Elected by the Supervisory
Committee

Yang Bin

  

Supervisor

   Elected    Elected by the employees’
representatives meeting

Yao Yong

  

Executive Vice President

   Appointed    Appointed by the Board

Yao Yong

  

Chief Accountant

   Appointed    Appointed by the Board

Yao Yong

  

Chief Financial Officer

   Appointed    Appointed by the Board

Wu Rong Xin

  

Chief Engineer

   Appointed    Appointed by the Board

Zheng Fan

  

Independent Non-executive Director

   Resigned    Election of new session of the
Board

Tan Jin Song

  

Independent Non-executive Director

   Resigned    Election of new session of the
Board

Jiao Shu Ge

  

Independent Non-executive Director

   Resigned    Election of new session of the
Board

Mao Juan

  

Supervisor

   Resigned    Job Changes

Li Jia Shi

  

Chairman of Supervisory Committee

   Resigned    Retired

Li Jia Shi

  

Supervisor

   Resigned    Retired

Ma Xu Lun

  

President

   Resigned    Job Changes

Ren Ji Dong

  

Executive Vice President

   Resigned    Job Changes

Li Tong Bin

  

Executive Vice President

   Resigned    Retired

Li Tong Bin

  

Chief Engineer

   Resigned    Retired

 

(III)

Changes of Information of Directors or Supervisors under Rule 13.51B(1) of the Listing Rules

Below are the information relating to the changes of Directors or Supervisors required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules since the date of 2021 interim report:

Mr. Yang Bin, the Supervisor of the Company, served as supervisor of Xiamen Airlines.

Save as disclosed above, there is no other information required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

 

85


(IV)

Remuneration of Directors, Supervisors and Senior Management

The Directors, Supervisors and Senior Management of the Company received remuneration annually. Remuneration of Directors and Supervisors are adjusted and paid pursuant to Administrative Measures on Remuneration of Directors of China Southern Airlines Company Limited and Administrative Measures on Remuneration of Supervisors of China Southern Airlines Company Limited approved at the general meeting. Remuneration of Senior Management are adjusted and paid pursuant to Administrative Measures on Remuneration of Senior Management of China Southern Airlines Company Limited after approval of the Board.

During the reporting period, the total remuneration before tax received from the Company by Directors, Supervisors and senior management amounted to RMB14.8805 million (2020: RMB12.6234 million).

The emolument policy of the Directors and senior management of the Company are recommended by the Remuneration and Assessment Committee to the Board, having regard to the Group’s operating results, individual performance and comparable market statistics in accordance with the Administrative Measures on Remuneration of Directors and Administrative Measures on Remuneration of Senior Management of the Group.

Details of the remuneration of the Directors, Supervisors and senior management of the Group are set out in notes 50 and 59 to the financial statements prepared under IFRSs.

Details of other employees’ pension scheme and housing benefits are set out in notes 42 and 51 to the financial statements prepared under IFRSs.

 

86


The remuneration of the senior management of the Company by bands for the year ended 31 December 2021 is set out below:

 

Remuneration Band    Number of Senior Management  

HK$                             

   2021      2020  

0-500,000

     6        7  

500,001-1,000,000

     5        4  

1,000,001-1,500,000

     1        2  

1,500,001-2,000,000

     4        3  
  

 

 

    

 

 

 

Total

     16        16  
  

 

 

    

 

 

 

 

(V)

Service Contracts of the Directors and Supervisors

None of the Directors or Supervisors has entered or proposed to enter into any service contracts with the Company or its subsidiaries which are not determinable by the Company or its subsidiaries within one year without payment of compensation, other than statutory compensation.

During the year ended 31 December 2021, none of the Directors or Supervisors has any material interests in any significant contract to which the Company or its subsidiaries was a party.

 

(VI)

Profiles of Current Directors, Supervisors and Senior Management

Directors

Ma Xu Lun, male, born in July 1964 (aged 57), graduated from the School of Mechanical Science & Engineering of Huazhong University of Science & Technology, majoring in industrial engineering. He has a master’s degree of engineering and is a certified public accountant and a member of the Chinese Communist Party. He started his career in August 1984. He has been the Vice President of China National Materials Storage and Transportation Corporation, the Deputy Director General of the Finance Department of the CAAC, the Vice President and Standing Member of Party Committee of Air China Corporation Limited. He was appointed as the Vice President of general affairs and the Deputy Party Secretary of Air China Corporation Limited in October 2002; and served as a director, the President and the Deputy Party Secretary of Air China Limited in September 2004. He served as a Party Member of China National Aviation Holding Company and a Director, the President and the Deputy Party Secretary of Air China Limited in December 2004, and the Vice President and a Party Member of China National Aviation Holding Company from February 2007. In December 2008, he was appointed as the Deputy Party Secretary of China Eastern Air Holding Company and the President and the Deputy Party Secretary of China Eastern Airlines Corporation Limited. He served as the Secretary to the Party Committee and the Vice President of China Eastern Air Holding Company and the President of China Eastern Airlines Corporation Limited in October 2011. In November 2016, he served as a Director, the President and the Deputy Party Secretary of China Eastern Air Holding Company, and the Vice Chairman, the President and the Deputy Party Secretary of China Eastern Airlines Corporation Limited in December 2016. In February 2019, he served as the Director, the President and the Deputy Party Secretary of CSAH. In March 2019, he acted as the President of the Company. In May 2019, he acted as the Vice Chairman of the Company. Since December 2020, he has served as the President and Party Secretary of CSAH and Chairman and President of the Company. Currently, he also acts as the vice chairman of China Chamber of International Commerce, member of China Council for the Promotion of International Trade and director of the board of International Air Transport Association.

 

87


Han Wen Sheng, male, born in January 1967 (aged 55), graduated from the Management Department of Tianjin University, majoring in engineering management, with qualification of a master’s degree, a member of the Chinese Communist Party. He obtained a master’s degree of Engineering and is an economist. He began his career in August 1987. He served as the Deputy Director General of Cadre Training Center of the Company, the Director of The Research Bureau of the Company, the General Manager of the Labour Department and the Secretary of the CPC General Committee of the Company, the Deputy Director General and a member of Party Committee of the Commercial Steering Committee, the General Manager as well as the Deputy Party Secretary of the Sales and Marketing Department of the Company, and the General Manager and Deputy Party Secretary of Shanghai base. He acted as the Deputy Party Secretary and the Deputy Director General of the Commercial Steering Committee of the Company since December 2009 and the Party Secretary and the Deputy Director General of the Commercial Steering Committee of the Company since October 2011. He served as the Vice President and the Party Member of CSAH from October 2016. From November 2017, he served as the Vice President and the Party Member of CSAH and the Vice President and Party Member of the Company. He was appointed as a Director and the Deputy Party Secretary of CSAH and the Vice President of the Company in November 2018. From December 2018, he served as the Deputy Party Secretary of the Company. Since January 2019, he has served as a Director and Deputy Party Secretary of CSAH. Since May 2019, he has served as a Director of the Company. Since June 2021, he has served as the President and Vice Chairman of the Company. Since July 2021, he has served as the President of CSAH. Currently, he also acts as the standing committee member of the 12th session of Guangdong Provincial Committee of Chinese People’s Political Consultative Conference. Apart from the Company, the company listed in Hong Kong or overseas in which Mr. Han has held directorship in the past three years is TravelSky Technology Limited.

Liu Chang Le, male, born in November 1951 (aged 70), graduated from the Communication University of China with Bachelor’s degree. He was conferred an honorary doctoral degree in literature by the City University of Hong Kong and an honorary doctoral degree in management sciences by the University of South China. Mr. Liu Chang Le founded Phoenix Satellite Television in 1996. He had been the Executive Director, Chairman and Chief Executive Officer of Phoenix Media Investment (Holdings) Limited. Mr. Liu Chang Le is currently a member of the Thirteenth National Committee of the Chinese People’s Political Consultative Conference (the “PCC”) and was a member of the Tenth and Eleventh National Committee of the PCC. He served as the Vice Chairman of the Subcommittee on Education, Science, Culture, Health and Sport of the Eleventh National Committee of the Chinese People’s Political Consultative Conference, and served as a member of Standing Committee of the Twelfth National Committee of the PCC. Mr. Liu Chang Le was an Independent Non-executive Director of the Company from December 2011 to December 2017. Mr. Liu Chang Le has been serving as an Independent Non-executive Director of the Company since April 2021. Apart from the Company, the company listed in Hong Kong or overseas in which Mr. Liu Chang Le has held directorship in the past three years is Phoenix Media Investment (Holdings) Limited.

Gu Hui Zhong, male, born in November 1956 (aged 65), graduated from Zhengzhou University of Aeronautics and holds a Master’s degree. He graduated with a Master’s degree from Beihang University majoring in International Finance and is a senior accountant at a professor level. Mr. Gu is a Chinese Communist Party member and began his career in 1974. He served as the Deputy Chief and Chief of the General Office of Financial Division of Aviation Industry Department, the Director of International Affairs Financial Division of Aviation Industry Corporation of China, the General Manager of Zhongzhen Accounting Consultative Corporation, the Vice Director-General of Financial Department of Aviation Industry Corporation of China and the Deputy Director-General of Financial Department of State Commission of Science, Technology and Industry for National Defence. From June 1999 to February 2005, he acted as a member of Party Leadership Group and the Vice President of Aviation Industry Corporation of China I. From February 2005 to August 2008, he acted as a member of the Party Leadership Group, the Vice President and the Chief Accountant of Aviation Industry Corporation of China I. From August 2008 to January 2017, he acted as a member of Party Leadership Group, the Vice President and the Chief Accountant of Aviation Industry Corporation of China. He acted as the Chairman of AVIC I International Leasing Co., Ltd., the Chairman of AVIC I Financial Co., Ltd., the Chairman of CATIC International Holdings Limited, the Chairman of AVIC Capital Co., Ltd. and the Chairman of AVIC International Vanke Company Limited. Currently, he is serving as an external director of Ansteel Group Co., Ltd. and the Vice Chairman of the Accounting Society of China. He has been serving as an Independent Non-executive Director of the Company since December 2017.

 

88


Guo Wei, male, born in February 1963 (aged 59), holds a Master’s degree. He graduated from the University of Science and Technology of China. Mr. Guo is a senior engineer and a Chinese Communist Party member. He began his career in 1988. Mr. Guo served as Executive Director and the Senior Vice President of the Lenovo Group. Currently, he is the Executive Director, Chairman of the Board of Directors and Chief Executive Officer of Digital China Holdings Limited, the Chairman of Digital China Group Co., Ltd and the Chairman of Digital China Information Service Co., Ltd. In addition, Mr. Guo also served in a number of positions, such as a member of the Eleventh and Twelfth National Committee of the Chinese People’s Political Consultative Conference, a member of the Fourth Committee of the Advisory Committee for State Informatization, the first President of China Strategic Alliance of Smart City Industrial and Technology Innovation, the Vice President of Digital China Industry Alliance and the Vice President of the Society of Management Science of China. Mr. Guo was an Independent Non-executive Director of the Company from June 2015 to December 2017. He has been serving as an Independent Non-executive Director of the Company since April 2021.

Yan Andrew Y, male, born in September 1957 (aged 64), holds a Master’s degree. He graduated from Princeton University in International Political Economy. From February 1982 to October 1984, he served as the Chief Engineer of Jianghuai Airplane Corp. He studied in Peking University from 1984 to 1986. He studied in Princeton University from 1986 to 1989. From June 1989 to February 1991, he served as an Analyst in the World Bank. From March 1991 to January 1993, he served as a Research Fellow in the Hudson Institute. From January 1993 to February 1994, he served as the Director of Asia Business Development of US Sprint Corporation. From March 1994 to September 2001, he served as the Managing Director and Head of Hong Kong office of Emerging Markets Partnership, the management company of AIG Asian Infrastructure Funds. Since October 2001, he has been serving as the Founding Managing Partner of SAIF Partners. Currently, Mr. Yan is an Independent Non-executive Director of China Resources Land Limited, an Independent Non-executive Director of the Company, a Director of ATA Inc. and an Independent Non-executive Director of 360 DigiTech, Inc. In addition, Mr. Yan was a Director of TCL Corporation, Blue Focus Communication Group, Qingdao Haier Co., Ltd., Haier Smart Home Co., Ltd. and Shanghai Welltech Automation Co., Ltd., and an Independent Non-executive Director of Guodian Technology & Environment Group Corporation Limited in the last three years. Mr. Yan has been serving as an Independent Non-executive Director of the Company since April 2021.

Supervisors

Ren Ji Dong, male, born in January 1965 (aged 57), Bachelor of Engineering, graduated from Power Engineering Department of Nanjing University of Aeronautics and Astronautics with a bachelor’s degree, majoring in Aircraft Engine Design and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and he is a senior engineer and a member of the Chinese Communist Party. Mr. Ren began his career in August 1986. He served as the Deputy Director (deputy general manager) and a member of the Standing Committee of the CPC of Urumqi Civil Aviation Administration (Xinjiang Airlines) and the Deputy General Manager and a member of the Standing Committee of the CPC of Xinjiang Airlines. He acted as the Party Secretary and Deputy General Manager of CSAH Xinjiang Company from June 2004, the Party Secretary and Deputy General Manager of Xinjiang Branch of the Company from January 2005, a member of the Standing Committee of the CPC of the Company from February 2005, Deputy General Manager and a member of the Standing Committee of the CPC of the Company from March 2005, a member of the Standing Committee of the CPC of the Company and the General Manager and Deputy Party Secretary of Xinjiang Branch from January 2007, a member of the Standing Committee of the CPC of the Company from April 2009, Deputy General Manager and a member of the Standing Committee of the CPC of the Company from May 2009 and the Executive Vice President of the Company from July 2018, the Chairman of the Labour Union of CSAH and the Company since August 2021; He served as the employees’ representative director of CSAH since November 2021 and Chairman of the Supervisory Committee of the Company since December 2021. Currently, he also acts as Vice President of Aviation Fuel Branch of China Air Transport Association, Director of China Air Transport Association and Vice Director General of Guangdong Lingnan Fund (廣東省嶺南基金會).

 

89


Lin Xiao Chun, male, born in May 1971 (aged 50), graduated from the Peking University Law School with a Bachelor’s degree of laws, majoring in international law. He obtained his Master of Business Administration from the Beijing University of Technology and the City University of the United States and his Executive Master of Business Administration (EMBA) from the Tsinghua University School of Economics and Management. He obtained qualifications as an Enterprise Legal Adviser and a corporate lawyer, and is a member of the Chinese Communist Party. He started his career in July 1995. He served as the Deputy Director of the legal department of the Company in October 2006, the Deputy General Manager of the legal department of China Southern Airlines Company Limited in January 2009, the Deputy Director of the legal department of CSAH and the Deputy General Manager of the legal department of the Company in December 2009, the Director of the legal department of CSAH in May 2013, and the General Manager of the Laws & Standards Division of CSAH and the General Manager of the Laws & Standards Division of the Company in April 2017. He has served as a Supervisor of the Company since May 2019.

Yang Bin, male, born in September 1968 (aged 53), Master of Business Administration. He is a qualified senior accountant and a member of the Chinese Communist Party. He began his career in November 1991. He had been as the Deputy General Manager and the General Manager of the Finance Department of the Company, the General Manager of the Finance Department in CSAH, the General Manager of Hunan Branch of the Company. He served as the General Manager of Audit Department in the CSAH and the Company from August 2021. He served as Supervisor of China Southern Airlines Company Limited since November 2021. Currently he also serves as a Supervisor of Xiamen Airlines Company Limited.

Senior management

Zhang Zheng Rong, male, born in September 1962 (aged 59), has a college degree from Civil Aviation Flight University of China majoring in Aircraft Piloting. He was graduated from Party School of the Central Committee of CPC majoring in economic management with a bachelor’s degree. He also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a member of the Chinese Communist Party. He began his career in February 1982. He served as Vice Captain of Third Flight Corps of Civil Aviation Administration, Vice Captain of Fourth Flight Corps and Captain of First Flight Corps of CSAH. From May 2002, he has been the Deputy General Manager of Civil Aviation Administration of the Company and Captain of First Flight Corps of the Company. From November 2002, he has been General Manager of Department of Security Supervision of the Company, as well as General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company in May 2004. In August 2007, he was appointed as Chief Pilot of the Company and General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company. From March 2009, he has been Chief Pilot and Director of Aviation Security Department of the Company. Since April 2012, he served as the Chief Pilot, COO Flight Safety and Director of Aviation Security Department of the Company and in July 2012, he served as the Chief Pilot and Aviation Security Minister of CSAH. Since April 2014, he has acted as Chief Pilot, COO Flight Safety and Director of Aviation Security Department of CSAH. Since December 2016, he has been Chief Pilot of CSAH. He has served as Chief Operation Officer of the Company since January 2017. Since November 2017, he has been the President Assistant of CSAH and Chief Operation Officer of the Company. From June 2018, he has been the Vice President, Party Member of CSAH and Chief Operation Officer of the Company. In August 2018, he served as the Executive Vice President of the Company. Since November 2018, he acted as the Executive Vice President, Party Member of CSAH and the Executive Vice President of the Company. Currently, he also serves as the chairman of Guizhou Airlines Company Limited, and Vice President of the fourth Council of Aircraft Owners and Pilots Association of China.

 

90


Luo Lai Jun, male, born in October 1971 (aged 50), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Accounting and also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a member of the Chinese Communist Party. He began his career in July 1993. He served as the Manager of Finance Department in Shanghai Branch of the Company, Deputy Director of the Purchasing Office in Finance Department of the Company, Deputy Manager and Manager of Finance Department of Guizhou Airlines Company Limited. He has acted as a member of the party committee, Chief Financial Officer and manager of Finance Department of Guizhou Airlines Company Limited in June 2003; Director of Business Assessment Office of the Company in June 2005; Deputy Director of Commercial Steering Committee and General Manager and Party Member of Financing Plan Department of the Company in November 2005; General Manager and Deputy Party Secretary of Freight Department of the Company in February 2009; the General Manager and the Deputy Party Secretary of Dalian Branch of the Company in July 2012; Executive Deputy Director General and the Deputy Party Secretary of Commercial Steering Committee of the Company in November 2016; Director General and the Deputy Party Secretary of Commercial Steering Committee of the Company in August 2017; Executive Vice President and the Party Member of CSAH and Executive Vice President of the Company in March 2019. Currently, he also serves as Chairman of China Southern Airlines Henan Airlines Company Limited, Vice Chairman of Sichuan Airlines Co., Ltd. and Director of TravelSky Technology Limited, Vice President of the fifth Council of China Air Transport Association and Vice Chairman of the seventh Council of China Communications and Transportation Association.

Wu Ying Xiang, female, born in November 1973 (aged 48), graduated from Business Administration Department of Central South University of Technology (中南工業大學) with a bachelor’s degree, majoring in International Accounting and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and she is a qualified senior accountant, a certified public accountant, a Chartered Global Management Accountant and a member of the Chinese Communist Party. Ms. Wu began her career in July 1994. She served as assistant minister of Finance Department of China Southern Airlines (Group) Company in March 2001; vice minister of Finance Department of CSAH in September 2005; minister of Finance Department of CSAH in September 2012; the head of Performance Appraisal Management Department of CSAH in February 2017; the General Manager of Comprehensive Performance Appraisal Department of CSAH and the Company in April 2017; the General Manager and Deputy Party Secretary of Shantou Airlines Company Limited in September 2018; Party Secretary and Deputy Director General of the Marketing Management Committee of the Company in October 2019; Party Member of China Southern Air Holding Company Limited in May 2020; the Executive Vice President and Party Member of CSAH as well as the Executive Vice President of the Company in June 2020. Currently, he also serves as vice chairman of China National Aviation Corporation (Hong Kong) Limited and the chairman of Shantou Airlines Company Limited.

Yao Yong, male, born in November 1969 (aged 52), graduated from National Economics and Management College of Sichuan University with a bachelor’s degree of economics, majoring in National Economic Management. He holds a Master of Business Administration degree from University of Electronic Science and Technology of China – Webster University. He is a qualified senior accountant, senior auditor, Chartered Certified Accountant of ACCA and a member of the Chinese Communist Party. He began his career in July 1991. He acted as a member of the Capital Construction Audit Department of Sichuan Provincial Audit Department, a deputy chief member and chief member of the Fixed Assets Investment Audit Department of Sichuan Provincial Audit Department. He acted as the Director of Financial Management Department of Ertan Hydropower Development Co Ltd in March 2003. He served as the deputy chief accountant and director of the Finance Department of Ertan Hydropower Development Co Ltd in July 2007, and the chief accountant and director of the Finance Department of Ertan Hydropower Development Co Ltd in October 2010. He served as the chief accountant of Yalong Hydro (雅礱江流域水電開發有限公司) in November 2012, the Director of Finance Department of State Development and Investment Corporation (renamed as State Development & Investment Corp., Ltd. in December 2017) in June 2017. He has served as the chief accountant and the Party Member of CSAH since March 2021, the Executive Vice President, chief accountant and Chief Financial Officer of the Company since April 2021. Currently, he also serves as Director of China Southern Airlines Overseas (Hong Kong) Co. Ltd. and Chairman of China Southern Airlines Group Finance Company Limited.

 

91


Cheng Yong, male, born in April 1962 (aged 59), graduated from Civil Aviation Flight College of China (中國民用航空飛行專科學校) majoring in Aircraft Piloting and Civil Aviation Flight University of China majoring in Wingmanship, with a bachelor’s degree. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a qualified senior pilot and a member of the Chinese Communist Party. He began his career in January 1982. He has been the Deputy Head of Shenyang Chief Flight Corps Team of China Northern Airlines Company (中國北方航空公司瀋陽飛行總隊), vice president of China Northern Airlines Company Tian’e LLC (中國北方航空公司天鵝航空有限責任公司) and president of China Northern Airlines Company Sanya Co., Ltd. (中國北方航空公司三亞有限公司). He served as the General Manager of CSAH Northern Division in November 2004; president and Deputy Party Secretary of Northern Branch of the Company in January 2005; deputy leader of steering group for reorganization of Liaoning Airport Management Group Company, president and Deputy Party Secretary of Northern Branch of the Company in October 2008; deputy leader of steering group for reorganization of Liaoning Airport Management Group Company in January 2009; president and deputy party secretary of Beijing Branch of the Company in April 2009; a member of the Standing Member of Party Committee of the Company and General Manager and Deputy Party Secretary of Beijing Branch of the Company from April 2010; a Standing Member of Party Committee of the Company in July 2017. He has served as Executive Vice President of the Company since August 2018. Currently, he also serves as the chairman of Guangzhou Nanland Air Catering Company Limited, Guangzhou China Southern Airlines China Duty Free Co., Ltd., Shenzhen Air Catering Co., Ltd. and Southern Airlines Ka Yuen (Guangzhou) Aviation Supply Company Limited.

Wang Zhi Xue, male, born in January 1961 (aged 61), has a college degree from Civil Aviation Flight University of China majoring in Aircraft Piloting, and obtained a degree from Civil Aviation Flight University of China majoring in Wingmanship, and is a qualified senior pilot and a member of the Chinese Communist Party. Mr. Wang began his career in February 1981. Mr. Wang successively served as the Deputy Chief Pilot and Director of the Flight Safety Technology Department of Shantou Airlines Company Limited of CSAH, Deputy Chief Pilot and Manager of the Flight Safety Technology Division of Shantou Airlines Company Limited of CSAH. He also acted as the Deputy General Manager of Shantou Airlines Company Limited of CSAH from June 2002, and the General Manager of the Flight Management Division of the Company from October 2004, and the General Manager and Deputy Party Secretary of Guangzhou Flight Division of the Company from February 2009. Mr. Wang has been Chief Pilot and a member of the Standing Committee of the CPC of the Company from July 2012, and Executive Vice President, Chief Pilot and a member of the Standing Committee of the CPC of the Company from August 2012. He has been Executive Vice President and a member of the Standing Committee of the CPC of the Company from December 2016. He has been Executive Vice President of the Company from July 2018. Currently, he also serves as Vice Chairman, President and Legal Representative of Xiamen Airlines Company Limited and a member of the twelfth Committee of the Chinese People’s Political Consultative Conference of Fujian Province.

Su Liang, male, born in April 1962 (aged 59), graduated from the University of Cranfield, United Kingdom with a master’s degree majoring in Air Transport Management, and is an engineer and a member of the Chinese Communist Party. Mr. Su began his career in December 1981. He successively served as Deputy General Manager of the Flight Operations Division, Deputy General Manager and Manager of Planning and Management Division of CSAH Shenzhen Company. Mr. Su was the Secretary to the Board of the Company from July 2000, the Secretary to the Board and Director General of Company Secretary Office of the Company from December 2003, the Secretary to the Board, Deputy Director General and Party Member of Commercial Steering Committee of the Company from November 2005, the Secretary to the Board and Director General of Company Secretary Office and Deputy Director General and Party Member of Commercial Steering Committee of the Company from February 2006. Mr. Su has been the Chief Economist of the Company since December 2007. For now, he also serves as Chairman of Southern Airlines Culture and Media Co., Ltd.

 

92


Chen Wei Hua, male, born in October 1966 (aged 55), graduated from the School of Law of Peking University with a bachelor’s degree, majoring in Law and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, and is an economist, a qualified lawyer in the PRC, a qualified corporate legal counselor and a member of the Chinese Communist Party. Mr. Chen began his career in July 1988. He successively served as Deputy Director of Legal Department of China Southern Airlines (Group) Corporation, Deputy Director of the Office (Director of the Legal Division) of the Company and China Southern Airlines (Group) Corporation. Mr. Chen was the Chief Legal Adviser of the Company and Director of the Legal Division of the Company from June 2004. Mr. Chen has been the Chief Legal Adviser and General Manager of the Legal Division of the Company since October 2008. He has served as Chief Legal Adviser of the Company since April 2017. For now, he also acts as Director of the Board of Xiamen Airlines Company Limited.

Li Shao Bin, male, born in April 1964 (aged 57), graduated with a college degree from Chinese Language and Literature of Xiangtan Teachers’ College, and obtained a university degree from the Party School of the Central Committee of Communist Party of China majoring in economics and management. He is an expert of political science and a member of the Chinese Communist Party. He began his career in July 1984. He was an officer of Public Relationship Section of Political Department of the Hunan Bureau of Civil Aviation Administration, the Senior Staff Member of Publicity Division of Political Department of the Guangzhou Bureau of Civil Aviation Administration and the Principal Staff Member of Publicity Department of the Company. He served as the Deputy Director of Publicity Department of the China Southern Airlines (Group) Company in September 1994. He had been the Director of Political Division of Flight Department of the Company from December 1999. Mr. Li was the Deputy Party Secretary of Flight Department and Director of Political Division of the Company from May 2002. Subsequently, he was appointed as the Party Secretary of Guangzhou Flight Operations Division of the Company from May 2004. Mr. Li served as the Party Secretary and Vice President of Guangzhou Flight Operations Division of the Company from March 2006. Mr. Li has been the Chairman of the Labour Union of the Company since August 2012 and the Executive Director of the Company since January 2013. Mr. Li served as the President and Deputy Party Secretary of the Training Centre of the Company since April 2017. Mr. Li also has been the Chief Training Officer of the Company since June 2019.

Xie Bing, male, born in September 1973 (aged 48), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Civil Aviation Management. He subsequently received a master’s degree of business administration from the Management School of Jinan University, a master’s degree of business administration (international banking and finance) from the University of Birmingham, Britain and a MBA, an Executive Master of Business Administration (EMBA) degree from Tsinghua University, respectively. Mr. Xie is a Senior Economist. Mr. Xie has the qualification for the Secretary to the Board of companies listed on the Shanghai Stock Exchange and also has the qualification for Company Secretary of companies listed on the Stock Exchange. Mr. Xie is a fellow member and FCS of The Hong Kong Chartered Governance Institute and a member of the Chinese Communist Party. Mr. Xie began his career in July 1995. He successively served as the Assistant of the Secretary to the Board of the Company, and the Executive Secretary of the General Office of CSAH. Mr. Xie has been the Secretary to the Board and Deputy Director of the Company Secretary Office from November 2007. From December 2009, Mr. Xie has been the Secretary to the Board and Director of the Company Secretary Office of the Company. From April 2017, he has been the Secretary to the Board of the Company, Director of the Company Secretary Office of the Company. For now, he also acts as Chairman of China Southern Airlines Group Capital Holding Limited (中國南航集團資本控股有限公司) and Chairman of CSA International Finance Leasing Co., Ltd., Deputy President of Central Enterprises Overseas Students Sodality (中央企業留學人員聯誼會), a Council Member of The Hong Kong Charted Governance Institute, Deputy Director of Secretary Committee of China Association for Public Companies, a committee member of the board secretaries committee for The Listed Companies Association of Guangdong and Vice President’s representative of China Group Companies Association.

 

93


Feng Hua Nan, male, born in November 1962 (aged 59), graduated with a college degree from China Civil Aviation Flying College, majoring in Aircraft Piloting, and obtained a master’s degree in Aeronautical Engineering from School of Automation Science and Electrical Engineering of Beijing University of Aeronautics and Astronautics and an Executive Master of Business Administration (EMBA) from Tsinghua University. He is a qualified senior pilot and a member of the Chinese Communist Party. Mr. Feng began his career in January 1983. He successively served as the Director of Zhuhai Flight Training Centre of China Southern Airlines (Group) Company and the Deputy General Manager of Flight Operation Division of the Company. He was the General Manager of Flight Safety Technology Department from December 1999, and the General Manager of Flight Technology Management Department of the Company from November 2002. Mr. Feng also served as the Party Secretary and Deputy General Manager of Guizhou Airlines Company Limited from September 2004, and then served as the General Manager and Deputy Party Secretary of Guizhou Airlines Company Limited from February 2006. He has been the COO Flight Safety of the Company since August 2014. For now, he also acts as Vice Chirman of China Airline Pilots Association, Expert of Guangzhou Airport Smart Tank (廣州空港智庫專家), Council Member of China Occupational Safety and Health Associatio, Member of the fifth Council China Air Transport Association and head of Safety Management Committee of China Air Transport Association.

Luo Ming Hao, male, born in September 1962 (aged 59), graduated from the Civil Aviation Flight College of China majoring in Aircraft Piloting. He graduated with a master’s degree from the Party School of Hunan Provincial Committee (湖南省委黨校) majoring in economics. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is Second Class Pilot (二級飛行員) and a member of the Chinese Communist Party. He began his career in July 1982. He served as the deputy general manager of the flight division of Hunan Branch of CSAH and deputy general manager of Bei Hai Sales Department of Hunan Branch of CSAH, general manager of Bei Hai Sales Department in Hunan Branch of the Company. He served as the deputy general manager of Hunan Branch of the Company in May 2002, General Manager and Deputy Party Secretary of the Cabin Department of the Company in December 2006. He acted as General Manager and Deputy Party Secretary of Dalian Branch of the Company in December 2010, General Manager and Deputy Party Secretary of Guangzhou Flight Department of the Company in July 2012. He has been Chief Pilot of the Company since March 2018. For now, he also serves as Chairman of Zhuhai Xiang Yi Aviation Technology Company Limited.

Zhu Hai Long, male, born in December 1963 (aged 58), graduated from Civil Aviation Flight College of China (中國民用航空飛行專科學校) majoring in Aircraft Piloting and possesses post-secondary qualifications. He graduated from the Flight College of Civil Aviation Flight University of China, majoring in aviation transportation with an on-job bachelor’s degree. Mr. Zhu holds the title of First Class Pilot and a member of the Chinese Communist Party. He began his career in January 1983,. He was a pilot of the 15th Fleet of CAAC (民航第十五飛行大隊), a pilot in the Flight Department of CSA Hainan (南航海南公司), vice-captain of the Second Squadron, leader of the B737 Squadron, the deputy general manager and general manager of the Flight Department. He served as general manager’s assistant and general manager of Haikou Flight Department in Hainan Branch of the Company. He served as deputy general manager and a member of the Party Committee of Shantou Airlines Company Limited in June 2007; deputy general manager, manager of the Flight Department and a member of the Party Committee in Hubei Branch of the Company in March 2013; deputy general manager and a member of the Party Committee in Shenzhen Branch of the Company in September 2015; deputy general manager and Deputy Party Secretary of Guangzhou Flight Division of the Company in February 2018; the head of Chief Flight Corps Team and Deputy Party Secretary of the Company in May 2018. Since December 2020, he has been the Chief Operation Officer of the Company.

 

94


Wu Rong Xin, male, born in January 1972 (aged 50), graduated from the China Civil Aviation Institute with a bachelor’s degree, majoring in thermal power machinery and equipment. He also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a member of the Chinese Communist Party. He began his career in July 1994. He served as Manager of Finance Department of Aircraft Engineering Department of China Southern Airlines Company Limited. In June 2008, he served as the Chief Financial Officer and Party Member of Guangzhou Aircraft Maintenance Engineering Co., Ltd., and Executive Vice President and Deputy Party Secretary of Guangzhou Aircraft Maintenance Engineering Co., Ltd. in April 2011. He served as Director of Planning and Investment Department of China Southern Air Holding Company Limited in November 2016, General Manager of Strategic Planning & Investment Division of China Southern Air Holding Company Limited and China Southern Airlines Company Limited in April 2017, General Manager of Aircraft Engineering Department and Deputy Party Secretary of China Southern Airlines Company Limited in March 2021, and General Manager and Deputy Party Secretary of Engineering Technology Branch (Aircraft Engineering Department) of China Southern Airlines Company Limited in September 2021. He has served as Chief Engineer of China Southern Airlines Company Limited since January 2022. Currently, he also acts as Director of China Aviation Supplies Co., Ltd., Chairman of Guangzhou Aircraft Maintenance Engineering Co., Ltd., Director of MTU Maintenance Zhuhai Co., Ltd., and the Vice Chairman of Civil Aviation Maintenance Association of China.

Save as disclosed above, none of the above Directors, Supervisors or senior management of the Company has any relationship with any Directors, Supervisors, senior management or substantial shareholders of the Company.

 

II.

Staff of the Company and Major Subsidiaries

As of 31 December 2021, the Group had an aggregate of 98,098 employees (31 December 2020: 100,431).

 

Number of current staff in the Company (by person)

   Number of current staff
in major subsidiaries
(by person)
     Total number of
current staff
(by person)
 

61,677

     36,421        98,098  

 

1.

Professions Composition

 

Categories by profession

   Number of
professionals
(by person)
 

Pilots

     11,305  

Cabin attendants (including part-time security personnel)

     21,216  

Air marshals

     3,685  

Engineering unit

     15,979  

Navigation unit

     2,319  

Passenger transportation unit

     7,887  

Cargo transportation unit

     5,572  

Ground services unit

     11,475  

Information unit

     1,788  

Financial unit

     1,782  

Others

     15,090  
  

 

 

 

Total

     98,098  
  

 

 

 

 

95


2.

Educational Level

 

Categories by education levels

   Number (by person)  

Postgraduates

     4,283  

Undergraduates

     52,160  

Junior college

     28,201  

Technical School or below

     13,454  
  

 

 

 

Total

     98,098  
  

 

 

 

 

3.

Emolument Policy of Employees

During the reporting period, in order to cope with the impact of the COVID-19 pandemic and achieve high-quality development, the Company formulated management measures for the filing system of total salary, and optimized the mechanism of linking total salary with market-based accounting. It continued to promote the downward penetration of total salary, and increased incentives for key positions and encourage employees to strive for excellence. The Company established and improved a market-oriented selection and employment mechanism as well as a incentive and restraint mechanism to promote the contractual management of the tenure system. It completed the signing of tenure contracts in more than 50 secondary units, and achieved the goal of linking performance with results. The Company formulated and improved a series of subsidy policies for front-line employees, such as subsidies for quarantine and pandemic prevention, which showed our care and love for the workforce. The Company actively explored medium and long-term incentive plans, and issued guidelines for the work on incentive mechanism of the Company. It built a “1+N” multi-dimensional incentive mechanism system to stimulate the vitality of the enterprise.

During the reporting period, details of the remuneration of the staff of the Company are set out in note 13 to the financial statements prepared under IFRSs.

 

4.

Training Plan

In 2022, the Company will follow the general idea of “adhering to five major developments, implementing five major strategies, promoting six major actions, and realizing six major transformations” to strive for high-quality development. It will practise the core concept of “training supports strategy, training creates value” to comprehensively strengthen the building of cadre and employee training system, promote the ability of cadre and staff, and provide sufficient talent guarantee for the safe and efficient operation of the Company. The Company will continue to optimize the training management system, carry out various employee training, enrich the training forms by combining online and offline methods, and accelerate the establishment of a training quality evaluation system. It will deepen the integration of production and education, promote the construction of market-oriented training mechanism, and achieve high-quality training. The Company will mainly advance the training of management trainees, CSA cloud T digital talent training, new employee training in various systems, annual pilot retraining, basic license training and professional and technical training for maintenance personnel, retraining for dispatchers, training for familiarization with international operations, regular retraining for flight attendants, emergency drills, training for aircraft transfer, and regular training for aviation safety officers.

 

5.

Information on Labor Outsourcing

 

Total hours of outsourced labor

   Total pay for outsourced labor (RMB)  

40.36 million hours

     2,562.55 million  

 

96


CORPORATE GOVERNANCE REPORT

The Company, according to the requirements of relevant laws and regulations, such as Company Law, Securities Law, and Articles of Association has set up its corporate governance systems consisted of general meeting, the Board, Supervisory Committee and operational management. This forms the Company’s operation mechanism based on which the Company’s organ of authority, decision-making body, supervisory body and executive body cooperate, coordinate and interact mutually. There was no material difference between the Company’s actual governance conditions and the requirements of normative documents, such as Code of Corporate Governance for Listed Companies in China released by the CSRC. The Company, according to domestic and international regulatory requirements, constantly modified and improved the Articles of Association and related rules to standardize its operation.

It is the firm belief of the Company that a good and solid corporate governance framework is an important foundation for ensuring the sustainable development of the Company and enhancing shareholders’ value. The Company has always been striving to strictly comply with the regulatory requirements of the CSRC, the SSE, the Stock Exchange, the New York Stock Exchange and the United States Securities and Exchange Commission, and is committed to attaining and maintaining high standards of corporate governance and adopts principles of corporate governance emphasizing a quality board, accountability to all stakeholders, open communication and fair disclosure.

Corporate Governance Code

The Board has reviewed the corporate governance practices of the Company, and considers that the Company has applied the principles of the corporate governance practices and adopted sound governance and disclosure practices accordingly. Except for the deviations disclosed in this report, the Group has complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules for the year ended 31 December 2021.

The corporate governance practices adopted by the Company are summarized below.

System Construction

The Company strictly follows the regulatory requirements of the place where it is listed to constantly improve the Articles of Association and related governing rules. During the reporting period, the Company revised the Articles of Association of China Southern Airlines Company Limited, the Procedural Rules of the Board of Directors of China Southern Airlines Company Limited, the Measures on the Authorization Management of the Board of Directors of China Southern Airlines Company Limited and the Information Disclosure Management System for Listed Companies of China Southern Airlines Company Limited in accordance with the regulatory rules.

Controlling Shareholder

The controlling shareholder of the Company is CSAH, one of the central enterprises supervised by the SASAC, and there is no competition between CSAH and the Company. The controlling shareholder of the Company has regulated itself and has not directly or indirectly interfered with the decision making and business activities of the Company beyond the general meeting.

 

97


During the reporting period, Mr. Han Wen Sheng, President of the Company, served as the president of CSAH, Mr. Zhang Zheng Rong, Mr. Luo Lai Jun, and Ms. Wu Ying Xiang, Executive Vice Presidents of the Company, served as Executive Vice Presidents of CSAH, and Mr. Yao Yong, Executive Vice President, chief accountant and Chief Financial Officer of the Company, served as Chief Accountant of CSAH. The Regulatory Department of Listed Companies of the CSRC has agreed to exempt the restrictions on concurrent positions for aforementioned senior management. The independent Directors of the Company unanimously believed that the Company and CSAH were able to strictly require and regulate the performance of duties of the senior management of the Company, namely Mr. Han Wen Sheng, Mr. Zhang Zheng Rong, Mr. Luo Lai Jun, Ms. Wu Ying Xiang and Mr. Yao Yong in accordance with relevant regulatory regulations in 2021, and ensure that they executed due care and diligence, gave priority to fulfilling their duties as the Company’s senior management, and earnestly safeguarded the legitimate rights and interests of the Company and minority shareholders. These senior management of the Company, namely Mr. Han Wen Sheng, Mr. Zhang Zheng Rong, Mr. Luo Lai Jun, Ms. Wu Ying Xiang and Mr. Yao Yong, strictly followed the Company Law, the Securities Law and relevant laws and regulations of the place of listing, diligently discharged their responsibilities, and earnestly fulfilled their commitments. They did not damage the legitimate rights and interests of the Company and minority shareholders due to holding the abovementioned concurrent positions.

The General Meeting

The general meeting of the Company is the top organ of authority and exercise all of its powers and functions legally. The Company strictly followed the requirements of laws, regulations, the Articles of Association, and the Rules of Procedures for General Meeting, and etc. to conduct all work of the general meeting and fully secure shareholders to legally exercise their rights of shareholders. During the reporting period, the Company held 3 general meetings and engaged lawyers to witness the convening procedures of the general meeting. Such procedures were legal and effective and ensured all shareholders, especially minority shareholders, to participate in decision to fairly exercise their rights by online voting at the general meeting, without causing damage to the benefits of the minority shareholders.

The Board

The Board is the decision-making body of the Company and accountable to the General Meeting of Shareholders. Within the scope of its functions and powers stipulated in the Articles of Association, it shall formulate the Company’s development strategies in accordance with the procedures stipulated in the Rules of Procedure of the Board. In addition, it shall supervise the implementation of the operation and management and the financial performance, and provide recommendations on appointment of directors and senior management. It shall also make decisions on major contracts, transactions, financial matters as well as other major policies. The Board reasonably authorized management according to law, which improved the level of decision-making and the efficiency of discussion, and promoted the development of the Company’s production and operation.

At present, the Company has 6 Directors, including 2 executive Directors and 4 independent non-executive Directors. The number of independent non-executive Directors accounts for more than half of the Board. In 2021, the Board of the Company operated in accordance with the law and held 14 Board meetings, including 5 on-site meetings and 9 extraordinary meetings. The decision-making procedures and contents of the proposals of the Board meetings complied with the requirements of the Listing Rules, the Articles of Association and relevant laws and regulations. Resolutions approved at such meetings were legal and effective.

 

98


The major issues which were brought before the Board for their decisions included:

 

1.

Direction of the operational strategies of the Group;

 

2.

Setting the policies relating to key business and financial objectives of the Company;

 

3.

Monitoring the performance of the management;

 

4.

Approval of material acquisitions, investments, sales, disposal of assets or any significant capital expenditure of the Group;

 

5.

Ensuring a prudent and effective internal control system; and

 

6.

Review of the financial performance and results of the Company.

As of 31 December 2021, the members of the 9th session of the Board comprise two executive Directors and four independent non-executive Directors. All of the Directors have a term of three years. The brief biographical details of the Directors are set out on pages 90 to 92 of this Annual Report.

The Board held 14 meetings in 2021, all of which were convened in accordance with the Articles of Association. The Company held 3 general meetings in 2021, the Directors actively participated general meeting in person and have been doing their best to develop a balanced understanding of the views of shareholders of the Company.

The attendance of each Director is as follows:

 

Name of Directors

  Attendance of Board Meetings   Attendance of General Meetings  
  Whether
independent
non-executive
Director or not
  Number of
meetings that
required
attendance
    Number of
meetings
attended in
person
    Number of
meetings
participated by
way of conference
communication
    Number of
meetings
attended by
proxy
    Number of
meetings
absent
    Absence in
two
consecutive
meetings
  Attendance     Number of
general
meetings
attendance
    Attendance  

Ma Xu Lun

  No     14       4       9       1       0     No     100     3       100

Han Wen Sheng

  No     14       4       9       1       0     No     100     3       100

Liu Chang Le (Appointed on 30 April 2021)

  Yes     10       4       6       0       0     No     100     2       100

Gu Hui Zhong

  Yes     14       5       9       0       0     No     100     3       100

Guo Wei (Appointed on 30 April 2021)

  Yes     10       4       6       0       0     No     100     2       100

Yan Andrew Y (Appointed on 30 April 2021)

  Yes     10       3       6       1       0     No     100     1       100

Zheng Fan (Retired on 30 April 2021)

  Yes     4       0       3       1       0     No     100     1       100

Tan Jin Song (Retired on 30 April 2021)

  Yes     4       1       3       0       0     No     100     1       100

Jiao Shu Ge (Retired on 30 April 2021)

  Yes     4       1       3       0       0     No     100     1       100

 

99


Meetings of the Board held during the year

     14  

Of which: number of meetings attended in person

     5  

Number of meetings held by way of conference communication

     9  

Number of meetings held by combination of attendance
in person and by way of conference communication

     0  

The experience and views of our independent non-executive Directors are held in high regard and serve as an effective guidance for the operation of the Group. The independent non-executive Directors provide the Group with a wide range of expertise and experience and bring in independent judgment on issues relating to the Group’s strategy, performance and management process, taking into account the interests of all shareholders. The independent non-executive Directors represent more than one-third of the Board. Independent non-executive Directors, Tan Jin Song (retired on 30 April 2021) and Gu Hui Zhong (appointed on 30 April 2021), have the appropriate professional qualifications of accounting or related financial management expertise under Rule 3.10 of the Listing Rules. In addition, pursuant to the guidelines on independence as set out in Rule 3.13 of the Listing Rules, the Company has received an annual independence confirmation from each independent non-executive Director and considers that all the independent non-executive Directors are independent. In addition, their extensive experiences in business and finance are very important to the Company’s successful development. In 2021, the independent non-executive Directors expressed their views and opinions about certain matters relevant to the shareholders and the Company as a whole at the Board meetings.

The Board has adopted a board diversity policy setting out the approach to diversity of members of the Board. The summary of the board diversity policy are as follows: The Company recognises and embraces the benefits of diversity of Board members. It endeavours to ensure that the Board has a balance of skills, experience and diversity of perspectives appropriate to the requirements of the Company’s business. All Board appointments will continue to be made on a merit basis with due regard for the benefits of diversity of the Board members. Selection of candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background, experience (professional or otherwise), skills and knowledge. The ultimate decision will be made upon the merits and contribution that the selected candidates will bring to the Board.

Directors

The members of the Board come from different industrial backgrounds, with rich experiences and professional knowledge as to financial accounting, investment strategies, corporate cultures, corporate governance, and etc. Each Director serves a three-year term of office and may be re-elected to a consecutive second term, but by principle only up to 2 consecutive terms in the case of independent non-executive Director. There is no major related relations among all Directors, including in terms of finance, business, relatives or others. All Directors may obtain from the Secretary to the Board the related information on the regulations a listed company’s Directors must observes and their regulatory and other consistent responsibilities and the latest developments in such aspects, so as to ensure Directors understand their duties and secure the procedures of the Board are executed and applicable laws and regulations are properly observed. The Company’s independent non-executive Directors work diligently and conscientiously, and actively attend meetings of the Board and its committees, express independent opinions about connected transactions, external guarantees, cash dividends, non-public issuance of shares, appointment and removal of Directors and senior management and many other affairs, and give constructive advice and suggestions on the Company’s production, operation, and debt restructuring. During the reporting period, at the 2021 first extraordinary general meeting of the Company on 30 April 2021, Mr. Ma Xu Lun and Mr. Han Wen Sheng were elected as the executive Directors of the 9th session of the Board, Mr. Liu Chang Le, Mr. Gu Hui Zhong, Mr. Guo Wei and Mr. Yan Andrew Y were elected as independent non-executive Directors of the 9th session of the Board. On 30 April 2021, the Board of the Company elected Mr. Xa Xu Lun as Chairman of the Company. On 22 June 2021, the Board of the Company elected Mr. Han Wen Sheng as the Vice Chairman of the Company.

 

100


Continuous Professional Development of Directors

All Directors of the Company receive comprehensive, formal and tailored induction on appointment, so as to ensure understanding of the business and operations of the Group and Directors’ responsibilities and obligations under the Listing Rules and relevant regulatory requirements.

Directors of the Company are continually updated on developments in the statutory and regulatory regime, and the business and market changes to facilitate the discharge of their responsibilities and obligations under the Listing Rules and relevant statutory requirements. In addition, continuing briefings and professional development for Directors will be arranged as necessary.

During the year of 2021, the Company has provided updates and coordinated training on the Listing Rules and relevant regulatory requirements to all Directors. All Directors have provided to the Company records indicating that they have received required training.

All Directors of the Company as at 31 December 2021 actively participated in continuous professional training, by attending external seminars, attending in–house training or reading materials, with the topics covering regulations, corporate governance, finance and business, to develop their knowledge and skills.

Chairman and President

The Chairman is the leader of the Board and he oversees the Board to ensure that it acts in the best interests of the Group. The Chairman is responsible for deciding the agenda for each Board meeting, taking into account, where appropriate, matters proposed by other Directors for inclusion in the agenda. In addition, the Chairman is also responsible for guiding and setting the overall development goals and direction of the business of the Company. The President, assisted by the Executive Vice President, is responsible for the day-to-day management of the business of the Group, attends to the formulation and successful implementation of policies, and assumes full accountability to the Board for all operations of the Group. Working with the Executive Vice President and the executive management team of each core business division, the President ensures the effective operations and sustained development of the Group. The president maintains a continuing dialogue with the Chairman and all Directors to keep them fully informed of all major business development issues. He is also responsible for building and maintaining an effective executive team to support him in his role.

Mr. Wang Chang Shun has resigned as the Chairman of the Board of the Company, the Executive Director, the chairman of the Strategic and Investment Committee of the Board and the member of the Nomination Committee of the Board with effect from 21 December 2020 due to his retirement. At the same day, the Board also announced that it has approved the appointment of Mr. Ma Xu Lun (vice chairman and President of the Company) as the Chairman of the 8th session of the Board. As Mr. Ma Xu Lun was both Chairman and President of the Company, the Company was temporarily unable to comply with provision A.2.1 of the Corporate Governance Code regarding the distinction between the roles of Chairman and President. Nevertheless, having considered that (i) the co-performance of the duties of the Chairman and the President is a temporary arrangement pending election and appointment of a candidate to fill vacancy of the president position; and (ii) the Board meets regularly and whenever needed to consider matters relating to business operations of the Group, the Board is of the view that this temporary arrangement will not impair the balance of power and authority of the Board and the management of the Company. The effectiveness of corporate planning and implementation of corporate strategies and decisions will not be affected. On 22 June 2021, Mr. Han Wen Sheng was appointed by the Board as the President of the Company, and Mr. Ma Xu Lun resigned as the President of the Company. As a result, the Chairman and President of the Company have been assumed by different individuals, and the Company has resumed compliance with the code provisions set out in provision A.2.1 of the Corporate Governance Code.

 

101


Supervisory Committee

The Company’s Supervisory Committee is consisted of the shareholder representative supervisors who are elected and removed by the general meeting, and staff representatives supervisors who are elected by the Company’s employee representatives. Currently, the Supervisory Committee consists of 3 supervisors, of which, 2 are shareholder representative supervisors, and 1 is employee representative supervisor. The Supervisory Committee has 1 chairman. None of the Company’s Directors, President, Vice President or the responsible financial persons serve concurrently as supervisors. The Supervisory Committee of the Company strictly follows the requirements of laws and regulations, Articles of Association, and Rules of Procedures of the Supervisory Committee to standardize its operation. The supervisors of the Company work diligently, honestly, actively attend meetings of the Supervisory Committee, sit in on the general meetings and the Board meeting, legally supervise the decision-making mechanism of the Company’s connected transactions, profit distribution, external guarantees, non-public offering, and many other major affairs, as well as the performance of duties of the Company’s Directors and senior management. In addition, they also receive the report on the preparation and audit work of the financial reports, and actively understand the construction and execution of the Company’s internal control systems. During the reporting period, the Supervisory Committee convened a total of 5 on-site meetings and 2 extraordinary meetings. Meanwhile, it audited, as per the requirements of the Company Law, Articles of Association, Rules of Procedures of the Supervisory Committee, the Company’s major affairs, such as, the Company’s compliance, periodical reports, financial work, profit distribution, connected transactions, internal control, and gave audit opinions.

Board Committees

The Board of the Company has put in place an Aviation Safety Committee, a Strategic and Investment Committee, an Audit and Risk Management Committee, a Nomination Committee and a Remuneration and Assessment Committee. The number of independent non-executive directors accounted for more than a half in each committee, of which three members of Audit and Risk Management Committee are all independent non-executive directors and chairman is a senior accountant. The chairman of Remuneration and Assessment Committee and Nomination Committee shall be an independent non-executive director. Each committee under the Board of the Company has set up the working rules and strictly carried out the work according to the working rules. Each committee will conduct in-depth studies on professional issues, and make recommendations for the Board. Further details of the roles and functions and the composition of each of the committees are set out below:

Aviation Safety Committee

The Aviation Safety Committee comprises three members and chaired by Mr. Ma Xu Lun (executive Director), together with Mr. Han Wen Sheng (executive Director) and Mr. Guo Wei (independent non-executive Director) as members.

The Aviation Safety Committee held 2 meetings in 2021, which was held according to its rules and procedures, and considered a report on the 2021 safety production and operation plan of the Company, safety production and operation in the first half of the year and work plan for the second half of the year. The attendance of each member is as follows.

 

Members of Aviation Safety Committee

   (No. of meeting)
Attended/Eligible
to attend
 

Ma Xu Lun (Chairman)

     2/2  

Han Wensheng (Appointed on 30 April 2021)

     1/1  

Guo Wei (Appointed on 30 April 2021)

     1/1  

Zheng Fan (Retired on 30 April 2021)

     1/1  

Tan Jin Song (Retired on 30 April 2021)

     1/1  

 

102


Strategic and Investment Committee

As at 31 December 2021, the Strategic and Investment Committee comprises three members and chaired by Mr. Ma Xu Lun (executive Director) together with Mr. Liu Chang Le (independent non-executive Director) and Mr. Gu Hui Zhong (independent non-executive Director) as members.

The Strategic and Investment Committee held 1 meeting in 2021, which was held according to its rules and procedures, and considered a report on the implementation of the major strategic investment matters of the Company. The attendance of each member is as follows.

 

Members of Strategic and Investment Committee

   (No. of meetings)
Attended/Eligible
to attend
 

Ma Xu Lun (Chairman) (Appointed on 30 April 2021)

     1/1  

Liu Chang Le (Appointed on 30 April 2021)

     0/0  

Gu Hui Zhong

     1/1  

Jiao Shu Ge (Retired on 30 April 2021)

     1/1  

Audit and Risk Management Committee

The Audit and Risk Management Committee comprises three independent non-executive Directors. As at 31 December 2021, the Audit and Risk Management Committee was chaired by Mr. Gu Hui Zhong (independent non-executive Director) together with Mr. Guo Wei (independent non-executive Director) and Mr. Yan Andrew Y (independent non-executive Director) as the members of the Audit and Risk Management Committee. Among them, Mr. Gu Hui Zhong possesses the appropriate professional qualifications or accounting or financial management expertise to understand financial statements. The Audit and Risk Management Committee has been provided with sufficient resources to discharge its duties and has access to independent professional advice if necessary.

The terms of reference of the Audit and Risk Management Committee of the Company are in compliance with the provision of C.3.3 of the Corporate Governance Code, and applicable policies, rules and regulations that the Company is subject to. The details of the roles and functions of the Audit and Risk Management Committee are set out in the Terms of Reference of Audit and Risk Management Committee of the Company which has been published on the websites of the Stock Exchange and the Company at “www.hkexnews.hk” and “www.csair.com”. In 2021, the Audit and Risk Management Committee carried out the work, among other things, considering the appointment of auditors, reviewing the Company’s regular report, related transactions, hedging plan, debt financing plan, non-public issuance of shares, reviewing the efficiency of risk management and internal control system of the Company and reviewing the internal audit plan, etc.

 

103


The Audit and Risk Management Committee held 7 meetings in 2021. The Audit and Risk Management Committee has performed all its obligations under its terms of reference. The attendance of each member of the Audit and Risk Management Committee is as follows:

 

Members of the Audit and Risk Management Committee

   (No. of meetings)
Attended/Eligible
to attend
 

Gu Hui Zhong (Chairman)

     7/7  

Tan Jin Song (Chairman) (Retired on 30 April 2021)

     2/2  

Guo Wei (Appointed on 30 April 2021)

     5/5  

Yan Andrew Y (Appointed on 30 April 2021)

     5/5  

Jiao Shu Ge (Retired on 30 April 2021)

     2/2  

The Audit and Risk Management Committee reviewed the performance, independence and objectivity of the Company’s auditors and was satisfied with the results.

The Audit and Risk Management Committee concludes that the independence of the auditors of the Company has not been compromised by non-audit services provided for the Group.

At 2020 annual general meeting of the Company, the Company has considered and approved the appointment of KPMG Huazhen LLP to provide professional services to the Company for its domestic financial reporting and internal control reporting, U.S. financial reporting and internal control for the year 2021 and appointment of KPMG to provide professional services to the Company for its Hong Kong financial reporting for the year 2021.

The following table sets forth the type of, and fees (VAT tax inclusive) for, the principal audit services and non-audit services provided by the Company’s external auditor to the Group in 2020 and 2021:

 

     2021
RMB Million
     2020
RMB Million
 

Audit fees

     14        17  

Non-audit fees

     1        3  
  

 

 

    

 

 

 

Total

     15        20  
  

 

 

    

 

 

 

 

Note 1:

The total audit fees included the audit fees of RMB1 million (VAT tax inclusive) regarding the statutory audit services for certain subsidiaries of the Group for the year ended 31 December 2021.

 

Note 2:

Non-audit fees are mainly derived from tax advisory services to the Group.

Remuneration and Assessment Committee

As at 31 December 2021, the Remuneration and Assessment Committee comprises three members and chaired by Mr. Guo Wei (independent non-executive Director) together with Mr. Han Wen Sheng (executive Director) and Mr. Gu Hui Zhong (independent non-executive Director) as members.

The main responsibilities of the Remuneration and Assessment Committee are to make recommendations to the Board on the remuneration policy, structure and packages for Directors and senior management of the Company, and to establish regular and transparent procedures on remuneration policy development and improvement. In particular, the Remuneration and Assessment Committee has the duty to ensure that the Directors or any of their associates shall not be involved in the determination of their own remuneration packages. The details of the roles and functions of the Remuneration and Assessment Committee are set out in the Terms of Reference of Remuneration and Assessment Committee of the Company which has been published on the websites of the Stock Exchange and the Company at “www.hkexnews.hk” and “www.csair.com”.

 

104


The Remuneration and Assessment Committee held 2 meetings in 2021, which were held according to its rules and procedures. The meetings reviewed the resolutions including the performance contract for senior management and remuneration realization, realization of annual remuneration of senior management. The attendance of each member is as follows.

 

Members of Remuneration and Assessment Committee

   (No. of meetings)
Attended/Eligible
to attend
 

Han Wen Sheng

     2/2  

Guo Wei (Chairman) (Appointed on 30 April 2021)

     2/2  

Gu Hui Zhong (Appointed on 30 April 2021)

     2/2  

Zheng Fan (Retired on 30 April 2021)

     0/0  

The Remuneration and Assessment Committee consulted, when appropriate, the Chairman and/or the President about its proposals relating to the remuneration of other executive Directors. The Remuneration and Assessment Committee is provided with sufficient resources to discharge its duties and professional advice is available if necessary. The Remuneration and Assessment Committee is also responsible for assessing performance of executive Directors and approving the terms of executive Directors’ service contracts. The Remuneration and Assessment Committee has performed all its responsibilities under its terms of reference in 2021.

Nomination Committee

As at 31 December 2021, the Nomination Committee comprises three members and chaired by Mr. Gu Hui Zhong (independent non-executive Director) together with Mr. Ma Xu Lun (executive Director) and Mr. Liu Chang Le (independent non-executive Director) as members.

The responsibilities of the Nomination Committee are to make recommendations to the Board in respect of the size and composition of the Board based on the operational activities, assets and shareholding structure of the Company; study the selection criteria and procedures of Directors and senior management and give advice to the Board by consideration of the board diversity policy; identify qualified candidates for Directors and senior management; investigate and propose candidates for Directors and senior management and other senior management members to the Board.

In accordance with relevant laws and regulations as well as the provisions of the Articles of Association, the Nomination Committee shall study on the selection criteria, procedures and terms of office for Directors and managers with reference to the Company’s actual situation and the board diversity policy. Any resolution made in this regard shall be filed and proposed to the Board for approval and shall be implemented accordingly. The selection procedures of Directors and senior management are (1) the Nomination Committee shall actively communicate with the relevant departments of the Company to research on the demand of the Company for new Directors and senior management and report the same in writing; (2) the Nomination Committee may extensively look for the candidates of Directors and senior management within the Company and its controlled (associated) companies as well as in the market; (3) to obtain information regarding the occupation, academic qualification, job title, detailed working experience and all the part-time positions of the initially proposed candidates and to report the same in writing; (4) to seek the nominees’ acceptance on nomination, otherwise he or she shall not be put on the list of candidates of Directors and senior management; (5) to convene meetings of the Nomination Committee and to inspect the qualification of initially proposed candidates according to the job qualifications of Directors and senior management; (6) to make recommendations and submit relevant materials about the candidates of Directors and senior management to the Board one to two months prior to the election of new Directors and the appointment of new senior management; and (7) to conduct other follow-up work according to the decision and feedback of the Board. The criteria to be considered as reference by the Nomination Committee in assessing a proposed candidate include the required skills, knowledge and quality to perform the duties. Details of the criteria are set out in the Procedural Rules of the Board of Directors which has been published by the Company on the website of the

 

105


Stock Exchange at “www.hkexnews.hk” on 8 November 2017. The Nomination Committee is provided with sufficient resources to discharge its duties and independently engage intermediate agencies to provide professional advice on its proposals if necessary. The details of the roles and functions of the Nomination Committee are set out in the Terms of Reference of Nomination Committee of the Company which has been published on the websites of the Stock Exchange and the Company at “www.hkexnews.hk” and “www.csair.com”.

The Nomination Committee held 2 meetings in 2021, to nominate Mr. Yao Yong as the Executive Vice President, Chief Accountant and Chief Financial Officer of the Company, Mr. Han Wen Sheng, a member of the 9th session of the Board, as the President of the Company. The Nomination Committee has performed all its obligations under their terms of reference in 2021. The attendance of each member of the Nomination Committee is as follows.

 

Members of the Nomination Committee

   (No. of meetings)
Attended/Eligible
to attend
 

Ma Xu Lun (Appointed on 30 April 2021)

     1/1  

Liu Chang Le (Appointed on 30 April 2021)

     1/1  

Gu Hui Zhong (Chairman) (Appointed as Chairman on 30 April 2021)

     1/1  

Zheng Fan (Chairman) (Retired on 30 April 2021)

     1/1  

Jiao Shu Ge (Retired on 30 April 2021)

     1/1  

Management

 

Responsibilities

of the Management

The management of the Company is responsible for the daily production, operation and management of the Company according to the resolutions of the general meeting of shareholders and the Board. In strict accordance with the authorization of the general meeting of shareholders and the Board, it is diligent and responsible, and leads all employees to carry out specific operations. During the reporting period, the management took measures to prevent and control the pandemic in a careful manner, continuously improved the management and anti-risk capability, and actively performed strategies to ensure the safe operation of the Company throughout the year. It took a special action at the airport to prevent the imported of cases, and defended the anti-pandemic results.

Corporate Governance Functions

The Board is responsible for performing the corporate governance duties set out in the code provision D.3.1 of the revised Corporate Governance Code.

During the year, the Board has formulated a policy on diversity of board meetings. The Board reviewed the compliance of the Model Code and disclosure in this Corporate Governance Report during the Board meeting to approve the annual result and annual report.

Model Code for Securities Transactions by Directors and Supervisors of Listed Issuers

Having made specific enquiries with all the Directors and Supervisors, they confirmed that they have complied with the Model Code for the year ended 31 December 2021. The code of conduct adopted by the Company regarding securities transactions by Directors and Supervisors is no less stringent than the Model Code.

 

106


Responsibility for the Financial Statements

The following statement, which sets out the responsibilities of the Directors in relation to the financial statements, should be read in conjunction with, but distinguished from, the reports prepared by the auditor of the Group in this annual report, which acknowledges the reporting responsibilities of the Group’s auditor.

The Directors are responsible for the preparation of periodic accounts for each financial year which should give a true and fair view of the state of affairs, results and cash flows of the Group during that period.

The responsibilities of the Company’s external auditor, KPMG, are set out on pages 158 to 162 to auditor’s report. The Directors consider that in preparing the financial statements, the Group uses appropriate accounting policies that are consistently applied, and that all applicable accounting standards are followed.

The Directors are responsible for ensuring that the Group keeps accounting records which disclose with reasonable accuracy of the financial position of the Group and which enables the preparation of financial statements in accordance with PRC laws and regulations and disclosure requirements of the Hong Kong Companies Ordinance and the applicable accounting standards.

Communications with Shareholders and Investor Relations

During the reporting period, the Company adhered to the principles of openness, transparency and active communication, upheld the investor-centered approach, and improved communication channels and systems to further enhance the working accuracy and service level of investor relations.

On the one hand, taking into account the demands of regulatory policies, investor communication and pandemic control, the Company has applied cloud video and web live broadcast for two consecutive years to hold annual performance conferences and annual performance briefings to communicate with the majority of medium and small investors on hot issues such as pandemic prevention, recovery progress, business performance, and structural adjustment. Accumulated more than 500 people participated in the meetings. Such efforts enhanced investors’ confidence in the aviation industry and the growth prospects of the Company. On the other hand, the Company strengthened the interaction with shareholders and potential investors through various forms such as the investor hotline with designated personnel to answer questions, answering questions on the SSE E interactive platform, institutional research, analyst meetings, and on-site reception of visiting shareholders at the general meeting. The Company held and participated in more than 50 press conferences, strategy conferences and conference calls throughout the year, and conducted in-depth communication with more than 600 investors and analysts to answer questions for investors. At the same time, the Company actively improved the market information feedback and transmission mechanism to keep abreast of the capital market’s suggestions and opinions on its development, assist its management to respond in a timely manner by using a variety of business and communication strategies, and continuously improve the intrinsic value of the Company.

During the reporting period, the Company won the “Best Company of Investor Relations in Listed Companies” of the China Securities Golden Bauhinia Award (中國證券金紫荊獎), the “Investor Relations Management Award” of the China Securities Journal Listed Company Golden Bull Award (中國證券報上市公司金牛獎), and the Hong Kong Stock Investor Relations Award (港股投資者關係獎) of the Hong Kong Investor Relations Association. The brand image was further enhanced.

In 2022, the Company will continue to uphold the philosophy of respecting and rewarding investors, deliver company value, and safeguard the legitimate rights and interests of investors, and also expect more attention and support from investors.

 

107


Investors and the public may refer to the Company’s website (www.csair.com) to understand and obtain details relating to our corporate governance structure, organizational structure, stock information, production statistics, results announcement and other announcements. The detailed procedures are as follows:

 

1.

Open the Home page of the Company’s website and click “Investor Relations”

 

2.

Click the content you want to read

For enquiries about shareholders’ general meetings and Board meetings, investors may contact the Company Secretary by phone at (8620)8611-2480, by fax to (8620)8665-9040 or by e-mail to [email protected]. Investors may also raise questions directly at the annual general meetings or extraordinary general meetings. Enquiries about attending annual general meetings or extraordinary general meetings and the procedures for proposing resolutions at such meetings may also be made to the Secretary to the Board by the above means.

Information Disclosure

The Company has strictly complied with the relevant listing rules of all the listing places to perform its information disclosure obligations in accordance with the standards of “truth, accuracy, completeness, timeliness, fairness and effectiveness”.

During the reporting period, regulators continued to improve regulatory systems, strengthen the supervision of information disclosure, and intensify oversight and punishment as a way to urge listed companies to continuously improve their quality. The Company actively updated the listing compliance system, and revised the Information Disclosure Management System for Listed Companies (上市公司信息披露管理制度) of CSA in accordance with the regulatory rules; enriched and improved the management and control methods of listing compliance, improved the working mechanism, updated the process form, and continued to promote the building of a “big information disclosure team”; and systematically managed key listing compliance matters such as connected transactions and external guarantees, and applied a variety of management tools to consistently improve the systematic and forward-looking management of listing compliance.

In August 2021, the Company received a level-A information disclosure rating for the year 2020-2021 from Shanghai Stock Exchange. So far, the Company has obtained level-A information disclosure rating from the Shanghai Exchange Stock for eight consecutive years.

Amendments to Articles of Association

To meet the needs of business operation, the Company proposed to expand the scope of business of the Company to include aviation medical examination service. Accordingly, the Articles of Association of the Company had to be amended to reflect such change to the scope of business. On 30 April 2021, the first extraordinary general meeting of 2021 of the Company considered and approved the amendments to the relevant clauses of the Articles of Association. For details, please refer to the Company’s announcement dated 21 December 2020 and the circular dated 15 March 2021.

On 27 August 2021, the Company convened the second meeting of the 9th session of the Board, at which the amendments to the relevant clauses of the Articles of Association were considered and passed unanimously in accordance with the authorization at the Company’s 2019 annual general meeting, 2020 first class meeting for holders of A Shares and 2020 first class meeting for holders of H Shares and the cumulative conversion results of the A Share Convertible Bonds as of 30 June 2021. For details, please refer to the Company’s announcement dated 27 August 2021.

 

108


The provisions in relation to the General Committee of the Board and the “repurchase shares” in the Articles of Association were amended to reflect the amendments to the Company Law of the People’s Republic of China, Guidelines for the Articles of Association of Listed Companies, Rules Governing the Listing of Stocks on Shanghai Stock Exchange, other laws and regulations and the actual situation of the Company; and in order to further improve the standardization and effectiveness of the operation of the Board, some provisions of the Procedural Rules of the Board of Directors were amended to reflect the regulatory requirements and the actual situation of the Company. On 28 December 2021, the 2021 second extraordinary general meeting of the Company considered and passed unanimously the amendments to the relevant clauses of the Articles of Association. For details, please refer to the Company’s announcement dated 27 August 2021 and the circular dated 11 November 2021.

Save as disclosed above, no amendments were made to the Articles of Association in 2021.

Company Secretary

The Company Secretary of the Company is Mr. Xie Bing. For biographical details of Mr. Xie Bing, please refer to the section headed “Profiles of Current Directors, Supervisors and Senior Management” in this report. Mr. Xie has confirmed that he attended no less than 15 hours of relevant professional training during the reporting period.

Dividend Policy

The Company’s dividend distribution policy is as follows:

Principles of dividend distribution by the Company: Provided that the long-term and sustainable development of the Company are ensured, the dividend distribution policy of the Company should pay close attention to ensuring a reasonable return of investment to investors and establishing a firm intention of rewarding the shareholders, and such dividend distribution policy should maintain its continuity and stability.

Ways of dividend distribution by the Company: The Company may distribute dividends by way of cash, shares, a combination of cash and shares or in other reasonable manners in compliance with laws and administrative regulations.

Conditions and proportion of distribution of dividends by the Company: Conditional upon the Company being profitable for the year and after allocation to the statutory common reserve fund and discretionary common reserve fund as required, and there are no exceptional matters including material investment plans or material cash outflows (material investment plans or material cash outflows refer to proposed external investments, acquisition of assets or purchase of equipment in the coming 12 months that in aggregate constitute expenditure exceeding 30% of the net assets of the Company as shown in the latest audited consolidated statements) and there has not incurred any material losses (losses in the amount exceeding 10% of the net assets of the Company as shown in the latest audited consolidated statements), the Company shall distribute cash dividends out of profit in an amount not less than 10% of the distributable profit for the year (i.e. profit realized for the year after making up for losses and allocation to reserve fund). The accumulated distribution of dividend by way of cash for the last three years may not be less than 30% of the Company’s average distributable profit for the last three years. The accumulated distribution of dividend by way of cash for the coming three years may not be less than 30% of the Company’s average distributable profit for such three years.

Intervals for dividend distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s normal operation and sustainable development are ensured, the Company shall in principle distribute dividend on an annual basis, and interim dividend may also be distributed based on the profitability and capital requirement conditions of the Company.

 

109


Conditions of profit distribution by way of share dividends: Provided that the minimum proportion of distribution of cash dividends is met and reasonable scale of share capital and shareholding structure of the Company are ensured, and with particular attention paid on keeping the steps of capital expansion in pace with the growth in operation results, if there are special circumstances which prevent distribution by way of cash, the Company may consider distributing profit by way of share dividends as a return to investors after consideration of its profitability and cash flow position and performance of the procedures required by the Articles of Association. Where the Company made a payment of dividend satisfied by an allotment of new shares or completed conversion of capital common reserve fund into capital, the Company may elect not to distribute dividend by way of cash in the same year, and that year is not counted in the three years as stated above in this Articles of Association.

Shareholders’ Rights

As one of the measures to safeguard shareholders’ interests and rights, separate resolutions are proposed at shareholders’ meetings on each substantial issue, including the election of individual Directors, for shareholders’ consideration and voting. All resolutions put forward at shareholders’ meetings will be voted by poll pursuant to the Listing Rules and the poll results will be published on the website of the Stock Exchange at “www.hkexnews.hk” and the website of the Company at “www.csair.com” after the relevant shareholders’ meetings.

Extraordinary general meetings may be convened by the Board on written requisition of shareholder(s) individually or jointly holding 10% or more of the Company’s issued and outstanding shares carrying voting rights pursuant to Article 79(3) of the Articles of Association. Such requisition must be stated in the agenda to be addressed in general meeting and signed by the applicant and then reported to the Board and Company Secretary of the Company in written form. Shareholders should follow the requirements and procedures as set out in the Articles of Association for convening an extraordinary general meeting.

For putting forward any enquiry to the Board, shareholders may send written enquiries to the Company. Shareholders may send their enquiries or requests in respect of their rights as mentioned above to the Board Office of the Company or via email as set out in the above section headed “Communications with Shareholders and Investors and Investors Relations”.

Training for Directors, Supervisors and Senior Management

During the reporting period, the Company took various forms to publicize and implement the relevant rules for the operation of the board of directors to Directors, Supervisors and senior management, continued to pay attention to key cases in the capital market, the performance of independent non-executive directors, the revision of the governance rules system of the Shanghai Stock Exchange, ESG and other key content, and continuously enhanced the compliance awareness of Directors, Supervisors and senior management. The Company organized certain Directors, Supervisors and senior management to participate in training and learning on the Corporate Governance and Regulation Rules conducted by the SASAC, the CSRC, the SSE, the Stock Exchange and The Hong Kong Institute of Chartered Secretaries. It also carried out training on compliance performance on the optimization of the governance system, the continuous responsibility of directors, etc. for Directors, Supervisors and senior management, and promoted them to continuously update their business knowledge and improve their performance skills.

 

110


ENVIRONMENTAL AND SOCIAL RESPONSIBILITY

 

I.

INFORMATION ON ENVIRONMENTAL PROTECTION

 

(I)

Information on Environmental Protection of Enterprises and Its Key Subsidiaries which were Classified as Major Pollution Discharge Units Published by the Environmental Protection Authorities

 

1.

Information on Pollution Discharge

The Group always adheres to the concept of green development, earnestly fulfills responsibilities for environmental protection, and continuously improves the pollution prevention and control as well as the management of environmental protection. The Shenyang Base of the Engineering Technology Branch of the Company is classified as a major pollution discharge unit for soil environment of Shenyang, and Guangzhou Aircraft Maintenance Engineering Co., Ltd., a joint venture of the Company, is classified as a major pollution discharge unit for atmospheric environment of Guangzhou. The main pollutants are wastewater, exhaust gas and hazardous waste. The details are as follows:

 

Name of
the Company or
its subsidiaries

 

Names of major
pollutants and featured
pollutants

 

Method of
discharge

 

Distribution of
discharge
outlets

 

Concentration of

pollutant

discharged

 

Implemented pollutant
discharge standards

 

Total discharge

 

Total discharge
approved

  Excessive
discharge

Shenyang Base of the Engineering Technology Branch of China Southern Airlines Company Limited

 

Wastewater: COD, ammonia nitrogen, suspended solids, petroleum

 

Intermittent discharge

 

Wastewater: 1 main outlet

 

Wastewater: COD: 118mg/L ammonia nitrogen: 16.86mg/L suspended solids: 42.75mg/L petroleum: 1.13mg/L

 

Wastewater discharge standard is in accordance with the Integrated Sewage Discharge Standard of Liaoning Province (DB21/1627-2008)

 

/

 

 

 

/

 

/

 

 

 

/

  No

 

111


Name of
the Company or
its subsidiaries

 

Names of major
pollutants and featured
pollutants

 

Method of
discharge

 

Distribution of
discharge
outlets

 

Concentration of

pollutant

discharged

 

Implemented pollutant
discharge standards

 

Total discharge

 

Total discharge
approved

  Excessive
discharge

Shenyang Base of the Engineering Technology Branch of China Southern Airlines Company Limited

 

Exhaust gas: PM, VOCs, dust, nitrogen oxide, sulfur dioxide

 

Intermittent discharge

 

Exhaust gas: 11 exhaust gas outlets

 

Exhaust gas:

DA003: Non-methane hydrocarbon 6.135 mg/m3 Nitrogen oxides 11.5 mg/m3

DA004: Non-methane hydrocarbon 5.36 mg/m3
Nitrogen oxides 7.33 mg/m3

DA007: PM 11.93 mg/m3

DA008: Xylene 0.097 mg/m3
Benzenes 1.98mg/m3
TVOC 6.98mg/m3
Methylbenzene 1.78mg/m3
Non-methane hydrocarbon 6.98mg/m3

DA009: Xylene 0.0015 mg/m3
Methylbenzene 0.0015mg/m3
Non-methane hydrocarbon 1.43mg/m3

DA010: Xylene 0.0015 mg/m3
Methylbenzene 0.0015mg/m3
non-methane hydrocarbon 1.2mg/m3

DA011: Xylene 0.0015 mg/m3
Methylbenzene 0.0015mg/m3
Non-methane hydrocarbon 1.1mg/m3

DA012: Xylene 0.0015 mg/m3
Methylbenzene 0.0015mg/m3
Non-methane hydrocarbon 1.03mg/m3

DA013: non-methane hydrocarbon 0.97mg/m3

DA014: Xylene 0.0015 mg/m3
Methylbenzene 0.0015 mg/m3
Non-methane hydrocarbon 0.9mg/m3

 

Level 2 standard on new pollution source of the Integrated Emission Standards for Air Pollutants (GB16297-1996) was executed to handle the particulate matter in the exhaust gas;

The Emission Standard of Volatile Organic Compounds for Industrial Surface Coating (DB21/3160-2019) was executed to handle the exhaust gas of surface coating

 

/

 

/

  No
       

Boiler exhaust vent: Dust 4.5 mg/m3
Sulfur dioxide 3mg/m3
Nitrogen oxides 109 mg/m3

 

Boiler exhaust gas implements “Boiler Air Pollutant Emission Standard” (GB13271-2014)

 

/

/

/

 

/

/

/

 

 

112


Name of
the Company or
its subsidiaries

 

Names of major
pollutants and featured
pollutants

 

Method of
discharge

 

Distribution of
discharge
outlets

 

Concentration of

pollutant

discharged

 

Implemented pollutant
discharge standards

 

Total discharge

 

Total discharge
approved

  Excessive
discharge

Shenyang Base of the Engineering Technology Branch of China Southern Airlines Company Limited

 

Hazardous waste

 

Intermittent discharge

 

4 temporary storage rooms for hazardous waste

4 underground storage tanks

 

/

 

The Standard for Pollution Control on the Storage and Disposal Site for General Industrial Solid Wastes (GB18599-2001) and its 2013 Revisions (Notice No. 36 of 2013) were executed to handle solid waste; The relevant provisions of the Pollution Control Standards for Hazardous Waste Storage (GB18597-2001) and its Revisions (Notice No. 36 of the Ministry of Environmental Protection in 2013) were executed to handle hazardous waste; The relevant provisions of the Directory of National Hazardous Wastes were executed for the classification of industrial solid wastes.

 

Waste organic solvent 153.59t

 

Used mineral oil, wastes with oil content 30.068t

 

Colorants and coating waste 0.85t

 

Other waste (with aviation chemicals) 0.13t

 

Other waste 50.042t

 

Waste organic solvent 180t

 

Used mineral oil, wastes with oil content 80t

 

Colorants and coating waste 20t

 

Other waste
(with aviation chemicals) 3t

 

Other waste 55t

  No

During the reporting period, the discharge of pollutants of the Company was in compliance with the relevant national discharge standards, and there were no violations of laws and regulations in respect of environmental protection, no major environmental pollution accidents, or any severe or major damages to the ecological environment, nor was there any general environmental pollution accidents or ecological damage events.

 

113


2.

Construction and Operation of Facilities to Prevent Pollution

Supporting facilities to protect the environment and deal with exhaust gas, wastewater, noise and solid waste of infrastructures invested by the Group were put into use in strict accordance with the environmental impact assessment and the “three-simultaneous” requirement. The Company actively took environmental protection measures as required by environmental assessment and its approved documents. All projects were accepted upon the completion of construction projects for the purpose of environmental protection.

To treat wastewater, the Company has built physical and biochemical sewage treatment systems. The treated sewage, once meeting the standards, will be discharged to the airport sewage treatment plant for further treatment. To treat exhaust gas, the Company built processing facilities such as glass fiber secondary purification filter cotton, purification device of honeycomb activated carbon adsorption, and bag-type dust collector. The exhaust gas being collected and treated was discharged after meeting relevant standard. In terms of hazardous waste, the Company classified and stored them in hazardous waste warehouses and underground storage tanks, and entrusted qualified enterprises/institutions to transfer and disposal on a regular basis.

 

114


3.

Environmental Impact Assessment and Other Administrative Permission for Environmental Protection of the Construction projects

The Group conducted environmental impact assessment on new, renovated and expanded projects in accordance with the law. During the reporting period, the Company obtained 1 administrative permission for environmental impact assessment.

 

4.

Emergency Plans for Environmental Contingencies

The Group actively established and improved emergency plans for environmental contingencies, and promoted to establish special management and plans for environmental impact assessment reports, environmental contingencies, fires, hazardous aviation chemicals, and hazardous wastes, and emergency plans of each secondary unit, so as to establish a complete emergency management system for environmental contingencies gradually. During the reporting period, all of the major pollutant discharge units of the Company have established emergency plans and filed with the local environment protection supervision department.

 

5.

Environment Self-monitoring Solutions

In accordance with relevant requirements of the measures for self-monitoring and information disclosure by enterprises subject to intensive monitoring and control of the state, the Group established and improved a pollution source monitoring and information disclosure system, formulated annual pollutant self-monitoring plans, and entrusted third-party companies with environmental monitoring qualifications to regularly monitor pollutants. During the reporting period, as monitored by the third-party company, the Company’s discharge of major pollutants was up-to-standard.

 

(II)

Information that is Conducive to Protecting Ecology, Preventing Pollution, and Fulfilling Environmental Responsibilities

During the reporting period, the Company continued to push forward the Green Flight, advocated the concept of low-carbon travel, and reduced environmental pollution by use of market mechanism.

 

1.

Green Flight

During the reporting period, the Company continued to promote fuel saving, with focus on improving single-engine sliding and fuel-efficient launching, retracting flap height, and replacing Auxiliary Power Units with bridge-mounted equipment, and made progress in fuel saving. The Company pressed ahead meal-saving activities themed by “Green Flight” to encourage passengers to dine according to needs and cancel meals on voluntary basis.

 

2.

Research on “Dual Carbon”

During the reporting period, the Company carried out research on “carbon peak and carbon neutrality”, studied and determined when and how in technical sense CSA would achieve carbon peak, and checked ground carbon to get a clear picture of its emissions, and developed energy-saving and emission-reduction projects and managed carbon assets in a timely manner.

 

115


3.

Reduce Impact of Carbon Emission on Climate Change by Market Mechanism

The Company has been supporting and actively participating in Chinese government’s various work regarding the market mechanism of carbon trading. During the reporting period, according to the requirements of CAAC, the Company fully fulfilled its performance for 2020 under the European Union carbon trading scheme in May 2021 and fully fulfilled its performance for 2020 under the Guangdong carbon trading scheme in June 2021. We fully completed the carbon dioxide emission report and verification of civil aviation flight activities in 2020 by using the self-developed flight carbon emission data monitoring, reporting and verification system (MRV system).

 

4.

Establish and Improve Information System of Environmental Protection and Management

During the reporting period, the Company continued the building of an information management system of environmental protection to realize online reporting and processing of data and information regarding energy consumption and pollutant discharge, and online monitoring of environmental pollution sources, risk points, and prevention and control measures.

 

5.

Establish and Improve the Emergency Management System for Environmental Contingencies

During the reporting period, the Company focused on emergency plans for environmental contingencies, which were supplemented by special management and plans for environmental impact assessment reports, environmental contingencies, fires, hazardous aviation chemicals, and hazardous wastes, and supported by emergency plans of each secondary unit, so as to establish a complete emergency management system for environmental contingencies.

 

6.

Develop Passenger Carbon Account and Launch the Passenger Flight Carbon Calculator

During the reporting period, the Company opened carbon accounts for passengers, which will record the reduced carbon emission behaviors such as cancelling meals, use of electronic check-in, and launched the passenger flight carbon calculator, preparing for the elimination of flight carbon emission by passengers voluntarily.

 

7.

Fully Control Plastic Pollution

During the reporting period, the Company prepared the overall plan for the treatment of plastic pollution, formulated the replacement standards for disposable non-degradable plastic products, strictly implemented the standards of management and control in the production and procurement links, and carried out separate recycling and disposal. The Company has worked on innovation and research to build the CSA Building headquarters as a model.

 

8.

Initiate the Prevention and Control Work for Voice Pollution

The Law of the People’s Republic of China on the Prevention and Control of Noise Pollution was published in December 2021 in the PRC and will be implemented in June 2022. During the reporting period, the Company initiated the prevention and control work for voice pollution and studied countermeasures on the voice reduction during taking off and landing of aircraft.

 

116


(III)

Measures Taken to Reduce Carbon Emissions During the Reporting Period and Results

During the reporting period, the Company continued the refined jet fuel management. We deeply advanced special fuel-saving projects such as single-engine sliding, fuel-efficient launching, and flap height retracting. We continued to use temporary routes, increase cruise altitude, reduce the remaining fuel at landing, and improve the accuracy of traffic load reporting. During the reporting period, the fuel consumption per ton-kilometer was 2.85 tonnes/10,000-ton-kilometer, indicating the fine management of jet fuel was effective. We pressed ahead the blue sky protection campaign, carried forward the “petroleum-to-electricity” transformation for ground vehicles, and introduced new-energy field vehicles at the proportion set by regulatory requirements. We ensured that the aircraft used bridge-mounted air conditioners and bridge-mounted power supplies instead of Auxiliary Power Units, and reduced carbon emissions caused by the consumption of aviation kerosene, diesel and gasoline. We conducted research on the timetable, roadmap and approach to achieve carbon peak and neutrality goals, and determined when and how in technical sense the Company would achieved carbon peak, and checked ground carbon to find out its emissions. During the reporting period, the Company formulated and issued to the public the Picture on China Southern Airlines’ Carbon Peak and Carbon Neutrality Goals.

 

II.

COMPANY’S WORK AS TO SOCIAL RESPONSIBILITY

In 2021, CSA worked resolutely in accordance with the requirements of the superiors, coordinated the work on pandemic control, safe production and operation, reform and development, and practiced the concept of civil aviation for the people.

We resolutely fulfilled the responsibility of controlling the pandemic, and continued to optimize and improve the pandemic control mechanism. We adjusted the in-flight service process, and carried out special action at the airport to prevent the imported cases. We strengthened closed-loop management of the five categories of personnel on international flights, enhanced training and education for employees on pandemic prevention and psychological counseling for quarantined personnel, and strove for a full coverage of vaccination. In 2021, the Company operated a total of 79 COVID-19 vaccine charter flights, with 130 million doses of COVID-19 vaccines, and ranked first in China’s civil aviation in terms of traffic volume.

We fully fulfilled our corporate social responsibilities, actively promoted the national strategies. We advanced the high-quality development of the Beijing hub, boosted the integration in four aspects, namely market, products, services and networks in the Greater Bay Area, and accelerated the cross-border e-commerce, general aviation, aircraft leasing and other projects in Hainan Free Trade Port. We propelled rural revitalization forward. We invested in 40 new rural revitalization projects, donated funds to counties for paired assistance to purchase TV sets, and invested in the construction of CSA Mingzhu Primary School (南航明珠小學) in designated counties. The amount used to buy products from the poor area totalled RMB66.32 million. We practiced green development, and conserved energy and reduced emission efficiently with digital means. In 2021, the Company reduced carbon emissions by a total of 221,100 tons, and guided passengers to dine on demand and thus saved a total of 3.71 million meals. The Company won awards including the “Environmental Airline of the Year (年度環保航空公司)”, the “Golden Key” champion award, and the “Carbon Neutrality Typical Case (碳中和典型案例)”.

We focus on projects for public well-beings and always adhere to the “people-oriented” concept. We coordinated flights to actively rescue sick passengers, and deployed 320 flights to assist the export of Guangdong lychees blocked in transportation, with more than 7,200 tons of lychees being delivered. The Company won the special contribution award of “Doing Practical Things for Lychee Farmers (我為荔農辦實事)” of Guangdong Province. We paid close attention to special passengers, with service windows opened for the elderly in 66 directly-affiliated ticket offices and 30 airports, and added the “network interconnection (一網互通)” service for unaccompanied children.

 

117


III.

CONSOLIDATE AND EXPAND THE PROGRESS IN POVERTY ALLEVIATION AND FURTHER REVITALIZE THE COUNTRYSIDE

In 2021, China won complete victory in the battle against poverty, and started to fully implement the rural revitalization strategy. All designated poverty counties and paired villages of the Group walked out of poverty in 2020. During the reporting period, in accordance with the requirements of the government authorities, CSA, while continuing the work on poverty alleviation as a finale in combating poverty, has launched paired assistance, continuously strengthened organizational leadership, selected quality temporary cadres, supported “five major revitalizations” and performed social responsibilities, marking a good beginning to the transition from consolidating and expanding the progress in poverty alleviation to rural revitalization.

 

1.

Strengthen Organizational Leadership, and Optimise Top-level Design

We always attach great importance to the transition work from consolidating and expanding the progress in poverty alleviation to rural revitalization. We studied the spirit of an important speech delivered by Secretary-General Xi Jinping at a grand gathering to mark China’s achievements in poverty alleviation and to honor its model fighters against poverty. We organized a meeting to review the work of CSA on poverty alleviation and to kick off paired assistance to further sum up experience, practices and highlights of CSA in poverty alleviation. We organized a seminar focusing on the rural revitalization, which expressly defined the requirements and goals of paird assistance with CSA features. We proactively made research on the topic and further cleared the ideas and actions for the rural revitalization work of CSA. During the reporting period, the Company has made 37 investigations and researches in designated counties. We adjusted organizational structures, established a paired assistance system that met the requirements of rural revitalization, studied and formulated paired assistance plans of CSA, and clearly identified the overall idea of the paired assistance.

 

2.

Promote the Implementation of Projects and Assist “Five Major Revitalizations”

During the reporting period, we further implemented the rural revitalization strategy and carry out a series of assistance projects in an orderly manner. We assisted in the construction of Moyu CSA Mingzhu Primary School to alleviate the intense situation of local educational resources, actively promoted the project of “doing practical work for the people” by including the project of assistance associated with distinctive cultural characteristics and rural revitalization in the first batch of 8 key projects to enhance people’s well-being. We helped paired counties to conduct various trainings on cadres of basic level, leader of rural revitalization and e-commerce talents. We continued to increase assistance efforts by consumption, arranged the display of agricultural products of paired counties in the lounge of Baiyun Airport and live-streaming of agricultural products, etc., and consolidated and expanded the purchase methods of “ordering” in the garment industrial park of paired counties to give fully play to the role of labor union, e-commerce platform, temporary cadres, on-site village teams. During the reporting period, the Company assisted a total of RMB66.32 million through consumption.

 

118


IMPORTANT MATTERS

 

I.

PERFORMANCE OF UNDERTAKING

 

Background of
undertaking

  

Type of

undertaking

   Undertakings
making party
  

Content of undertaking

   Time and
term of
undertaking
   Fulfilment
time limit,
if any

Undertaking related to share reform

  

Other

   CSAH   

Upon completion of the share reform plan, and subject to compliance with the relevant laws and regulations of the PRC, CSAH will support the Company in respect of the formulation and implementation of a management equity incentive system.

   Long-
term
   Yes

Other undertaking

  

Other

   CSAH   

CSAH and the Company entered into a Separation Agreement with regard to the definition and allocation of the assets and liabilities between CSAH and the Company on 25 March 1995 (amended on 22 May 1997). According to the Separation Agreement, CSAH and the Company agreed to compensate the other party for the claims, liabilities and costs borne by such party as a result of the business, assets and liabilities held or inherited by CSAH and the Company pursuant to the Separation Agreement.

   Long-
term
   Yes

 

119


Background of
undertaking

  

Type of
undertaking

   Undertakings
making party
  

Content of undertaking

   Time and
term of
undertaking
   Fulfilment
time limit,
if any
  

Other

   CSAH   

The relevant undertakings under the Financial Services Framework Agreement entered into between the Company and Finance Company include: A. Finance Company is an enterprise group finance company duly incorporated under the “Administrative Measures for Enterprise Group Finance Companies” and other relevant laws and regulations, whose principal business is to provide finance management services, such as deposit and financing for the members of the Group and the relevant capital flows are kept within the Group; B. the operations of Finance Company are in compliance with the requirements of the relevant laws and regulations and well-performed, therefore the deposits placed with and borrowings from Finance Company by the Company are secured. In future, Finance Company will continue to operate in strict compliance with the requirements of the relevant laws and regulations; C. in respect of the Company’s deposits with and borrowings from Finance Company, the Company will continue to implement its internal procedures and make decision on its own in accordance with relevant laws and regulations and the Articles of Association, and CSAH will not intervene in the relevant decision-making process of the Company; and D. CSAH will continue to fully respect the rights of the Company to manage its own operations, and will not intervene in the daily business operations of the Company.

   Long-
term
   Yes

 

120


Background of
undertaking

  

Type of
undertaking

   Undertakings
making party
  

Content of undertaking

   Time and
term of
undertaking
   Fulfilment
time limit,
if any
  

Resolving defects in land and other properties

   CSAH   

In respect of the connected transaction entered into between the Company and CSAH on 14 August 2007 in relation to the sale and purchase of various assets, the application for building title certificates for eight properties of Air Catering (with a total gross floor area of 8,013.99 square meters) and 11 properties of the Training Centre (with a total gross floor area of 13,948.25 square meters) have not been made for various objective reasons. On 19 December 2019, the Company received the Undertaking Letter on Building Title Certificates Application Work of Air Catering and Training Centre (《關於南航食品公司及培訓中心房產辦證工作的承諾函》 ) from CSAH, the controlling shareholder of the Company. So far, the application for building title certificates for 12 properties aforementioned has been completed with a total gross floor area of 14,178.25 s.q.m.. The main reason for the incomplete application of the remaining property title certificates is that the land where the property is located is leased land. Due to the change of relevant laws, regulations and policies, the application for the property title certificates cannot be made. CSAH undertook with the Company that: (1) in the case that the application of the title certificate for related property is allowed due to subsequent policy changes, all the costs and expenses arising from the application of the relevant title certificates would be borne and paid by CSAH; (2) if any third party claimed against the Company as a result of the properties not having the title certificates, or the title defect of the properties having an effect on the daily operation of the Company and giving rise to loss, such loss shall be borne by CSAH and CSAH shall have no right to seek recovery from the Company.

   Long-
term
   Yes

 

121


Background of
undertaking

  

Type of
undertaking

   Undertakings
making party
  

Content of undertaking

   Time and
term of
undertaking
   Fulfilment
time limit,
if any
  

Other

   CSAH   

On 7 February 2018, the Company received an undertaking letter from CSAH, the controlling shareholder of the Company, in respect of certain land and properties without having ownership certificates by the Company, details of which are set out as follows: as at 30 September 2017, the Company and its branches, offices held 3 parcels of land (with a total area of 181,350.42 square meters) and 342 properties (with a total area of 244,228.08 square meters), being land and properties allocated to the Company from CSAH on different occasions. The registration of the abovementioned land and properties has not been completed to change the title to the applicant. These land and properties were transferred under the Separation Agreement, Agreement regarding the Reorganisation of China Northern Airlines Company and Xinjiang Airlines Company and Assets Sale & Purchase Agreement entered into between the Company and CSAH in 1997, 2004 and 2007, respectively. CSAH undertook that if any third party claimed against the Company as a result of the land and properties without having the ownership certificates, or the title defect of the land and properties having an effect on the daily operation of the Company and giving rise to loss, such loss shall be borne by CSAH and CSAH shall have no right to seek recovery from the Company.

   Long-
term
   Yes

 

122


Background of
undertaking

  

Type of
undertaking

   Undertakings
making party
  

Content of undertaking

   Time and
term of
undertaking
   Fulfilment
time limit,
if any
  

Other

   CSAH   

On 28 December 2021, the Company received an undertaking letter in relation to no reduction or intention to reduction of shares of the Company from CSAH, being the controlling shareholder of the Company. Details of which are set out as follows: 1. From six months prior to the date of Non-public Issuance first reviewed by the Board of the Company (being 29 October 2021) to the issuance date of this undertaking letter, CSAH, Nan Lung and its wholly-owned subsidiary, Perfect Lines (Hong Kong) Limited (three companies collectively referred to as “CSAH and parties acting in concert”) have not disposed or otherwise reduced any shares of China Southern Airlines. 2. From the issuance date of this undertaking letter to within six months after the completion of the Non-public Issuance by China Southern Airlines, CSAH and parties acting in concert will not dispose or otherwise reduce any shares of China Southern Airlines. There are also no plans of reducing China Southern Airlines’ shares. 3. No breach of Article 44 of the Securities Law of the PRC by CSAH and parties acting in concert. If any, the proceeds from the reduction of shares held by CSAH and parties acting in concert will be owned by China Southern Airlines. 4. The undertaking letter is binding on CSAH and parties acting in concert from the date signed, if CSAH and parties acting in concert breach the undertaking above and reduce their shareholding, all proceeds from the reduction of shares will be owned by China Southern Airlines. CSAH and parties acting in concert should undertake the corresponding legal liability incurred.

   Within six
months
upon the
completion
of the
Company’s
2021
Non-public
Issuance
   Yes

 

123


II.

UTILISATION OF THE NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDER AND ITS CONNECTED PERSONS DURING THE REPORTING PERIOD

During the reporting period, neither the controlling shareholder of the Company, nor any of its connected persons has utilised the non-operating funds of the Company.

 

III.

GUARANTEES IN VIOLATION

During the reporting period, the Company did not provide external guarantees in violation of any specified decision-making procedures.

 

IV.

APPOINTMENT AND DISMISSAL OF AUDITORS

At the seventeenth meeting of the eighth session of the Board of the Company held on 30 March 2021, the Board considered and approved the proposed appointment of KPMG Huazhen LLP to provide professional services to the Company for its domestic financial reporting and internal control reporting, U.S. financial reporting and internal control reporting for the year 2021 and KPMG to provide professional services to the Company for its Hong Kong financial reporting for the year 2021. On 30 June 2021, the above-mentioned resolution was considered and passed at 2020 annual general meeting, and authorised the Board to determine their remuneration based on the actual work done.

 

V.

BANKRUPTCY OR RESTRUCTURING EVENTS

During the reporting period, the Company was not involved in any bankruptcy or restructuring events.

 

VI.

MATERIAL LITIGATIONS AND ARBITRATIONS

During the reporting period, the Company was not involved in any material litigation or arbitration.

 

VII.

SUSPECTED VIOLATION OF LAWS AND REGULATIONS OF, PENALTY ON AND RECTIFICATION ON THE LISTED COMPANIES, ITS DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT, CONTROLLING SHAREHOLDERS AND THEIR DE FACTO CONTROLLERS

During the reporting period, the Company did not have the above situation.

 

VIII.

DESCRIPTION OF THE COMMERCIAL CREDIBILITY OF THE COMPANY, ITS CONTROLLING SHAREHOLDERS AND THEIR DE FACTO CONTROLLERS DURING THE REPORTING PERIOD

During the reporting period, based on the comprehensive analysis and assessment conducted by China Lianhe Credit Rating Co., Ltd., the long-term credit rating of the Company and its controlling shareholder, CSAH, was AAA with “stable” prospect.

 

124


(III)

Financial Business Between the Company and Its Related Financial Company, and Between Financial Company Controlled by the Company and Related Parties

 

1.

Deposits Business

Unit: RMB million

 

                               Net increase         

Related party

  

Related party
relationship

   The maximum
daily deposit
limit
     Deposit interest
rate range
     Balance at the
beginning of
the period
     Total amount
deposited
during the
current period
     Total amount
withdrawn
during the
current period
     Balance at the
end of the
period
 

Finance Company

  

All subsidiaries of CSAH

     14,500        0.3%-2.1%        9,119        449,173        445,671        12,621  
  

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   /      /        /        9,119        449,173        445,671        12,621  
  

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Note 1: The opening and closing balance, deposit and withdrawal amount include the deposit principal and interest.

 

2.

Loan Business

Unit: RMB million

 

                               Net increase         

Related party

  

Related party
relationship

   Loan limit      Loan interest
rate range
     Balance at the
beginning of
the period
     Total loans
during the
current period
     Total
repayment
during the
current period
     Balance at
the end of
the period
 

Finance Company

  

All subsidiaries of CSAH

     14,500        3%-3.3%        1,688        28,470        27,140        3,018  
  

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   /      /        /        1,688        28,470        27,140        3,018  
  

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Notes:

 

1.

The loan amount of RMB14,500,000,000 is the annual cap of the maximum outstanding loan amount (including its accrued interest) provided by China Southern Airlines Group Finance Company Limited to the Group.

2.

The opening and closing balance, loan and repayment amount include loan principal and interest.

 

125


3.

Credit Business and Other Financial Business

Unit: RMB million

 

Related party

  

Related party relationship

  

Type of business

   Total amount      Amount incurred  
Finance Company   

All subsidiaries of CSAH

  

Service charge for letter of guarantee

     5        1  

 

X.

MAJOR CONTRACTS AND THEIR PERFORMANCE

 

(I)

Trust, Sub-contracting and Lease

During the reporting period, the Company did not enter into any trust or sub-contracting arrangement.

Please refer to the sections headed “Summary of Fleet Data” in “Principal Accounting Information and Financial Indicators” and “Connected Transactions” in “Report of Directors” for matters related to the Company’s lease transactions during the reporting period.

 

126


(II)

Guarantee

Unit: RMB million

 

Total amount of external guarantees provided by the Company (excluding guarantees provided for its subsidiaries)

Guarantor

  Relationship
between
guarantor
and listed
company
   

Guarantee

  Guaranteed
amount
    Commencement
date of
guarantee
(Agreement
execution date)
  Commencement
date of
guarantee
  Expiry
date of
guarantee
 

Type of
guarantee

  Collaterals
(if any)
   

Guarantee
fully
fulfilled

 

Overdue, if
any

 

Overdue

amount
of

guarantee

  Counter
guarantee
     Guarantee
provided
to the
related
parties,
if any
     Connected
party
relationship
 

The Company

    /    

Self-sponsored trainee pilots of the Company

    175.05     30 June
2008
  30 June
2008
  1 January
2031
 

Joint liability guarantee

    /    

Partial performance completed

 

Partial performance of joint liability guarantee

  21.37     Yes        No        /  

Xiamen Airlines

    /    

Half self-sponsored trainee pilots of Xiamen Airlines

    6.21     4 May
2010
  4 May
2010
  6 July
2025
 

Joint liability guarantee

    /    

Partial performance of joint liability guarantee

 

Partial performance of joint liability guarantee

  1.38     Yes        No        /  

 

Total guarantees incurred during the reporting period (excluding those provided to subsidiaries)

     0  

Total balance of guarantees as at the end of the reporting period (A) (excluding those provided to subsidiaries)

     181  
Guarantees provided by the Company and its subsidiaries to subsidiaries  

Total guarantees to subsidiaries incurred during the reporting period

     0  

Total balance of guarantees to subsidiaries as at the end of the reporting period (B)

     38,037  
Aggregate guarantees provided by the Company (including those provided to subsidiaries)  

Aggregate guarantees (A+B)

     38,218  

Percentage of aggregate guarantees to net assets of the Company (%)

     56.33  

Representing:

  

Amount of guarantees provided to shareholders, de facto controller and their related parties (C)

     0  

Amount of debts guarantees directly or indirectly provided to guaranteed parties with gearing ratio over 70% (D)

     0  

Excess amount of aggregate guarantees over 50% of net assets (E)

     0  

Aggregate amount of the above three categories (C+D+E)

     0  

Statement on the contingent joint and several liability in connection with unexpired guarantees

     /  

Statement on guarantees

     Nil  

 

127


The table below sets out the guarantees provided for SPVs by the Group as of the date of this report:

 

No.

  

Established SPV

   Actually Provided
(Yes/no)
     Guaranteed Amount
(US$100 million)
 

1

  

China Southern Airlines No. 1

     Yes        1.50  

2

  

China Southern Airlines No. 2

     Yes        1.40  

3

  

China Southern Airlines No. 3

     Yes        3.28  

4

  

China Southern Airlines No. 5

     Yes        0.92  

5

  

China Southern Airlines No. 6

     Yes        0.35  

6

  

China Southern Airlines No. 7

     Yes        0.35  

7

  

China Southern Airlines No. 8

     Yes        0.35  

8

  

China Southern Airlines No. 9

     Yes        5.88  

9

  

China Southern Airlines No. 10

     Yes        5.17  

10

  

China Southern Airlines No. 11

     Yes        2.98  

11

  

China Southern Airlines No. 12

     Yes        0.25  

12

  

China Southern Airlines No. 13

     Yes        0.25  

13

  

China Southern Airlines No. 14

     Yes        0.33  

14

  

China Southern Airlines No. 15

     Yes        3.11  

15

  

China Southern Airlines No. 16

     Yes        5.26  

16

  

China Southern Airlines No. 17

     Yes        1.49  

17

  

China Southern Airlines No. 18

     Yes        2.50  

18

  

China Southern Airlines No. 19

     Yes        0.51  

19

  

China Southern Airlines No. 20

     Yes        0.51  

20

  

China Southern Airlines No. 21

     Yes        0.48  

21

  

China Southern Airlines No. 22

     Yes        0.48  

22

  

China Southern Airlines No. 23

     Yes        0.48  

23

  

China Southern Airlines No. 24

     Yes        2.78  

24

  

China Southern Airlines No. 25

     Yes        2.04  

25

  

China Southern Airlines No. 26

     Yes        4.73  

26

  

Chongqing Airlines No.1

     Yes        3.52  

27

  

Chongqing Airlines No.2

     Yes        0.32  

28

  

Xiamen Airlines No.2

     Yes        0.11  

29

  

Xiamen Airlines No.3

     Yes        0.11  

30

  

Xiamen Airlines No.4

     Yes        0.19  

31

  

Xiamen Airlines No.5

     Yes        0.19  

32

  

Xiamen Airlines No.6

     Yes        0.20  

33

  

Xiamen Airlines No.7

     Yes        0.11  

34

  

Xiamen Airlines No.8

     Yes        0.19  

35

  

Xiamen Airlines No.9

     Yes        0.19  

36

  

Xiamen Airlines No.10

     Yes        0.19  

37

  

Xiamen Airlines No.11

     Yes        0.19  

38

  

Xiamen Airlines No.12

     Yes        0.13  

39

  

Xiamen Airlines No.13

     Yes        0.19  

40

  

Xiamen Airlines No.14

     Yes        0.18  

41

  

Xiamen Airlines No.15

     Yes        0.18  

42

  

Xiamen Airlines No.16

     Yes        0.13  

43

  

Xiamen Airlines No.17

     Yes        0.12  
  

 

  

 

 

    

 

 

 

Total

   /      /        53.82  
  

 

  

 

 

    

 

 

 

 

128


Note: 

During the reporting period, as the leased engines and aircraft under China Southern Airlines No. 4 and Xiamen Airlines No.1 were due for cancellation, the guarantee liabilities of US$16 million and US$17 million were released, respectively. In addition, pursuant to the authorization of the 2019 annual general meeting, Xiamen Airlines adjusted the guarantee limits of Xiamen Airlines No.4, Xiamen Airlines No.5, Xiamen Airlines No. 8, Xiamen Airlines No.9, Xiamen Airlines No.10 and Xiamen Airlines No.11 to US$19 million, US$19 million, US$19 million, US$19 million, US$19 million and US$19 million, respectively, within the authorized guarantee line of US$274 million.

As at the end of reporting period, the total guarantee amounts actually provided for the aforementioned 43 SPVs by the Company and its subsidiaries, i.e. Xiamen Airlines and Chongqing Airlines, were US$5.382 billion (equivalent to approximately RMB34.314 billion, calculated based on the Renminbi central parity rate of US$1=RMB6.3757 published by the People’s Bank of China on 31 December 2021), which were within the scope of the authorized guarantee amount approved by the general meeting of the Company.

 

(III)

Guarantee of Entrusted Cash Asset Management

 

1.

Overall Condition of Entrusted Wealth Management

Unit: RMB million

 

Type

  

Source of funding

   Amount
incurred
     Balance
not yet
due
     Amount
due but
not yet
recovered
 

Large-value certificates of deposit

  

unutilised funds from the non-public issuance of A shares

     3,150.00        2,289.00        /  

Seven-day notice deposit

  

unutilised funds from the non-public issuance of A shares

     795.69        40.00        /  

Large-value certificates of deposit

  

unutilised funds from the public issuance of A Share Convertible Bonds

     4,113.00        6,032.00        /  

Seven-day notice deposit

  

unutilised funds from the public issuance of A Share Convertible Bonds

     244.61        18.00        /  

 

129


2.

Single Entrusted Wealth Management

Unit: RMB million

 

Trustee

 

Type of
entrusted
wealth
management

  Amount of
entrusted
wealth
management
    Beginning
date of
entrusted
wealth
management
    Termination
date of
entrusted
wealth
management
 

Source of funds

 

Investment
of funds

 

Method
to
determine
return

  Annualized
rate of
return
    Actual
Income
or loss
    Actual
recovery
    Through
procedure
prescribed
by law or
not
    Whether
there is
entrusted
wealth
management
plan in the
future
 

China Everbright Bank Co., Ltd“Everbright Bank”

  Large-value certificates of deposit     140       2020/6/23     2021/6/10   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.85     2.56       142.6       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     150       2020/7/6     2021/4/13   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.85     2.67       152.7       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     250       2020/7/6     2021/6/10   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.85     4.49       254.5       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     180       2020/7/6     2021/8/2   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.85     4.29       184.3       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     19       2020/7/6     2021/8/27   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.85     0.5       19.5       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     200       2020/6/23     2021/6/10   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.85     3.66       203.7       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     600       2020/6/23     2021/4/20   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     9.2       609.2       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     20       2020/6/23     2021/4/22   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     0.31       20.31       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     190       2020/6/23     2021/7/23   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     3.53       193.5       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     190       2020/6/23     Not yet
determined
  Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     6.62       6.62       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     500       2020/6/23     2021/12/23   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     19.5       519.5       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     191       2020/6/23     2021/8/27   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     5.05       196.1       Yes       Yes  

 

130


Trustee

 

Type of
entrusted
wealth
management

  Amount of
entrusted
wealth
management
    Beginning
date of
entrusted
wealth
management
    Termination
date of
entrusted
wealth
management
 

Source of funds

 

Investment
of funds

 

Method
to
determine
return

  Annualized
rate of
return
    Actual
Income
or loss
    Actual
recovery
    Through
procedure
prescribed
by law or
not
    Whether
there is
entrusted
wealth
management
plan in the
future
 

Everbright Bank

  Large-value certificates of deposit     809       2020/6/23     Not yet
determined
  Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     31.55       31.55       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     710       2020/6/23     2021/12/23   Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     27.69       737.7       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     290       2020/6/23     Not yet
determined
  Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     11.31       11.31       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     1,000       2020/6/23     Not yet
determined
  Unutilised funds from the non-public issuance of A shares   Large-value certificates of deposit   Fixed income     3.90     39       39       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     62       2020/12/10     2021/4/13   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.43       62.43       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     3       2020/12/10     2021/7/5   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.03       3.03       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     104       2020/12/23     2021/2/23   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.36       104.4       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     220       2020/12/23     2021/3/30   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     1.2       221.2       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     22       2020/12/23     2021/4/20   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.15       22.15       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     17.33       2021/1/25     2021/3/3   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.04       17.37       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     1.41       2021/1/25     2021/7/5   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.01       1.42       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     19       2021/4/29     2021/7/5   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.07       19.07       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     1.59       2021/5/11     2021/7/5   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0       1.59       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     0.86       2021/5/11     2021/7/27   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0       0.86       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     40       2021/7/13     2021/7/27   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.03       40.03       Yes       Yes  

 

131


Trustee

 

Type of
entrusted
wealth
management

  Amount of
entrusted
wealth
management
    Beginning
date of
entrusted
wealth
management
    Termination
date of
entrusted
wealth
management
 

Source of funds

 

Investment
of funds

 

Method
to
determine
return

  Annualized
rate of
return
    Actual
Income
or loss
    Actual
recovery
    Through
procedure
prescribed
by law or
not
    Whether
there is
entrusted
wealth
management
plan in the
future
 

Everbright Bank

  Seven-day notice deposit     224       2021/8/9     2021/8/24   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.19       224.2       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     14       2021/9/23     2021/12/14   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.06       14.06       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     5       2021/11/11     2021/12/14   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.01       5.01       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     7       2021/11/11     2021/12/22   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.02       7.02       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     11       2021/11/29     2021/12/14   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.01       11.01       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     40       2021/12/22     Not yet
determined
  Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0       0       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     5       2021/3/1     2021/3/29   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.01       5.01       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     11.5       2021/5/8     2021/6/10   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.02       11.52       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     11.5       2021/6/18     2021/7/28   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.03       11.53       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     8       2021/6/3     2021/6/23   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.01       8.01       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     7       2021/8/11     2021/8/25   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.01       7.01       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     8.5       2021/9/7     2021/12/24   Unutilised funds from the non-public issuance of A shares   Seven-day notice deposit   Fixed income     2.03     0.05       8.55       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     110       2020/10/26     2021/2/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     1.58       111.6       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     180       2020/10/26     2021/3/10   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     2.53       182.5       Yes       Yes  

 

132


Trustee

 

Type of
entrusted
wealth
management

  Amount of
entrusted
wealth
management
    Beginning
date of
entrusted
wealth
management
    Termination
date of
entrusted
wealth
management
 

Source of funds

 

Investment
of funds

 

Method
to
determine
return

  Annualized
rate of
return
    Actual
Income
or loss
    Actual
recovery
    Through
procedure
prescribed
by law or
not
    Whether
there is
entrusted
wealth
management
plan in the
future
 

Everbright Bank

  Large-value certificates of deposit     210       2020/10/26     2021/3/17   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     3.16       213.2       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     140       2020/10/26     2021/3/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     2.21       142.2       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     23       2020/10/26     2021/4/7   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     0.32       23.32       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     20       2020/10/26     2021/4/14   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     0.32       20.32       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     170       2020/10/26     2021/4/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     2.53       172.5       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     130       2020/10/26     2021/5/7   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     1.89       131.9       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     90       2020/10/26     2021/5/19   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     1.26       91.26       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     380       2020/10/26     2021/5/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     5.68       385.7       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     50       2020/10/26     2021/6/2   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     0.63       50.63       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     200       2020/10/26     2021/6/23   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     2.84       202.8       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     270       2020/10/26     2021/6/28   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     4.1       274.1       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     30       2020/10/26     2021/7/19   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     0.52       30.52       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     142       2020/10/26     2021/7/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     2.56       144.6       Yes       Yes  

 

133


Trustee

 

Type of
entrusted
wealth
management

  Amount of
entrusted
wealth
management
    Beginning
date of
entrusted
wealth
management
    Termination
date of
entrusted
wealth
management
 

Source of funds

 

Investment
of funds

 

Method
to
determine
return

  Annualized
rate of
return
    Actual
Income
or loss
    Actual
recovery
    Through
procedure
prescribed
by law or
not
    Whether
there is
entrusted
wealth
management
plan in the
future
 

Everbright Bank

  Large-value certificates of deposit     138       2020/10/26     2021/7/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     3.22       141.2       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     30       2020/10/26     2021/7/30   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     0.71       30.71       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     360       2020/10/26     2021/8/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     9.6       369.6       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     300       2020/10/26     2021/9/27   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     9.03       309       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     370       2020/10/26     2021/10/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     12.33       382.3       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     180       2020/10/26     2021/11/18   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     6.46       186.5       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     380       2020/10/26     2021/11/25   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     13.93       393.9       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     210       2020/10/26     2021/12/24   Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     8.35       218.4       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     32       2020/10/26     Not yet
determined
  Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     1.28       1.28       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     2,000       2020/10/26     Not yet
determined
  Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     80       80       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     2,000       2020/10/26     Not yet
determined
  Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     80       80       Yes       Yes  

Everbright Bank

  Large-value certificates of deposit     2,000       2020/10/26     Not yet
determined
  Unutilised funds from the public issuance of A Share Convertible Bonds   Large-value certificates of deposit   Fixed income     4.00     80       80       Yes       Yes  

 

134


Trustee

 

Type of
entrusted
wealth
management

  Amount of
entrusted
wealth
management
    Beginning
date of
entrusted
wealth
management
    Termination
date of
entrusted
wealth
management
 

Source of funds

 

Investment
of funds

 

Method
to
determine
return

  Annualized
rate of
return
    Actual
Income
or loss
    Actual
recovery
    Through
procedure
prescribed
by law or
not
    Whether
there is
entrusted
wealth
management
plan in the
future
 

Everbright Bank

  Seven-day notice deposit     43       2020/12/10     2021/1/26   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.11       43.11       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     30       2020/12/10     2021/2/23   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.13       30.13       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     24       2021/11/9     2021/11/18   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.01       24.01       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     18       2021/12/7     Not yet
determined
  Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0       0       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     100.03       2021/2/7     2021/2/23   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.09       100.1       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     14.64       2021/2/7     2021/2/23   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.01       14.65       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     14.64       2021/2/23     2021/3/10   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.01       14.65       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     6.3       2021/3/23     2021/5/20   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.02       6.32       Yes       Yes  

Everbright Bank

  Seven-day notice deposit     4       2021/7/26     2021/12/24   Unutilised funds from the public issuance of A Share Convertible Bonds   Seven-day notice deposit   Fixed income     2.03     0.03       4.03       Yes       Yes  

 

135


RELATED INFORMATION OF BONDS

 

I.

ENTERPRISE BOND, CORPORATE BOND AND NON-FINANCIAL CORPORATE DEBT FINANCING INSTRUMENTS

 

(I)

Enterprise Bond

Nil

 

(II)

Corporate Bond

 

1.

Basic Information of Corporate Bond

Unit: RMB million

 

Name

  Abbreviation   Code     Issuance
date
  Interest date   Maturity
date
  Nominal
value of
bonds
    Interest
rate
(%)
   

Repayment
of
principal
and
interest

  Trading
floor
 

Arrangement
to ensure the
suitability of
investors (if
any)

 

Trading
mechanism

  Whether
there is a
risk of
termination
of the
listing

2019 corporate bonds publicly offered of China Southern Airlines Company Limited (the second tranche)

  19
China
Southern
Airlines
02
    155417     2019/5/16   2019/5/17   2022/5/17     2,000       3.72    

Pay interests once a year, pay back principal plus interests when due

  SSE  

Only qualified investors stipulated by the SSE can participate in the transaction

 

Adopt bidding, quotation, inquiry and agreement trading at the same time

  No

2019 corporate bonds publicly offered of China Southern Airlines Company Limited (the first tranche)

  19
China
Southern
Airlines
01
    155185     2019/2/21   2019/2/22   2022/2/22     3,000       3.45    

Pay interests once a year, pay back principal plus interests when due

  SSE  

Only qualified investors stipulated by the SSE can participate in the transaction

 

Adopt bidding, quotation, inquiry and agreement trading at the same time

  No

2019 corporate bonds publicly offered of Xiamen Airlines Company Limited (the first tranche)

  19
Xiamen
Airlines
01
    163004     2019/11/20   2019/11/20   2022/11/20     1,500       3.58    

Pay interests once a year, pay back principal plus interests when due

  SSE  

Only qualified investors stipulated by the SSE can participate in the transaction

 

Adopt bidding, quotation, inquiry and agreement trading at the same time

  No

2020 corporate bonds publicly offered of Xiamen Airlines Company Limited (the first tranche)

  20
Xiamen
Airlines
01
    163273     2020/3/16   2020/3/16   2023/3/15     1,000       2.95    

Pay interests once a year, pay back principal plus interests when due

  SSE  

Only qualified investors stipulated by the SSE can participate in the transaction

 

Adopt bidding, quotation, inquiry and agreement trading at the same time

  No

 

136


2.

Use of Proceeds as at the End of the Reporting Period

 

Unit: RMB million

 

Name of bonds

  Gross
proceeds
raised
    Utilised
amount
    Unutilised
amount
   

The operating of the
special account for the proceeds (if any)

  The
rectification
of illegal
use of
proceeds
(if any)
  Whether
it is
consistent
with the
use, use
plan and
other
provisions
promised
in the
prospectus

2019 corporate bonds publicly offered of China Southern Airlines Company Limited (the second tranche)

    2,000       2,000       0    

The Company has set up a special account for the proceeds at Guangzhou Airport Road Branch of Agricultural Bank of China in accordance with the Tripartite Custody Agreement on Account and Funds of 2018 Corporate Bonds Publicly offered of China Southern Airlines Company Limited. The Company shall manage the special account in strict accordance with the provisions in the the Offering Document. The inflow and use of the proceeds of “19 China Southern Airlines 02” are all carried out in the special account for the proceeds. The funds shall be raised in strict accordance with the relevant procedures of the Tripartite Custody Agreement on Account and Funds of 2018 Corporate Bonds Publicly offered of China Southern Airlines Company Limited.

  Not
applicable
  Yes

 

137


Name of bonds

  Gross
proceeds
raised
    Utilised
amount
    Unutilised
amount
   

The operating of the
special account for the proceeds (if any)

  The
rectification
of illegal
use of
proceeds
(if any)
  Whether
it is
consistent
with the
use, use
plan and
other
provisions
promised
in the
prospectus

2019 corporate bonds publicly offered of China Southern Airlines Company Limited (the first tranche)

    3,000       3,000       0    

The Company has set up a special account for the proceeds at Guangzhou Airport Road Branch of Agricultural Bank of China in accordance with the Tripartite Custody Agreement on Account and Funds of 2018 Corporate Bonds Publicly offered of China Southern Airlines Company Limited. The Company shall manage the special account in strict accordance with the provisions in the the Offering Document. The inflow and use of the proceeds of “19 China Southern Airlines 01” are all carried out in the special account for the proceeds. The funds shall be raised in strict accordance with the relevant procedures of the Tripartite Custody Agreement on Account and Funds of 2018 Corporate Bonds Publicly offered of China Southern Airlines Company Limited.

  Not
applicable
  Yes

 

138


Name of bonds

  Gross
proceeds
raised
    Utilised
amount
    Unutilised
amount
   

The operating of the
special account for the proceeds (if any)

  The
rectification
of illegal
use of
proceeds
(if any)
  Whether
it is
consistent
with the
use, use
plan and
other
provisions
promised
in the
prospectus

2019 corporate bonds publicly offered of Xiamen Airlines Company Limited (the first tranche)

    1,500       1,500       0    

The Company has set up a special account for the proceeds at Xiamen Airport Branch of Bank of China Limited in accordance with the Tripartite Custody Agreement on the Designated Accounts for the Proceeds of 2019 Corporate Bonds Publicly offered of Xiamen Airlines Company Limited (the First Tranche). The Company shall manage the special account in strict accordance with the provisions in the the Offering Document. The inflow and use of the proceeds of “19 Xiamen Airlines 01” are all carried out in the special account for the proceeds. The funds shall be raised in strict accordance with the relevant procedures of the Tripartite Custody Agreement on the Designated Accounts for the Proceeds of 2019 Corporate Bonds Publicly offered of Xiamen Airlines Company Limited (the First Tranche).

  Not
applicable
  Yes

 

139


Name of bonds

  Gross
proceeds
raised
    Utilised
amount
    Unutilised
amount
   

The operating of the
special account for the proceeds (if any)

  The
rectification
of illegal
use of
proceeds
(if any)
  Whether
it is
consistent
with the
use, use
plan and
other
provisions
promised
in the
prospectus

2020 corporate bonds publicly offered of Xiamen Airlines Company Limited (the first tranche)

    1,000       1,000       0    

The Company has set up a special account for the proceeds at Xiamen Branch of China Construction Bank Corporation in accordance with the Tripartite Custody Agreement on the Proceeds of 2020 Corporate Bonds Publicly offered of Xiamen Airlines Company Limited (the First Tranche) (Pandemic Prevention and Control Bonds). The Company shall manage the special account in strict accordance with the provisions in the the Offering Document. The inflow and use of the proceeds of “20 Xiamen Airlines 01” are all carried out in the special account for the proceeds. The funds shall be raised in strict accordance with the relevant procedures of the Tripartite Custody Agreement on the Proceeds of 2020 Corporate Bonds Publicly offered of Xiamen Airlines Company Limited (the First Tranche) (Pandemic Prevention and Control Bonds).

  Not
applicable
  Yes

 

140


3.

During the Reporting Period, the Implementation, Changes and Impact of Guarantee, Debt Repayment Plan and Other Debt Repayment Protection Measures

Corporate bonds of the Company are unsecured bonds. During the reporting period, debt repayment plan and other debt repayment protection measures are implemented in accordance with the provisions and commitments in the prospectus.

 

(III)

Non-financial Corporate Debt Financing Instruments in the Interbank Bond Market

 

1.

Basis information of non-financial corporate debt financing instruments

Unit: RMB million

 

Name of bonds

  Abbreviation   Code     Issuance
date
    Interest
date
    Maturity
date
    Nominal
value of
bonds
    Interest
rate
(%)
   

Repayment of
principal and
interest

  Trading
floor
  

Trading
mechanism

   Whether there
is a risk of
termination of
the listing

The thirtieth tranche of Ultra- short-term Financing Bills of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
SCP030
    12103840       2021/10/21       2021/10/22       2022/7/19       4,000       2.70    

Repayment of the principal and interest in lump sum when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The thirty-first tranche of Ultra- short-term Financing Bills of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
SCP031
    12105108       2021/11/22       2021/11/23       2022/4/22       1,500       2.49    

Repayment of the principal and interest in lump sum when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The thirty-third tranche of Ultra- short-term Financing Bills of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
SCP033
    12105527       2021/12/27       2021/12/28       2022/4/27       1,000       2.19    

Repayment of the principal and interest in lump sum when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The Fourth tranche of Ultra- short-term Financing Bills of China Southern Air lines Company Limited in 2021

  21 China
Southern
Airlines
SCP034
    12105524       2021/12/24       2021/12/28       2022/4/27       2,600       2.30    

Repayment of the principal and interest in lump sum when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The first tranche of medium- term notes of China Southern Airlines Company Limited in 2019

  19 China
Southern
Airlines
MTN001
    101901408       2019/10/18       2019/10/21       2022/10/21       1,000       3.20    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The first tranche of medium- term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN001
    102000113       2020/2/12       2020/2/13       2023/2/13       1,000       3.12    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

 

141


Name of bonds

  Abbreviation   Code     Issuance
date
    Interest
date
    Maturity
date
    Nominal
value of
bonds
    Interest
rate
(%)
   

Repayment of
principal and
interest

  Trading
floor
  

Trading
mechanism

   Whether there
is a risk of
termination of
the listing

The second tranche of medium-term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN002
    102000199       2020/2/26       2020/2/27       2023/2/27       1,000       3.05    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The third tranche of medium- term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN003
    102000238       2020/3/3       2020/3/5       2023/3/5       1,000       3.00    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The fourth tranche of medium-term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN004
    102000239       2020/3/3       2020/3/5       2023/3/5       1,000       3.00    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The fifth tranche of medium- term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN005
    102000240       2020/3/3       2020/3/5       2025/3/5       1,000       3.28    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The sixth tranche of medium- term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN006
    102000280       2020/3/5       2020/3/9       2023/3/9       1,000       3.00    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The seventh tranche of medium-term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN007
    102000859       2020/4/23       2020/4/26       2023/4/26       1,000       2.44    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The eighth tranche of medium-term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN008
    102000858       2020/4/23       2020/4/27       2023/4/27       500       2.44    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The ninth tranche of medium- term notes of China Southern Airlines Company Limited in 2020

  20 China
Southern
Airlines
MTN009
    102000888       2020/4/27       2020/4/28       2023/4/28       500       2.44    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

 

142


Name of bonds

  Abbreviation   Code     Issuance
date
    Interest
date
    Maturity
date
    Nominal
value of
bonds
    Interest
rate
(%)
   

Repayment of
principal and
interest

  Trading
floor
  

Trading
mechanism

   Whether there
is a risk of
termination of
the listing

The first tranche of medium- term notes of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
MTN001
    102101342       2021/7/19       2021/7/21       2024/7/21       1,000       3.17    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The second tranche of medium- term notes of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
MTN002
    102101975       2021/9/26       2021/9/28       2024/9/28       3,000       3.09    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The third tranche of medium- term notes of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
MTN003
    102103046       2021/11/18       2021/11/22       2024/11/22       3,500       3.20    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The fourth tranche of medium- term notes of China Southern Airlines Company Limited in 2021

  21 China
Southern
Airlines
MTN004
    102103343       2021/12/27       2021/12/28       2024/12/28       1,500       2.90    

Pay interests once a year, pay back principal plus interests when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The first tranche of Ultra-short-term Financing Bills of Xiamen Airlines Company Limited in 2021

  21
Xiamen
Airlines
SCP001
    12103560       2021/9/24       2021/9/27       2022/2/24       500       2.42    

Repayment of the principal and interest in lump sum when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

The second tranche of Ultra-short-term Financing Bills of Xiamen Airlines Company Limited in 2021

  21
Xiamen
Airlines
SCP002
    12103580       2021/9/27       2021/9/28       2022/3/25       500       2.50    

Repayment of the principal and interest in lump sum when due

  National
interbank
bond
market
  

Price-enquiry transaction approach and one-click-order transaction approach

   No

 

143


2.

Use of Proceeds as at the End of the Reporting Period

Unit: RMB million

 

Name of bonds

   Gross
proceeds
raised
     Utilised
amount
     Unutilised
amount
     The operating
of the special
account for the
proceeds (if any)
   The
rectification of
illegal use of
proceeds
(if any)
   Whether it is
consistent with
the use, use plan
and other
provisions
promised in the
prospectus
 

21 China Southern Airlines SCP002

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP003

     3,500.00        3,500.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP004

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP005

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP006

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP007

     1,500.00        1,500.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP008

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP009

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP010

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP011

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP012

     5,000.00        5,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP013

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP014

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP015

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP016

     4,000.00        4,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP017

     1,200.00        1,200.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP018

     4,200.00        4,200.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP019

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP020

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP021

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

 

144


Name of bonds

   Gross
proceeds
raised
     Utilised
amount
     Unutilised
amount
     The operating
of the special
account for the
proceeds (if any)
   The
rectification of
illegal use of
proceeds
(if any)
   Whether it is
consistent with
the use, use plan
and other
provisions
promised in the
prospectus
 

21 China Southern Airlines SCP022

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP023

     1,500.00        1,500.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP024

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP025

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP026

     1,000.00        1,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP027

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP028

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP029

     1,500.00        1,500.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP030

     4,000.00        4,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP031

     1,500.00        1,500.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP032

     2,000.00        2,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP033

     1,000.00        1,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines SCP034

     2,600.00        2,600.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines MTN001

     1,000.00        1,000.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines MTN002

     3,000.00        3,000.00        0      Not applicable    Not applicable      Yes  

 

145


Name of bonds

   Gross
proceeds
raised
     Utilised
amount
     Unutilised
amount
     The operating
of the special
account for the
proceeds (if any)
   The
rectification of
illegal use of
proceeds
(if any)
   Whether it is
consistent with
the use, use plan
and other
provisions
promised in the
prospectus
 

21 China Southern Airlines MTN003

     3,500.00        3,500.00        0      Not applicable    Not applicable      Yes  

21 China Southern Airlines MTN004

     1,500.00        1,500.00        0      Not applicable    Not applicable      Yes  

21 Xiamen Airlines SCP001

     500.00        500.00        0      Not applicable    Not applicable      Yes  

21 Xiamen Airlines SCP001

     500.00        500.00        0      Not applicable    Not applicable      Yes  

 

3.

During the Reporting Period, the Implementation, Changes and Impact of Guarantee, Debt Repayment Plan and Other Debt Repayment Protection Measures

All the non-financial corporate debt financing instruments issued by the Company are unsecured. During the reporting period, the debt repayment plan and other debt repayment protection measures for the non-financial corporate debt financing instruments are implemented in accordance with the provisions and commitments in the prospectus.

All the non-financial corporate debt financing instruments issued by Xiamen Airlines are unsecured. During the reporting period, the debt repayment plan and other debt repayment protection measures for the non-financial corporate debt financing instruments are implemented in accordance with the provisions and commitments in the prospectus.

 

146


II.

CORPORATE CONVERTIBLE BONDS

 

(I)

Issuance of Convertible Bonds

On 14 May 2020, the thirteenth meeting of the eighth session of Board of the Company was held, at which the resolution on the satisfaction by the Company of the conditions of the public issuance of A Share Convertible Bonds, as well as the resolutions on the specific plan, preliminary proposal and feasibility report were passed. On 30 June 2020, 2019 annual general meeting, 2020 first class meeting for holders of A Shares and 2020 first class meeting for holders of H Shares were held, at which the relevant resolutions on the public issuance of A Share Convertible Bonds were considered and approved.

On 10 July 2020, the Company received the CSRC’s Acceptance Notice of the Application for Administration Permission (Acceptance No. 201734) (《中國證監會行政許可申請受理單》(受理序號:201734)) issued by the CSRC. The CSRC, pursuant to applicable laws, conducted a review of the application materials for administrative permission of listed companies’ issuance of Convertible Bonds submitted by the Company. The CSRC is of the opinion that the application materials are complete and has decided to accept the applications for administrative permission for further processing.

On 24 August 2020, the 124th working meeting in 2020 of the 18th session of the Issuance Examination Committee of the CSRC reviewed the Company’s application for the public issuance of convertible bonds. According to the meeting review results, the Company’s application for the public issuance of convertible bonds was approved.

 

147


On 21 September 2020, the Company received the “Approval of China Southern Airlines Company Limited’s Public Issuance of Convertible Bonds (Zheng Jian Xu Ke [2020] No. 2264) (《關於核准中國南方航空股份有限公司公開發行可轉換公司債券的批復》 (證監許可[2020]2264))” issued by the CSRC. On 15 October 2020, the Company publicly issued 160 million A Share Convertible Bonds with nominal value of RMB100 each, representing a total amount of RMB16 billion. On 21 October 2020, the Company received the proceeds from public issuance of A Share Convertible Bonds and deposited them in the special account for the proceeds.

Pursuant to the approval by the Self-discipline Supervision Decision [2020] No. 355 issued by the SSE, the convertible bonds of the Company with an amount of RMB16 billion were listed on the SSE on 3 November 2020 with the bond abbreviation of “Nanhang Convertible Bonds (南航轉債)” and the bond code of 110075.

 

(II)

Holders and Guarantors of Convertible Bonds During the Reporting Period

 

Name of corporate convertible bonds    2020 Corporate Convertible Bonds of China Southern Airlines Company Limited
Numbers of holders of convertible bonds at the end of the period    37,006
Guarantor of the convertible bonds of the Company    Nil

Particulars of the top ten convertible bonds holders:

 

Name of the corporate convertible bonds holders

   Total number of bonds held
at the end of reporting
period (RMB)
     Bond-holding
percentage (%)
 

Specific accounts for bonds repurchase and pledge under the registration and settlement system (Industrial and Commercial Bank of China)

     996,457,000        16.90  

Specific accounts for bonds repurchase and pledge under the registration and settlement system (China Construction Bank)

     327,119,000        5.55  

Specific accounts for bonds repurchase and pledge under the registration and settlement system (Agricultural Bank of China)

     288,711,000        4.90  

Industrial Bank Co., Ltd. – AIFMC New Vision Flexible Allocation and Regularly Open Hybrid Initiating Securities Investment Fund

     249,844,000        4.24  

Specific accounts for bonds repurchase and pledge under the registration and settlement system (Bank of China)

     233,771,000        3.96  

Agricultural Bank of China Limited – Guangfa Balance Selected Mixed Type Securities Investment Fund (廣發均衡優選混合型證券投資基金)

     200,826,000        3.41  

Agricultural Bank of China Limited – Panghua Convertible Bonds Securities Investment Fund (鵬華可轉債債券型證券投資基金)

     162,249,000        2.75  

Specific accounts for bonds repurchase and pledge under the registration and settlement system (China Galaxy Securities Co., Ltd.)

     160,329,000        2.72  

Specific accounts for bonds repurchase and pledge under the registration and settlement system (China Merchants Bank Co., Ltd.)

     156,189,000        2.65  

Industrial Bank Co., Ltd. – GF Stable Preferred Six-month Hybrid Securities Investment Fund (廣發穩健優選六個月持有期混合型證券投資基金)

     132,193,000        2.24  

 

148


(III)

Changes in Convertible Bonds During the Reporting Period

Unit: RMB

 

Name of the corporate

convertible bonds

   Prior to current
change
     Increase/decrease in the current changes      After current
changes
 
   Converted      Redeemed      Resold  

2020 Corporate Convertible Bonds of China Southern Airlines Company Limited

     16,000,000,000.00        10,103,407,000.00        –          –          5,896,593,000.00  

Cumulative Number of Shares Converted During the Reporting Period

 

Name of Convertible Bonds

   2020 Corporate Convertible Bonds of
China Southern Airlines Company Limited
 

Nominal value of convertible bonds converted during the reporting period (RMB)

     10,103,407,000.00  

Number of shares converted during the reporting period (shares)

     1,619,135,633  

Aggregated number of shares converted (shares)

     1,619,135,633  

Aggregated number of shares converted per the total number of shares issued by the Company before conversion (%)

     10.56  

Nominal value of outstanding convertible bonds (RMB)

     5,896,593,000  

Outstanding convertible bonds per the total number of convertible bonds issued (%)

     36.85  

 

(IV)

Information on the Company’s Liability and Credit Changes As Well As the Cash Arrangement for the Future Annual Debt Repayment

Pursuant to the relevant provisions of the Administrative Measures for the Issuance of Securities by Listed Companies, the Administrative Measures for Issuance and Trading of Corporate Bonds and the Rules Governing the Listing of Stocks on Shanghai Stock Exchange issued by CSRC, during the reporting period, the Company entrusted a credit rating agency China Lianhe Credit Rating Co., Ltd (聯合資信評估股份有限公司) to conduct credit rating for the Nanhang Convertible Bonds issued by the Company in October 2020. China Lianhe Credit Rating Co., Ltd issued the 2021 Follow-up Rating Report for Convertible Bonds of China Southern Airlines Company Limited (《中國南方航空股份有限公司可轉換公司債券2021年跟蹤評級報告》). The rating results are as follows: it maintained the AAA long-term credit rating of the main body of the Company, maintained the credit rating of AAA of Nanhang Convertible Bonds with stable outlook. The Company’s operations are stable in all aspects with reasonable asset structure, and the liabilities situation has not changed significantly, and the credit status is good. The Company’s cash sources for debt repayment in the coming years mainly include cash inflows from income from the normal business operations of the Company.

 

(V)

Other Information about Corporate Convertible Bonds

Nil.

 

149


RISK MANAGEMENT AND INTERNAL CONTROL

The Board is responsible for maintaining sound and effective risk management and internal control systems, and reviewing its effectiveness to ensure the safety of shareholder investment and corporate assets. The risk management and internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable but not absolute assurance.

The Board has existing process to identify, assess and manage major risks to which the Company is exposed. It is part of the process to renew the risk management and internal control systems in case of changes in operating environment or regulation. The Board has conducted a review of, and is satisfied with the effectiveness of the risk management and internal control systems for the financial year ended 31 December 2021.

 

I.

Disclaimer on Internal Control and the Establishment of Internal Control System

The Board is responsible for establishing robust internal control system and effectively implementing such internal control system, evaluating its effectiveness, accurately disclosing the assessment report on the relevant internal control. The objectives of the internal control system of the Company are to reasonably ensure the legitimacy and compliance of operating management, the safety of assets, and the truthfulness and completeness of financial report and relevant information, to improve the operation efficiency and effectiveness, and to promote the realization of development strategies of the Company. Given the inherent limitations of the internal control system, only reasonable assurance can be provided for the above objectives.

The Board has carried out self-assessment on the effective of relevant internal control of the Company in accordance with the “Basic Standard for Enterprise Internal Control” and its supporting guidelines, and has considered them effective as at 31 December 2021 (being the base date of assessment report of internal control) and free from significant or important deficiencies in internal control on financial reporting. In addition, no significant or important deficiencies in internal control on non-financial reporting were identified.

 

II.

Particulars of the Audit Report on the Company’s Internal Control

KPMG Huazhen LLP conducted an audit on the effectiveness of the Company’s internal control over financial reporting, and was of the opinion that the Company has maintained effectiveness of the Company’s internal control over financial reporting in all major aspects in accordance with the “Basic Norms for Enterprise Internal Control” and relevant regulations as at 31 December 2021. For details, please refer to the 2021 Internal Control Audit Report of China Southern Airlines disclosed on the website of the Shanghai Stock Exchange.

 

150


III.

Implementation of Evaluation of Internal Control

 

1.

Organizational structure of internal control

The Company adopts the decentralized management of internal control, and has set out the linear management structure composed of the Board, Audit and Risk Management Committee, Managers, Internal Control Team, and business units and departments, which is shown as follows:

 

LOGO

The Board is responsible for reviewing and approving the final achievements, and submitting annual statement on risk management and internal control systems. Audit and Risk Management Committee is responsible for reviewing the internal control of the Company, supervising the effective implementation of internal control and self-evaluation of internal control, evaluating the effectiveness of internal control, urging the rectification of internal control defects, coordinating internal control audit and other related matters, etc. Managers are responsible for organizing and leading the daily operation of internal control of the Company. The Internal Control Team is responsible for the specific organization and implementation of the items. All business units and departments are responsible for maintaining their respective internal control measures on-going and effective, describing and updating their respective business processes and control points, identifying the record documents, recognizing the significant control measures, and organizing the rectification of defects.

 

151


2.

Evaluation procedures of internal control

Based on the internal control framework issued by the Committee of Sponsoring Organisations of the U.S. Treadway Commission (“COSO”), the evaluation of internal control of the Company is designed on five components of internal control, and fully complies with relevant requirement of U.S. Sarbanes – Oxley Act, PRC Standard Regulations on Corporate Internal Control and its supporting guidelines and the Hong Kong Listing Rules in 2016. In order to further enhance the quality of internal control, the Company employed a professional independent third-party institution for guidance.

The Company has determined the content involved in the evaluation of internal control in the qualitative and quantitative principles, mainly including the Company-level internal control framework and the internal control at the level of business process. The Company-level internal control framework is based on the five components set down by the COSO, namely control environment, risk assessment, control activities, information and communication, and monitoring. The level of business process fully reflects the industrial characteristics of aviation transport enterprises. The evaluation content covers the information related to both financial reports and non-financial reports, and the evaluated units include the Company itself and all of its branches (subsidiaries), bases and extending to professional companies and joint ventures.

The Company performs the annual evaluation of internal control in the flow of plan, record, test, rectification and report stages.

Firstly, the internal control at the level of the Company and the business process is recorded and updated by means of interview, questionnaire, etc. in order to identify and analyze the risks. The walk-through test is performed to evaluate the effectiveness of the design of internal control. Secondly, the risks are marked and ranked to determine areas with high, moderate and low risks and screen out key risk control points by combing the risk control points. These key risk control points are tested by means of observation, interview, re-calculation, inspection, confirmation, knowledge evaluation, system inquiry, etc. so as to evaluate the effectiveness of the implementation of internal control.

In case of any defects of the internal control, the Company will analyze the cause of such defects, put forward rectification opinions and management suggestions and urge the process principal concerned to develop effective rectification measures and implement the same for rectification purposes to eventually achieve effective risk control. Once great or major defects of internal control are found, they will be reported to Managers and the Audit and Risk Management Committee without delay.

 

3.

Key features of the evaluation of internal control

With years of accumulation, the evaluation of internal control of the Company has gradually developed the working method and characteristics adapted to the management pattern of the Company. Firstly, the management structure has defined responsibility, clear division of work and clear path of reporting complying with the listing regulatory requirements in the Shanghai Stock Exchange, the Stock Exchange and the New York Stock Exchange. Secondly, the evaluation covers most organization, relates to full processes and has a complete set of basic data.

 

152


IV.

Summary of Risk Management and Internal Control

The Board recognizes its responsibility for supervising the risk management and internal control system of the Group and reviews the effectiveness of the same at least once a year by the Audit and Risk Management Committee. The Audit and Risk Management Committee assists the Board in performing its role in supervising finance, operation, compliance, risk management and internal monitoring as well as financial and internal audit function resources of the Group and in corporate governance. The Group has the internal audit function.

Based on the disclosure above, appropriate policies and monitoring have been established and formulated to ensure that the encumbered assets will not be used or disposed of without approval and comply with and abide by relevant laws, regulations and rules. Reliable financial and accounting records are kept in accordance with the relevant accounting standards and regulatory requirements. Major risks with potential effect on the performance of the Group are properly identified and managed. The system and the internal control can only make a reasonable but not absolute guarantee to prevent major misrepresentations or losses, which are designed to manage rather than eliminate the risk of failing to meet business objectives.

The Company regulates the processing and issuance of inside information in accordance with a number of inside information disclosure procedures to ensure the proper maintenance of confidentiality prior to the disclosure of such information and to publish such information in an efficient and consistent manner.

As disclosed above, the Audit and Risk Management Committee held 7 meetings in 2021, where the risk management and internal control systems of the Group were reviewed. For the year ended 31 December 2021, the Board has conducted through the Audit and Risk Management Committee an annual review of the effectiveness of the risk management and internal control systems of the Group covering all significant financial, operating and compliance controls, and considers the risk management and internal control of the Group is effective and adequate.

 

153


REFORM

IMPLEMENTATION

Adopt Tenure System

and Contractual Management,

Build China Southern Airlines Ecosystem

and Promote Digital Transformation

 

154


INDEPENDENT AUDITOR’S REPORT

Independent auditor’s report to the shareholders of

China Southern Airlines Company Limited

(incorporated in the People’s Republic of China with limited liability)

Opinion

We have audited the consolidated financial statements of China Southern Airlines Company Limited (“the Company”) and its subsidiaries (“the Group”) set out on pages 163 to 276, which comprise the consolidated statement of financial position as at 31 December 2021, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2021 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”) issued by the International Auditing and Assurance Standards Board. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”) together with any ethical requirements that are relevant to our audit of the consolidated financial statements in the People’s Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

155


Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Assessment of value in use of aircraft and related equipment

Refer to note 2(i), note 2(k), note 2(l)(iii), note 3(a), note 19 and note 21 to the consolidated financial statements.

 

The Key Audit Matter

  

How the matter was addressed in our audit

The Group reported aircraft and related equipment in the amount of RMB199,407 million as of 31 December 2021. At the end of each reporting period, if any indication of impairment exists, the Group estimates the recoverable amount of an asset, or a cash-generating unit, at the higher of its fair value less costs of disposal and its value in use, to determine the impairment losses. Such assessment results in the Group recognising RMB2,579 million of impairment loss on aircraft and related equipment for the year ended 31 December 2021. The key assumptions underlying the Group’s estimated value in use include traffic revenue growth rates, related operating costs growth rates (“forecasted growth rates”) and discount rates.

 

We identified the assessment of value in use of aircraft and related equipment as a key audit matter because the estimate of value in use of aircraft and related equipment involved a high degree of subjectivity and judgment in evaluating the Group’s assumptions of forecasted growth rates and discount rates, and value in use of aircraft and related equipment is sensitive to changes in these assumptions.

  

The primary procedures we performed to address this key audit matter included the following.

 

•  We evaluated the design and tested the operating effectiveness of certain internal controls over the Group’s process in assessing the value in use of aircraft and related equipment. This includes controls related to the development of forecasted growth rates and discount rates used in determining the value in use of aircraft and related equipment;

 

•  We assessed the reasonableness of the Group’s forecasted growth rates based on the Group’s future operation plans;

 

•  We assessed the forecasted growth rates adopted in the Group’s value in use assessment by comparing them with internally and externally derived data;

 

•  We evaluated the Group’s ability to accurately forecast by comparing the Group’s historical forecasted growth rates to the actual results;

 

•  We performed sensitivity analysis over the forecasted growth rates and the discount rates assumptions to assess their impact on the Group’s impairment assessment; and

 

•  We involved our valuation professionals with specialised skills and knowledge, who assisted in evaluating the discount rates used by comparing them against discount rates that were independently developed using publicly available industry data.

 

156


Key audit matters (continued)

Assessment of the standalone selling price for mileage awarded

Refer to note 2(z)(ii), note 3(b), note 5, note 39 and note 41 to the consolidated financial statements.

 

The Key Audit Matter

  

How the matter was addressed in our audit

The Group’s contract liabilities relating to unredeemed mileage awarded was RMB3,061 million as of 31 December 2021. For the year ended 31 December 2021, the revenue recognised in relation to mileage awarded was RMB1,763 million. The Group allocates the transaction price in relation to mileage earning flights between the flight and mileage awarded on relative standalone selling prices. The Group estimates the standalone selling price of mileage awarded through mileage earning flights based on inputs and assumptions derived from historical data, including the estimates on the percentage of mileage awarded that are expected to be redeemed (“expected redemption rates”). The mileage awarded is recognised in contract liabilities, and subsequently recognised as revenue when the mileage is redeemed and the related benefits are received or used.

 

We identified assessment of the standalone selling price for mileage awarded as a key audit matter because of the high degree of subjective judgment required to evaluate the assumptions involved in such assessment, in particular the expected redemption rates which take into consideration expected future mileage redemption patterns.

  

The primary procedures we performed to address this key audit matter included the following.

 

•  We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s process to estimate the standalone selling price for mileage awarded. This included controls related to key assumptions utilized in the estimation of the standalone selling price for mileage awarded;

 

•  We evaluated the Group’s methodology in developing the standalone selling price for mileage awarded and compared the assumptions underlying the expected redemption rates with those of historical periods;

 

•  We compared the Group’s estimate of the standalone selling price of mileage awarded to the contractual rates at which mileages are sold to other airlines and bank partners;

 

•  We compared the expected redemption rates to historical experience of mileage redemption;

 

•  We assessed the impact of changes in the terms of mileage programs and customer behavior on expected redemption rates;

 

•  We assessed the Group’s ability to accurately forecast by comparing the historical estimate of mileage redemption to actual redemption of mileages; and

 

•  We performed sensitivity analysis over the expected redemption rates to assess its impact on the associated revenue for mileage awarded.

 

157


Information other than the consolidated financial statements and auditor’s report thereon

The directors are responsible for the other information. The other information comprises all the information included in the annual report, other than the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated financial statements

The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs issued by the IASB and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

 

   

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.

 

158


Auditor’s responsibilities for the audit of the consolidated financial statements (continued)

 

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

 

 

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

 

 

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

 

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

 

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Chung Kai Ming.

KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road

Central, Hong Kong

30 March 2022

 

159


CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2021

 

     Note    2021
RMB million
    2020
RMB million
 

Operating revenue

   5     

Traffic revenue

        95,279       87,027  

Other operating revenue

        6,365       5,534  
     

 

 

   

 

 

 

Total operating revenue

        101,644       92,561  
     

 

 

   

 

 

 

Operating expenses

       

Flight operation expenses

   7      45,569       37,545  

Maintenance expenses

   8      12,162       13,375  

Aircraft and transportation service expenses

   9      21,147       18,743  

Promotion and selling expenses

   10      4,705       5,007  

General and administrative expenses

   11      3,663       4,088  

Depreciation and amortisation

   12      24,241       24,590  
Impairment losses on property, plant and equipment,
right-of-use assets and other assets
   19/21/30      2,597       3,961  

Others

        2,256       1,802  
     

 

 

   

 

 

 

Total operating expenses

        116,340       109,111  
     

 

 

   

 

 

 

Other net income

   14      4,767       4,686  
     

 

 

   

 

 

 

Operating losses

        (9,929     (11,864
     

 

 

   

 

 

 

Interest income

        675       322  

Interest expense

   15      (6,202     (6,716

Exchange gain, net

   37      1,575       3,485  

Share of associates’ results

   24      9       (776

Share of joint ventures’ results

   25      271       309  

Changes in fair value of financial assets/liabilities

   28      (309     53  

Loss on disposal of a subsidiary

        —         (8
     

 

 

   

 

 

 

Loss before income tax

        (13,910     (15,195

Income tax

   16      2,894       3,368  
     

 

 

   

 

 

 

Loss for the year

        (11,016     (11,827
     

 

 

   

 

 

 

Loss attributable to:

       

Equity shareholders of the Company

   18      (12,106     (10,847

Non-controlling interests

        1,090       (980
     

 

 

   

 

 

 

Loss for the year

        (11,016     (11,827
     

 

 

   

 

 

 

Loss per share

       

Basic and diluted

   18      RMB(0.75)       RMB(0.77
     

 

 

   

 

 

 

The accompanying notes form part of these financial statements.

 

160


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2021

 

     Note      2021
RMB million
    2020
RMB million
 

Loss for the year

        (11,016     (11,827
     

 

 

   

 

 

 

Other comprehensive income:

     17       

Items that will not be reclassified to profit or loss

       

– Equity investments at fair value through other comprehensive income – net movement in fair value reserve (non-recycling)

        (236     (250

– Share of other comprehensive income of an associate

        (2     (2

– Income tax effect of the above items

        60       63  

Items that may be reclassified subsequently to profit or loss

       

– Cash flow hedge: fair value movement of derivative financial instrument

        42       (45

– Differences resulting from the translation of foreign currency financial statements

        —         8  

– Share of other comprehensive income of an associate

        3       (3

– Income tax effect of the above items

        (10     11  
     

 

 

   

 

 

 

Other comprehensive income for the year

        (143     (218
     

 

 

   

 

 

 

Total comprehensive income for the year

        (11,159     (12,045
     

 

 

   

 

 

 

Total comprehensive income attributable to:

       

Equity shareholders of the Company

        (12,189     (11,011

Non-controlling interests

        1,030       (1,034
     

 

 

   

 

 

 

Total comprehensive income for the year

        (11,159     (12,045
     

 

 

   

 

 

 

The accompanying notes form part of these financial statements.

 

161


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2021

 

     Note   31 December
2021
RMB million
    31 December
2020
RMB million
 

Non-current assets

      

Property, plant and equipment, net

   19     91,186       86,146  

Construction in progress

   20     31,847       32,407  

Right-of-use assets

   21     138,439       151,065  

Goodwill

   22     237       237  

Interest in associates

   24     2,637       2,449  

Interest in joint ventures

   25     3,341       3,225  

Aircraft lease deposits

       321       362  

Other equity instrument investments

   26     563       799  

Other non-current financial assets

   26     589       92  

Amounts due from related companies

   42     151       —    

Deferred tax assets

   29(b)     12,823       7,739  

Other assets

   30     3,211       2,877  
    

 

 

   

 

 

 
       285,345       287,398  
    

 

 

   

 

 

 

Current assets

      

Inventories

   31     1,652       1,760  

Trade receivables

   32     2,858       2,525  

Other receivables

   33     9,599       8,347  

Cash and cash equivalents

   34     21,456       25,419  

Assets held for sale

   35     1,292       —    

Restricted bank deposits

       158       117  

Prepaid expenses and other current assets

       736       732  

Amounts due from related companies

   42     115       85  
    

 

 

   

 

 

 
       37,866       38,985  
    

 

 

   

 

 

 

Current liabilities

      

Derivative financial liabilities

   27     1,222       3,148  

Borrowings

   36     57,913       40,099  

Lease liabilities

   37     20,805       20,930  

Trade payables

   38     1,328       1,782  

Contract liabilities

   39     1,542       1,513  

Sales in advance of carriage

   40     3,716       3,997  

Current income tax

       844       462  

Amounts due to related companies

   42     363       357  

Accrued expenses

   43     15,479       15,920  

Other liabilities

   44     7,778       7,473  
    

 

 

   

 

 

 
       110,990       95,681  
    

 

 

   

 

 

 

Net current liabilities

       (73,124     (56,696
    

 

 

   

 

 

 

Total assets less current liabilities

       212,221       230,702  
    

 

 

   

 

 

 

 

162


     Note     31 December
2021
RMB million
     31 December
2020
RMB million
 

Non-current liabilities

       

Borrowings

     36       38,354        38,134  

Lease liabilities

     37       81,944        100,283  

Derivative financial liabilities

     27       20        53  

Other non-current liabilities

     41       1,824        2,036  

Provision for major overhauls

     45       4,820        4,216  

Deferred benefits and gains

     46       725        769  

Deferred tax liabilities

     29(b)       26        80  
    

 

 

    

 

 

 
       127,713        145,571  
    

 

 

    

 

 

 

Net assets

       84,508        85,131  
    

 

 

    

 

 

 

Capital and reserves

       

Share capital

     47       16,948        15,329  

Reserves

       50,903        54,255  
    

 

 

    

 

 

 

Total equity attributable to equity shareholders of the Company

       67,851        69,584  

Non-controlling interests

       16,657        15,547  
    

 

 

    

 

 

 

Total equity

       84,508        85,131  
    

 

 

    

 

 

 

Approved and authorised for issue by the Board of Directors on 30 March 2022.

 

Ma Xu Lun   Han Wen Sheng
Director   Director

The accompanying notes form part of these financial statements.

 

163


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2021

 

    Attributable to equity shareholders of the Company              
    Share
capital

(Note 47)
RMB million
    Share
premium
(Note 48(b))
RMB million
    Fair value
reserve
(recycling)
(Note 48(c))
RMB million
    Fair value
reserve
(non-
recycling)
(Note 48(d))
RMB million
    Other
reserves
(Note 48(e))
RMB million
    Retained
Earnings/
(accumulated
losses)
RMB million
    Total
RMB million
    Non-
controlling
interests
RMB million
    Total
equity
RMB million
 

Balance at 1 January 2020

    12,267       25,652       2       409       2,844       22,932       64,106       13,223       77,329  

Changes in equity for 2020

                 

Loss for the year

    —         —         —         —         —         (10,847     (10,847     (980     (11,827

Other comprehensive income

    —         —         (37     (135     8       —         (164     (54     (218

Total comprehensive income

    —         —         (37     (135     8       (10,847     (11,011     (1,034     (12,045

Issuance of shares

    3,062       12,889       —         —         —         —         15,951       —         15,951  

Acquisition of non-controlling interests in a subsidiary

    —         —         —         —         (155     —         (155     (105     (260

Capital injection from non-controlling interests

    —         —         —         —         700       —         700       3,521       4,221  

Distributions to non-controlling interests

    —         —         —         —         —         —         —         (57     (57

Decrease in non-controlling interests as a result of loss of control of a subsidiary

    —         —         —         —         —         —         —         (1     (1

Change in other reserves

    —         —         —         —         (7     —         (7     —         (7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at 31 December 2020

    15,329       38,541       (35     274       3,390       12,085       69,584       15,547       85,131  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Changes in equity for 2021:

                 

Loss for the year

    —         —         —         —         —         (12,106     (12,106     1,090       (11,016

Other comprehensive income

    —         —         35       (118     —         —         (83     (60     (143

Total comprehensive income

    —         —         35       (118     —         (12,106     (12,189     1,030       (11,159

Distributions to non-controlling interests

    —         —         —         —         —         —         —         (659     (659

Conversion of convertible bonds to ordinary shares (Note 47(ii))

    1,619       8,837       —         —         —         —         10,456       —         10,456  

Capital injection from non-controlling interests

    —         —         —         —         —         —         —         810       810  

Decrease in non-controlling interests as a result of liquidation of a subsidiary

    —         —         —         —         —         —         —         (71     (71
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at 31 December 2021

    16,948       47,378       —         156       3,390       (21     67,851       16,657       84,508  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes form part of these financial statements.

 

164


CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2021

 

     Note   2021
RMB million
    2020
RMB million
 

Operating activities

      

Cash generated from operating activities

   34(b)     15,277       10,727  

Interest received

       671       295  

Interest paid

       (6,354     (6,646

Income tax paid

       (1,906     (1,678
    

 

 

   

 

 

 

Net cash generated from operating activities

       7,688       2,698  
    

 

 

   

 

 

 

Investing activities

      

Proceeds from disposal of property, plant and equipment and right-of-use assets

       990       2,848  

Dividends received from associates

       26       91  

Dividends received from joint ventures

       237       246  
Dividends received from other investments in equity
and other non-current financial assets
       7       20  

Acquisition of term deposits

       (60     (898

Proceeds from maturity of term deposits

       120       654  

Acquisition of property, plant and equipment and other assets

       (17,137     (11,061

Acquisition of an associate

       (3     —    

Proceeds from disposal of derivative financial instruments

       —         51  
    

 

 

   

 

 

 

Net cash used in investing activities

       (15,820     (8,049
    

 

 

   

 

 

 

Financing activities

      

Proceeds from issuance of shares

       —         15,951  

Proceeds from bank borrowings

   34(c)     76,910       71,841  

Proceeds from corporate bonds

   34(c)     9,000       25,000  

Proceeds from ultra-short-term financing bills

   34(c)     82,500       48,300  

Repayment of bank borrowings

   34(c)     (70,437     (52,601

Repayment of ultra-short-term financing bills

   34(c)     (68,900     (59,800

Repayment of corporate bonds

   34(c)     (3,749     (2,655

Capital element of lease rentals paid

   34(c)     (21,613     (20,670

Capital injections from non-controlling interests

       1,128       3,802  

Refund of aircraft lease deposits

       49       69  

Payments for aircraft lease deposits

       (15     —    

Dividends paid to non-controlling interests

       (687     (32

Payment for purchase of non-controlling interest

       —         (260
    

 

 

   

 

 

 

Net cash generated from financing activities

       4,186       28,945  
    

 

 

   

 

 

 

Net (decrease)/increase in cash and cash equivalents

       (3,946     23,594  

Cash and cash equivalents at 1 January

       25,419       1,849  

Exchange loss on cash and cash equivalents

       (17     (24
    

 

 

   

 

 

 

Cash and cash equivalents at 31 December

   34(a)     21,456       25,419  
    

 

 

   

 

 

 

The accompanying notes form part of these financial statements.

 

165


NOTES TO THE FINANCIAL STATEMENTS

(Expressed in Renminbi unless otherwise indicated)

 

1

Corporate information

China Southern Airlines Company Limited (the “Company”), a joint stock limited company, was incorporated in the People’s Republic of China (the “PRC”) on 25 March 1995. The address of the Company’s registered office is Unit 301, 3/F, Office Tower, Guanhao Science Park Phase I, 12 Yuyan Street, Huangpu District, Guangzhou, Guangdong Province, the PRC. The Company and its subsidiaries (the “Group”) are principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery and other extended transportation services.

The Company’s majority interest is owned by China Southern Air Holding Company Limited (“CSAH”), a state-owned enterprise incorporated in the PRC.

The Company’s shares are traded on the Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and the New York Stock Exchange.

 

2

Significant accounting policies

The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual IFRSs, International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (the “IASB”). The consolidated financial statements also comply with the applicable disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Significant accounting policies adopted by the Group are disclosed below.

The IASB has issued certain amendments to IFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 2(b) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current accounting period reflected in these consolidated financial statements.

 

(a)

Basis of preparation

The consolidated financial statements for the year ended 31 December 2021 comprise the Group and the Group’s interest in associates and joint ventures.

The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis except that the following assets and liabilities are stated at their fair value as explained in the accounting policies set out below:

 

   

other equity instrument investments (see Note 2(f));

 

   

other non-current financial assets (FVPL) (see Note 2(f)); and

 

   

derivative financial assets/liabilities (see Note 2(g)).

Non-current assets (or disposal groups) held for sale are stated at the lower of carrying amount and fair value less costs to sell (see Note 2(r)).

The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

166


2

Significant accounting policies (continued)

 

(a)

Basis of preparation (continued)

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in Note 3.

 

(b)

Changes in accounting policies

The Group has applied the following amendments to IFRSs issued by the IASB to these financial statements for the current accounting period:

 

   

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, Interest rate benchmark reform — phase 2

 

   

Amendment to IFRS 16, Covid-19-related rent concessions beyond 30 June 2021

Other than the amendment to IFRS 16, the Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Impacts of the adoption of the amended IFRSs are discussed below:

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, Interest rate benchmark reform — phase 2

The amendments provide targeted reliefs from (i) accounting for changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities as modifications, and (ii) discontinuing hedge accounting when an interest rate benchmark is replaced by an alternative benchmark rate as a result of the reform of interbank offered rates (“IBOR reform”). The adoption of the amendments does not have any material impact on the financial position and the financial result of the Group.

Amendment to IFRS 16, Covid-19-related rent concessions beyond 30 June 2021 (“2021 amendment”)

The Group previously applied the practical expedient in IFRS 16 to all leases except for aircraft and engine leases such that as lessee it was not required to assess whether rent concessions occurring as a direct consequence of the COVID-19 pandemic were lease modifications, if the eligibility conditions are met (see Note 2(k)). One of these conditions requires the reduction in lease payments affect only payments originally due on or before a specified time limit. The 2021 amendment extends this time limit from 30 June 2021 to 30 June 2022.

The Group has early adopted the 2021 amendment in this financial year. The adoption of 2021 amendment does not have any material impact on the financial position and the financial result of the Group.

 

167


2

Significant accounting policies (continued)

 

(c)

Subsidiaries and non-controlling interests

Subsidiaries are all entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group transactions, balances and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. Amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies.

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group recognised non-controlling interests based on the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with Note 2(p) or Note 2(q) depending on the nature of the liability.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in consolidated income statement. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(f)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (Note 2(d)).

In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (Note 2(l)(iii)).

The Group applies the acquisition method to account for business combinations. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Transaction costs are expensed as incurred.

 

168


2

Significant accounting policies (continued)

 

(c)

Subsidiaries and non-controlling interests (continued)

 

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

 

(d)

Associates and joint arrangements

An associate is an entity in which the Group or the Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

The Group has applied IFRS 11, Joint Arrangements (“IFRS 11”) to all joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures.

An investment in an associate or a joint venture is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (Notes 2(e) and 2(l)(iii)). At each reporting date, the Group assesses whether there is any objective evidence that the investment is impaired. The Group’s share of the post-acquisition, post-tax results of the investees, adjusted for any acquisition-date excess over cost and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income.

When the Group’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture.

Unrealised profits and losses resulting from transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in the consolidated income statement.

In the Company’s statement of financial position, investments in associates and joint ventures are stated at cost less impairment losses (Note 2(l)(iii)).

 

169


2

Significant accounting policies (continued)

 

(e)

Goodwill

Goodwill represents the excess of

 

  (i)

the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

 

  (ii)

the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in the consolidated income statement as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (Note 2(l)(iii)).

 

(f)

Other investments in debt and equity securities

The Group’s policies for investments in debt and equity securities, other than investments in subsidiaries, associates and joint ventures, are set out below.

Investments in debt and equity securities are recognised/derecognised on the date the Group commits to purchase/sell the investment. The investments are initially stated at fair value plus directly attributable transaction costs, except for those investments measured at fair value through profit or loss (FVPL) for which transaction costs are recognised directly in profit or loss. For an explanation of how the Group determines fair value of financial instruments, see Note 4(g)(i). These investments are subsequently accounted for as follows, depending on their classification.

 

  (i)

Investments other than equity investments

Non-equity investments held by the Group are classified into one of the following measurement categories:

 

   

amortised cost, if the investment is held for the collection of contractual cash flows which represent solely payments of principal and interest. Interest income from the investment is calculated using the effective interest method (Note 2(z)(v)).

 

   

fair value through other comprehensive income (FVOCI) – recycling, if the contractual cash flows of the investment comprise solely payments of principal and interest and the investment is held within a business model whose objective is achieved by both the collection of contractual cash flows and sale. Changes in fair value are recognised in other comprehensive income, except for the recognition in profit or loss of expected credit losses, interest income (calculated using the effective interest method) and foreign exchange gains and losses. When the investment is derecognised, the amount accumulated in other comprehensive income is recycled from equity to profit or loss.

 

   

fair value at profit or loss (FVPL) if the investment does not meet the criteria for being measured at amortised cost or FVOCI (recycling). Changes in the fair value of the investment (including interest) are recognised in profit or loss.

 

170


2

Significant accounting policies (continued)

 

(f)

Other investments in debt and equity securities (continued)

 

  (ii)

Equity investments

An investment in equity securities is classified as FVPL unless the equity investment is not held for trading purposes and on initial recognition of the investment the Group makes an irrevocable election to designate the investment at FVOCI (non-recycling) such that subsequent changes in fair value are recognised in other comprehensive income. Such elections are made on an instrument-by-instrument basis, but may only be made if the investment meets the definition of equity from the issuer’s perspective. Where such an election is made, the amount accumulated in other comprehensive income remains in the fair value reserve (non-recycling) until the investment is disposed of. At the time of disposal, the amount accumulated in the fair value reserve (non-recycling) is transferred to retained earnings. It is not recycled through profit or loss. Dividends from an investment in equity securities, irrespective of whether classified as at FVPL or FVOCI, are recognised in profit or loss as other income in accordance with the policy set out in Note 2(z)(iv).

 

(g)

Derivative financial instruments

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Derivative financial instruments that do not qualify for hedge accounting are accounted for as trading instruments and any unrealised gains or losses, being changes in fair value of the derivatives, are recognised in the profit or loss immediately.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the profit or loss, along with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.

 

171


2

Significant accounting policies (continued)

 

(g)

Derivative financial instruments (continued)

 

Derivative financial instruments that qualify for hedge accounting and which are designated as a specific hedge of the variability in cash flows of a highly probable forecast transaction, are accounted for as follows:

 

  (i)

The effective portion of any gains or losses on remeasurement of the derivative financial instrument to fair value are recognised in other comprehensive income and accumulated separately in equity in the fair value reserve. The cumulative gain or loss on the derivative financial instrument recognised in other comprehensive income is reclassified from equity to profit or loss in the same period during which the hedged forecast cash flows affects profit or loss; and

 

  (ii)

The ineffective portion of any gains or losses on remeasurement of the derivative financial instrument to fair value is recognised in the profit or loss immediately.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gains or losses existing in equity at that time remains in equity and is recognised in the profit or loss when the committed or forecast transaction ultimately occurs. When a committed or forecast transaction is no longer expected to occur, the cumulative gains or losses that was recorded in equity is immediately transferred to the profit or loss.

 

(h)

Investment properties

Investment properties are land held under a lease and/or buildings which are owned to earn rental income and/or for capital appreciation.

Investment properties are stated at cost, less accumulated depreciation and impairment losses (Note 2(l)(iii)). Depreciation is calculated to write off the cost of items of investment properties, less their estimated residual value, if any, using the straight-line method over their estimated useful lives or lease term. Rental income from investment properties is accounted for as described in Note 2(z)(iii).

 

172


2

Significant accounting policies (continued)

 

(i)

Other property, plant and equipment

Other property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (Note 2(l)(iii)).

The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (Note 2(ab)).

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated income statement during the financial period in which they are incurred.

When each major aircraft overhaul is performed, its cost is recognised in the carrying amount of the component of aircraft and is depreciated over the appropriate maintenance cycles. Components related to airframe overhaul cost, are depreciated on a straight-line basis over 6 to 12 years. Components related to engine overhaul cost, are depreciated on the units of production method over the expected flying hours of 9-42 thousand hours. Upon completion of an overhaul, any remaining carrying amount of the cost of the previous overhaul is derecognised and charged to the consolidated income statement.

Except for components related to overhaul costs, the depreciation of other property, plant and equipment is calculated to write off the cost of items, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

 

Buildings

  

5 to 35 years

Owned aircraft

  

15 to 20 years

Other flight equipment

  

– Jet engines

  

15 to 20 years

– Others, including rotables

  

3 to 15 years

Machinery and equipment

  

4 to 10 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in consolidated income statement on the date of retirement or disposal.

 

173


2

Significant accounting policies (continued)

 

(j)

Construction in progress

Construction in progress represents advance payments for the acquisition of aircraft and flight equipment, office buildings, various infrastructure projects under construction and equipment pending for installation, and is stated at cost less impairment losses (Note 2(l)(iii)). Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use, notwithstanding any delay in the issue of the relevant commissioning certificates by the relevant PRC authorities.

No depreciation is provided in respect of construction in progress.

 

(k)

Leased assets

At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

 

  (i)

As a lessee

For a contract that contains more than a lease, a lessee and lessor shall separate the contract and account for each lease component respectively. For a contract that contains lease and non-lease components, a lessee and lessor shall separate lease components from non-lease components. However, when the Group is a lessee of land use right and buildings, the Group has elected not to separate non-lease components from lease components, and instead, account for each lease component and any associated non-lease components as a single lease component. When separate lease components from non-lease components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.

At the lease commencement date, the Group recognises a right-of-use assets and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

The right-of-use assets recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use assets is subsequently stated at cost less accumulated depreciation and impairment losses (see Notes 2(i) and 2(l)(iii)).

 

174


2

Significant accounting policies (continued)

 

(k)

Leased assets (continued)

 

  (i)

As a lessee (continued)

 

For the measurement of component accounting for right-of-use assets and subsequent major overhaul performed, see Note 2(i).

The cost of acquiring land held under a lease is amortised on a straight-line basis over the respective periods of lease terms which range from 30 to 70 years.

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use assets, or is recorded in profit or loss if the carrying amount of the right-of-use assets has been reduced to zero.

The lease liability is also remeasured when there is a change in the scope of a lease or the consideration for a lease that is not originally provided for in the lease contract (“lease modification”) that is not accounted for as a separate lease. In this case the lease liability is remeasured based on the revised lease payments and lease term using a revised discount rate at the effective date of the modification. The only exceptions are rent concessions in relation to all leases except for aircraft and engine leases that occurred as a direct consequence of the COVID-19 pandemic and met the conditions set out in paragraph 46B of IFRS 16 Leases. In such cases, the Group has taken advantage of the practical expedient not to assess whether the rent concessions are lease modifications, and recognised the change in consideration as negative variable lease payments in profit or loss in the period in which the event or condition that triggers the rent concessions occurred.

In the consolidated statement of financial position, the current portion of long-term lease liabilities is determined as the present value of contractual payments that are due to be settled within twelve months after the reporting period.

The Group presents right-of-use assets that do not meet the definition of investment property in right-of-use assets and presents lease liabilities separately in the consolidated statement of financial position.

 

175


2

Significant accounting policies (continued)

 

(k)

Leased assets (continued)

 

  (ii)

As a lessor

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. If this is not the case, the lease is classified as an operating lease.

When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. The rental income from operating leases is recognised in accordance with Note 2(z)(iii).

When the Group is an intermediate lessor, the sub-leases are classified as a finance lease or as an operating lease with reference to the right-of-use assets arising from the head lease. If the head lease is a short-term lease to which the Group applies the exemption described in Note 2(k)(i), then the Group classifies the sub-lease as an operating lease.

Under a finance lease, at the commencement date, the Group recognises the finance lease receivable and derecognises the finance lease asset. The finance lease receivable is initially measured at an amount equal to the net investment in the lease. The net investment in the lease is measured at the aggregate of the unguaranteed residual value and the present value of the lease receivable that are not received at the commencement date, discounted using the interest rate implicit in the lease.

The Group recognises finance income over the lease term, based on a pattern reflecting a constant periodic rate of return. The derecognition and impairment of the finance lease receivable are recognised in accordance with the accounting policy in Note 2(l). Variable lease payments not included in the measurement of net investment in the lease are recognised as income as they are earned.

 

176


2

Significant accounting policies (continued)

 

(l)

Credit losses and impairment of assets

 

  (i)

Credit losses from financial instruments and lease receivables

The Group recognises a loss allowance for expected credit losses (ECL) on the following items:

 

   

financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables); and

 

   

lease receivables.

Financial assets measured at fair value, including equity securities measured at FVPL, equity securities designated at FVOCI (non-recycling) and derivative financial assets, are not subject to the ECL assessment.

MEASUREMENT OF ECLS

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).

The expected cash shortfalls are discounted using the following discount rates where the effect of discounting is material:

 

   

fixed-rate financial assets, and trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof;

 

   

variable-rate financial assets: current effective interest rate;

 

   

lease receivables: discount rate used in the measurement of the lease receivable.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

 

177


2

Significant accounting policies (continued)

 

(l)

Credit losses and impairment of assets (continued)

 

  (i)

Credit losses from financial instruments and lease receivables (continued)

MEASUREMENT OF ECLS (CONTINUED)

 

ECLs are measured on either of the following bases:

 

   

12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and

 

   

lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

Loss allowances for trade receivables and lease receivables are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

SIGNIFICANT INCREASES IN CREDIT RISK

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held). The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

 

   

failure to make payments of principal or interest on their contractually due dates;

 

   

an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);

 

   

an actual or expected significant deterioration in the operating results of the debtor; and

 

   

existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group.

 

178


2

Significant accounting policies (continued)

 

(l)

Credit losses and impairment of assets (continued)

 

  (i)

Credit losses from financial instruments and lease receivables (continued)

SIGNIFICANT INCREASES IN CREDIT RISK (CONTINUED)

 

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due, unless the Group has reasonable and supportable information that is available without undue cost or effort, that demonstrates that the credit risk has not increased significantly since initial recognition even though the contractual payments are more than 30 days past due.

ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in consolidated income statement. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

BASIS OF CALCULATION OF INTEREST INCOME

Interest income recognised in accordance with Note 2(z)(v) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.

At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable events:

 

   

significant financial difficulties of the debtor;

 

   

a breach of contract, such as a default or delinquency in interest or principal payments;

 

   

it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;

 

   

significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or

 

   

the disappearance of an active market for a security because of financial difficulties of the issuer.

 

179


2

Significant accounting policies (continued)

 

(l)

Credit losses and impairment of assets (continued)

 

  (i)

Credit losses from financial instruments and lease receivables (continued)

 

WRITE-OFF POLICY

The gross carrying amount of a financial asset and lease receivable is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in consolidated income statement in the period in which the recovery occurs.

 

  (ii)

Credit losses from financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

After initial recognition at fair value, the Group, as an issuer of such a contract, subsequently measure it at the higher of: (i) the amount of the loss allowance and (ii) the amount initially recognised less, when appropriate, the cumulative amount of income recognised.

The Group monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees are determined to be higher than the carrying amount in respect of the guarantees (i.e. the amount initially recognised, less accumulated amortisation).

To determine ECLs, the Group considers changes in the risk of default of the specified debtor since the issuance of the guarantee. A 12-month ECL is measured unless the risk that the specified debtor will default has increased significantly since the guarantee is issued, in which case a lifetime ECL is measured. The same definition of default and the same assessment of significant increase in credit risk as described in Note 2(l)(i) apply.

As the Group is required to make payments only in the event of a default by the specified debtor in accordance with the terms of the instrument that is guaranteed, an ECL is estimated based on the expected payments to reimburse the holder for a credit loss that it incurs less any amount that the Group expects to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then discounted using the current risk-free rate adjusted for risks specific to the cash flows.

 

180


2

Significant accounting policies (continued)

 

(l)

Credit losses and impairment of assets (continued)

 

  (iii)

Impairment of other non-current assets

 

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

 

   

Investment properties;

 

   

Other property, plant and equipment;

 

   

Right-of-use assets;

 

   

Construction in progress;

 

   

Goodwill;

 

   

Investments in subsidiaries, associates and joint ventures in the Company’s statement of financial position.

If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of goodwill is estimated annually whether or not there is any indication of impairment.

 

   

CALCULATION OF RECOVERABLE AMOUNT

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

 

   

RECOGNITION OF IMPAIRMENT LOSSES

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable), or value in use (if determinable).

 

181


2

Significant accounting policies (continued)

 

(l)

Credit losses and impairment of assets (continued)

 

  (iii)

Impairment of other non-current assets (continued)

 

   

REVERSALS OF IMPAIRMENT LOSSES

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

 

  (iv)

Interim financial reporting and impairment

Under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with IAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (Note 2(l)(i) and 2(l)(ii)).

Impairment losses recognised in an interim period in respect of goodwill, if any, are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss of any, would have been recognised had the impairment been assessed only at the end of the financial year to which the interim period relates.

 

(m)

Inventories

Inventories, which consist primarily of consumable spare parts and supplies, are stated at cost less any applicable provision for obsolescence, and are charged to consolidated income statement when used in operations. Cost represents the average unit cost.

Inventories held for sale or disposal are carried at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

 

182


2

Significant accounting policies (continued)

 

(n)

Contract liabilities

A contract liability is recognised when the customer pays non-refundable consideration before the Group recognises the related revenue (see Note 2(z)). A contract liability would also be recognised if the Group has an unconditional right to receive non-refundable consideration before the Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see Note 2(o)).

 

(o)

Trade and other receivables

A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. If revenue has been recognised before the Group has an unconditional right to receive consideration, the amount is presented as a contract asset.

Trade receivables that do not contain a significant financing component are initially measured at their transaction price. Trade receivables that contain a significant financing component and other receivables are initially measured at fair value plus transaction costs. All receivables are subsequently are stated at amortised cost using the effective interest method and including an allowance for credit losses (see Note 2(l)(i)).

 

(p)

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in consolidated income statement over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

 

(q)

Trade and other payables

Trade and other payables are initially recognised at fair value. Subsequent to initial recognition, trade and other payables are stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at invoice amounts.

 

183


2

Significant accounting policies (continued)

 

(r)

Non-current assets held for sale

A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

Immediately before classification as held for sale, the measurement of the non-current assets (and all individual assets and liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as held for sale and until disposal, the non-current assets (except for certain assets as explained below), or disposal groups, are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the financial statements of the Group and the Company are concerned are deferred tax assets, assets arising from employee benefits, financial assets (other than investments in subsidiaries, associates and joint ventures) and investment properties. These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in Note 2.

Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the non-current asset is not depreciated or amortised.

 

(s)

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been generally within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement. Cash and cash equivalents are assessed for ECL in accordance with the policy set out in Note 2(l)(i).

 

(t)

Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

 

184


2

Significant accounting policies (continued)

 

(u)

Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated financial statements in the period in which the dividends are approved by the Company’s shareholders.

 

(v)

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

 

(w)

Deferred benefits and gains

In connection with the acquisitions of certain aircraft and engines, the Group receives various credits. Such credits are deferred until the aircraft and engines are delivered, at which time they are applied as a reduction of the cost of acquiring the aircraft and engines, resulting in a reduction of future depreciation.

 

(x)

Convertible bonds

 

  (i)

Convertible bonds that contain an equity component

Convertible bonds that can be converted into ordinary shares at the option of the holder, where a fixed number of shares are issued for a fixed amount of cash or other financial assets, are accounted for as compound financial instruments, i.e. they contain both a liability component and an equity component.

At initial recognition, the liability component of the convertible bonds is measured at the fair value based on the future interest and principal payments, discounted at the prevailing market rate of interest for similar non-convertible instruments. The equity component is the difference between the initial fair value of the convertible bonds as a whole and the initial fair value of the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds.

The liability component is subsequently carried at amortised cost. Interest expense recognised in profit or loss on the liability component is calculated using the effective interest method. The equity component is not remeasured and is recognised in the other reserve until either the bonds are converted or redeemed.

If the bonds are converted, the other reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the bonds are redeemed, the other reserve is released directly to retained earnings.

 

185


2

Significant accounting policies (continued)

 

(x)

Convertible bonds (continued)

 

  (ii)

Other convertible bonds

Convertible bonds which do not contain an equity component are accounted for as follows:

At initial recognition, the derivative component of the convertible bonds is measured at fair value and presented as part of derivative financial instruments (see Note 2(g)). Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the host liability component. Transaction costs that relate to the issue of the convertible bonds are allocated to the host liability and are recognised initially as part of the liability.

The derivative component is subsequently remeasured in accordance with Note 2(g). The host liability component is subsequently carried at amortised cost. Interest expense recognised in profit or loss on the host liability component is calculated using the effective interest method.

If the bonds are converted, the derivative financial instruments, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the bonds are redeemed, any difference between the amount paid and the carrying amounts of both components is recognised in profit or loss.

 

(y)

Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in consolidated income statement except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting year, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

 

186


2

Significant accounting policies (continued)

 

(y)

Income tax (continued)

 

The limited exception to the recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries, associates and joint ventures to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future and it is probable that future taxable profit will be available against which the temporary difference can be utilised.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period and are expected to apply when related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

 

   

in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

 

   

in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

 

   

the same taxable entity; or

 

   

different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

 

187


2

Significant accounting policies (continued)

 

(z)

Revenue and other income

Income is classified by the Group as revenue when it arises from the sale of goods, the provision of services or the use by others of the Group’s assets under leases in the ordinary course of the Group’s business.

Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Further details of the Group’s revenue and other income recognition policies are as follows:

 

  (i)

Passenger, cargo and mail revenue

Revenue is recognised when passenger, cargo and mail transportation services are provided. Unearned passenger revenue at the reporting date is included within “sales in advance of carriage” in the consolidated statement of financial position.

Ticket breakage relates to a portion of contractual rights that the Group does not expect to be exercised.

When the Group expects that the consideration received in advance of carriage is not refundable, and the customer is likely to give up a portion of the contractual rights, the Group recognises, in proportion to the pattern of rights exercised by the customer, the breakage amount to which the Group expects to be entitled as revenue. If the Group does not expect to be entitled to a breakage amount, the Group recognises the expected breakage amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote.

Revenue from airline-related business is recognised when the customers obtain control of the relevant services.

The incremental costs of obtaining a contract are those costs that the Group incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission). As a practical expedient, the Group recognises sales commission (that are regarded as directly related incremental costs of obtaining transportation contracts) as an expense when incurred, as the amortisation period is one year or less.

 

  (ii)

Frequent flyer revenue

The Group maintains two major frequent flyer award programmes, namely, the China Southern Airlines Sky Pearl Club and the Xiamen Airlines’ Egret Card Frequent Flyer Programme, which provide travel and other awards to members based on accumulated mileages.

According to the frequent flyer award programmes, the Group allocates the transaction price received in relation to mileage earning flights to flight and mileage awarded on a relative stand-alone selling price basis, and recognised the portion allocated to mileage awarded as “contract liabilities”. The mileage awarded to customers by third parties through means other than flights are initially recognised as “contract liabilities”.

The Group estimates the standalone selling price of mileage awarded through mileage earning flights based on inputs and assumptions derived from historical data, including the estimates on the percentage of mileage awarded that are expected to be redeemed (“expected redemption rate”). Contract liabilities in relation to mileage awarded are subsequently recognised as revenue when the mileage is redeemed and the related benefits are received or used. Revenue on redeemed flights is recognised in accordance with the accounting policy set out in Note 2(z)(i), and revenue on redeemed goods or services is recognised when the customers obtain control of the goods or services.

 

188


2

Significant accounting policies (continued)

 

(z)

Revenue and other income (continued)

 

  (iii)

Rental income from operating leases

Rental income receivable under operating leases is recognised in consolidated income statement in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

 

  (iv)

Dividends

 

   

Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established.

 

   

Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

 

  (v)

Interest income

Interest income is recognised as it accrues under the effective interest method using the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the financial asset. For financial assets measured at amortised cost or FVOCI (recycling) that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss allowance) of the asset (see Note 2(l)(i)).

 

  (vi)

Government grants

Government grants are recognised in the consolidated statement of financial position initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as income in consolidated income statement on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

 

189


2

Significant accounting policies (continued)

 

(aa)

Maintenance and overhaul costs

In respect of owned and leased aircraft, components within the aircraft subject to replacement during major overhauls are recognised as Note 2(i) and Note 2(k). Other routine maintenance, repairs and overhauls are charged to consolidated income statement as and when incurred.

In respect of certain leased aircraft, the Group has responsibility to fulfil certain return conditions under relevant lease agreements. In order to fulfil these return conditions, major overhauls are required to be conducted. Accordingly, except for the estimated costs of major overhauls recognised as right-of-use assets at the lease commencement date, see Note 2(k), other estimated costs of major overhauls are accrued and charged to the consolidated income statement over the estimated overhaul period. Differences between the estimated costs and the actual costs of overhauls are charged to consolidated income statement in the period when the overhaul is performed.

 

(ab)

Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

Borrowing costs include interest expense, finance charges in respect of lease liabilities and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

 

(ac)

Employee benefits

 

  (i)

Short term employee benefits and contributions to defined contribution retirement schemes

Salaries, annual bonuses and contributions to defined contribution retirement schemes are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

 

  (ii)

Termination benefits

Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

 

190


2

Significant accounting policies (continued)

 

(ac)

Employee benefits (continued)

 

  (iii)

Retirement benefits

According to IAS 19, Employee Benefits, an entity shall account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the entity’s informal practices where the entity has no realistic alternative but to pay the employee benefits. The Group believes the payments of welfare subsidy to those retirees who retired before the establishment of Pension Scheme are discretionary and have not created a legal or constructive obligation. Such payments are made according to the Group’s business performance, and can be suspended at any time.

 

(ad)

Translation of foreign currencies

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Renminbi, which is the Company’s functional and the Group’s presentation currency.

Foreign currencies transactions during the year are translated into Renminbi at the applicable rates of exchange quoted by the People’s Bank of China (“PBOC”) prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Renminbi at the PBOC exchange rates prevailing at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into Renminbi at the PBOC exchange rates prevailing at the transaction dates. The transaction date is the date on which the Group initially recognises such non-monetary assets or liabilities. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Renminbi at the PBOC exchange rates prevailing at the dates the fair value was determined.

The results of foreign operations are translated into Renminbi at the PBOC exchange rates approximating the foreign exchange rates prevailing at the dates of the transactions. Statement of financial position items are translated into Renminbi at the PBOC exchange rates prevailing at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

 

191


2

Significant accounting policies (continued)

 

(ae)

Related parties

 

  (a)

A person, or a close member of that person’s family, is related to the Group if that person:

 

  (i)

has control or joint control over the Group;

 

  (ii)

has significant influence over the Group; or

 

  (iii)

is a member of the key management personnel of the Group or the Group’s parent.

 

  (b)

An entity is related to the Group if any of the following conditions applies:

 

  (i)

The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

 

  (ii)

One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

 

  (iii)

Both entities are joint ventures of the same third party.

 

  (iv)

One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

 

  (v)

The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

 

  (vi)

The entity is controlled or jointly controlled by a person identified in (a).

 

  (vii)

A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

 

  (viii)

The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

 

(af)

Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management, who is the chief operating decision maker, for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

 

192


3

Accounting estimates and judgements

The Group’s financial position and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements. The Group bases the assumptions and estimates on historical experience and on various other assumptions that the Group believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in condition and assumptions are factors to be considered when reviewing the financial statements. In addition to the assumptions and estimates regarding fair value measurements of financial instruments disclosed in Note 4(g), the Group believes the following also involve key accounting estimates and judgements used in the preparation of the financial statements.

 

(a)

Impairment of long-lived assets (other than goodwill)

As discussed in Note 2(l)(iii), at the end of each reporting period, the Group tests for impairment for long-lived assets or cash-generating units (“CGUs”) (a portion of which related to aircraft and other flight equipment including rotables in property, plant and equipment, aircraft and engines in right-of-use assets(“aircraft and related equipment”)) to determine whether the recoverable amounts have declined below the carrying amounts. If circumstances indicate that the carrying amount of long-lived assets or CGUs may not be recoverable, the assets or CGUs may be considered “impaired”, and an impairment loss may be recognised.

The recoverable amount of assets or CGUs are the higher of the fair value less costs of disposal and value in use. As the fair value of certain assets or CGUs may not be publicly available, the Group uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions for projections of traffic revenue and operating costs and discount rates. In particular, in determining the value in use of the Group’s aircraft and related equipment, significant judgements are required on the accounting estimates which are based on the assumptions relating to traffic revenue growth rates, operating costs growth rates and discount rates applied, among which, operating costs consist of jet fuel costs, landing and navigation fees, maintenance expenses, payroll and welfare.

 

(b)

Frequent flyer revenue

According to the frequent flyer award programmes, the allocation of stand-alone selling price of the mileage awarded involves the estimation of the expected redemption rate. The expected redemption rate is estimated based on historical experience of mileage redemption, taking into consideration expected future mileage redemption patterns, which are associated with changes in the terms of mileage programs and customer behaviour. Different estimates could significantly affect the estimated contract liabilities and the results of operations.

 

(c)

Income tax

Deferred tax assets are recognized related to operating loss carryforwards that will reduce future taxable income. The Group needs to make judgements and estimates in assessing the realizability of the operating loss carryforwards. Different estimates could significantly affect the deferred income tax assets and income tax expense in the year in which such determination is made.

 

193


3

Accounting estimates and judgements (continued)

 

(d)

Depreciation and amortisation

As disclosed in Note 2(i) and Note 2(k), components related to engine overhaul costs under property, plant and equipment and right-of-use assets were depreciated on the units of production method based on flying hours. The expected flying hours of engines are based on the Group’s historical overhaul experience with similar engine models. Except for components related to engine overhaul costs, other property, plant and equipment and right-of-use assets are depreciated or amortised on a straight-line basis over the estimated useful lives or lease term, which is shorter, after taking into account the estimated residual value. The useful lives are based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The Group reviews the estimated useful lives of assets annually in order to determine the amount of depreciation and amortisation expense to be recorded during any financial year. The depreciation and amortisation expense for future periods is adjusted if there are significant changes from previous estimates.

 

(e)

Provision for major overhauls

As disclosed in Note 2(k) and Note 2(aa), provision for the cost of major overhauls to fulfil the lease return conditions involves estimation of the expected overhaul cycles and overhaul costs, which are based on the historical experience of actual costs incurred for overhauls of airframes and engines of the same or similar types and current economic and airline-related developments. Different estimates could significantly affect the estimated provision and the results of operations.

 

(f)

Ticket breakage revenue

The Group recognises, in proportion to the pattern of rights exercised by the customer, the breakage amount to which the Group expects to be entitled as ticket breakage revenue. Such portion is estimated based on the Group’s historical experiences, and the estimated revenue is recognised only to the extent that it is highly probable that a significant reversal in cumulative revenue recognised will not occur when the uncertainty is resolved. Different estimates could significantly affect the ticket breakage revenue recognised in the current financial year.

 

4

Financial risk management and fair values of financial instruments

The Group is exposed to liquidity, interest rate, currency, credit risks and commodity jet fuel price risk in the normal course of business. The Group’s overall risk management programme focuses on the unpredictability of financial market and seeks to minimise the adverse effects on the Group’s financial performance. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

 

(a)

Liquidity risk

As at 31 December 2021, the Group’s current liabilities exceeded its current assets by RMB73,124 million. For the year ended 31 December 2021, the Group recorded a net cash inflow from operating activities of RMB7,688 million, a net cash outflow from investing activities of RMB15,820 million and a net cash inflow from financing activities of RMB4,186 million, which in total resulted in a net decrease in cash and cash equivalents of RMB3,946 million.

 

194


4

Financial risk management and fair values of financial instruments (continued)

 

(a)

Liquidity risk (continued)

The Group is dependent on its ability to maintain adequate cash inflow from operations, its ability to maintain existing external financing, and its ability to obtain new external financing to meet its debt obligations as they fall due and to meet its committed future capital expenditures. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. As at 31 December 2021, the Group has obtained credit facilities of RMB295,683 million in aggregate (31 December 2020: RMB315,452 million) granted by several banks and other financial institute, among which approximately RMB204,051 million was unutilised. The Directors of the Company believe that sufficient financing will be available to the Group when and where needed.

The following tables show the remaining contractual maturities at the end of the reporting period of the Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay:

 

     2021 Contractual undiscounted cash outflow         
    

Within

1 year or

on demand

    

More than

1 year but

less than

2 years

    

More than

2 years but

less than

5 years

    

More than

5 years

     Total     

Carrying

amount at

31 December

 
     RMB million      RMB million      RMB million      RMB million      RMB million      RMB million  

Borrowings

     59,167        19,428        18,824        3,586        101,005        96,267  

Lease liabilities

     25,331        22,764        45,142        25,923        119,160        102,749  

Trade and other payables and accrued charges

     20,097        —          —          —          20,097        20,097  

Long-term payables

     111        111        96        —          318        291  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     104,706        42,303        64,062        29,509        240,580        219,404  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     2020 Contractual undiscounted cash outflow         
    

Within

1 year or

on demand

    

More than

1 year but

less than

2 years

    

More than

2 years but

less than

5 years

    

More than

5 years

     Total     

Carrying

amount at

31 December

 
     RMB million      RMB million      RMB million      RMB million      RMB million      RMB million  

Borrowings

     41,378        8,350        15,420        21,190        86,338        78,233  

Lease liabilities

     25,752        23,989        54,653        36,382        140,776        121,213  

Trade and other payables and accrued charges

     20,892        —          —          —          20,892        20,892  

Long-term payables

     111        111        207        —          429        385  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     88,133        32,450        70,280        57,572        248,435        220,723  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

195


4

Financial risk management and fair values of financial instruments (continued)

 

(b)

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s borrowings and lease liabilities issued at floating and fixed interest rates expose the Group to cash flow interest rate risk and fair value interest rate risk, respectively. The Group determines the ratio of fixed-rate and floating-rate instruments according to the market environment and maintains an appropriate combination of fixed-rate and floating-rate instruments by reviewing and monitoring it on a regular basis.

Interest rate swaps, denominated in United States Dollars (“USD”), have been entered into to mitigate its cash flow interest rate risk. Under the interest rate swaps, the Group agrees with other third parties to exchange, at specified intervals (primarily quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts (Note 27(ii)).

Cross currency swaps have been entered into to mitigate its interest rate risk and foreign currency risk. Under the cross currency swaps, the Group agrees with other third parties to exchange the floating interest and principal payments in USD for fixed interest and principal payments in RMB for certain USD bank loans. As at 31 December 2021 and 2020, all cross currency swaps had been settled.

As at 31 December 2021, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have increased/decreased the Group’s loss after tax and decreased/increased the Group’s retained earnings by approximately RMB328 million (31 December 2020: RMB315 million).

In respect of the exposure to cash flow interest rate risk arising from floating-rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group’s loss after tax (and retained earnings) and other components of consolidated equity is estimated as an annualised impact on interest expense or income of such a change in interest rates. This analysis is performed on the same basis as that for 2020.

The sensitivity analysis above indicates the instantaneous change in the Group’s loss after tax (and retained earnings) and other components of consolidated equity that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those floating rate financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting period.

 

196


4

Financial risk management and fair values of financial instruments (continued)

 

(c)

Foreign currency risk

Renminbi is not freely convertible into foreign currencies. All foreign exchange transactions involving Renminbi must take place either through the PBOC or other institutions authorised to buy and sell foreign exchange or at a swap centre.

The Group has significant exposure to foreign currency risk as majority of the Group’s lease liabilities (Note 37) are denominated in foreign currencies, principally USD, Euro and Japanese Yen. Depreciation or appreciation of Renminbi against foreign currencies affects the Group’s results significantly because the Group’s foreign currency liabilities generally exceed its foreign currency assets.

The following table indicates the instantaneous change in the Group’s loss after tax and retained earnings that would arise if foreign exchange rates to which the Group has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant. The range of such sensitivity was considered to be reasonably possible at the end of the reporting date.

 

     2021  
     Appreciation/
(depreciation)
of Renminbi against
foreign

currency
    Decrease/
(increased) on loss
after tax and
increase/(decrease)
on retained earnings

RMB million
 

USD

     1     322  
     (1 %)      (322

Euro

     1     18  
     (1 %)      (18

Japanese Yen

     10     38  
     (10 %)      (38
     2020  
     Appreciation/
(depreciation)
of Renminbi
against foreign
currency
    Decrease/
(increased) on loss
after tax and
increase/(decrease)
on retained earnings
RMB million
 

USD

     1     367  
     (1 %)      (367

Euro

     1     24  
     (1 %)      (24

Japanese Yen

     10     74  
     (10 %)      (74

 

197


4

Financial risk management and fair values of financial instruments (continued)

 

(c)

Foreign currency risk

 

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Group entities’ loss after tax and retained earnings measured in the respective functional currencies, translated into Renminbi at the exchange rate ruling at the end of the reporting period for presentation purposes.

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments, borrowings, and lease liabilities held by the Group which expose the Group to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the Group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group’s presentation currency. The analysis is performed on the same basis for 2020.

 

(d)

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group’s credit risk is primarily attributable to cash and cash equivalents, trade receivables, other receivables, other non-current financial assets (amortised cost) and derivative financial instruments.

Cash and cash equivalents

Substantially all of the Group’s cash and cash equivalents are deposited with major reputable PRC financial institutions, which management believes are of high credit quality. As the counterparties have favourable credit ratings, the Group does not expect there to be a risk of default.

Trade receivables

A significant portion of the Group’s air tickets are sold by agents participating in the Billing and Settlement Plan (“BSP”), a clearing scheme between airlines and sales agents organised by International Air Transportation Association. The use of the BSP reduces credit risk to the Group. As at 31 December 2021, the balance due from BSP agents amounted to RMB329 million (31 December 2020: RMB293 million). The credit risk exposure to BSP and the remaining trade receivables balance are monitored by the Group on an ongoing basis and the relevant credit risk is within management’s expectations.

The Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group’s historical credit loss experience indicates significantly different loss patterns for different customer segments, the loss allowance based on past due status is further distinguished between air ticket receivables, mileage credits sales receivables, general aviation service receivables, receivables on cooperation flights and other trade receivables.

 

198


4

Financial risk management and fair values of financial instruments (continued)

 

(d)

Credit risk (continued)

Trade receivables (continued)

 

The following table provides information about the Group’s exposure to credit risk and ECLs for air ticket receivables as at 31 December 2021:

 

     31 December 2021  
    

Expected

loss rates

   

Gross

carrying amount

    

Loss

allowance

 
     %     RMB million      RMB million  

Within 3 months

     0.01     1,811        —    

More than 3 months but less than 1 year

     50.00     5        3  

More than 1 year but less than 2 years

     100.00     1        1  

More than 2 years but less than 3 years

     100.00     3        3  

More than 3 years

     100.00     15        15  
    

 

 

    

 

 

 
       1,835        22  
    

 

 

    

 

 

 
     31 December 2020  
    

Expected

loss rates

   

Gross

carrying amount

    

Loss

allowance

 
     %     RMB million      RMB million  

Within 3 months

     0.01     1,461        —    

More than 3 months but less than 1 year

     50.00     7        4  

More than 1 year but less than 2 years

     100.00     6        6  

More than 2 years but less than 3 years

     100.00     5        5  

More than 3 years

     100.00     13        13  
    

 

 

    

 

 

 
       1,492        28  
    

 

 

    

 

 

 

Expected loss rates are estimated with reference to actual loss experience over the past years. These rates are adjusted to reflect differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables.

The credit risk of mileage credits sales receivables, general aviation service receivables and receivables on cooperation flights are considered to be low. The Group does not make credit loss allowance for these receivables.

The Group measures loss allowance for other trade receivables amounted to RMB17 million (31 December 2020: RMB15 million) based on ECLs.

 

199


4

Financial risk management and fair values of financial instruments (continued)

 

(d)

Credit risk (continued)

Trade receivables (continued)

 

Movement in the loss allowance account in respect of trade receivables during the year is as follows:

 

     2021      2020  
     RMB million      RMB million  

Balance at 1 January

     43        36  

Amounts written off during the year

     (4      (3

Impairment losses written back

     (5      (1

Impairment losses recognised during the year

     5        11  
  

 

 

    

 

 

 

Balance at 31 December

     39        43  
  

 

 

    

 

 

 

Other receivables

The Group measures loss allowance for other receivables equal to 12-month ECLs, unless when there has been a significant increase in credit risk since initial recognition, the Group recognises lifetime ECLs.

Set out below are the movements of loss allowances measured at 12-month and lifetime expected credit losses for the financial assets included in other receivables.

 

    2021     2020  
    Stage 1
12-month ECLs
RMB million
    Stage 2
Lifetime ECLs (not
credit – impaired)
RMB million
    Stage 3
Lifetime ECLs
(credit – impaired)
RMB million
    Total
RMB million
    Stage 1
12-month
ECLs
RMB million
    Stage 2
Lifetime ECLs (not
credit – impaired)
RMB million
    Stage 3
Lifetime ECLs
(credit – impaired)
RMB million
    Total
RMB million
 

As at 1 January

    2       9       148       159       1       4       —         5  

Accrual

    2       —         —         2       3       5       148       156  

Reversal

    (3     —         —         (3     (2     —         —         (2

Write-off

    —         —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As at 31 December

    1       9       148       158       2       9       148       159  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial instruments

The Group entered into derivative financial instruments arrangements with counterparties such as banks. Such arrangements are settled in net. As the counterparties have favourable credit ratings, the Group does not expect there to be a risk of default.

 

200


4

Financial risk management and fair values of financial instruments (continued)

 

(e)

Jet fuel price risk

The Group’s results of operations may be significantly affected by fluctuations in fuel prices since the jet fuel expenses are a significant cost for the Group. The Group may hedge a portion of the future fuel requirements through various financial derivative instruments linked to certain fuel commodities to lock in fuel costs within a hedged price range. In 2021, the Group did not enter into any jet fuel forward contract.

A reasonable possible increase/decrease of 10% (2020:10%) in jet fuel price, with volume of fuel consumed and all other variables held constant, would have increased/decreased the fuel costs by approximately RMB2,551 million (2020: RMB1,880 million). The sensitivity analysis indicates the instantaneous change in the Group’s jet fuel costs that would arise assuming that the change in fuel price had occurred at the beginning of the financial year.

 

(f)

Capital management

The Group’s primary objectives in managing capital are to safeguard the Group’s ability to continue as a going concern, and to generate sufficient profit to maintain growth and provide returns to its shareholders, by securing access to finance at a reasonable cost.

The Group manages the amount of capital in proportion to risk and manages its debt portfolio in conjunction with projected financing requirements. The Group monitors capital on the basis of the debt ratio, which is calculated as total liabilities divided by total assets. During 2021, the Group’s strategy, which was unchanged from 2020, was to maintain a debt ratio at a range of levels to support the operations and development of the Group’s business in the long run. In order to maintain or adjust the debt ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise new debt financing or sell assets to reduce debt.

Except for the compliance of certain financial covenants for maintaining the Group’s banking facilities and borrowings, the Group is not subject to any externally imposed capital requirements. The Group complied with the financial covenants attached to borrowings as of and for the years ended 31 December 2021 and 2020.

 

201


4

Financial risk management and fair values of financial instruments (continued)

 

(g)

Fair value

 

  (i)

Financial instruments carried at fair value

FAIR VALUE HIERARCHY

The following table presents the carrying value of financial instruments measured at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in IFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

 

   

Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date

 

   

Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available

 

   

Level 3 valuations: Fair value measured using significant unobservable inputs

 

                Fair value measurements as at
31 December 2021 categorised into
 
         

Fair value at

31 December

2021

    Level 1      Level 2     Level 3  
     Note    RMB million     RMB million      RMB million     RMB million  

Recurring fair value measurement

            

Financial assets/(liabilities):

            

Other equity instrument investments:

            

Non-listed shares

   26      40       —          —         40  

Non-tradable shares

   26      523       —          —         523  

Other non-current financial assets:

            

– Listed shares

   26      68       68        —         —    

Non-listed shares

   26      27       —          —         27  

Derivative financial liabilities:

            

– Interest rate swaps

   27      (20     —          (20     —    

– Derivative component of convertible bonds

   27      (1,222     —          (1,222     —    

 

202


4

Financial risk management and fair values of financial instruments (continued)

 

(g)

Fair value (continued)

 

  (i)

Financial instruments carried at fair value (continued)

FAIR VALUE HIERARCHY (CONTINUED)

 

                  Fair value measurements as at
31 December 2020 categorised into
 
           

Fair value at

31 December

2020

    Level 1      Level 2     Level 3  
     Note      RMB million     RMB million      RMB million     RMB million  

Recurring fair value measurement

            

Financial assets/(liabilities):

            

Other equity instrument investments:

            

Non-listed shares

     26        100       —          —         100  

Non-tradable shares

     26        699       —          —         699  

Other non-current financial assets:

            

– Listed shares

     26        64       64        —         —    

Non-listed shares

     26        28       —          —         28  

Derivative financial liabilities:

            

– Interest rate swaps

     27        (53     —          (53     —    

– Derivative component of convertible bonds

     27        (3,092     —          (3,092     —    

– Forward foreign exchange and foreign exchange options contracts

     27        (56     —          (56     —    

During the years ended 31 December 2021 and 2020, there were no transfers among level 1, level 2 and level 3. The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur.

Valuation techniques and inputs used in Level 2 fair value measurements.

Fair value of interest rate swaps in derivative financial liabilities is measured by discounting the expected receivable or payable amounts under the assumption that these swaps had been terminated at the end of the reporting period. The discount rates used are the US Treasury bond yield curve as at the end of the reporting period.

Fair value of forward foreign exchange and foreign exchange options contracts is determined using quoted forward exchange rates at the reporting date and present value calculations based on high credit quality yield curves in the respective currencies.

 

203


4

Financial risk management and fair values of financial instruments (continued)

 

(g)

Fair value (continued)

 

  (i)

Financial instruments carried at fair value (continued)

FAIR VALUE HIERARCHY (CONTINUED)

 

Fair value of derivative component of convertible bonds is measured by using the Binomial Model. The major inputs used in the Binomial Model are:

 

     At 31 December
2021
    At 31 December
2020
 

Conversion price

     RMB6.24       RMB6.24  

Stock price of A shares

     RMB6.47       RMB6.01  

Stock market volatility

     33.78     35.38

Risk-free interest rate

     2.59     3.14

Fair value of cross currency swaps is the estimated amount that the Group would receive or pay to terminate the swaps at the end of the reporting period, taking into account current exchange rates and interest rates and the current creditworthiness of the swap counterparties.

Information about Level 3 fair value measurements

 

    

Valuation technique

  

Significant unobservable inputs

   Range  

Other equity instruments investments

        

Non-listed shares (1)&(3)

   Market comparable companies    Discount for lack of marketability      32

Non-tradable shares (2)&(3)

   Discounted cash flow    Expected profit growth rate during the projection period      1%-169
      Perpetual growth rate      3
      Perpetual dividend payout rate      80
      Expected dividend payout rate during the projection period      28
      Discount rate      10.46

Other non-current financial assets

        

Non-listed shares (2)

   Discounted cash flow    Expected profit growth rates during the projection period      10%-28
      Perpetual growth rates      1%-3
      Perpetual dividend payout rates      80
      Expected dividend payout rates during the projection period      27%-33%  
      Discount rates      10%-11.77%  

 

204


4

Financial risk management and fair values of financial instruments (continued)

 

(g)

Fair value (continued)

 

  (i)

Financial instruments carried at fair value (continued)

FAIR VALUE HIERARCHY (CONTINUED)

Information about Level 3 fair value measurements (continued)

 

 

(1)

The fair value of non-listed shares are determined by using comparable listed companies adjusted for lack of marketability discount. The fair value measurement is negatively correlated to the discount for lack of marketability.

(2)

The fair value of these non-tradable shares and non-listed shares is determined by discounting projected cash flow series associated with respective investments. The valuation takes into account the expected profit growth rates and expected dividend payout rate of the investees. The discount rates used have been adjusted to reflect specific risks relating to respective investees. The fair value measurement is positively correlated to the expected profit growth rates during the projection period, perpetual growth rate, perpetual dividend payout rate and expected dividend payout rates during the projection period of respective investees, and negatively correlated to the discount rates.

(3)

Any gain or loss arising from the remeasurement of the Group’s unlisted or non-tradable equity securities held for strategic purposes are recognised in the fair value reserve (non-recycling) in other comprehensive income. Upon disposal of the equity securities, the amount accumulated in other comprehensive income is transferred directly to retained earnings.

 

  (ii)

Financial instruments not carried at fair value

All other financial instruments, including cash and cash equivalents, amounts due from/to related companies, trade and other receivables, other non-current financial assets (amortised cost), trade and other payables, borrowings and lease liabilities are carried at amounts not materially different from their fair values as at 31 December 2021 and 2020.

 

205


5

Operating revenue

The Group is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail delivery, and other extended transportation services.

 

(i)

Disaggregation of revenue

Disaggregation of revenue from contracts with customers by major service lines is as follows:

 

           2021      2020  
     Note     RMB million      RMB million  

Revenue from contracts with customers within the scope of IFRS 15:

       

Disaggregated by service lines

       

– Traffic revenue

       

– Passenger

       75,392        70,534  

– Cargo and mail

       19,887        16,493  

– Commission income

       2,677        2,771  

– General aviation income

       572        508  

– Cargo handling income

       864        507  

– Hotel and tour operation income

       538        390  

– Ground services income

       326        210  

– Air catering service income

       271        273  

– Others

       885        689  
    

 

 

    

 

 

 
       101,412        92,375  

Revenue from other sources:

       

– Rental income

     19(e)       232        186  
    

 

 

    

 

 

 
       101,644        92,561  
    

 

 

    

 

 

 

Disaggregation of revenue from contracts with customers by the timing of revenue recognition and by geographic markets is disclosed in Notes 6(a) and 6(b) respectively.

 

(ii)

Revenue expected to be recognised in the future arising from contracts with customers in existence at the reporting date

As at 31 December 2021, the aggregated amount of the transaction price allocated to the remaining performance obligation, which is the unredeemed credits under the frequent flyer award programmes, amounted to RMB3,061 million (31 December 2020: RMB3,196 million) (Note 39). This amount represents revenue expected to be recognised in the future when the customers obtain control of the goods or services.

 

206


6

Segment reporting

 

(a)

Business segments

The Group has two reportable operating segments “airline transportation operations” and “other segments”, according to internal organisation structure, managerial needs and internal reporting system. “Airline transportation operations” comprises the Group’s passenger and cargo and mail operations. “Other segments” includes cargo handling, hotel and tour operation, ground services, air catering services and other miscellaneous services.

For the purposes of assessing segment performance and allocating resources between segments, the Group’s chief operating decision maker (“CODM”) monitors the results, assets and liabilities attributable to each reportable segment based on financial results prepared under the People’s Republic of China Accounting Standards for Business Enterprises (“PRC GAAP”). As such, the amount of each material reconciling item from the Group’s reportable segment loss before taxation, assets and liabilities, which arises from different accounting policies, are set out in Note 6(c).

Inter-segment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

Information regarding the Group’s reportable segments as provided to the Group’s CODM for the purposes of resource allocation and assessment of segment performance is set out below.

 

207


6

Segment reporting (continued)

 

(a)

Business segments (continued)

 

The segment results of the Group for the year ended 31 December 2021 are as follows:

 

    

Airline

transportation

operations

   

Other

segments

    Elimination     Unallocated*     Total  
     RMB million     RMB million     RMB million     RMB million     RMB million  

Disaggregated by timing of revenue recognition

          

Point in time

     2,763       1,418       (1,171     —         3,010  

Over time

     98,206       3,257       (2,829     —         98,634  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from external customers

     100,419       1,225       —         —         101,644  

Inter-segment sales

     550       3,450       (4,000     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment revenue

     100,969       4,675       (4,000     —         101,644  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment loss before taxation

     (13,769     (111     2       (25     (13,903
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment loss after taxation

     (10,998     (67     2       52       (11,011
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other segment information

          

Income tax

     (2,771     (44     —         (77     (2,892

Interest income

     763       15       (103     —         675  

Interest expense

     6,291       26       (115     —         6,202  

Depreciation and amortisation

     23,854       380       —         —         24,234  

Impairment loss

     2,596       18       —         —         2,614  

Credit losses

     1       (2     —         —         (1

Share of associates’ results

     —         —         —         9       9  

Share of joint ventures’ results

     —         —         —         271       271  

Change in fair value of financial assets/liabilities

     —         —         —         (309     (309

Non-current assets additions during the year#

     21,457       905       (359     —         22,003  

 

208


6

Segment reporting (continued)

 

(a)

Business segments (continued)

 

The segment results of the Group for the year ended 31 December 2020 are as follows:

 

    

Airline

transportation

operations

   

Other

segments

    Elimination     Unallocated*     Total  
     RMB million     RMB million     RMB million     RMB million     RMB million  

Disaggregated by timing of revenue recognition

          

Point in time

     2,856       1,727       (1,483     —         3,100  

Over time

     89,196       2,448       (2,183     —         89,461  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue from external customers

     91,722       839       —         —         92,561  

Inter-segment sales

     330       3,336       (3,666     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment revenue

     92,052       4,175       (3,666     —         92,561  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment loss before taxation

     (14,727     (112     1       (348     (15,186
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reportable segment loss after taxation

     (11,388     (61     1       (372     (11,820
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other segment information

          

Income tax

     (3,339     (51     —         24       (3,366

Interest income

     328       26       (32     —         322  

Interest expense

     6,739       11       (34     —         6,716  

Depreciation and amortisation

     24,438       143       —         —         24,581  

Impairment loss

     4,015       2       —         —         4,017  

Credit losses

     153       11       —         —         164  

Share of associates’ results

     —         —         —         (776     (776

Share of joint ventures’ results

     —         —         —         309       309  

Change in fair value of financial assets/liabilities

     —         —         —         53       53  

Non-current assets additions during the year#

     24,039       547       (49     —         24,537  

 

209


6

Segment reporting (continued)

 

(a)

Business segments (continued)

 

The segment assets and liabilities of the Group as at 31 December 2021 and 31 December 2020 are as follows:

 

    

Airline

transportation

operations

    

Other

segments

     Elimination     Unallocated*      Total  
     RMB million      RMB million      RMB million     RMB million      RMB million  

As at 31 December 2021

             

Reportable segment assets

     312,020        5,909        (1,616     6,635        322,948  

Reportable segment liabilities

     236,428        2,640        (1,607     1,242        238,703  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

As at 31 December 2020

             

Reportable segment assets

     317,741        6,019        (4,209     6,564        326,115  

Reportable segment liabilities

     239,968        2,237        (4,154     3,201        241,252  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

*

Unallocated assets primarily include interest in associates and joint ventures, derivative financial assets and equity securities. Unallocated liabilities primarily include derivative financial liabilities. Unallocated results primarily include the share of results of associates and joint ventures, dividend income from equity securities, and the fair value movement of financial instruments recognised through profit or loss.

#

The additions of non-current assets do not include interests in associates and joint ventures, other equity instrument investments, other non-current financial assets, derivative financial assets and deferred tax assets.

 

210


6

Segment reporting (continued)

 

(b)

Geographical information

 

The Group’s business segments operate in three main geographical areas, even though they are managed on a worldwide basis.

The Group’s revenue by geographical segment are analysed based on the following criteria:

 

  (1)

Traffic revenue from services of both origin and destination within the PRC (excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan (“Hong Kong, Macau and Taiwan”)), is classified as domestic revenue. Traffic revenue with origin and destination among PRC, Hong Kong, Macau and Taiwan is classified as Hong Kong, Macau and Taiwan revenue; while that with origin from or destination to other overseas markets is classified as international revenue.

 

  (2)

Revenue from commission income, general aviation, cargo handling, hotel and tour operation, ground services, air catering services and other miscellaneous services are classified on the basis of where the services are performed.

 

     2021      2020  
     RMB million      RMB million  

Domestic

     76,517        65,137  

International

     24,739        27,090  

Hong Kong, Macau and Taiwan

     388        334  
  

 

 

    

 

 

 
     101,644        92,561  
  

 

 

    

 

 

 

The major revenue earning assets of the Group are its aircraft fleet which is registered in the PRC and is deployed across its worldwide route network. Majority of the Group’s other assets are located in the PRC. CODM considers that there is no suitable basis for allocating such assets and related liabilities to geographical locations. Accordingly, geographical segment assets and liabilities are not disclosed.

 

211


6

Segment reporting (continued)

 

(c)

Reconciliation of reportable segment loss before income tax,assets and liabilities to the consolidated figures as reported in the consolidated financial statements

 

           2021      2020  
     Note     RMB million      RMB million  

Loss before income tax

       

Reportable segment loss before taxation

     6(a)       (13,903      (15,186

Capitalisation of exchange difference of specific loans

     (i)       (8      (9

Government grants

     (ii)       1        —    
    

 

 

    

 

 

 

Consolidated loss before income tax

       (13,910      (15,195
    

 

 

    

 

 

 
           31 December      31 December  
           2021      2020  
     Note     RMB million      RMB million  

Assets

       

Reportable segment assets

     6(a)       322,948        326,115  

Capitalisation of exchange difference of specific loans

     (i)       39        47  

Government grants

     (ii)       (5      (6

Adjustments arising from business combinations under common control

     (iii)       237        237  

Others

       (8      (10
    

 

 

    

 

 

 

Consolidated total assets

       323,211        326,383  
    

 

 

    

 

 

 

Liabilities

As at 31 December 2021 and 2020, the amount of reportable segment liabilities is the same as the amount of consolidated total liabilities.

Notes:

 

(i)

In accordance with the PRC GAAP, exchange difference arising on translation of specific loans and related interest denominated in a foreign currency is capitalised as part of the cost of qualifying assets. Under IFRSs, such exchange difference is recognised in income statement unless the exchange difference represents an adjustment to interest.

(ii)

In accordance with the PRC GAAP, assets related government grants (other than special funds) are deducted from the cost of the related assets. Special funds granted by the government and clearly defined in the approval documents as part of “capital reserve” are accounted for as increase in capital reserve. Under IFRSs, assets related government grants are deducted to the cost of the related assets. The difference is resulted from government grants received in previous years and are recognised in capital reserve under PRC GAAP.

(iii)

In accordance with the PRC GAAP, the Company accounts for the business combination under common control by applying the pooling-of-interest method. Under the pooling-of-interest method, the difference between the historical carrying amount of the acquiree and the consideration paid is accounted for as an equity transaction. Business combinations under common control are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established; for this purpose, relevant comparative figures are restated under PRC GAAP. Under IFRSs, the Company adopts the purchase accounting method for acquisition of business under common control.

 

212


7

Flight operation expenses

 

     2021      2020  
     RMB million      RMB million  

Jet fuel costs

     25,505        18,797  

Flight personnel payroll and welfare

     10,763        10,232  

Air catering expenses

     1,577        1,765  

Civil Aviation Development Fund

     1,059        —    

Aircraft operating lease charges

     920        977  

Training expenses

     690        857  

Aircraft insurance

     184        191  

Others

     4,871        4,726  
  

 

 

    

 

 

 
     45,569        37,545  
  

 

 

    

 

 

 

 

8

Maintenance expenses

 

     2021      2020  
     RMB million      RMB million  

Aviation repair and maintenance charges

     7,890        9,101  

Staff payroll and welfare

     2,994        2,875  

Maintenance materials

     1,278        1,399  
  

 

 

    

 

 

 
     12,162        13,375  
  

 

 

    

 

 

 

 

9

Aircraft and transportation service expenses

 

     2021      2020  
     RMB million      RMB million  

Landing and navigation fees

     11,705        10,857  

Ground service and other charges

     9,442        7,886  
  

 

 

    

 

 

 
     21,147        18,743  
  

 

 

    

 

 

 

 

213


10

Promotion and selling expenses

 

     2021      2020  
     RMB million      RMB million  

Ticket office expenses

     2,809        2,935  

Sales commissions

     773        842  

Computer reservation services

     413        352  

Advertising and promotion

     140        121  

Others

     570        757  
  

 

 

    

 

 

 
     4,705        5,007  
  

 

 

    

 

 

 

 

11

General and administrative expenses

 

     2021      2020  
     RMB million      RMB million  

General corporate expenses

     3,282        3,572  

Auditors’ remuneration

     15        20  

– Audit services

     14        17  

Non-audit services

     1        3  

Credit losses

     (1      164  

Other taxes and levies

     367        332  
  

 

 

    

 

 

 
     3,663        4,088  
  

 

 

    

 

 

 

 

12

Depreciation and amortisation

 

     2021      2020  
     RMB million      RMB million  

Depreciation of property, plant and equipment

     8,835        8,824  

Depreciation of right-of-use assets

     14,888        15,388  

Other amortisation

     518        378  
  

 

 

    

 

 

 
     24,241        24,590  
  

 

 

    

 

 

 

 

214


13

Staff costs

 

     2021      2020  
     RMB million      RMB million  

Salaries, wages and welfare

     23,441        22,592  

Defined contribution retirement scheme

     2,802        2,183  

Other retirement welfare subsidy

     50        72  
  

 

 

    

 

 

 
     26,293        24,847  
  

 

 

    

 

 

 

Staff costs relating to flight operations and maintenance are also included in the respective total amounts disclosed separately in Note 7 to Note 8 above.

Five highest paid individuals

None of the directors (2020: none), whose emoluments are reflected in Note 59, is among the five highest paid individuals in the Group for 2021. The aggregate emoluments in respect of the five (2020: five) individuals during the year are as follows:

 

     2021      2020  
     RMB’000      RMB’000  

Salaries, wages and welfare

     9,756        10,395  

Retirement scheme contributions

     756        663  
  

 

 

    

 

 

 
     10,512        11,058  
  

 

 

    

 

 

 

The emoluments of the five (2020: five) individuals with the highest emoluments are within the following bands:

 

     2021      2020  
     Number of
individuals
     Number of
individuals
 

HK$2,500,001 to HK$3,000,000

     2        1  

HK$2,000,001 to HK$2,500,000

     3        4  

 

215


14

Other net income

 

     2021      2020  
     RMB million      RMB million  

Government grants (Note)

     4,040        4,209  

Gains/(losses) on disposal of property, plant and equipment, net

     

– Aircraft and spare engines

     149        (18

– Other property, plant and equipment and right-of-use assets

     214        75  

Others

     364        420  
  

 

 

    

 

 

 
     4,767        4,686  
  

 

 

    

 

 

 

 

  Note:

Government grants mainly inlcude subsidies granted by various local governments to encourage the Group to operate certain routes to cities where these governments are located.

There are no unfulfilled conditions and other contingencies related to subsidies that have been recognised during the year ended 31 December 2021.

 

15

Interest expense

 

     2021      2020  
     RMB million      RMB million  

Interest on borrowings

     2,448        1,914  

Interest relating to leases liabilities (Note 21)

     4,434        5,180  
  

 

 

    

 

 

 

Total interest expense on financial liabilities not at fair value through profit or loss

     6,882        7,094  

Less: interest expense capitalised (Note)

     (701      (363
  

 

 

    

 

 

 
     6,181        6,731  

Interest rate swaps: cash flow hedge, reclassified from equity (Note 17)

     21        (15
  

 

 

    

 

 

 
     6,202        6,716  
  

 

 

    

 

 

 

 

  Note:

The weighted average interest rate used for interest capitalisation was 2.61% per annum in 2021 (2020: 2.51%).

 

216


16

Income tax

 

(a)

Income tax credit in the consolidated income statement

 

     2021      2020  
     RMB million      RMB million  

PRC income tax

     

– Provision for the year

     2,159        1,716  

– Under-provision in prior year

     35        48  
  

 

 

    

 

 

 
     2,194        1,764  

Deferred tax (Note 29)

     

Origination and reversal of temporary differences

     (5,088      (5,132
  

 

 

    

 

 

 

Income tax credit

     (2,894      (3,368
  

 

 

    

 

 

 

In respect of a majority of the Group’s airlines operation outside mainland China, the Group has either obtained exemptions from overseas taxation pursuant to the bilateral aviation agreements between the overseas governments and the PRC government, or has sustained tax losses in those overseas jurisdictions. Accordingly, no provision for overseas income tax has been made for overseas airlines operation in the current and prior years.

For the year of 2021, the Company and its branches and subsidiaries in mainland China are subject to income tax rates ranging from 15% to 25% (2020: 15% to 25%), and certain subsidiaries of the Company in Hong Kong are subject to income tax at 16.5% (2020: 16.5%).

 

(b)

Reconciliation between actual income tax credit and calculated tax based on accounting loss at applicable income tax rates

 

     2021      2020  
     RMB million      RMB million  

Loss before income tax

     (13,910      (15,195
  

 

 

    

 

 

 

Notional tax on loss before taxation, calculated at the rates applicable to loss in the tax jurisdictions concerned (Note 16(a))

     (3,380      (3,667

Adjustments for tax effect of:

     

Non-deductible expenses

     96        102  

Share of results of associates and joint ventures and other non-taxable income

     (70      111  

Unused tax losses and deductible temporary differences for which no deferred tax assets were recognised

     489        80  

Utilisation of unused tax losses and deductible temporary differences for which no deferred tax assets were recognised in prior years

     (32      (8

Under-provision in prior year

     35        48  

Super deduction of research and development expenses

     (32      (34
  

 

 

    

 

 

 

Income tax credit

     (2,894      (3,368
  

 

 

    

 

 

 

 

217


17

Other comprehensive income

 

     2021      2020  
     RMB million      RMB million  

Cash flow hedges:

     

Effective portion of changes in fair value of hedging
instruments recognised during the year

     21        (30

Reclassification adjustments for amounts transferred to profit or loss:

     

– interest expense (Note 15)

     21        (15

Net deferred tax (debited)/credited to other comprehensive income

     (10      11  
  

 

 

    

 

 

 
     32        (34
  

 

 

    

 

 

 

Equity investments measured at FVOCI:

     

Changes in fair value recognised during the year

     (236      (250

Net deferred tax credited to other comprehensive income

     60        63  
  

 

 

    

 

 

 
     (176      (187
  

 

 

    

 

 

 

Share of other comprehensive income of associates

     

Will not be reclassified to profit or loss

     (2      (2

May be reclassified subsequently to profit or loss

     3        (3
  

 

 

    

 

 

 
     1        (5
  

 

 

    

 

 

 

Differences resulting from the translation of foreign currency financial statements

     —          8  
  

 

 

    

 

 

 

Other comprehensive income for the year

     (143      (218
  

 

 

    

 

 

 

 

18

Loss per share

The calculation of basic loss per share for the year ended 31 December 2021 is based on the loss attributable to equity shareholders of the Company of RMB12,106 million (2020: RMB10,847 million) and the weighted average of 16,201,129,384 shares in issue during the year (2020: 14,056,887,174 shares).

 

     2021      2020  
     million      million  

Issued ordinary shares at 1 January

     15,329        12,267  

Effect of issuance of shares

     872        1,790  
  

 

 

    

 

 

 

Weighted average number of ordinary shares at 31 December

     16,201        14,057  
  

 

 

    

 

 

 

The amount of diluted loss per share is the same as basic loss per share as the effect of convertible bonds is anti-dilutive for the year ended 31 December 2021 and for the year ended 31 December 2020.

 

218


19

Property, plant and equipment, net

 

     Investment
properties
    Buildings     Aircraft     Other flight
equipment
including
rotables
    Machinery,
equipment
and vehicles
    Total  
     RMB million     RMB million     RMB million     RMB million     RMB million     RMB million  

Cost:

            

At 1 January 2020

     470       16,046       113,276       24,385       8,253       162,430  

Additions

     —         12       1,435       542       935       2,924  

Transferred from construction in progress (Note 20)

     —         5,720       3,719       497       1,340       11,276  

Reclassification on change of holding intention:

            

– transferred from other property, plant and equipment, net

     52       (52     —         —         —         —    

Transferred from right-of-use assets on exercise of purchase option (Note 21)

     —         —         2,780       —         —         2,780  

Disposals

            

– disposals

     —         (152     (6,830     (399     (558     (7,939

– disposal of a subsidiary

     —         (99     —         —         (34     (133
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2020

     522       21,475       114,380       25,025       9,936       171,338  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 1 January 2021

     522       21,475       114,380       25,025       9,936       171,338  

Additions

     —         66       2,855       487       668       4,076  

Transferred from construction in progress (Note 20)

     —         2,097       8,796       434       486       11,813  

Reclassification on change of holding intention:

            

– transferred to other property, plant and equipment, net

     (32     32       —         —         —         —    

– transferred from other property, plant and equipment, net

     50       (50     —         —         —         —    

Transfer to assets held for sale (Note 35)

     —         —         (6,309     (152     —         (6,461

Transferred from right-of-use assets on exercise of purchase option (Note 21)

     —         —         2,761       —         —         2,761  

Others

     9       —         —         —         —         9  

Disposals (c)

     (8     (115     (6,393     (441     (556     (7,513
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2021

     541       23,505       116,090       25,353       10,534       176,023  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

219


19

Property, plant and equipment, net (continued)

 

     Investment
properties
    Buildings     Aircraft     Other flight
equipment
including rotables
    Machinery,
equipment
and vehicles
    Total  
     RMB million     RMB million     RMB million     RMB million     RMB million     RMB million  

Accumulated depreciation and impairment losses:

            

At 1 January 2020

     166       4,917       54,177       13,119       5,263       77,642  

Depreciation charge for the year

     23       618       5,744       1,493       946       8,824  

Reclassification on change of holding intention:

            

– transferred from other property, plant and equipment, net

     21       (21     —         —         —         —    

Transferred from right-of-use assets on exercise of purchase option (Note 21)

     —         —         982       —         —         982  

Disposals

            

– disposals

     —         (59     (4,588     (372     (483     (5,502

– disposal of a subsidiary

     —         (15     —         —         (11     (26

Provision for impairment losses

     —         —         3,202       75       2       3,279  

Impairment losses written off on disposals

     —         —         —         (7     —         (7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2020

     210       5,440       59,517       14,308       5,717       85,192  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 1 January 2021

     210       5,440       59,517       14,308       5,717       85,192  

Depreciation charge for the year

     16       712       5,673       1,394       1,040       8,835  

Reclassification on change of holding intention:

            

– transferred to other property, plant and equipment, net

     (19     19       —         —         —         —    

– transferred from other property, plant and equipment, net

     35       (35     —         —         —         —    

Transfer to assets held for sale (Note 35)

     —         —         (2,746     (66     —         (2,812

Transferred from right-of-use assets on exercise of purchase option (Note 21)

     —         —         1,202       —         —         1,202  

Disposals (c)

     (6     (28     (4,270     (406     (414     (5,124

Provision for impairment losses (a)

     —         —         914       80       —         994  

Impairment losses transfer to assets held for sale (Note 35)

     —         —         (2,581     (60     —         (2,641

Impairment losses written off on disposals (c)

     —         —         (809     —         —         (809
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2021

     236       6,108       56,900       15,250       6,343       84,837  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net book value:

            

At 31 December 2021

     305       17,397       59,190       10,103       4,191       91,186  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2020

     312       16,035       54,863       10,717       4,219       86,146  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

220


19

Property, plant and equipment, net (continued)

 

(a)

As at 31 December 2021, the Group reported aircraft and related equipment in the amount of RMB199,407 million. For the year ended 31 December 2021, the Group made impairment provision of RMB2,579 million in aggregate towards certain aged or market value declined aircraft and related equipment based on its fleet disposal plans. Among which, the impairment provision for owned aircraft and related equipment were RMB994 million, and the impairment provision for leased aircraft and related equipment were RMB1,585 million (Note 21). Provision were made when asset’s carrying amount exceed its recoverable amount. The estimated recoverable amounts of above aircraft and related equipment with impairment indications were based on the fair value less cost to sell, which was determined by reference to the recent observable market prices for those aircraft and related equipment or appraisal results valued by external appraisal expert based on the cost method.

(b)

As at 31 December 2021, no property, plant and equipment of the Group were mortgaged for bank borrowings (31 December 2020: Nil).

(c)

During the year, the Group disposed certain aircraft directly and disposed certain aircraft through sale and leaseback agreement, against which cost, accumulated depreciation and impairment losses of the aircraft had been reduced with an aggregate amount of RMB4,042 million, RMB2,728 million and RMB809 million respectively.

During the year, the Group derecognised certain aircraft under finance lease agreements as a lessor, against which cost and accumulated depreciation of the aircraft had been reduced with an aggregate amount of RMB792 million and RMB0 respectively, and a long-term receivable was recognised accordingly. As at 31 December 2021, the balance of long-term receivable was RMB783 million (including the balance due within one year) (Note 26).

 

(d)

As at 31 December 2021 and up to the date of approval of these financial statements, the Group is in the process of applying for the property title certificates in respect of the certain properties located in mainland China, in which the Group has interests and for which such certificates have not been granted. As at 31 December 2021, carrying value of such properties of the Group amounted to RMB10,554 million (31 December 2020: RMB10,226 million). The Directors of the Company are of the opinion that the use of and the conduct of operating activities at the properties referred to above are not affected by the fact that the Group has not yet obtained the relevant property title certificates.

 

221


19

Property, plant and equipment, net (continued)

 

(e)

The Group leased out investment properties and facilities under operating leases. The leases typically run for an initial period of one to fifteen years, with an option to renew the leases after that date at which time all contract terms are renegotiated. In this connection, rental income totalling RMB232 million (2020: RMB186 million) was recognised by the Group during the year in respect of the leases. Directors estimated the fair value of these investment properties approximate the carrying amount.

The properties are reclassified between investment properties and other property, plant and equipment, upon the intention of commencement or cessation of lease.

The Group’s total future minimum lease income under non-cancellable operating leases are as follows:

 

     2021      2020  
     RMB million      RMB million  

Within 1 year

     47        66  

After 1 year but within 5 years

     130        120  

After 5 years

     72        97  
  

 

 

    

 

 

 
     249        283  
  

 

 

    

 

 

 

 

20

Construction in progress

 

    

Advance

payment for

aircraft and

flight

equipment

     Others      Total  
     RMB million      RMB million      RMB million  

At 1 January 2020

     30,919        8,303        39,222  

Additions

     8,858        4,637        13,495  

Transferred to property, plant and equipment (Note 19)

     (4,216      (7,060      (11,276

Transferred to right-of-use assets (Note 21)

     (6,219      (2,440      (8,659

Transferred to others

     —          (375      (375
  

 

 

    

 

 

    

 

 

 

At 31 December 2020

     29,342        3,065        32,407  
  

 

 

    

 

 

    

 

 

 

At 1 January 2021

     29,342        3,065        32,407  

Additions

     10,464        1,821        12,285  

Transferred to property, plant and equipment (Note 19)

     (9,230      (2,583      (11,813

Transferred to right-of-use assets (Note 21)

     (454      (61      (515

Transferred to others

     —          (517      (517
  

 

 

    

 

 

    

 

 

 

At 31 December 2021

     30,122        1,725        31,847  
  

 

 

    

 

 

    

 

 

 

 

222


21

Right-of-use assets

 

     Aircraft and
engines
    Land use
rights
    Buildings     Others     Total  
     RMB million     RMB million     RMB million     RMB million     RMB million  

Cost:

          

At 1 January 2020

     215,381       4,022       2,790       392       222,585  

Additions

     6,526       45       412       190       7,173  

Transfer from construction in progress (Note 20)

     5,993       2,440       —         226       8,659  

Transferred to property, plant and equipment on exercise of purchase option (Note 19)

     (2,780     —         —         —         (2,780

Disposals

          

– disposals

     (4,419     —         (180     —         (4,599

– disposal of a subsidiary

     —         (26     —         (43     (69
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2020

     220,701       6,481       3,022       765       230,969  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 1 January 2021

     220,701       6,481       3,022       765       230,969  

Additions

     3,493       343       1,194       243       5,273  

Transfer from construction in progress (Note 20)

     302       61       —         152       515  

Transferred to property, plant and equipment on exercise of purchase option (Note 19)

     (2,761     —         —         —         (2,761

Transferred to assets held for sale (Note 35)

     (1,582     —         —         —         (1,582

Disposals

     (5,959     (75     (931     (26     (6,991
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2021

     214,194       6,810       3,285       1,134       225,423  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

223


21

Right-of-use assets (continued)

 

     Aircraft and
engines
RMB million
    Land use
rights
RMB million
     Buildings
RMB million
    Others
RMB million
    Total
RMB million
 

Accumulated amortization and impairment losses:

           

At 1 January 2020

     67,890       813        637       34       69,374  

Amortisation charge for the year

     14,167       134        997       90       15,388  

Transferred to property, plant and equipment on exercise of purchase option (Note 19)

     (982     —          —         —         (982

Disposals

           

– disposals

     (4,419     —          (132     —         (4,551

– disposal of a subsidiary

     —         —          —         (7     (7

Provision for impairment losses

     682       —          —         —         682  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2020

     77,338       947        1,502       117       79,904  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 1 January 2021

     77,338       947        1,502       117       79,904  

Amortisation charge for the year

     13,616       140        954       178       14,888  

Transferred to property, plant and equipment on exercise of purchase option (Note 19)

     (1,202     —          —         —         (1,202

Transferred to assets held for sale (Note 35)

     (616     —          —         —         (616

Disposals

     (5,959     —          (913     (21     (6,893

Provision for impairment losses (Note 19(a))

     1,585       —          —         —         1,585  

Impairment losses transfer to assets held for sale (Note 35)

     (682     —          —         —         (682
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2021

     84,080       1,087        1,543       274       86,984  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net book value:

           

At 31 December 2021

     130,114       5,723        1,742       860       138,439  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At 31 December 2020

     143,363       5,534        1,520       648       151,065  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The Group was formally granted the rights to use certain parcels of land by the relevant PRC authorities for periods of 30 to 70 years, which expire before 2075.

As at 31 December 2021 and up to the date of approval of these financial statements, the Group is in the process of applying for land use right certificates in respect of certain parcels of land used by the Group. As at 31 December 2021, carrying value of such land use rights of the Group amounted to RMB2,987 million (31 December 2020: RMB3,019 million). The Directors of the Company are of the opinion that the use of and the conduct of operating activities at the land referred to above are not affected by the fact that the Group has not yet obtained the relevant land use right certificates.

As at 31 December 2021, no land use right of the Group was mortgaged for bank borrowings (31 December 2020: Nil).

 

224


21

Right-of-use assets (continued)

 

In addition to the amortisation charged, the analysis of expense items in relation to leases recognised in profit or loss is as follows:

 

     2021      2020  
     RMB million      RMB million  

Interest on lease liabilities (Note 15)

     4,434        5,180  

Interest rate swaps: cash flow hedge, reclassified from equity (Note 15)

     21        (15

Expense relating to short-term leases

     1,241        1,257  

Expense relating to leases of variable lease payments not included in the measurement of lease liabilities

     124        106  

During the year, additions to right-of-use assets were primarily related to the capitalised lease payments payable under new tenancy agreements and newly acquired leasehold aircraft.

Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in Note 34(d) and Note 37 respectively.

As disclosed in Note 2(b), the Group has early adopted the Amendment to IFRS 16, COVID-19-related rent concessions beyond 30 June 2021, and applied the practical expedient to all leases except for aircraft and engine leases with eligible rent concessions received by the Group during the year. There is no rent concession received for the year ended 31 December 2021 (2020: RMB7 million).

 

22

Goodwill

 

     2021      2020  
     RMB million      RMB million  

Cost and carrying amount:

     237        237  

Impairment tests for cash-generating units containing goodwill

 

     2021      2020  
     RMB million      RMB million  

Southern Airlines Group Import and Export Trading Company (“SAIETC”)

     182        182  

Xiamen Airlines Culture and Media Co., Ltd. (“XACM”)

     55        55  
  

 

 

    

 

 

 

Total

     237        237  
  

 

 

    

 

 

 

The recoverable amount of the CGU is determined based on value-in-use calculation. The calculation uses cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using an estimated weighted average growth rate which does not exceed the long-term average growth rates for the business in which the CGU operates.

The cash flows of the above entities are discounted using pre-tax discount rates ranging from 10.5% to 13.5% (2020: 10.5% to 13.5%).

 

225


23

Subsidiaries

All the subsidiaries of the Company are unlisted. The following list contains only the particulars of subsidiaries which principally affect the results, assets or liabilities of the Group.

 

Name of company

   Place of
establishment/
operation
   Registered capital      Proportion of
ownership

interest held by
the Company
   

Principal activity

China Southern Airlines Henan Airlines Company Limited (i)

   PRC    RMB 6,000,000,000        60   Airline transportation

Xiamen Airlines Company Limited (“Xiamen Airlines”) (i)

   PRC    RMB 14,000,000,000        55   Airline transportation

Chongqing Airlines Company Limited (i)

   PRC    RMB 1,200,000,000        60   Airline transportation

Shantou Airlines Company Limited (i)

   PRC    RMB 280,000,000        60   Airline transportation

Zhuhai Airlines Company Limited (i)

   PRC    RMB 250,000,000        60   Airline transportation

Guizhou Airlines Company Limited (i)

   PRC    RMB 1,281,000,000        60   Airline transportation

Guangzhou Nanland Air Catering Company Limited (ii)

   PRC    RMB 240,000,000        70.50   Air catering

Beijing Southern Airlines Ground Services Company Limited (i)

   PRC    RMB 100,000,000        100   Airport ground services

Nan Lung International Freight Limited

   Hong
Kong
   HKD 3,270,000        51   Freight services

China Southern Airlines General Aviation Company Limited (“CSAGA”) (i)

   PRC    RMB 1,342,280,000        57.88   General aviation

SAIETC (i)

   PRC    RMB 30,000,000        100   Import and export agent services

Zhuhai Xiang Yi Aviation Technology Company Limited (i)

   PRC    RMB 469,848,400        100   Flight simulation services

China Southern Airlines Xiongan Airlines Company Limited (i)

   PRC    RMB 10,000,000,000        100   Airline transportation

 

226


Name of company

   Place of
establishment/
operation
   Registered capital      Proportion of
ownership

interest held by
the Company
   

Principal activity

Southern Airlines Freight and Logistics (Guangzhou) Co., Ltd. (“SAFL”) (i)

   PRC    RMB 1,818,181,820        55   Logistics operations

Shenyang Northern Aircraft Maintenance Co., Ltd. (i)

   PRC    RMB 31,520,545        100   Aircraft repair and maintenance services

Guangdong Southern Airline Pearl Aviation Services Company Limited (i)

   PRC    RMB 5,000,000        100   Hotel management services

Southern Airlines Nansha Finance Leasing (Guangzhou) Co., Ltd. (i)

   PRC    RMB 2,000,000,000        100   Leasing services

 

  (i)

These subsidiaries are PRC limited liability companies.

 

  (ii)

This subsidiary is a sino-foreign equity joint venture company established in the PRC.

 

  (iii)

Material non-controlling interests

As at 31 December 2021, the balance of total non-controlling interests is RMB16,657 million (31 December 2020: RMB15,547 million), of which RMB9,103 million (31 December 2020: RMB8,809 million) is for Xiamen Airlines and RMB4,814 million (31 December 2020: RMB2,892 million) is for SAFL. The rest of non-controlling interests are not individually material.

 

227


23

Subsidiaries (continued)

 

  (iii)

Material non-controlling interests (continued)

 

   

Set out below are the summarised financial information for Xiamen Airlines.

 

     2021     2020  
     RMB million     RMB million  

Non-controlling interests percentage

     45     45

Current assets

     3,137       2,292  

Non-current assets

     48,775       50,975  

Current liabilities

     (18,601     (16,033

Non-current liabilities

     (13,781     (18,431

Net assets

     19,530       18,803  

Carrying amount of non-controlling interests

     9,103       8,809  

Revenue

     21,037       20,675  

Loss for the year

     (938     (181

Total comprehensive income

     (1,071     (304

Loss allocated to non-controlling interests

     (455     (109

Dividend paid to non-controlling interests

     —         31  

Net cash generated from operating activities

     4,291       4,268  

Net cash used in investing activities

     (1,099     (1,430

Net cash used in financing activities

     (2,529     (3,201

 

228


23

Subsidiaries (continued)

 

  (iii)

Material non-controlling interests (continued)

 

   

Set out below are the summarised financial information for SAFL.

 

     2021     2020  
     RMB million     RMB million  
           (Note)  

Non-controlling interests percentage

     45     45

Current assets

     12,124       8,479  

Non-current assets

     2,046       732  

Current liabilities

     (3,505     (2,708

Non-current liabilities

     (91     (112

Net assets

     10,574       6,391  

Carrying amount of non-controlling interests

     4,814       2,892  

Revenue

     19,659       15,397  

Profit for the year

     5,693       4,013  

Total comprehensive income

     5,693       4,013  

Profit allocated to non-controlling interests

     2,572       16  

Dividend paid to non-controlling interests

     650       2  

Net cash generated from operating activities

     6,872       5,241  

Net cash used in investing activities

     (3,390     (1,468

Net cash (used)/generated from financing activities

     (2,486     1,122  

 

  Note:

On 24 December 2020, certain third parties made capital injections into SAFL, causing a decrease of the Company’s equity interests in SAFL from 100% to 55%. Changes in the Company’s equity interests do not result in a loss of control of SAFL.

 

229


24

Interest in associates

 

     2021      2020  
     RMB million      RMB million  

Share of net assets

     2,637        2,449  

All the Group’s associates are unlisted without quoted market price. The particulars of the Group’s principal associates as at 31 December 2021 are as follows:

 

                Proportion of ownership
interest held by
           
     Place of
establishment/
operation
   Group’s
effective
interest
    The
Company
    Subsidiaries     Proportion of
voting rights
held by
the Group
    Principal activity

Southern Airlines Group Finance Co., Ltd. (“SA Finance”)

   PRC      48.59     41.81     6.78     48.59   Provision of airlines
financial services

Sichuan Airlines Co., Ltd. (“Sichuan Airlines”)

   PRC      39     39     —         39   Airline transportation

Southern Airlines Culture and Media Co., Ltd. (“SACM”)

   PRC      40     40     —         40   Advertising services

Shenyang Konggang Logistic Co., Ltd. (“Shenyang Konggang”)

   PRC      45     45     —         45   Ground services

Beijing Xingming Lake Jinyan Hotel Co., Ltd.

   PRC      49     —         49     49   Catering and
accommodation
services

Shangzhou Aviation Logistics Co., Ltd.

   PRC      37.90     —         37.90     37.90   Airline transportation

Beijing Airport Inflight Kitchen Co., Ltd.

   PRC      30     30     —         30   Air catering services

Xinjiang Civil Aviation Property Management Limited

   PRC      42.80     42.80     —         42.80   Property management

There is no associate that is individually material to the Group.

 

230


24

Interest in associates (continued)

 

The Group has interest in a number of individually immaterial associates that are accounted for using the equity method. The aggregate financial information of these associates is summarised as following:

 

     2021
RMB million
     2020
RMB million
 

Aggregate carrying amount of individually immaterial associates

     2,637        2,449  

Aggregate amounts of the Group’s share of:

     

Profit/(loss) from continuing operations

     9        (776

Other comprehensive income

     1        (5
  

 

 

    

 

 

 

Total comprehensive income

     10        (781
  

 

 

    

 

 

 

 

25

Interest in joint ventures

 

     2021
RMB million
     2020
RMB million
 

Share of net assets

     3,341        3,225  

All the Group’s joint ventures are unlisted without quoted market price. The particulars of the Group’s principal joint ventures as at 31 December 2021 are as follows:

 

                Proportion of ownership
interest held by
            
     Place of
establishment/
operation
   Group’s
effective
interest
    The
Company
    Subsidiaries      Proportion of
voting rights
held by
the Group
    Principal activity

Guangzhou Aircraft Maintenance Engineering Co., Ltd. (“GAMECO”)

   PRC      50     50     —          50   Aircraft repair and
maintenance
services

MTU Maintenance Zhuhai Co., Ltd. (“MTU”)

   PRC      50     50     —          50   Aircraft repair and
maintenance
services

There is no joint venture that is individually material to the Group.

 

231


25

Interest in joint ventures (continued)

 

The Group has interest in a number of individually immaterial joint ventures that are accounted for using the equity method. The aggregate financial information of these joint ventures is summarised as follows:

 

     2021
RMB million
     2020
RMB million
 

Aggregate carrying amount of individually immaterial joint ventures

     3,341        3,225  

Aggregate amounts of the Group’s share of:

     

Profit from continuing operations and total comprehensive income

     271        309  

 

26

Financial assets

 

     Note      2021
RMB million
     2020
RMB million
 

Other equity instrument investments (FVOCI)

     (i)        

Non-listed shares

        40        100  

Non-tradable shares

        523        699  
     

 

 

    

 

 

 
        563        799  
     

 

 

    

 

 

 

Other non-current financial assets (FVPL) (Note 28)

     (i)        

– Listed shares

        68        64  

Non-listed shares

        27        28  

Other non-current financial assets (amortised cost)

     (ii)        

– Long-term receivables

        494        —    
     

 

 

    

 

 

 
        589        92  
     

 

 

    

 

 

 

Notes:

 

(i)

Dividend income generated from the investments amounted to RMB4 million for the year of 2021 in total (2020: RMB23 million).

(ii)

During the year, the Group derecognised certain aircraft under finance lease agreements as a lessor and recognised long-term receivables. As at 31 December 2021, long-term receivables (including the portion due within one year) was RMB783 million (Note 19(c)), among which RMB183 million was recorded in the amounts due from related parties (Note 42(a)).

 

232


27

Derivative financial liabilities

 

     Note      2021
RMB million
     2020
RMB million
 

Current liabilities:

        

Forward foreign exchange and foreign exchange options contracts

     (i)        —          56  

Derivative component of convertible bonds

     (iii)        1,222        3,092  
     

 

 

    

 

 

 
        1,222        3,148  
     

 

 

    

 

 

 

Non-current liabilities:

        

Interest rate swaps

     (ii)        

– Measured at FVOCI

        —          42  

– Measured at FVPL

        20        11  
     

 

 

    

 

 

 
        20        53  
     

 

 

    

 

 

 

Notes:

 

(i)

The Group entered into forward foreign exchange and foreign exchange options contracts to mitigate its forward currency risk, and all the forward foreign exchange and foreign exchange options contracts have been settled in 2021. As at 31 December 2020, the fair value of the forward foreign exchange and foreign exchange options contracts amounted to RMB56 million was recognised in liabilities, with notional principal amounted to USD400 million.

(ii)

In 2015, the Group entered into interest rate swaps to mitigate its cash flow interest rate risk. The interest rate swaps allow the Group to pay at fixed rate from 1.64% to 1.72% per annum to receive LIBOR. The notional principal of the outstanding interest rate swap contracts as at 31 December 2021 amounted to USD190 million (31 December 2020: USD258 million).

(iii)

In October 2020, the Group issued a total of 160,000,000 A share convertible bonds with par value of RMB100 each at par. The convertible bonds have a term of six years from the date of the issuance and the convertible bonds bear interest at the annual rate of 0.2% in the first year, 0.4% in the second year, 0.6% in the third year, 0.8% in the fourth year, 1.5% in the fifth year and 2.0% in the sixth year. Interest is paid once a year. Conversion rights are exercisable from 21 April 2021 to 14 October 2026 at an initial conversion price of RMB6.24 per share, subject to clauses of adjustment and downward revision of conversion price, redemption and sell-back. Convertible bonds, which conversion rights have not been exercised in five transaction days after maturity, will be redeemed at 106.5% of par value (including the interest for the sixth year).

Any excess of proceeds over the fair value amount initially recognised as the derivative component is recognised as the host liability component. Transaction costs related to the issuance of the convertible bonds are allocated to the host liability and are recognised initially as part of the liability. The derivative component is subsequently remeasured at fair value while the host liability component is subsequently carried at amortised cost using the effective interest method (Note 36(a)).

For the year ended 31 December 2021, 101,034,070 convertible bonds were converted to A shares at the conversion price of RMB6.24 per share, RMB1,619 million was credited to share capital. As at 31 December 2021, the carrying amount of liability component of the remaining 58,965,930 A share convertible bonds was RMB4,992 million (31 December 2020: 160,000,000 A share convertible bonds with a carrying amount of RMB12,833 million) (Note 36(a)), and the fair value of the derivative component of remaining 58,965,930 A share convertible bonds was RMB1,222 million (31 December 2020: 160,000,000 A share convertible bonds with fair value of RMB3,092 million). For the year ended 31 December 2021, the loss on the changes in fair value of the derivative component amounted to RMB269 million was recognised (31 December 2020: gain on the changes in fair value amounted to RMB201 million) (Note 28).

 

233


28

Changes in fair value of financial assets/liabilities

 

     2021      2020  
     RMB million      RMB million  

Other non-current financial assets (FVPL) (Note 26)

     3        (14

Interest rate swaps measured at FVPL

     17        (11

Forward foreign exchange and foreign exchange options contracts

     (60      (107

Derivative component of convertible bonds (Note 27(iii))

     (269      201  

Cross currency swaps

     —          (16
  

 

 

    

 

 

 
     (309      53  
  

 

 

    

 

 

 

 

29

Deferred tax assets/(liabilities)

 

(a)

Movements of net deferred tax assets are as follows:

 

     At 31 December
2020
RMB million
     (Charged)/
credited to
consolidated
income statement
RMB million
     (Charged)/
credited to other
comprehensive
income
RMB million
    At 31 December
2021
RMB million
 

For the year ended 31 December 2021

          

Deferred tax assets:

          

Net effect on right-of-use assets

     1,307        268        —         1,575  

Accrued expenses

     1,456        86        —         1,542  

Provision for major overhauls

     361        122        —         483  

Contract liabilities/other non-current liabilities

     57        (1      —         56  

Provision for impairment losses

     1,118        375        —         1,493  

Provision for tax losses

     4,288        3,805        —         8,093  

Change in fair value of derivative financial liabilities

     10        22        (10     22  

Change in fair value of other equity instrument investments

     —          —          15       15  

Depreciation allowances under tax in excess of the related depreciation under accounting

     —          74        —         74  

Others

     130        12        —         142  
  

 

 

    

 

 

    

 

 

   

 

 

 
     8,727        4,763        5       13,495  
  

 

 

    

 

 

    

 

 

   

 

 

 

Deferred tax liabilities:

          

Accrued expenses

     (144      138        —         (6

Depreciation allowances under tax in excess of the related depreciation under accounting

     (669      150        —         (519

Change in fair value of other equity instrument investments

     (166      —          45       (121

Change in fair value of other non-current financial assets

     (16      (1      —         (17

Change in fair value of derivative financial liabilities

     (34      34        —         —    

Fair value re-measurement of identifiable assets in business combination

     (27      2        —         (25

Others

     (12      2        —         (10
  

 

 

    

 

 

    

 

 

   

 

 

 
     (1,068      325        45       (698
  

 

 

    

 

 

    

 

 

   

 

 

 

Net deferred tax assets

     7,659        5,088        50       12,797  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

234


29

Deferred tax assets/(liabilities) (continued)

 

(a)

Movements of net deferred tax assets are as follows: (continued)

 

    At 31 December
2019
    (Charged)/credited
to consolidated
income statement
   

Credited to other
comprehensive

income

    At 31 December
2020
 
    RMB million     RMB million     RMB million     RMB million  

For the year ended 31 December 2020

       

Deferred tax assets:

       

Net effect on right-of-use assets

    1,823       (516     —         1,307  

Accrued expenses

    1,114       342       —         1,456  

Provision for major overhauls

    262       99       —         361  

Contract liabilities/other non-current liabilities

    68       (11     —         57  

Provision for impairment losses

    81       1,037       —         1,118  

Provision for tax losses

    7       4,281       —         4,288  

Change in fair value of derivative financial liabilities

    —         —         10       10  

Others

    114       16       —         130  
 

 

 

   

 

 

   

 

 

   

 

 

 
    3,469       5,248       10       8,727  
 

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax liabilities:

       

Accrued expenses

    (191     47       —         (144

Depreciation allowances under tax in excess of the related depreciation under accounting

    (478     (191     —         (669

Change in fair value of derivative financial assets

    (1     —         1       —    

Change in fair value of other equity instrument investments

    (229     —         63       (166

Change in fair value of other non-current financial assets

    (20     4       —         (16

Change in fair value of derivative financial liabilities

    (54     20       —         (34

Fair value re-measurement of identifiable assets in business combination

    (29     2       —         (27

Others

    (14     2       —         (12
 

 

 

   

 

 

   

 

 

   

 

 

 
    (1,016     (116     64       (1,068
 

 

 

   

 

 

   

 

 

   

 

 

 

Net deferred tax assets

    2,453       5,132       74       7,659  
 

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets arise from deductible temporary differences and unused tax losses are recognised to the extent that it is probable that future taxable profits will be available against which the related tax benefit can be utilised. The Group’s tax losses in the PRC are available for carrying forward to set off future assessable income for a maximum period of five or eight years (According to the Notice of the Ministry of Finance on the Taxation Policy for supporting the prevention of pandemic of Covid-19 (No. 8, 2020), the carry over period for tax losses of enterprises in certain difficult industries suffering from the epidemic in 2020 will be extended from 5 years to 8 years). Therefore, the Group’s tax losses occurred in 2020 can be carried forward for 5-8 years, and the Group’s tax losses occurred in other years can be carried forward for 5 years.

 

235


29

Deferred tax assets/(liabilities) (continued)

 

(b)

Reconciliation to the consolidated statement of financial position:

 

     2021      2020  
     RMB million      RMB million  

Net deferred tax asset recognised in the statement of financial position

     12,823        7,739  

Net deferred tax liability recognised in the statement of financial position

     (26      (80
  

 

 

    

 

 

 
     12,797        7,659  
  

 

 

    

 

 

 

 

(c)

Deferred tax assets not recognised

The Group’s unused tax losses of RMB3,020 million (2020: RMB1,058 million) have not been recognised as deferred tax assets, as it was determined by management that it is not probable that future taxable profits against which the losses can be utilised will be available before they expire. The expiry dates of unrecognised unused tax losses are analysed as follows:

 

     2021      2020  
     RMB million      RMB million  

Expiring in:

     

2021

     —          92  

2022

     82        82  

2023

     109        110  

2024

     336        337  

2026

     1,515        —    

2028

     978        437  
  

 

 

    

 

 

 
     3,020        1,058  
  

 

 

    

 

 

 

As at 31 December 2021, the Group’s other deductible temporary differences amounting to RMB1,094 million (31 December 2020: RMB819million) have not been recognised as deferred tax assets as it was determined by management that it is not probable that future taxable profits will be available for these deductible temporary differences to reverse in the foreseeable future.

 

236


30

Other assets

 

     Software      Leasehold
improvements
     Others     Total  
     RMB million      RMB million      RMB million     RMB million  
                            
                   (Note)  

At 1 January 2020

     482        251        1,246       1,979  

Additions

     70        46        804       920  

Transferred from construction in progress

     277        79        —         356  

Amortisation for the year

     (221      (92      (65     (378
  

 

 

    

 

 

    

 

 

   

 

 

 

At 31 December 2020

     608        284        1,985       2,877  
  

 

 

    

 

 

    

 

 

   

 

 

 

At 1 January 2021

     608        284        1,985       2,877  

Additions

     83        43        253       379  

Transferred from construction in progress

     474        28        —         502  

Disposal

     —          (7      (4     (11

Amortisation for the year

     (330      (105      (83     (518

Provision for impairment losses

     —          (18      —         (18
  

 

 

    

 

 

    

 

 

   

 

 

 

At 31 December 2021

     835        225        2,151       3,211  
  

 

 

    

 

 

    

 

 

   

 

 

 

 

  Note:

As at 31 December 2021, the amounts include prepayments of RMB1,302 million made to related parties for acquisition of long-term assets (31 December 2020: RMB1,222 million) (note 42(b)&50(c)).

 

31

Inventories

 

     2021      2020  
     RMB million      RMB million  

Consumable spare parts and maintenance materials

     1,559        1,613  

Other supplies

     173        219  
  

 

 

    

 

 

 
     1,732        1,832  

Less: provision

     (80      (72
  

 

 

    

 

 

 
     1,652        1,760  
  

 

 

    

 

 

 

Provision for inventories is shown as below:

 

     2021      2020  
     RMB million      RMB million  

At 1 January

     72        54  

Provision for inventories

     17        56  

Written off upon disposal

     (9      (38
  

 

 

    

 

 

 

At 31 December

     80        72  
  

 

 

    

 

 

 

 

237


32

Trade receivables

 

     2021      2020  
     RMB million      RMB million  

Trade receivables

     2,897        2,568  

Less: loss allowance

     (39      (43
  

 

 

    

 

 

 
     2,858        2,525  
  

 

 

    

 

 

 

 

(a)

Ageing analysis

Credit terms granted by the Group to sales agents and other customers generally range from one to three months. Ageing analysis of trade receivables based on transaction date is set out below:

 

     2021      2020  
     RMB million      RMB million  

Within 1 month

     2,337        1,972  

More than 1 month but less than 3 months

     273        307  

More than 3 months but less than 12 months

     236        231  

More than 1 year

     51        58  
  

 

 

    

 

 

 
     2,897        2,568  

Less: loss allowance

     (39      (43
  

 

 

    

 

 

 
     2,858        2,525  
  

 

 

    

 

 

 

All of the trade receivables are expected to be recovered within one year.

 

(b)

Trade receivables by currencies

The carrying amounts of the Group’s trade receivables are denominated in the following currencies:

 

     2021      2020  
     RMB million      RMB million  

RMB

     2,631        2,446  

USD

     195        48  

EURO

     16        13  

HKD

     11        9  

AUD

     9        7  

BDT

     7        9  

Others

     28        36  
  

 

 

    

 

 

 
     2,897        2,568  
  

 

 

    

 

 

 

 

238


33

Other receivables

 

          2021      2020  
     Note    RMB million      RMB million  

VAT recoverable

        7,854        6,072  

Government grants receivables

   (i)      474        523  

Rebate receivables on aircraft acquisitions

        302        497  

Other deposits

        155        170  

Others

   (ii)      972        1,244  
     

 

 

    

 

 

 
        9,757        8,506  

Less: loss allowance

   (iii)      (158      (159
     

 

 

    

 

 

 
        9,599        8,347  
     

 

 

    

 

 

 

Notes:

 

(i)

Government grants receivables are recognised as there is reasonable assurance that they will be received and the Group has complied with the conditions attaching to them.

(ii)

The amounts include term deposits of RMB227 million (31 December 2020: RMB287 million), which have a maturity over 3 months at acquisition. The weighted average annualised interest rate of term deposits as at 31 December 2021 was 1.95% (31 December 2020: 2.07%).

(iii)

The Group lost control of China Southern West Australian Flying College Pty Ltd.(“Flying College”) in December 2020. As at 31 December 2021 and 2020, prepayment of training expenses made to Flying College amounting to RMB148 million was fully impaired.

 

239


34

Cash and cash equivalents

 

(a)

Cash and cash equivalents comprise:

 

     2021
RMB million
     2020
RMB million
 

Deposits in banks and other financial institutions

     1        5  

Cash at bank and other financial institutions and on hand

     21,455        25,414  
  

 

 

    

 

 

 

Cash and cash equivalents in the consolidated statement of financial position

     21,456        25,419  
  

 

 

    

 

 

 

The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:

 

     2021      2020  
     RMB million      RMB million  

RMB

     20,457        24,947  

USD

     782        272  

EURO

     88        64  

AUD

     20        15  

JPY

     12        21  

HKD

     31        15  

Others

     66        85  
  

 

 

    

 

 

 
     21,456        25,419  
  

 

 

    

 

 

 

 

240


34

Cash and cash equivalents (continued)

 

(b)

Reconciliation of loss before income tax to cash generated from operating activities

 

          2021      2020  
     Note    RMB million      RMB million  

Loss before income tax

        (13,910      (15,195

Adjustments for:

        

Depreciation and amortisation

   12      24,241        24,590  

Impairment losses on property, plant, equipment

   19      994        3,279  

Impairment losses on right-of-use assets

   21      1,585        682  

Impairment losses on other assets

   30      18        —    

Credit losses

   11      (1      164  

Share of associates’ results

   24      (9      776  

Share of joint ventures’ results

   25      (271      (309

Gain on disposal of property, plant and equipment and construction in progress

   14      (363      (57

Changes in fair value of financial assets/liabilities

   28      309        (53

Interest income

        (675      (322

Interest expense

   15      6,202        6,716  

Dividends income from other non-current financial assets

   26      (4      (23

Exchange gain, net

        (1,524      (3,170

Loss on disposal of a subsidiary

        —          8  

Changes in working capital:

        

Decrease in inventories

   31      108        133  

Decrease in contract liabilities and other non-current liabilities

        (85      (134

Decrease in sales in advance of carriage

        (281      (6,306

Decrease in deferred benefits and gains

   46      (44      (64

(Increase)/decrease in operating receivables

        (1,593      1,408  

Increase/(decrease) in operating payables

        580        (1,396
     

 

 

    

 

 

 

Cash generated from operating activities

        15,277        10,727  
     

 

 

    

 

 

 

 

241


34

Cash and cash equivalents (continued)

 

(c)

Reconciliation of liabilities arising from financing activities

 

     Bank loans
and other
borrowings
    Lease
liabilities
    Interest
rate swaps
    Derivative
component
of convertible
bonds
    Total  
     RMB million     RMB million     RMB million     RMB million     RMB million  
     (Note 36)     (Note 37)     (Note 27)     (Note 27)     (Note 27)  

At 1 January 2021

     78,233       121,213       53       3,092       202,591  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Changes from financing cash flows:

          

Proceeds from bank borrowings

     76,910       —         —         —         76,910  

Proceeds from corporate bonds

     9,000       —         —         —         9,000  

Proceeds from ultra-short-term financing bills

     82,500       —         —         —         82,500  

Repayment of bank borrowings

     (70,437     —         —         —         (70,437

Repayment of ultra-short-term financing bills

     (68,900     —         —         —         (68,900

Repayment of corporate bonds

     (3,749     —         —         —         (3,749

Capital element of lease rentals paid (Note 34(d))

     —         (21,613     —         —         (21,613
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total changes from financing cash flows

     25,324       (21,613     —         —         3,711  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exchange adjustments

     —         (1,474     —         —         (1,474

Changes in fair value

     —         —         (33     269       236  

Other changes:

          

Increase in lease liabilities from entering into new leases during the year (Note 52)

     —         4,623       —         —         4,623  

Conversion of convertible bonds to ordinary shares (Note 52)

     (8,317     —         —         (2,139     (10,456

Amortisation amount of convertible bonds

     456       —         —         —         456  

Accrued interest expense

     571       —         —         —         571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other changes

     (7,290     4,623       —         (2,139     (4,806
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2021

     96,267       102,749       20       1,222       200,258  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

242


34

Cash and cash equivalents (continued)

 

(c)

Reconciliation of liabilities arising from financing activities (continued)

 

     Bank loans
and other
borrowings
    Lease
liabilities
   

Interest

rate swaps

   

Cross

currency

swaps

   

Derivative

component of

convertible bonds

    Total  
     RMB million     RMB million     RMB million     RMB million     RMB million     RMB million  
     (Note 36)     (Note 37)     (Note 27)    

 

    (Note 27)    

 

 

At 1 January 2020

     51,180       134,074       (3     (187     —         185,064  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Changes from financing cash flows:

            

Proceeds from bank borrowings

     71,841       —         —         —         —         71,841  

Proceeds from ultra-short-term financing bills

     48,300       —         —         —         —         48,300  

Proceeds from corporate bonds

     25,000       —         —         —         —         25,000  

Repayment of bank borrowings

     (52,601     —         —         —         —         (52,601

Repayment of ultra-short-term financing bills

     (59,800     —         —         —         —         (59,800

Repayment of corporate bonds

     (2,655     —         —         —         —         (2,655

Capital element of lease rentals paid (Note 34(d))

     —         (20,670     —         —         —         (20,670
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total changes from financing cash flows

     30,085       (20,670     —         —         —         9,415  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Exchange adjustments

     142       (3,526     —         171       —         (3,213

Changes in fair value

     —         —         56       16       (201     (129

Other changes:

            
Increase in lease liabilities from entering into new leases during the year (Note 52)      —         11,335       —         —         —         11,335  
Amount initially recognised as the derivative component of convertible bonds      (3,293     —         —         —         3,293       —    

Amortisation amount of convertible bonds

     119       —         —         —         —         119  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other changes

     (3,174     11,335       —         —         3,293       11,454  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At 31 December 2020

     78,233       121,213       53       —         3,092       202,591  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

243


34

Cash and cash equivalents (continued)

 

(d)

Total cash outflow for leases

Amounts included in the cash flow statement for leases comprise the following:

 

     2021      2020  
     RMB million      RMB million  

Within operating cash flows

     (5,794      (6,528

Within investing cash flows

     (343      (45

Within financing cash flows

     (21,613      (20,670
  

 

 

    

 

 

 
     (27,750      (27,243
  

 

 

    

 

 

 

These amounts relate to the following:

 

     2021      2020  
     RMB million      RMB million  

Lease rentals paid

     (27,407      (27,198

Acquisition of land use rights

     (343      (45
  

 

 

    

 

 

 
     (27,750      (27,243
  

 

 

    

 

 

 

 

35

Assets held for sale

 

     2021      2020  
     RMB million      RMB million  

Aircraft and other flight equipment

     1,292        —    
  

 

 

    

 

 

 

As at 31 December 2021, assets held for sale represents certain aircraft and other flight equipment to be delivered. The carrying amount of the assets held for sale is RMB1,292 million, including RMB1,008 million of aircraft and other flight equipment (Note 19), and RMB284 million of lease aircraft (Note 21). As at 31 December 2021, the transaction price with third party is higher than the carrying amount of the assets, and the sale is expected to be completed in 2022.

 

244


36

Borrowings

 

(a)

Borrowings are analysed as follows:

 

     2021      2020  
     RMB million      RMB million  

Non-current

     

Long-term borrowings

     15,389        8,811  

Corporate bonds (Note (ii))

     1,000        7,500  

Convertible bonds (Note 27(iii))

     4,984        12,833  

Medium-term notes (Note (iii))

     16,981        8,990  
  

 

 

    

 

 

 
     38,354        38,134  
  

 

 

    

 

 

 

Current

     

Current portion of long-term borrowings

     169        67  

Short-term borrowings

     25,116        25,286  

Ultra-short-term financing bills

     24,710        10,999  

Current portion of corporate bonds and medium-term notes (Notes (ii)&(iii))

     7,910        3,747  

Current portion of convertible bonds (Note 27(iii))

     8        —    
  

 

 

    

 

 

 
     57,913        40,099  
  

 

 

    

 

 

 

Total borrowings

     96,267        78,233  
  

 

 

    

 

 

 

The borrowings are repayable:

     

Within one year

     57,913        40,099  

In the second year

     18,611        7,662  

In the third to fifth year

     16,747        14,394  

After the fifth year

     2,996        16,078  
  

 

 

    

 

 

 

Total borrowings

     96,267        78,233  
  

 

 

    

 

 

 

 

245


36

Borrowings (continued)

 

(a)

Borrowings are analysed as follows: (continued)

 

Notes:

 

(i)

As at 31 December 2021, the Group did not have any secured bank borrowings (31 December 2020: Nil).

(ii)

The Company issued corporate bonds with aggregate nominal value of RMB5,000 million on 25 May 2016 at a bond rate of 3.12% per annum. The corporate bonds mature in five years. The Company will be entitled at its option to adjust its bond rate and the investors will be entitled to request the Company to redeem all or a portion of the bonds after three years of the issue date. The bonds with nominal value of RMB4,851 million were redeemed by the Company in 2019 at the request of investors, and the remaining bonds of RMB149 million were redeemed by the Company in 2021 upon maturity.

The Company issued corporate bonds with aggregate nominal value of RMB2,000 million on 26 November 2018 at a bond rate of 3.92% per annum with a term of 3 years. The bonds were redeemed by the Company in 2021 upon maturity.

The Company issued corporate bonds with aggregate nominal value of RMB3,000 million on 21 February 2019 at a bond rate of 3.45% per annum with a term of 3 years. As at 31 December 2021, the corporate bonds will mature within 1 year.

The Company issued corporate bonds with aggregate nominal value of RMB2,000 million on 16 May 2019 at a bond rate of 3.72% per annum with a term of 3 years. As at 31 December 2021, the corporate bonds will mature within 1 year.

Xiamen Airlines, a subsidiary of the Group, issued corporate bonds with aggregate nominal value of RMB1,500 million on 20 November 2019 at a bond rate of 3.58% per annum with a term of 3 years. As at 31 December 2021, the corporate bonds will mature within 1 year.

Xiamen Airlines issued corporate bonds with aggregate nominal value of RMB1,000 million on 16 March 2020 at a bond rate of 2.95% per annum with a term of 3 years. As at 31 December 2021, the corporate bonds will mature over 1 year.

 

(iii)

The Company issued medium-term notes with aggregate nominal value of RMB1,000 million in 2019 at an annual interest rate of 3.20% with a term of 3 years. As at 31 December 2021, the medium-term notes will mature within 1 year.

The Company issued medium-term notes with aggregate nominal value of RMB8,000 million in 2020 at annual interest rates ranging from 2.44% to 3.28% with terms of 3 to 5 years. As at 31 December 2021, the medium-term notes will mature over 1 year.

The Company issued medium-term notes with aggregate nominal value of RMB9,000 million in 2021 at annual interest rates ranging from 2.90% to 3.20% with terms of 3 years. As at 31 December 2021, the medium-term notes will mature over 1 year.

 

(b)

As at 31 December 2021, the Group’s weighted average interest rates on short-term borrowings were 2.20% per annum (31 December 2020: 2.23% per annum).

 

246


36

Borrowings (continued)

 

(c)

Details of borrowings with original maturity over one year are as follows:

 

     2021      2020  
     RMB million      RMB million  

Renminbi denominated borrowings

     

Fixed interest rate at 1.20%~4.00% per annum as at 31 December 2021

     12,483        8,028  

Corporate bond – Fixed interest rate at 2.95%~3.72%

     7,666        9,649  

Convertible bond – Fixed interest rate (Note27(iii))

     4,992        12,833  

Medium-term notes – Fixed interest rate at 2.44%~3.28%

     18,225        10,588  

Floating interest rates at 74%~92% of benchmark interest rate (stipulated by PBOC) as at 31 December 2021

     3,075        850  
  

 

 

    

 

 

 
     46,441        41,948  

Less: borrowings due within one year classified as current liabilities

     (8,087      (3,814
  

 

 

    

 

 

 
     38,354        38,134  
  

 

 

    

 

 

 

 

(d)

The carrying amounts of the borrowings are denominated in the following currencies:

 

     2021      2020  
     RMB million      RMB million  

Renminbi

     96,267        78,233  
  

 

 

    

 

 

 

 

(e)

The balance of long-term borrowings as at 31 December 2021 included entrusted loans from CSAH via SA Finance to the Group amounted to RMB1,001 million (31 December 2020: Nil) (Note 50(d)(ii)).

 

(f)

Certain of the Group’s banking facilities are subject to the fulfilment of covenants relating to certain of the Group’s consolidated statement of financial position ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in Note 4(a). As at 31 December 2021 and 2020, none of the covenants relating to drawn down facilities had been breached.

 

247


37

Lease liabilities

At 31 December 2021, the leases liabilities were payable as follows:

 

     2021      2020  
     RMB million      RMB million  

Within 1 year

     20,805        20,930  

After 1 year but within 2 years

     19,229        20,045  

After 2 years but within 5 years

     38,950        47,164  

After 5 years

     23,765        33,074  
  

 

 

    

 

 

 
     102,749        121,213  
  

 

 

    

 

 

 

 

            Obligations by denominated currencies  

For the year ended

31 December 2021

   Effective
interest rate
     USD     

Japanese

Yen

     Renminbi      Euro     

Other

currencies

     Total  
   RMB million      RMB million      RMB million      RMB million      RMB million      RMB million  

Fixed interest rates

     1.78%~4.90%        38,254        9        12,780        8        19        51,070  

Floating interest rates

     0.42%~5.22%        5,524        514        43,091        2,550        —          51,679  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        43,778        523        55,871        2,558        19        102,749  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
            Obligations by denominated currencies  

For the year ended

31 December 2020

   Effective
interest rate
     USD     

Japanese

Yen

     Renminbi      Euro     

Other

currencies

     Total  
   RMB million      RMB million      RMB million      RMB million      RMB million      RMB million  

Fixed interest rates

     1.75%~5.03%        43,519        6        10,268        14        16        53,823  

Floating interest rates

     0%~5.22%        9,343        1,019        53,659        3,243        126        67,390  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
        52,862        1,025        63,927        3,257        142        121,213  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Group has significant lease liabilities which are denominated in USD as at 31 December 2021. The net exchange gain of RMB1,575 million for the year ended 31 December 2021 (2020: net exchange gain of RMB3,485 million) was mainly attributable to the translation of balances of lease liabilities which are denominated in USD.

 

248


38

Trade payables

Ageing analysis of trade payables based on transaction date is set out below:

 

     2021      2020  
     RMB million      RMB million  

Within 1 month

     403        431  

More than 1 month but less than 3 months

     221        473  

More than 3 months but less than 6 months

     221        313  

More than 6 months but less than 1 year

     268        329  

More than 1 year

     215        236  
  

 

 

    

 

 

 
     1,328        1,782  
  

 

 

    

 

 

 

The carrying amounts of the Group’s trade payables are denominated in the following currencies:

 

     2021      2020  
     RMB million      RMB million  

Renminbi

     891        1,587  

USD

     431        165  

Others

     6        30  
  

 

 

    

 

 

 
     1,328        1,782  
  

 

 

    

 

 

 

 

39

Contract liabilities

 

     2021      2020  
     RMB million      RMB million  

Unredeemed credits under the frequent flyer award programmes (Note)

     1,459        1,451  

Others

     83        62  
  

 

 

    

 

 

 
     1,542        1,513  
  

 

 

    

 

 

 

 

Note:

As at 31 December 2021, unredeemed credits under the frequent flyer award programmes represent the aggregated amounts of the transaction price allocated to the remaining performance obligation, which is expected to be recognised as revenue in the future when the customers obtain control of the goods or services. Movement of unredeemed credits under the frequent flyer award programmes is set out below:

 

249


39

Contract liabilities (continued)

 

     2021      2020  
     RMB million      RMB million  

Balance at 1 January

     3,196        3,331  

– Current

     1,451        1,568  

Non-current

     1,745        1,763  

Addition as a result of increase of the unredeemed credits under the frequent flyer award programmes

     1,628        1,270  

Reduction as a result of revenue recognised during the year

     (1,763      (1,405

– Recognised as revenue from opening balance of contract liabilities

     (1,344      (1,192

– Recognised as revenue from current year addition of contract liabilities

     (419      (213
  

 

 

    

 

 

 

Balance at 31 December

     3,061        3,196  
  

 

 

    

 

 

 

Representing:

     

– Current

     1,459        1,451  

Non-current (Note 41)

     1,602        1,745  
  

 

 

    

 

 

 

 

40

Sales in advance of carriage

As at 31 December 2021, the amount of sales in advance of carriage represents revenue expected to be recognised in the future when the customers obtain control of and accept the passenger transportation services to be provided by the Group. During the year, RMB2,528 million (2020: RMB6,564 million) which was included in the opening balance of the sales in advance of carriage was recognised as revenue, and RMB1,267 million was refunded to the customers when it’s applicable to the Covid-19 refund policy.

 

41

Other non-current liabilities

 

            2021      2020  
     Note      RMB million      RMB million  

Unredeemed credits under the frequent flyer award programmes

     39        1,602        1,745  

Long-term payables (Note)

        193        291  

Others

        29        —    
     

 

 

    

 

 

 
        1,824        2,036  
     

 

 

    

 

 

 

 

Note:

In 2020, the Group disposed certain aircraft through sale and leaseback agreement, and the long-term payables were additional financing provided by buyer-lessor to the Group in aircraft sale and leaseback transactions. As at 31 December 2021, long-term payables of RMB193 million (31 December 2020: RMB291 million) were additional financing provided by buyer-lessor to the Group in aircraft sale and leaseback transactions, and the current portion of long-term payables of RMB98 million (31 December 2020: RMB94 million) was recorded in other liabilities.

 

250


42

Balances with related companies

 

(a)

Amounts due from related companies

 

           2021      2020  
     Note     RMB million      RMB million  

Current

       

CSAH and its affiliates

       14        10  

Associates

       72        57  

Joint ventures

       28        18  

Other related company

       1        —    
    

 

 

    

 

 

 
     50 (c)      115        85  
    

 

 

    

 

 

 

Non-current

       

Associates

     50 (c)      151        —    
    

 

 

    

 

 

 

The amounts due from associates include long-term receivables of RMB183 million (including the portion due within one year) relating to a finance lease arrangement (Note(26)(ii)). Other than that, the remaining amounts due from related companies are unsecured, interest free and have no fixed terms of repayment. They are expected to be recovered within one year.

 

(b)

Prepayments to related companies for acquisition of long-term assets

 

            2021      2020  
     Note      RMB million      RMB million  

Non-current

        

CSAH and its affiliates

        719        639  

Associates

        495        495  

Joint ventures

        88        88  
     

 

 

    

 

 

 
     30&50(c)        1,302        1,222  
     

 

 

    

 

 

 

 

(c)

Amounts due to related companies

 

            2021      2020  
     Note      RMB million      RMB million  

Current

        

CSAH and its affiliates

        174        225  

Associates

        14        13  

Joint ventures

        175        119  
     

 

 

    

 

 

 
     50(c)        363        357  
     

 

 

    

 

 

 

The amounts due to related companies are unsecured, interest free and have no fixed terms of repayment. They are expected to be settled within one year.

 

251


43

Accrued expenses

 

     2021      2020  
     RMB million      RMB million  

Repairs and maintenance

     5,477        5,268  

Salaries and welfare

     4,457        4,328  

Landing and navigation fees

     1,855        2,121  

Jet fuel costs

     1,524        961  

Computer reservation services

     457        575  

Provision for major overhauls (Note 45)

     124        426  

Air catering expenses

     75        74  

Interest expense

     —          512  

Others

     1,510        1,655  
  

 

 

    

 

 

 
     15,479        15,920  
  

 

 

    

 

 

 

 

44

Other liabilities

 

     2021      2020  
     RMB million      RMB million  

Payable for purchase of property, plant and equipment

     3,420        3,432  

Civil Aviation Development Fund and airport tax payable

     714        885  

Sales agent deposits

     446        485  

Other taxes payable

     501        328  

Deposit received for chartered flights

     259        239  

Others

     2,438        2,104  
  

 

 

    

 

 

 
     7,778        7,473  
  

 

 

    

 

 

 

 

45

Provision for major overhauls

Details of provision for major overhauls in respect of aircraft held under leases are as follows:

 

     2021      2020  
     RMB million      RMB million  

At 1 January

     4,642        4,425  

Additional provision

     714        760  

Utilisation

     (412      (543
  

 

 

    

 

 

 

At 31 December

     4,944        4,642  

Less: current portion (Note 43)

     (124      (426
  

 

 

    

 

 

 
     4,820        4,216  
  

 

 

    

 

 

 

 

252


46

Deferred benefits and gains

 

     2021      2020  
     RMB million      RMB million  

Maintenance rebates

     485        531  

Government grants

     233        229  

Others

     7        9  
  

 

 

    

 

 

 
     725        769  
  

 

 

    

 

 

 

 

47

Share capital

 

     2021      2020  
     RMB million      RMB million  

Registered, issued and paid up capital:

     

Trade-restricted:

     

2,453,434,457 A shares of RMB1.00 each owned by CSAH (2020: 2,942,637,115 shares of RMB1.00 each) (Note (iii))

     2,453        2,942  

0 H shares of RMB1.00 each (2020: 1,209,621,577 shares of RMB1.00 each) (Note (iv))

     —          1,210  
  

 

 

    

 

 

 
     2,453        4,152  

Tradable:

     

6,147,463,051 A shares of RMB1.00 each owned by CSAH (2020: 4,039,228,665 shares of RMB1.00 each) (Note (ii) & (iii))

     6,147        4,039  

4,072,395,671 A shares of RMB1.00 each (2020: 4,072,291,766 shares of RMB1.00 each)

     4,073        4,073  

4,275,144,849 H shares of RMB1.00 each (Note (iv)) (2020: 3,065,523,272 shares of RMB1.00 each)

     4,275        3,065  
  

 

 

    

 

 

 
     14,495        11,177  
     16,948        15,329  
  

 

 

    

 

 

 

Notes:

 

(i)

All the A and H shares rank pari passu in all material respects.

(ii)

For the year ended 31 December 2021, 101,034,070 convertible bonds were converted to A shares at the conversion price of RMB6.24 per share. RMB1,619 million was credited to share capital and RMB8,837 million was credited to share premium respectively.

(iii)

In September 2018, the Company issued 1,578,073,089 A shares (“2018 A shares”) to CSAH and other six entities, and the 2018 A shares issued to CSAH are restricted for trading within 36 months upon completion of the issuance. During the year ended 31 December 2021, the trading restriction on 489,202,658 A shares issued to CSAH was released.

(iv)

In September 2018 and April 2020, the Company issued 600,925,925 H shares (“2018 H shares”) and 608,695,652 H shares (“2020 H shares”) to a fellow subsidiary of CSAH. Considering that the 2018 H shares and the 2020 H shares are not subject to restrictions on sales in nature, the 2018 H shares and the 2020 H shares were reclassified from trade-restricted shares to tradable shares during the year ended 31 December 2021.

 

253


48

Reserves

 

(a)

Dividends

The directors did not propose any final dividend in respect of the years ended 31 December 2021 and 2020.

 

(b)

Share premium

The share premium represents the difference between the par value of the shares of the Company and consideration for the shares issued.

 

(c)

Fair value reserve (recycling)

The fair value reserve (recycling) mainly comprises the hedge reserve which comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash flow in accordance with the accounting policy adopted for cash flow hedges in Note 2(g) and share of an associate’s cumulative net change in the fair value of debts investments measured at FVOCI.

 

(d)

Fair value reserve (non-recycling)

The fair value reserve (non-recycling) mainly comprises the Group’s and share of an associate’s cumulative net change in the fair value of equity investments designated at FVOCI under IFRS 9 that are held at the end of the reporting period (see Note 2(f)).

 

(e)

Other reserves

Other reserves mainly comprise statutory surplus reserve. According to the PRC Company Law and the Articles of Association of the Company and its certain subsidiaries, the Company and the relevant subsidiaries are required to transfer 10% of their annual net profits after taxation, as determined under the PRC accounting rules and regulations, to a statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of dividend to shareholders and when there are retained earnings at the end of the financial year.

Statutory surplus reserve can be used to offset prior years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

For the year ended 31 December 2021, the Company did not make any appropriation of statutory surplus reserve as the Company recorded a net loss in 2021 (2020: Nil).

 

254


49

Commitments

 

(a)

Capital commitments

Capital commitments outstanding as at 31 December 2021 not provided for in the financial statements were as follows:

 

     2021      2020  
     RMB million      RMB million  

Commitments in respect of aircraft and flight equipment

     

– authorised and contracted for

     54,662        56,547  
  

 

 

    

 

 

 

Investment commitments

     

– authorised and contracted for

     

– share of capital commitments of a joint venture

     185        405  

– capital contributions for acquisition of interests in an associate

     171        —    

– authorised but not contracted for

     

– share of capital commitments of a joint venture

     24        26  
  

 

 

    

 

 

 
     380        431  
  

 

 

    

 

 

 

Commitments for other property, plant and equipment

     

– authorised and contracted for

     3,796        4,970  
  

 

 

    

 

 

 

– authorised but not contracted for

     5,785        5,479  
  

 

 

    

 

 

 
     9,581        10,449  
  

 

 

    

 

 

 
     64,623        67,427  
  

 

 

    

 

 

 

As at 31 December 2021, the approximate total future payments, including estimated amounts for price escalation through anticipated delivery dates for aircraft and flight equipment are as follows:

 

     2021      2020  
     RMB million      RMB million  

2021

     —          28,382  

2022

     33,165        15,033  

2023

     15,093        11,910  

2024

     6,404        1,222  
  

 

 

    

 

 

 
     54,662        56,547  
  

 

 

    

 

 

 

 

255


50

Material related party transactions

 

(a)

Key management personnel remuneration

Remuneration for key management personnel of the Group, including amounts paid to the Company’s directors (excluding independent non-executive directors) as disclosed in Note 59, is as follows:

 

     2021      2020  
     RMB’000      RMB’000  

Salaries, wages and welfare

     12,353        10,746  

Retirement scheme contributions

     1,854        1,458  
  

 

 

    

 

 

 
     14,207        12,204  
  

 

 

    

 

 

 

 

     2021      2020  
     RMB’000      RMB’000  

Directors and supervisors (Note 59)

     1,733        1,590  

Senior management

     12,474        10,614  
  

 

 

    

 

 

 
     14,207        12,204  
  

 

 

    

 

 

 

Total remuneration is included in “staff costs” (Note 13).

 

256


50

Material related party transactions (continued)

 

 

(b)

Transactions with CSAH and its affiliates, associates, joint ventures and other related companies of the Group

The Group provided various operational services to CSAH and its affiliates, associates, joint ventures and other related companies of the Group during the normal course of its business. The Group also received operational services provided by these entities.

Details of the significant transactions carried out by the Group are as follows:

 

           2021      2020  
     Note     RMB million      RMB million  

Income from CSAH and its affiliates

       

Rental income*

     (i)       7        7  

Aviation material sales income

     (ii)       4        7  

Entrusted management income*

     (iii)       39        27  

Commission income*

     (iv)       18        5  

Others*

       4        2  

Purchase of goods and services from CSAH and its affiliates

       

Commission expenses*

     (v)       39        36  

Maintenance material purchase expense and lease charges for maintenance materials

     (ii)       106        91  

Air catering supplies expenses*

     (i)       84        88  

Lease charges for land and buildings*

     (vi)       407        350  

Property management fee*

     (vii)       154        129  

Others*

       8        7  

Purchase of goods and services from joint ventures and associates

       

Repairing charges

     (viii)       2,474        1,773  

Repairing charges and maintenance material purchase expenses

     (ix)       2,124        2,331  

Ground service expenses

     (x)       13        131  

Air catering supplies

     (xi)       3        18  

Advertising expenses*

     (xii)       131        169  

Property management fee

     (xiii)       17        18  

Lease charges for land and buildings

     (xiv)       14        —    

Commission expenses

     (xv)       6        10  

Others

       50        16  

 

257


50

Material related party transactions (continued)

 

(b)

Transactions with CSAH and its affiliates, associates, joint ventures and other related companies of the Group (continued)

 

 

          2021      2020  
     Note    RMB million      RMB million  

Income received from joint ventures and associates

        

Maintenance material sales and handling income

   (xvi)      30        14  

Entrustment income for advertising media business*

   (xii)      2        2  

Repairing income

   (xv)      12        12  

Air catering supplies income

   (xv)      10        8  

Pilot training income

   (xv)      19        15  

Ground service income

   (xv)      18        16  

Transfer of pilots income

   (xv)      24        —    

Aircraft leasing income

   (xvii)      4        —    

Others

        15        9  

Purchase of goods and services from other related companies

        

Computer reservation services

   (xviii)      465        433  

Aircraft related transactions with CSAH and its affiliates

        

Payment of lease charges on aircraft*

   (xix)      5,323        4,670  

 

(i)

Shenzhen Air Catering Co., Ltd. (“SACC”) is an associate of CSAH.

Air catering supplies expenses are payable by the Group in respect of certain in-flight meals and related services with SACC.

In addition, the Group leased certain land and buildings, equipment to SACC under operating lease agreements.

 

(ii)

China Aviation Supplies Holding Company (“CASC”) is an associate of CSAH.

The Group purchases software service, as well as purchases and leases maintenance materials from CASC, and CASC also purchases maintenance materials from the Group.

 

258


50

Material related party transactions (continued)

 

(b)

Transactions with CSAH and its affiliates, associates, joint ventures and other related companies of the Group (continued)

 

(iii)

China Northern Airlines Co., Ltd. (“CNAC”) is a wholly-owned subsidiary of CSAH

The Group provides entrusted management service to CSAH and CNAC.

 

(iv)

China Southern Airlines Insurance Brokerage Co., Ltd. (“SAIB”), is a wholly-owned subsidiary of CSAH. The Group provides certain website resources to SAIB for the sales of air insurance.

(v)

Commission is earned by Shenzhen Baiyun Air Service Co., Ltd., a wholly-owned subsidiary of CSAH, in connection with the air tickets sold by them on behalf of the Group. Commission is calculated based on the rates stipulated by the Civil Aviation Administration of China and International Air Transportation Association.

(vi)

The Group leases certain land and buildings in the PRC from CSAH and its affiliates. The amount represents rental expenses for land and buildings paid or payable to CSAH and its affiliates.

(vii)

China Southern Airlines Group Property Management Co., Ltd., a wholly-owned subsidiary of CSAH, provides property management services to the Group.

(viii)

MTU, a joint venture of the Group, provides comprehensive maintenance services to the Group.

(ix)

GAMECO, a joint venture of the Group, provides comprehensive maintenance services to the Group.

The Group also purchases maintenance material from GAMECO.

 

(x)

Beijing Aviation Ground Services Co., Ltd. and Shenyang Konggang Logistic Co., Ltd., associates of the Group, provide ground services to the Group.

(xi)

Beijing Airport Inflight Kitchen Co., Ltd. is an associate of the Group and provides air catering related services to the Group.

(xii)

SACM, an associate of the Group, provides advertising services to the Group. The Group provides certain media resources to SACM.

 

259


50

Material related party transactions (continued)

 

(b)

Transactions with CSAH and its affiliates, associates, joint ventures and other related companies of the Group (continued)

 

(xiii)

Xinjiang Civil Aviation Property Management Ltd., an associate of the Group, provides property management services to the Group.

(xiv)

Beijing Xingming Lake Jinyan Hotel Co., Ltd. an associate of the Group, provides land and buildings lease services to the Group.

(xv)

The Group provides repairing service and air catering supplies service to Sichuan Airlines.

Commission is earned by Sichuan Airlines in connection with the air tickets sold on behalf of the Group.

In addition, the Group provides pilot training service, ground services and transferred pilots to Sichuan Airlines.

 

(xvi)

The Group imports and sells maintenance materials to GAMECO and MTU, and earns maintenance materials sales and handling income.

(xvii)

The Group provides aircraft lease service to Sichuan Airlines and earns aircraft leasing income.

(xviii)

China Travel Sky Holding Company is a related party of the Group as a key management personnel of the Group was appointed as the non-executive director of China Travel Sky Holding Company. It provides computer reservation services to the Group.

(xix)

China Southern Airlines International Finance Leasing Co., Ltd. (“CSA International”), a joint venture of CSAH, provides aircraft and engines lease services to the Group.

*

These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in section “CONNECTED TRANSACTION” of the Report of Director.

 

260


50

Material related party transactions (continued)

 

(c)

Balances with CSAH and its affiliates, associates, joint ventures and other related companies of the Group

Details of amounts due from/to CSAH and its affiliates, associates, joint ventures and other related company of the Group:

 

           2021      2020  
     Note     RMB million      RMB million  

Current receivables:

       

CSAH and its affiliates

       14        10  

Associates

       72        57  

Joint ventures

       28        18  

Other related company

       1        —    
    

 

 

    

 

 

 
     42 (a)      115        85  
    

 

 

    

 

 

 

 

           2021      2020  
     Note     RMB million      RMB million  

Long-term receivables:

       

Associates

       151        —    
    

 

 

    

 

 

 
     42 (a)      151        —    
    

 

 

    

 

 

 

 

           2021      2020  
     Note     RMB million      RMB million  

Prepayments of acquisition of long-term assets:

       

CSAH and its affiliates

       719        639  

Associates

       495        495  

Joint ventures

       88        88  
    

 

 

    

 

 

 
     30&42 (b)      1,302        1,222  
    

 

 

    

 

 

 

 

           2021      2020  
     Note     RMB million      RMB million  

Payables:

       

CSAH and its affiliates

       174        225  

Associates

       14        13  

Joint ventures

       175        119  
    

 

 

    

 

 

 
     42 (c)      363        357  
    

 

 

    

 

 

 

 

261


50

Material related party transactions (continued)

 

(c)

Balances with CSAH and its affiliates, associates, joint ventures and other related companies of the Group (continued)

 

     2021      2020  
     RMB million      RMB million  

Accrued expenses:

     

CSAH and its affiliates

     27        47  

Associates

     57        73  

Joint ventures

     1,277        1,927  

Other related companies

     612        459  
  

 

 

    

 

 

 
     1,973        2,506  
  

 

 

    

 

 

 

Lease liabilities:

     

The CSAH and its affiliates

     24,084        26,789  
  

 

 

    

 

 

 

Except the lease liabilities, the amounts due from/to CSAH and its affiliates, associates, joint ventures and other related companies of the Group are unsecured, interest-free and have no fixed terms of repayment.

 

(d)

Loans from and deposits placed with related parties

 

  (i)

Loans from SA Finance*

At 31 December 2021, loans from SA Finance to the Group amounted to RMB3,018 million (31 December 2020: RMB1,686 million).

The unsecured loans are repayable as follows:

 

     2021      2020  
     RMB million      RMB million  

Within 1 year

     2,978        1,515  

After 1 year but within 2 years

     40        111  

After 2 years but within 5 years

     —          60  
  

 

 

    

 

 

 
     3,018        1,686  
  

 

 

    

 

 

 

Interest expense paid on such loans amounted to RMB76 million (2020: RMB27 million) and the interest rates range from 3.00% to 3.30% per annum during the year ended 31 December 2021 (2020: 3.00% to 4.28%).

 

262


50

Material related party transactions (continued)

 

(d)

Loans from and deposits placed with related parties (continued)

 

  (ii)

Entrusted loans from CSAH*

In June 2021, CSAH, SA Finance and the Group entered into an entrusted loan agreement, pursuant to which, CSAH, as the lender, entrusted SA Finance to lend RMB1,000 million to the Group. In May and June 2020, the Group repaid the entrusted loan from CSAH which was obtained in previous year.

As at 31 December 2021, the unsecured entrusted loans of RMB1,001 million (including accrued interest expense of RMB1 million) on repayable after 2 years but within 5 years (31 December 2020: Nil)(Note 36(e)).

Interest expense for the year ended 31 December 2021 on such loan amounted to RMB22 million (2020: RMB89 million) and the interest rate was 3.85% per annum (2020: 3.92% per annum).

 

  (iii)

Convertible bonds subscribed by CSAH*

In October 2020, the Group issued a total of 160,000,000 A share convertible bonds with par value of RMB100 each at par, among which, CSAH subscribed for 101,027,580 of the convertible bonds.

In June 2021, CSAH has converted all of the subscribed convertible bonds to A share ordinary shares. As at 31 December 2021, CSAH does not hold any convertible bonds issued by the Group.

 

  (iv)

Medium-term notes subscribed by SA Finance*

In March 2020, the Group issued a tranche of medium-term notes in the amount of RMB1,000,000,000 with a term of 5 years from the issuance date at an annual interest rate of 3.28%, and SA Finance subscribed for RMB300,000,000 of the medium-term notes. As at 31 December 2021, SA Finance holds RMB300,000,000 of the medium-term notes.

 

  (v)

Deposits placed with SA Finance*

As at 31 December 2021, the Group’s deposits with SA Finance are presented in the table below. The applicable interest rates are determined in accordance with the rates published by the PBOC.

 

     2021      2020  
     RMB million      RMB million  

Deposits placed with SA Finance

     12,621        9,092  

Interest income received on such deposits amounted to RMB159 million during the year ended 31 December 2021 (2020: RMB91 million).

 

  *

These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in section “CONNECTED TRANSACTION” of the Report of Director.

 

263


51

Employee benefits plan

 

(a)

Retirement benefits

Employees of the Group participate in several defined contribution retirement schemes organised separately by the PRC municipal and provincial governments in regions where the major operations of the Group are located. The Group is required to contribute to these schemes at rates ranging from 14% to 16% (2020: 14% to 16%) of salary costs including certain allowances. A member of the retirement schemes is entitled to pension benefits from the Local Labour and Social Security Bureau upon his/her retirement. The retirement benefit obligations of all retired staff of the Group are assumed by these schemes. The Group, at its sole discretion, had made certain welfare subsidy payments to these retirees.

In 2014, the Company and its major subsidiaries joined a new defined contribution retirement scheme (“Pension Scheme”) that was implemented by CSAH. The annual contribution to the Pension Scheme is based on a fixed specified percentage of prior year’s annual wage. There will be no further obligation beyond the annual contribution according to the Pension Scheme. The total contribution into the Pension Scheme in 2021 was approximately RMB998 million (2020: RMB1,043 million).

For the year ended 31 December 2021, there is no forfeited contribution under the retirement schemes and Pension Scheme which may be used by the Group to reduce the contribution payable in future years.

 

(b)

Housing benefits

The Group contributes on a monthly basis to housing funds organised by municipal and provincial governments based on certain percentages of the salaries of employees. The Group’s liability in respect of these funds is limited to the contributions payable in each year.

The Group also pays cash housing subsidies on a monthly basis to eligible employees. The monthly cash housing subsidies are charged to income statement.

 

264


52

Supplementary information to the consolidated cash flow statement

 

 

Non-cash transactions

 

     2021      2020  
     RMB million      RMB million  

Lease of aircraft

     4,623        11,335  

Convertible bonds converted to A shares

     10,456        —    

 

53

Contingent liabilities

 

  (a)

The Group leased certain properties and buildings from CSAH which were located in Guangzhou, Wuhan, Haikou, etc. Although such properties and buildings were used by CSAH before being leased to the Group, as known to the Group, such properties and buildings lack adequate documentation evidencing CSAH’s rights thereto. Pursuant to the indemnification agreement dated 22 May 1997 entered into between the Group and CSAH, CSAH has agreed to indemnify the Group against any loss or damage arising from any challenge of the Group’s right to use the aforementioned properties and buildings.

 

  (b)

The Group entered into certain agreements with CSAH in prior years to acquire certain land use right and buildings from CSAH. The change of business registration of such land use right and buildings are still in progress. CSAH issued letters of commitment to the Company, committing to indemnify the Group against any claims from third parties to the Group, or any loss or damage in the Group’s operation activities due to lack adequate documentation of the certain properties and buildings, without recourse to the Group.

 

  (c)

The Company and its subsidiary, Xiamen Airlines, entered into agreements with certain pilot trainees and certain banks to provide guarantees on personal bank loans amounting to RMB696 million (31 December 2020: RMB696 million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December 2021, total personal bank loans of RMB181 million (31 December 2020: RMB221 million), under these guarantees, were drawn down from the banks. During the year, RMB2 million has been made by the Group due to the default of payments of certain pilot trainees (2020: Nil).

 

54

Immediate and ultimate controlling party

As at 31 December 2021, the Directors of the Company consider the immediate parent and ultimate controlling party of the Group to be CSAH, a state-owned enterprise established in the PRC.

 

265


55

Non-adjusting events after the financial year end

On 29 October 2021, the Company entered into the Conditional Subscription Agreement in relation to the Subscription of the A Shares under the Non-public Issue of A Shares of the Company with CSAH, pursuant to which the Company proposed to issue 803,571,428 new A Shares to CSAH (“the A Share Issuance”). The total funds to be raised from the A Share Issuance will be not more than RMB4,500 million (including RMB4,500 million). The consideration shall be made by CSAH in full by cash. On 29 October 2021, the Company entered into the Conditional Subscription Agreement in relation to the Subscription of the H Shares under the Non-public Issue of H Shares of the Company with Nan Lung Holding Limited (“Nan Lung”), pursuant to which the Company proposed to issue not more than 855,028,969 new H shares (including 855,028,969 H shares) to Nan Lung (“the H Share Issuance”). The total funds to be raised from the H Share Issuance will be not more than HKD1,800 million (including HK$1,800 million). The consideration shall be made by Nan Lung in full by cash. Both of the A Share Issuance and the connected transaction contemplated under H Share Issuance were approved by the Extraordinary General Meeting of the Company on 28 December 2021. The Company announced that it had received the “Acceptance Notice of the Application for Administration Permission” issued by China Securities Regulatory Commission (“CSRC”) for the A Share Issuance and H share Issuance on 10 January 2022 and 11 January 2022, respectively. On 18 March 2022, the Company announced that it had received the Approval on Issuance of Overseas Listed Foreign Shares by China Southern Airlines Company Limited (Zheng Jian Xu Ke 2022 No. 497) issued by the CSRC. Up to the issuance date of these financial statements, the A Share Issuance is under review by CSRC.

 

56

Impacts of COVID-19 pandemic

The COVID-19 pandemic since early 2020 has brought about additional uncertainties in the Group’s operating environment and had an adverse impact on the Group’s business operation and operating revenue in 2021.

The Group has been closely monitoring the impact of the developments on the Group’s business and has been proactively adjusting its business strategies. These strategies include: making adjustments to the scheduling of domestic and international routes and flights, according to the measures taken by related countries and regions on epidemic prevention and control; actively developing freight transport business and overall improving the utilisation rate of freighters.

 

266


57

Company-level statement of financial position

 

     31 December      31 December  
     2021      2020  
     RMB million      RMB million  

Non-current assets

     

Property, plant and equipment, net

     53,001        55,361  

Construction in progress

     23,318        23,549  

Right-of-use assets

     126,633        128,782  

Investments in subsidiaries

     11,990        10,800  

Interest in associates

     1,332        1,332  

Interest in joint ventures

     1,832        1,832  

Aircraft lease deposits

     298        326  

Other equity instrument investments

     40        100  

Other non-current financial assets

     25        22  

Deferred tax assets

     11,558        7,012  

Amounts due from subsidiaries and other related companies

     4,949        1,691  

Other assets

     2,078        1,775  
  

 

 

    

 

 

 
     237,054        232,582  
  

 

 

    

 

 

 

Current assets

     

Inventories

     1,101        1,145  

Trade receivables

     796        1,704  

Other receivables

     7,468        6,458  

Cash and cash equivalents

     11,778        17,556  

Assets held for sale

     1,292        —    

Restricted bank deposits

     97        78  

Prepaid expenses and other current assets

     565        435  

Amounts due from subsidiaries and other related companies

     6,210        1,201  
  

 

 

    

 

 

 
     29,307        28,577  
  

 

 

    

 

 

 

Current liabilities

     

Derivative financial liabilities

     1,222        3,148  

Borrowings

     53,905        35,816  

Lease liabilities

     18,422        17,348  

Trade payables

     228        435  

Contract liabilities

     1,354        1,355  

Sales in advance of carriage

     2,677        3,028  

Amounts due to subsidiaries and other related companies

     2,575        1,461  

Accrued expenses

     9,461        12,264  

Other liabilities

     5,460        5,314  
  

 

 

    

 

 

 
     95,304        80,169  
  

 

 

    

 

 

 

 

267


57

Company-level statement of financial position (continued)

 

            31 December      31 December  
            2021      2020  
     Note      RMB million      RMB million  

Non-current liabilities

        

Borrowings

        36,797        34,945  

Lease liabilities

        76,222        86,324  

Derivative financial liabilities

        20        53  

Other non-current liabilities

        1,694        1,888  

Provision for major overhauls

        2,905        2,656  

Deferred benefits and gains

        327        390  
     

 

 

    

 

 

 
        117,965        126,256  
     

 

 

    

 

 

 

Net assets

        53,092        54,734  
     

 

 

    

 

 

 

Capital and reserves

        

Share capital

        16,948        15,329  

Reserves

     58        36,144        39,405  
     

 

 

    

 

 

 

Total equity

        53,092        54,734  
     

 

 

    

 

 

 

 

268


58

Reserves movement of the Company

 

     Share premium      Fair value reserve
(recycling)
    Fair value reserve
(non-recycling)
    Other reserves     

Retained Earnings/

(accumulated
losses)

    Total  
     RMB million      RMB million     RMB million     RMB million      RMB million     RMB million  

Balance at 1 January 2020

     25,399        1       66       2,725        8,871       37,062  

Changes in equity for 2020:

              

Total comprehensive income for the year

     —          (34     (66     —          (10,446     (10,546

Issuance of shares

     12,889        —         —         —          —         12,889  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at 31 December 2020 and 1 January 2021

     38,288        (33     —         2,725        (1,575     39,405  

Changes in equity for 2021:

              

Total comprehensive income for the year

     —          33       (45     —          (12,086     (12,098

Conversion of convertible bonds to ordinary shares (Note 47(ii))

     8,837        —         —         —          —         8,837  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at 31 December 2021

     47,125        —         (45     2,725        (13,661     36,144  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

269


59

Benefits and interests of directors and supervisors

 

(a)

Directors’ and supervisors’ emoluments

The remuneration of every director and supervisor for the year ended 31 December 2021 is set out below:

 

Name

  

Directors’

fees

    

Salaries,

wages and

welfare

    

Housing

allowance

    

Employer’s

contribution to

a retirement

benefit

scheme

     Total  
   RMB’000      RMB’000      RMB’000      RMB’000      RMB’000  

Executive directors

              

Ma Xu Lun (Note (i))

     —          —          —          —          —    

Han Wen Sheng (Note (i))

     —          —          —          —          —    

Supervisors

              

Li Jia Shi (Note (ii) & (x))

     —          —          —          —          —    

Ren Ji Dong (Note (iii) & (xi))

     —          667        —          131        798  

Lin Xiao Chun

     —          655        —          147        802  

Mao Juan (Note (viii))

     —          478        —          134        612  

Yang Bin (Note (ix))

     —          294        —          25        319  

Independent non-executive directors

              

Liu Chang Le (Note (vii))

     133        —          —          —          133  

Guo Wei (Note (vii))

     133        —          —          —          133  

Yan Yan (Note (vii))

     133        —          —          —          133  

Gu Hui Zhong

     153        —          —          —          153  

Tan Jin Song (Note (vi))

     50        —          —          —          50  

Jiao Shu Ge (Note (vi))

     50        —          —          —          50  

Zheng Fan (Note (vi))

     20        —          —          —          20  

 

270


59

Benefits and interests of directors and supervisors (continued)

 

(a)

Directors’ and supervisors’ emoluments (continued)

 

The remuneration of every director and supervisor for the year ended 31 December 2020 is set out below:

 

Name

   Directors’
fees
RMB’000
     Salaries,
wages and
welfare
RMB’000
     Housing
allowance
RMB’000
     Employer’s
contribution to
a retirement
benefit
scheme
RMB’000
     Total
RMB’000
 

Executive directors

              

Wang Chang Shun (Note (i) & (v))

     —          —          —          —          —    

Ma Xu Lun (Note (i))

     —          —          —          —          —    

Han Wen Sheng (Note (i))

     —          —          —          —          —    

Supervisors

              

Li Jia Shi (Note (ii))

     —          —          —          —          —    

Mao Juan

     —          706        —          126        832  

Lin Xiao Chun

     —          633        —          125        758  

Independent non-executive directors

              

Tan Jin Song

     150        —          —          —          150  

Jiao Shu Ge

     150        —          —          —          150  

Zheng Fan (Note (iv))

     60        —          —          —          60  

Gu Hui Zhong (Note (iv))

     60        —          —          —          60  

Notes:

 

(i)

These directors did not receive any remuneration for their services in the capacity of the directors of the Company. They also held management positions in CSAH and their salaries were borne by CSAH.

(ii)

Mr. Li Jia Shi did not receive any remuneration for his service in the capacity of the supervisor of the Company since1 February 2018. He also held management position in CSAH and his salary was borne by CSAH.

(iii)

Mr. Ren Ji Dong did not receive any remuneration for his service in the capacity of the supervisor of the company but received salary for his service in the capacity of the senior management in 2021. He also held management position in CSAH and his salary for his services was borne by CSAH since November 2021.

(iv)

In 2020, Mr. Zheng Fan and Mr. Gu Hui Zhong received remuneration in accordance with the relevant provisions of the PRC.

(v)

Mr. Wang Chang Shun retired on 21 December 2020.

(vi)

Resigned on 30 April 2021.

(vii)

Appointed on 30 April 2021.

(viii)

Resigned on 24 November 2021.

(ix)

Appointed on 24 November 2021.

(x)

Resigned on 28 December 2021.

(xi)

Appointed on 28 December 2021.

 

271


59

Benefits and interests of directors and supervisors (continued)

 

(b)

Directors’ and supervisors’ termination benefits

None of the directors and supervisors received or will receive any termination benefits for the year ended 31 December 2021 (2020: Nil).

 

(c)

Consideration provided to third parties for making available directors’ and supervisors’ services

For the year ended 31 December 2021, the Group did not pay consideration to any third parties for making available directors’ and supervisors’ services (2020: Nil).

 

(d)

Information about loans, quasi-loans and other dealings in favour of directors and supervisors, controlled bodies corporate by and connected entities with such directors and supervisors

As at 31 December 2021, there is no loans, quasi-loans and other dealing arrangements in favour of directors and supervisors, controlled bodies corporate by and connected entities with such directors and supervisors (2020: Nil).

 

(e)

Directors’ and supervisors’ material interests in transactions, arrangements or contracts

No significant transactions, arrangements and contracts in relation to the Group’s business to which the Company was a party and in which a director or supervisor of the Company had a material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year (2020: Nil).

 

272


60

Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2021

Up to the date of issue of these financial statements, the IASB has issued a number of amendments, and new standards which are not yet effective for the year ended 31 December 2021 and which have not been adopted in these financial statements. These include the following which may be relevant to the Group.

 

     Effective for
accounting periods
beginning on or after
Amendments to IAS 37, Onerous Contracts — Cost of Fulfilling a Contract    1 January, 2022
Annual Improvements to IFRS Standards 2018-2020 Cycle    1 January, 2022
Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use    1 January, 2022
Amendments to IFRS 3, Reference to the Conceptual Framework    1 January, 2022
Amendments to IAS 1, Classification of liabilities as current or non-current    1 January, 2023
Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of accounting policies    1 January, 2023
Amendments to IAS 8, Definition of accounting estimates    1 January, 2023
Amendments to IAS 12, Deferred tax related to assets and liabilities arising from a single transaction    1 January, 2023

The Group is in the process of making an assessment of what the impact of these developments is expected to be in the period of initial application.

So far it has concluded that except for the adoption of “Amendments to IAS 1, Classification of Liabilities as Current or Non-current”, the adoption of the developments above is unlikely to have a significant impact on the consolidated financial statements.

As at 31 December 2021, if the “Amendments to IAS 1, Classification of Liabilities as Current or Non-current” is adopted by the Group, the convertible bonds recorded in non-current liabilities amounted to RMB4,984 million would be reclassified to current liabilities.

 

273


SUPPLEMENTARY FINANCIAL INFORMATION

For the year ended 31 December 2021

(Prepared in accordance with PRC Accounting Standards)

CONDENSED CONSOLIDATED INCOME STATEMENT

The following consolidated financial information is extracted from the consolidated financial statements of the Group prepared under the PRC Accounting Standards.

 

     2021
RMB million
    2020
RMB million
 

Revenue

     101,644       92,561  

Less: Operating costs

     104,229       94,903  

Taxes and surcharges

     365       330  

Selling and distribution expenses

     4,993       5,248  

General and administrative expenses

     3,678       3,989  

Research and development expenses

     381       367  

Finance expenses

     4,025       2,993  

Including: Interest expense

     6,202       6,716  

Interest income

     675       322  

Add: Other income

     3,964       4,179  

Investment income/(loss)

     284       (401

Including: income/(loss) from investment in associates and joint ventures

     280       (467

(Loss)/gain on fair value movement

     (309     53  

Credit losses

     1       (164

Impairment loss

     (2,614     (4,017

Gain/(loss) on assets disposals

     399       (22
  

 

 

   

 

 

 

Operating loss

     (14,302     (15,641

Add: Non-operating income

     660       652  

Less: Non-operating expenses

     261       197  
  

 

 

   

 

 

 

Loss before income tax

     (13,903     (15,186

Less: Income tax

     (2,892     (3,366
  

 

 

   

 

 

 

Net loss for the year

     (11,011     (11,820
  

 

 

   

 

 

 

(1)   Net loss classified by continuity of operations:

    

1.Net loss from continuing operations

     (11,011     (11,820

2.Net loss from discontinued operations

     —         —    

(2)   Net loss classified by ownership:

    

1.Shareholders of the Company

     (12,103     (10,842

2.Non-controlling interests

     1,092       (978
  

 

 

   

 

 

 

 

274


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

    

31 December

2021

    

31 December

2020

 
     RMB million      RMB million  

Assets

     

Total current assets

     37,866        38,985  

Long-term equity investments

     5,977        5,673  

Fixed assets and construction in progress

     122,686        118,192  

Intangible assets and other non-current assets

     143,588        155,516  

Deferred tax assets

     12,831        7,749  
  

 

 

    

 

 

 

Total assets

     322,948        326,115  
  

 

 

    

 

 

 

Liabilities and equity

     

Current liabilities

     110,990        95,681  

Deferred tax liabilities

     26        80  

Other non-current liabilities

     127,687        145,491  
  

 

 

    

 

 

 

Total liabilities

     238,703        241,252  
  

 

 

    

 

 

 

Total equity attributable to equity shareholders of the Company

     67,616        69,346  

Non-controlling interests

     16,629        15,517  
  

 

 

    

 

 

 

Total equity

     84,245        84,863  
  

 

 

    

 

 

 

Total liabilities and equity

     322,948        326,115  
  

 

 

    

 

 

 

 

275


RECONCILIATION OF DIFFERENCES IN FINANCIAL STATEMENTS PREPARED UNDER DIFFERENT GAAPS

 

(1)

The effect of the differences between PRC GAAP and IFRSs on loss attributable to equity shareholders of the Company is analysed as follows:

 

            2021      2020  
     Note      RMB million      RMB million  

Amounts under PRC GAAP

        (12,103      (10,842

Adjustments:

        

Capitalisation of exchange difference of specific loans

     (a)        (8      (9

Government grants

     (b)        1        —    

Income tax effect of the above adjustments

        2        2  

Effect of the above adjustments on non-controlling interests

        2        2  
     

 

 

    

 

 

 

Amounts under IFRSs

        (12,106      (10,847
     

 

 

    

 

 

 

 

(2)

The effect of the differences between PRC GAAP and IFRSs on equity attributable to equity shareholders of the Company is analysed as follows:

 

            2021      2020  
     Note      RMB million      RMB million  

Amounts under PRC GAAP

        67,616        69,346  

Adjustments:

        

Capitalisation of exchange difference of specific loans

     (a)        39        47  

Government grants

     (b)        (5      (6

Adjustment arising from the Company’s business combination under common control

     (c)        237        237  

Income tax effect of the above adjustments

        (8      (10

Effect of the above adjustments on non–controlling interests

        (28      (30
     

 

 

    

 

 

 

Amounts under IFRSs

        67,851        69,584  
     

 

 

    

 

 

 

Notes:

 

(a)

In accordance with the PRC GAAP, exchange difference arising on translation of specific loans and related interest denominated in a foreign currency is capitalised as part of the cost of qualifying assets. Under IFRSs, such exchange difference is recognised in income statement unless the exchange difference represents an adjustment to interest.

(b)

In accordance with the PRC GAAP, assets related government grants (other than special funds) are deducted from the cost of the related assets. Special funds granted by the government and clearly defined in the approval documents as part of “capital reserve” are accounted for as increase in capital reserve. Under IFRSs, assets related government grants are deducted to the cost of the related assets. The difference is resulted from government grants received in previous years and are recognised in capital reserve under PRC GAAP.

(c)

In accordance with the PRC GAAP, the Company accounts for the business combination under common control by applying the pooling-of-interest method. Under the pooling-of-interest method, the difference between the historical carrying amount of the acquiree and the consideration paid is accounted for as an equity transaction. Business combinations under common control are accounted for as if the acquisition had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established; for this purpose, relevant comparative figures are restated under PRC GAAP. Under IFRSs, the Company adopts the purchase accounting method for acquisition of business under common control.

 

276


FIVE YEAR SUMMARY

The following consolidated financial information is extracted from the consolidated financial statements of the Group, prepared under International Financial Reporting Standards.

CONSOLIDATED INCOME STATEMENT SUMMARY

 

     Year ended 31 December
     2021   2020     2019     2018     2017  
     RMB million   RMB million     RMB million     RMB million     RMB million  
Operating revenue      101,644       92,561       154,322       143,623       127,806  
Operating expenses      (116,340     (109,111     (148,608     (140,242     (123,098
Other net income      4,767       4,686       5,124       5,438       4,448  
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 
Operating (loss)/profit      (9,929     (11,864     10,838       8,819       9,156  
Interest income      675       322       74       125       89  
Interest expense      (6,202     (6,716     (5,845     (3,202     (2,747
Share of associates’ results      9       (776     (178     263       431  
Share of joint ventures’ results      271       309       365       200       99  
Exchange gain/(loss), net      1,575       3,485       (1,477     (1,853     1,801  
Other non-operating (expenses)/income      (309     45       278       12       45  
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 
(Loss)/profit before income tax      (13,910     (15,195     4,055       4,364       8,874  
Income tax      2,894       3,368       (971     (1,000     (1,976
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 
(Loss)/profit for the year      (11,016     (11,827     3,084       3,364       6,898  
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 
(Loss)/profit attributable to:           
Equity shareholders of the Company      (12,106     (10,847     2,640       2,895       5,961  
Non-controlling interests      1,090       (980     444       469       937  
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 
(Loss)/profit for the year      (11,016     (11,827     3,084       3,364       6,898  
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/earnings per share Basic and diluted

     RMB (0.75)      RMB (0.77)      RMB0.22       RMB0.27       RMB0.60  
  

 

 

 

 

 

 

   

 

 

   

 

 

   

 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION SUMMARY

 

     As at 31 December  
     2021      2020      2019      2018      2017  
     RMB million      RMB million      RMB million      RMB million      RMB million  
Non-current assets      285,345        287,398        290,190        222,877        200,834  
Net current liabilities      73,124        56,696        78,752        59,615        51,693  
Non-current liabilities      127,713        145,571        134,109        84,793        86,598  
Total equity attributable to equity shareholders of the Company      67,851        69,584        64,106        65,257        49,936  
Non-controlling interests      16,657        15,547        13,223        13,212        12,607  

 

277

Exhibit 99.2

 

LOGO

[GRAPHIC APPEARS HERE](a joint stock limited company incorporated in the People’s Republic of China with limited liability) (在中華人民共和國註冊成立的股份有限公司) (Stock Code 股份代號:1055) NOTIFICATION LETTER 通知信函 26 April 2022 Dear Non-registered Holders(1), China Southern Airlines Company Limited (the “Company”) — Notice of Publication of 2021 Annual Report (“Current Corporate Communications”) The English and Chinese versions of the Company Current Corporate Communications are available on the Company’s website at www.csair.com and the website of HKEXnews of Hong Kong Exchanges and Clearing Limited (the “HKEXnews”) at www.hkexnews.hk. You may access the Current Corporate Communications by clicking “Investor Relations” on the home page of the Company’s website, then selecting “Performance Report” and viewing them through Adobe® Reader® or browsing through the HKEXnews’s website. If you want to receive a printed version of the Current Corporate Communications, please complete the Request Form on the reverse side and return it to the Company c/o Hong Kong Registrars Limited (the “Hong Kong Share Registrar”) by using the mailing label at the bottom of the Request Form (no need to affix a stamp if posted in Hong Kong; otherwise, please affix an appropriate stamp). The address of the Hong Kong Share Registrar is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. The Request Form may also be downloaded from the Company’s website at www.csair.com or the HKEXnews’s website at www.hkexnews.hk. Should you have any queries relating to any of the above matters, please send an email to [email protected]. Yours faithfully, By order of the Board of China Southern Airlines Company Limited Xie Bing Company Secretary Note: (1)This letter is addressed to Non-registered Holders of the Company only (“Non-registered Holder” means such person or company whose shares are held in the Central Clearing and Settlement System (CCASS) and who has notified the Company from time to time through Hong Kong Securities Clearing Company Limited to receive corporate communications). If you have sold or transferred your shares in the Company, please disregard this letter and the Request Form on the reverse side. 各位非登記持有人(1) : 中國南方航空股份有限公司(「本公司」) — 2021年度報告(「本次公司通訊文件」)之發佈通知 本公司的本次公司通訊文件的中、英文版本已上載於本公司網站( www.csair.com ) 及香港交易及結算所有限公司披露易(「披露易」)網站 ( www.hkexnews.hk ),歡迎瀏覽。請在本公司網站主頁按「投資者關係」一項,再在「業績報告」下使用Adobe® Reader®開啟查閱或在披露易網站瀏覽有關文件。 如 閣下欲收取本次公司通訊文件之印刷本,請填妥在本函背面的申請表格,並使用隨附之郵寄標籤寄回本公司經香港證券登記有限公司(「香港證券登記處」)(如在香港投寄,毋須貼上郵票;否則,請貼上適當的郵票)。香港證券登記處地址為香港灣仔皇后大道東183號合和中心17M樓。申請表格亦可於本公司網站 ( www.csair.com ) 或香港交易所披露易網站( www.hkexnews.hk )內下載。 如對本函內容有任何疑問,請電郵至 [email protected] 。 承董事會命 中國南方航空股份有限公司 公司秘書 謝兵 2022年4月26日 附註: (1)此函件只向本公司之非登記持有人(「非登記持有人」指股份存放於中央結算及交收系統的人士或公司,透過香港中央結算有限公司不時向本公司發出通知,希望收到公司通訊文件)發出。如果 閣下已經出售或轉讓所持有之本公司股份,則無需理會本函件及所附申請表格。


LOGO

+     CCS1923 CSAH_NRH+ Non-registered Holder’s information (English Name and Address) 非登記持有人資料(英文姓名及地址)Request Form 申請表格 To: China Southern Airlines Company Limited (the ‘‘Company’’) (Stock Code: 1055)
c/o Hong Kong Registrars Limited 17M Floor, Hopewell Centre, 183 Queen’s Road East Wanchai, Hong Kong 致:中國南方航空股份有限公司(「本公司」) (股份代號:1055) 經香港證券登記有限公司 香港灣仔皇后大道東183號 合和中心17M樓 I/We would like to receive the corporate communications* of the Company (“Corporate Communications”) in the manner as indicated below: 本人╱我們希望以下列方式收取 貴公司之公司通訊文件*(「公司通訊文件」): (Please mark ONLY ONE (X) of the following boxes) 請從下列選擇中,僅在其中一個空格內劃上「X」號) to receive the printed English version of all Corporate Communications ONLY; OR 僅收取公司通訊文件之英文印刷本;或 to receive the printed Chinese version of all Corporate Communications ONLY; OR 僅收取公司通訊文件之中文印刷本;或 to receive both printed English and Chinese versions of all Corporate Communications. 同時收取公司通訊文件之英文及中文印刷本。 Contact telephone number 聯絡電話號碼 Signature(s) 簽名 [GRAPHIC APPEARS HERE] Notes: 附註: [GRAPHIC APPEARS HERE] 1.Please complete all your details clearly.請 閣下清楚填妥所有資料。 2.This letter is addressed to the non-registered holders of the Company only (‘‘Non-registered Holder’’ means such person or company whose shares are held in the Central Clearing and Settlement System (CCASS) and who has notified the Company from time to time through Hong Kong SecuritiesClearing Company Limited to receive Corporate Communications).此函件只向本公司之非登記持有人(「非登記持有人」指股份存放於中央結算及交收系統的人士或公司,透過香港中央結算有限公司不時向本公司發出通知,希望收到公司通訊文件)發出。 3.Any form with more than one box marked(X), with no box marked(X), with no signature or otherwise incorrectly completed will be void.如在本表格作出超過一項選擇、或未有作出選擇、或未有簽署、或在其他方面填寫不正確,則本表格將會作廢。 4.The above instruction will apply to the Corporate Communications to be sent to you until you notify the Company c/o Hong Kong Registrars Limitedto the contrary or unless you have at anytime ceased to have holdings in the Company.上述指示適用於發送予 閣下之所有公司通訊文件, 直至 閣下通知本公司於香港證券登記有限公司另外之安排或任何時候停止持有本公司的股份。 5.For the avoidance of doubt, we do not accept any other instructions given on this Request Form.為免存疑,任何在本申請表格上的額外指示,本公司將不予處理。 *Corporate Communications includes but not limited to (a) the directors’ report, its annual accounts together with the auditors’ report and, whereapplicable, its summary financial report; (b) the interim report and, where applicable, its summary interim report; (c) a notice of meeting; (d) a listingdocument; (e) a circular; and (f) a proxy form.公司通訊文件包括但不限於:(a)董事會報告、年度財務報表連同核數師報告及財務摘要報告(如適用);(b)中期報告及中期摘要報告(如適用);(c)會議通告;(d)上市文件;(e)通函;及(f)委任代表表格。 [GRAPHIC APPEARS HERE]——————————————————————————————————————————————————————————————————————————————————————————————————————————- Mailing Label 郵寄標籤 Please cut the mailing label and stick it on an envelope to return this Request Form to us. No postage is necessary if posted in Hong Kong. 當 閣下寄回本申請表格時,請將郵寄標籤剪貼於信封上。 如在本港投寄, 閣下無需支付郵費或貼上郵票。 [GRAPHIC APPEARS HERE] Computershare Hong Kong Investor Services Limited 香港中央證券登記有限公司 Freepost No. 簡便回郵號碼:37 [GRAPHIC APPEARS HERE]Hong Kong 香港



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

SEC Filings