EX-99.1 2 d918551dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

GUANGZHOU

and BEIJING

One Headquarter,

Dual Hubs

About us

China Southern Airlines Company Limited is an airlines with the largest number of transport aircraft, the most developed route network and the largest annual passenger turnover in China. By the end of the reporting period, China Southern Airlines has operated a total of 862 passenger and cargo transport aircraft and served nearly 152 million passengers. It is ranked first in Asia and third in the world in terms of fleet scale and passenger turnover. China Southern Airlines has maintained the best safety record among Chinese airlines. The Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from CAAC, in June 2018 and has been an airlines with the highest safety star in China.

 

1


Contents

 

About Us
3    Definitions
5    Corporate Profile
6    Corporate Information
8    Company Business Summary
Operating Results
17    Principal Accounting Information and Financial Indicators
18    Summary of Operating Data
22    Summary of Fleet Data
24    Highlights of the Year
27    Management Discussion and Analysis
Corporate Governance
54    Report of Directors
77    Changes in the Share Capital, Shareholders’ Profile and Disclosure of Interests
Directors, Supervisors, Senior Management and Employees
98    Corporate Governance Report
112    CORPORATE BOND
117    RISK MANAGEMENT AND INTERNAL CONTROL
120    SOCIAL RESPONSIBILITY
Financial Report
Financial Statements Prepared under International Financial Reporting Standards
124    Independent Auditor’s Report
129    Consolidated Income Statement
130    Consolidated Statement of Comprehensive Income
131    Consolidated Statement of Financial Position
133    Consolidated Statement of Changes in Equity
134    Consolidated Cash Flow Statement
135    Notes to the Financial Statements
237    SUPPLEMENTARY FINANCIAL INFORMATION
240    FIVE YEAR SUMMARY

 

2


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 Limited Company
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
Xiongan Airlines    China Southern Airlines Xiongan Airlines Company Limited
SAGA    Southern Airlines General Aviation Co., Ltd.
Hebei Airlines    Hebei Airlines Company Limited
Jiangxi Airlines    Jiangxi Airlines Company Limited
Finance Company    China Southern Airlines Group Finance Company Limited
Freight and Logistic Company    Southern Airlines Freight and Logistic (Guangzhou) Co., Ltd.
GSC    China Southern Airlines Group Ground Services Co., Ltd.
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
American Airlines    American Airlines, Inc.
Sichuan Airlines    Sichuan Airlines Corporation Limited
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    General Administration of Civil Aviation of China
IATA    International Air Transport Association
Daxing Airport    Beijing Daxing International Airport

 

3


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 of the Stock Exchange    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 made available for sale multiplied by the kilometers flown
Available Tonne Kilometers or “ATK”    the tonnes of capacity available for the transportation multiplied by the kilometers flown
Available Tonne Kilometers – passenger    the tonnes of capacity available for passenger multiplied by the kilometers flown
Available Tonne Kilometers – cargo    the tonnes of capacity available for cargo and mails multiplied by the kilometers flown
Revenue Passenger Kilometers or “RPK”    i.e. passengers traffic volume, the number of passengers carried multiplied by the kilometers flown
Revenue Tonne Kilometers or “RTK”    i.e. total traffic volume, the load (passengers 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 operations divided by RFTK

 

4


CORPORATE PROFILE

The Company is the largest airlines in China with the largest number of transport aircraft, the most developed route network and the largest annual passenger turnover.

The Company’s headquarters is located in Guangzhou. It has 16 branches in Beijing, Shenzhen, and other cities and 8 holding aviation subsidiaries including Xiamen Airlines. The Company has set up SAGA in Zhuhai, and has set up 23 domestic offices in Hangzhou, Qingdao and other places, and 55 overseas offices in Sydney, New York and other places. By the end of 2019, the Company has operated a total of 862 passenger and cargo transport aircraft including Boeing 787, 777, 747, 737 series, Airbus 380, 350, 330, 320 series. In 2019, the Company served approximately 152 million passengers, ranking first among Chinese airlines for 41 consecutive years. It ranked first in Asia and third in the world both in terms of fleet size and passenger turnover. The Company maintains the best safety record among Chinese airlines. In June 2018, the Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from CAAC. The Company was the airline with the highest safety star in China.

During the reporting period, the Group provides more than 3,000 flights to 44 countries and regions, and 243 destinations with more than 500,000 seats in each day. In recent years, the Company has continuously launched new routes and added new flights as needed for some flight routes, strengthened transfer function, made full use of the sixth freedom right to build the international aviation hub of “Canton Route”. There are more than 50 international and regional destinations in Guangzhou. It has become the major gateway hub from mainland China to Oceania and Southeast Asia. The Company has made great efforts to promote the construction of Beijing hub, successfully completed the first flight of Daxing Airport and the first batch of flights transition in 2019. According to the plan, the Group will become the largest company with around 43% market share in Daxing Airport by the end of March 2021. The Company actively responded to the national initiative to provide strong support for the promotion of the construction of “The Belt and Road Initiative”. In the areas, such as South Asia, Southeast Asia, the South Pacific, Western and Central Asia, mainly covered along the routes of “The Belt and Road Initiative”, the Company has established perfect route networks. As to the number of routes, the frequency of flights and the market share, the Company ranked first among domestic airlines. This makes the Company become the main force of interconnection between China and the countries and regions connected with “The Belt and Road Initiative”.

 

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:    Wang Chang Shun
Registered Address:    Unit 301, 3/F, Office Tower Guanhao Science Park Phase I, 12 Yuyan Street, Huangpu District, Guangzhou, Guangdong Province, PRC
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:    ir@csair.com
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
Stock Code of H Shares:    01055

 

6


H Share Registrar:    Hong Kong Registrars Limited
   17M Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong
Place of Listing of N Shares:    The New York Stock Exchange
Short Name of N Shares:    China Southern Air
Stock Code of N Shares:    ZNH
N Share Registrar:    BNY Mellon Shareowner Services
   P.O.Box 505000
   Louisville, KY40233-5000, USA
Domestic Legal Adviser:    Dentons Law Offices, LLP (Guangzhou)
Overseas Legal Adviser:    DLA Piper Hong Kong
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 Limited Company
Principal Bankers:    China Development Bank
   Agricultural Bank of China
   Bank of China
   Industrial & Commercial Bank of China
   China Construction Bank
Designated Website for Information Disclosure (H Shares):    www.hkexnews.hk
Annual Report Available for Inspection:    The office of the Board of the Company
As at 30 March 2020    Directors                                                  Supervisors
   Wang Chang Shun                                   Li Jia Shi
   Ma Xu Lun                                                Lin Xiao Chun
   Han Wen Sheng                                       Mao Juan
   Zheng Fan
   Gu Hui Zhong
   Tan Jin Song
   Jiao Shu Ge
Board and Company Secretary:    Xie Bing
Securities Affairs Representative:    Xu Yang
Authorized Representative under the Listing Rules of the Stock Exchange:   

Ma Xu Lun (appointed on 8 May 2019)

Xie Bing

Zhang Zi Fang (retired on 8 May 2019)

 

7


COMPANY BUSINESS SUMMARY

 

I.

    The Principal Business and Operating Model of the Company and the Industry Summary during the Reporting Period

 

(I)

Principal Business

The scope of business of the Company includes: (1) provision of services of domestic, regional and international scheduled and unscheduled air transportation of passenger, cargo, mail and baggage; (2) provision of services of general aviation; (3) provision of services of aircraft maintenance; (4) acting as an agency of domestic and foreign airlines; (5) offering airlines catering services (operated by branch office only); (6) conducting other aviation and relevant businesses, including advertising for such businesses; (7) conducting other aviation business and related business, (limited to insurance and agency business: personal accident insurance); provision of airlines ground services; civil aircraft training (operated by branch office only according to license); asset leasing services; project management and technical consultancy services; sales of aviation equipment; travel agency business; merchandise retail and wholesale. (For all projects being subject to approval in accordance with laws, the business activities can only be carried out after approval by relevant authorities in accordance with the laws).

 

(II)

Profit Model, Operating Characteristics and Development Strategies

The Company continued to strengthen the governance system and governance capacity building, and enhance competitiveness, innovation, control, influence and risk resistance. Guided by the development program for quality and world-class air transport enterprise, the Company has given more emphasis on quality, efficiency and effectiveness, and pursued safe, quality and shared development, in an innovative, cooperative and green way.

It has always been the intent and purpose of the Company to build a world-class air transport enterprise. In order to accelerate the transformation to high-quality growth, the Company has established a strategic framework of “three-two-four-five-three” to strive for a goal of “three first-class” in respect of safety quality, profitability, and brand image, a strategic layout of Guangzhou-Beijing “dual hubs”, and a strategic direction of “standardization, integration, intelligentization and internationalization”. We have established and improved five systems, namely party leadership, governance structure, strategic management, resource capabilities, and corporate culture. The three major assurances in terms of conditions, resources and environment have been enhanced to realize the modernization of the governance system and capacity.

The Company accelerated the construction of integrated operation by promoting reforms of centralized operation, unifying flight resource management and deepening reforms in the field of marketing. It gradually shifted to a “tiered arrangements and vertical management-based” management and control model. Through the implementation of a three-level operational decision-making system, it has formed a new pattern with the headquarters focusing on the management of the entire group, matrix unit for construction and branch office on daily operation. In this way, it realized a profound change in philosophy, centralized more core resources, and enhanced local assurance, thus giving full play to the advantage of multiple fleet and bases, and advantage of network, to effectively improve operation quality and efficiency.

 

8


(III)

Development of Civil Aviation Industry and Industrial Position of the Company

 

1.

Information of Development of International and Domestic Aviation Industry

 

(1)

Development of International Aviation Industry

The growth of passenger demand slowed down, and cargo traffic demand declined year-on-year. According to the data released by IATA, in 2019, the global passenger aviation demand increased by 4.2% year-on-year in terms of RPK. The growth of passenger transport demand slowed down in 2019 and it was the first time that the average annual growth rate of passenger has been lees than 5.5% since the global financial crisis in 2008. In 2019, the global aviation cargo traffic demand (in terms of RFTK) decreased by 3.3% compared with 2018 and it was the first decrease since 2012.

Revenues from both passenger and freight transport volume were weak. In 2019, the price of Brent crude oil averaged at about US$65 per barrel, and fuel costs were lower than expected. Operating expenses of global aviation industry increased by only 3.8% year-on-year. However, the low growth in operating expenses was still not enough to offset the impact of weak revenue on the industry’s net profit. According to data released by IATA in December 2019, the passenger yield of global aviation industry decreased by 3.0% and the freight yield decreased by 5.0%. IATA predicted that the industry’s net profit was US$25.9 billion in 2019, a 5.1% decrease from 2018.

Profit and loss were geographically differentiated. According to data released by IATA, the profit and loss performance of airlines presented differentiation by geographical locations. Among them, the financial performance of airlines in North America continued to lead, accounting for 65% of the industry’s total profit; airlines in Europe were in good overall operating conditions, but the profit and loss performance of airlines presented differentiation; benefiting from the strong growth of the Chinese market, airlines in Asia Pacific region achieved better profit performance as a whole; airlines in Latin America are expected to lose US$400 million; and airlines in Africa are expected to lose US$200 million.

 

(2)

Development of China Aviation Industry

According to the data released by CAAC:

Flight safety. In 2019, China’s civil aviation transport achieved 4.965 million flights of 12.309 million hours. The air transport achieved a new safety record in continuous safety flight of 112 months and 80.68 million hours, and secured aviation safety without liability accidents for 17 years.

 

9


Operation service. In 2019, the flight on-time performance rate in the China’s civil aviation industry reached 81.65%, representing an increase of 1.52 percentage points year-on-year, exceeding 80% for 2 consecutive years; 229 airports and major airlines are able to provide ‘‘paperless ’’ travel. The average self-service check-in rate for domestic passengers at 37 ten-million-level airports was 71.6%.

Production and operation. In 2019, China’s civil aviation achieved a total traffic volume of 129.27 billion ton-kilometers, a passenger traffic volume of 660 million and a cargo and mail transportation volume of 7.526 million tons, up by 7.1%, 7.9% and 1.9% year-on-year, respectively. Revenue from the entire industry amounted to RMB1.06 trillion, representing an increase of 5.4%. The proportion of civil aviation passenger turnover over the comprehensive transportation system reached 32.8%, representing an increase of 1.5 percentage points year-on-year.

 

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, openness 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 express postal industry.

 

(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, high risks are largely affected by political and economic situations. War, unrest, terrorist incidents, even epidemic disease will exert an unexpected impact on it. In addition, fluctuations in exchange rate, interest rate, and price of aviation fuel will also exert a huge impact on its operation and profitability. 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 purchasing aircraft, flight cost, and maintenance cost are huge. Airlines also need to input a huge fund for supporting infrastructure, facility, equipment and technology transformation.

 

10


3.

Industrial Position of the Company

The Company is the largest airlines in China with the largest number of transport aircraft, the most developed route network and the largest annual passenger throughput. Its headquarters is located in Guangzhou. It has 16 branches in Beijing, Shenzhen and other cities and 8 airlines subsidiaries including Xiamen Airlines. The Company has set up SAGA in Zhuhai, and has set up domestic offices in 23 cities including Hangzhou, Qingdao, and 55 overseas offices in Sydney, New York and other places. By the end of 2019, the Company has operated a total of 862 passenger and cargo transport aircraft including Boeing 787, 777, 747, 737 series, Airbus 380, 350, 330, 320 series. In 2019, the Company served approximately 152 million passengers, ranking first among Chinese airlines for 41 consecutive years. It ranked first in Asia and third in the world both in terms of fleet size and passenger turnover. The Company maintains the best safety record among Chinese airlines. In June 2018, the Company was awarded “Two-Star Diamond Award for Flight Safety”, the top award for flight safety from CAAC. The Company was the airline with the highest safety star in China.

During the reporting period, the Group provides more than 3,000 flights to 44 countries and regions, and 243 destinations with more than 500,000 seats in each day. In recent years, the Company has continuously launched new routes and add new flights as needed for some flight routes, strengthened transfer function, made full use of the sixth freedom right to build the international aviation hub of “Canton Route”. There are more than 50 international and regional destinations in Guangzhou. It has become the major gateway hub from mainland China to Oceania and Southeast Asia. The Company fully promoted the construction of the Beijing hub, and successfully completed the first flight and transit of the first batch of flights at Daxing Airport in 2019. According to the plan, as of the end of March 2021, the Group’s market share in Daxing Airport will reach about 43%, making it the largest airlines in Daxing Airport. The Company actively responded to the national initiative to provide strong support for the promotion of the construction of “The Belt and Road Initiative”. In the areas, such as South Asia, Southeast Asia, the South Pacific, Western and Central Asia, mainly covered along the routes of “The Belt and Road Initiative”, the Company has well-established route networks. As to the number of routes, the frequency of flights and the market share, the Company ranked first among domestic airlines. This makes the Company become the main force of interconnection between China and the countries and regions connected with “The Belt and Road Initiative”.

 

11


(IV)

Challenges

The major challenges faced by the Group include:

 

1.

Exchange rate fluctuation

Certain factors such as the complexity of the economic and trade conditions and currency policy changes lead to the long-term uncertainty of Renminbi. At the beginning of 2020, many countries gradually implemented monetary easing policy under the downward pressure on the economy to response to COVID-19 outbreak (the “Outbreak”). As shown by Reuters survey questionnaires, numbers of investment banks predicted that Renminbi exchange rate will fluctuate around 7.0 in 2020.

 

2.

Crude oil prices

In 2020, as the global political landscape is complex and changeable, and the increasing downward pressure on the global economy, there is uncertainty for supply side and demand side of international crude oil. At the first quarter of 2020, international crude oil prices continued to decline and fluctuate significantly. Fluctuations in crude oil prices lead to changes in fuel costs of the Company. Since fuel cost is one of the Company’s main operating cost, fluctuations in fuel costs will directly affect the Company’s performance.

 

3.

Expansion of high-speed rail network

According to the data released by China Railway Corporation (中國鐵路總公司), by the end of 2019, China’s railway operating mileage had reached 139,000 kilometers, of which high-speed rail mileage attaining 35,000 kilometers. By 2025, the railway mileage will reach 175,000 kilometers, including 38,000 kilometers of high-speed railway. The Eight Vertical and Eight Horizontal network of high-speed railway will cover China’s economically developed southeast coastal areas, densely populated central areas and major western cities. The operating results of the Company’s routes that overlap with the high-speed railway network (especially routes with mileage of no more than 800 kilometers) will be impacted in the future to a certain extent.

 

4.

Intensifying competition in the industry

In the domestic market, low cost carriers continue to open up domestic bases and increase their efforts to develop short to medium-distance international market, even with the possibility of launching long-haul international routes in the future. The domestic competition will continue to intensify. In the international market, the growth rate of low cost carriers is faster than the world average, and their market share in developed markets and emerging economies continue to grow. As China’s outbound travel market continues to be hot, a large number of international direct flights are launched in second- and third-tier cities, impacting on Beijing, Shanghai and Guangzhou hubs to a certain extent.

 

5.

Impact of COVID-19 outbreak

Since late January 2020, the Outbreak has spread globally. Many countries in Asia, Europe and the Americas successively adopted travel restrictions to prevent the Outbreak from spreading further, which resulted in sharp decline in global aviation demand. By the end of March, there is a better trend in China’s overall outbreak control, therefore, many domestic provinces and cities adopted variable policies of reproduction and rework and domestic aviation demand gradually recovered. However, restriction policies for global aviation have tightened due to continuing spread of the Outbreak globally, CAAC recently published a notice about adjusting and reducing the number of flights during the Outbreak prevention and control period. It is expected that the supply of international aviation will further decrease. It is expected that the Outbreak will adversely affect the Company’s production and operations, and the specific extent is uncertain.

 

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(V)

Security Ensurence Input

During the reporting period, the Company always insisted on the principle of “safety first”, constantly strengthened safety management system, and continued to modify safety rules and regulations and enhance security ensurence input.

First, we have continuously improved the safety management system and enhanced safety governance capability. In light of large size and diversified aircraft of the Company’s fleet, we launched the construction of seven major safety systems centered on safety responsibility, regulations and manuals, training, process control, risk management and control, safety culture, and technological innovation, as a way to advance an overall transition of the Company’s safety management by building it in an institutionalized, structured, systematic and informationized way.

Second, we have focused on key links and continued to improve safety system. In 2019, the Company implemented systems such as regulations on management of dishonesty, regulations on cockpit sound monitoring and management, and regulations on comprehensive smoking ban on aircraft to strengthen institutional supervision. At the same time, the Company comprehensively revised the Aviation Safety Management Manual, implemented accurate assessment, greatly streamlined the safety assessment terms, and continued to improve the safety system.

Third, we have adopted risk prevention measures. Subject to the requirements of CAAC for “capacity control and structure adjustment”, we formulated control, reduction and suspension measures, and improved and revised 43 operation manuals.

Fourth, we have implemented safety inspections. Inspections were conducted with emphasis on systems and levels. A complete set of procedures was formed from planning, implementation, analysis to feedback, to achieve a wider and deeper coverage for aggressive inspections. In 2019, the Company carried out 187 company-level inspections and about 2,500 self-inspections by various departments, covering various areas of safety production. Follow-up verification was enhanced to ensure rectification effects.

By the end of the reporting period, the Group continued to maintain the best safety records among Chinese airlines by successively realizing 20 aviation safety years.

 

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II.     Analysis on Core Competitiveness during the Reporting Period

The Company’s five core competitiveness have begun to take shape, including its powerful and well-rounded scale and network advantages, its hub operation and management capability with Guangzhou-Beijing as the core, its resources interoperability under the matrix management mode, its service brand influence and its leading advanced information technology.

 

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 airlines in China with its amount of passenger traffic exceeding 100 million. At present, China Southern Airlines has 16 branches, including Beijing and Shenzhen and 8 majority-held civil aviation subsidiaries, including Xiamen Airlines. Establishment of subsidiaries created advantage to better coordinate resources including local market, airports, large customers, channel and media, and supply transiting customers to the hubs. Meanwhile, the Company has set up 7 regional marketing centers, 23 domestic offices and 55 overseas offices in all continents. The Company has formed a comprehensive sales network with branches, holding companies, regional marketing centers and offices.

 

2.

Constantly enhanced ability to operate and manage Guangzhou-Beijing as dual core hubs. In accordance with the overall positioning of “One Headquarters, Dual Hubs”, 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 airlines. In 2019, CSA deeply cultivated in the Greater Bay Area and endeavored to build the Guangzhou hub into a model of an international aviation hub co-constructed with provinces and cities. Presently, CSA has input more than 210 aircraft in Guangzhou. Guangzhou hub has formed its route network featured with Europe and Oceania as its core, Southeast Asia, Southern Asia and Eastern Asia as its hinterlands, and with North America, Middle East, Africa covered. The hub effect continued to appear. At the same time, CSA achieved a high-quality start in Beijing in 2019, and successfully completed the first flight and transit of the first batch of flights at Daxing Airport in 2019. According to the plan, as of the end of March 2021, the Group’s market share in Daxing Airport will reach about 43%, making it the largest airlines in Daxing Airport. By comprehensively advancing the strategic layout of the “dual hubs”, CSA has further improved its institutional mechanisms and supporting resources to form a new development strategy layout with Guangzhou Hub in the south and Beijing Hub in the north.

 

14


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 “headquarter for overall management, branches and subsidiaries, regional marketing center, offices for execution, matrix unit for construction”, enabled more concentrated core resource, powerful coordinated command, timely dynamic responses and enhanced 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 deepened the reform of marketing, continued to optimize capacity investment, strengthened capacity matching with the market, and enhanced revenue management and control. It independently set up strategic department and operational department, strengthened marketing service quality management, and implemented a customer manager system on a trial basis, as a way to continuously optimize its marketing management and control layout.

 

4.

Striving for the world’s first-class brand service. CSA was clearly positioned to offer “affinity and refinement” service, and continuously improved service quality to build a first-class international service brand. Its brand influence has continued to increase at home and abroad. In 2019, the Company’s flight on-time performance rating continued to increase, leading the industry. The Company fully performed political and social responsibilities including guarantees for material tasks, supporting the poor to overcome difficulties, energy conservation and emission reduction, which strongly demonstrated the positive images of “Sunshine CSA” and “responsible state-owned enterprise”, fully accomplishing the major ensurence mission such as the 70th anniversary of the establishment of the new China. Major guarantee tasks such as the 70th anniversary of the founding of the People’s Republic of China were successfully completed. CSA was selected as the “Top 100 Brand Models of Chinese Brands in 2019” (2019中國品牌強國盛典榜樣100品牌) by China Media Group, and was awarded the “Asian Service Award” by Asian Network for Quality, and the “Golden Phoenix Award” by sina.com.cn, and was named by Business Traveller as “China’s Best Airlines 2019”.

 

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. The Company constructed and reconstructed several IT systems, such as new version of official websites, mobile APP, WeChat platform, B2B, etc. This has formed passenger marketing, operation control, ground services, aviation safety, cargo transport, corporate management and public platform and many other systems, providing strong support for the strategic transformation and business development of the Company. These were the information construction accomplishments the Company achieved and generally accepted in the industry. Since 2016, CSA has fully promoted “Internet+” strategy, implemented the construction of e-commerce platform—“China Southern e-travel”, and fully created mobile user end one-stop service platform. At present, 318 functions on mobile platform of “China Southern e-travel” realized paperless operation for nearly the entire process. The concept of “a hassle-free journey with one mobile device” has been fully realized, with an accumulative number of 56.46 million of APP startups and an accumulative number of 39.38 million social media followers. The key indicators continue to lead in industry.

 

15


GUANGZHOU BAIYUN

INTERNATIONAL AIRPORT

Deeply Cultivated

the Greater Bay Area

to Build a Model of an

International Aviation Hub

 

16


PRINCIPAL ACCOUNTING INFORMATION

AND FINANCIAL INDICATORS

Principal Accounting Information

Unit: RMB million

 

     2019      2018      Increase/
(decrease) %
 

Operating revenue

     154,322        143,623        7.4  

Net profit attributable to equity shareholders of the Company

     2,640        2,895        (8.8
     As of 31 December      Increase/
(decrease) %
 
     2019      2018  

Total equity attributable to equity shareholders of the Company

     64,106        65,257        (1.8

Total assets

     306,928        246,949        24.29  

Principal Financial Indicators

 

     2019      2018      Increase/
(decrease) %
 

Basic earnings per share (RMB/share)

     0.22        0.27        (18.52

Diluted earnings per share (RMB/share)

     0.22        0.27        (18.52

 

17


SUMMARY OF

OPERATING DATA

 

     For the year ended 31 December         
     2019      2018      Increase/(decrease) (%)  

Traffic

        

Revenue passenger kilometers (RPK) (million)

        

Domestic

     195,239.18        178,972.96        9.09  

Hong Kong, Macau and Taiwan

     3,258.71        3,304.83        (1.40

International

     86,422.92        76,916.01        12.36  
  

 

 

    

 

 

    

 

 

 

Total:

     284,920.82        259,193.80        9.93  
  

 

 

    

 

 

    

 

 

 

Revenue tonne kilometers (RTK) (million)

        

Domestic

     18,897.97        17,437.56        8.38  

Hong Kong, Macau and Taiwan

     312.80        315.39        (0.82

International

     13,414.05        12,580.72        6.62  
  

 

 

    

 

 

    

 

 

 

Total:

     32,624.82        30,333.67        7.55  
  

 

 

    

 

 

    

 

 

 

RTK – passenger (million)

        

Domestic

     17,182.13        15,764.81        8.99  

Hong Kong, Macau and Taiwan

     286.62        290.36        (1.29

International

     7,573.52        6,745.45        12.28  
  

 

 

    

 

 

    

 

 

 

Total:

     25,042.27        22,800.62        9.83  
  

 

 

    

 

 

    

 

 

 

RTK – cargo (million)

        

Domestic

     1,715.84        1,672.75        2.58  

Hong Kong, Macau and Taiwan

     26.18        25.03        4.59  

International

     5,840.53        5,835.27        0.09  
  

 

 

    

 

 

    

 

 

 

Total:

     7,582.55        7,533.05        0.66  
  

 

 

    

 

 

    

 

 

 

Passengers carried (thousand)

        

Domestic

     128,706.50        119,494.01        7.71  

Hong Kong, Macau and Taiwan

     2,480.54        2,527.08        (1.84

International

     20,445.12        17,863.96        14.45  
  

 

 

    

 

 

    

 

 

 

Total:

     151,632.16        139,885.04        8.40  
  

 

 

    

 

 

    

 

 

 

 

18


     For the year ended 31 December         
     2019      2018      Increase/(decrease) (%)  

Cargo and mail carried (thousand tonnes)

        

Domestic

     1,052.13        1,043.91        0.79  

Hong Kong, Macau and Taiwan

     23.27        21.85        6.50  

International

     688.16        666.52        3.25  
  

 

 

    

 

 

    

 

 

 

Total:

     1,763.56        1,732.28        1.81  
  

 

 

    

 

 

    

 

 

 

Capacity

        

Available seat kilometres (ASKs) (million)

        

Domestic

     235,216.49        216,160.94        8.82  

Hong Kong, Macau and Taiwan

     4,367.53        4,383.59        (0.37

International

     104,477.84        93,876.41        11.29  
  

 

 

    

 

 

    

 

 

 

Total:

     344,061.86        314,420.95        9.43  
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATKs) (million)

        

Domestic

     26,803.84        24,549.52        9.18  

Hong Kong, Macau and Taiwan

     506.71        503.53        0.63  

International

     19,123.06        17,674.93        8.19  
  

 

 

    

 

 

    

 

 

 

Total:

     46,433.61        42,727.99        8.67  
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATKs) – passenger (million)

        

Domestic

     21,169.48        19,454.49        8.82  

Hong Kong, Macau and Taiwan

     393.08        394.52        (0.37

International

     9,403.01        8,448.88        11.29  
  

 

 

    

 

 

    

 

 

 

Total:

     30,965.57        28,297.89        9.43  
  

 

 

    

 

 

    

 

 

 

Available tonne kilometres (ATKs) – cargo (million)

        

Domestic

     5,634.36        5,095.03        10.59  

Hong Kong, Macau and Taiwan

     113.64        109.01        4.25  

International

     9,720.05        9,226.06        5.35  
  

 

 

    

 

 

    

 

 

 

Total:

     15,468.05        14,430.10        7.19  
  

 

 

    

 

 

    

 

 

 

 

19


     For the year ended 31 December         
     2019      2018     

Increase/(decrease)
percentage

points

 

Load factor

        

Passenger load factor (RPK/ASK) (%)

        

Domestic

     83.00        82.80        0.20  

Hong Kong, Macau and Taiwan

     74.61        75.39        (0.78

International

     82.72        81.93        0.79  

Average:

     82.81        82.44        0.37  

Overall load factor (RTK/ATK) (%)

        

Domestic

     70.50        71.03        (0.53

Hong Kong, Macau and Taiwan

     61.73        62.63        (0.90

International

     70.15        71.18        (1.03

Average:

     70.26        70.99        (0.73
                  

Increase/

(decrease) (%)

 

Yield

        

Yield per RPK (RMB)

        

Domestic

     0.52        0.54        (3.70

Hong Kong, Macau and Taiwan

     0.75        0.74        1.35  

International

     0.39        0.39        –    

Average:

     0.49        0.49        –    

Yield per RFTK (RMB)

        

Domestic

     1.14        1.17        (2.56

Hong Kong, Macau and Taiwan

     4.67        4.67        –    

International

     1.29        1.36        (5.15

Average:

     1.27        1.33        (4.51

Yield per RTK (RMB)

        

Domestic

     5.50        5.60        (1.79

Hong Kong, Macau and Taiwan

     8.18        8.13        0.62  

International

     3.10        3.00        3.33  

Average:

     4.54        4.55        (0.22

 

20


     For the year ended 31 December         
     2019      2018      Increase/(decrease) (%)  

Cost

        

Operating expenses per ATK (RMB)

     3.20        3.28        (2.44

Flight Volume

        

Kilometers flown (million)

     1,875.52        1,762.92        6.39  

Hours flown (thousand)

        

Domestic

     2,249.15        2,107.10        6.74  

Hong Kong, Macau and Taiwan

     40.77        41.13        (0.88

International

     661.45        624.35        5.94  
  

 

 

    

 

 

    

 

 

 

Total:

     2,951.37        2,772.58        6.45  
  

 

 

    

 

 

    

 

 

 

Number of flights (thousand)

        

Domestic

     963.42        923.67        4.30  

Hong Kong, Macau and Taiwan

     19.07        19.44        (1.90

International

     135.39        126.32        7.18  
  

 

 

    

 

 

    

 

 

 

Total:

     1,117.88        1,069.43        4.53  
  

 

 

    

 

 

    

 

 

 

 

Note:

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

 

21


SUMMARY OF

FLEET DATA

As at 31 December 2019, the scale and structure of fleet and the delivery and disposal of aircraft of the Group were as follows:

Unit: number of aircraft

 

Models    Number of
aircraft under
operating lease
     Number of
aircraft under
finance lease
     Number
of aircraft
purchased
     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

     0        1        4        0        0        5  

A350 Series

     0        6        0        6        0        6  

A330 Series

     7        29        11        0        3        47  

A320 Series

     128        95        94        35        17        317  

B787 Series

     8        25        4        7        0        37  

B777 Series

     0        14        1        5        0        15  

B757 Series

     0        0        0        0        4        0  

B737 Series

     163        82        156        1        2        401  

EMB190

     14        0        6        0        6        20  

Freighter

                 

B777 Series

     0        5        7        0        0        12  

B747 Series

     0        0        2        0        0        2  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total      320        257        285        54        32        862  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


From 2020 to 2022, the delivery and disposal plan of aircraft of the Group will be as follows:

Unit: number of aircraft

 

    2019     2020     2021     2022  
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       /       /       5       /       /       5       /       /       5  

A350 Series

    6       6       /       12       4       /       16       4       /       20  

A330 Series

    47       /       7       40       /       /       40       /       /       40  

A320 Series

    317       30       18       329       12       /       341       /       /       341  

Boeing

                   

B787 Series

    37       5       /       42       /       /       42       /       /       42  

B777 Series

    15       1       /       16       /       /       16       /       /       16  

B737 Series

    401       36       1       436       48       /       484       39       /       523  

Other

                   

EMB190

    20       /       11       9       /       3       6       /       /       6  

ARJ21

    /       6       /       6       8       /       14       8       /       22  

Passenger Aircraft

Sub-total

    848       84       37       895       72       3       964       51       /       1,015  

Freighter

                   

B777 Series

    12       2       /       14       /       /       14       /       /       14  

B747 Series

    2       /       /       2       /       /       2       /       /       2  

Freighter Sub-total

    14       2       /       16       /       /       16       /       /       16  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    862       86       37       911       72       3       980       51       /       1,031  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Note:

 

The possible adjustment of B737-8 aircraft delivery is not included in the above plan, and the subsequent introduction of B737 series aircraft may be reduced.

 

The Company fleet’s introduction or disposal plans in the future will be subject to actual operation.

 

23


HIGHLIGHTS

OF THE YEAR

January

China Southern Airlines entered into a memorandum of understanding with British Airways, as well as a memorandum of understanding and a code-sharing cooperation agreement with Emirates.

February

China Southern Airlines held an “Air Temple Fair” on its international flights to the Five continents, during which, China Southern Airlines invited passengers from all over the world to experience Chinese traditional culture and displayed the intangible cultural heritage of Guangzhou, PRC.

March

China Southern Airlines launched three routes, including Hotan – Urumqi – Guangzhou, Hotan – Korla – Chengdu and Kashgar – Hotan – Zhengzhou. Over the past three years, a total of 6 poverty alleviation routes have been launched.

May

China Southern Airlines and Civil Aviation University of China established a Key laboratory of artificial intelligence and a “Key Laboratory of Artificial Intelligence of Airlines” to promote the artificial intelligence research in civil aviation.

July

China Southern Airlines have constructed its Daxing Airport base in accordance with high standards, the construction of the five functionality sections was substantially completed. China Southern Airlines will have the hanger with the largest span in Asia, the largest operations control centre and aviation food production base in Asia.

 

24


September

Daxing Airport was formally put into operation on 25 September. CSA’s flight CZ3001 was the first flight of Daxing Airport, from Beijing Daxing Airport to Guangzhou Baiyun International Airport. CSA has entered the era of Guangzhou-Beijing “dual hub” echoing north and south and operating side by side.

September

China Southern Airlines formulated the CSAH’s Implementation Plan for Providing Services in Guangdong – Hong Kong – Macau Greater Bay Area, to promote the integrated development of Guangzhou-Shenzhen hubs.

October

China Southern Airlines launched “family service 360” products, with service concept of “action concurrent with words, affinity and refinement”, opening a new chapter for China Southern Airlines’ high-end cabin service to achieve the goal of “world first-class level”.

October

The first batch of 13 routes of China Southern Airlines was officially transitted to Daxing Airport. The Company’s market share in Daxing Airport will reach about 43% as at the end of March 2021 according to the plan, making it the largest main base airlines.

December

China Southern Airlines became the first airline obtaining IATA baggage tracking compliance certification in Asia. The Company’s luggage tracking project covered 27 domestic and foreign airports in Guangzhou, Beijing (Beijing Capital International Airport and Daxing Airport), Los Angeles, London and other cities.

December

China Southern Airlines successively ensured its continuation in aviation safety in 2019 in past years. We have secured aviation safety in 20 consecutive years and aviation security in 25 consecutive years, keeping our leading position in China’s civil aviation industry.

 

25


BEIJING DAXING

INTERNATIONAL AIRPORT

Start and Development with High-Quality

 

26


MANAGEMENT

DISCUSSION AND ANALYSIS

Faced with rising risks and challenges at home and abroad, the Group accelerated the reform of its system and mechanism, made great efforts to modernise its governance system and capability, and adhered to safe development, high-quality development, innovative development, cooperative development, shared development and green development. During the reporting period, with the joint efforts of the management and all staff, the Group’s safety quality was improved continuously, passenger traffic volume reached a new record high, and brand image was greatly enhanced.

Mr. Wang Chang Shun

Chairman

 

I.

Business Review

In 2019, the downward pressure on the world economy increased due to frequent international trade frictions, intensified global financial volatility, geopolitical risks and other factors. The World Economic Situation and Prospects 2020 issued by the United Nations shows that the global economic growth rate slowed down to 2.3% in 2019, the lowest level over the past 10 years. Among which, the U.S. economy grew by 2.3% and the economy in the Euro Zone grew by 1.1%, representing a year-on-year decrease of 0.6 percentage point and 0.8 percentage point, respectively. Economic growth rate in emerging markets and developing economies was 3.5%, representing a year-on-year decrease of 0.8 percentage point.

 

27


In 2019, under the general guideline of seeking progress while maintaining stability, China took structural reform on the supply side as the main line, promoted high-quality development and did well in the “six-stability” of stabilizing employment, finance, foreign trade, foreign capital, investment and expectations, and maintained a medium-to-high-speed and healthy economic development. GDP increased by 6.1% year-on-year, among which, consumer spending contributed 57.8%.

Faced with rising risks and challenges at home and abroad, the Group accelerated the reform of its system and mechanism, made great efforts to modernise its governance system and capability, and adhered to safe development, high-quality development, innovative development, cooperative development, shared development and green development. During the reporting period, with the joint efforts of the management and all staff, the Group’s safety quality was improved continuously, passenger traffic volume reached a new record high, and brand image was greatly enhanced. In 2019, the Company served approximately 152 million passengers, ranking first among China’s airlines for 41 consecutive years. The Company was enrolled in the “2019 China Brand Powerhouse Ceremony Model Among 100 Brands” issued by China Central Radio and Television Station, won the “Asian Service Award” issued by Asian Network for Quality (ANQ) and the “Golden Phoenix Award” issued by SINA.com, and was awarded “2019 China’s Best Airline Company” by Business Traveller.

 

1.

Safety Operation

During the reporting period, the Group started the construction of safety management, promoted the transformation of safety management to institutionalisation, systematisation and informationisation. Efforts were made to build a regular mechanism for work style and discipline, safety supervision measures were intensified, and management performance was further improved. During the reporting period, the Group achieved 2.951 million hours of safety flight, with an accumulated safe flight of 26.386 million hours. We have achieved 15,000 hours of general flight, secured aviation safety in 20 consecutive years and aviation security in 25 consecutive years, and continued to keep the best safety record among China’s airlines.

During the reporting period, the Group further promoted the construction of integrated operation, and effectively improved the operation quality and efficiency. We improved the management mechanism, promoted unified and standardised management of operation standards, integrated operation services, and greatly enhanced the support capacity for comprehensive service. The flight on-time performance rate of the Company increased by 2.36 percentage points year-on-year, and the daily utilisation rate of aircraft increased by 0.23 hour year-on-year in 2019.

 

28


2.

Network and Hub

During the reporting period, the Group started the construction of two comprehensive international hubs in Guangzhou and Beijing in accordance with the orientation of “One Headquarter, Dual Hubs”.

We have built the Beijing hub with high efficiency and high quality. The CSA base have been put into use simultaneously with Beijing Daxing International Airport, successfully completing the first flight and the transition of the first 13 routes. We have worked out a hub construction plan and supporting airline network planning and marketing strategy in terms of Beijing Daxing International Airport, ensuring a high-quality start and development of the Beijing hub. According to the plan, upon finishing the transition by the end of March 2021, the Group’s market share in Daxing Airport will reach about 43%, and it will be the largest airlines in Daxing Airport.

We have continuously broadened the “Canton Route”, and promoted the coordinated development of the aviation market in Guangdong-Hong Kong-Macau Greater Bay Area, contributing to the construction of the world’s first-class bay area. During the reporting period, we have newly launched 3 routes including Guangzhou-Vienna, Guangzhou-Cebu and Guangzhou-Nagoya, with 66 international and regional routes in Guangzhou. We have served the construction of Shenzhen’s pilot demonstration zone, promoted the coordinated development of Guangzhou and Shenzhen markets, and newly launched route from Shenzhen to Tokyo Narita International Airport. We have given full play to the scale advantages of CSA network and introduced 6 “Bay Area Link” products, including CSA express line, off-site transfer and cross-city airport pickup/drop-off, making it easier and more comfortable for passengers to travel. In 2019, the number of passengers served in Guangzhou hub increased by 6.3%, making the hub effect to emerge continuously.

 

3.

Marketing

During the reporting period, under the new market concept, the Group adhered to high-quality development and connotative development, and achieved results gradually. We emphasised the matching of transportation capacity and market, transportation capacity and price and strengthened revenue management. The Company continued to deepen and strengthen the reform in the field of marketing, promoted “comprehensive revenue” management and conducted centralised control of core resources. It aimed at maximising the marginal contribution and continuously adjusted and optimised the route network structure. It focused on the domestic market and performed steady international market development and the profitability of international routes continued to improve.

We have further strengthened our customer base, given full play to our territorial advantages, vigorously expanding the Group’s customers and frequent flyer. During the year, 9.22 million new Sky Pearl members were enrolled, increased by 62% year-on-year. The total number of Sky Pearl members reached 48.96 million, realising RMB51.7 billion of frequent flyer income, increased by 18.32% year-on-year. There were 3,243 new major customers, accounting for 13.65% of the Group’s revenue, increased by 1.9 percentage points year-on-year. We continued to enrich product shelves and introduced products such as self-service cabin upgrading and neighbour-free seats. During the year, the miscellaneous income increased significantly year-on-year.

 

29


We focused on the high-end businesses, sought changes, adopted differentiated competitive strategies, and effectively enhanced the income from belly-hold. We integrated freight resources and took the lead in launching a mobile online sales platform in China. CSA Advanced-Class Express product , temperature controlled product and other high-end emerging businesses increased by 14% year-on-year.

 

4.

Cost Control

During the reporting period, the Group continued to strengthen cost control and fund management. The Group has deepened the transformation of its financial control system, set up a business financial center, and promoted cost control from the source. The Group has adopted various measures to reduce financing costs and continuously optimise the debt structure. The effect of refined financial management was increasingly apparent.

We have strengthened cost controls on major items, with the fuel consumption per ton kilometer decreased by 3.95% year-on-year. We strengthened all kinds of fund control and the concentration of funds continued to increase. We vigorously reduced the balance of funds, actively expanded financing channels, reasonably matched the debt maturity structure, and increased direct debt financing. We flexibly used various direct financing tools such as ultra-short-term financing bills, medium-term notes and corporate bonds to reduce the Group’s financing costs. Measures such as hedging and optimising the US dollar debt stock were taken to hedge the exchange rate risk, greatly reducing the risk exposure and saving foreign exchange purchase cost of RMB50 million.

 

30


5.

External Cooperation

During the reporting period, the Group advocated the cooperation concept of open and sharing, as well as accelerated the construction of a new type of international cooperation relationship and an international business model in line with the actual situation of the Company.

We have fully protected the rights and interests of passengers and launched “CZ Priority” service brand to ensure the members enjoy the original privileges and realise a smooth transition for leaving SkyTeam Alliance. We have deepened cooperation with mainstream airlines such as American Airlines, British Airways, Emirates and Qatar Airways. We have also continued to consolidate cooperation with member airlines of SkyTeam Alliance such as Air France-KLM and Delta Air Lines independently. We have strengthened in-depth exchanges with international partners, absorbed management experience in operation, flight, transportation and service of world-class airlines, and steadily pushed forward internationalisation.

Currently, the Company has cooperated with 28 domestic and foreign airlines such as American Airlines, British Airways, KLM Royal Dutch Airlines and Qantas Airways on 531 routes (including trunk routes and long-distance flight routes) for code-sharing. Xiamen Airlines has cooperated with 21 domestic and foreign airlines on 578 routes (including trunk routes and long-distance flight routes) for code-sharing, further expanding the sales channels and route network of the Group.

 

6.

Service Brand

During the reporting period, 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 regarding sales, service and information acquisition. We have implemented the requirement of “affinity and refinement”, introduced two-cabin “family service 360” products, expanded 195 fine “Kapok International” routes, and achieved full coverage of international long-haul routes and regional key routes. 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 have implemented the upgrade of “China Southern e-Travel”, and the paperless self-service in the whole process has brought more convenient travel experience to passengers. In 2019, the proportion of non-counter check-in passengers reached 79.3%, ranking top among major domestic airlines. The overall satisfaction of passengers of the Company increased by 1.38% year-on-year.

The Group strengthened the promotion of brand image overseas, ranking first in the overseas image communication index of central enterprises for two consecutive years. We actively participated in international exhibitions in key overseas markets, reaching more than 200,000 industry representatives and mainstream customers around the world and promoting the Company’s important products and services. We sponsored Sydney Festival and the Australian Football League (AFL), targeting more than 10 million Australian local TV audiences and gaining more than 9 million online exposure, and went deep among the international mainstream to promote our brand and international image. In the Top 50 Most Valuable Airline Brands 2019 released by Brand Finance, CSA ranked first among Chinese airlines.

 

31


7.

Reform and Development

During the reporting period, the Group continuously intensified its reform efforts and consolidated its development foundation. We steadily pushed forward the “Double Hundred Action”, set up CSA Freight Logistics Co., Ltd. (中國南方航空貨運有限公司) and continued to improve the mixed-ownership reform plan for SAGA. We implemented a completely new salary system for employees and established a complete post management system, a total salary increase mechanism and an employee salary increase mechanism. We continued to deepen the market-oriented reform, continued to push forward the reform of the regional marketing system, and set up the European marketing center. We also continued to promote scientific and technological innovation and information construction, established the Department of Scientific and Technological Information & Process Management, and built up our core competitiveness.

We revised and improved the Development Outline of Building World-class Air Transport Enterprises with High Quality, giving more prominence to quality, efficiency and performance. We formulated the Action Plan to Serve Guangdong-Hong Kong-Macau Greater Bay Area to promote the integrated development of Guangzhou-Shenzhen hubs. We strengthened the cooperation of “China Southern Alliance”, signed group customer settlement agreements with Xiamen Airlines and Sichuan Airlines, carried out route cooperation with Xiamen Airlines on 52 flight segments, and deepened marketing cooperation with Sichuan Airlines on 10 flight segments.

 

8.

Social Responsibility

The Group has always taken green development as one of its core principles. During the reporting period, we continued to improve the efficiency of aviation fuel usage and reduce greenhouse gas emissions through technological optimisation, management improvement and big data analysis. We participated in the formulation of global aviation oil data standards and provided a Chinese proposal for the formulation of global aviation data standards. We applied bio-aviation oil to carry out intercontinental flights for the first time, and promoted the world’s first 10,000-ton EU carbon quota and Guangdong carbon quota swap business.

 

32


We actively served the society. Taking the advantages of the aviation business and considering the actual conditions, we helped the local people get rid of poverty and strive for a relatively comfortable life. We launched 102 routes along “The Belt and Road” by the end of the reporting period, actively getting involved into overseas communities, and helping the countries along “The Belt and Road” to achieve connectivity in facilities, trade and culture. We actively carried out special flights, voluntary public welfare and other undertakings, giving full play to our own resources and expertise to benefit the society.

 

II.

Financial Performance

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

The profit attributable to equity shareholders of the Company of RMB2,640 million was recorded in 2019 as compared to the profit attributable to equity shareholders of the Company of RMB2,895 million in 2018. The Group’s operating revenue increased by RMB10,699 million or 7.45% from RMB143,623 million in 2018 to RMB154,322 million in 2019. Passenger load factor increased by 0.37 percentage point from 82.44% in 2018 to 82.81% in 2019. Passenger yield (in passenger revenue per RPK) is RMB0.49 in 2018 and 2019. Average yield (in traffic revenue per RTK) decreased by 0.22% from RMB4.55 in 2018 to RMB4.54 in 2019. Operating expenses increased by RMB8,366 million or 5.97% from RMB140,242 million in 2018 to RMB148,608 million in 2019. As a result of increase of operating revenue netted off by the increase of operating expenses, operating profit of RMB10,838 million was recorded in 2019 as compared to operating profit of RMB8,819 million in 2018, increased by RMB2,019 million.

 

33


III.

Operating Revenue

 

 

   2019      2018          
     Operating revenue     Percentage      Operating revenue     Percentage      Changes in revenue  
     RMB million     %      RMB million     %      %  

Traffic revenue

     148,117       95.98        138,064       96.13        7.28  

Including: Passenger revenue

     138,502          128,038          8.17  

– Domestic

     101,955          95,773          6.45  

– Hong Kong, Macau and Taiwan

     2,437          2,446          (0.37

– International

     34,110          29,819          14.39  

Cargo and mail revenue

     9,615          10,026          (4.10

Other operating revenue

     6,205       4.02        5,559       3.87        11.62  

Mainly including:

            

Commission income

     2,952          2,619          12.71  

Ground services income

     409          429          (4.66

General aviation income

     564          476          18.49  

Hotel and tour operation income

     712          676          5.33  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total operating revenue

     154,322       100.00        143,623       100.00        7.45  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Less: fuel surcharge income

     (7,479        (7,454        0.34  
  

 

 

      

 

 

      

 

 

 

Total operating revenue excluding fuel surcharge

     146,843          136,169          7.84  
  

 

 

      

 

 

      

 

 

 

 

34


Substantially all of the Group’s operating revenue is attributable to airlines transport operations. Traffic revenue accounted for 96.13% and 95.98% of the total operating revenue in 2018 and 2019, respectively. Passenger revenue and cargo and mail revenue accounted for 93.51% and 6.49%, respectively, of the total traffic revenue in 2019. During the reporting period, the Group’s total traffic revenue was RMB148,117 million, representing an increase of RMB10,053 million or 7.28% from prior year, mainly due to the increase in transport capacity and traffic volume. The other operating revenue is mainly derived from commission income, hotel and tour operation income, general aviation income and ground services income.

The increase in operating revenue was primarily due to 8.17% increase in passenger revenue from RMB128,038 million in 2018 to RMB138,502 million in 2019. The total number of passengers carried increased by 8.40% to 151.63 million passengers in 2019. RPKs increased by 9.93% from 259,194 million in 2018 to 284,921 million in 2019, primarily as a result of the increase in number of passengers carried.

 

35


Domestic passenger revenue, which accounted for 73.61% of the total passenger revenue in 2019, increased by 6.45% from RMB95,773 million in 2018 to RMB101,955 million in 2019. Domestic passenger traffic in RPKs increased by 9.09%, while passenger capacity in ASKs increased by 8.82%, resulting in an increase in passenger load factor by 0.20 percentage point from 82.80% in 2018 to 83.00% in 2019. Domestic passenger yield per RPK decreased by 3.70% from RMB0.54 in 2018 to RMB0.52 in 2019.

Hong Kong, Macau and Taiwan passenger revenue, which accounted for 1.76% of total passenger revenue, decreased by 0.37% from RMB2,446 million in 2018 to RMB2,437 million in 2019. For Hong Kong, Macau and Taiwan flights, passenger traffic in RPKs decreased by 1.40%, while passenger capacity in ASKs decreased by 0.37%, resulting in a decrease in passenger load factor by 0.78 percentage point from 75.39% in 2018 to 74.61% in 2019. Passenger yield per RPK increased from RMB0.74 in 2018 to RMB0.75 in 2019.

International passenger revenue, which accounted for 24.63% of total passenger revenue, increased by 14.39% from RMB29,819 million in 2018 to RMB34,110 million in 2019. For international flights, passenger traffic in RPKs increased by 12.36%, while passenger capacity in ASKs increased by 11.29%, resulting in a 0.79 percentage point increase in passenger load factor from 81.93% in 2018 to 82.72% in 2019. Passenger yield per RPK is RMB0.39 in 2018 and 2019.

Cargo and mail revenue, which accounted for 6.49% of the Group’s total traffic revenue and 6.23% of total operating revenue, decreased by 4.10% from RMB10,026 million in 2018 to RMB9,615 million in 2019. The decrease was mainly attributable to the decrease in yield per RFTK.

Other operating revenue increased by 11.62% from RMB5,559 million in 2018 to RMB6,205 million in 2019. The increase was primarily due to the increase in commission income and general aviation income.

 

IV.

Operating Expenses

Total operating expenses in 2019 amounted to RMB148,608 million, representing an increase of 5.97% or RMB8,366 million comparing to that of 2018, mainly due to the increase in depreciation and amortisation expenses as impacted by the initial adoption of IFRS 16 on 1 Janaury 2019. Total operating expenses as a percentage of total operating revenue decreased from 97.65% in 2018 to 96.30% in 2019.

 

Operating expenses

   2019      2018  
     RMB million      Percentage (%)      RMB million      Percentage (%)  

Flight operation expenses

     70,566        47.48        76,216        54.35  

Mainly including:

           

Jet fuel costs

     42,814           42,922     

Aircraft operating lease charges

     1,412           8,726     

Flight personnel payroll and welfare

     12,709           11,467     

Maintenance expenses

     13,057        8.79        12,704        9.06  

Aircraft and transportation service expenses

     26,591        17.89        24,379        17.38  

Promotion and selling expenses

     7,755        5.22        7,036        5.02  

General and administrative expenses

     4,073        2.74        3,770        2.69  

Depreciation and amortisation

     24,620        16.57        14,308        10.20  

Impairment losses on property, plant and equipment

     18        0.01        —          —    

Others

     1,928        1.30        1,829        1.30  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     148,608        100.00        140,242        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

36


Flight operation expenses, which accounted for 47.48% of total operating expenses, decreased by 7.41% from RMB76,216 million in 2018 to RMB70,566 million in 2019, mainly due to the decrease in operating lease charges as impacted by the initial adoption of IFRS 16 on 1 Janaury 2019.

Maintenance expenses, which accounted for 8.79% of total operating expenses, increased by 2.78% from RMB12,704 million in 2018 to RMB13,057 million in 2019, along with the fleet expansion.

Aircraft and transportation service expenses, which accounted for 17.89% of total operating expenses, increased by 9.07% from RMB24,379 million in 2018 to RMB26,591 million in 2019. The increase was primarily due to a 10.50% increase in landing and navigation fees from RMB15,980 million in 2018 to RMB17,658 million in 2019, resulted from the increase in the numbers of flights.

Promotion and selling expenses, which accounted for 5.22% of total operating expenses, increased by 10.22% from RMB7,036 million in 2018 to RMB7,755 million in 2019, mainly due to the increase in ticket office expenses and other promotion and selling expenses.

General and administrative expenses, which accounted for 2.74% of the total operating expenses, increased by 8.04% from RMB3,770 million in 2018 to RMB4,073 million in 2019, mainly due to the increase in general corporate expenses.

Depreciation and amortisation, which accounted for 16.57% of the total operating expenses, increased by 72.07% from RMB14,308 million in 2018 to RMB24,620 million in 2019, mainly due to the initial adoption of IFRS 16 on 1 Janaury 2019, based on which, depreciation expenses over the right-of-use assets were recognised.

 

V.

Operating Profit

Operating profit of RMB10,838 million was recorded in 2019 (2018: RMB8,819 million). The increase in operating profit was mainly due to the net effect of increase in operating revenue by RMB10,699 million or 7.45% compared with 2018, as a result of the increase in transport capacity and traffic volume; and the increase in operating expenses by RMB8,366 million or 5.97%, due to the increase in depreciation and amortisation expenses.

 

VI.

Other Net Income

Other net income decreased by RMB314 million from RMB5,438 million in 2018 to RMB5,124 million in 2019, mainly due to the decrease in gains on disposal of property, plant and equipment and construction in progress.

 

VII.

Income Tax

Income tax expense of RMB971 million was recorded in 2019, decreased by RMB29 million from RMB1,000 million in 2018.

 

VIII.

Liquidity, Financial Resources and Capital Structure

As at 31 December 2019, the Group’s current liabilities exceeded its current assets by RMB78,752 million. For the year ended 31 December 2019, the Group recorded a net cash inflow from operating activities of RMB31,175 million, a net cash outflow from investing activities of RMB14,427 million and a net cash outflow from financing activities of RMB21,833 million, which in total resulted in a net decrease in cash and cash equivalents of RMB5,085 million. The decrease in cash and cash equivalents was benefited from the Group’s strict control on financing costs and efforts made to reduce the high levels of both saving and borrowing.

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 2019, the Group had banking facilities with several PRC banks and financial institutions for providing bank financing up to approximately RMB308,343 million (31 December 2018: RMB243,910 million), of which approximately RMB251,165 million (31 December 2018: RMB193,871 million) was unutilised. The Directors of the Company believe that sufficient financing will be available to the Group when and where needed.

 

37


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

Composition of interest-bearing liabilities

 

     31 December
2019
     31 December
2018
 
     RMB million      RMB million  

Obligations under finance leases

     —          72,221  

Lease liabilities

     134,074        —    

Borrowings

     51,180        54,417  

Fixed rate interest-bearing liabilities

     100,660        33,692  

Floating rate interest-bearing liabilities

     84,594        92,946  

Analysis of interest-bearing liabilities by currency

 

    

31 December

2019

  

31 December

2018

    

RMB million

  

RMB million

USD

  

70,260

   33,677

RMB

  

109,946

   87,333

Others

  

5,048

   5,628
  

 

  

 

Total

  

185,254

   126,638
  

 

  

 

 

38


Maturity analysis of interest-bearing liabilities

 

     31 December
2019
     31 December
2018
 
     RMB million      RMB million  

Within 1 year

     57,541        48,296  

After 1 year but within 2 years

     23,022        17,329  

After 2 years but within 5 years

     62,544        38,289  

After 5 years

     42,147        22,724  
  

 

 

    

 

 

 

Total

     185,254        126,638  
  

 

 

    

 

 

 

Interest expense and net exchange loss

Interest expense increased by RMB2,643 million from RMB3,202 million in 2018 to RMB5,845 million in 2019, mainly due to the increase of interest on the lease liabilities as impacted by the initial adoption of IFRS 16 in 2019.

Net exchange loss of RMB1,477 million was recorded in 2019, as compared with a net exchange loss of RMB1,853 million in 2018. Net exchange loss was primarily attributable to the exchange difference arising from the interest-bearing liabilities dominated in USD, along with the appreciation of USD against RMB.

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

 

     31 December
2019
    31 December
2018
    Change  

Total liabilities (RMB million)

     229,599       168,480       36.28

Total assets (RMB million)

     306,928       246,949       24.29

Debt ratio

     74.81     68.22    

Increase by 6.59

percentage points

 

 

The Group monitors capital on the basis of debt ratio, which is calculated as total liabilities divided by total assets. The debt ratio increased by 6.59 percentage points, mainly due to the recognition of right-of-use assets and lease liabilities as impacted by the initial adoption of IFRS 16 at 1 January 2019.

 

IX.

Major Charge on Assets

As at 31 December 2019, certain aircraft of the Group with an aggregate carrying value of approximately RMB339 million (31 December 2018: RMB373 million) were mortgaged under certain loans.

 

X.

Commitments and Contingencies

Commitments

As at 31 December 2019, the Group had capital commitments (excluding investment commitment) of approximately RMB86,246 million (31 December 2018: RMB103,485 million). Of such amounts, RMB71,224 million (31 December 2018: RMB82,199 million) related to the acquisition of aircraft and related flight equipment and RMB15,022 million (31 December 2018: RMB21,286 million) for other projects.

 

39


The Group had investment commitments as follows:

 

     31 December
2019
     31 December
2018
 
     RMB million      RMB million  

Authorised and contracted for:

     

Share of capital commitments of a joint venture

     322        26  

Capital contributions for acquisition of non-controlling interests in a subsidiary

     232        —    

Capital contributions for acquisition of interest in a joint venture

     —          14  
  

 

 

    

 

 

 
     554        40  
  

 

 

    

 

 

 

Authorised but not contracted for:

     

Share of capital commitments of a joint venture

     31        21  
  

 

 

    

 

 

 
     585        61  
  

 

 

    

 

 

 

Contingent liabilities

 

(1)

The Group leased certain properties and buildings from CSAH which were located in Guangzhou, Wuhan, Haikou, etc. However, such properties and buildings lack adequate documentation evidencing CSAH’s rights thereto. Pursuant to the indemnification agreement dated 22 May 1997 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 certain 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. 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 RMB696 million (31 December 2018: RMB696 million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December 2019, total personal bank loans of RMB275 million (31 December 2018: RMB318 million), under these guarantees, were drawn down from the banks. During the year, no payment has been made by the Group (2018: RMB1 million) due to the default of payments of certain pilot trainees.

 

40


XI.

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

Difference in net profit and equity attributable to equity shareholders of the Company disclosed in financial reports under IFRSs and PRC GAAP

Unit: RMB million

 

     Net profit attributable to equity
shareholders of the Company
     Equity attributable to equity
shareholders of the Company
 
     January –
December 2019
     January –
December 2018
     31 December
2019
     31 December

2018

 

Amounts under PRC GAAP

     2,651        2,983        63,863        65,003  

Adjustments under IFRSs:

           

Government grants

     1        1        (6      (7

Capitalisation of exchange difference of specific loans

     (16      (124      56        72  

Adjustments arising from the Company’s business combination under common control

     —          —          237        237  

Tax impact of the above adjustments

     4        31        (12      (16

Effect of the above adjustments on non-controlling interests

     —          4        (32      (32
  

 

 

    

 

 

    

 

 

    

 

 

 

Amounts under IFRSs

     2,640        2,895        64,106        65,257  
  

 

 

    

 

 

    

 

 

    

 

 

 

Explanation of differences between PRC GAAP and IFRSs

 

1.

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.

 

2.

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.

 

3.

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.

 

41


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 RMB71,224 million

  

Authorised and contracted

  

RMB41,442 million within 1 year
(inclusive of 1 year); RMB21,077 million after 1 year

but within 2 years
(inclusive of 2 years);

RMB5,464 million after 2 years

but within 3 years
(inclusive of 3 years);

RMB3,241 million after 3 years

   Debt financing

Investment commitments of RMB232 million (Note)

  

Authorised and contracted

  

/

   Other

Other commitments of RMB4,571 million

  

Authorised and contracted

  

/

   Other

 

Note:

excluding the capital commitment of joint venture attributable to the Company amounted to RMB322 million.

Upon prediction on the cash flows for the eighteen months ending 30 June 2021, 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 2019, the Group has obtained a maximum credit line of RMB308,343 million for 2019 and subsequent years from several PRC banks, of which, the unused bank credit lines reached RMB251,165 million. The Group believes that it will be able to obtain such financing.

 

XIII.

Analysis of Operational Information from Industrial Perspective

 

1.

Major information of operations

 

Models

   Volume of passenger
transported (person)
     Passenger load factor
(%)
     Total load factor (%)      Daily utilization rate
(hours)
 

Passenger aircraft

           

A380 series

     1,130,099        86.4        65.4        10.2  

A350 series

     356,352        83.2        53.4        11.4  

A330 series

     9,827,733        84.4        62.6        11.7  

A320 series

     54,784,950        81.2        72.7        9.8  

B787 series

     5,787,552        82.3        57.6        11.8  

B777 series

     2,554,176        85.6        60.8        12.4  

B737 series

     74,530,489        83.3        74.0        9.7  

EMB190

     2,660,813        80.6        68.5        8.1  

Freighter

           

B777 series

     /        /        82.3        13.5  

B747 series

     /        /        74.5        0.9  

Average

     /        82.8        70.3        9.96  
           

 

42


2.

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
 

A320NEO

     13        7        0        20  

A321NEO

     6        5        4        15  

A330-300

     0        0        0        0  

B737-8

     0        1        0        1  

B787-9

     3        4        0        7  

B777-300ER

     0        5        0        5  

A350-900

     0        6        0        6  

Total

     22        28        4        54  
           

 

3.

Capital expenditure plan and relevant financing plan for aircraft and related equipment during 2020-2022

 

Capital expenditure commitments of aircraft
and related equipment         

  

Contractual arrangement

  

Time schedule

  

Financing

methods

Commitments in respect of aircraft, engines and flight equipment of RMB71,224 million

  

Authorised and contracted

  

RMB41,442 million within 1 year

(inclusive of 1 year);

RMB21,077 million after 1 year

but within 2 years (inclusive of 2 years);

RMB5,464 million after 2 years

but within 3 years (inclusive of 3 years);

RMB3,241 million after 3 years

   Debt financing
        

 

4.

Expected yield from aircraft purchased during the reporting period

During the reporting period, the Company entered into the ARJ21-700 Aircraft Sale and Purchase Agreement with Commercial Aircraft Corporation of China, Ltd. to acquire 35 ARJ21-700 aircraft from Commercial Aircraft Corporation of China, Ltd..

Assuming that there are no major changes in the market conditions and based on the comprehensive cabin layout of similar aircraft of the Company, the specific route structure in the past three years and the average seat kilometer yield level in combination with the cabin layout of newly introduced ARJ21-700 aircraft, it is expected that the overall yield per RPK will be approximately RMB0.569 after the ARJ21-700 aircraft purchased have been put into service.

 

43


5.

Increase of captain and copilot and annual average flying hours of captain and copilot in service during the reporting period

 

Items

   Increase (person)      Annual average flying hours  

Captain

     345        815  

Copilot

     485        785  

Other pilots

     46        /  
     

 

6.

New flight routes during the reporting period and future launching plan

During the reporting period, the Company increased flights for Guangzhou – Beijing Daxing, Guangzhou – Zhengzhou, Guangzhou – Hangzhou, Guangzhou – Nanjing, Guangzhou – Sanya, Guangzhou – Qingdao, Beijing Daxing – Kunming, Beijing Daxing – Haikou, Shenzhen – Changchun, Shenzhen – Harbin, Shanghai – Xining, Wuhan – Chongqing and other domestic routes; the Company also expanded to Vienna, Cebu, Macau and other international and regional destinations, and launched Wuhan – New York, Zhengzhou – London, Guangzhou – Urumqi – Vienna, Guangzhou – Changsha – Nairobi, Wuhan – Istanbul, Guangzhou – Cebu, Guangzhou – Tokyo Narita, Guangzhou – Kunming – Istanbul, Pudong – Tokyo Narita, Pudong – Nagoya, Pudong – Bangkok, Wuhan – Macau, Changsha – Macau and other international and regional routes.

In 2020, the Company will continue to optimize the input of transport capacity and aim at maximising the marginal contribution to improve the network layout and intends to increase flights for Beijing Daxing – Guangzhou, Beijing Daxing – Shenzhen, Beijing Daxing – Shanghai, Guangzhou – Jinan, Guangzhou – Kunming, Guangzhou – Xi’an, Guangzhou – Haikou, Guangzhou – Nanjing and other routes; and to launch Beijing Daxing – London, Beijing Daxing – Moscow, Beijing Daxing – Tokyo Haneda, Beijing Daxing – Osaka, Beijing Daxing – Amsterdam, Beijing Daxing – Dubai, Guangzhou – Manado and other international routes.

 

XIV.

Analysis on Investments

 

1.

Major equity investment

On 1 March 2019, the Company entered into the capital increase agreement with CSAH, Xiamen Airlines, Shantou Airlines, Zhuhai Airlines and Guangzhou Nanland Air Catering Company Limited (“Nanland Company”). The parties agreed the Company to increase its capital contribution of RMB500 million to Finance Company, while CSAH, Xiamen Airlines, Shantou Airlines, Zhuhai Airlines and Nanland Company agreed to waive their rights of capital injection. Upon completion of the transaction, the equity interests of Finance Company directly held by the Company increased from 25.277% to 41.808%. For details, please refer to the Announcement on Capital Increase to China Southern Airlines Group Finance Company Limited by the Company and Connected Transaction of the Company published on China Securities Journal, Shanghai Securities News, Securities Times and the website of SSE on 2 March 2019.

 

2.

Major Non-equity Investment

On 30 August 2019, the Company entered into the ARJ21-700 Aircraft Sale and Purchase Agreement with Commercial Aircraft Corporation of China, Ltd. to acquire 35 ARJ21-700 aircraft from Commercial Aircraft Corporation of China, Ltd.

 

44


3.

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        22        6        —        
Other non-current
   financial assets
 
 
    Purchase  
601328    Bank of Communications Co., Ltd.      16        0.013        52        2        —        

Other non-current
   financial
assets
 
 
 
    Purchase  
N/A    China Air Service Ltd.      2        1.00        1        (1      —        
Other non-current
   financial assets
 
 
    Capital increase  
N/A    Aviation Data Communication Corporation      1        2.50        31        1        —        
Other non-current
   financial assets
 
 
    Capital increase  
00696    Travelsky Technology Limited      33        2.25        861        17        11      

Other investments
   in equity
securities
 
 
 
    Establishment  
N/A    Haikou Meilan International Airport Co., Ltd.      100        2.35        188        1        (35    

Other investments
   in
equity securities
 
 
 
    Capital increase  

Total

     161        /        1,155        26        (24     —         —    
                  

 

XV.

Analysis on Major Subsidiaries and Joint Ventures and Associates

 

1.

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

     206        23.9        39,865.7        26.29        298,522.6        16.93        6,480.9        19.86        65,362.7        22.94  

Shantou Airlines

     15        1.7        3,330.2        2.20        18,061.8        1.02        421.7        1.29        4,493.7        1.58  

Zhuhai Airlines

     13        1.5        2,495.5        1.65        12,585.4        0.71        378.4        1.16        4,079.5        1.43  

Guizhou Airlines

     20        2.3        3,965.3        2.62        26,867.1        1.52        570.8        1.75        5,995.5        2.10  

Chongqing Airlines

     28        3.2        4,392.6        2.90        21,318.1        1.21        552.7        1.69        5,949.6        2.09  

Henan Airlines

     30        3.5        6,056.2        3.99        42,749.3        2.42        811.5        2.49        8,512.4        2.99  
                             

 

Note:    1.    The operational information of Xiamen Airlines includes operational information of its subsidiaries, Hebei Airlines and Jiangxi Airlines;
   2.    Xiongan Airlines is under construction, no operational data is available.

 

2.

Information of Xiamen Airlines

Xiamen Airlines was established in August 1984 with registered capital of RMB8.0 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 2019, Xiamen Airlines earned operating revenue of RMB32,612 million, representing an increase of 7.90% as compared to the previous year; and net profit of RMB785 million, representing a decrease of 14.95% as compared to the previous year. As at 31 December 2019, Xiamen Airlines’ total assets amounted to RMB56,780 million and net assets amounted to RMB19,060 million.

 

45


3.

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

     USD65,000,000        50        0  

MTU Maintenance Zhuhai Co., Ltd.

  

Aircraft repair and maintenance

services

     USD163,100,000        50        0  

2. Associates

           

Finance Company

   Financial services      RMB1,377,730,000        41.81        6.78  

SACM

   Advertising agency services      RMB200,000,000        40        0  

Sichuan Airlines

   Airlines transportation      RMB1,000,000,000        39        0  

 

XVI.

Industry Competition Landscape and Development Trend

Though the airline industry achieved profits for 10 consecutive years in 2019, the profit is increasingly concentrated in large trans-continental airlines and low-cost carriers with strong competitive advantages. Many smaller airlines with less efficiency were stuck in operational difficulties, as they were unable to tackle the challenges including geopolitical turmoil, sluggish economic growth and fierce market competition. The year of 2019 has the largest number of airline bankruptcy around the world. According to statistics of the aviation consultancy International Bureau of Aviation (IBA), 17 airlines have closed down around the world in 2019, most of which were European airlines, including high-profile airlines.

While some small and medium-sized airlines were in business difficulties or even went bankrupt, large-scale trans-continental airlines with competitive advantages and low-cost carriers with leading position contributed most of profits in the industry. The concentration of profits lead to Matthew Effect on the performance of global airlines.

At the beginning of 2020, COVID-19 has spread around the world, causing a big impact on the economy, society, finance and other aspects. The global civil aviation industry are facing great challenges with the following obvious trends arising at the same time:

 

1.

China to be the world’s largest aviation market

IATA predicts that the Asia-Pacific region will become the biggest force to drive aviation demand. After China’s economy transforming into a consumption-oriented economy, it will drive a strong growth in passenger demand for a long term.

 

2.

New trend of aviation cooperation mode

Currently, the trend of “de-alliance” in the international aviation industry is emerging, and the cooperation between aviation airlines eventually go back to the demand for interests. Bilateral and multilateral cooperation may become the mainstream trend in the future.

 

46


Although the outbreak of COVID-19 brought difficulties to China’s civil aviation industry in the short term, there is still room for development in the long term. It is embodied in the following three aspects:

 

1.

Huge market potential

China’s civil aviation market will keep growing. Chinese civil aviation industry witnesses an average annual growth rate of passenger turnover of 11% in the past 10 years. 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. In the future, China’s civil aviation transportation market will continue to maintain a middle and high-speed growth with great development space. IATA predicts that by 2036, China’s total air passenger throughput will reach 1.5 billion.

 

2.

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

The development strategies implemented in China has greatly expanded the development space of the aviation industry. The implementation of the three major development strategies, including “The Belt and Road Initiative”, the coordinated development strategy of Beijing, Tianjin and Hebei, and the development strategy of the Yangtze River Economic Belt, as well as the policy for construction of Xiong An new area and Guangdong—Hong Kong—Macau Greater Bay Area foreshadow the broad prospects for the development of the aviation industry. The CAAC issued the Outline of Action for Building a Civil Aviation Power in the New Era, which clearly defined the goal of building a civil aviation power in an all-rounded way by the middle of this century. At the same time, in recent years, CAAC’s policies for “control over total number of flights, and structure adjustment” and fare reform have been continuously implemented and effective, and the occupancy rate of the whole industry has continued to rise. The NDRC and the CAAC have gradually relaxed the fare regulation and allowed airlines to adjust their fares to a certain extent in accordance with market demand, which is conducive to airlines’ flexible adjustment of their freight rates and improvement of their operating quality.

 

3.

Industry infrastructure continues to speed up

With the continuous release of first-tier airports’ production capacity, airspace reform and high-quality supply in the industry, the next few years may be a critical stage for first-tier and second-tier airports to release its slots, and the slots supply structure of airlines is expected to be optimized persistently. Moreover, the construction of domestic regional airports has been accelerated. It is expected that the number of domestic regional flights and passengers will maintain a high growth rate in the future.

 

XVII.

Business Plan in 2020

Looking forward to 2020, the world economy is still under deep adjustment following the international financial crisis, and the recovery of global economy remains fragile. At the same time, the accelerated global spread of the COVID-19 outbreak has disrupted economic activities in many countries, significantly affected global financial markets and threatened their economic prospects. The International Monetary Fund (IMF) expects the global economic to fall into recession in 2020 as a result of the outbreak, but recover in 2021.

China is in the crucial period of transforming development mode, optimizing economic structure and transforming growth momentum. Structural, institutional and periodic issues are intertwined. The “three period superimposed” effect continues to deepen and downward pressure on the economy increases. At the same time, the COVID-19 outbreak has also had some impact on China’s economy. Currently, China’s prevention and control measures have achieved positive results, and the most difficult and arduous stage has passed. The resumption of work and production of enterprises has been advanced in an orderly manner, and the economy returned to normal at a faster pace. The impact of the outbreak is short-term and generally controllable. The basic trend for China’s economy to seek progress while maintaining stability with long-term good prospects has not changed.

Faced with risks and challenges, the Group will persist in taking reform and innovation as the driving force, promote high-quality development, ensure a stable security situation, make every effort to improve quality and efficiency, and strive to build a world-class air transport enterprise with global competitiveness.

 

47


1.

To lower outbreak risks and ensure safe and stable operation.

We insist on putting the safety and health of passengers and employees first, and fully support the prevention and control of the outbreak by ensuring the safety and normality of flights. We have earnestly fulfilled our social responsibilities and actively engaged in the transportation of materials for anti-outbreak personnel and the work of ensuring the resumption of production and work. We actively respond to changes in market demand, adjust business strategy in a timely manner, and optimize the allocation of capacity. On the premise of effective prevention and control of the outbreak, the Group will strengthen the allocation of transport capacity, dig deep into market demand, closely track and analyze the market trends, and prepare for the recovery of the aviation market after the Outbreak.

 

2.

To put safety first and continue to improve safety quality.

We will speed up the construction of the security system and the upgrade of the information platform, and complete the seven major security systems of safety responsibility, rules and regulations manual, training and practice, process control, risk control, safety culture and scientific and technological innovation. We will consolidate infrastructure and improve the level of fundamental safety control. We will further promote the discipline of style of work, strengthen supervision and assessment and sort out hidden dangers, strengthen the application of big data, promote hierarchical control, and embed risk prevention into the whole process of flight operation. In 2020, the Group will ensure its continuation in aviation safety as in past years.

 

3.

To make every effort to improve quality and efficiency and enhance the profitability of the Company.

We will deepen the marketing reform, optimize the allocation of resources, and continuously deepen the matching of transportation capacity with the market, transportation capacity with freight rate and revenue management. We will maximize the marginal contribution as the goal, improve the matching degree of fleet planning and network planning, promote the accurate matching of aircraft types and routes, enhance revenue control efforts, and improve the revenue control capability and level. We will strengthen the customer base in an all-rounded way, value the Group’s customer development and regular customer development, and deepen the integration of marketing and service. We will enhance the management of new routes, optimize the input of transport capacity, and continuously improve the management level of international routes; strengthen sales cooperation with banks, business travel agencies, etc. and interconnectability of members, improve the drainage capability of our main businesses, and promote the initial formation of the China Southern Airlines business travel ecosystem.

We will make full use of belly-hold, establish a passenger and cargo network linkage mechanism, optimize flight scheduling, and strengthen network integrated marketing. We will develop online freight service, expand high-end and cross-border express delivery services, expand the volume of emerging services, transforming into modern logistics service providers.

 

48


4.

To deepen the construction of integrated operation and continue to improve the operation quality.

We will improve the centralised operation and control capability, unify the “GOC” operation standards, strengthen information and intelligent support, and give full play to the scale and network advantages of large-scale fleet and multiple bases. We will continue to carry out projects to increase flight punctuality rates, implement fine operation, precise control and lean flight, and ensure the flight punctuality rates in the leading position in the industry. We will also tap into the potential for creating operational value, make solid efforts to tap into the potential of performance and industry load, manage aviation fuel, optimize air routes, and make flight decisions and carry out other measures. We will establish an accounting model for creating operational support system value to ensure that available fuel consumption per ton kilometer continues to decline.

 

5.

To build a first-class brand service system based on “affinity and refinement”.

We will start the “integrated service” program. Following the advanced international standards, and highlighting the characteristics of CSA, the Group will focus on air, ground, online and offline products and services, and comprehensively improve service quality. We will resolve disadvantages, and deeply improve services such as hub, flight delay, meals, luggage, ticketing, on-board hardware maintenance and environmental cleaning. We will create outstanding advantages, focus on the needs of passengers, optimize and upgrade the whole process of service to enhance our reputation. We will gradually realize data collection and analysis for the whole process of service and build a refined service control mode by means of informationisation.

 

6.

To build the layout of dual hubs and accelerate the strategic implementation.

We will ensure the high-quality development of the Beijing hub and focus on the orderly transit of flights and our operation in the two airports. We will improve the control mechanism, strictly implement the responsibility assignment, and give full play to the advantages of Beijing hub facing the north of the Yangtze River, Japan, South Korea, Europe and America. We will strengthen coordination and cooperation, and strive for all-out policies such as flight schedule resources and replacement of traffic rights; revitalize idle resources at the initial stage of operation and actively explore the third-party market.

We will continue to increase investment in the Guangzhou hub, enhance the market share of domestic trunk routes, and consolidate the hub’s leading position; seize the strategic opportunity, focus on the planning of Guangdong-Hong Kong-Macau Greater Bay Area, and promote the integration of markets, products, services and networks in the region. The Company shall give full play to the advantages of Guangzhou hub facing the south of Yangtze River and Oceania, Southeast Asia and South Asia, continue to forge the “Canton Route” and further improve the capacity concentration and operation capacity of Guangzhou hub.

 

7.

To enhance financial management and continue to enhance the level of cost control.

We will do our best to promote the integration of industry and financial resources, strictly control the costs of aviation fuel, take-off and landing, maintenance and sales, and continue to create cost advantages. We will strengthen strategic cost control, strictly formulate investment plans, improve the project reserve management system, and create more value by using existing resources. We will strengthen capital management, properly arrange financing strategies, and make full use of internal and external capital markets. We will enhance risk control, build a balanced and stable debt management system, and strengthen risk control over exchange rate, interest rate and oil price.

 

49


8.

To accelerate the reform and development, and enhance the Company’s development potential.

We will firmly set up the concept of the rule of law and accelerate the modernization of corporate governance system and governance capability. We will optimize the fleet structure and dispose of old and high-energy-consuming aircraft or surrender of tenancy. We will deepen the institutional reform and the construction of incentive mechanism, and implement full-scale market-oriented accounting. We will continue to promote the Company’s intelligent construction, open up every link from marketing, operation to service, and establish an intelligent system. We will also continue to strengthen bilateral and multilateral international cooperation, deepen cooperation with major international airlines, and further establish a partnership circle around the world.

 

XVIII.

RISK FACTORS ANALYSIS

 

1.

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

Macro economic policies made by the government, in particular the adjustment in the cyclical macro policies, including credit, interest rate, exchange rate and fiscal expenditure, have a direct or indirect impact on the air transport industry. In addition, the establishment of the new airlines, the opening of aviation rights, routes, fuel surcharges, air ticket fares and other aspects are regulated by the government, and the fuel surcharges pricing mechanism is also regulated 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.

 

2.

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 transport 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.

 

  (2)

Risks of Competition from Other Modes of Transportation

There is certain substitutability in short to medium range routes transportation among air transport, railway transport and road transportation. With the improving high speed rail 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.

 

  (3)

Other Force Majeure and Unforeseen Risks

The aviation industry is subject to a significant impact from the external environment and natural disasters, including earthquake, typhoon and tsunami, abrupt public health incidents as well as terrorist attacks, international political turmoil and other factors will affect the normal operation of the airlines, thus bringing adverse effect to the results and long-term development of the Company.

 

3.

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 large-scale aircraft fleet and more cross-location, overnight and 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 of the Company and its reputation.

 

50


  (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, or strengthen the information safety management, the Company’s safety, production, operation, marketing, service, etc. may be affected. Thus, 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 optimizing the fleet structure and reducing the operational cost through introducing more advanced models, retiring 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, financial distress and other problems.

 

4.

Financial Risks of the Company

 

  (1)

Risk 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 expenses, so as to further affect the Group’s operating results. At 31 December 2019, assuming all other risk variables other than interest rate remained constant, in the case of 100 base points increase (or decrease) of the Group’s comprehensive capital cost would lead to the decrease (or increase) in the shareholders’ equity and net profit of the Group amounting to RMB559 million.

 

  (2)

Risk of Fluctuation in Exchange Rate 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 obligations under leases liabilities and certain bank and other loans are denominated in foreign currencies, principally US dollars, Euro and Japanese Yen. Depreciation or appreciation of Renminbi against foreign currencies therefore affects the Group’s results significantly.

As of 31 December 2019, the Group has recorded a total of RMB2,198 million of financial assets in foreign currencies, and a total of RMB76,175 million of financial liabilities in foreign currencies, of which, liabilities in US dollars reached RMB70,939 million. Fluctuations in US dollar against RMB exchange rate will have a material impact on the Group’s finance expense. Assuming risks other than exchange rate remain unchanged, the shareholders’ equity and net profit of the Group will increase (or decrease) by RMB434 million in the case of each and every 1% appreciation (or depreciation) of the exchange rate of RMB to US dollar at 31 December 2019.

 

  (3)

Risk of Fluctuation in Jet Fuel Price

The jet fuel cost is the most major expenditure for the Company. Both the fluctuation in the international crude oil prices and the adjustment of domestic fuel prices by the NDRC has big impact on the profit of the Group. Although the Group has adopted various fuel saving measures to control the unit fuel cost and reduce the fuel consumption volume, however, if there is any significant fluctuation in the international oil prices, the operating results of the Group may be significantly affected.

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.

In 2019, the Group’s fuel oil cost accounted for 28.81% of the operating expenses and it was the Company’s main operating expenses. Assuming that the fuel oil consumption remains unchanged, in the case of 10% increases (or decreases) in fuel price, the Group’s operating cost would increase (or decrease) by RMB4,281 million.

 

51


NEW INTERNATIONALIZATION

 

52


Opening and Sharing, Speeding Up

the Construction of New International

Cooperation Relations and

International Business Model

 

53


REPORT OF

DIRECTORS

The Board of the Company hereby presents this annual report and the audited financial statements for the year ended 31 December 2019 of the Group to the shareholders of the Company.

Principal Activities, Operating Results and Financial Position

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 largest airlines in China. In 2019, 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. The Group has prepared the financial statements for the year ended 31 December 2019 in accordance with IFRSs. Please refer to pages 133 to 240 of this annual report for details.

Dividends

The profit distribution plan of the Company for the year 2019 was approved at the twelfth meeting of the eighth session of the Board of the Company. The Company distributed cash dividends of totally RMB1.622 billion in 2017 and 2018, accounting for more than 40% of the annual average distributable profits attributable to shareholders of the Company realized in 2017 to 2019, which is higher than the requirement stipulated under the relevant regulations for listed companies and the articles of association of the Company, that is “the cumulative profit distributed in cash in the last three years shall not be less than 30% of the annual average distributable profits realized by the Company in those three years”.

The Company’s non-public issuance of A shares and H shares, which was approved at the extraordinary general meeting and class meetings convened by the Company on 27 December 2019, is under review by the CSRC. According to the relevant regulations of the CSRC, securities cannot be issued before the completion of the implementation of profit distribution. As the distribution of cash dividends of the Company in the past three years complied with the regulations, in view of the strategic significance of the non-public issuance to the Company and in order to ensure the smooth progress of the project, after comprehensive consideration of the Company’s long term development and the interests of all shareholders of the Company, the Board did not recommend any payment of final cash dividend and conversion of capital reserve to share capital of the Company for the year 2019. The retained undistributed profits will be used to supplement the Company’s working capital to meet the development needs of the Company’s principal business activity.

The above matters are subject to the approval of 2019 annual general meeting of the Company.

Five-Year Financial Summary

A summary of the results and the assets and liabilities of the Group prepared under IFRSs for the five-year period ended 31 December 2019 are set out on page 244 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.

 

54


Interest Capitalisation

For the year ended 31 December 2019, RMB1,279 million (2018: RMB1,085 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 2019 are set out in note 19 to the financial statements prepared under IFRSs.

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 2019. The sales from the top five customers was RMB1,270 million in total, representing 0.82% of the total sales in 2019, of which sales to related parties was RMB0.

The Group’s purchases from the largest supplier was RMB10,690 million, representing 13.16% of the Group’s total purchases in 2019. The purchases from the top five suppliers was RMB27,621 million in total, representing 34.02% of the total purchases in 2019, of which purchases from related parties was RMB5,381 million, representing 6.63% of the total purchases in 2019. At no time during the year have the directors, their associates or any shareholder of the Company (which to the knowledge of the Directors owns more than 5% of the Company’s share capital) 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 regarding sales, service and information acquisition. We have implemented the requirement of “affinity and refinement”, introduced two-cabin “family service 360” products, expanded 195 fine “Kapok International” routes, and achieved full coverage of international long-haul routes and regional key routes. 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 in the whole process has brought more convenient travel experience to passengers.

The Group continued to explore how to improve its supplier management mechanisms. Since 2018, the Group released Measures for Supplier Management, and newly launched Notice for Bad Behavior System of Suppliers, Commitment for Integrity of Supplier and other purchasing documents, and encouraged suppliers to actively assume social responsibility by standardizing the cooperation with its suppliers in terms of its practice in operation, society and environment, and encouraged suppliers to actively assume social responsibility. Meanwhile, we conducted the communication activities with suppliers regularly, took the advice and suggestion of suppliers to better improve all of its work.

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

 

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For the year ended 31 December 2019, the Group has following major customers and suppliers:

Unit: RMB million

 

Name of customers

   Operating revenue      Percentage as total operating revenue (%)  

Customer 1

     472        0.31  

Customer 2

     214        0.14  

Customer 3

     201        0.13  

Customer 4

     200        0.13  

Customer 5

     183        0.12  
  

 

 

    

 

 

 

Total

     1,270        0.82  
  

 

 

    

 

 

 

Unit: RMB million

 

Name of suppliers

   Purchase      Percentage as total purchase (%)  

China National Aviation Fuel Group

     10,690        13.16  

South China Blue Sky Aviation Fuel Co., Ltd

     9,890        12.18  

Guangzhou Aircraft Maintenance Engineering Co., Ltd.

     2,939        3.62  

MTU Maintenance Zhuhai Co., Ltd.

     2,442        3.01  

Shenzhen Cheng Yuan Aviation Oil Co., Ltd.
(深圳承遠航空油料有限公司)

     1,660        2.05  
  

 

 

    

 

 

 

Total

     27,621        34.02  
  

 

 

    

 

 

 

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

 

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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.

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

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 2019.

Pre-Emptive Rights

None of the Articles of Association of the Company provides for any pre-emptive rights requiring the Company to offer new shares to existing shareholders in proportion to their existing shareholdings.

Permitted Indemnity Provision

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

The Company has arranged for appropriate insurance cover for Directors’ and officers’ liabilities in respect of legal actions against its Directors and senior management arising out of 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 2019.

The Model Code

Having made specific enquiries with all the Directors, the Directors have complied with the Model Code as set out in Appendix 10 to the Listing Rules for the year ended 31 December 2019.

 

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The Company has adopted a code of conduct which is no less stringent than the Model Code regarding securities transactions of the Directors.

Compliance with the Code Provisions of the Corporate Governance Code

In the opinion of the Board of the Company, 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 2019.

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 2019, 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 regulations and returned back in a timely manner any unused traffic rights. No punishment was imposed on the Group by any regulator institutions which caused material impact on the operation of the Group.

For the year ended 31 December 2019, the Group has complied with laws and regulations that has material effect on the operation of the Group.

Environmental Policies and Performance

During the reporting period, the Company actively responded to climate changes, continued to promote energy conservation and emission reduction, and made more efforts to reduce the impact on the environment:

1. Green Flight

The Company has formulated Energy Conservation and Emission Reduction Management Manual, Energy and Environmental Protection Management Business Process and other systems. By virtue of technical optimization, management improvement and big data analysis, the Company comprehensively improved the efficiency of aviation fuel usage and realized green flight. By introducing A350, B787, A320NEO and other new aircraft models, the fuel efficiency of the fleet was further improved. In 2019, the Company comprehensively promoted the single-engine slide-in project, shutting down one engine to reduce fuel consumption while the plane was taxiing. In 2019, a total of 160,882 single-engine slide-in flights were conducted for 11,039 hours, saving 3,042 tons of fuel.

2. Participation in Carbon Trading

The Company, as the forerunner of the domestic carbon trading pilot, successfully fulfilled its obligations to participate in the EU carbon emission trading of two-point flights within the EU for the year 2018 and the Guangdong carbon market in April 2019 and June 2019 respectively. During the performance work of carbon trading in Guangdong Province, China Southern Airlines held a surplus quota of over 400,000 tons for the year 2018 due to the improvement of the Company’s emission efficiency.

 

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3. Pollution Prevention and Control

The waste water, exhaust gas, harmful waste and other items generated in the process of air transportation may lead to some pollution. The Company disposed of on-board wastewater, industrial wastewater and domestic wastewater in accordance with the Law of the People’s Republic of China on Prevention and Control of Water Pollution and Law of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution and other laws and regulations, and conducted reduction and innocuous treatment of waste generated during our business operation, to reduce the impact on the environment.

4. Resource Conservation

It is inevitable to consume water, paper, plastic, wood and other resources during our aviation flights and ground services. In order to promote the resource conservation, China Southern Airlines pay more attention to resource conservation and efficiency improvement in all aspects of operation.

Water conservation. We implemented precise water addition in cabin and applied aircraft dry cleaning technology to reduce water consumption on board and aircraft cleaning water consumption.

Paper saving. With respect of passenger services, by virtue of “China Southern e-travel” and other electronic platforms, we promoted electronic boarding passes, electronic invoice and electronic luggage tag to reduce paper printing. As for freight services, the Company persistently promoted electronic waybills, saving 171,000 paper waybills per month on average. The volume of domestic electronic waybills was the largest in the world.

Disposal of harmless waste. China Southern Airlines responded proactively to the garbage sorting. After the cabin meal packaging materials, recyclable magazines, kitchen waste, office and domestic waste and other harmless waste generated during the activities were collected, China Southern Airlines handed them over to qualified companies, to promote the recycling of resources. The disposal of harmless waste for on-board services of China Southern Airlines amounted to 7,909.5 cubic meters in 2019, with a treatment rate of 100%.

China Southern Airlines responded proactively to the garbage sorting, and conducted dry and wet garbage classification before landing on the plane. After the dry garbage such as easy to open cans and plastic bottles was recycled, and the wet garbage such as lunch boxes and leftover meals was collected, China Southern Airlines handed them over to ground staff. China Southern Airlines’ on-board garbage sorting behavior well received by passengers.

5. Spreading the Green Concept

Energy conservation and emission reduction need the joint efforts of the whole society. With such a large customer base, China Southern Airlines has given full play to its advantageous resources to attract more stakeholders involving in energy conservation and emission reduction activities and jointly participating in the sustainable development process of mankind.

To address the waste of meals on board, China Southern Airlines launched a green flight project in 2019, calling on passengers who have no need for meals to give up meals on board in advance, realizing green flight. China Southern Airlines awarded 300-500 miles to passengers participating in the project to achieve mutual benefit and a win-win situation. In 2019, China Southern Airlines launched the green flight project on 650 flights, sending targeted invitation messages to over 30,000 passengers every day. A total of 215,000 passengers participated in green flight, reducing the waste of 215,000 meals on board.

 

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

Save as disclosed in the section headed “Connected Transactions” below, neither Director/Supervisors nor entities connected with the Directors/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 2019 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

At no time during the year ended 31 December 2019 was the Company or any of its subsidiaries a party to any arrangement that would enable the Directors/Supervisors to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate, and none of the Directors/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 2019, 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 issue of this annual report, the Company had maintained sufficient public float as required by the Listing Rules throughout the year ended 31 December 2019.

Connected Transactions

The Company entered into certain connected transactions with CSAH and other connected persons from time to time. Details of the connected transactions of the Company conducted in 2019 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.

 

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(2) Continuing Connected Transactions between the Company and CSAH (or their respective subsidiaries)

 

  A.

SACM, which is 40% owned by the Company and 60% owned by CSAH

 

  (a)

The Company entered into a new Media Services Framework Agreement on 27 December 2018 with SACM (“New Media Services Framework Agreement”) to renew the media services provided by SACM to the Group under the Media Services Framework Agreement (“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 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, and services relating to the distribution of newspapers and magazines. The service fee for the media services to be provided to members of the Group by SACM and its subsidiaries are determined, 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 particular, the transaction amounts for in-flight TV and movie program agency services are expected to increase annually by 15% since the Company has fully entrusted SACM to purchase all in-flight TV and movie programs and are committed to the improvement of quality. An annual growth of 10% reflecting the increases in number of flights and number of passengers are also factored in when ascertaining the transaction amounts for the newly-added media printing, production and procurement services.

 

  (b)

In view of the increase in demand for services to be provided by SACM to the Group under the Media Services Framework Agreement, the annual cap under the Media Services Framework Agreement in respect of the year ended 31 December 2019 will become insufficient. The Company and SACM entered into a supplemental agreement to revise the relevant annual cap on 29 November 2019. The supplemental agreement came into force on 29 November 2019.

Pursuant to the supplemental agreement, the Company and SACM agreed 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). Save for the said revision, all other terms of the Media Services Framework Agreement shall remain unchanged. For details, please refer to the announcement of the Company dated 29 November 2019.

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. For the year ended 31 December 2019, the translation amount of the Group for media services was RMB196 million.

 

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  B.

Finance Company, which is 51.416% owned by CSAH, 41.808% owned by the Company and 6.776% owned in aggregate by four subsidiaries of the Company

 

  (a)

On 29 August 2016, the Company entered into a New Financial Services Framework Agreement (the “New Financial Services Framework Agreement”) with Finance Company, in order to renew the financial services provided by Finance Company to the Group under Financial Services Framework Agreement (the “Financial Services Framework Agreement”) entered into by the Company and Finance Company on 8 November 2013 for a term of three years and contain the insurance business platform services provided by the Group to Finance Company under the Cooperation Framework Agreement entered into by the Company and Finance Company on 19 November 2015. The term of the Agreement is three years, starting from 1 January 2017 to 31 December 2019.

Under such 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; (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 New Financial Services Framework Agreement, and the Finance Company shall not charge interest rates higher than the interest rate set by the PBOC for the same 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 Regulatory Commission to be operated by the Finance Company by entering into of separate agreements. In relation to the insurance business platform services arrangements under the New Financial Services Framework Agreement, as the platform service provider, the Company agreed to cooperate with the Finance Company, and authorize Finance Company to use each platform of the Group (including electronic platforms and ground service counter channels) as the sales platforms for sale of various insurances relating to aviation transportation (including baggage insurance and aviation passenger accident insurance). For the sale of insurance policies through the Group’s ground service counter channels and its electronic platforms, the Group is currently charging a fixed ratio of the insurance premium of each of the different kinds of insurance policies. The pricing model has been agreed on an arm’s length basis by the Company and the Finance Company with reference to the determination basis as set out in the table disclosed in the Company’s announcement dated 29 August 2016.

The rates should be determined on an arm’s length basis and based on fair market rate, and should not be higher than those available from independent third parties or charging standards. Each of the maximum daily balance of deposits (including the corresponding interests accrued thereon) placed by the Company as well as the maximum amount of the outstanding loan provided by the Finance Company to the Company (including the corresponding interests accrued thereon) at any time during the term of the New Financial Services Framework Agreement shall not exceed the cap which is set at RMB8 billion on any given day. The annual cap of fees payable to the Finance Company by the Group for the other financial services should not exceed RMB5 million. In addition, the annual caps of fees to be received by the Group for the insurance business platform services under New Financial Services Framework Agreement were RMB68.60 million, RMB79.35 million and RMB91.67 million respectively for each financial year ended 31 December 2017, 2018 and 2019. On 16 December 2016, the extraordinary general meeting of the Company considered and approved the New Financial Services Framework Agreement.

 

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In light of the increase in the amount of deposits actually required to be placed by the Group with the Finance Company exceeds the original projection, the original cap will no longer be sufficient to cover the maximum daily balance of the deposits to be placed by the Group with the Finance Company during the remaining term of the New Financial Services Framework Agreement. Accordingly, the Company and the Finance Company entered into a supplemental agreement to the Financial Services Framework Agreement (“Supplemental Agreement”) on 27 April 2018 to revise the cap for the period from the effective date of the Supplemental Agreement to 31 December 2019 from RMB8 billion to RMB10 billion. On 15 June 2018, the Supplemental Agreement was considered and approved at annual general meeting. For details, please see the Company’s circular dated 18 May 2018 and announcement dated 15 June 2018.

 

  (b)

As the Financial Services Framework Agreement expired on 31 December 2019 and the transactions contemplated under the Financial Services Framework Agreement continue to be entered into on a recurring basis, the Company entered into a new Financial Services Framework Agreement on 27 August 2019 with Finance Company (“New Financial Services Framework Agreement”) to renew the financial services transaction and extend the term for an additional term of three financial years, commencing from 1 January 2020 to 31 December 2022.

Pursuant to the 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 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. For details, please refer to the Company’s announcements on the Financial Services Framework Agreement dated 27 August 2019 and 12 September 2019 as well as circular dated 26 October 2019.

On 31 December 2019, the deposits placed by the Group with Finance Company were RMB711 million. For the year ended 31 December 2019, the Group charged a service fee of RMB0.

 

  C.

GSC, a wholly-owned subsidiary of CSAH

On 16 December 2016, the Company entered into a Passenger and Cargo Sales and Ground Services Framework Agreement (the “Passenger and Cargo Sales and Ground Services Framework Agreement”) for a term of three years starting from 1 January 2017 to 31 December 2019. Under Passenger and Cargo Sales and Ground Services Framework Agreement, GSC agreed to provide certain services and charge agent service fee and services fees while the Company agreed to lease certain assets including transportation tools and equipment and workplace and charge rental thereon. GSC agrees to provide the following services to the Group: (i) domestic and international air ticket sales agency services; (ii) domestic and international airfreight forwarding sales agency services; (iii) chartered flight and pallets sales agency services; (iv) import and export port and transfer services related to cargo operations; (v) ground services, including aircraft maintenance, cabin cleaning, cleaning, collecting and issuing of towels, entertaining equipment maintenance within aircraft, surface cleaning of aircraft and comprehensive ground services; and (vi) support to sales and services oriented to major direct customers of the Company. In respect of the services provided by GSC to the Group, the agency fee for sales agency services is determined by reference to the agency ratio paid to the agency companies by the airlines companies of the same types of the industry in the same regions (including domestic and foreign market). The service fee for internal operation services is determined by the fee standard prescribed by the local government. The service fee for other maintenance and ground services is mainly determined based on related costs (mainly including labor costs, operation costs, management costs and taxes) in addition to 10% profit ratio. With respect to the rentals to be received by the Company, rentals are determined with reference to the valuation prepared by valuation agency (independent third party). The Company expects the annual fees payable to the Group under Passenger and Cargo Sales and Ground Services Framework Agreement will not exceed RMB10 million. Under Passenger and Cargo Sales and Ground Services Framework Agreement, the annual caps for the services provided to the Group by GCS for each of the three years ended 31 December 2019 will be RMB270 million, RMB330 million and RMB400 million, respectively.

 

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GSC entered into liquidation at the year end of 2018 and has no transaction with the Group this year. For the year ended 31 December 2019, the Group had paid Shenzhen Baiyun Air Service Co.,Ltd., the subsidiary of GSC, agent service fee of RMB44 million.

 

  D.

CSAGPMC, a wholly-owned subsidiary of CSAH

The Company has entered into the new Property Management Framework Agreement (the “Property Management Framework Agreement”) with CSAGPMC on 19 December 2017 for a term of three years from 1 January 2018 to 31 December 2020 to renew the property management transactions. Pursuant to the Property Management Framework Agreement, the Company has renewed the appointment of CSAGPMC for the provision of property management and maintenance services for the Company’s properties at the old Baiyun Airport and the new Baiyun International Airport and surrounding in Guangzhou, the Company’s leased properties in the airport terminal at new Baiyun International Airport, the base and the 110KV transformer substation at the new Baiyun International Airport to ensure the ideal working conditions of the Company’s production and office facilities and physical environment, and the normal operation of equipment and for the provision of the property management and maintenance services for the power transformation and distribution equipment at Guangzhou cargo terminal, and the provision of the electricity charge agency services. In addition, the scope of the property under the Property Management Framework Agreement has been reviewed and adjusted.

The annual cap for management and maintenance services fee payable pursuant to the new Property Management Framework Agreement is set at RMB155 million for each of the three years ending 31 December 2018, 2019 and 2020, respectively. The annual cap was determined at an arm’s length negotiation between both parties with reference to (i) the original annual caps, the actual transaction amount for 2015 and 2016, and the expected transaction amount for 2017 which will possible nearly reach the original annual cap; (ii) the substantial increase in the labour cost; and (iii) the expected substantial increase in the coverage of properties.

The property management services fee shall be determined at an arm’s length basis between both parties and according to the market prices, which shall be determined with reference to the consultation by the Company in the property management market, taking into account the location, areas and types of the properties of the Company at the old Baiyun Airport and new Baiyun International Airport. The property management services fee charged should not be higher than the one charged by any independent third parties in the similar industries.

For the year ended 31 December 2019, the property management and maintenance fee incurred by the Group amounted to RMB148 million pursuant to the Property Management Framework Agreement.

 

  E.

SACC, which is 50.1% owned by CSAH

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

Pursuant to the Agreement, the service fee for new 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.

 

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The annual caps for each of the three financial years ending 31 December 2019, 2020 and 2021 are RMB231 million, RMB266 million and RMB306 million, respectively. The proposed annual caps are determined at an arm’s length basis between both parties by reference to historical figures as disclosed above, the estimated flight growth in the next three financial years and the natural market growth. In particular, according to the data released by the Civil Aviation Administration of China, the growth rate of passenger traffic in China in 2017 was 13%. The number of inbound and outbound flights operated by the Company at Shenzhen Airport is estimated to continue to increase in 2020 to 2021, accordingly, the demand for in-flight meals and supplies will also increase. Secondly, the labor costs in Shenzhen has increased annually. The average annual growth rate of the minimum wage in Shenzhen from 2014 to 2018 was approximately 6.7%. At the same time, the Company takes into consideration a buffer to cater for future growth given the historical figures and possible changes in the standard of in-flight meals.

For the year ended 31 December 2019, the service fees paid by the Group to SACC was RMB142 million.

(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 the new Asset Lease Framework Agreement (the “Asset Lease Framework Agreement”) on 26 January 2018 for a term of three years commencing from 1 January 2018 to 31 December 2020 to continue the asset lease transactions originally covered under the original Asset Lease Agreement. Pursuant to the new Asset Lease Framework Agreement, CSAH has agreed to continue to lease to the Company certain buildings, land and equipment assets at existing locations in Guangzhou, Wuhan, Changsha, Haikou, Zhanjiang and Nanyang. The annual cap for rent payable pursuant to the new Asset Lease Framework Agreement is set at RMB116,198,000. The annual cap was determined after arm’s length negotiation by the parties and with reference to (i) rental assessment report with the valuation date on 30 June 2017 prepared by Pan-China Assets Appraisal Co., Ltd. (北京天健興業資產評估有限公司); and (ii) the historical annual rent paid and the annual cap.

For the year ended 31 December 2019, the rent incurred by the Group amounted to RMB90 million pursuant to the Asset Lease Agreement.

 

  B.

The Company and CSAH entered into an indemnification agreement dated 22 May 1997 in which CSAH has 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.

 

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  C.

(1) On 16 December 2016, the Company and CSAH have entered into a new property and land lease framework agreement (the “Property and Land Lease Framework Agreement”) to renew the land and property leases transactions contemplated under the Lease Agreements for the period from 1 January 2017 to 31 December 2019. 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 Guangzhou, Shenyang, Dalian, Harbin, Xinjiang, Changchun, Beijing and Shanghai 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 Xinjiang, Harbin, Changchun, Dalian and Shenyang 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 and adjusted with reference to the rental assessment report prepared by Guangdong Zhonglian Yangcheng Asset Appraisal Co., Ltd. taking into account the prevailing market rental for properties located at similar locations which have had the trend of increase. The maximum 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 ended 31 December 2019 shall not exceed RMB130 million.

For the year ended 31 December 2019, the rents for property lease and land lease incurred by the Company amounted to RMB98 million pursuant to the Property and Land Lease Framework Agreement.

(2) On 30 December 2019, the Company entered into a new Property and Land Lease Framework Agreement with CSAH (“New Property and Land Lease Framework Agreement”) to renew the property and land lease transactions contemplated under the Property and Land Lease Framework Agreement for a term commencing from 1 January 2020 to 31 December 2022. Pursuant to the New 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 rental will be payable on a quarterly basis and will be funded by the internal resources of the Company. 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.

The transactions 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 transaction is RMB259,335,413.67 (the “Value of the Right-of-use Asset”). The Value of the Right-of-use Asset will be amortised over the lease period.

 

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  D.

On 27 April 2017, the Company entered into a finance lease agreement in relation to one Airbus A321 aircraft (“A321 Finance Lease Agreement”) and a finance lease agreement in relation to one Airbus A330 aircraft (“A330 Finance Lease Agreement”) 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 relevant Finance Lease Agreements, the applicable interest rate will be 21.6% below the lower limit of 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 relevant Finance Leases.

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 for such aircraft.

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 repurchase such aircraft back from CSA Leasing Company at RMB10,000 for such aircraft.

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 2019, 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 RMB127 million and RMB0, respectively. Up to 31 December 2019, 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 RMB305 million.

 

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  E.

(1) On 17 October 2017, the Company entered into the 2018-2019 Finance and Lease Service Framework Agreement (“2018-2019 Finance and Lease Service Framework Agreement”) with CSA International Finance Leasing Co., Ltd. (“CSA International”), an associate of CSAH for an effective term from 1 January 2018 to 31 December 2019.

CSA International agreed 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 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 2018-2019 Finance and Lease Service Framework Agreement and the relevant implementation agreements contemplated thereunder.

(a) Subject matter under the Finance Lease Transactions under the 2018-2019 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 from 1 January 2018 to 31 December 2019, subject to adjustment from time to time. The number of the leased Aircraft will be no more than 41 and 46 for the two years ended 31 December 2018 and 31 December 2019, respectively. Under the Finance Lease Transactions, 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 2018-2019 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 and Leased Aircraft Related Assets under the separate Finance Lease Agreement(s) would be 10 to 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. 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 payable and handling fee) of the aircraft (excluding helicopter) finance lease transactions shall not exceed half of the aggregate amount (including the principal, interest payable and handling fee) of all the aircraft scheduled to be introduced under the Company’s introduction plan from 2018 to 2019; (ii) the maximum aggregate transaction amount of the finance lease of the Aircraft Related Assets shall not exceed 75% of all the Aircraft Related Assets to be introduced under the Company’s introduction plan from 2018 to 2019; 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 2018 to 2019, the total transaction amount under the Finance Lease Transactions for the year ended 31 December 2018 and the year ended 31 December 2019 is US$2,621 million and US$3,126 million.

 

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For the year ended 31 December 2019, the transaction amounts of the Finance Lease transaction paid by the Company under the 2018-2019 Finance and Lease Service Framework Agreement was RMB12,820 million.

(b) Subject matter under the Operating Lease Transactions under the 2018-2019 Finance and Lease Service Framework Agreement contains the aircraft and engines in the Company’s introduction plan through operating lease from 1 January 2018 to 31 December 2019. 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 and engines satisfying certain prerequisites.

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

In arriving the proposed cap under Operating Lease Transactions, the Company considered the aircraft and engines to be introduced based on the Company’s introduction plan for 2018 and 2019 and their estimated monthly rental fee. For aircraft, the Company made reference to the available market data on current market value and lease rate factor generally adopted in the aviation industry for aircraft of different models and age. The calculation of the monthly rental fee is derived by multiplying the relevant current market value and lease rate factor for aircraft of similar model and age. For engines, as the Company expects the Operating Lease Transactions will only involve one model of engine, the Company used the previous rental fee for same model of engine to calculate the cap. Considering the above, the proposed maximum annual rental fee under the Operating Lease Transactions for the year ended 31 December 2018 and the year ended 31 December 2019 is US$150 million and US$240 million.

For the year ended 31 December 2019, the rental fee of the operating Lease transaction paid by the Company under the 2018-2019 Finance and Lease Service Framework Agreement was RMB125 million.

(2) On 10 October 2019, the Company entered into the 2020-2022 Finance and Lease Service Framework Agreement with CSA International to renew the transactions under the 2018-2019 Finance and Lease Service Framework Agreement for an additional term of three years from 1 January 2020 to 31 December 2022.

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.

(a) 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 from 1 January 2020 to 31 December 2022, subject to adjustment from time to time). 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.

 

69


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.

(b) 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 have 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.

 

70


In arriving the proposed caps under the Operating Lease Transactions, the Company considered the aircraft, helicopters and engines planned to be introduced by operating lease based on the Company’s introduction plan for 2020 to 2022 and their estimated monthly rental fee. For aircraft and helicopters, the Company made reference to the available market data on current market value and lease rate factor generally adopted in the aviation industry for aircraft and helicopters of different models and age. The calculation of the monthly rental fee is derived by multiplying the relevant current market value and lease rate factor for aircraft or helicopters of similar model and age. Specifically, the Company considered the conditions and utilisation of individual aircraft and (i) the lease period for the aircraft being 5 to 12 years and a lease rate factor of 0.85%; and (ii) the lease period for the helicopters being 12 years and a lease rate factor of 1.3%. For engines, the Company made reference to the available market data on current lease rates generally adopted in the aviation industry for engines of different models and age, considering the condition and utilisation of individual engines, and the lease period being 2 to 10 years.

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 Company’s introduction plan from 2020 to 2022; 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 Company’s introduction plan from 2020 to 2022, 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, 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. 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 approximately 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.

 

  F.

On 19 January 2018, the Company has entered into the CSA Building Asset Lease Agreement (“Building Asset Lease Agreement”) with Guangzhou Southern Airlines Construction Company Limited (“GSAC”, a wholly-owned subsidiary of CSAH) for a term of three years commencing from 19 January 2018 to 18 January 2021. Pursuant to the Building Asset Lease Agreement, GSAC has agreed to lease to (i) certain offices at floors 1-10, 12 and 17-36 in CSA Building located at West Side of Yuncheng East Road, Baiyun Xincheng, Baiyun District, Guangzhou with an aggregate gross floor area of not exceeding 88,396 square meters at an annual rental of not exceeding RMB159,112,800; and (ii) 550 parking lots in CSA Building at an annual rental of not exceeding RMB5,520,000. The annual rental was determined after arm’s length negotiation by the parties, and the annual rental for the offices was adjusted with reference to real property rental assessment report prepared by Shenzhen Cushman & Wakefield Land & Property Appraisal Co., Ltd. (深圳市戴德梁行土地房地產評估有限公司) taking into account the nature and development of the surrounding areas, the transportation condition, the prevailing market rental for office buildings located at Guangzhou and similar locations. For each of the three years ending 31 December 2018, 31 December 2019 and 31 December 2020, the Group’s maximum rental payable to GSAC under the Building Asset Lease Agreement will be no more than RMB156,513,922, RMB164,632,800 and RMB164,632,800, respectively.

For the year ended 31 December 2019, the rental fee paid by the Company under Building Asset Lease Agreement to GSAC was RMB157 million.

 

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(5) Capital Increase

On 1 March 2019, the Company entered into the Capital Increase Agreement (the “Capital Increase Agreement”) with CSAH, Xiamen Airlines, Shantou Airlines, Zhuhai Airlines and Nanland Company. Pursuant to the Capital Increase Agreement, the parties agreed that the Company to increase its respective capital contribution in the total sum of RMB500 million to the Finance Company. RMB304,798,670 of such capital increase will be used to increase the registered capital from RMB1,072,927,050 to RMB1,377,725,720, while RMB195,201,330 will be used to increase the capital reserve of Finance Company. CSAH and the non-wholly owned subsidiaries of the Company, including Xiamen Airlines, Shantou Airlines, Zhuhai Airlines and Nanland Company, agreed to waive their rights to make capital contributions. Upon the completion of capital increase, the equity interest held by the Company in the Finance Company would increase from 25.277% to 41.808%. The amounts of capital increase to the Finance Company were determined after arm’s length negotiations among the parties with reference to, among other things, the net asset value of Finance Company as at 30 June 2018 and the current respective proportion of shareholding of the parties in the Finance Company.

In 2019, the Company made capital contribution of RMB500 million in cash to Finance Company.

(6) Share Issuance

On 11 September 2018, the Company issued 600,925,925 H Shares in total to Nan Lung at the issue price of HK$6.034 pursuant to the subscription agreement dated 26 June 2017 and entered into between the Company and Nan Lung. For details, please refer to the announcement of the Company published on the website of the Stock Exchange on 11 September 2018. 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
   Utilized proceeds as of
31 December 2019 (HKD)
     Unutilized proceeds as of
31 December 2019 (HKD)
     Expected timeline for the
use of unutilized
proceeds

3,625,987,031.45

   Supplement of general
working capital
     3,625,987,031.45        0      Not
applicable

On 27 September 2018, the Company issued 1,578,073,089 A Shares in total at the issue price of RMB6.02 per A Share pursuant to the subscription agreement dated 26 June 2017 and entered into between CSAH and the Company (as amended by the supplemental agreement I dated 19 September 2017), raising gross proceeds and net proceeds of RMB9,499,999,995.78 and RMB9,488,178,222.86, respectively. For details, please refer to the announcement of the Company published on the website of the Stock Exchange on 27 September 2018. The use of proceeds utilized was consistent with the intended use of proceeds as previously disclosed.

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

 

Gross proceeds from A
Shares Issuance (RMB)

  

Intended use of the

proceeds as previously

disclosed

   Utilized proceeds as of
31 December 2019 (RMB)
     Unutilized proceeds as of
31 December 2019 (RMB)
    

Expected timeline for the
use of unutilized

proceeds

9,499,999,995.78   

1.The project for introducing 41 aircraft

2.The project for selection and installation of lightweight seats for A320 series aircraft

     7,760,331,565.74        4,656,625.66     

It is expected that the unutilized proceeds will be used in full before 30 June 2020

 

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  Note:

The total amounts of funds raised from Non-public Issuance of A shares were RMB9,499,999,995.78, and the total amounts of cash raised was RMB7,758,919,995.78. After deducting the underwriting expenses, the net cash subscription amount actually received was RMB7,748,254,995.79. The net cash subscription amounts (net of other issuance expenses (including VAT) paid by the Company and bank handling fee) was RMB1,268,032.31 in total, the actual net proceeds raised was RMB7,746,986,963.48.

The Company utilized the proceeds to the extent of RMB6,844,048,661.10 in previous years, and utilized the proceeds in the amount of RMB916,282,904.64 in 2019 (including utilization of interest income and investment income from unutilized funds amounting to RMB16,831,732.83). As at 31 December 2019, the accumulated amounts of funds utilized were RMB7,760,331,565.74 and the amounts of unutilized proceeds were RMB4,656,625.66 (including RMB1,169,495.09 generated from unutilized interest income net off bank handling fee and investment income from unutilized funds).

(7) Proposed Share Issuance

On 30 October 2019, the Board of the Company proposed to put forward to the extraordinary general meeting and the class meetings to approve and authorise the Board of the Company to issue not more than 2,453,434,457 new A Shares (including 2,453,434,457 A Shares) to CSAH (“A Share Issuance”) at the A Share subscription price, and enter into the A Shares subscription agreement with CSAH (“A Shares Subscription Agreement”), pursuant to which CSAH proposed to subscribe for not more than 2,453,434,457 new A Shares, the consideration of which shall be satisfied by cash. On the same day, the Board of the Company also proposed to put forward to the extraordinary general meeting to approve the connected transaction in relation to the issuance of not more than 613,358,614 new H Shares (including 613,358,614 H Shares) to Nan Lung (a wholly-owned subsidiary of CSAH) at the H Share subscription price and to enter into the H Shares Subscription Agreement with Nan Lung (“H Share Issuance”, together with “A Share Issuance” referred to as “Proposed Share Issuance”). The total funds to be raised from the aforesaid A Share Issuance will be not more than RMB16,800.00 million (including RMB16,800.00 million), which will be utilised in the procurement of aircraft and the repayment of the Company’s borrowings. The total funds to be raised from the aforesaid H Share Issuance will be not more than HK$3,500.00 million (including HK$3,500.00 million), which will be utilised to supplement the general working capital of the Company. The aggregate nominal value of the new A Shares and new H Shares to be issued under the Proposed Share Issuance is not more than RMB3,066,793,071. The net price of each new A Share and new H Share to be issued under the Proposed Share Issuance will be determined and disclosed upon completion of the proposed A Share Issuance and proposed H Share Issuance, respectively, and the determination of the relevant expenses incurred or to be incurred in relation to the Proposed Share Issuance in accordance with the requirements of the Listing Rules. The aforesaid A Share Issuance and the H Share Issuance are not inter-conditional upon each other. The new A Shares to be issued under the aforesaid A Share Issuance will be issued pursuant to the specific mandate to be sought from the Independent Shareholders at the extraordinary general meeting and the class meetings. The new H Shares to be issued under the aforesaid H Share Issuance will be issued pursuant to the general mandate and shall be subject to approval by the Independent Shareholders at the extraordinary general meeting.

The A Share subscription price shall not be lower than a price (rounded up to the nearest two decimal places) determined as the higher of (i) the 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 price benchmark date for the new A Shares, and (ii) the latest audited net asset value per Share attributable to equity shareholders of the Company. The average trading price of the A Shares in the 20 trading days preceding the price benchmark date for the new A Shares equals to the total trading amount of A Shares traded in the 20 trading days preceding the price benchmark date for the new A Shares divided by the total volume of A Shares traded in the 20 trading days preceding the price benchmark date for the new A Shares. The closing price of each A Share quoted on the Shanghai Stock Exchange on 30 October 2019 was RMB6.64. Where there are ex-right or ex-dividend events including distribution of dividend, bonus issue, rights issue, and transfer to share capital from capital reserve during the 20 trading days preceding the price benchmark date for the new A Shares leading to an adjustment of the trading price of the A Shares, the trading prices of the A Shares for the trading days preceding such adjustment shall be adjusted in view of the ex-right or ex-dividend events. The A Share subscription price will be adjusted in case of 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 price benchmark date for the new A Shares to the date of issuance of such new A Shares. The above-mentioned latest audited net asset value per Share attributable to equity shareholders of the Company will be adjusted in case of 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.

 

73


The H Share subscription price shall not be lower than a price (rounded up to the nearest two decimal places) determined as the higher of (i) the average trading price of the H Shares as quoted on the Stock Exchange in the 20 trading days immediately prior to the price benchmark date for the new H Shares, and (ii) the latest audited net asset value per Share attributable to equity shareholders of the Company in HK$ calculated based on the median exchange rate announced by the People’s Bank of China on the price benchmark date for the new H Shares. In addition, the H Share subscription price shall not be lower than a price determined as the higher of (i) the closing price of the H Shares on the date of the H Share Issuance being approved by the Board (i.e. 30 October 2019), and (ii) the average closing price of the H Shares in the 5 trading days immediately prior to the date of such Board’s approval. The average trading price of the H Shares in the 20 trading days preceding the price benchmark date for the new H Shares equals to the total trading amount of H Shares traded in the 20 trading days preceding the price benchmark date for the new H Shares divided by the total volume of H Shares traded in the 20 trading days preceding the price benchmark date for the new H Shares. Where there are 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 of the 20 trading days preceding the price benchmark date for the new H Shares leading to an adjustment of the trading price of the H Shares, the trading prices of the H Shares for the trading days preceding such adjustment shall be adjusted in view of the ex-right or ex-dividend events. The above-mentioned latest audited net asset value per Share attributable to equity shareholders of the Company will be adjusted in case of 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. Pursuant to the above-mentioned mechanism to determine the H Share subscription price, the closing price of the H Shares on the date of the H Shares Subscription Agreement is HK$4.880, and the average closing price of the H Shares in the 5 trading days immediately prior to the date of the H Shares Subscription Agreement is HK$4.824. Therefore, the H Share subscription price would not be lower than HK$4.880 per H Share.

For illustrative purposes only, the minimum subscription price for the new H Shares to be allotted and issued pursuant to the H Share Issuance represents: (a) no premium or discount to the closing price of HK$4.880 per H Share quoted on the Stock Exchange on the date of the H Shares Subscription Agreement; and (b) a premium of approximately 1.16% to the average closing price of HK$4.824 per H Share as quoted on the Stock Exchange for the 5 trading days immediately prior to 30 October 2019 and the date of the H Shares Subscription Agreement; and (c) a premium of approximately 0.45% to the average closing price of HK$4.858 per H Share as quoted on the Stock Exchange for the 10 trading days immediately prior to 30 October 2019 and the date of the H Shares Subscription Agreement.

On 27 December 2019, the aforesaid A Share Issuance and H Share Issuance were considered and approved at 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. The aforesaid A Share Issuance and H Share Issuance are subject to the approval of CSRC.

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 2019 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.

 

74


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 “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 unqualified 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 Main Board Listing Rule 14A.56. A copy of the auditor’s letter has been provided by the Company to The Stock Exchange of Hong Kong Limited. 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 continuing connected 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.

Certain related party transactions as disclosed in note 52 to the financial statements prepared under IFRSs also constituted connected transactions under the Listing Rules and are required to be disclosed in accordance with Chapter 14A of the Listing Rules. The Company has complied with the disclosure requirements of Chapter 14A of Listing Rules in respect of the above connected transactions or continuing connected transactions.

Donations

For the year ended 31 December 2019, the Group made donations for charitable purposes amounting to RMB35.93 million.

Designated Deposits and Overdue Time Deposits

As at 31 December 2019, 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.

Material Litigation

As at 31 December 2019, the Group was not involved in any material litigation.

 

75


Subsequent Events

 

(a)

On 30 October 2019, the Company entered into the A Share Subscription Agreement with CSAH, pursuant to which the Company is to issue not more than 2,453,434,457 (inclusive) new A Shares to CSAH. The total funds to be raised from the A Share Issuance will be not more than RMB16,800 million (inclusive). In the meantime, the Company entered into the H Share Subscription Agreement with Nan Lung Holding Limited (a wholly-owned subsidiary of CSAH), pursuant to which the Company is to issue not more than 613,358,614 (inclusive) new H shares. The total funds to be raised from the H Share Issuance will be not more than HKD3,500 million (inclusive). The consideration of A and H shares will be satisfied by cash. Both of the A Share Issuance and the H Share Issuance were approved by the Extraordinary General Meeting and the respective Class Meetings on 27 December 2019. The Company 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 6 January 2020 and 11 February 2020, respectively. Up to the issuance date of this report, the A Share Issuance and H share Issuance are under review by CSRC.

 

(b)

The COVID-19 outbreak (the “Outbreak”) since early 2020 has brought about uncertainties in the Group’s operating environment and has impacted the Group’s operations and financial position. The Group’s revenue tonne kilometers for the first two months of 2020 has decreased by approximately 37% as compared to the same period of 2019. The Group estimates the outbreak will have an adverse impact on the Group’s business operation and operating revenue for the year 2020, which casts uncertainties in the Group’s operating environment. The Group has been closely monitoring the impact of the developments of the Outbreak on the Group’s business and has put in place contingency measures. These contingency measures include: temporarily reducing the numbers of flights of certain routes, provisionally suspending certain domestic and international routes according to the travel restrictions of related countries and regions. Based on the Group’s actual performance in early 2020, contingent measures put in place and unutilised available banking facilities, etc., the Group has carried out a review of the cash flow forecast of the Group for the eighteen months period after the balance sheet date. Based on such forecast, the Directors of the Company believe that adequate funding will be available for the working capital and capital expenditure requirements of the Group during that period. Up to the issuance date of this report, the Outbreak hasn’t ended and the Group cannot reasonably estimate its impact on the business operation and financial performance. The Group will proactively keep contingency measures under review as the situation evolves.

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 2020 and KPMG to provide professional services to the Company for its Hong Kong financial reporting for the year 2020. There has been no change in the Company’s auditors in the past three years.

By order of the Board

Wang Chang Shun

Chairman

Guangzhou, the PRC

30 March 2020

 

76


CHANGES IN THE SHARE CAPITAL,

SHAREHOLDERS’ PROFILE

AND DISCLOSURE OF INTERESTS

 

I.

Change in Share Capital

Unit: Share

 

          31 December 2018      Increase/(decrease)
during the
year 2019
     31 December 2019  
          Number of Shares      Percentage (%)      Number of Shares      Number of Shares      Percentage (%)  

I

  

Shares subject to restrictions on sales

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

1.

  

RMB ordinary shares

     1,578,073,089        12.86        (1,088,870,431      489,202,658        3.99  

2.

  

Overseas listed foreign shares

     600,925,925        4.90        0        600,925,925        4.90  

 

  

Total

     2,178,999,014        17.76        (1,088,870,431      1,090,128,583        8.89  

II

  

Shares not subject to restrictions on sales

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

1.

  

RMB ordinary shares

     7,022,650,000        57.25        1,088,870,431        8,111,520,431        66.12  

2.

  

Overseas listed foreign shares

     3,065,523,272        24.99        0        3,065,523,272        24.99  

 

  

Total

     10,088,173,272        82.24        1,088,870,431        11,177,043,703        91.11  

III

  

Total number of shares

     12,267,172,286        100.00        0        12,267,172,286        100.00  

On 26 September 2019, A shares issued by the Company to China National Aviation Fuel Group Corporation, Spring Airlines Co., Ltd., Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP), China Structural Reform Fund Co., Ltd., Hotland Innovation Asset Management Co., Ltd. and China Life Asset Management Company Limited was lifted due to the expiry of the lock-up period. Please refer to the related announcements of the Company published on China Securities Journal, Shanghai Securities News, Securities Times and the website of the SSE on 21 September 2019 for details.

 

II.

Issuance and Listing of Securities

 

Type of securities and derivatives

   Issuance date      Issuance interest rate     Amount issued      Listing date      Amount
approved for
public trading
     Ending date of
transaction
 

Convertible corporate bonds, bonds with detachable warrants and corporate bonds

                

Corporate Bonds (19 China Southern Airlines 01)

     21 February 2019        3.45     RMB3.0 billion        4 March 2019        RMB3.0 billion        22 February 2022  

Corporate Bonds (19 China Southern Airlines 02)

     16 May 2019        3.72     RMB2.0 billion        29 May 2019        RMB2.0 billion        17 May 2022  

Corporate Bonds (19 Xiamen

Airlines 01)

     20 November 2019        3.58     RMB1.5 billion        27 November 2019        RMB1.5 billion        20 November 2022  

Other derivatives

                

The first tranche of Ultra-short-term Financing Bills of the Company in 2019

     21 January 2019        2.60     RMB2.0 billion        23 January 2019        RMB2.0 billion        19 July 2019  

The second tranche of Ultra-short-term Financing Bills of the Company in 2019

     24 January 2019        2.75     RMB2.0 billion        28 January 2019        RMB2.0 billion        21 October 2019  

The third tranche of Ultra-short-term Financing Bills of the Company in 2019

     19 February 2019        2.25     RMB0.5 billion        22 February 2019        RMB0.5 billion        21 May 2019  

 

77


Type of securities and derivatives

   Issuance date    Issuance interest rate     Amount issued      Listing date    Amount
approved for
public trading
     Ending date of
transaction
 

The fourth tranche of Ultra-short-term Financing Bills of the Company in 2019

   19 February 2019      2.55     RMB2.0 billion      22 February 2019      RMB2.0 billion        19 August 2019  

The fifth tranche of Ultra-short-term Financing Bills of the Company in 2019

   22 February 2019      2.65     RMB1.0 billion      27 February 2019      RMB1.0 billion        22 November 2019  

The sixth tranche of Ultra-short-term Financing Bills of the Company in 2019

   26 February 2019      2.50     RMB0.5 billion      28 February 2019      RMB0.5 billion        23 August 2019  

The seventh tranche of Ultra-short-term Financing Bills of the Company in 2019

   22 March 2019      2.30     RMB1.0 billion      27 March 2019      RMB1.0 billion        19 December 2019  

The eighth tranche of Ultra-short-term Financing Bills of the Company in 2019

   16 April 2019      2.35     RMB1.0 billion      19 April 2019      RMB1.0 billion        14 October 2019  

The ninth tranche of Ultra-short-term Financing Bills of the Company in 2019

   16 April 2019      2.45     RMB2.0 billion      19 April 2019      RMB2.0 billion        9 January 2020  

The tenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   23 April 2019      2.30     RMB1.0 billion      26 April 2019      RMB1.0 billion        21 October 2019  

The eleventh tranche of Ultra-short-term Financing Bills of the Company in 2019

   16 May 2019      3.10     RMB0.5 billion      21 May 2019      RMB0.5 billion        13 February 2020  

The twelfth tranche of Ultra-short-term Financing Bills of the Company in 2019

   20 May 2019      2.40     RMB1.0 billion      22 May 2019      RMB1.0 billion        18 July 2019  

The thirteenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   27 May 2019      2.30     RMB0.5 billion      29 May 2019      RMB0.5 billion        25 July 2019  

The fourteenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   28 May 2019      2.55     RMB0.5 billion      30 May 2019      RMB0.5 billion        21 November 2019  

The fifteenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   6 June 2019      2.30     RMB0.5 billion      11 June 2019      RMB0.5 billion        9 July 2019  

The sixteenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   21 June 2019      2.85     RMB1.0 billion      26 June 2019      RMB1.0 billion        19 December 2019  

The seventeenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   25 June 2019      2.50     RMB0.5 billion      27 June 2019      RMB0.5 billion        22 August 2019  

 

78


Type of securities and derivatives

   Issuance date    Issuance interest rate     Amount issued      Listing date    Amount
approved for
public trading
     Ending date of
transaction
 

The eighteenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   11 July 2019      2.09     RMB1.5 billion      16 July 2019      RMB1.5 billion        13 August 2019  

The nineteenth tranche of Ultra-short-term Financing Bills of the Company in 2019

   12 July 2019      2.45     RMB0.5 billion      16 July 2019      RMB0.5 billion        10 October 2019  

The twentieth tranche of Ultra-short-term Financing Bills of the Company in 2019

   17 July 2019      2.60     RMB0.5 billion      19 July 2019      RMB0.5 billion        19 December 2019  

The twenty-first tranche of Ultra-short-term Financing Bills of the Company in 2019

   22 July 2019      2.18     RMB1.5 billion      25 July 2019      RMB1.5 billion        19 September 2019  

The twenty-second tranche of Ultra-short-term Financing Bills of the Company in 2019

   23 July 2019      2.45     RMB0.5 billion      25 July 2019      RMB0.5 billion        17 October 2019  

The twenty-third tranche of Ultra-short-term Financing Bills of the Company in 2019

   26 July 2019      2.65     RMB1.0 billion      30 July 2019      RMB1.0 billion        20 January 2020  

The twenty-fourth tranche of Ultra-short-term Financing Bills of the Company in 2019

   21 August 2019      2.55     RMB1.0 billion      23 August 2019      RMB1.0 billion        14 May 2020  

The twenty-fifth tranche of Ultra-short-term Financing Bills of the Company in 2019

   27 August 2019      2.45     RMB0.5 billion      29 August 2019      RMB0.5 billion        20 February 2020  

The twenty-sixth tranche of Ultra-short-term Financing Bills of the Company in 2019

   28 August 2019      2.45     RMB1.0 billion      30 August 2019      RMB1.0 billion        24 February 2020  

The twenty-seventh tranche of Ultra-short-term Financing Bills of the Company in 2019

   18 September 2019      2.30     RMB1.0 billion      20 September 2019      RMB1.0 billion        16 March 2020  

The twenty-eighth tranche of Ultra-short-term Financing Bills of the Company in 2019

   23 September 2019      2.30     RMB0.5 billion      25 September 2019      RMB0.5 billion        19 March 2020  

The twenty-ninth tranche of Ultra-short-term Financing Bills of the Company in 2019

   23 September 2019      2.39     RMB1.0 billion      26 September 2019      RMB1.0 billion        19 March 2020  

The thirtieth tranche of Ultra-short-term Financing Bills of the Company in 2019

   23 September 2019      2.79     RMB0.5 billion      26 September 2019      RMB0.5 billion        18 June 2020  

The thirty-first tranche of Ultra-short-term Financing Bills of the Company in 2019

   14 October 2019      2.10     RMB0.5 billion      17 October 2019      RMB0.5 billion        9 April 2020  

 

79


Type of securities and derivatives

   Issuance date    Issuance interest rate     Amount issued      Listing date    Amount
approved for
public trading
     Ending date of
transaction
 

The thirty-second tranche of Ultra-short-term Financing Bills of the Company in 2019

   16 October 2019      2.10     RMB3.0 billion      21 October 2019      RMB3.0 billion        14 April 2020  

The thirty-third tranche of Ultra-short-term Financing Bills of the Company in 2019

   20 November 2019      2.05     RMB2.0 billion      22 November 2019      RMB2.0 billion        18 May 2020  

The thirty-fourth tranche of Ultra-short-term Financing Bills of the Company in 2019

   13 December 2019      2.05     RMB2.0 billion      17 December 2019      RMB2.0 billion        11 June 2020  

The thirty-fifth tranche of Ultra-short-term Financing Bills of the Company in 2019

   17 December 2019      2.05     RMB2.0 billion      19 December 2019      RMB2.0 billion        11 June 2020  

The thirty-sixth tranche of Ultra-short-term Financing Bills of the Company in 2019

   20 December 2019      2.05     RMB1.0 billion      24 December 2019      RMB1.0 billion        18 June 2020  

The first tranche of Medium-term Notes of the Company in 2019

   18 October 2019      3.20     RMB1.0 billion      22 October 2019      RMB1.0 billion        20 October 2022  

The first tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   15 April 2019      2.69     RMB0.5 billion      17 April 2019      RMB0.5 billion        15 August 2019  

The second tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   17 April 2019      2.85     RMB0.6 billion      19 April 2019      RMB0.6 billion        11 September 2019  

The third tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   19 April 2019      3.22     RMB0.5 billion      23 April 2019      RMB0.5 billion        9 January 2020  

The fourth tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   26 April 2019      2.90     RMB0.4 billion      30 April 2019      RMB0.4 billion        9 October 2019  

The fifth tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   14 August 2019      2.68     RMB0.5 billion      16 August 2019      RMB0.5 billion        4 February 2020  

The sixth tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   17 September 2019      2.60     RMB0.4 billion      19 September 2019      RMB0.4 billion        13 February 2020  

The seventh tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   18 September 2019      2.50     RMB0.3 billion      20 September 2019      RMB0.3 billion        12 March 2020  

The eighth tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   12 October 2019      2.40     RMB0.3 billion      15 October 2019      RMB0.3 billion        8 April 2020  

 

80


Type of securities and derivatives

   Issuance date    Issuance interest rate     Amount issued      Listing date    Amount
approved for
public trading
     Ending date of
transaction
 

The ninth tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   29 October 2019      2.55     RMB0.6 billion      31 October 2019      RMB0.6 billion        23 April 2020  

The tenth tranche of Ultra-short-term Financing Bills of Xiamen Airlines in 2019

   27 November 2019      2.55     RMB0.4 billion      29 November 2019      RMB0.4 billion        21 May 2020  

 

III.

Particulars of Shareholders

 

(I)

Number of Shareholders

As at the end of the reporting period, total number of ordinary shareholders of the Company was 198,765. As at 29 February 2020, total number of ordinary shareholders of the Company was 236,001.

 

(II)

Particulars of Shareholdings

 

  1.

Particulars of the top ten shareholders

Unit: Share

 

Particulars of the top ten shareholders

Name of the shareholder (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

or frozen shares

    

Capacity of
shareholders

   Status of shares    Number  

China Southern Air Holding Limited Company

     0       4,528,431,323        36.92        489,202,658      Nil      0     

Stated-owned legal entity

HKSCC Nominees Limited

     (100,001     1,750,829,907        14.27        0      Unknown      —       

Overseas legal entity

Nan Lung Holding Limited

     0       1,634,575,925        13.32        600,925,925      Nil      0     

Stated-owned legal entity

Hong Kong Securities Clearing Company Limited

     93,752,991       577,186,227        4.71        0      Nil      0     

Overseas legal entity

China National Aviation Fuel Group Corporation

     0       498,338,870        4.06        0      Nil      0     

Stated-owned legal entity

China Securities Finance Corporation Limited

     0       320,484,156        2.61        0      Nil      0     

Stated-owned legal entity

American Airlines, Inc.

     0       270,606,272        2.21        0      Nil      0     

Overseas legal entity

China Structural Reform Fund Co., Ltd.

     0       242,524,916        1.98        0      Nil      0     

Stated-owned legal

Spring Airlines Co., Ltd.

     0       140,531,561        1.15        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)

     (32,718,718     88,543,740        0.72        0      Nil      0     

Domestic non-stated-owned legal entity

 

81


  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 Shareholder

  

Number of

tradable shares

not subject to

     Type and number of shares  
   trading restrictions     

Type of shares

   Number  

China Southern Air Holding Limited Company

     4,039,228,665     

RMB ordinary shares

     4,039,228,665  

HKSCC Nominees Limited

     1,750,829,907     

Overseas listed foreign shares

     1,750,829,907  

Nan Lung Holding Limited

     1,033,650,000     

Overseas listed foreign shares

     1,033,650,000  

Hong Kong Securities Clearing Company Limited

     577,186,227     

RMB ordinary shares

     577,186,227  

China National Aviation Fuel Group Corporation

     498,338,870     

RMB ordinary shares

     498,338,870  

China Securities Finance Corporation Limited

     320,484,156     

RMB ordinary shares

     320,484,156  

American Airlines, Inc.

     270,606,272     

Overseas listed foreign shares

     270,606,272  

China Structural Reform Fund Co., Ltd.

     242,524,916     

RMB ordinary shares

     242,524,916  

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)

     88,543,740      RMB ordinary shares      88,543,740  

Explanation of the connected relationship or acting in concert relationship of the above shareholders

    



CSAH held aggregate 1,671,287,925 (including shares subject to
trading restrictions) 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
connected 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 shareholder

   Number of shares held
subject to trading

restrictions
     Listing status of shares which are subject to trading
restrictions
    

Conditions for trading restrictions

   Eligible listing time      Number of new listed
shares
 

1

  

Nan Lung

     600,925,925        10 September 2021        600,925,925     

Non-public Issuance of shares subject to commitments

2

  

China Southern Air Holding Limited Company

     489,202,658        27 September 2021        489,202,658     

Non-public Issuance of shares subject to trading restrictions

Explanation of the connected relationship or acting in concert relationship of the above shareholders

    

CSAH held aggregate 1,671,287,925 (including shares subject to trading restrictions) 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 shareholder of the Company as a result of placing of new shares

Nil.

 

82


IV.

The Controlling Shareholders or De Facto Controllers

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

In July 2019, CSAH, State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”), Guangdong Hengjian Investment Holding Co., Ltd, Guangzhou City Construction Investment Group and Shenzhen Penghang Equity Investment Fund Partnership (Limited Partnership) entered into the “Agreement about Capital Increase of China Southern Air Holding Limited Company” (the “Capital Increase Agreement”) so as to carry out equity diversification reform of CSAH. Pursuant to the Capital Increase Agreement, Guangdong Hengjian Investment Holding Co., Ltd, Guangzhou City Construction Investment Group and Shenzhen Penghang Equity Investment Fund Partnership (Limited Partnership) shall each make capital contribution in cash of RMB10 billion to the registered capital of CSAH (the “Capital Increase”). Upon completion of the Capital Increase, the status of CSAH as a state enterprise supervised by the SASAC remains unchanged and the status of CSAH as the Company’s controlling shareholder remains unchanged.

 

83


V.

Disclosure of Interests

As at 31 December 2019, 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 3)
    % of the total issued H
Shares (Note 3)
    % of the total issued share capital of
the Company (Note 3)
 

CSAH (note 1)

 

Beneficial owner

  A shares     6,981,865,780  (L)      81.18     /       56.92
 

Interest of controlled corporations

  H shares     2,284,646,539  (L)      /       62.31     18.62
    Subtotal     9,266,512,319  (L)      /       /       75.54

Nan Lung (note 1)

 

Beneficial owner

  H shares     2,284,646,539  (L)      /       62.31     18.62
 

Interest of controlled corporations

         

American Airlines Group Inc. (note 2)

 

Interest in controlled corporations

  H shares     270,606,272  (L)      /       7.38     2.21

Qatar Airways Group Q.C.S.C.

 

Beneficial owner

  A shares     430,036,166  (L)      5.00     /       3.51
 

Beneficial owner

  H shares     183,324,000  (L)      /       5.00     1.49
    Subtotal     613,360,166  (L)      /       /       5.00

 

Note:

 

1.

CSAH directly held 4,528,431,323 A Shares. In addition, CSAH was deemed to be interested in 2,453,434,457 A Shares through the A Shares Subscription Agreement entered into between CSAH and the Company dated 30 October 2019.

CSAH was deemed to be interested in an aggregate of 1,671,287,925 H Shares through its direct and indirect wholly-owned subsidiaries in Hong Kong, of which 31,150,000 H Shares were directly held by Perfect Lines (Hong Kong) Limited (representing approximately 0.85% of its then total issued H Shares) and 1,640,137,925 H Shares were directly held by Nan Lung (representing approximately 44.73% of its then total issued H Shares). As Perfect Lines (Hong Kong) Limited is a wholly-owned subsidiary of Nan Lung, Nan Lung was also deemed to be interested in the 31,150,000 H Shares held by Perfect Lines (Hong Kong) Limited. In addition, Nan Lung was deemed to be interested in 613,358,614 H Shares through the H Shares Subscription Agreement entered into between Nan Lung and the Company dated 30 October 2019, therefore CSAH was also deemed to be interested in such 613,358,614 H Shares.

2.

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

3.

The percentage was calculated according to the relevant total issued A Shares, total issued H Shares and the total issued share capital of the Company as at 31 December 2019.

Save as disclosed above, as at 31 December 2019, 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.

 

84


DIRECTORS, SUPERVISORS,

SENIOR MANAGEMENT AND EMPLOYEES

 

I.

Directors, Supervisors, Senior Management

 

(I)

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

As at the end of the reporting period, the Directors, Supervisors and senior management of the Company were as follows:

 

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
(shares)
     Number of
shares
held as
at the
end of
the year

(shares)
     Increase or
decrease of
shares

during
the year
(shares)
     The total
remuneration
before tax
received from
the Company
during the
reporting

period
(RMB0’000)
    

Had received
remuneration
from related
party of
the Company

Wang Chang Shun

  Chairman   

Male

   62   

27 May 2016

  

up to date

     0        0        0        0     

Yes

  Executive Director         

27 May 2016

                 

Ma Xu Lun

  Vice Chairman   

Male

   55   

8 May 2019

  

up to date

     0        0        0        0     

Yes

  President         

8 May 2019

                 
  Executive Director         

18 March 2019

                 

*Zhang Zi Fang

  Executive Director   

Male

   61   

30 June 2009

  

8 May 2019

     0        0        0        0     

Yes

  Executive Vice President         

27 December 2007

  

16 January 2019

              

Han Wen Sheng

  Executive Vice President   

Male

   53   

22 November 2017

  

16 January 2019

     0        0        0        0     

Yes

  Executive Director         

8 May 2019

  

up to date

              

Zheng Fan

  Independent Non-executive Director   

Male

   64   

20 December 2017

  

up to date

     0        0        0        6     

No

Gu Hui Zhong

  Independent Non-executive Director   

Male

   63   

20 December 2017

  

up to date

     0        0        0        6     

No

Tan Jin Song

  Independent Non-executive Director   

Male

   55   

26 December 2013

  

up to date

     0        0        0        15     

No

Jiao Shu Ge

  Independent Non-executive Director   

Male

   54   

30 June 2015

  

up to date

     0        0        0        15     

No

*Pan Fu

  Chairman of Supervisory Committee Supervisor   

Male

   57   

29 December 2010

  

8 May 2019

     0        0        0        0     

Yes

Li Jia Shi

  Chairman of Supervisory Committee   

Male

   58   

8 May 2019

  

up to date

     0        0        0        0     

Yes

  Supervisor         

30 June 2009

  

up to date

              

Lin Xiao Chun

  Supervisor   

Male

   48   

8 May 2019

  

up to date

     0        0        0        45.65     

No

Mao Juan

  Supervisor   

Female

   47   

20 December 2017

  

up to date

     0        0        0        84.07     

No

Xiao Li Xin

  Executive Vice President   

Male

   53   

22 November 2017

  

up to date

     0        0        0        0     

Yes

  Chief Accountant         

27 March 2015

                 
  Chief Financial Officer         

27 March 2015

                 

Zhang Zheng Rong

  Executive Vice President   

Male

   57   

10 August 2018

  

up to date

     0        0        0        0     

Yes

Luo Lai Jun

  Executive Vice President   

Male

   48   

18 March 2019

  

up to date

     0        0        0        0     

Yes

Ren Ji Dong

  Executive Vice President   

Male

   55   

7 May 2009

  

up to date

     0        0        0        115.08     

No

Cheng Yong

  Executive Vice President   

Male

   57   

21 August 2018

  

up to date

     0        0        0        195.53     

No

Wang Zhi Xue

  Executive Vice President   

Male

   59   

3 August 2012

  

up to date

     0        0        0        45.59     

No

Li Tong Bin

  Chief Engineer   

Male

   58   

30 April 2014

  

up to date

     0        0        0        113.18     

No

  Executive Vice President         

14 September 2015

                 

Su Liang

  Chief Economist   

Male

   57   

27 December 2007

  

up to date

     0        0        0        95.97     

No

Chen Wei Hua

  Chief Legal Adviser   

Male

   53   

16 June 2004

  

up to date

     0        0        0        95.76     

No

Li Shao Bin

  Chief Training Officer   

Male

   55   

21 June 2019

  

up to date

     0        0        0        44.67     

No

Xie Bing

  Secretary to the Board   

Male

   46   

26 November 2007

  

up to date

     0        0        0        95.08     

No

Feng Hua Nan

  COO Flight Safety   

Male

   57   

15 August 2014

  

up to date

     0        0        0        184.18     

No

Guo Jian Ye

  Chief Customer Officer   

Male

   57   

4 January 2017

  

up to date

     0        0        0        96.04     

No

Luo Ming Hao

  Chief Pilot   

Male

   57   

28 March 2018

  

up to date

     0        0        0        179.89     

No

* Wang Ren Jie

  Chief Operation Officer   

Male

   55   

15 November 2018

  

25 October 2019

     0        0        0        168.11     

No

Total

  /   

/

   /   

/

  

/

     0        0        0        1,600.80     

/

 

85


Notes:

 

1.

According to proposals relating to performance appraisals, partial remuneration of some Directors, Supervisors and senior management of the Company shall be delayed as subject to evaluation result, total remuneration set out above includes such delay remuneration obtained during the reporting period;

2.

Mr. Cheng Yong, Mr. Feng Hua Nan, Mr. Luo Ming Hao and Mr. Wang Ren Jie also serve as pilots, so their remunerations are inclusive of crew allowance; Mr. Wang Zhi Xue’s remuneration was paid by Xiamen Airlines since March 2019; Mr. Zheng Fan and Mr. Gu Hui Zhong receive remuneration in accordance with the relevant provisions of the PRC;

3.

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

As at 31 December 2019, 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 of the Stock Exchange.

 

(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

Ma Xu Lun    Vice Chairman and President    Appointed    Appointed by the Board
Ma Xu Lun    Executive Director    Appointed    Appointed by the General Meeting
Han Wen Sheng    Executive Director    Appointed    Appointed by the General Meeting
Luo Lai Jun    Executive Vice President    Appointed    Appointed by the Board
Zhang Zi Fang    Executive Director    Resigned    Retired
Li Jia Shi    Chairman of Supervisory Committee    Appointed    Appointed by the Supervisory Committee
Lin Xiao Chun    Supervisor    Appointed    Appointed by the General Meeting
Pan Fu    Chairman of Supervisory Committee and Supervisor    Resigned    Job Changes
Li Shao Bin    Chief Training Officer    Appointed    Appointed by the Board
Wang Ren Jie    Chief Operation Officer    Resigned    Job Changes

 

(III)

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

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 of the Stock Exchange since the date of 2019 interim report:

 

  1.

Mr. Tan Jing Song served as Independent Director of Midea Real Estate Holding Limited.

 

  2.

Mr. Jiao Shu Ge served as Director of Mabpharm Limited and Rotary Vortex Ltd, and ceased to act as Director of Shanghai Maitai Jun’Ao Biological Technology Co., Ltd and Taizhou Mabtech Biological Technology Co., Ltd.

 

  3.

Mr. Xiao Li Xin served as Chairman of China Southern Airlines Group Finance Company Limited, and ceased to act as Chairman of Shantou Airlines Company Limited and Guizhou Airlines Company Limited, and the Director of Xiamen Airlines Company Limited.

 

  4.

Mr. Zhang Zheng Rong served as Chairman of Guizhou Airlines Company Limited.

 

86


  5.

Mr. Luo Lai Jun served as Chairman of China Southern Airlines Henan Airlines Company Limited and Shantou Airlines Company Limited.

 

  6.

Mr. Feng Hua Nan ceased to act as Chairman of Zhuhai Xiang Yi Aviation Technology Company Limited.

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

 

(IV)

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

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 RMB16,008,000 (2018: RMB17,374,600).

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 above-mentioned 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 52 and 61 to the financial statements prepared under IFRSs.

Details of other employees’ pension scheme and housing benefits are set out in notes 47 and 53 to the financial statements prepared under IFRSs.

 

Remuneration Band    Number of Senior
Management
 
RMB    2019      2018  

0-500,000

     6        1  

500,001-1,000,000

     4        5  

1,000,001-1,500,000

     2        2  

1,500,001-2,000,000

     3        5  
  

 

 

    

 

 

 

Total

     15        13  
  

 

 

    

 

 

 

 

(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 2019, none of the Directors or Supervisors has any material interests in any significant contract to which the Company or its subsidiaries was a party.

 

87


(VI)

Profiles of Current Directors, Supervisors and Senior Management

Directors

Wang Chang Shun, male, born in July 1957 (aged 62), graduated from University of Science and Technology of China majoring in management science and engineering and he has a Ph.D. degree. He is a Doctor of Management and senior expert of political science. He began his career in February 1976. He joined the Chinese Communist Party in March 1982. He has acted as Vice Director and Director of aeronautical meteorology supervision department of CAAC Urumqi Administration, Vice President and a member of standing committee of Xinjiang Airlines (Vice Chairman of CAAC Urumqi Administration) and then as Party Secretary and Vice President of Xinjiang Airlines (Vice Chairman of CAAC Urumqi Administration). In November 2000, he acted as Vice Chairman, General Manager and Deputy Party Secretary of the Company. In September 2002, he acted as Vice President and Party member of CSAH and also as Vice Chairman, General Manager and Deputy Party Secretary of the Company. In August 2004, he served as Deputy Director and Party member of Civil Aviation Administration of China. In March 2008, he acted as Deputy Director and Party member of Civil Aviation Administration of China (Deputy ministerial). In October 2011, he was appointed as General Manager and Deputy Party Secretary of China National Aviation Holding Company and also was appointed as the Chairman of Air China Limited. He was appointed as Vice Minister and Party Leadership Group Member of Ministry of Transport in January 2014, General Manager and Deputy Party Secretary of China National Aviation Holding Company in February 2016, General Manager and Deputy Party Secretary of CSAH and Chairman of the Company in May 2016. In December 2016, he has been Chairman, Party Secretary of CSAH and Chairman of the Company. Since November 2017, he has been Chairman, Party Secretary of CSAH and Chairman, Party Secretary of the Company. He is also a deputy to the 12th National People’s Congress. He is the representative of the 19th Communist Party of China National Congress, a member of the 12th CPC Guangdong Provincial Committee and standing committee member and member of the 13th National Committee of the Chinese People’s Political Consultative Conference.

Ma Xu Lun, male, born in July 1964 (aged 55). He graduated from the School of Mechanical Science & Engineering of HUST, majoring in industrial engineering. He has a master degree of engineering and is a certified public accountant. He started his career in August 1984, and joined in the Chinese Communist Party in October 1990. He has been the deputy general manager of China Commodities Storing and Transportation Corporation, deputy director general of the Finance Department of the CAAC, vice president and Standing Member of Party Committee of Air China Corporation Limited. He was appointed as vice president of general affairs and deputy party secretary of Air China Corporation Limited in October 2002; and served as the director, president and deputy party secretary of Air China Corporation Limited in September 2004. He served as a party member of China National Aviation Holding Company and director, president and deputy party secretary of Air China Corporation Limited in December 2004, and deputy general manager and party member of China National Aviation Holding Company from February 2007. In December 2008, he was appointed as deputy party secretary of China Eastern Air Holding Company and general manager and deputy party secretary of China Eastern Airlines Corporation Limited. He served as secretary to the Party Committee and deputy general manager of China Eastern Air Holding Company and general manager of China Eastern Airlines Corporation Limited in October 2011. In November 2016, he served as the director, general manager and deputy party secretary of China Eastern Air Holding Company, and vice Chairman, general manager and deputy party secretary of China Eastern Airlines Corporation Limited in December 2016. In February 2019, he acted as the general manager and deputy party secretary of China Southern Air Holding Limited Company. In March 2019, he acted as the general manager of the Company and vice president of the Company in May 2019.

 

88


Han Wen Sheng, male, born in January 1967 (aged 53), graduated from Management Department of Tianjin University, majoring in engineering management, with qualification of a Master’s degree. He obtained a Master’s Degree of Science and was a economist. He began his career in August 1987, and joined the Chinese Communist Party in May 1985. He served as Deputy Director General of Cadre Training Center of the Company, Director of The Research Bureau of the Company, general manager of Labour Department and Secretary of CPC General Committee of the Company, Deputy Director General and a member of Party Committee of the Commercial Steering Committee and general manager as well as Deputy Party Secretary of the sales and marketing department of the Company, general manager and Deputy Party Secretary of Shanghai base. He acted as Deputy Party Secretary and Deputy Director General of the Commercial Steering Committee of the Company since December 2009 and Party Secretary and Deputy Director General of the Commercial Steering Committee of the Company since October 2011. He served as vice president and party member of China Southern Air Holding Company from October 2016. From November 2017, he served as vice president and party member of China Southern Air Holding Limited Company, the vice president and Party member of the Company. He was appointed as director and Deputy Party Secretary of China Southern Air Holding Limited Company, Vice president of the Company in November 2018. From January 2019, he served as director and Deputy Party Secretary of China Southern Air Holding Limited Company. Currently, he also served as Vice Chairman of Sichuan Airlines Corporation, director of China Travel Sky Holding Company and Vice Director General of China Air Transport Association.

Zheng Fan, male, born in November 1955 (aged 64), graduated with a bachelor’s degree from Beijing Normal University majoring in School Education and is a senior expert of political science. Mr. Zheng is a CPC member and began his career in 1974. He served as a teacher of Faculty of Education at Beijing Normal University from February 1982. He worked as a cadre at public relationship department of the Chinese Communist Party Central Committee and was a deputy Director level investigator from January 1986, deputy Director-general (temporary post) of public relationship department of CBRC Shenzhen Municipality Luohu District Committee and deputy Director general (temporary post) of public relationship department of Shenzhen Committee of Communist Party of China from March 1988, deputy Director of public relationship department of CBRC Shenzhen Municipality Futian District Committee and office Director of working committee under the CBRC Shenzhen Municipality Committee from March 1991. Since August 1994, he has been appointed as general manager of general administration office of Overseas Chinese Town Economic Development Company, general manager’s assistant of OCT Group and managing Director of Overseas Chinese Town (HK) Company Limited since December 1997, deputy secretary of the Party Committee, secretary of Discipline Inspection Commission and Chief Cultural Officer of Overseas Chinese Group Company since August 2000, secretary of the Party Committee and vice-president of Overseas Chinese Group Company since March 2008, secretary of the Party Committee and vice-chairman of Overseas Chinese Town Company Limited since January 2010. He acted as Council Member of China Overseas Exchange Association, Director of relation of the Two Shores Across the Strait Association, vice president of Guangdong’s Association For Promotion of Cooperation between Guangdong, Hong Kong and Macau and vice-chairman of Guangdong Province Association of Entrepreneurs. He was also a Congressman of the 4th term and 5th term of the People’s Congress for Shenzhen Municipality and a member of the 11th session of Guangdong Provincial Committee of Political Consultative Conference. Mr. Zheng has been an independent Director of the company since 20 December 2017.

Gu Hui Zhong, male, born in November 1956 (aged 63), graduated with a master degree from Zhengzhou Aviation Iudustry Institute and Beihang University majoring in International Finance and is a senior accountant of professor level. Mr. Gu is a CPC member and began his career in 1974. He served as deputy chief and chief of the General Office of Financial Division of Aviation Industry Department, Director of International Affairs Financial Division of Aviation Industry Corporation of China, general manager of Zhongzhen Accounting Consultative Corporation, vice Director general of Financial Department of Aviation Industry Corporation of China and 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 the Communist Party and vice president of Aviation Industry Corporation of China I. From February 2005 to August 2008, he acted as a member of Party Leadership Group, vice president and chief accountant of Aviation Industry Corporation of China I. From August 2008 to January 2017, he acted as a member of Party Leadership Group, vice president and chief accountant of Aviation Industry Corporation of China. He previously served as chairman of AVIC I International Leasing Co., Ltd., chairman of AVIC I Financial Co., Ltd., chairman of CATIC International Holdings Limited, chairman of AVIC Capital Co., Ltd and chairman of AVIC International Vanke Company Limited. He is currently served as a supervisor of the Bank of Communications and vice chairman of the Accounting Society of China. Since 20 December 2017, Mr. Gu has been an independent Director of the Company.

 

89


Tan Jin Song, male, born in January 1965 (aged 55), graduated from Renmin University of China with an on-job doctor degree in Accounting. Mr. Tan is a Chinese Certified Public Accountant and a CPC member. Mr. Tan began his career in 1985 and was a teacher in Shaoyang School of Finance and Accounting of Hunan Province and the Deputy Dean of the School of Management of Sun Yat-sen University. Mr. Tan is currently a professor and a doctorate-tutor of the School of Management of Sun Yat-sen University. He is also a member of the MPAcc Education Instruction Committee, a member of China Institute of Internal Audit, Vice President of Guangdong Institute of Certified Public Accountants and a council member of China Audit Society. Currently, Mr. Tan also serves as the independent Director of COSCO SHIPPING Specialized Carriers Co., Ltd., Guangzhou Hengyun Enterprises Holdings Limited, Shanghai RAAS Blood Products Co., Ltd. and Zhuhai Huafa Industrial Company Limited. Mr. Tan has been an independent Director of the Company since 26 December 2013.

Jiao Shu Ge, male, born in February1966 (aged 54), with a master degree, first graduated from the Control Theory Faculty of the Department of Mathematics of Shandong University with a bachelor degree, and then graduated from the Systems Engineering Faculty of No. 2 Research Institute of the Ministry of Aerospace Industry with a Master’s degree in Engineering. Mr. Jiao has extensive experience in funds management and equity investment. Currently, Mr. Jiao is the Director and President of CDH China Management Company Limited (“CDH Investments”) and is the founder of CDH Investments. He was a computer researcher of 710 Research Institute of the former Ministry of Aerospace Industry of China, the Deputy General Manager of Direct Investment Department of China International Capital Corporation Ltd. (“CICC”). Mr. Jiao was the non-executive Director of China Yurun Food Group Limited and China Shanshui Cement Group Limited. He is also the President of Fujian Nanping Nanfu Battery Company Limited, Inner Mongolia Hetao Spirit Group Company Limited, Shanghai Maitai Jun’Ao Biological Technology Co., Ltd, Shanghai Hightech Pharmaceutical Company Limited, Wuhu Zhengding Investment Management Co., Ltd. and other companies; He acted as a director of a number of companies including WH Group Limited, Henan Shuanghui Investment & Development Co.,Ltd., Joyoung Co., Ltd. and Chery Automobile Co., Ltd.; and also acted as an independent director of China Mengniu Dairy Company Limited and associated companies of CDH Investments. Mr. Jiao has been an independent Director of the Company since 30 June 2015.

Supervisors

Li Jia Shi, male, born in May 1961 (aged 58), graduated from Party School of the CPC majoring in Economic Administration and has a bachelor degree. He has an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is an expert of political science. Mr. Li began his career in August 1976 and joined the Chinese Communist Party in June 1986. In February 1998, he served as the party secretary of Guangzhou Nanland Air Catering Company Limited and the Deputy Head (work as chair) of the Organization Division of the Party Committee of the China Southern Airlines (Group) Company in April 1999. Mr. Li served as the head of the Organization Division of the Party Committee of CSAH in December 1999; and served as the Deputy Secretary of the Disciplinary Committee and the Director of the Disciplinary Committee Office of the Company in December 2003. Mr. Li served as the Secretary of the Disciplinary Committee, member of the Standing Committee of the CPC and the Director of the Disciplinary Committee Office of the Company in December 2007. Mr. Li has been the supervisor of the Company since June 2009. He has been the team deputy leader of the Discipline Inspection Commission of CSAH, and member of Secretary of the Disciplinary Committee, the Director of the Disciplinary Committee Office in February 2012, and the Standing Member of Party Committee of China Southern Airlines Company Limited in November 2017. He has acted as the Labour Union chairman and the Standing Member of Party Committee of China Southern Airlines Company Limited in November 2017. He acted as the Chairman of the Labour Union of CSAH and the Chairman of the Labour Union and Standing Member of Party Committee of the Company from January 2018. He has served as the Chairman of the Labour Union of CSAH and the Chairman of the Labour Union of the Company since July 2018.

 

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Lin Xiao Chun, male, born in May 1971 (aged 48), graduated from Peking University Law School with a bachelor degree of laws, majoring in international law. He obtained his MBA from Beijing University of Technology and City University of the United States, EMBA from Tsinghua University School of Economics and Management. He obtained qualifications for Enterprise Legal Adviser and corporation lawyer. He started his career in July 1995, and joined the Chinese Communist Party in June 1995. He served as the deputy director of the legal department of the Company in October 2006, deputy general manager of the legal department of the Company in January 2009, deputy director of the legal department of China Southern Air Holding Company and deputy general manager of the legal department of the Company in December 2009, director of the legal department of China Southern Air Holding Company in May 2013, general manager of the laws & standards Division of China Southern Air Holding Limited Company and general manager of the laws & standards Division of the Company in April 2017.

Mao Juan, female, born in December 1972 (aged 47), obtained a bachelor degree in Accounting from Harbin University of Science and Technology. Ms. Mao began her career in July 1993, and joined the Chinese Communist Party in April 1992. She served as Deputy General Manager of Hainan Branch Comprehensive Trading Company, Deputy Manager of Finance Department in Hainan Branch of the Company and Manager of Audit and System Office of Finance Department in the Company. From August 2011, she acted as Deputy General Manager of Audit Department in the Company and acted as General Manager of Audit Department in the Company since June 2016. She has been the deputy general manager of Audit Department in the CSAH and the Company from April 2017. She has served as the General Manager of CSAH and the Company’s Audit Department since November 2017. She served as the supervisor of the Company, general manager of Audit Department of CSAH and the Company since December 2017. Currently, she is the Chairman of the Supervisory Committee of Southern Airlines Group Finance Company Limited and Nan Lung International Freight Limited, as well as the supervisor of Xiamen Airlines Company Limited.

Senior Management

Xiao Li Xin, male, born in June 1966 (aged 53), graduated from Guangdong Academy of Social Sciences with a master degree in Economics and then obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is a qualified senior accountant and a certified public accountant. Mr. Xiao began his career in July 1991, and joined the Chinese Communist Party in February 1998. He served as the Deputy General Manager of the Finance Department of the Company from March 2001. He served as the General Manager and Deputy Secretary of the General Party Branch of the Finance Department of the Company from January 2002. Mr. Xiao served as the deputy chief accountant and general manager of the Finance Department of the Company from February 2007, and served as the General Manager and Secretary of the General Party Branch of Southern Airlines Group Finance Company Limited from October 2007. He served as the General Manager and Party Secretary of Southern Airlines Group Finance Company Limited from February 2008. Mr. Xiao has been the Chief Accountant and Chief Financial Officer of the Company since March 2015. From October 2016, he has served as Chief Accountant and Party member of China Southern Air Holding Limited Company (CSAH) and Chief Accountant and Chief Financial Officer of the Company. From November 2017, he served as Chief Accountant and Party member of CSAH and Executive Vice President, Chief Accountant, Chief Financial Officer and a member of the Party Committee of the Company. For now, he also serves as Chairman of Guizhou Airlines Company Limited, Chairman of Shantou Airlines Company Limited, Director of Xiamen Airlines Company Limited as well as Director of China Southern Airlines Overseas (Hong Kong) Co. Ltd.

 

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Zhang Zheng Rong, male, born in September 1962 (aged 57), 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 degree. He also obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He began his career in February 1982, and joined the Chinese Communist Party in April 1988. 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 Pilot of CSAH and Chief Operation Officer of the Company since January 2017. Since November 2017, he has been the General Manager 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 Deputy general manager, Party Member of CSAH and the Deputy general manager, Chief Operation Officer of the Company. Since November 2018, he acted as the Deputy General Manager, Party Member and the Deputy general manager of the Company. Currently, he also serves as the chairman of Guizhou Airlines Company Limited.

Luo Lai Jun, male, born in October 1971 (aged 48), 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. He began his career in July 1993 and joined the Communist Party of China in September 1992. 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 and the Deputy Party Secretary of Commercial Steering Committee of the Company in November 2016; Director and the Deputy Party Secretary of Commercial Steering Committee of the Company in August 2017; Executive Vice President and the Party member of China Southern Air Holding Limited Company and Executive Vice President of the Company in March 2019. Currently, he also serves as the chairman of China Southern Airlines Henan Airlines Company Limited and Shantou Airlines Company Limited.

Ren Ji Dong, male, born in January 1965 (aged 55), 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. Mr. Ren began his career in August 1986 and joined the Chinese Communist Party in June 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.

 

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Cheng Yong, male, born in April 1962 (aged 57), 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 degree. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University and is a command pilot. He began his career in January 1982, and join the Chinese Communist Party in August 1984. 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 CSAHC 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 reoganization 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; and Executive Vice President of the Company in August 2018.

Wang Zhi Xue, male, born in January 1961 (aged 59), 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 command pilot. Mr. Wang began his career in February 1981, and joined the Chinese Communist Party in December 1980. 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, and was appointed as legal representative, vice chairman, general manager and Deputy Secretary of CPC of Xiamen Airlines Company Limited in February 2019. For now, he also serves as Chairman of Zhuhai Airlines Company Limited.

Li Tong Bin, male, born in December 1961 (aged 58), graduated with a bachelor degree from Northeastern University majoring in industrial Electric Automation, and Business Administration (MBA) from School of Economics and Management of Hainan University. He obtained an Executive Master of Business Administration (EMBA) Degree form Tsinghua University, and is a senior engineer. Mr. Li began his career in August 1983, and joined the Chinese Communist Party in May 1983. He successively served as the Director of Aircraft Engineering Department and the Director of aircraft maintenance base of China Northern Airlines Company, the General Manager of Jilin branch of China Northern Airlines Company. He also acted as the Deputy General Manager and Deputy Party Secretary of Zhuhai Airlines Company Limited from September 2004, the General Manager and Deputy Party Secretary of Zhuhai Airlines Company Limited from January 2005, and the party secretary and Deputy General Manager of Northern Branch of the Company from April 2012. Mr. Li was the Chief Engineer, General Manager of Aircraft Engineering Department and Deputy Party Secretary of the Company from April 2014. He has been the Chief Engineer, a member of the Standing Committee of the CPC, General Manager of Aircraft Engineering Department and Deputy Party Secretary of the Company from August 2015. Mr. Li has been the Executive Vice President, Chief Engineer, a member of the Standing Committee of the CPC, as well as General Manager of Aircraft Engineering Department and Deputy Party Secretary of the Company since September 2015. From December 2016, he has been Executive Vice President, Chief Engineer and a member of the Standing Committee of the CPC. In July 2018, he was appointed as the Executive Vice President and Chief Engineer of the Company. For now, Mr. Li also serves as Chairman of Shenyang Northern Aircraft Maintenance Co., Ltd., Guangzhou Aircraft Maintenance Engineering Co., Ltd and MTU Maintenance Zhuhai Co., Ltd..

 

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Su Liang, male, born in April 1962 (aged 57), graduated from the University of Cranfield, United Kingdom with a master degree majoring in Air Transport Management, and is an engineer. Mr. Su began his career in December 1981, and joined the Chinese Communist Party in May 1996. 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 from July 2000, the Secretary to the Board and Director of Board Secretariat of the Company from December 2003, the Secretary to the Board, Deputy Director and Party member of Commercial Steering Committee of the Company from November 2005, the Company Secretary and Director of Company Secretary Office and Deputy Director 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 Director of Sichuan Airlines Company Limited, Chairman of Southern Airlines Culture and Media Co., Ltd. and China Southern West Australian Flying College Pty Ltd..

Chen Wei Hua, male, born in October 1966 (aged 53), graduated from the School of Law of Peking University with a bachelor degree and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University, who is an economist, a qualified lawyer in the PRC and a qualified corporate legal counselor. Mr. Chen joined the aviation industry in July 1988, and joined the Chinese Communist Party in February 2001. 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 2006. 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 Xiamen Airlines Company Limited.

Li Shao Bin, male, born in April 1964 (aged 55), 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. He began his career in July 1984, and joined the Communist Party of China in February 1988. 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 46), graduated from Nanjing University of Aeronautics and Astronautics, majoring in Civil Aviation Management. He subsequently received a master degree of business administration from the Management School of Jinan University, a master 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, fellow member and FCS of The Hong Kong Institute of Chartered Secretaries, and has the qualification for Company Secretary of companies listed on Shanghai Stock Exchange and also has the qualification for Company Secretary of companies listed on Stock Exchange. Mr. Xie began his career in July 1995, and joined the Chinese Communist Party in January 1994. He successively served as the Assistant of Company Secretary of the Company, and the Executive Secretary of the General Office of CSAH. Mr. Xie has been the Company Secretary 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. Form April 2017, he has been the Secretary to the Board of the Company, Director of the Company Secretary Bureau of the Company. For now, he also acts as Chairman and Party Secretary 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) and a Council Member of The Hong Kong Institute of Chartered Secretaries.

 

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Feng Hua Nan, male, born in November 1962 (aged 57), graduated with a college degree from China Civil Aviation Flying College, majoring in Aircraft Piloting, and obtained a master 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 commanding pilot. Mr. Feng began his career in January 1983, and joined the Chinese Communist Party in October 1986. 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.

Guo Jian Ye, male, born in December 1962 (aged 57), graduated from Party School of Civil Aviation Flight University of China majoring in Aircraft Piloting, South China Normal University majoring in Political Education in Education Management Department and the Party School of the Central Committee of CPC majoring in economic management. He obtained a master’s degree from the Party School of the Central Committee of CPC and also obtained a Bachelor of Philosophy. He is an expert of political science. He began his career in May 1980, and joined the Chinese Communist Party in May 1986. He was appointed as Secretary of Youth League Committee, Deputy Director of Advertising and Promotion Department of CAAC Central and Southern Regional Administration, Director of Political Department of Air traffic management bureau under CAAC Central and Southern Regional Administration, Vice Director of Air traffic management bureau under CAAC Central and Southern Regional Administration and General Manager of Guangdong CAAC Central and Southern Industrial Co., Ltd., Deputy Head of CAAC Hainan Safety Supervision Office, Head and Party Secretary of CAAC Henan Safety Supervision Office, Director and Party Secretary of CAAC Henan Safety Supervision Administration, the member of standing committee of CAAC Central and Southern Regional Administration, as well as the Vice Director. In July 2012, he served as General Manager and Deputy Party Secretary of Heilongjiang Branch of the Company. From July 2014, he acted as, Director and Deputy Party Secretary of Commercial Steering committee of the Company. Since January 2017, he has been the Chief Customer Officer of the Company. For now, he also acts as Chairman of Shenzhen Air Catering Co., Ltd., Guangzhou Nanland Air Catering Company Limited, Guangzhou China Southern Zhongmian Dutyfree Store Co., Limited, China Southern Jia Yuan (Guangzhou) Air Products Co., Ltd..

Luo Ming Hao, male, born in September 1962 (aged 57), graduated from the Civil Aviation Flight University of China for professional flying. He graduated with a master 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). He began his career in July 1982, and joined the Communist Party of China in December 1984. He served as the deputy general manager of the flight division of Hunan Branch of CSAH and deputy manager, 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 and Chief Pilot of the Company in March 2018.

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, substantial shareholders of the Company.

 

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II.

Staff of the Company and Major Subsidiaries

As of 31 December 2019, the Group had an aggregate of 103,876 employees (31 December 2018: 100,831).

 

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)

69,776

   34,100    103,876

 

  1.

Professions Composition

 

Categories by profession   

Number of professionals

(by person)

 

Pilots

     10,574  

Cabin attendants (including part-time security personnel)

     23,146  

Air marshals

     3,526  

Engineering unit

     17,245  

Navigation unit

     2,477  

Passenger transportation unit

     8,945  

Cargo transportation unit

     7,606  

Ground services unit

     10,794  

Information unit

     1,916  

Financial unit

     1,932  

Others

     15,715  
  

 

 

 

Total

     103,876  
  

 

 

 

 

  2.

Educational Level

 

Categories by education levels

   Number (by person)  

Postgraduates

     4,401  

Undergraduates

     50,659  

Junior college

     31,193  

Technical School or below

     17,623  
  

 

 

 

Total

     103,876  
  

 

 

 

 

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3.

Emolument Policy of Employees

During the reporting period, the Company vigorously promoted the reform of employment and compensation system to achieve the high quality development as follows: the implementation of linkage between two-tiered unit remuneration and market-oriented accounting, the growth of total remuneration was maintained in line with the growth of efficacy, and the value contribution of each unit was encouraged to improve the overall economic efficacy of the Company. The Company has established a market-oriented position management system and salary management system, implemented a wide-range salary system, implemented a promotion and salary adjustment mechanism closely linked to performance appraisal, strengthened the linkage between salary distribution and performance appraisal, and encouraged employees to strive for excellence. The Company optimized the performance appraisal management system, implemented the linkage between the distribution of staff assessment level and performance, increased the assessment for work attitude, established the management list of negative behaviors of employees, implemented the performance score system, guided employees to consciously comply with the Sunshine China Southern Airlines Convention, so as to cultivate a high performance culture. The Company actively explores the medium-and long-term incentive plans for professional managers, establish and improve market-oriented mechanism for employing and selecting employees and incentive and constraint mechanism, to stimulate the vitality and motivation of the Company.

 

4.

Training Plan

In 2020, the Company will continue to adhere to the concept of “Training Supports Strategy, Training Creates Value (培訓支撐戰略、培訓創造價值) ” under the strategic direction of “standardization, integration, intelligentization and internationalization”. The Company promoted the implementation of the overall education training plan and further promote the quality of the Company training through strengthening top-level design, paying close attention to the construction of the “three basics”, concerning key groups, launching key projects, optimizing management system and other aspects, thus ensuring the improvement of the ability of our staff and providing sufficient talent for the Company’s safe and efficient operation.

In 2020, the Company will keep expanding training coverage. The major staff training items include technical training for new employees of 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, training for aircraft transfer, regular training for safety officers, emergency response retraining, and international personnel training for passenger and freight transportation marketing. Meantime, the Company will keep strengthening the construction of training courses, teaching staff and operation system, implementing the training “from post to person” and exploring the training market accounting mechanism; promoting the “100 Talents Program” construction of high-skilled personnel in the maintenance, cabin, aviation and ground services systems, and training a number of “China Southern Airlines Craftsmen” and “Skill Masters”.

 

5.

Information on Labor Outsourcing

 

Total hours of outsourced labor

   Total pay for outsourced labor (RMB)  

56.09 million hours

     2,545.01 million  

 

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CORPORATE GOVERNANCE

REPORT

The Company, according to the requirements of relevant laws and regulations, such as Company Law, Securities Law, and Articles of Association of the Company, 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 essential to the sustained development of the Company and the enhancement of shareholders’ value. The Company has always been striving to strictly comply with the regulatory requirements of the CSRC, the Shanghai Stock Exchange, 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. The Group has complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules of the Stock Exchange. for the year ended 31 December 2019.

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 modified Rules of Procedure for the Standing Committee of the Board of Directors of China Southern Airlines Company Limited, Rules of Procedures for the CEO operation Meeting of China Southern Airlines Company Limited, and continuously improved the related rules.

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, Articles of Association, and 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 meeting, 2 class meeting and engaged lawyers to witness the procedures for calling and holding a 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.

 

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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 executives. It shall also make decisions on major contracts and transactions, as well as other major policies and financial matters. The Board reasonably authorized executive directors and senior managers according to law. This helped improve the decision-making level and procedure efficiency, and promote the development of the Company’s production and operation.

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.

Under the leadership of the President, the management of the Company is responsible for the day-to-day operations of the Group. The roles of the Chairman, Mr. Wang Chang Shun are separated from that of the President, Mr. Ma Xu Lun. Such division of responsibilities allows a balance of power between the Board and the management of the Group, and ensures their independence and accountability. The Chairman is the leader of the Board and he oversees the Board so 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 has an overall responsibility for providing leadership, vision and direction in the development 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. He 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. The Chairman and the President are not connected with each other. None of the other Directors is connected with one another.

As of 31 December 2019, the members of the 8th session of the Board comprise three 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 92 to 94 of this Annual Report.

The Board held 28 meetings in 2019, all of which were convened in accordance with the Articles of Association. The Company held 5 general meetings in 2019, the Directors actively participated general meeting in person and have been doing their best to develop a balanced understanding of the views of shareholders.

 

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The attendance of each Director is as follows:

 

Name of

Directors

  Attendance of Board Meetings     Attendance of
General
Meetings
 
  Whether
independent
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
    Number of
general
meetings
attendance
 

Wang Chang Shun

  No     28       3       23       2       0       No       2  

Ma Xu Lun
(appointed on 8 May 2019)

  No     20       4       16       0       0       No       5  

Han Wen Sheng
(appointed on 8 May 2019)

  No     20       4       16       0       0       No       5  

Zhang Zi Fang
(resigned on 8 May 2019)

  No     8       0       7       1       0       No       0  

Zheng Fan

  Yes     23       4       23       1       0       No       2  

Gu Hui Zhong

  Yes     23       5       23       0       0       No       5  

Tan Jin Song

  Yes     23       5       23       0       0       No       4  

Jiao Shu Ge

  Yes     23       5       23       0       0       No       1  

Meetings of the Board held during the year

 

    28          

Of which: number of meetings attended in person

 

    5          

Number of meetings held by way of conference communication

 

    23          

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 one-third of the Board. One independent non-executive Director, Tan Jin Song, has the appropriate professional qualifications of accounting or related financial management expertise under Rule 3.10 of the Listing Rules. 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 2019, 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.

 

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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 Directors work diligently, are devoted, actively attend meetings of the Board and its committees, express independent opinions about connected transactions, external guarantees, cash dividends, non-public offering, non-public issuance of shares, appointment and removal of Directors and senior management and many other affairs, and give advice and suggestions on the Company’s production, operation, and debt restructuring. During the reporting period, Mr. Wang Chang Shun, Mr. Ma Xu Lun and Mr. Han Wen Sheng are the executive Directors of the 8th session of the Board. Mr. Zheng Fan, Mr. Gu Hui Zhong, Mr. Tan Jin Song and Mr. Jiao Shu Ge are independent non-executive Directors of the 8th session of the Board. Mr. Zhang Zi Fang, a former executive Director, resigned on 8 May 2019. Mr. Ma Xu Lun and Mr. Han Wen Sheng were appointed as executive Directors on 8 May 2019.

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. Continuing briefings and professional development for Directors will be arranged as necessary.

During the year of 2019, 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 2019 actively participated in continuous professional development, 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.

 

101