H Share Stock Code: 1055
A Share Stock Code: 600029
ADR Code ZNH
BOOSTING
UP ANNUAL REPORT
2017
SURPASSING THE LIMIT
ABOUT US
China Southern Airlines Company Limited, a member of the
SKYTEAM, with its headquarter located in Guangzhou, and the
logo of which is a red kapok on the blue vertical stabilizer, ranked
the first among all Chinese airlines in terms of the largest fleet,
the most developed route network, the largest passenger capacity.
By the end of the reporting period, the Company had a fleet
of 754 passenger and cargo aircraft, ranking the first in Asia
and the fourth worldwide in terms of fleet scale,
and is the first airlines that operating both Airbus A380 and
Boeing 787 throughout the world.
RELEASING THE POTENTIAL
CONTENTS
ABOUT US
4 Definitions
6
7 Company Profile
8 Corporate Information
10 Company Business Summary
Important Information
OPERATING RESULTS
20
Principal Accounting Information and Financial
Indicators
22 Summary of Operating Data
27 Summary of Fleet Information
30 Highlights of the Year
34 Management Discussion and Analysis
68 SIGNIFICANT EVENTS
CORPORATE GOVERNANCE
77 Report of Directors
95
Changes in the Share Capital, Shareholders’
Profile and Disclosure of Interests
101 Directors, Supervisors, Senior Management and
Employees
FINANCIAL REPORT
Financial Statements Prepared under International
Financial Reporting Standards
144 Independent Auditor’s Report
150 Consolidated Income Statement
151 Consolidated Statement of Comprehensive
120 Corporate Governance Report
Income
130 CORPORATE BOND
134 RISK MANAGEMENT AND
INTERNAL CONTROL
138 SOCIAL RESPONSIBILITY
152 Consolidated Statement of Financial Position
154 Consolidated Statement of Changes in Equity
155 Consolidated Cash Flow Statement
156 Notes to the Financial Statements
237 SUPPLEMENTARY FINANCIAL
INFORMATION
240 FIVE YEAR SUMMARY
4
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
CSAH
Xiamen Airlines
Guizhou Airlines
Zhuhai Airlines
Shantou Airlines
Chongqing Airlines
Henan Airlines
SAGA
Hebei Airlines
Jiangxi Airlines
Finance Company
GSC
CSAGPMC
Nan Lung
SACC
SACM
SPV
American Airlines
Sichuan Airlines
PRC
CSRC
NDRC
China Southern Airlines Company Limited and its subsidiaries
China Southern Air Holding Limited Company, formerly known as China Southern Air
Holding Company
Xiamen Airlines Company Limited
Guizhou Airlines Company Limited
Zhuhai Airlines Company Limited
Shantou Airlines Company Limited
Chongqing Airlines Company Limited
China Southern Airlines Henan Airlines Company Limited
Southern Airlines General Aviation Co., Ltd.
Hebei Airlines Company Limited
Jiangxi Airlines Company Limited
Southern Airlines Group Finance Company Limited
China Southern Airlines Group Ground Services Co., Ltd.
China Southern Airlines Group Property Management Company Limited
Nan Lung Holding Limited
Shenzhen Air Catering Co., Ltd.
Southern Airlines Culture and Media Co., Ltd.
China Southern Airlines No. 1 Lease (Tianjin)
China Southern Airlines No. 2 Lease (Tianjin)
China Southern Airlines No. 3 Lease (Tianjin)
China Southern Airlines No. 4 Lease (Guangzhou)
China Southern Airlines No. 5 Lease (Tianjin)
China Southern Airlines No. 6 Lease (Tianjin)
China Southern Airlines No. 7 Lease (Tianjin)
China Southern Airlines No. 8 Lease (Tianjin)
China Southern Airlines No. 9 Lease (Guangzhou)
China Southern Airlines No. 12 Lease (Tianjin)
China Southern Airlines No. 13 Lease (Tianjin)
China Southern Airlines No. 14 Lease (Tianjin)
American Airlines, Inc.
Sichuan Airlines Corporation Limited
The People’s Republic of China
Commission China Securities Regulatory
National Development and Reform Commission
DEFINITIONSDefinitionsChina Southern Airlines Company LimitedANNUAL REPORT 2017 5
SASAC
CAAC
SkyTeam
SSE
Stock Exchange
Articles of Association
Listing Rules
Model Code
Corporate Governance Code
SFO
State-owned Assets Supervision and Administration Commission of the State Council
General Administration of Civil Aviation of China
SkyTeam Alliance, one of the three major airline alliances in the world. Please refer to
the website http://www.skyteam.com/ for more details about the SkyTeam Alliance
Shanghai Stock Exchange
The Stock Exchange of Hong Kong Limited
Articles of Association of China Southern Airlines Company Limited
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong
Limited
The Model Code for Securities Transactions by Directors of Listed Issuers as set out in
Appendix 10 of The Rules Governing the Listing of Securities on The Stock Exchange of
Hong Kong Limited
Corporate Governance Code as set out in Appendix 14 of The Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited
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”
Revenue Tonne Kilometers or “RTK”
Revenue Tonne Kilometers – cargo or “RFTK”
Revenue Tonne Kilometers – passenger
i.e. passengers traffic volume, the number of passengers carried multiplied by the
kilometers flown
i.e. total traffic volume, the tonnes of revenue load (for passengers and cargo) multiplied
by the kilometers flown
i.e. cargo and mail traffic volume, the tonnes of revenue load for cargo multiplied by the
kilometers flown
the tonnes of revenue load for passenger multiplied by the kilometers flown
Aircraft Utilization Rate
Passenger Load Factor
Revenue flight hours
Overall Load Factor
Yield per RPK
Yield per RFTK
Flight hours that aircraft can service during specified time
RPK expressed as a percentage of ASK
Flighting hours of commercial flying
RTK expressed as a percentage of ATK
revenue from passenger operations divided by RPK
revenue from cargo operations divided by RFTK
DEFINITIONSChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US 6
I
The board of directors (the “Board”) and the supervisory committee (the “Supervisory Committee”) of the Company
and its directors (the “Directors”), supervisors (the “Supervisors”) and senior management warrant the truthfulness,
accuracy and completeness of the content contained in this annual report, and which does not contain inaccurate or
misleading statements or have any material omission, and jointly and severally accept full legal responsibility.
KPMG issued the independent auditor’s report with unqualified auditor opinion to the Company.
II
III
Mr. Wang Chang Shun (Chairman and the responsible person of the Company), Mr. Tan Wan Geng
(person in charge of accounting, Vice Chairman and President of the Company), Mr. Xiao Li Xin (the
responsible person of the accounting department, Executive Vice President, Chief Accountant and
Chief Financial Officer of the Company) warrant the truthfulness, accuracy and completeness of
the financial statements contained in this annual report.
IV
The Board recommends the payment of a dividend of RMB0.1 (inclusive of applicable tax)
per share for the year ended 31 December 2017, totalling approximately RMB1,009 million
to the shareholders based on the Company’s 10,088,173,272 issued shares. A resolution for
the dividend payment will be submitted at the 2017 annual general meeting of the Company
for consideration. If approved, the dividend is expected to be paid to the shareholders by the
Company on or before Friday, 31 August 2018.
V
Forward-looking statements included in this report, including future plans and development
strategies, do not constitute a guarantee of the Company to investors. Investors shall be aware of the
risks of investment.
VI
During the reporting period, neither the controlling shareholder of the Company, nor any of its connected
persons has utilized the non-operating funds of the Company.
VII
During the reporting period, the Company did not provide external guarantees in violation of any specified
decision-making procedures.
VIII
During the reporting period, the Company did not have any material risks. The Company has detailed potential risks in this
report. Please refer to “Risk Factors Analysis” under “Management Discussion and Analysis”.
IMPORTANT INFORMATIONImportant InformationChina Southern Airlines Company LimitedANNUAL REPORT 2017 7
the SKYTEAM, the Group connected
1,062 destinations in 177 countries
and regions in the world. In 2017, the
Group’s volume of passengers amounted
to nearly 126 million, ranking the Group
the first among Chinese airlines for 39
consecutive years, and maintaining its
top position in Asia.
Based in Guangzhou, the Group has
16 branches, including Beijing and
Shenzhen and 6 majority-held civil
aviation subsidiaries, including Xiamen
Airlines, Shantou Airlines, Zhuhai
Airlines, Guizhou Airlines, Chongqing
Airlines and Henan Airlines. The
Group has set up SAGA in Zhuhai and
established 22 domestic offices in cities
such as Hangzhou and Qingdao. It also
established 68 overseas offices in cities
including Sydney and New York.
The Group is one of
the largest airlines in the
PRC.
In 2017, the Group ranked the first
among all Chinese airlines in terms of
its fleet, network and annual volume
of passengers. As of 31 December
2017, the Group had a fleet of 754
passenger and cargo aircraft, including
the Boeing 787, 777, 747 and 737
series, as well as the Airbus 380, 330
and 320 series, ranking first in Asia
and fourth worldwide in terms of fleet
scale and number of passengers. The
general strategic goal of the Group is to
develop itself into an international first-
class aviation transportation enterprise
with an extensive route network and
we have formed a developed network
covering China, and the rest of Asia, and
effectively connecting Europe, America,
Australia and Africa. As at 31 December
2017, the Group operated more than
2,000 flights daily flying to over 200
destinations in over 40 countries and
regions around the world, providing over
300,000 seats to the market. Through
close cooperation with members from
CORPORATE PROFILECorporate ProfileChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US
8
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
Board and Company Secretary:
Xie Bing
Securities Affairs Representative:
Xu Yang
Shareholder Enquiry:
Company Secretary Bureau
Telephone:
+86-20-86124462
Fax:
+86-20-86659040
E-mail:
ir@csair.com
Address:
278 Ji Chang Road, Guangzhou, Guangdong Province, PRC
Registered Address:
Unit 301, 3/F, Office Tower Guanhao Science Park Phase I,
12 Yuyan Street Huangpu District, Guangzhou, Guangdong
Province, PRC
APP:
China Southern Airlines
WeChat Official Account:
China Southern Airlines
Sina Weibo:
http://weibo.com/csair
Place of Business:
278 Ji Chang Road, 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
Authorized Representative under the Listing Rules of
the Stock Exchange:
Tan Wan Geng and Xie Bing
Controlling Shareholder:
China Southern Air Holding Limited Company
Principal Bankers:
Agricultural Bank of China
China Development Bank
Bank of China
Industrial & Commercial Bank of China
China Construction Bank
Designated Newspapers for Information Disclosure
(A Shares):
China Securities Journal, Shanghai Securities News, Securities
Times
Designated Website for Information Disclosure
(A Shares):
www.sse.com.cn
Designated Website for Information Disclosure
(H Shares):
www.hkexnews.hk
Annual report Available for Inspection:
Company Secretary Bureau
WeChat QR Code
CORPORATE INFORMATIONCorporate InformationChina Southern Airlines Company LimitedANNUAL REPORT 2017
9
Place of Listing of A Shares:
Shanghai Stock Exchange
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
Stock Code of N Shares:
ZNH
N Share Registrar:
BNY Mellon Shareowner Services
P.O. Box 505000,
Louisville, KY40233-5000, USA
Domestic Legal Adviser:
Z&T Law Firm
Overseas Legal Adviser:
DLA Piper Hong Kong
Domestic Auditor:
KPMG Huazhen LLP
Address of Domestic Auditor:
8th Floor, KPMG Tower
Oriental Plaza
1 East Chang An Avenue
Beijing, China
H Share Registrar:
Hong Kong Registrars Limited
17M Floor, Hopewell Centre, 183 Queen’s Road East,
Wanchai, Hong Kong
Place of Listing of N Shares:
New York Stock Exchange
Short Name of N Shares:
China Southern Air
Signing Accountants of Domestic Auditor:
Wang Jie, Guo Wen Min
Overseas Auditor:
KPMG
Address of Overseas Auditor:
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong
CORPORATE INFORMATIONChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US 10
I. The Principle Business
and Operating Model of
the Company and the
Industry Summary
during the Reporting
Period
(I) Principle 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; (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) Development of Aviation
Industry and Industrial
Position of the Company
1.
Information of Development
of International and Domestic
Aviation Industry
2017 witnessed stable recovery of
world economy and strong growth in
aviation transport demands. According
to the data released by International Air
Transport Association, in 2017, global
airlines have transported 4.1 billion
passengers and 59.9 million tons of
cargo, achieving a net profit of US$34.5
billion, hitting a new record high. As of
the end of 2017, 2017 global passenger
aviation demand and aviation capacity
respectively increased by 7.6% and 6.3%
on a year on year basis. The passenger
load factor increased by 0.9 percentage
point to 81.4%, hitting a new record high
again. All regions witnessed year on year
growth in passenger transport volume, of
which, Asia Pacific and Latin America
region recorded a higher growth than
other regions of the world.
Driven by stable growth of China’s
economy and rapid development of
regional low-cost airlines, in 2017, Asia
Pacific region witnessed a year on year
growth of passenger volume and aviation
capacity of 9.4% and 7.9% respectively
and its passenger load factor increased
by 1.1 percentage points to 79.6%.
Benefited from the strong growth of
America’s economy, North America
region recorded a year on year growth
COMPANY BUSINESS SUMMARYCompany Business SummaryChina Southern Airlines Company LimitedANNUAL REPORT 2017 11
of passenger volume and global aviation
capacity of 4.8% and 4.5% respectively
and its passenger load factor increased
by 0.3 percentage point to 81.7%.
Eurozone economy remained recovering,
while UK witnessed a relatively stable
economy situation overall. European
region witnessed a year on year growth
of passenger volume and aviation
capacity of 8.2% and 6.1% respectively
and its passenger load factor increased
by 1.6 percentage points to 84.4%, being
the highest among all regions. Affected
by the ban on large portable electronic
equipment and the ban on American
inbound tourism from a certain countries,
the aviation market of Middle East
witnessed a year on year increase of
passenger volume and aviation capacity
of 6.6% and 6.4% respectively and its
passenger load factor increased by 0.1
percentage point to 74.7%. Middle East
was the only market in the whole world
witnessed decrease of growth in such
three indicators.
According to the data released by CAAC,
in 2017, China’s civil aviation market
witnessed a strong demand. In the whole
industry, transport turnover reached 108.3
billion ton-kilometers, the passenger
volume reached 550 million, and the
cargo volume reached 7.058 million
tons, representing a year on year growth
of 12.5%, 13% and 5.7% respectively.
The function of Beijing Capital Airport,
Shanghai Pudong Airport, Guangzhou
Baiyun Airport among other airports as
international hubs has been strengthened.
The number of international flights
increased by 4.7%, 5.5% and 16.9%
respectively on a year on year basis.
The regional-hub airports developed
very rapidly. Across China, there were
up to 32 airports which transport 10
million passengers or above annually.
The regional aviation developed rapidly.
The growth rate of passenger volume of
regional airports was 11.4 percentage
points higher than the average growth
rate of all airports across China. The
aviation cargo transport grew strongly.
The cargo turnover increased by 9.6%
on a year on year basis. Especially, the
cargo turnover and transportation volume
of international air routes increased by
13.3% and 14.3% respectively on a year
on year basis. From the perspectives of
market, China’s domestic trip demand
was very strong, with increased transport
volume and price; while international/
regional far-end routes and the
medium-short distance routes achieved
significantly different economic benefits.
The transport capacity of far-end routes
was oversupplied. As a result, the quality
was seriously diluted. The medium-short
distance routes, such as Taiwan, Japan,
Korea, achieved good economic benefits.
Japan and Middle East routes achieved
much more economic benefits compared
with last year.
COMPANY BUSINESS SUMMARYABOUT USChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US 12
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.
2. Features of Aviation Industry
(1) The development level of civil
aviation industry is an important
embodiment of the comprehensive
national strength.
The civil aviation industry is an
important foundation industry of
the national economy. On one hand,
its development level reflects the
modernisation level, economy structure,
open 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 can not
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 postal express 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
a 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 industry.
COMPANY BUSINESS SUMMARYCompany Business SummaryChina Southern Airlines Company LimitedANNUAL REPORT 2017 13
3. The Industry Position of the
Company
The Company is an airline with the most
aircraft, the most advanced air network,
the largest annual passenger transport
volume in China. Based in Guangzhou,
the Group has 16 branches, including
Beijing and Shenzhen and 6 majority-
held civil aviation subsidiaries, including
Xiamen Airlines. The Company has set
up SAGA in Zhuhai and 22 domestic
offices in cities such as Hangzhou and
Qingdao. It also has set up 68 overseas
offices in cities such as Sydney, New
York. By the end of 2017, the Company
has operated a total of 754 passenger
and cargo aircraft, including Boeing 787,
777, 747, 737 series, Airbus 380, 330,
320 series, and many other models. It is
the first airlines in the globe operating
Airbus A380 and Boeing B787 at the
same time. In 2017, the Company’s
passenger volume reached 126 million.
This was its 39th consecutive year for
the Company to play the leading role
in such aspect among China’s airlines.
Both of the Company’s fleet scale and
passenger transport volume ranked the
first in Asia and the fourth in the globe.
The Company maintained the best safety
record of China’s airlines. In September,
2012, the Company was awarded “Safety
Flight Diamond Award”, the top award
for safety flight for China’s civil aviation
industry. The Company was an airlines
with the highest safety star in China.
Each day, the Company had more
than 2,000 flights to more than 40
countries and regions and more than
200 destinations in the globe, with
over 300,000 seats. Through close
cooperation with the members of
SkyTeam, the Company’s network was
extended to 1,062 global destinations
and connected 177 countries and regions.
The Company fully created “Canton
Route” international aviation hub. The
Company also increased the international
navigable points from Guangzhou hub
to 52 destinations. The Company has
established improved networks in the
regions mainly covered in “the Belt and
Road Initiatives”, such as, South Asia,
Southeast Asia, South Pacific Ocean,
Central and West Asia. The Company
ranked the first among China’s airlines
in terms of the number of routes,
frequency of flights, and market shares.
It has become the main force for aviation
interconnection between China and the
countries and regions. At present, the
Company has operated 172 routes in
68 cities of 38 countries and regions
participating in “the Belt and Road
Initiatives”. Each week, the Company
operated more than 2,200 flights and
transported more than 15 million
passengers annually.
(III) Challenges
The major challenges faced by the Group
include:
1. Exchange rate fluctuation
In 2017, due to the integrated effect
by stable pickup of China’s economy,
balanced cross-boarder capital flows,
and, Fed raising rates, reducing the
balance sheet and conducting tax reform,
RMB exchange rate first depreciated
and then appreciated. RMB against US
dollar middle exchange rate appreciated
greatly by 6.1%. Look forward to 2018,
it is predicted that there will be a larger
impetus for re-flow of capital to America.
Meanwhile, China’s trade surplus is
narrowing. From the perspectives of
current account and capital account,
downward trend in foreign exchange
reserves remains, and pressure on the
depreciation of RMB against US dollar
also remains. Although the Group
lowered the risk of fluctuations in the
exchange rate by increasing the ratio of
RMB liabilities in past years, due to the
industry features, the Company will long
maintain a certain scale of liabilities in
foreign currencies (mainly in US dollars)
and the fluctuations in the exchange rate
will, to a certain extent, still affect the
Company’s performance.
COMPANY BUSINESS SUMMARYABOUT USChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US 14
2. Crude oil prices rebounding
In 2017, affected by reduction of output
by Organization of Petroleum Exporting
Countries, international crude oil prices
experienced a rebound, which in turn
significantly increased the airlines’ fuel
costs. It is expected that international
crude oil prices will likely experience a
steady rise due to gradually recovering
global demand in 2018. As fuel cost
constitutes the Company’s main
operating costs, rising fuel prices will
increase fuel cost which have a direct
impact on the performance results of the
Company.
3. Rapid expansion of high-speed
rail network
By the end of 2017, the mileage of
China’s high-speed railway has reached
25,000 km. The railway’s impact on
aviation industry was increasing year
by year. It is predicted that by 2020 and
by 2025, the mileage of China’s railway
will reach 150,000 km and 175,000 km
respectively, of which, the mileage of
high-speed railway will reach 30,000
km, with more than 80% of large cities
covered, and 38,000 km respectively. It
is expected that continuously improved
high-speed railway network will exert a
further impact on the growth of aviation
customers. 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
km) will be impacted in the future to a
certain extent.
(IV) Profit Model, Operating
Characteristics and
Development Strategies
The Company established the goal of
becoming an influential international
airlines with an extensive network in
2005, which requires the Company to
transform from a point-to-point liner
airlines to network-based airlines. In
order to achieve this goal, the Company
gave priority to building of hub-
based route network while promoting
the strategic transformation of “three
network building” (namely hub-based
route network, marketing network
and after-sales service network). On
one hand, the Company accelerated
the launch of routes from China to
Australia, Southeast Asia, Central and
West Asia, Europe and US, in order to
rebalance the Company’s focus on the
domestic and international markets; on
the other hand, the Company proactively
built Guangzhou and Beijing as its
“dual cores”, in an effort to improve
its network and improve its service
efficiency. Accordingly, remarkable
achievements has been made in hub
construction, for example, the percentage
of international routes to the Company’s
total routes have been increasing rapidly,
where its route network has became
more “simplified”, and passengers have
been provided with more transferring
opportunities.
Meanwhile, the Company has always
been attaching great importance
to consolidating and expanding its
advantage of numerous domestic routes
while focusing on “point-to-point” routes.
A “hub + point-to-point” operational
mode with distinguished features which
mainly base on the domestic market
while partially focus on the international
market and highlights mutual support
between and overall connection of
domestic and international market has
been formed. Hub-based route network,
being the core part of the route network
of China Southern Airlines, pays a
decisive role in the stabilization and
development of overall network; “point-
COMPANY BUSINESS SUMMARYCompany Business SummaryChina Southern Airlines Company LimitedANNUAL REPORT 2017 15
to-point” route network (with each base
as a point), being a beneficiary support
for the hub-based network, is of vital
importance to the expansion of network
coverage and improvement of hub-based
route network.
The Company’s general idea of
development strategy is that, by adhering
to the keynote of “Making Steady
Progress” and the strategic plan of “Safety
First”, as well as the strategic guidance
of “Leading Market”, China Southern
Airlines will make positive efforts in
building Guangzhou and Beijing as its
“dual cores”. By firmly following the
strategic direction of “standardization,
integration, intelligentization and
globalization”, the Company will move
forward with aim to build a international
first-class airlines.
By the end of the “13th Five-year Plan”
period, the Group will develop into
a large international airlines with an
extensive network and a fleet of exceeding
1,000 aircraft. The annual passenger
volume and cargo volume will reach 160
million and more than 2 million tonnes,
respectively.
(V) Security Ensurence Input
During the reporting period, the
Company always insisted on the principle
of “safety first”, constantly strengthened
safety management system, continued
to modify safety rules and regulations,
cracked down strictly and precisely on
any act in violation of regulations. In
2017, the Company educated relevant
employees for 5 times for safety event,
issued 55 announcements on handling
safety events, investigated related safety
events and ascertained 305 persons to
be held accountable. At the same time,
the Company paid attention to giving
During the reporting period, the
Company organized 10,288 sessions of
all types of safety training, and the total
participants reached 704,215. Safety
training is a must for all employees. As
to safety culture, the Company organized
labor emulations, such as “100-day
Campaign for Safety”, “Top Ten Safety
Pacesetters” and “AnKang Cup”, and
many other safety activities. Meanwhile,
the Company’s internal media publicized
the results of such activities. This helped
all employees participate in such safety
activities and formed a good safety
atmosphere.
By the end of the reporting period, the
Group continued to keep the best safety
records among Chinese airlines by
successively maintaining aviation safety
for 18 years.
positive incentives and implemented a
system to reduce responsibility in the
case of active report. Throughout 2017,
the Company reduced responsibility
of relevant employees in a total of 16
cases and gave 465 rewards to high-
performance individuals as to risk
prevention and control and dealing with
special situations.
During the reporting period, the
Company continued to strengthen the
prevention and control of safety risk.
It collected a total of 11,373 pieces of
information on safety events, released
a total of 4,221 pieces of information
on safety events and 18 times of safety
warning. The Company pushed forward
employees to voluntarily report and
actively prevent and control the safety
risks. In 2017, the Company received a
total of 8,732 pieces of voluntary reports.
The Company also normalized the risk
early warning work. The Company
released 12 monthly/quarterly periodical
safety risk and information management
reports, and released and forwarded more
than 80 times of industry/system safety
prompt.
COMPANY BUSINESS SUMMARYABOUT USChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US 16
(VI) Information on New Air
Routes and Future Route
Plan during the reporting
period
During the reporting period, the Group
followed the national strategic layout
of “the Belt and Road Initiatives”
and “Interconnection” and insisted
on providing quality services for
maintaining strong in China and being
excellent internationally. The Group
opened 210 domestic routes (such as
Beijing-Hailaer, Chongqing-Shanghai
Hongqiao, Hangzhou-Xi’an, Shenzhen-
Changchun-Changbaishan, Wuhan-
Jinan, Chongqin-Lhasa, Changsha-
Xining, Dalian-Huhhot, Hangzhou-
Sanya) and 33 international and regional
routes (such as Guangzhou-Vancouver-
Mexico City, Shenzhen-Melbourne,
Shenzhen-Moscow, Guangzhou-Cairns,
Guangzhou-Colombo-Male, Guangzhou-
Vientiane, Xiamen-Los Angeles,
Xiamen-Hangzhou-Melbourne). In 2018,
the Group will continue to improve
international network layout, and plans
to launch international routes, such as
Guangzhou-Rome, Beijing-Teheran,
Shenzhen-Da Nang, Urumchi-Lahore and
Wuhan-London. Currently, the Group
has no plan to cease any route.
II. Analysis on Core
Competitiveness during
the Reporting Period
The Company’s five core
competitivenesses has begun to take
shape, including its powerful and
improving scale and network advantages,
its hub operation and management
capability with Guangzhou as the core,
its resources interoperability under the
matrix management mode, its service
brand influence and its advanced
information technology in full.
(1) Powerful and improving scale and
network advantages. The Company
had the largest fleet in China and
advanced fleet performance. It is
the only airlines in China operating
A380, and has mature experience
in operating both A380 and B787.
The Group has the most intensive
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, the Group has
16 branches, including Beijing
and Shenzhen and 6 majority-
held civil aviation subsidiaries,
including Xiamen Airlines, Shantou
Airlines, Zhuhai Airlines, Guizhou
Airlines, Chongqing Airlines and
Henan Airlines and 22 domestic
offices, and established 68 overseas
offices in all continents. Therefore,
the Company has formed a
comprehensive sales network with
branches, subsidiaries, domestic
offices and overseas offices.
(2) Constantly enhanced ability to
operate and manage Guangzhou as
core hubs. In 2017, the Company
further improved its international
layout and opened 5 new routes,
including Guangzhou-Vancouver-
Mexico City and Guangzhou-
Cairns. The Company also
increased the international navigable
points of Guangzhou hub to 52.
By the end of 2017, the Company
input more than 195 aircraft in
Guangzhou, of which, nearly 54
aircraft were wide-body aircraft.
At present, Guangzhou hub has
formed its route network featured
with Europe and Oceania as its
COMPANY BUSINESS SUMMARYCompany Business SummaryChina Southern Airlines Company LimitedANNUAL REPORT 2017 17
core, Southeast Asia, Southern Asia
and Eastern Asia as its hinterlands,
and with North America, Middle
East, Africa covered. During the
reporting period, Guangzhou hub’s
transfer passengers increased by
24.2% on a year on year basis and
its transfer revenue increased by
22.6% on a year on year basis. Its
hub effect continued to appear.
routes and slots were methodically
coordinated and the synergy
among supporting resources such
as marketing, flights, maintenance
and service continued to rise. In the
future, the Company will further
strengthen innovation in systems
and mechanisms to enhance
efficiency of resource allocation,
system coordination and add value
to the advantages it currently
enjoys.
(3) Resources interoperability under
(4) Striving for world first-class
the matrix management mode. With
its scale of having multiple bases,
hubs, models and fleet, we adopted
a matrix management mode based
on “horizontal integration and
resources sharing”, which not only
unified the headquarters’ control
over resources, policy and operation
standards but also demonstrated
branches’ and subsidiaries’
motivated participation in security,
marketing and service innovation,
making good use of the Company’s
advantages in scale and network.
At present, the matrix management
mode has become a normal
management practice, under which
core resources such as the capacity,
brand service. In order to create
world first-class service brand, the
Company continuously improved
its service quality, and its brand
influence was gradually enhanced
at China and world by brand
benchmarking the world first-
class level on SKYTRAX. The
Company continued to improve
the quality of in-flight meals and
entertainment, and its overall
service level maintained a steady
rise through the introduction of
in-flight WIFI, improvement of
membership service, establishment
and perfection of closed-loop
management mechanism in 2017.
The key indicator evaluated by
SKYTRAX continue to improve.
(5) Fully leading information system.
The Company attached important to
corporate information construction
and has an information technology
team composed of 1,000 experts.
The Company’s information
technology R&D ability was a
leading position in the industry.
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
a 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, of which,
the Company’s official Weibo
account and official Wechat
account were awarded “2017 Most
Influential New Media Accounts
among Central Government-
led Enterprises”. Since 2016,
China Southern Airlines 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. In 2017, the number
of online functions of “China
Southern e-travel” reached 271,
with up to 240 millions of visits,
representing a year on year growth
of 48.4%. The Company fully
kept its industrial leading position
as to APP downloads, number of
followers of social media, number
of monthly active users and many
other indicators.
COMPANY BUSINESS SUMMARYABOUT USChina Southern Airlines Company LimitedANNUAL REPORT 2017ABOUT US Reliable INCREDIBLE
to
During the reporting period, the Group has achieved safe flight of 2.567 million hours with
an accumulated safe flight of 20.662 million hours and with 13,700 hours for general
aviation flights. We have maintained aviation safety for more than 18 years and aviation security
for 23 years. We have maintained the best safety record among Chinese airlines.
20
Principal Accounting Information
Operating revenue
(RMB million)
108,584
111,652
114,981
98,547
127,806
140,000
120,000
100,000
80,000
60,000
40,000
20,000
Profit attributable to equity shareholders of
the Company
(RMB million)
5,961
5,044
3,736
1,986
1,777
6,000
5,000
4,000
3,000
2,000
1,000
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Total assets
(RMB million)
225,000
200,000
175,000
165,207
189,688
185,989
200,442
218,718
150,000
125,000
100,000
75,000
50,000
25,000
Earnings per share attributable to
equity shareholders of the Company
(RMB/share)
0.60
0.51
0.38
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.20
0.18
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORSPrincipal Accounting Information and Financial IndicatorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 21
Operating revenue
Profit attributable to equity shareholders of the Company
Net assets attributable to equity shareholders of the Company
Total assets
Principal Financial Information
Principal Financial Indicators
Basic earnings per share (RMB/share)
Diluted earnings per share (RMB/share)
Unit: RMB million
Increase/
(Decrease)%
11.15
18.18
Increase/
(Decrease)%
14.91
9.12
Increase/
(Decrease)%
17.65
17.65
2016
114,981
5,044
2016
43,456
200,442
2016
0.51
0.51
2017
127,806
5,961
As of 31 December
2017
49,936
218,718
2017
0.60
0.60
PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORSOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 SUMMARY OF OPERATING DATA
22
250,000
200,000
150,000
100,000
50,000
RPK
(million)
RTK
(million)
230,697
206,106
189,588
166,629
148,417
27,321
24,387
22,388
19,780
17,469
30,000
25,000
20,000
15,000
10,000
5,000
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
ASK
(million)
300,000
250,000
200,000
186,800
209,807
280,646
255,992
235,616
38,332
34,980
32,205
ATK
(million)
28,454
24,952
40,000
32,000
24,000
16,000
8,000
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Passenger load factor
(%)
Total load factor
(%)
79.5
79.4
80.5
80.5
82.2
70.0
69.5
69.5
69.7
71.3
100
80
60
40
20
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
150,000
100,000
50,000
100
80
60
40
20
SUMMARY OF OPERATING DATA Summary of Operating DataChina Southern Airlines Company LimitedANNUAL REPORT 2017 23
Traffic:
Revenue passenger kilometers (RPK) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Revenue tonne kilometres (RTK) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
RTK – Passenger (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
RTK – Cargo and mail (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Passengers carried (thousand)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
For the year ended 31 December
2017
2016
Increase/
(decrease)%
160,427.72
144,979.57
2,934.65
3,083.71
67,334.50
58,042.36
230,696.87
206,105.64
15,833.96
14,551.20
282.52
292.46
11,204.15
9,542.90
27,320.63
24,386.56
14,143.67
12,794.43
257.77
270.59
5,910.35
5,099.18
20,311.80
18,164.20
1,690.29
1,756.77
24.75
21.87
5,293.80
4,443.72
7,008.83
6,222.36
108,616.65
98,463.43
2,329.80
2,340.68
15,352.29
13,814.52
126,298.75
114,618.63
10.66
(4.83)
16.01
11.93
8.82
(3.40)
17.41
12.03
10.55
(4.74)
15.91
11.82
(3.78)
13.17
19.13
12.64
10.31
(0.46)
11.13
10.19
SUMMARY OF OPERATING DATA SUMMARY OF OPERATING DATAOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 24
Cargo and mail carried (thousand tonnes)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Capacity:
Available seat kilometres (ASKs) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Available tonne kilometres (ATKs) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Available tonne kilometres (ATKs) – Passenger Traffic (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Available tonne kilometres (ATKs) – Cargo and mail (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
For the year ended 31 December
2017
2016
Increase/
(decrease)%
1,048.18
1,083.68
22.01
601.97
19.73
509.14
1,672.16
1,612.55
194,354.34
179,655.46
3,843.89
4,193.19
82,447.49
72,143.29
280,645.72
255,991.94
22,168.17
20,740.93
446.80
491.23
15,717.21
13,748.02
38,332.18
34,980.18
17,491.89
16,168.99
345.95
377.39
7,420.27
6,492.90
25,258.11
23,039.28
4,676.28
4,571.93
100.85
113.84
8,296.93
7,255.13
13,074.07
11,940.90
(3.28)
11.56
18.23
3.70
8.18
(8.33)
14.28
9.63
6.88
(9.04)
14.32
9.58
8.18
(8.33)
14.28
9.63
2.28
(11.41)
14.36
9.49
SUMMARY OF OPERATING DATA SUMMARY OF OPERATING DATASummary of Operating DataChina Southern Airlines Company LimitedANNUAL REPORT 2017 25
Load factor:
Passenger load factor (RPK/ASK) (%)
Domestic
Hong Kong, Macau and Taiwan
International
Average:
Total load factor (RTK/ATK)(%):
Domestic
Hong Kong, Macau and Taiwan
International
Average:
Yield:
Yield per RPK (RMB):
Domestic
Hong Kong, Macau and Taiwan
International
Average:
Yield per RFTK (RMB):
Domestic
Hong Kong, Macau and Taiwan
International
Average:
Yield per RTK (RMB):
Domestic
Hong Kong, Macau and Taiwan
International
Average:
For the year ended 31 December
2017
2016
Increase/(decrease)
percentage points
82.54
76.35
81.67
82.20
71.43
63.23
71.29
71.27
0.53
0.78
0.37
0.49
1.17
4.23
1.32
1.30
5.52
8.45
2.87
4.46
80.70
73.54
80.45
80.51
70.16
59.54
69.41
69.72
0.53
0.72
0.40
0.50
1.15
3.91
1.14
1.16
5.45
7.92
2.94
4.50
1.84
2.81
1.22
1.69
1.27
3.69
1.88
1.55
Increase/
(decrease)%
–
8.33
(7.50)
(2.00)
1.74
8.18
15.79
12.07
1.28
6.69
(2.38)
(0.89)
SUMMARY OF OPERATING DATA SUMMARY OF OPERATING DATAOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 26
Cost
For the year ended 31 December
2017
2016
Increase/
(decrease)%
Operating cost per ATK (RMB)
3.21
3.04
Flight Volume
Kilometers flown (million)
Hours flown (thousand)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Number of flights (thousand)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
1,623.01
1,504.31
1,964.04
1,833.17
36.60
565.87
39.26
502.91
2,566.51
2,375.34
878.58
18.03
113.85
1,010.46
835.10
18.95
105.06
959.11
Note: Discrepancies between the column sum are due to rounding of percentage numbers
5.59
7.89
7.14
(6.78)
12.52
8.05
5.21
(4.85)
8.37
5.35
SUMMARY OF OPERATING DATA SUMMARY OF OPERATING DATASummary of Operating DataChina Southern Airlines Company LimitedANNUAL REPORT 2017 27
As at 31 December 2017, the size and structure of fleets and the delivery and disposal of aircraft of the Group were as follows:
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
(unit: number of aircraft)
Models
Passenger aircraft
Airbus
A380
A330-300
A330-200
A321
A320
A319
Boeing
B787-8
B787-9
B777-300ER
B777-200
B757-200
B737-800
B737-700
B737-300
Other
EMB190
Passenger Aircraft
Sub-total
Freighter
B747-400F
B777-200F
Freighter Sub-total
0
8
2
22
44
17
2
0
0
0
0
146
3
0
20
264
0
0
0
2
20
7
42
41
0
13
4
9
0
0
70
0
0
0
208
0
5
5
3
1
7
34
57
14
1
0
1
2
6
101
35
0
6
268
2
7
9
0
7
0
9
10
0
0
3
0
0
0
50
0
0
0
79
0
0
0
79
0
0
0
0
3
6
0
0
0
2
4
2
7
3
0
27
0
0
0
27
5
29
16
98
142
31
16
4
10
2
6
317
38
0
26
740
2
12
14
754
Total
264
213
277
SUMMARY OF FLEET INFORMATIONSummary of Fleet InformationOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 28
Composition of Fleet
in the Form of
Possession in 2017
(Number of aircraft)
277
(36.7%)
213
(28.3%)
264
(35.0%)
Purchased
Under finance lease
Under operating lease
Composition of
Passenger Aircraft in
2017
(Number of aircraft)
82
(11.1%)
658
(88.9%)
Narrow-body aircraft
Wide-body aircraft
Changes in Number of Aircraft in the
Next Three Years
(Number of aircraft)
979
916
840
1,000
900
800
700
600
500
400
300
200
100
2018
2019
2020
SUMMARY OF FLEET INFORMATIONSummary of Fleet InformationChina Southern Airlines Company LimitedANNUAL REPORT 2017 29
From 2018 to 2020, the delivery and disposal of aircraft of the Group will be as follows:
2017
Number of
aircraft at
the end of
the Period
2018
2019
2020
Estimated
data at the
end of the
period
Delivery
Disposal
Estimated
data at the
end of the
period
Delivery
Disposal
Estimated
data at the
end of the
period
Delivery
Disposal
(unit: number of aircraft)
5
29
16
/
98
142
31
16
4
10
2
6
38
317
26
740
2
12
14
754
/
5
/
/
21
18
/
/
10
/
/
/
/
61
/
115
/
/
/
115
/
/
/
/
/
7
/
/
/
/
2
6
3
11
/
29
/
/
/
29
5
34
16
/
119
153
31
16
14
10
/
/
35
367
26
826
2
12
14
840
/
/
/
6
25
15
2
/
7
5
/
/
/
45
/
105
/
/
/
105
/
1
2
/
2
11
4
/
/
/
/
/
/
1
8
29
/
/
/
29
5
33
14
6
142
157
29
16
21
15
/
/
35
411
18
902
2
12
14
916
/
/
/
6
14
8
2
/
5
3
/
/
/
51
/
89
/
/
/
89
/
7
/
/
3
/
7
/
/
/
/
/
/
/
9
26
/
/
/
26
5
26
14
12
153
165
24
16
26
18
/
/
35
462
9
965
2
12
14
979
Models
Passenger aircraft
Airbus
A380
A330-300
A330-200
A350-900
A321
A320
A319
Boeing
B787-8
B787-9
B777-300ER
B777-200
B757-200
B737-700
B737-800
Other
EMB190
Passenger Aircraft
Sub-total
Freighter
B747-400F
B777-200F
Freighter Sub-total
Total
Note: The Company’s fleet change will be subject to actual operation.
SUMMARY OF FLEET INFORMATIONOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 30
MAR
The Guangzhou Hub of China Southern Airlines fully opens
the “Through Flight” business. Since 1 March 2017, the
passengers of all China Southern Airlines’ international flights
transferring via Guangzhou Baiyun International Airport
can enjoy the convenience of “through transit and through
luggage”. Passengers can complete all check-in procedures
of the departure station and transfer station (Guangzhou) at
the departure station in one go, and can pick up the check-in
luggage at the destination station. The convenient clearance
service has comprehensively covered 53 international routes
from Guangzhou of the China Southern Airlines.
MAY
China Southern Airlines participated in the Fortune Global Forum. On 11 May, China Southern
Airlines signed Cooperation Agreement with Fortune Global Forum to officially become the
partner and official airlines sponsor of the Fortune Global Forum in 2017. During the period of
Fortune Global Forum in December, China Southern Airlines attended relevant meetings and
took part in various activities.
JUN
China Southern Airlines starts using the first
intelligent face recognition boarding system in
China. On 28 June, China Southern Airlines
started using the first intelligent face recognition
boarding system in Nanyang Airport, Henan
Province. Passengers can on-board aircraft by
walking through the barrier machine after face
recognition at the boarding gate within seconds,
which further improves the accuracy of security
check, avoids the error of aircraft boarding, saves
travel time and promotes the passenger’s travel
experience at the same time.
JUL
The 20th anniversary of trans-Pacific non-stop flight. On
21 July, China Southern Airlines held the theme activity
of “20-year leap to witness the miracle” in Guangzhou
to commemorate the 20th anniversary of the first trans-
Pacific non-stop flight and the opening of Guangzhou-
Los Angeles Route. The launch of such route achieves the
trans-Pacific non-stop commercial flight by twin-engine
planes for the first time in human history and creates the
historical precedent of civil aviation throughout the world.
China Southern Airlines concluded strategic cooperation
with American Airlines. On March 28, the largest
Asian airline, China Southern Airlines, formally signed
Framework Agreement, Share Subscription Agreement and
other a series of Business Cooperation Agreements with the
world’s largest airline-American Airlines in Guangzhou.
Both parties will build up a long-term and comprehensive
strategic partnership, and the airline network extends to
more cities within the borders of China and America, so
as to provide more convenient and diversified travelling
choices for passengers.
APR
Mexico City
route was put
into operation.
On April 10,
China Southern
Airlines
officially
opened the
Guangzhou-Vancouver-Mexico City route. This is the first route
to Mexico under Chinese Civil aviation and also the only route
flying to Latin America from Guangzhou at present. It is the
great achievement of the China Southern Airlines services’ “the
Belt and Road Initiatives” to promote the further exchange and
cooperation between China and Mexico, and to speed up the
construction of international aviation hub in Guangzhou.
HIGHLIGHTS OF THE YEAR Highlights of the Year China Southern Airlines Company LimitedANNUAL REPORT 2017 31
China Southern Airlines accomplished 2017 safety year. At 23:56 in the evening of 31 December
2017, the flight CZ3780 of China Southern Airlines flying to Guangzhou from Ningbo landed at
Guangzhou Baiyun International Airport smoothly, which marked that China Southern Airlines
smoothly accomplished the safety operation year, during which 126 million passengers were safely
transported and China Southern Airlines continued to maintain the best safety record of the Chinese
civil aviation.
DEC
The accessible website of China Southern Airlines was opened up. On 19 December, the accessible
website of China Southern Airlines was opened up to provide professional network services for visually-
impaired persons which was the first airlines opening accessible website in China.
China Southern Airlines was awarded the title of “Customer Satisfaction Model”. On
22 November, the 2017 China’s Annual Satisfaction Meeting-China National Customer
Satisfaction Index Information Conference sponsored by China Quality Association
and National User Council was convened in Ningbo city of Zhejiang province, and
in the meeting, China Southern Airlines was awarded the title of national “Customer
Satisfaction Model” and got the first prize for the air service of China National Customer
Recommendation Index.
NOV
OCT
China Southern Airlines held the opening ceremony
of Beijing’s new airport base. On 10 October, China
Southern Airlines held the opening ceremony of the
Beijing’s new airport’s base project. The construction
covers five major functional areas. Through Beijing’s
new airport base, China Southern Airlines will spare
no effort to make Beijing core hub. By 2025, it is
estimated to station 250 aircraft to build the network
covering international and domestic destinations.
SEP
China Southern Airlines Sichuan Branch was established. On 26 September, China Southern
Airlines Sichuan Branch was formally established. Rooted in Sichuan province and serving
Southwest, China Southern Airlines constantly improves airline network, enriches travel
products and promotes service brand, so as to better serve for passengers, the construction
of state “the Belt and Road Initiatives” and economic and trade development and the tourist
industry of the West.
HIGHLIGHTS OF THE YEAR OPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 Penetrate through
Digitalization
to
Extensive INTENSIVE
We resolutely treasure the value of our customer, our member scale reached 34.523 million. We
led the markets and increased the input in high-return routes, our input in major airports accounted
for 89% of the Company by seat kilometres. We were deeply integrated with Xiamen Airlines
and Sichuan Airlines to enhance the influence of“China Southern”on the markets.
34
Wang Chang Shun CHAIRMAN
In 2017, We accelerated the implementation of
I. BUSINESS REVIEW
our strategies and unremitting advanced
“standardized, integrated, intelligent and
international” development to create “Sunshine
CSA”. We resolutely guaranteed aviation safety,
stepped up efforts to improve the quality and
efficiency, and steadily pushed forward reforms.
The Company has maintained a positive and
upward development trend, obtained the best
operation results in history.
In 2017, the global economy witnessed
a continuous expansion, with an overall
mild inflation. The economy of the
United States and many other developed
and emerging countries picked up. The
global trade and cross-border capital
flow were significantly strengthened.
According to the UN’s statistics, in 2017,
the global economy growth reached
3%, representing the most rapid growth
since 2011 and approximately 2/3 of the
countries in the globe saw a more rapid
growth in 2017 than in 2016. However,
the basis for the global economy revival
has not been stable yet. The trend of
anti-globalization and the protectionism
in trade and investment has gained
momentum and global debts continued
to accumulate. Meanwhile, geopolitical
risk, terrorism and many other problems
remained.
Management Discussionand AnalysisMANAGEMENT DISCUSSION AND ANALYSISChina Southern Airlines Company LimitedANNUAL REPORT 2017 35
According to the data released by
International Air Transport Association
(“IATA”), in 2017, the global passenger
aviation demand increased by 7.6%
year on year, which is far higher than
5.5%, the average growth rate in the past
10 years; the global aviation capacity
increased by 6.3%; and the passenger
load factor increased by 0.9 percentage
points to 81.4%. From the perspective
of the international aviation market for
passengers, driven by sound economic
growth and increase of routes, the Pacific
Asia market, especially with China as the
lead, witnessed the most rapid passenger
growth in 2017. From the perspective of
domestic aviation market for passengers,
India, China and Russia also outpaced
other major markets.
According to the statistics of Civil
Aviation Administration of China
(“CAAC”), in 2017, China remained
the world’s second largest aviation
market, with a total annual transport
turnover of 108.31 billion ton kilometers,
representing a year on year growth
of 12.5%; number of domestic and
regional passengers reached 500 million,
representing a year on year growth
of 13.7%; number of international
passengers reached 55.442 million,
representing a year on year growth of
7.4%; cargo transport volume reached
7.058 million tons, representing a year
on year growth of 5.7%.
In 2017, under the background of global
economy recovery, China civil aviation’s
international and domestic market
witnessed rapid growth. The Company,
however, still faced many challenges,
fierce market competition, pickup of oil
price, impact from high-speed rail, etc.
We accelerated the implementation of
our strategies and unremitting advanced
“standardized, integrated, intelligent
and international” development to
create “Sunshine CSA”. We resolutely
guaranteed aviation safety, stepped
up efforts to improve the quality and
efficiency, and steadily pushed forward
reforms. The Company has maintained a
positive and upward development trend,
obtained the best operation results in
history, been awarded “Top 50 Global
Most Valuable Airline Brands” and
ranked sixth globally and first in China.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 36
1. Safety Operation
We always regard safety as our top
priority. We have further improved
aviation safety management manuals,
strengthened the guidance role of the
management staff, created the safety
culture of “Capability, Compliance and
Honesty” and resolutely uphold the
safety standards. During the reporting
period, the Group has achieved safe
flight of 2.567 million hours with an
accumulated safe flight of 20.662 million
hours and with 13,700 hours for general
aviation flights. We have maintained
aviation safety for more than 18 years
and aviation security for 23 years. We
have maintained the best safety record
among Chinese airlines.
We have achieved
2.567million
hours of safe flight and
more than 18 years
aviation safety
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 37
We focused on improving the operation
and support standard, establishing
frontline authorization mechanism,
improving the efficiency to handle
emergent conditions, and ensuring to
serve the passengers at first instance.
We further enhanced the integrated
control of operation resources, continue
to minimize the flight delay and have
realized the leading position on the
flight on-time rates in our industry. We
increased the utilization efficiency of the
aircrew resources, actively optimized
the routes, and pushed forward the
management of fuel. As a result, we have
achieved a year on year drop of 0.66%
on fuel consumption per ton kilometre
and reduced the carbon emission by
63,000 tons in the year.
2. Fleet and Staff
During the reporting period, we have
deeply analysed the changes in the
markets, and constantly optimized the
fleet structure based on the Company’s
long-term development strategies,
while conforming to the new trend in
optimizing the layout of the passenger
cabins. The Company continue to
introduce more advanced and fuel-
efficient aircraft, 79 aircraft have been
introduced and 27 old aircraft have
been retired in 2017. At the year end,
our fleet includes 754 aircraft. During
the reporting period, the Company
purchased 8 B777-300ER aircraft and
30 B737-8 aircraft from Boeing, and
20 A350-900 aircraft from Airbus.
It is expected that those aircraft will
be delivered from 2019 to 2022. We
fully initiated the modification of the
cabin layout and we have completed
modification of 216 narrow-body
aircraft, where passenger experiences
have been improved.
We have achieved a year
on year drop of
0.66%
on fuel consumption
per ton kilometre
With 79 aircraft have been
introduced, our fleet
number reached
754
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 38
We recruited 4,446
new employees, conducted
training over
41,000
person/time
The passengers transferred in
Guangzhou hub grew by
24.2%
year on year,
The international and regional
routes from Guangzhou
have reached 61
During the reporting period, we enhanced
cooperation with universities and
recruited 4,446 new employees, of which
were 634 pilots, providing a guarantee
of sufficient quality human resources for
the Company’s development. We made
extra efforts to improve the quality of
employees and conducted various types
of training, totalling 1,880 items, with
41,000 person involved in total. As of
the end of 2017, the Group had 1,282
foreign employees in total, of which
there were 291 foreign pilots and 257
foreign attendants. In 2017, the Company
was again awarded two awards, i.e.
“China’s Top 30 Best Employers” and
“The Most Attractive Employer to
Women”.
3. Network and Hub
During the reporting period, we focused
on building the “Guangzhou-Beijing Dual
Hub” strategic layout and acceleration of
all the preparation work for stationing in
Beijing’s new Airport. China Southern
Airline’s base and Beijing’s new Airport
will be completed simultaneously.
We continued to build the Guangzhou
central hub, implemented the national
“the Belt and Road Initiatives”, steadily
expanded international network, so
as to “increase quality, efficiency and
speed” to prepare for the launch of T2
in Guangzhou Baiyun Airport and to
strive to turn the Guangzhou central hub
into the best strategic aviation hub in
China. We coordinated slots resources
and route structure, as well as continuing
to optimize the transfer connections.
As a result, the hub effect continued
to appear. The passengers transferred
in the Guangzhou hub grew by 24.2%
on a year on year basis. We achieved a
year on year transfer revenue growth of
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 39
We were first
to lauch
stand-up luggage
We were awarded
national
“Customer Satisfaction
Benchmark”
22.6%. We launched new flight routes
of Guangzhou-Vancouver-Mexico city,
Guangzhou-Cairns and Guangzhou-
Colombo-Male, and the international
and regional routes in Guangzhou have
reached 61, the flights have achieved
more than 543 per week.
4. Product and Service
During the reporting period, the
Company always adhered to the
customer-oriented culture and continued
its innovative and refined services.
Among Chinese carriers, we were the
first to launch barrier free websites,
boarding by face recognition and “stand-
up luggage”. In China, the Guangzhou
hub was the first to implement the
comprehensive go-through transport
service and continued to upgrade the
intelligent experiences for passengers.
We have gradually launched “Kapok
International” selected routes and
promoted star products, such as large
bowl of beef noodles and Cantonese
style clay pot rice. We also enlarged the
range of meal pre-book for passengers.
We were leading in the industry as to
passenger satisfaction. Xiamen Airlines
launched new uniforms for the ground
staff on the theme of “classic and
future”, and also launched new ground
services of “Convenient journey, Free
journey, True-Love journey, Honour
journey, Surprising journey, and Love-
you journey”, which were praised by
a wide range of customers. In 2017,
the Company was awarded national
“Customer Satisfaction Benchmark” by
China Quality Association.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 40
“China Southern
e-treval” was visited
240
times
million
We achieved electronic
direct sale revenue of
RMB40.24billion
5. Marketing
During the reporting period, we focused
on advancing intelligent marking,
roundly promoted “China Southern
e-travel”, and made 271 functions online.
The platform was visited 240 million
times, representing a year on year growth
rate of 48.4%. We remained the leading
position in the industry as to various
indicators, such as APP download,
the number of social media followers,
number of monthly active users. We
achieved electronic direct sale revenue
of RMB40.24 billion, representing a
year on year growth of 39.5%. We
resolutely treasure the value of our
customer. Our member scale reached
34.523 million, representing a year on
year growth of 14.7%. We realized
revenue from frequenter of RMB36.16
billion, representing a year on year
growth of 11.5%. The overall sale
revenue from corporate accounts reached
RMB9.5 billion, representing a year on
year growth of 28%. We were deeply
integrated with Xiamen Airlines and
Sichuan Airlines to enhance the influence
of “China Southern” on the markets.
We led the markets and increased the
input in high-return routes. Our input
in major airports accounted for 89% of
the Company by seat kilometres. We
regarded the maximization of marginal
contribution as the core, fully optimized
international and domestic traffic rights
and actively prepared for potential
markets. As a result, the utilization rate
of the aircraft increased by 0.26 hours on
a year on year basis.
During the reporting period, the Group’s
passenger transport revenue increased
by 10% on a year on year basis, hitting
a new record high in the recent 5 years.
Our passenger load factor reached the
highest in history. Meanwhile, we seized
the opportunities of increased cargo
transport demand to focus on improving
the load factor of freighter, to exploit the
effect of network hub, and to strengthen
cooperation with corporate accounts. As
a result, revenue from cargo transport
increased by 26.3% year on year and
the freighter transport achieved profit of
RMB651 millions, hitting a new record
high in the history.
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 41
The Group’s asset to
liability ratio decreased by
percentage points on a year
on year basis to
1.17
71.40%
6.
International Cooperation
During the reporting period, the
Company reached a strategic cooperation
agreement with American Airlines.
According to this agreement, American
Airlines subscribed the Company’s
shares in August 2017 by USD200
million. China Southern Airlines and
American Airlines also established a
code sharing partnership on 18 January
2018 to provide more convenient and
diversified trip options for passengers.
The Company fully participate in
the global network of SkyTeam and
continuously strengthen the cooperation
with SkyTeam’s members. Based
on the “friend circle” in the existing
international and domestic carriers,
we expanded the circle according to
the market demands. Therefore, we
partnered with British Airways, Etihad
Airways, South American Airlines and
other airlines. At present, the Company
has shared codes with 25 international
and domestic airlines, such as, France
Airlines, KLM Royal Dutch Airlines,
Delta Airlines, American Airlines,
Qantas Airways, in 585 routes (including
trunk routes and beyond routes). This
further enlarged our sales channels
and flight route network. In 2017, the
Company achieved more than RMB4
billion sales revenue from code sharing.
7. Finance Management
During the reporting period, we
continued to strength the comprehensive
budget management and advance project
value management. As a result, the cost
control standard significantly increased.
We also constantly optimized financing
structure to lower the financing cost.
We issued a round of RMB1 billion
of ultra-short-term financing Bills. We
adopted China’s bonded lease financing
method to raise RMB17.3 billion for
introducing 42 aircraft. We optimized
our debt structures and comprehensively
adopted innovative means such as,
currency swap, to lower the exchange
rate risks. We continued to optimize the
operation of the overseas fund pools.
Overseas capital centralized projects
were awarded the Euro Finance’s “2017
Taozhu Awards”. In 2017, the Group’s
asset to liability ratio decreased by 1.17
percentage points on a year on year basis
to 71.40%.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 We achieved the profit
attributable to equity
shareholders of the
Company of
RMB5,961million
passenger revenue per RPK) decreased
by 2.00% from RMB0.50 in 2016 to
RMB0.49 in 2017. Average yield (in
traffic revenue per RTK) decreased
by 0.89% from RMB4.50 in 2016 to
RMB4.46 in 2017. Operating expenses
increased by RMB16,894 million or
15.91% from RMB106,204 million in
2016 to RMB123,098 million in 2017.
As a result of increase of operating
revenue netted off by the increase of
operating expenses, operating profit
of RMB9,156 million was recorded in
2017 as compared to operating profit of
RMB12,612 million in 2016, decrease by
RMB3,456 million.
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
RMB5,961 million was recorded
in 2017 as compared to the profit
attributable to equity shareholders of
the Company of RMB5,044 million in
2016. The Group’s operating revenue
increased by RMB12,825 million or
11.15% from RMB114,981 million in
2016 to RMB127,806 million in 2017.
Passenger load factor increased by 1.69
percentage point from 80.51% in 2016
to 82.20% in 2017. Passenger yield (in
42
8. Operating Results
During the reporting period, passengers
transported by the Group reached
126 million, representing a year on
year growth of 10.19%. The average
passenger load factor reached 82.2%,
representing a year on year growth of
1.69 percentage points. The passenger
kilometer revenue reached RMB0.49,
representing a year on year decrease
of 2.00%. We achieved an operating
revenue of RMB127,806 million,
representing a year on year growth of
11.15%. Its operating expense reached
RMB123,098 million, representing a
year on year growth of 15.91%. We
achieved the profit attributable to
equity shareholders of the Company of
RMB5,961 million, representing a year
on year growth of 18.18%. Of which,
Xiamen Airlines achieved a net profit
of RMB1,477 million and maintained
profitable for 31 consecutive years.
The Board would like to extend its
sincere gratitude to the shareholders,
management and all the employees of the
Company, and is pleased to recommend
the distribution of a dividend of RMB0.1
(inclusive of applicable tax) per share
for the year ended 31 December 2017,
totalling approximately RMB1,009
million based on the Company’s
10,088,173,272 issued shares. A
resolution for the profit distribution
will be submitted for deliberation at the
2017 Annual General Meeting of the
Company.
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 43
III. OPERATING REVENUE
Traffic revenue
Including: Passenger revenue
– Domestic
– Hong Kong, Macau and
Taiwan
– International
Cargo and mail revenue
Other operating revenue
Mainly including:
Commission income
Ground services income
Expired sales in advance of carriage
General aviation service income
Hotel and tour operation income
Total operating revenues
Less: fuel surcharge income
Total operating revenue excluding fuel
surcharge
2017
Operating
revenue
RMB Million
121,873
112,791
85,392
2,281
25,118
9,082
5,933
2,781
429
396
467
547
127,806
(5,355)
122,451
Percentage
%
95.36
4.64
100.00
2016
Operating
revenue
RMB Million
109,693
102,502
77,257
2,230
23,015
7,191
5,288
2,518
384
376
461
625
114,981
(5,798)
109,183
Percentage
%
95.40
4.60
100.00
Changes in
revenue
%
11.10
10.04
10.53
2.29
9.14
26.30
12.20
10.44
11.72
5.32
1.30
(12.48)
11.15
(7.64)
12.15
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017
44
Traffic Revenue Composition
(RMB million)
9,082
(7.45%)
2017
112,791
(92.55%)
Passenger Revenue Composition
(RMB million)
Revenue from cargo and mail
Revenue from passengers
7,191
(6.56%)
2016
102,502
(93.44%)
2,281
(2.02%) 25,118
(22.27%)
2017
2,230
(2.18%) 23,015
(22.45%)
2016
85,392
(75.71%)
77,257
(75.37%)
Hong Kong, Macao and
Taiwan passenger
International passenger
Domestic passenger
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 45
Substantially all of the Group’s operating
revenue is attributable to airlines
transport operations. Traffic revenues
accounted for 95.40% and 95.36% of
the total operating revenue in 2016 and
2017, respectively. Passenger revenue
and cargo and mail revenues accounted
for 92.55% and 7.45%, respectively
of the total traffic revenue in 2017.
During the reporting period, the Group’s
total traffic revenue was RMB121,873
million, representing an increase of
RMB12,180 million or 11.10% 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, ground services income
and expired sales in advance of carriage.
The increase in operating revenue was
primarily due to 10.04% increase in
passenger revenue from RMB102,502
million in 2016 to RMB112,791 million
in 2017. The total number of passengers
carried increased by 10.19% to 126.30
million passengers in 2017. RPKs
increased by 11.93% from 206,106
million in 2016 to 230,697 million
in 2017, primarily as a result of the
increase in number of passengers carried.
Composition of Operating Expenses in 2017
(RMB million)
Flight operation expenses
Aircraft and transportation service expenses
Depreciation and amortisation
Maintenance expenses
Promotion and selling expenses
General and administrative expenses
Impairment on property, plant and equipment
Others
51,461
62,978
3,391
(2.75%)
324
(0.26%)
1,550
(1.27%)
2017
62,978
(51.16%)
6,881
(5.59%)
11,877
(9.65%)
13,162
(10.69%)
22,935
(18.63%)
Comparison of operating expenses in 2016 and 2017
Comparison of operating expenses in 2016 and 2017
20,215
22,935
12,619
13,162
11,318
11,877
6,304
6,881
Flight operation
expenses
Aircraft and
transportation
service expenses
Depreciation and
amortisation
Maintenance
expenses
Promotion and
selling expenses
General and
administrative
expenses
Impairment on
property, plant and
equipment
Others
2,815
3,391
71
324
1,401
1,550
2016
(RMB million)
2017
(RMB million)
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 46
Passenger yield per RPK decreased
from RMB0.50 in 2016 to RMB0.49 in
2017, which is mainly due to the drop of
average ticket price.
Domestic passenger revenue, which
accounted for 75.71% of the total
passenger revenue in 2017, increased
by 10.53% from RMB77,257 million in
2016 to RMB85,392 million in 2017.
Domestic passenger traffic in RPKs
increased by 10.66%, while passenger
capacity in ASKs increased by 8.18%,
resulting in an increase in passenger
load factor by 1.84 percentage points
from 80.70% in 2016 to 82.54% in 2017.
Domestic passenger yield per RPK was
RMB0.53 in 2017 which is consistent
with the same in 2016.
Hong Kong, Macau and Taiwan
passenger revenue, which accounted
for 2.02% of total passenger revenue,
increased by 2.29% from RMB2,230
million in 2016 to RMB2,281 million
in 2017. For Hong Kong, Macau and
Taiwan flights, passenger traffic in RPKs
decreased by 4.83%, while passenger
capacity in ASKs decreased by 8.33%,
resulting in an increase in passenger
load factor by 2.81 percentage points
from 73.54% in 2016 to 76.35% in 2017.
Passenger yield per RPK increased from
RMB0.72 in 2016 to RMB0.78 in 2017.
International passenger revenue,
which accounted for 22.27% of total
passenger revenue, increased by 9.14%
from RMB23,015 million in 2016
to RMB25,118 million in 2017. For
international flights, passenger traffic
in RPKs increased by 16.01%, while
passenger capacity in ASKs increased by
14.28%, resulting in a 1.22 percentage
points increase in passenger load factor
from 80.45% in 2016 to 81.67% in 2017.
Passenger yield per RPK decreased from
RMB0.40 in 2016 to RMB0.37 in 2017.
Cargo and mail revenue, which
accounted for 7.45% of the Group’s
total traffic revenue and 7.11% of total
operating revenue, increased by 26.30%
from RMB7,191 million in 2016 to
RMB9,082 million in 2017. The increase
was mainly attributable to the increase in
cargo and mail carriage.
Other operating revenue increased by
12.20% from RMB5,288 million in
2016 to RMB5,933 million in 2017.
The increase was primarily due to the
increase of commission income.
IV. OPERATING
EXPENSES
Total operating expenses in 2017
amounted to RMB123,098 million,
representing an increase of RMB16,894
million or 15.91% over 2016, primarily
due to the increase in staff cost, fuel cost
and aircraft and transportation service
expenses. Total operating expenses as
a percentage of total operating revenue
increased from 92.37% in 2016 to
96.32% in 2017.
Operating expenses
Flight operation expenses
Mainly including:
Jet fuel costs
Aircraft operating lease charges
Flight personnel payroll and welfare
Maintenance expenses
Aircraft and transportation service expenses
Promotion and selling expenses
General and administrative expenses
Depreciation and amortisation
Impairment on property, plant and equipment
Others
2017
2016
RMB Million
Percentage
RMB Million
Percentage
62,978
31,895
8,022
10,574
11,877
22,935
6,881
3,391
13,162
324
1,550
51.16
9.65
18.63
5.59
2.75
10.69
0.26
1.27
51,461
23,799
7,330
9,215
11,318
20,215
6,304
2,815
12,619
71
1,401
48.45
10.66
19.03
5.94
2.65
11.88
0.07
1.32
Total operating expenses
123,098
100.00
106,204
100.00
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017
47
Flight operation expenses, which
accounted for 51.16% of total operating
expenses, increased by 22.38%
from RMB51,461 million in 2016 to
RMB62,978 million in 2017, primarily
as a result of increase in RTK due to
the increase of capacity, as well as the
increase in average fuel prices. Jet fuel
costs, which accounted for 50.64% of
flight operation expenses, increased by
34.02% from RMB23,799 million in
2016 to RMB31,895 million in 2017, as
a result of the increase in jet fuel price
and the increase in hours flown by 8.05%
in 2017 as compared with 2016.
Promotion and selling expenses,
which accounted for 5.59% of total
operating expenses, increased by 9.15%
from RMB6,304 million in 2016 to
RMB6,881 million in 2017, mainly due
to the increased increase in ticket office
expenses.
VI. OTHER NET INCOME
Other net income increased by RMB613
million from RMB3,835 million in 2016
to RMB4,448 million in 2017, mainly
due to the increase in gain on transfer of
aircraft purchase quota.
General and administrative expenses,
which accounted for 2.75% of the total
operating expenses increased by 20.46%
from RMB2,815 million in 2016 to
RMB3,391 million in 2017, mainly
due to the increase in general corporate
expenses.
Maintenance expenses, which accounted
for 9.65% of total operating expenses,
increased by 4.94% from RMB11,318
million in 2016 to RMB11,877 million
in 2017. The increase was mainly due to
fleet expansion.
Depreciation and amortisation, which
accounted for 10.69% of the total
operating expenses, increased by 4.30%
from RMB12,619 million in 2016 to
RMB13,162 million in 2017, mainly due
to the expansion of aircraft fleet.
Aircraft and transportation service
expenses, which accounted for 18.63%
of total operating expenses, increased
by 13.46% from RMB20,215 million
in 2016 to RMB22,935 million in
2017. The increase was primarily due
to a 13.74% increase in landing and
navigation fees from RMB13,109 million
in 2016 to RMB14,910 million in 2017,
resulted from the increase in the numbers
of flights.
V. OPERATING PROFIT
Operating profit of RMB9,156 million
was recorded in 2017 (2016: RMB12,612
million). The decrease in operating
profit was mainly due to the net effect
of increase in operating revenue by
RMB12,825 million or 11.15%, as a
result of the increase in transport capacity
and traffic volume; and the increase
in operating expenses by RMB16,894
million or 15.91%, due to the increase in
jet fuel costs and staff costs.
Net cash generated from operating activities
Net cash used in investing activities
Net cash used in financing activities
Exchange (loss)/gain on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
VII. TAXATION
Income tax expense of RMB1,976
million was recorded in 2017, increased
by RMB213 million from RMB1,763
million in 2016, mainly due to the
increase of profit before income tax in
the reporting period.
VIII. LIQUIDITY,
FINANCIAL
RESOURCES AND
CAPITAL
STRUCTURE
As at 31 December 2017, the Group’s
current liabilities exceeded its current
assets by RMB51,693 million. For the
year ended 31 December 2017, the
Group recorded a net cash inflow from
operating activities of RMB17,732
million, a net cash outflow from
investing activities of RMB8,236 million
and a net cash outflow from financing
activities of RMB6,796 million and
a resulting increase in cash and cash
equivalents of RMB2,700 million.
2017
RMB million
2016
RMB million
17,732
(8,236)
(6,796)
(26)
2,674
23,764
(15,750)
(8,459)
37
(408)
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017
48
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 2017, the Group had banking
facilities with several PRC banks and financial institutions for providing bank financing up to approximately RMB181,922 million
(2016: RMB139,274 million), of which approximately RMB142,239 million (2016: RMB110,199 million) was unutilised. The
Directors of the Company believe that sufficient financing will be available to the Group when and where needed.
The analyses of the Group’s borrowings and obligations under finance leases are as follows:
Composition of borrowings and obligations under finance leases
Total borrowings and obligations under finance leases
2017
RMB million
2016
RMB million
116,211
107,726
Fixed rate borrowings and obligations under finance leases
Floating rate borrowings and obligations under finance leases
26,805
89,406
49,456
58,270
26,805
(23.07%)
2017
89,406
(76.93%)
49,456
(45.91%)
2016
58,270
(54.09%)
Change
%
7.88
(45.80)
53.43
Fixed rate
borrowings and
obligations under
finance leases
(RMB million)
Floating rate
borrowings and
obligations under
finance leases
(RMB million)
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 49
Analysis of borrowings and obligations under finance leases by currency
USD
RMB
Others
Total
6,135
(5.28%)
39,875
(34.31%)
2017
70,201
(60.41%)
6,508
(6.04%)
41,567
(38.59%)
2016
59,651
(55.37%)
Maturity analysis of borrowings and obligations under finance leases
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
After 5 years
2017
RMB million
2016
RMB million
39,875
70,201
6,135
116,211
41,567
59,651
6,508
107,726
USD
(RMB million)
RMB
(RMB million)
Others
(RMB million)
2017
RMB million
2016
RMB million
35,909
17,271
36,942
26,089
35,441
7,413
39,843
25,029
Total borrowings and obligations under finance leases
116,211
107,726
26,089
(22.45%)
35,909
(30.90%)
25,029
(23.23%)
35,441
(32.90%)
2017
36,942
(31.79%)
17,271
(14.86%)
2016
39,843
(36.99%)
7,413
(6.88%)
Within 1 year
(RMB million)
After 1 year but
within 2 years
(RMB million)
After 2 years but
within 5 years
(RMB million)
After 5 years
(RMB million)
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017
50
Interest expense and exchange gain/(loss), net
Interest expense increased by RMB282 million from RMB2,465 million in 2016 to RMB2,747 million in 2017 was mainly due to
the increase in the interest rate and the weighted average balance of obligations under finance leases during the year.
Net exchange gain of RMB1,801 million was recorded in 2017, as compared with a net exchange loss of RMB3,276 million in
2016, primarily attributable to the exchange difference arising from the translation of borrowing balances and obligations under
finance leases dominated in USD resulting from the appreciation of RMB against USD.
The Group’s capital structure at the end of the year is as follows:
Total liabilities (RMB million)
Total assets (RMB million)
Debt ratio
2017
156,175
218,718
71.40%
2016
145,466
200,442
72.57%
Change
7.36%
9.12%
Decrease by
1.17 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
of the Group at 31 December 2017 was 71.40%, as compared to 72.57% at 31 December 2016.
IX. MAJOR CHARGE ON ASSETS
As at 31 December 2017, certain aircraft of the Group with an aggregate carrying value of RMB83,687 million was mortgaged
under certain loans or certain lease agreements (2016: RMB78,318 million).
X. COMMITMENTS AND CONTINGENCIES
Commitments
As at 31 December 2017, the Group had capital commitments (excluding investment commitment) of approximately RMB108,856
million (2016: RMB105,141 million). Of such amounts, approximately RMB86,834 million related to the acquisition of aircraft
and related flight equipment and approximately RMB22,022 million for other projects.
As at 31 December 2017, the Group had investment commitments as follows:
Authorised and contracted for
Capital contributions for acquisition of interests in associates
Share of capital commitments of a joint venture
Authorised but not contracted for
Share of capital commitments of a joint venture
2017
RMB million
2016
RMB million
–
18
18
22
40
170
25
195
19
214
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017
51
Contingent Liabilities
1. The Group leased certain properties and buildings from CSAH which located in Guangzhou, Wuhan and Haikou, etc.
However, to the knowledge of the Group, 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 such properties and buildings.
In addition, the Group is applying title certificates for certain of the Group’s properties and land use rights certificates for
certain properties and parcels of land. The Company is of the opinion that the use of and the conduct of operating activities
at these properties and these parcels of land are not affected by the fact that the Group has not yet obtained the relevant
certificates.
2. 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 2016: RMB696 million) that can be
drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December 2017, total personal bank
loans of RMB361 million (31 December 2016: RMB409 million), under these guarantees, were drawn down from the banks.
During the year, the Group paid RMB5 million (2016: RMB4 million) to the banks due to the default of payments of certain
pilot trainees.
XI. RECONCILIATION OF DIFFERENCES IN FINANCIAL STATEMENTS PREPARED
UNDER PRC GAAP AND IFRSs
Difference in net profit and net assets attributable to equity shareholders of the Company under consolidated
financial information in financial statements between IFRSs and PRC GAAP
Unit: RMB million
Net profit attributable
to equity shareholders
of the Company
Net assets attributable to:
equity shareholders
of the Company
January –
December 2017
January –
December 2016
(Restated)
31 December
2017
31 December
2016
(Restated)
5,914
5,056
49,594
43,187
21
47
8
(11)
(18)
1
48
(36)
(4)
(21)
(8)
196
237
(47)
(36)
5,961
5,044
49,936
(29)
149
182
(36)
3
43,456
Amounts under PRC GAAP
Adjustments under IFRSs:
Government grants
Capitalisation of exchange difference of specific loans
Adjustments arising from the Company’s business
combination under common control
Tax impact of the above adjustments
Effect of the above adjustments on non-controlling
interests
Amounts under IFRSs
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.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017
52
2.
Prior to the year 2017, under the PRC GAAP, special funds granted by the government are accounted for as increase in
capital reserve if they are clearly defined on approval documents as part of “capital reserve”. Government grants that relate to
the purchase of assets are recognised as deferred income and amortised to profit or loss on a straight line basis over the useful
life of the related assets.
Pursuant to the accounting policy change under PRC GAAP which became effective in 2017, the Group deducted the
government grants related to purchase of assets (other than special funds) from the cost of the relate assets. The accounting
treatment is consistent with IFRSs.
3.
In accordance with the PRC GAAP, the Company account 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, comparative figures are restated under PRC GAAP.
Under IFRSs, the Company adopts the purchase accounting method for acquisition of business under common control.
XII. CAPITAL NEEDS FOR MAINTAINING THE EXISTING BUSINESS OPERATION
AND COMPLETING THE INVESTMENT PROJECTS UNDER CONSTRUCTION
Commitments
Commitments in respect of aircraft,
engines and flight equipment of
RMB86,834 million
Contractual
arrangement
Time schedule
Currency: RMB
Financing
methods
Authorized and contracted RMB28,125 million within 1 year (inclusive
of 1 year);
debt financing
RMB28,370 million after 1 year but within
2 years (inclusive of 2 years);
RMB22,686 million after 2 years but within
3 years (inclusive of 3 years);
RMB7,653 million after 3 years
Investment commitments of RMB0
Authorized and contracted
million
Other commitments of RMB6,386
Authorized and contracted
million
/
/
others
others
Operating lease commitments of
Non-cancellable
RMB8,283 million within 1 year (inclusive
others
RMB69,465 million
operating leases in
respect of aircraft,
flight equipment and
properties
of 1 year);
RMB8,776 million after 1 year but within 2
years (inclusive of 2 years);
RMB8,172 million after 2 years but within
3 years (inclusive of 3 years);
RMB44,234 million after 3 years
Note: excluding the capital commitment of joint venture attributable to the Company amounted to RMB18 million.
Upon prediction on the cash flows for the twelve months ended 31 December 2018, 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 2017, the Group has obtained a
maximum credit line of RMB181,922 million for 2017 and subsequent years from several PRC banks, of which, the unused bank
credit lines reached RMB142,239 million. The Group believes that it will be able to obtain such financing.
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017
53
XIII. ANALYSIS OF AVIATION INDUSTRIAL AND OPERATIONAL INFORMATION
1. Main information of operations
Models
Passenger aircraft
A380 series
A330 series
A320 series
B787 series
B777 series
B757 series
B737 series
EMB190 series
Freighter
B747 series
B777 series
Average
Volume of
passenger
transported
(person)
956,503
7,802,237
47,664,970
2,540,078
2,357,293
1,091,746
60,628,736
3,257,184
/
/
/
Passenger
load factor
(%)
Total
load factor
(%)
Daily
utilization rate
(hour)
88.1
84.8
82.3
79.3
86.8
78.2
81.0
78.0
/
/
82.0
69.0
62.2
74.0
59.7
61.0
65.9
72.6
71.2
80.1
86.7
71.3
8.8
12.1
9.7
12.0
13.0
7.1
9.5
8.4
1.0
12.1
9.79
2. Capital arrangement for introducing aircraft and related equipment during the reporting period
(unit: number of aircraft)
Models introduced during
the reporting period
Capital arrangement
Operating lease
Finance lease
Purchased
A330-300
A321
A320
B787-9
B737-800
Total
0
0
5
0
27
32
7
9
5
3
18
42
0
0
0
0
5
5
Number
of aircraft
introduced
during the
reporting
period
7
9
10
3
50
79
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 54
3. Capital expenditure plan and relevant financing plan for aircraft and related equipment during 2018-
2020
Capital expenditure
commitments of aircraft
and related equipment
Commitments in respect of
aircraft, engines and flight
equipment of RMB79,181
million
Contractual
arrangement
Authorized and
contracted
Currency: RMB
Financing
methods
Debt financing
Time schedule
RMB28,125million within 1 year
(inclusive of 1 year); RMB28,370
million after 1 year but within 2 years
(inclusive of 2 years); RMB22,686
million after 2 years but within 3 years
(inclusive of 3 years)
4. Expected yield from aircraft purchased during the reporting period
During the reporting period, the Company entered into the Purchase Contract for 8 B777-300ER Aircraft and 30 B737-
8 Aircraft with the Boeing Company to purchase a total of 8 B777-300ER aircraft and 30 B737-8 aircraft from the Boeing
Company.
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 aircraft B777-300ER and B737-8, it is expected that the overall yield
per seat kilometer will be approximately RMB0.335 and approximately RMB0.506 respectively after aircraft B777-300ER
and B737-8 purchased during this period has been put into service.
During the reporting period, the Company entered into the Purchase Contract for 20 A350-900 Aircraft with Airbus S.A.S. to
purchase a total of 20 A350-900 aircraft from Airbus S.A.S..
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 aircraft A350-900, it is expected that the overall yield per seat
kilometer will be approximately RMB0.338 after aircraft A350-900 purchased during this period has been put into service.
5.
Increase of captain and copilot during the reporting period and annual average flying hours of captain
and copilot in service
Items
Captain
Copilot
Other pilots
Increase/
Decrease
(person)
Annual
average
flying hours
(hour)
514
236
81
858
806
/
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 55
XIV. ANALYSIS ON INVESTMENTS
1. Major equity investment
On 18 May 2017, the Company entered into the Joint Venture Agreement regarding Guangzhou Nanland Air Catering
Company Limited with Hong Kong Sharpland Investments Ltd., Servair S.A and Hong Kong Ginkgo Group Company
Limited, pursuant to which the Company made contribution into Guangzhou Nanland Air Catering Co., Ltd. in cash with an
amount of RMB76,206,300 and by the equity interests in a subsidiary with a valuation of RMB513,727,300. After the capital
contribution, the Company held 70.5% equity interests in Guangzhou Nanland Air Catering Co., Ltd..
On 10 July 2017, the Company entered into the Share Transfer Agreement with CAE International Holdings Limited for the
acquisition of 49% equity interests in Zhuhai Xiang Yi Aviation Technology Company Limited held by CAE with an amount
of US$99.52 million(approximately equivalent to RMB678 million). Upon the completion of this acquisition, Zhuhai Xiang
Yi Aviation Technology Company Limited become a wholly-owned subsidiary of the Company.
On 13 October 2017, Xiamen Airlines entered into the Share Transfer Agreement with SACM for the acquisition of 51%
equity interests in Xiamen Airlines Media Co., Ltd. held by SACM with an amount of RMB47 million. Upon the completion
of this acquisition, Xiamen Airlines Media Co., Ltd. become a wholly-owned subsidiary of Xiamen Airlines.
2.
Important non-equity investment
On 26 April 2017, the Company entered into the Purchase Contract for 20 A350-900 Aircraft with Airbus S.A.S. to purchase
a total of 20 A350-900 aircraft from Airbus S.A.S.. The transaction shall take effect after approvals are obtained from the
relevant government authorities.
On 20 October 2017, the Company entered into the Purchase Contract for 8 B777-300ER Aircraft and 30 B737-8 Aircraft
with the Boeing Company to purchase 8 B777-300ER aircraft and 30 B737-8 aircraft from the Boeing Company. The
transaction shall take effect after approvals are obtained from the relevant government authorities.
3. Financial assets carried at fair value
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
9
16
33
58
0.48
0.013
2.25
/
26
59
537
622
/
2
15
17
Unit: RMB million
Sources of
the shares
Purchase
Purchase
Establish
Accounting item
Available-for-sale
financial assets
Available-for-sale
financial assets
Available-for-sale
financial assets
(8)
5
126
123
/
/
Stock code
Abbreviation
000099
CITIC Offshore Helicopter
601328
Bank of Communications
TravelSky Tech
00696
Total
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 56
XV. ANALYSIS ON MAJOR SUBSIDIARIES AND CONTROLLING COMPANIES
1. Main operational information of the six civil aviation subsidiaries of the Group:
Contribution
to the Group’s
RPK (%)
Number of
aircraft
Number of
passengers
carried
(thousand)
Contribution
to the Group’s
RPK (%)
Cargo and
mail carried
(tonne)
Contribution
to the Group’s
RPK (%)
Contribution
to the Group’s
RPK (%)
Contribution
to the Group’s
RPK (%)
RPK (million)
RTK (million)
186
24.67
31,764.22
25.15
258,186.1
15.44
4,987.75
18.26
50,246.07
21.78
15
11
20
19
31
1.99
1.46
2.65
2.52
4.11
3,137.91
1,932.51
3,333.39
3,132.98
5,187.40
2.48
1.53
2.64
2.48
4.11
20,489.5
15,044.2
25,910.9
19,882.4
46,015.7
1.23
0.9
1.55
1.19
2.75
375.54
289.13
493.31
393.26
705.02
1.37
1.06
1.81
1.44
2.58
3,947.40
3,017.75
5,147.26
4,167.62
7,242.30
1.71
1.31
2.23
1.81
3.14
Name of subsidiaries
Xiamen Airlines
Shantou Airlines
Zhuhai Airlines
Guizhou Airlines
Chongqing Airlines
Henan Airlines
Note: The operational information of Xiamen Airlines includes operational information of its subsidiary Hebei Airlines and Jiangxi Airlines.
2.
Information of the Controlling Companies
(1) Xiamen Airlines
Xiamen Airlines was established in August 1984 with registered capital of RMB8 billion. The legal representative is
Che Shang Lun. 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.
As at 31 December 2017, Xiamen Airlines had a fleet of 186 aircraft. During the reporting period, Xiamen Airlines
completed 4,988 million revenue tonne kilometers, representing an increase of 24.28% as compared to the same period
of the previous year. Xiamen Airlines carried 31,764,200 passengers and 258,200 tonnes of cargos, representing an
increase of 17.84% and 7.65%, respectively as compared to the same period of the previous year. The average passenger
load factor was 79.9%, representing an increase of 3.6 percentage points as compared to the same period of the previous
year. The average load factor was 67.4%, representing an increase of 2.4 percentage points as compared to the same
period of the previous year.
In 2017, Xiamen Airlines recorded operating revenue of RMB26,114 million, representing an increase of 19.38% as
compared to the same period of the previous year; and it had a net profit of RMB1,477 million, representing an increase
of 20.77% as compared to the same period of the previous year. As at 31 December 2017, Xiamen Airlines’ total assets
amounted to RMB42,111 million, and net assets amounted to RMB18,062 million.
(2) Shantou Airlines
Shantou Airlines was established in July 1993 with registered capital of RMB0.28 billion. The legal representative is
Xiao Li Xin. The Company holds 60% of the shares in Shantou Airlines; Shantou Aviation Investment Co., Ltd. holds
40% of the shares in Shantou Airlines.
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 57
As at 31 December 2017, Shantou Airlines had a fleet of 15 aircraft. During the reporting period, Shantou Airlines
completed 376 million revenue tonne kilometers, representing an increase of 10.91% as compared to the same period of
the previous year. Shantou Airlines carried 3,137,900 passengers, representing an increase of 8.37% as compared to the
same period of the previous year, and carried 20,500 tonnes of cargos, representing a decrease of 6.07% as compared
to the same period of the previous year. The average passenger load factor was 81.0%, representing an increase of 2.2
percentage points as compared to the same period of the previous year. The average load factor was 71.7%, representing
an increase of 0.1 percentage point as compared to the same period of the previous year.
(3) Zhuhai Airlines
Zhuhai Airlines was established in May 1995 with registered capital of RMB0.25 billion. The legal representative is
Wang Zhi Xue. The Company holds 60% of the shares in Zhuhai Airlines; Zhuhai Stated-owned Asset Supervision and
Administration Commission holds 40% of the shares in Zhuhai Airlines.
As at 31 December 2017, Zhuhai Airlines had a fleet of 11 aircraft. During the reporting period, Zhuhai Airlines
completed 289 million revenue tonne kilometers, representing an increase of 6.4% as compared to the same period of
the previous year. Zhuhai Airlines carried 1,932,500 passengers and 15,000 tonnes of cargos, representing an increase of
10.08% and 0.29%, respectively as compared to the same period of the previous year. The average passenger load factor
was 82.8%, representing an increase of 2.7 percentage points as compared to the same period of the previous year. The
average load factor was 75.5%, representing an increase of 1.9 percentage points as compared to the same period of the
previous year.
(4) Guizhou Airlines
Guizhou Airlines was established in June 1998 with registered capital of RMB0.91 billion. The legal representative is Yi
Hong Lei. The Company holds 60% of the shares in Guizhou Airlines; Guizhou Industrial Investment (Group) Co., Ltd.
holds 40% of the shares in Guizhou Airlines.
As at 31 December 2017, Guizhou Airlines had a fleet of 20 aircraft. During the reporting period, Guizhou Airlines
completed 493 million revenue tonne kilometers, representing an increase of 6.84% as compared to the same period of
the previous year. Guizhou Airlines carried 3,333,400 passengers, representing an increase of 7.85% as compared to the
same period of the previous year, and carried 25,900 tonnes of cargos, representing a decrease of 8.25% as compared
to the same period of the previous year. The average passenger load factor was 81.4%, representing an increase of 1.9
percentage points as compared to the same period of the previous year. The average load factor was 73.2%, representing
an increase of 0.4 percentage point as compared to the same period of the previous year.
(5) Chongqing Airlines
Chongqing Airlines was established in May 2007 with registered capital of RMB1.2 billion. The legal representative is
Liu De Jun. The Company holds 60% of the shares in Chongqing Airlines; Chongqing City Transportation Development
& Investment Group Company Limited holds 40% of the shares in Chongqing Airlines.
As at 31 December 2017, Chongqing Airlines had a fleet of 19 aircraft. During the reporting period, Chongqing Airlines
completed 393 million revenue tonne kilometers, representing an increase of 12.13% as compared to the same period of
the previous year. Chongqing Airlines carried 3,133,000 passengers, representing an increase of 10.26% as compared to
the same period of the previous year, and carried 19,900 tonnes of cargos, representing a decrease of 5.02% as compared
to the same period of the previous year. The average passenger load factor was 83.0%, representing a decrease of 0.7
percentage point as compared to the same period of the previous year. The average load factor was 72.3%, representing
a decrease of 2.3 percentage points as compared to the same period of the previous year.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 58
(6) Henan Airlines
Henan Airlines was established in September 2013 with registered capital of RMB6 billion. The legal representative is
Pei Ai Zhou. The Company holds 60% of the shares in Henan Airlines; Henan Civil Aviation and Investment Co., Ltd.
holds 40% of the shares in Henan Airlines.
As at 31 December 2017, Henan Airlines had a fleet of 31 aircraft. During the reporting period, Henan Airlines
completed 705 million revenue tonne kilometers, representing an increase of 9.47% as compared to the same period of
the previous year. Henan Airlines carried 5,187,400 passengers and 46,000 tonnes of cargos, representing an increase of
8.40% and 4.41% respectively as compared to the same period of the previous year. The average passenger load factor
was 83.1%, representing an increase of 2.4 percentage points as compared to the same period of the previous year. The
average load factor was 75.6%, representing an increase of 1.7 percentage point as compared to the same period of the
previous year.
3.
Information of other major joint stock companies
Name of investee companies
Nature of business
Registered capital
Direct
Indirect
1.
Joint ventures
Guangzhou Aircraft Maintenance
Engineering Co., Ltd
Aircraft repair and
maintenance services
USD65,000,000
50
/
Proportion of shares held at
the investee companies (%)
2. Associates
Finance Company
SACM
Provision of financial
services
Advertising agency
services
1,072,927,050
25.28
8.70
200,000,000
40
Xinjiang Civil Aviation Property
Property management
304,415,600
42.80
Management Limited
Sichuan Airlines Company Limited
Airlines transportation
1,000,000,000
39
/
/
/
XVI. INDUSTRY COMPETITION LANDSCAPE AND DEVELOPMENT TREND
Recently, aviation transport consumption has increased. Individual trip demand has exceeded business trip demand, and occupied
a dominant position. As residents’ consumption upgraded, second and third-tier markets grew strongly, and overall outbound
trip demand remained strong, the airlines have increased their investment in international markets, and focused on opening new
international air routes to Australia, North America and Europe. As the National Development and Reform Commission (NDRC)
has gradually removed the upper limit of ticket price, the airlines’ pricing becomes more flexible. Meanwhile, civil aviation
industry also has faced the following challenges. China’s major airports are facing the problem of nervous timetable; the difficulty
in access to the first and second-tier airports is increasing; and new transport capacity is tended to be input in other airports. As a
result, competition in third and fourth-tier markets is intensifying. The whole industry witnessed more investment in international
transport capacity, resulting in oversupply in international markets and not high income and quality. China’s high-speed railway
is developing rapidly. It is expected that by 2020, the operating mileage of high-speed railway will reach 30,000 kilometers, with
more than 80% of big cities covered.
It is expected that China’s civil aviation transport market will continue to maintain a medium-to-high speed of growth. By 2020, in
the integrated transport, the percentage of aviation transport will further increase; the passenger turnover ratio will reach 28%; and
the passenger transport volume will reach 720 million, with an average annual growth of 10.4%. The specific reasons are below:
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 59
1. The market sees a huge
development potential
As one of the markets in the
globe that grow fastest, in recent
10 years, China’s civil aviation
market witnessed an average annual
growth of 11.5% in its passenger
transport volume. However, the per
capita ratio of taking plane trips
was only 0.4 times in China but
2.3-2.4 times in America basically
at present, 5-6 times higher than
that in China. In the next few
years, China’s market will remain
in a period of medium-to-high
speed of growth. So, there still is a
very huge room for development.
According to the research reports
released by international aviation
transport association, it is expected
that China will surpass America
and become the biggest aviation
market in the globe around 2022.
2. Economic situation and
macro policy is more
favorable
3. The development of tourism
industry has provided a strong
impetus
In recent years, global economy
has gradually picked up. This
provides a solid foundation for
the stable development of aviation
industry. In China, benefited from
the economic restructuring and
industrial structural optimization,
“the Belt and Road Initiatives”, and
national strategies for integrated
development of Beijing, Tianjin
and Hebei, Yangtze River economic
belt, and Guangdong-Hongkong-
Macao Bay Area, civil aviation
industry will see a huge potential
for development. Internationally,
manufacturing industry and trade
activities are in the midst of a
cyclical recovery. The global
economic situation is optimistic.
According to the “Thirteenth Five-
year” plan, CAAC will guide
airlines to speed up the pace
towards international development
through traffic right allocation,
timetable arrangement of large
hub airports, and policy and fund
support.
Recently, China’s residents’
consumption ability has increased
gradually. There has been a gradual
change in aviation trip structure
as a result of more and more
stable and dominant individual
trip demand in the industry. It is
expected that China’s outbound
tourism market will maintain a
medium-to-high speed of growth
due to gradual accumulative
effect of upgraded residents’
consumption, strong RMB, and
stronger willingness of residents to
travel, especially outbound travel.
As China’s tourism market is more
and more open, tourism resources
are optimized continuously, and
tourism service level is increasing,
inbound tourism market will also
grow steadily. China’s tourism
industry will remain in a golden
rapid development period. It is
predicted that by 2020, China’s
inbound travel will reach 6.4
billion, and maintain an average
annual growth rate of more than
10%.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 60
XVII. BUSINESS PLAN IN
2018
Looking forward to 2018, the global
economy revival trend has been
established gradually. Major international
institutions are generally upbeat about
the global economy in 2018. OECD,
World Bank and IMF have upgraded
their forecast as to 2018 global economy
growth rate. China will improve its
competitiveness via economic structural
reforms, and new growth kinesics will
continue to strengthen. It is expected
that stable economic development will
continue. With the implementation of
the “the Belt and Road Initiatives”,
coordinated development for the
Beijing-Tianjin-Hebei region and
the establishment of Yangtze River
economic zone, as well as development
of strategic areas like Xiong’an New
Zone and Guangdong-Hong Kong-
Macao Bay Area, China’s domestic
aviation infrastructures will be improved
gradually. In addition, the further
manifestation of benefits from reforms
of state-owned enterprises and in-depth
integration of “Internet+” with aviation
transports will bring a strong momentum
for the development of China’s civil
aviation. China’s domestic aviation
industry will maintain a relatively rapid
development pace in a certain period.
As predicted by China’s CAAC, in
2020, the annual number of passengers
transported by China’s civil aircraft
will reach 720 million, representing an
average annual growth rate of 10.4%.
Meanwhile, we are also facing pickup
of fuel price, speedup of high-speed rail,
possible interest rate hikes and many
other challenges. RMB exchange rate
fluctuations also bring uncertainties to
the Company’s performance. Facing
opportunities and challenges, the Group
will resolutely create “Sunshine CSA”,
persist in seeking progress while working
to keep performance stable, continue to
advance the implementation of various
strategies, and strengthen the safeguards
of personnel, mechanism, technology
and many other aspects. Furthermore, it
will also, through quality, efficiency and
momentum reforms, strive to provide
first-class safety quality, maintain first-
class profitability, build up first-class
brand images and start a new journey to
construct the world first-class airlines.
Tan Wan Geng
VICE CHAIRMAN AND PRESIDENT
1. Ensure continuous safety,
improve operation efficiency
and continue to improve
safety quality.
We will make sure the safety
responsibility at each level to
strengthen risk prevention and
control in key fields and units.
We will strengthen the safety risk
prevention and control; improve
safety management mechanisms
by informational measures and
intelligent management; and speed
up to advance the construction of
operation risk control system. We
will prepare for medium and long-
term fleet plan, steadily streamline
models and continue to optimize
cabin layout. We should adapt
advanced technologies so as to be
on par with international standards
and to establish a safer, more
efficient and coherent operation
system. We will spare no effort
improve the flights on-time rates,
continue to perfect our large-scale
flight delay solutions, especially
in passenger guidance and service
support. In 2018, the Group will
ensure its continuation in aviation
safety as in past years.
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 61
2. Create dual-hub strategic
layout, strengthen
cooperation with all parties,
and continue to improve the
profitability
We will speed up to the
construction of “Guangzhou-
Beijing Dual Hub”. Taking
advantage of the launch of T2 in
Guangzhou Baiyun Airport, we
will keep improving the network
layout and “Canton Road”, as
well as strengthening the core
position of Guangzhou Hub. With
linkage between international
and domestic segments, advance
strategic coordination of different
markets, so as to improve our
operation quality and results. We
should amplify the integration effect
of “China Southern” and strengthen
cooperation with Xiamen Airlines
and Sichuan Airlines in various
fields. While consolidating our
existing international cooperation
relationships, we shall seek for
more partners based on multilateral
platforms and bilateral cooperation.
We will deepen our strategic
new benchmarks for cabin services.
We will put emphasis on food
quality, provide more updates of
in-flight entertainment contents,
and improve our service quality.
We will strengthen the promotion,
put more efforts for global
promotion, and continue to improve
our international awareness and
influence. Furthermore, we will
also continue to optimize “China
Southern e-travel”, achieving
96% of functions online, explore
upstream and downstream
extension of aviation business and
the positioning of an international
aviation hub, we should deliberately
design our Beijing Hub and excel
in services under the coordinated
development of Beijing-Tianjin-
Hebei region and the construction
of Xiong’an New Zone. With a
global vision, we will drive the
cooperation with American Airlines,
and further expand new scenarios
for international cooperation.
3. Adhere to “sincere” services,
speed up intelligentization,
and build up the
characteristic of the brand
We will adhere to the service
philosophy of “Customers First”,
raise our service from leading
position in domestic to first-class in
the world. We will keep investing
in software and hardware upon the
cabin Wi-Fi, luggage, language,
dinning and other key aspects most
cared by our customer to improve
the overall travel experience.
We will also innovate our cabin
services and products, cultivate
elite service teams, and build up
enhance our attractiveness. We will
push forward the conversion from
followers to members, from one-off
customers to frequent customers,
and also from browsing to ticket
booking. In addition, we will strive
to attract up to 25 million social
media followers and achieve 2.6
million average monthly active
users at the end of 2018.
4. Shore up the foundation
for long-term development
and strengthen the support
for personnel, mechanism,
technology
We shall turn the
internationalization of the
personnel teams into a strategy,
focus on training the employees’
internationalized vision, thinking
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 62
routes, fuel surcharges, air ticket
fares and other aspects are regulated
by the government, and the fuel
surcharges pricing mechanism is
also provided 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
Risks of intensifying
competition in the industry
Faced with ever-changing markets,
the Company fail to effectively
enhance their ability to predict and
adopt flexible sales strategies and
pricing mechanisms, which may
have 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, the proportion
of the Company’s international routes
has increased year by year. If the
Company fails to further improve the
operational quality of international
routes, it may affect the Company’s
operating income and profit levels.
Risks of competition from other
modes of transportation
There are certain substitutability
in short to medium range routes
transportation among air transport,
railway transport and road
transportation. With the improving
high speed rails network, if the
company fails to develop an
effective marketing strategy to deal
with high-speed rail competition,
it may affect the Company’s
operating efficiency.
and capability. We will further
strength our efforts to introduce and
cultivate pilots, and put emphasis
on international marketing, cabin
and ground service teams. We
will optimize the management and
control models, exploit the overall
advantages of being a large group,
and fully mobilize the enthusiasm
of all parties. In addition, we will
establish and improve manual
management system and achieve
industrial leading position, and
thus having strong international
influence and presence. We
shall implement developments
driven by innovation, speed up
the introduction and adoption of
new technologies, and focus on
excelling in key IT projects, such
as marketing, hub construction,
passenger service, aircraft
maintenance, operation control
and corporate management, so as
to provide intelligent information
support for the Company’s
development.
XVIII. RISK FACTORS
ANALYSIS
1. Macro environment risks
Risks of fluctuation in
macroeconomy
The degree of prosperity of the civil
aviation industry is closely linked
to the status of the development
of the domestic and international
macroeconomy. Macroeconomy 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.
Risks of macro policies
Macroeconomic 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,
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 63
Other force majeure and
unforeseen risks
The aviation industry is subject to a
significant impact from the external
environment, and the 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 unfavourable
effect to the results and long-term
development of the Company.
3. Risks of the Company
management
Safety risks
Flight safety is the prerequisite and
foundation for the normal operation
of the airlines. Adverse weather,
mechanical failure, human error,
aircraft defects as well as other
force majeure incidents may have
effect on the flight safety. With big
size of aircraft fleet and 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 and
reputation of the Company.
Information Safety Risk
4. Financial risks of the
Company
Foreign currency risk
RMB is not freely convertible into
foreign currencies. All foreign
exchange transactions involving
RMB 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 finance leases,
certain bank and other loans and
operating lease commitments are
denominated in foreign currencies,
principally US dollars, Euro and
Japanese Yen. Depreciation or
appreciation of RMB against
foreign currencies affects the
Group’s results significantly.
The information safety situation is
becoming more and more severe.
If the Company fails to manage
the information safety affairs at
company level or a higher level,
increase input of information
safety resources, and strengthen the
information safety management,
the Company’s safety, production,
operation, marketing, service,
etc. will be affected. Thus, the
Company will be affected and
suffer losses.
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, dispose 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.
Trend of the Average Central Parity of USD to RMB in 2017
7.0
6.8
6.6
6.4
6.2
2017/01
2017/02
2017/03
2017/04
2017/05
2017/06
2017/07
2017/08
2017/09
2017/10
2017/11
2017/12
Note: The above data came from the average central parity of USD to RMB publicized by the PBOC on each working day throughout 2017.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 64
As of 31 December 2017, the
Group has recorded a total of
RMB4,346 million of financial
assets in foreign currencies, and
a total of RMB46,860 million
of financial liabilities in foreign
currencies, of which, liabilities in
US dollars reached RMB40,444
million. During the reporting
period, due to the integrated
effect by stable pickup of China’s
economy, balanced cross-boarder
capital flows, and, Fed raising
rates, reducing its balance sheet
and conducting tax reform, RMB
exchange rate first depreciated and
then appreciated. RMB against
US dollar middle exchange rate
appreciated greatly by 6.1%
throughout the year. Fluctuations
in US dollar against RMB
exchange rate will have a material
impact on the Company’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 RMB278 million
in the case of each and every 1%
increase (or depreciate) of the
exchange rate of RMB to US dollar
at 31 December 2017..
Jet fuel price risk
The fuel cost is the most major
cost and expenditure for the
Company. Both the fluctuation
in the international crude oil
prices and the adjustment of
domestic fuel prices by the
National Development and Reform
Commission has big impact on the
profit of the Company. Although
the Group has adopted various
fuel saving measures to control
the unit fuel cost and decrease
the fuel consumption volume, if
there is significant fluctuations
in the international oil prices,
the operating performance of the
Company 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 are 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 introduced by the
National Development and Reform
Commission and the Civil Aviation
Administration of China 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 2017, the Company’s fuel oil
cost accounted for 25.91% of the
operating expenses and it was
the Company’s main operating
expenses. During the reporting
period, oversupply of crude oil
was eased and oil price increased
mildly internationally. This was
mainly due to impact by reduction
in production by OPEC, demand
recovery and decrease in inventory.
In 2017, Brent oil price increased
by 18% to US$66.87 a barrel from
US$56.82 a barrel. Assuming that
the fuel oil consumption remains
unchanged, in the case of 10%
increases or decreases in fuel price,
the Group’s operating expenses
would increase or decrease by
RMB3,190 million.
Trend of Brent Crude Oil Futures Prices in 2017
70
60
50
40
30
2017/01
2017/02
2017/03
2017/04
2017/05
2017/06
2017/07
2017/08
2017/09
2017/10
2017/11
2017/12
Note: The above data came from every trading day’s closing price of Brent crude oil futures (USD/barrel) throughout 2017.
MANAGEMENT DISCUSSION AND ANALYSISManagement Discussion and AnalysisChina Southern Airlines Company LimitedANNUAL REPORT 2017 65
XIX. ANALYSIS ON MOVEMENTS IN EXCHANGE RATE AND OIL PRICE
As of 31 December 2017, the Group’s financial assets and liabilities denominated in foreign currencies totaled to RMB4,346
million and RMB46,860 million, of which USD-denominated liabilities amounted to 40.444 million. Fluctuations in the exchange
rate of RMB against USD will have material impact on the finance expense of the Company. Assuming that other risk variables
other than the exchange rate remain unchanged, every 1% appreciation (or depreciation) of the exchange rate of RMB to USD at
31 December 2017 will lead to an increase (or a decrease) of RMB278 million in the shareholders’ equity and net profit of the
Group.
As of 31 December 2017, the Company’s jet fuel costs, accounting for 25.91% of its operating expenses, constituted the main
operating expenses of the Group. Assuming that the consumption of fuel remains unchanged, an increase or a decrease of every
10% in fuel price will result in the Group’s annual operating expenses increasing or decreasing by RMB3,190 million.
MANAGEMENT DISCUSSION AND ANALYSISOPERATING RESULTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 Satisfaction PERFECTION
to
We always adhered to the customer-oriented culture and continued its innovative and refined
services, continued to upgrade the intelligent experiences for passengers, leading in the industry
as to passenger satisfaction. In 2017, the Company was awarded national “Customer Satisfaction
Benchmark” by China Quality Association
68
I.
IMPLEMENTATION OF PROFIT DISTRIBUTION DURING THE REPORTING
PERIOD
1. Formulation, implementation or amendment of the cash dividend policy
At the first extraordinary general meeting of 2013 held on 24 January 2013, the Company considered and approved the
amendments to the Articles of Association, stipulating that “The Company adopts the following profit distribution policy:
Principles of profit distribution by the Company: Provided that the long-term and sustainable development of the Company
are ensured, the profit distribution policy of the Company should pay close attention to ensuring a reasonable return of
investment to investors and establishing a firm intention of rewarding the shareholders, and such profit distribution policy
should maintain its continuity and stability.
Ways of profit distribution by the Company: The Company may distribute dividends by way of cash, shares, a combination
of cash and shares or in other reasonable manners in compliance with laws and regulations.
Conditions and proportion of distribution of dividends by the Company: Conditional upon the Company being profitable
for the year and after allocation to the statutory common reserve fund and discretionary common reserve fund as required,
and there are no exceptional matters including material investment plans or material cash outflows (material investment
plans or material cash outflows refer to proposed external investments, acquisition of assets or purchase of equipment in the
coming 12 months that in aggregate constitute expenditure exceeding 30% of the net assets of the Company as shown in the
latest audited consolidated statements) and there has not incurred any material losses (losses in the amount exceeding 10%
of the net assets of the Company as shown in the latest audited consolidated statements), the Company shall distribute cash
dividends out of profit in an amount not less than 10% of the distributable profit for the year (i.e. profit realized for the year
after making up for losses and allocation to reserve fund). The accumulated payment of dividend by way of cash for the last
three years may not be less than 30% of the Company’s average distributable profit for the last three years. The accumulated
payment of dividend by way of cash for the coming three years may not be less than 30% of the Company’s average
distributable profit for such three years.
Intervals for profit distribution by the Company: Provided that the conditions of profit distribution are met and the Company’s
normal operation and sustainable development are ensured, the Company shall in principle distribute dividend on an annual
basis, and interim dividend may also be distributed based on the profitability and capital requirement conditions of the
Company.
Conditions of profit distribution by way of share dividends: Provided that the minimum proportion of distribution of cash
dividends is met and reasonable scale of share capital and shareholding structure of the Company are ensured, and with
particular attention paid on keeping the steps of capital expansion in pace with the growth in operation results, if there are
special circumstances which prevent distribution by way of cash, the Company may consider distributing profit by way of
share dividends as a return to investors after consideration of its profitability and cash flow position and performance of
the procedures required by the Articles of Association. Where the Company made a payment of dividend satisfied by an
allotment of new shares or completed conversion of capital common reserve fund into capital, the Company may elect not
to distribute dividend by way of cash in the same year, and that year is not counted in the three years as stated above in this
Articles of Association.”
The profit distribution policy shall comply with the Articles of Association and the requirements of approval procedures with
clear criteria and ratios of profit distribution to fully protect the legitimate interests of minority investors and the opinion shall
be given by the independent directors. Any adjustment of the policy or any change of the terms and procedures shall comply
with the applicable regulations and be undertaken with transparency.
According to PRC GAAP, the Company realized the net profit of RMB4,920 million for the year 2017. After withdrawing
10% of the net profit of the Company as the statutory surplus reserve amounting to RMB492 million, the remaining
distributable profit of the Company amounted to RMB4,428 million for the year 2017.
SIGNIFICANT EVENTSSignificant EventsChina Southern Airlines Company LimitedANNUAL REPORT 2017 69
The Board recommended the distribution of a cash dividend of RMB0.1 (inclusive of applicable tax) per share for the year
ended 31 December 2017, totalling approximately RMB1,009 million based on the Company’s 10,088,173,272 issued shares.
Under PRC GAAP, total cash dividends of the Company for the year 2017 accounted for 23% of the realized distributable
profit of the Company for the year 2017.
The Company’s profit distribution proposal for the year 2017 mainly taking the following factor into consideration: 1)
bringing concrete returns to investors to share the successful operating results of the Company; 2)keeping profits for
continuous development to meet the capital expenditure required by the Company to introduce aircrafts; 3) effectively
controlling Company’s debt ratio and improving the ability against risks. The proposal meets the requirements of the Articles
of Association, and shall subject to consideration by the Company’s general meeting. If approved, The Company intends to
make the payment to the shareholders on or before 31 August 2018.
2. Plans and proposals for dividend distribution and the conversion of capital reserve to share capital of
the Company in the recent three years (including the reporting period)
Currency: RMB
Profit
attributable
to equity
shareholders of
the Company in
the consolidated
financial
statements
during the
dividend year
(million)
Percentage
of Profit
attributable
to equity
shareholders of
the Company in
the consolidated
financial
statements (%)
Bonus shares
distributed
per 10 shares
(share)
Dividends
distributed
per 10 shares
(inclusive of
applicable tax)
Amount of
cash dividends
(inclusive of
applicable tax)
(million)
Transfers
per 10 shares
(share)
0
0
0
1.0
1.0
0.8
0
0
0
1,009
982
785
5,961
5,044
3,736
16.93
19.47
21.01
Year
2017
2016
2015
II. ASSET TRANSACTION, CORPORATE MERGER AND ACQUISITION
On 18 May 2017, the Company entered into the Joint Venture Agreement regarding Guangzhou Nanland Air Catering Company
Limited with Hong Kong Sharpland Investments Ltd., Servair S.A and Hong Kong Ginkgo Group Company Limited, pursuant to
which the Company made contribution into Guangzhou Nanland Air Catering Co., Ltd. in cash with an amount of RMB76,206,300
and by the equity interests in a subsidiary with a valuation of RMB513,727,300. After the capital contribution, the Company held
70.5% equity interests in Guangzhou Nanland Air Catering Co., Ltd..
On 10 July 2017, the Company entered into the Share Transfer Agreement with CAE International Holdings Limited for the
acquisition of 49% equity interests in Zhuhai Xiang Yi Aviation Technology Company Limited held by CAE with a cash
consideration of US$99.52 million (approximately equivalent to RMB678 million). Upon the completion of this aquisition, Zhuhai
Xiang Yi Aviation Technology Company Limited become a wholly-owned subsidiary of the Company.
On 13 October 2017, Xiamen Airlines and SACM entered into the share transfer agreement and acquired 51% equity interest in
Xiamen Airlines Media Co., Ltd.held by SACM with a cash consideration of RMB47 million. Upon the completion of acquisition,
Xiamen Airlines Media Co., Ltd. became a wholly-owned subsidiary of Xiamen Airlines.
On 26 April 2017, the Company entered into the Purchase Contract for 20 A350-900 Aircraft with Airbus S.A.S. to purchase 20
A350-900 aircraft from Airbus S.A.S.. The transaction shall take effect after approvals are obtained from the relevant government
authorities.
SIGNIFICANT EVENTSSIGNIFICANT EVENTSChina Southern Airlines Company LimitedANNUAL REPORT 2017
70
On 20 October 2017, the Company entered into the Purchase Contract for 8 B777-300ER Aircraft and 30 B737-8 Aircraft with the
Boeing Company to purchase 8 B777-300ER aircraft and 30 B737-8 aircraft from the Boeing Company. The transaction shall take
effect after approvals are obtained from the relevant government authorities.
III. MAJOR CONTRACTS
1. Trust, Sub-contracting and Lease
During the reporting period, the Company did not enter into any trust or sub contracting arrangement.
During the period, save for the connected transactions disclosed and the lease of certain land parcels and properties of CSAH
by the Company as a lessee, the Group also acquired aircraft by way of operating lease and finance lease. As at 31 December
2017, there were 264 and 213 aircraft under operating lease and under finance lease, respectively.
2. Guarantee
1.
Since the training cost is significant, certain trainee pilots of the Company and Xiamen Airlines, its subsidiaries, have to
procure personal loans to cover their training costs and miscellaneous expenses in the school. As such, the Company and
Xiamen Airlines applied personal loans for some self-sponsored trainee pilots and provided joint liability guarantee for
such loans respectively. After such trainee pilots complete their study and training, the Company and Xiamen Airlines
will enter into services contract with them respectively and provide them with an option to make early repayment or
repay by installment payment. At the 2006 Annual General Meeting of the Company held on 28 June 2007, the Board
was authorized to approve joint liability guarantee for the cumulative amount of not more than RMB100 million in each
fiscal year. At the 2007 Annual General Meeting of the Company held on 25 June 2008, the Board was authorized to
approve joint liability guarantee for the cumulative amount of not more than RMB400 million in each fiscal year.
In accordance with the authorization granted at the general meeting, the Board passed the resolutions in 2007, 2008,
2009, 2010 and 2011, respectively according to the training plan for training pilots, and agreed to provide a joint liability
guarantee for the loans applied by self-sponsored trainee pilots for the purpose of covering their training costs and
miscellaneous expenses in the school who were recruited in 2007, 2008, 2009, 2010 and 2011, with an aggregate amount
of RMB90,858,000, not exceeding RMB213,600,000, not exceeding RMB184,750,000, not exceeding RMB179,269,600
and not exceeding RMB83,850,000 per annum, respectively for the years 2007, 2008, 2009, 2010 and 2011. The period
of guarantee shall begin on the date when the relevant banks grant a loan to the trainee pilots and ending two years after
the maturity date of such loans. Xiamen Airlines, a subsidiary of the Company, also passed a resolution on 29 December
2009 to provide a joint liability guarantee for the loans applied by its partial self-sponsored trainee pilots. The maximum
amount of personal loans available to be applied by each trainee pilot shall be RMB500,000 and the aggregate amount
of guarantee provided by Xiamen Airlines shall be not more than RMB100 million for the period ended 31 December
2011. The guaranteed loan shall be used for the purpose of pilot training. The scope of the joint liability guarantee
covers the principal loan and interests, liquidated damages, damages and cost incurred for recovering the principal loan
applied by the trainee pilot. The period of guarantee shall begin on the date when the loan is extended to the pilot and
ending on the date of repayment of the principal and interests of the loans.
SIGNIFICANT EVENTSSignificant EventsChina Southern Airlines Company LimitedANNUAL REPORT 2017 71
As at 31 December 2017, the banks have granted a loan to certain trainee pilots, of which RMB361 million has been
guaranteed by the Group, in which RMB32 million has been guaranteed by Xiamen Airlines, a subsidiary of the
Company. A small number of trainee pilots have already quitted the training program as they failed to complete the
training program or due to other reasons, and part of them were unable to repay the principal and interests of the bank
loans, the Company fulfilled its joint liability guarantee obligation for such trainee pilots during the reporting period, the
aggregate amount of which was RMB5 million, and the aggregate amount of Xiamen Airlines was RMB0. The Group
has also tried its best to actively to recover the relevant outstanding bank loans and the accrued interests through various
ways.
2.
In order to broaden financing channels, reduce financing and lease costs of Hebei Airlines and maintain the steady
and healthy development, on 11 May 2016, the Board of the Company reviewed and approved to authorize Xiamen
Airlines to provide loan guarantees, with the cumulative balance of guarantees of no more than RMB3.5 billion for
Hebei Airlines during the period from 1 July 2016 to 30 June 2017, it was submitted to the shareholders’ meeting
for consideration. On 27 May 2016, the resolution was passed at the 2015 annual general meeting of the Company.
On 6 May 2017, the Board of the Company considered and approved to grant Xiamen Airlines rights to provide loan
guarantee for Hebei Airlines and Jiangxi Airlines with accumulated guarantee balance not more than RMB4.5 billion
and RMB1.2 billion or equivalent in foreign currency during the period commencing from 1 July 2017 to 30 June 2018,
it was submitted to the shareholders’ meeting for consideration. On 30 June 2017, the resolution was passed at the 2016
annual general meeting of the Company. During the reporting period, the balance of loan guarantee provided by Xiamen
Airlines to Hebei Airlines and Jiangxi were totalling to was US$0.295 billion in total.
3.
In order to reduce aircraft leasing costs, the Board of the Company convened the extraordinary meeting on 29 December
2015, 7 April 2017, 25 April 2017, 21 August 2017, 29 November 2017, respectively, and considered the guarantees
provided for SPVs established by the Company. By the end of the reporting period, the Company provided the SPV
with total guarantee of US1.164 billion.
IV. APPOINTMENT AND DISMISSAL OF AUDITORS
At 2016 annual general meeting of the Company on 30 June 2017, the Company has considered and approved the appointment
of KPMG Huazhen LLP to provide professional services to the Company for its domestic financial reporting and internal control
reporting, U.S. financial reporting and internal control for the year 2017 and appointment of KPMG to provide professional
services to the Company for its Hong Kong financial reporting for the year 2017, and authorized the Board to determine its
remuneration.
Whether to appoint another accounting firm:
Name of the domestic accounting firm
Term of service of the domestic accounting firm
Name of the international accounting firm
Term of service of the international accounting firm
Remuneration of the accounting firm (RMB million)
No
Current
KPMG Huazhen LLP
2
KPMG
2
14
Accounting firm for audit of internal control
KPMG Huazhen LLP
Name
SIGNIFICANT EVENTSSIGNIFICANT EVENTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 72
V. UNDERTAKING
Undertakings given by CSAH, the controlling shareholder of the Company, during the reporting period or existing to the reporting
period are as follow:
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Undertaking Related to
Share Reform
Other
CSAH
Other Undertaking
Other
CSAH
Long-term
Yes
Yes
Long-term
Yes
Yes
Upon completion of the Share Reform
Plan, and subject to compliance with the
relevant laws and regulations of the PRC,
CSAH will support the Company in respect
of the formulation and implementation of
a management equity incentive system.
CSAH and the Company entered into a
Separation Agreement with regard to the
definition and allocation of the assets and
liabilities between CSAH and the Company
on 25 March 1995 (the Agreement was
amended on 22 May 1997). According
to the Separation Agreement, CSAH and
the Company agreed to compensate the
other party for the claims, liabilities and
costs borne by such party as a result of
the business, assets and liabilities held
or inherited by CSAH and the Company
pursuant to the Separation Agreement.
SIGNIFICANT EVENTSSignificant EventsChina Southern Airlines Company LimitedANNUAL REPORT 2017 Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Long-term
Yes
Yes
73
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Other Undertaking
Other
CSAH
The relevant undertakings under the
Financial Services Framework Agreement
between the Company and Finance
Company: A. Finance Company is a duly
incorporated enterprise group finance
company under the “Administrative
Measures for Enterprise Group Finance
Companies” and the other relevant rules
and regulations, whose principal business
is to provide finance management services,
such as deposit and financing for the
members of the Group; and the relevant
capital flows are kept within the Group;
B. the operations of Finance Company
are in compliance with the requirements
of the relevant laws and regulations and
it is running well, therefore the deposits
placed with and loans from Finance
Company of the Company are definitely
secure. In future, Finance Company will
continue to operate in strict compliance
with the requirements of the relevant
laws and regulations; C. in respect of the
Company’s deposits with and borrowings
from Finance Company, the Company
will continue to implement its internal
procedures and make decision on its
own in accordance with the relevant
laws and regulations and the Articles of
Association, and CSAH will not intervene
in the relevant decision-making process of
the Company; and D. CSAH will continue
to fully respect the rights of the Company
to manage its own operations, and will not
intervene in the daily business operations
of the Company.
SIGNIFICANT EVENTSSIGNIFICANT EVENTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Yes
Yes
Time and term
of undertaking
Before 31
December 2019
74
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Other Undertaking
CSAH
Resolution
of defects in
land and other
properties
In respect of the connected transaction
entered into between the Company and
CSAH on 14 August 2007 in relation to
the sale and purchase of various assets, the
application for building title certificates
for eight properties of Air Catering (with
a total gross floor area of 8,013.99 square
meters) and 11 properties of the Training
Centre (with a total gross floor area of
13,948.25 square meters) have not been
made for various reasons. In this regard,
CSAH has issued an undertaking letter,
undertaking that: (1) the title certificates
should be completed by 31 December
2019; (2) all the costs and expenses arising
from the application of the relevant title
certificates would be borne and paid by
CSAH; and (3) CSAH would be liable for
all the losses suffered by the Company as
a result of the above undertakings. Due
to the change of ownership title need to
comply with the state and local laws and
regulations, and a series of formalities
in relation to the government approval
need to be involved, CSAH are actively
communicating with the government.
The application for the title certificates
mentioned above remained outstanding for
various reasons.
SIGNIFICANT EVENTSSignificant EventsChina Southern Airlines Company LimitedANNUAL REPORT 2017 75
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Other Undertaking
Other
CSAH
Yes
Yes
Within six
months upon the
completion of
the Company’s
Non-public
Issuance
On 7 February 2018, the Company
received an undertaking letter from
CSAH, the controlling shareholder of the
Company, details of which are set out as
follows: CSAH proposed to participate in
the acquisition of Non-public Issuance of
A Shares in cash, while Nan Lung Holding
Limited, a wholly-owned subsidiary of
CSAH, proposed to participate in the
acquisition of Non-public Issuance of H
Shares in cash. The following undertakings
making were as follows:
1. From first six months prior to the date
of Non-public Issuance firstly reviewed by
the board of the Company(being 26 June
2017)to the date of the undertaking letter
issued, CSAH and Nan Lung Holding
Limited and its wholly-owned subsidiaries,
Yazhou Travel Investment Company
Limited(three Company collectively
referred to as “CSAH and parties acting
in concert”) has not disposed or otherwise
reduced any shares held by the Company.
2. From the date of undertaking letter
issued to within six months after the
completion of Non-public Issuance, CSAH
and parties acting in concert will not
dispose or otherwise reduce any shares
held by the Company. There are also no
plans of reducing the Company’s shares.
3. No breach of Article 47 of the Securities
Law of the People’s Republic of China
by CSAH and parties acting in concert. If
any, the proceeds from the reduction of
shares held by CSAH and parties acting in
concert will be owned by the Company.
SIGNIFICANT EVENTSSIGNIFICANT EVENTSChina Southern Airlines Company LimitedANNUAL REPORT 2017 76
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Other Undertaking
Other
CSAH
Long-term
Yes
Yes
On 7 February 2018, the Company
received an undertaking letter from
CSAH, the controlling shareholder
of the Company in respect of parts
of lands and properties not obtaining
ownership certificates of the Company,
details of which are set out as follows:
As of 30 September 2017, the
Company and its subsidiaries,
offices held 3 parcels of land (with
181,350.42 square meters) and 342
properties (with 244,228.08 square
meters) transferred from CSAH. The
registration of the lands and properties
abovementioned has not changed
under the applicant. These lands and
properties were transferred under the
Demerger Agreement, Agreement
regarding the Reorganization of
China Northern Airlines Company
and Xinjiang Airlines Company and
Assets Purchase Agreement entered
into between the Company and CSAH
in 1997, 2004 and 2007, respectively.
CSAH undertook, if any third party
claimed against the Company as a
result of the lands and properties
not obtaining ownership certificates,
or the title defect of the lands and
properties would have an effect on
the daily operation of the Company
and give rise to loss, such loss shall
be covered by CSAH and CSAH shall
have no right to seek recovery from
the Company.
SIGNIFICANT EVENTSSignificant EventsChina Southern Airlines Company LimitedANNUAL REPORT 2017 77
The Board hereby presents this annual report and the audited financial statements for the year ended 31 December 2017 of the
Group to the shareholders of the Company (the “Shareholders”).
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 2017, 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 2017 in accordance with IFRSs. Please refer to pages 150 to 236 of this annual report for details.
DIVIDENDS
In 2017, the Group recorded the operating revenue of RMB127,806 million and the net profit attributable to the shareholders of
the Company of RMB5,961 million. The Board is pleased to recommend the payment of a dividend of RMB0.1 (inclusive of
applicable tax) per share to the shareholders for the year ended 12 December 2017, totalling approximately RMB1,009 million
based on the Company’s 10,088,173,272 issued shares. The dividend will be payable in RMB to holders of A share, and in HKD to
holders of H shares. A resolution for the dividend payment will be submitted at the 2017 annual general meeting of the Company
for consideration. If approved, the final dividend is expected to be paid to the shareholders on or before Friday, 31 August 2018.
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 2017 are set out on page 240 of this annual report.
BANK LOANS AND OTHER BORROWINGS
Details of the bank loans and other borrowings of the Company and the Group are set out in note 37 to the financial statements
prepared under IFRSs.
INTEREST CAPITALISATION
For the year ended 31 December 2017, RMB908 million (2016: RMB624 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 Company and the Group and movements of property, plant and equipment during the year
ended 31 December 2017 are set out in note 20 to the financial statements prepared under IFRSs.
MAJOR CUSTOMERS AND SUPPLIERS
The Group’s aggregate turnover from the top five customers did not exceed 30% of the Group’s total turnover in 2017. The sales
from top five customers was RMB1,125 million, representing 0.88% of the total sales in 2017, of which sales to related parties was
nil.
The Group’s purchases from the largest supplier was RMB9,967 million, representing 15.35% of the Group’s total purchases in
2017. The purchases from top five suppliers was RMB23,347 million, representing 35.96% of the total purchases in 2017, of which
purchases from related parties was RMB3,993 million, representing 6.15% of the total purchases in 2017. 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.
REPORT OF DIRECTORSReport of DirectorsCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 78
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.
In order the keep its core competitiveness and dominant brand position, the Group kept providing consistently quality services
to customers. The Group was market demand -oriented and made every effort to build up “China Southern Airlines e Trip”, via
which, the Group provided services electronically in the whole process, in order to strive to achieve the goal of “passengers can
receive all services via one mobile phone”. We focused on reducing delayed flights. Throughout the year, the Flight Punctuality
Rate hit the new record high in recent 5 years.
The Group continued to explore how to improve its supplier management mechanisms. Since 2013, the Group released and
promoted Code of Conduct for Suppliers as an important appendix to the purchase contract. In this Code, the Group standardized
the cooperation with its suppliers in terms of its practice in operation, society and environment. On one hand, it encouraged
suppliers to actively assume social responsibility. On the other hand, it 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.
For the year ended 31 December 2017, the Group has following major customers and suppliers:
Name of customers
Customer 1
Customer 2
Customer 3
Customer 4
Customer 5
Total
Name of suppliers
China National Aviation Fuel Group
South China Blue Sky Aviation Fuel Co., Ltd
Guangzhou Aircraft Maintenance Engineering Co., Ltd.
MTU Maintenance Zhuhai Co., Ltd.
Shanghai Pudong International Airport Aviation Fuels Limited
Total
Notes:
Unit: RMB million
Percentage as
total operating
revenue (%)
Operating
revenue
485
225
171
140
104
1,125
Purchase
9,967
8,254
2,456
1,537
1,133
23,347
0.38
0.18
0.13
0.11
0.08
0.88
Unit: RMB million
Percentage as
total purchase
(%)
15.35
12.71
3.78
2.37
1.74
35.96
1. China National Aviation Fuel Group, a company incorporated in the PRC, is a state-owned large air transportation service assurance
enterprise, principally engaged in jet fuel supply. It has an ongoing business relationship with our Group for over 27 years.
2. South China Blue Sky Aviation Fuel Co., Ltd is a sino-foreign joint venture incorporated in the PRC, principally engaged in jet fuel supply.
It has an ongoing business relationship with our Group for over 21 years.
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.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017
79
TAXATION
Details of taxation of the Company and the Group are set out in notes 17 and 30 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 Hong Kong Securities Clearing Company
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.
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號)) 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 Company and the Group during the year are set out in note 57 and note 48 to the financial
statements prepared under IFRSs.
SUBSIDIARIES
Details of the principal subsidiaries of the Company are set out in note 24 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 2017.
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.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 80
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 statement of the
Group for the year ended 31 December 2017.
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
of the Listing Rules for the year ended 31 December 2017.
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, the Group has complied with the code provisions of the Corporate Governance Code as set out in
Appendix 14 of the Listing Rules for the year ended 31 December 2017.
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 Civil Aviation
Administration of China 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 2017, the Company strictly followed the laws and regulations mentioned above to ensure safe
operation of the Company, and to secure its timetable execution rate and flight punctuality rate to reach the standard. The Company
applied new air routes according to laws and returned back in a timely manner any unused traffic rights operation license. 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 2017, the Group has complied with laws and regulations that has material effect on the operation
of the Group.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 81
ENVIRONMENTAL POLICIES AND PERFORMANCE
During the reporting period, the Company actively responded to climate changes, continued to promote energy saving and emission
reduction, and made more efforts to reduce the impact on the environment:
(1) Green flight
The Company constantly explored to increase energy utilization efficiency. The Company optimized its fairway layout and
paths, introduced a new generation of green model such as Airbus A320NEO to constantly create green fleet, implemented
aircraft transformation and addition of winglets, used big data platform – “Aviation Oil e Cloud” for precise aviation oil
management, and tried all kinds of methods to reduce emissions of carbon dioxide, such as technology innovation, increasing
efficiency, using alternative fuels. As a result, the Company reduced a total of 63,000 tons of carbon dioxide emissions
throughout the year.
(2) Ground environmental protection
The Company cared about flight, but cared more about the burdens brought to the environment thereby. The Company tried
its best to minimize such impact. We introduced foreign advanced engine cleaning equipment, promoted and applied aircraft
dry cleaning technology, standardized the procedures for disposal of wastes, controlled the noise and waste gas discharge. As
a result, we achieved a good performance in energy saving and emission reduction.
(3) Advocating green life
The Company kept practicing the concept of low carbon and environmental protection in the process of providing services.
It was dedicated to innovative product and service mode so that it could conduct marketing via electronic means but not
traditional paper for reducing paper use in such process. We fully promoted the use of mobile QR Code for boarding. This
reduced paper use effectively. Our electronic invoice service helped protect 3,200 trees from cutting down at least each year.
We also conducted energy saving publicity, and provided support for research on environmental protection in Antarctica Pole.
We protected biodiversity. We formally signed Buckingham Place Declaration initiated and proposed by wildlife protection
alliance to announce our participation in the suppression of illegal transport and trading of wildlife and its products.
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 entity 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 2017 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 2017 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.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 82
DIRECTORS AND SUPERVISORS’ INTEREST IN COMPETING BUSINESS
As at 31 December 2017, 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 2017.
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 2017 which are required to be disclosed herein under the Listing Rules,
are as follows:
(1) De-merger Agreement
The De-merger Agreement dated 25 March 1995 (such agreement was amended by the Amendment Agreement No.1 dated
22 May 1997) was entered into between CSAH and the Company for the purpose of defining and allocating the assets and
liabilities between CSAH and the Company. Under the De-merger Agreement, CSAH and the Company have agreed to
indemnify the other party against claims, liabilities and expenses incurred by such other party relating to the businesses, assets
and liabilities held or assumed by CSAH or the Company pursuant to the De-merger Agreement.
Neither the Company nor CSAH has made any payments in respect of such indemnification obligations from the date of the
De-merger Agreement up to the date of this annual report.
(2) Continuing Connected Transactions between the Company and CSAH (or their respective subsidiaries)
A. SACM, which is 40% owned by the Company and 60% owned by CSAH
On 30 December 2015, the Company renewed the media services framework agreement (the “Media Services
Framework Agreement”) with SACM, for a term of three years commencing from 1 January 2016. Pursuant to the
agreement, the Company has appointed SACM to provide 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 recruitments of air-hostess, and services relating to the distribution of newspapers
and magazines. The service fees 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 follow such prevailing market price; 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 annual caps under the Media Services Framework Agreement for each
financial year ended 31 December 2016, 2017 and 2018 will remain at RMB118.5 million respectively.
For the year ended 31 December 2017, the media fees incurred by the Group for the media services amounted to
RMB74 million.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 83
B. Finance Company, which is 66.02% owned by CSAH, 25.28% owned by the Company and 8.70% owned in
aggregate by four subsidiaries of the Company
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 18 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 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. 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 Financial Services Framework Agreement shall not exceed the Cap which is set at
RMB8,000 million 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.
As of 31 December 2017, the Group’s deposits placed with the Finance Company amounted to RMB6,095 million and
loans from it amounted to RMB431 million. The fees received by the Group amounted to RMB26 million for the year
ended 31 December 2017.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 84
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 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 expect the annual fees payable to the Company 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 ending 31 December 2019 will be RMB270 million, RMB330 million and RMB400 million, respectively.
During the year ended 31 December 2017, agency fees and service fees paid to, service revenue received from GSC by
the Group was RMB44 million, RMB112 million and RMB3 million, respectively.
D. CSAGPMC, a wholly-owned subsidiary of CSAH
(a) On 29 December 2014, the Company entered into the new property management framework agreement (the
“Property Management Framework Agreement”) with CSAGPMC to renew the property management transactions for
a term of three years from 1 January 2015 to 31 December 2017. 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. In addition, CSAGPMC has also been appointed 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 to the Group, which are newly added services to be provided by
CSAGPMC to the Group. The annual cap for the Property Management Framework Agreement is set at RMB90 million,
RMB92 million and RMB96 million for each of the three years ending 31 December 2015, 2016 and 2017, respectively.
The management and maintenance 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 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 the new Baiyun International Airport. The management and maintenance 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 2017, the property management and maintenance fee incurred by the Group amounted
to RMB70 million pursuant to the Property Management Framework Agreement.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 85
(b)As the Property Management Framework Agreement had expired on 31 December 2017 and the transactions
contemplated thereunder will continue to be entered into on a recurring basis, the Company has entered into the
new Property Management Framework Agreement (the “new 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 originally covered under the Property Management Framework Agreement. Pursuant
to the new 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 is 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, including retirement employee management department
buildings, certain office buildings and so on.
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.
E. SACC, which is 50.1% owned by CSAH
On 30 December 2015, the Company entered into the catering services framework agreement (the “Catering Services
Framework Agreement”) with SACC in order to renew the catering services transactions and extend another three years
from 1 January 2016 to 31 December 2018. The service fee of the catering services transactions mainly includes such
three parts as in-flight lunch box fees, operating fees and storage fees. In-flight lunch box fees are determined according
to the costs of raw materials, production costs and taxes. Operating fees are determined by labor costs and facility costs
while the storage fees are determined by the rentals and labor costs. The labor costs will be determined with reference
to the average salary of prior year issued by local government. The services fee charged by SACC should not be higher
than the one charged by any independent third parties in the similar locations of similar services. The annual cap under
the Catering Services Framework Agreement for each financial year ending 31 December 2016, 2017 and 2018 is
RMB152 million, RMB175 million and RMB201 million, respectively.
For the year ended 31 December 2017, the service fees paid by the Group to SACC amounted to RMB125 million.
F. MTU Maintenance Zhuhai Co., Ltd.(“Zhuhai MTU”), which is 50% owned by CSAH
The Company entered into an agreement relating to continuing connected transactions with CSAH, MTU Aero Engines
GmbH (“MTU GmbH”) and Zhuhai MTU on 28 September 2009, by which Zhuhai MTU shall continue to provide
the Company with engine repair and maintenance services subject to the international competitiveness and at the net
most favourable terms, while the Company shall make relevant payment to Zhuhai MTU according to related charging
standard. The agreement is effective from its effective date to 5 April 2031.
For the year ended 31 December 2017, the Group’s engine repair and maintenance service fees incurred under the
agreement relating to continuing connected transactions amounted to RMB1,537 million.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 86
(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 10 years.
(4) Leases
The Group (as lessee) and CSAH or its subsidiaries (as lessor) entered into lease agreements as follows:
A.
(a) The Company and CSAH entered into the asset lease agreement (the “Asset Lease Agreement”) on 29 December
2014 for a term of three years from 1 January 2015 to 31 December 2017 to renew lease transactions. Pursuant to the
Asset Lease Agreement, CSAH agrees to continue to lease to the Company certain parcels of land, properties, and civil
aviation structures and facilities at existing locations in Guangzhou, Haikou, Wuhan, Hengyang, Jingzhou, Zhanjiang,
Changsha and Nanyang (mainly referred to Jiangying Airport) for a term of three years commencing from 1 January
2015 to 31 December 2017. The annual rent payable pursuant to the Asset Lease Agreement of RMB86,268,700 is
determined after arm’s length negotiation by the parties with reference to the historical figures and rental assessment
report prepared by Zhonghuan Songde (Beijing) Assets Appraisal Co., Ltd. taking into account the prevailing market
rental for properties located at similar locations.
For the year ended 31 December 2017, the rent incurred by the Group amounted to RMB86,268,700 pursuant to the
Asset Lease Agreement.
(b) As the Asset Lease Agreement had expired on 31 December 2017 and the lease transaction contemplated thereunder
continue to be entered into on a recurring basis, the Company and CSAH entered into the new Asset Lease Framework
Agreement (the “new 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 Existing
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.
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.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 87
C. 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 and historical figures. 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 ending
31 December 2019 shall not exceed RMB130 million.
For the year ended 31 December 2017, the rents for property lease and land lease incurred by the Company amounted to
RMB32,332,700 and RMB67,948,700, respectively pursuant to the Property and Land Lease Framework Agreement.
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 A330-300 aircraft (“A330 Finance
Lease Agreement”) with Guangzhou Nansha CSA Tianru Leasing Co., Ltd. (“CSA Leasing Company”), a company is
wholly owned by CSAH through itself and its wholly-owned subsidiary, 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 2017, the transaction fees paid by the Company to CSA Leasing Company under
the A321 Finance Lease Agreement and A330 Finance Lease Agreement was RMB1,143 million in total (include the
principal, interest payable and handling fee).
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 88
E. On 26 May 2017, the Company entered into the Aircraft Finance Lease Framework Agreement (“Aircraft Finance Lease
Framework Agreement”) with CSA International Finance Leasing Co., Ltd. (“CSA International”), a company is wholly
owned by CSAH through itself and its wholly-owned subsidiary for a effective term from 1 July 2017 to 31 December
2017.
CSA International agreed to provide finance leasing to the Company in relation to the Leased Aircraft, 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 relevant Aircraft Finance Lease Framework Agreements and the relevant implementation
agreements contemplated thereunder. The Leased Aircraft comprises part of the aircraft in the Company’s aircraft
introduction plan from 1 July 2017 to 31 December 2017 subject to adjustment from time to time. The number of the
Leased Aircraft will not be more than 28.
Under the Proposed Transactions, the applicable interest rate for the principal amount not more than 10.0% of the
consideration for the purchase of the Leased Aircraft 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 aircraft, satisfying certain prerequisites. The rental fee is the repayment of the principal amount for the
Leased Aircraft and the interest under the Proposed Transactions.
The lease period of the aircraft under the Aircraft Finance Lease Framework Agreement will be agreed upon entering
into the Aircraft Finance Lease Agreements. Based on previous similar transactions, the lease period of the aircraft
under the separate Aircraft Finance Lease Agreement(s) would be 10 to 12 years. The respective handling fee for
each of the Leased Aircraft 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 relevant the Leased Aircraft, the Company is entitled to purchase the relevant Leased Aircraft back from CSA
International at a nominal purchase price for such aircraft.
According to the Company’s aircraft introduction plan for the period from 1 July 2017 to 31 December 2017, and
based on the assumption that the maximum aggregate transaction amount (including the principal, interest payable
and handling fee) of the aircraft finance lease transactions between the Company and CSA International for the period
from 1 July 2017 to 31 December 2017 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 finance lease in the second half of
2017, the proposed total transaction amount was US$1,058.1 million. As the proposed cap for the aircraft finance
lease transaction between the Company and CSA International should be set on an annual basis, having considered the
historical transaction amounts and the proposed transaction amount for the period from 1 July 2017 to 31 December
2017, the proposed cap on an annual basis shall not exceed US$1,309.1 million (or the equivalent amount in RMB) for
the year ending 31 December 2017.
For the year ended 31 December 2017, the total fees paid by the Company to CSA International pursuant to the relevant
Aircraft Finance Lease Framework Agreement was RMB6,831 million.
On 30 June 2017, the Aircraft Finance Lease Framework Agreement above was considered and approved at 2016 annual
general meeting.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 89
F. 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 for a 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. In addition, with reference to the accounting policy in respect of the
Aviation Related Equipment of the Company, the lease period of the Leased Aviation Related Equipment under
the separate Finance Lease Agreement(s) would be approximately 5 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 two years ended 31 December 2018 and 31
December 2019 is US$2,621 million and US$3,126 million.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 90
(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 have ownerships of the aircraft and engines and the Company have 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
two years ended 31 December 2018 and 31 December 2019 is US$150 million and US$240 million.
On 20 December 2017, the 2018-2019 Finance and Lease Service Framework Agreement above was considered
and approved at 2017 second extraordinary general meeting of the Company.
(5) Proposed Share Issuance
On 26 June 2017, the Board proposed to put forward to the extraordinary general meeting and the class meetings to approve
and authorise the Board (i) to issue not more than 1,800,000,000 new A Shares (including 1,800,000,000 A Shares) to not
more than 10 specific investors (including CSAH) at the A Share subscription price (the “A Share Issuance”), and as part of
the A Share Issuance, to enter into the A Share Subscription Agreement (“A Share Subscription Agreement”) with CSAH,
pursuant to which CSAH will subscribe for no less than 31% of the new A Shares, the consideration of which shall be
satisfied by transfer 50% of the Zhuhai MTU Shares to the Company and cash; and (ii) to issue no more than 590,000,000
new H Shares (including 590,000,000 H Shares) to Nan Lung at the subscription price of HK$6.27 per H Share (subject to
adjustments) and to enter into the H Share Subscription Agreement with Nan Lung (the “H Share Issuance”, collectively with “A
Share Issuance”. the “Proposed Share Issuance”). The total funds to be raised from the Proposed Share Issuance will be not
more than RMB12,737.00 million (including RMB12,737.00 million), which will be utilised in the procurement of aircraft,
the project for selection and installation of lightweight seats for A320 series aircraft and the supplemental to the general
working capital. The aforesaid A Share Issuance and the H Share Issuance are inter-conditional upon each other. The new A
Shares and new H Shares to be issued under the aforesaid A Share Issuance and H Share Issuance respectively will be issued
pursuant to the Specific Mandate to be sought from the Independent Shareholders at the EGM and the Class Meetings.
On 19 September 2017, the Board considered and approved that (i) the Company to enter into the Supplemental Agreement
I to the A Share Subscription Agreement with CSAH, pursuant to which 50% of the Zhuhai MTU Shares as partial
consideration payable by CSAH for its subscription of new A Shares under the A Share Subscription Agreement has been
adjusted to RMB1,741.08 million according to the final assessment results as filed and approved by the State-owned Assets
Supervision and Administration Commission of the State Council (“SASAC”) stated in the final valuation report prepared
by the Independent Valuer in terms of the 50% of the Zhuhai MTU Shares as at the Valuation Reference Date; and (ii) the
subscription price and the number of H Shares to be issued pursuant to the H Share Subscription Agreement shall be adjusted
to HK$6.156 and not more than 600,925,925 new H Shares (including 600,925,925 H Shares), respectively due to the
implementation of the 2016 dividend distribution plan of the Company. Accordingly, the relevant parts in the proposal for A
Share Issuance and H Share Issuance will be revised accordingly.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 91
On 8 November 2017, the aforesaid A Share Issuance and H Share Issuance was considered and approved at the 2017 first
extraordinary general meeting, 2017 first class meeting for holders of A shares and 2017 first class meeting for holders of
H shares of the Company. The abovementioned H Share Issuance has been approved by CSRC, and the A Share Issuance is
subject to the approval from CSRC.
(6) Acquisition of Property in the PRC
On 7 December 2017, Zhuhai Airlines, as purchaser (“Purchaser”), entered into the Sale and Purchase Agreements with
Zhuhai China Southern Air Real Property Development Co., Ltd., as vendor (“Vendor”), pursuant to which the Purchaser
agreed to acquire the whole 7th to 11th floor and one shop of China Southern Air Zhuhai Area Headquarter Building (南
航珠海總部大廈) located at No. 52 Haibin South Road, Xiangzhou District, Zhuhai City, the PRC with a gross floor area
of approximately 8,183.27 square meters (“Property”) at a total consideration of RMB159,990,100 for office and marketing
purposes.
The consideration for the Property Acquisition was determined after arm’s length negotiations between the Company and
the Vendor, with reference to (i) the price of similar types (for office purpose) of properties located in the same areas in
Zhuhai, which ranges from RMB25,900 per square meter to RMB31,300 per square meter; (ii) the price of street shops in
the open market of Zhuhai, which is approximately RMB80,000 per square meter; (iii) the prevailing selling prices of other
shops of the development in which the Property forms part of, in the open market of Zhuhai; and (iv) the agreed discount of
approximately 22.58% on the price offered to public which is RMB206,654,700, provided by the Vendor to the Company.
The consideration also includes taxes and renovation costs. The Company intends to satisfy the consideration by its internal
resources.
The vendor is a wholly-owned subsidiary of Zhonghai China Southern Air Construction Development Co., Ltd., which is
owned as to 49%, 30% and 21% equity interests by CSAH, CITIC Real Estate Group Co., Ltd. (中信房地產集團有限
公司) and Guangdong Zhonghai Real Estate Co., Ltd. (廣東中海地產有限公司), respectively. As CSAH is a controlling
shareholder of the Company, the vendor is a connected person of the Company under the Listing Rules.
The Property Acquisition will strengthen the Company’s cooperation with the Zhuhai municipal government as the
development of the Property was approved by Zhuhai municipal government with a view to provide support to the business
development of the Company. The Property Acquisition will also address Zhuhai Airline’s needs for improvement on
infrastructure to support the growth of Zhuhai Airline in the civil aviation market. Since the Property is situated at the
commercial business district in Zhuhai City, the Company believes that acquiring the Property with such geographical
advantages as its office can not only meet the needs of future business development, but also realign its office premises with
the Company’s brand and image.
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 2017 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 the 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 Company and the shareholders of the Company as a whole.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 92
The auditor of the Company was engaged to report on the Company’s continuing connected transactions in accordance
with Hong Kong Standard on Assurance Engagements 3000“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 their conclusions in respect of the above-mentioned continuing connected
transactions in accordance with the Rule 14A.38 of the Listing Rules, indicating that:
(a) nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions have
not been approved by the Company’s board of directors.
(b)
for transactions involving the provision of goods or services by the Group, nothing has come to their attention that
causes them to believe that the disclosed continuing connected transactions were not, in all material respects, in
accordance with the pricing policies of the Group.
(c) nothing has come to their attention that causes them to believe that the disclosed continuing connected transactions were
not entered into, in all material respects, in accordance with the relevant agreements governing such transactions.
(d) with respect to the aggregate amount of each of the 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 50 to the financial statements prepared under IFRSs also constituted
connected transactions under the Listing Rules required to be disclosed in accordance with Chapter 14A of the Listing
Rule. 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.
SHARE ISSUANCE
(1) Issuance of H Shares Under the General Mandate
On 27 March 2017, according to the authorisation under the general mandate approved by the 2015 annual general meeting
and as approved by the Board, the Company entered into the Share Subscription Agreement with American Airlines, pursuant
to which the American Airlines has agreed to subscribe for 270,606,272 new H Shares of the Company (the “Subscription”),
at the subscription price of HK$1,553.28 million, representing a subscription price of HK$5.74 per share. The closing price of
the H Shares as at the date of the Share Subscription Agreement is HK$5.49. The Subscription has completed on 10 August
2017.
The gross proceeds from the Subscription was HK$1,553.28 million and the net proceeds from the Subscription was
approximately HK$1,546.99 million (after deduction of expenses of the Subscription payable by the Company). The net
price (after deduction of expenses of the Subscription payable by the Company) per Subscription Share was approximately
HK$5.72.
Under the Company’s announcement dated 27 March 2017, The Company intends to utilize the net proceeds form the
Subscription for supplementing the general working capital of the Group. As at 31 December 2017, all raised proceeds has
been utilized for supplementing the general working capital of the Group.
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 93
(2) Proposed Share Issuance
The details of the Proposed Share Issuance have been included in the section headed “Connected Transactions” in this report.
Assuming the respective parties will subscribe for the maximum number of new A Shares and new H Shares at the respective
subscription prices for A Shares and H Shares under the Proposed Share Issuance, the total proceeds of the A Share Issuance
and H Share Issuance will be not more than RMB9,500 million (including RMB9,500 million) and HKD3,699 million (including
HKD3,699 million), respectively. Based on the above assumptions, 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 RMB2,400,925,925. The total proceeds of
the Proposed Share Issuance are intended to be used for purchasing aircrafts, projects in relation to energy-conservation and
emission-reduction and used as working capital of the Company. The closing price of the H Shares as at the date of the H
Share Subscription Agreement is HK$6.78.
DONATIONS
For the year ended 31 December 2017, the Group made donations for charitable purposes amounting to RMB13.81 million.
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As at 31 December 2017, 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
Save as disclosed in note 53 to the annual report, as at 31 December 2017, the Group was not involved in any material litigation.
SUBSEQUENT EVENTS
On 26 June 2017, the Company entered into the A Share Subscription Agreement with CSAH, pursuant to which the Company
is to issue not more than 1,800,000,000 (inclusive) new A Shares to not more than 10 specific investors (including CSAH) (“the
A Share Issuance”). The total funds to be raised from the A Share Issuance will be not more than RMB9,500 million (inclusive).
CSAH will subscribe for no less than 31% of the new A Shares, the consideration of which shall be satisfied by transfer of assets
and cash. In the meantime, the Company entered into the H Share Subscription Agreement with Nan Lung (a wholly-owned
subsidiary of CSAH), pursuant to which the Company is to issue not more than 600,925,925 (inclusive and adjusted) new H
shares at the subscription price of HKD6.156 per H Share (“the H Share Issuance”). The total funds to be raised from the H Share
Issuance will be not more than HKD3,699 million (inclusive). The consideration 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
8 November 2017. On 12 March 2018, the H Share Issuance was approved by China Securities Regulatory Commission. The A
Share Issuance and the H Share Issuance are inter-conditional upon each other, and the Company shall obtain all of the approvals
required under the applicable laws and regulations before issuance.
REPORT OF DIRECTORSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 94
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, U.S. Financial reporting and internal
control reporting for the year 2018 and KPMG to provide professional services to the Company for its Hong Kong financial
reporting for the year 2018.
By order of the Board
Wang Chang Shun
Chairman
Guangzhou, the PRC
26 March 2018
REPORT OF DIRECTORSReport of DirectorsChina Southern Airlines Company LimitedANNUAL REPORT 2017 95
I. CHANGE IN SHARE CAPITAL
(I) Changes in Shareholdings
Before changes
Shares
0
7,022,650,000
2,794,917,000
9,817,567,000
(%)
0
71.53
28.47
100
I.
II.
Shares subject to trading restrictions
Shares not subject to trading restrictions
1. RMB ordinary shares
2. Overseas listed foreign shares
III. Total number of shares
(II) Description of change in shares
Unit: Share
After changes
Increase and decrease (+, -)
Issuance of
new shares
subtotal
0
0
Shares
0
0
270,606,272
270,606,272
0
270,606,272
270,606,272
7,022,650,000
3,065,523,272
10,088,173,272
(%)
0
69.61
30.39
100
During the reporting period, the Company completed the issuance of 270,606,272 overseas listed foreign shares (H Shares) to
American Airlines, Inc., and total number of shares increased to 10,088,173,272.
During the reporting period, the Company initiated the project in relation to the non-public issuance of shares, and held the
15th and 17th meeting of seven session of the Board on 26 June 2017 and 19 September 2017, respectively, considering and
approving a series of resolutions in respect of the proposed non-public issuance of A Shares to not more than 10 specific
investors (including China Southern Air Holding Limited Company (“CSAH”); and the proposed non-public issuance of H
Shares to Nan Lung (or other wholly-owned subsidiary designated by CSAH). Please refer to the related announcements
of the Company published on China Securities Journal, Shanghai Securities News, Securities Times and the website of the
Shanghai Stock Exchange on 27 June 2017 and 20 September 2017, respectively, for details.
As of 8 February 2018, the Company successively received the approvals from State-owned Assets Supervision and
Administration Commission of the State Council of the PRC regarding the non-public issuance of shares and the feedback
from the China Securities Regulatory Commission (the “CSRC”) in respect of the Company’s non-public issuance of shares.
The Company provided written responses to the feedback from the CSRC and publicly disclosed the responses. For details,
please refer to the related announcements of the Company published on China Securities Journal, Shanghai Securities News,
Securities Times and the website of the Shanghai Stock Exchange on 31 October 2017, 22 December 2017 and 8 February
2018, respectively.
On 16 March 2018, the Company published the “Announcement in relation to Approval by the CSRC of the Application for
the Non-public Issuance of Overseas Listed Foreign Shares (H Shares) of the Company” where the CSRC has approved the
Company to issue new overseas listed foreign shares of not more than 600,925,925 shares. For details, please refer to the
relevant announcement published by the Company on China Securities Journal, The Shanghai Securities Journal, Securities
Times and the website of Shanghai Stock Exchange on 16 March 2018.
Until now, the aforesaid non-public issuance of shares is still in the progress of review by the CSRC. The Company will
continue to fulfill its disclosure obligations pursuant to relevant requirements.
CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTSChanges in the Share Capital, Shareholders’ Profile and Disclosure of InterestsCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
96
II. ISSUANCE AND LISTING OF SECURITIES
(I) Securities issuance during the last 3 years as of the end of the Reporting Period
Type of securities
and derivatives
Issuance date
Issuance price
(or interest rate)
Amount issued Listing date
Amount approved for
public trading
Ending date of
transaction
Ordinary shares
Overseas listed foreign shares (H share)) 10 August 2017
Other derivatives
Ultra short-term financing bills
16 February 2017
HK$5.74/share
270,606,272 10 August 2017
270,606,272 /
3.70%
RMB1 billion 21 February 2017
RMB1 billion 17 November 2017
(II) Changes in the total number of shares, shareholder structure and assets and liabilities structure of the
Company
1. Changes in the total number of ordinary shares and shareholder structure of the Company
On 10 August 2017, the Company completed to issue 270,606,272 H Shares to American Airlines with the issue price
of HK$5.74 per share and the nominal value of RMB1 per share. Meanwhile, the Company and American Airlines have
completed the share subscription and closing matters. Upon completion of the issuance, changes in capital structure are
as follow:
Type of share
Number (share) Percentage (%) Number (share) Percentage (%)
Before the non-public issue
After the non-public issue
A Shares not subject to trading
restrictions
A Shares subject to trading restrictions
H Shares not subject to trading
restrictions
H Shares subject to trading restrictions
Total
7,022,650,000
–
2,794,917,000
–
9,817,567,000
71.53%
–
7,022,650,000
–
28.47%
–
3,065,523,272
–
100.00% 10,088,173,272
69.61%
–
30.39%
–
100.00%
2. Changes in the assets and liabilities structure of the Company
(1) analysis on the assets structure
As of 31 December 2017, the total assets of the Company amounted to RMB218.7 billion, representing an increase
of 9.12% compared to the end of 2016, with an asset-liability ratio of 71.40%, representing a decrease of 1.17
points compared to the end of 2016. Among which, the current asset was RMB17.9 billion (representing 8.18% of
the total assets), representing an increase of 29.93% compared to the end of 2016, and the non-current asset was
RMB200.8 billion (representing 91.82% of the total assets), representing an increase of 7.58% compared to the end
of 2016.
(2) analysis on the liabilities structure
As of 31 December 2017, the total liabilities of the Company amounted to RMB156.2 billion, of which the current
liability was RMB69.6 billion, representing 44.56% of the total liabilities; the non-current liability was RMB86.6
billion, representing 55.44% of the total liabilities.
CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTSChanges in the Share Capital, Shareholders’ Profile and Disclosure of InterestsChina Southern Airlines Company LimitedANNUAL REPORT 2017
97
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 169,285. As at 28 February
2018, total number of ordinary shareholders of the Company was 180,857.
(II) Particulars of shareholdings
1. Particulars of the top ten shareholders
Particulars of the top ten shareholders
Increase/
(decrease) during
the reporting
period
Number of shares
held at the end of
reporting period
Shareholding
percentage
(%)
Number
of shares
subject to
trading
restrictions
Name of the shareholder (in full)
China Southern Air Holding Limited
0
4,039,228,665
Company
HKSCC (Nominees) Limited
Nan Lung Holding Limited
252,000
0
1,749,711,988
1,033,650,000
China Securities Finance Corporation
133,988,558
401,607,940
Limited
American Airlines
National Social Security Fund 118
270,606,272
111,405,666
270,606,272
149,325,571
Central Huijin Investment Ltd.
0
64,510,900
Zhong Hang Xin Gang Guarantee
(8,406,400)
61,593,600
Co., Ltd.
China National Aviation Holding
0
49,253,400
Company
China Construction Bank
Corporation-LOF
44,999,800
44,999,800
40.04
17.34
10.25
3.98
2.68
1.48
0.64
0.61
0.49
0.45
0
0
0
0
0
0
0
0
0
0
Unit: share
Pledged or frozen
Status
Number
Capacity
0
0 Stated-owned legal
Unknown
0
Unknown
Unknown
Unknown
Unknown
Unknown
Unknown
entity
Unknown Overseas legal entity
0 Stated-owned legal
entity
Unknown Stated-owned legal
entity
Unknown Overseas legal entity
Unknown Stated-owned legal
entity
Unknown Stated-owned legal
entity
Unknown Stated-owned legal
entity
Unknown Stated-owned legal
entity
Unknown
Unknown Other
CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
Number
4,039,228,665
1,749,711,988
98
2. Particulars of the top ten shareholders holding the Company’s tradable shares not subject to trading
restrictions
Particulars of the top ten shareholders holding the Company’s tradable shares not subject to trading restrictions
Unit: Share
Name of Shareholder
Number of tradable
shares not subject to
trading restrictions
Type
Type and number of shares
China Southern Air Holding Limited Company
HKSCC (Nominees) Limited
4,039,228,665 RMB ordinary shares
1,749,711,988 Overseas listed foreign
shares
Nan Lung Holding Limited
1,033,650,000 Overseas listed foreign
1,033,650,000
China Securities Finance Corporation Limited
American Airlines
National Social Security Fund 118
Central Huijin Investment Ltd.
Zhong Hang Xin Gang Guarantee Co., Ltd.
China National Aviation Holding Company
China Construction Bank Corporation-LOF
Explanation of the connected relationship or
acting in concert relationship of the above
shareholders
shares
401,607,940 RMB ordinary shares
270,606,272 Overseas listed foreign
shares
149,325,571 RMB ordinary shares
64,510,900 RMB ordinary shares
61,593,600 RMB ordinary shares
49,253,400 RMB ordinary shares
44,999,800 RMB ordinary shares
401,607,940
270,606,272
149,325,571
64,510,900
61,593,600
49,253,400
44,999,800
CSAH held aggregate 1,070,362,000 H shares of the Company
through it wholly-owned subsidiaries in Hong Kong, namely
Nan Lung and Yazhou Travel Investment Company Limited. The
Company is not aware of any other connected relationship between
other shareholders.
3. Strategic investors or general legal persons becoming one of the top ten shareholder of the Company as a
result of placing of new shares
Name of strategic investors or
general legal persons
American Airlines
Explanation of the holding period agreed by
strategic investors or general legal person
participating in placing of new shares
Date of becoming a shareholder Date of cease to be a shareholder
9 August 2020
10 August 2017
Pursuant to the Share Subscription Agreement entered into by the
Company and American Airlines, American Airlines cannot dispose the H
shares subscribed by it this time within 3 years after the completion of the
subscription without the approval in written by CSA under the specific
situation.
IV. THE CONTROLLING SHAREHOLDERS OR DE FACTO CONTROLLERS
1.
Information of the controlling shareholders
During the reporting period, there were no change in the controlling shareholders or de facto controllers of the Company.
Name
Responsible person or legal representative
Date of Establishment
Major business operation
Ownership of other domestic and overseas listed companies
controlled or invested during the reporting period
China Southern Air Holding Limited Company
Wang Chang Shun
9 April 1987
To operate all the state-owned assets and state-owned equities
being invested into the Group and its joint stock companies.
TravelSky Technology Limited (shareholding of 11.94%)
Reputation
Favorable
CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTSChanges in the Share Capital, Shareholders’ Profile and Disclosure of InterestsChina Southern Airlines Company LimitedANNUAL REPORT 2017
99
2.
Information of de facto controllers
The chart below indicates the ownership and controlling relationship between the Company and de facto controllers:
State-owned Assets Supervision and Administration Commission of the State Council
100%
China Southern Air Holding Limited Company
40.04%
100%
Nan Lung Holding Limited
100%
10.30%
TravelSky Technology
(Hong Kong) Limited
100%
Yazhou Travel Investment
Company Limited
0.31%
China Southern Airlines Company Limited
3. Other information of the controlling shareholders and de facto controllers
CSAH was established on 9 April 1987 and is a large-scale state-owned air transportation group with China Southern
Airlines (Group) Company as its main core entity, together with Xinjiang Airlines Company and China Northern Airlines
Company. CSAH is one of the three core air transportation groups directly managed by the SASAC which specializes in
relevant industries including air transportation and cargo logistics, aero engines maintenance, import-export trade, financing,
construction and development and media and advertising.
The strategic position of the CSAH is to develop into an internationally competitive aviation transportation group with
sustainable profitability. Insisting on maintaining its core values of “Customer First, Respecting Talents, Pursuit of
Excellence, Continuous Innovation and Favourable Return” while maintaining its vibrant vision and mission of becoming a
major world-class airlines, the number one choice for travellers and highly respected by its staff and employees, CSAH works
to continually enhance its service brand to be the very best in China, the first-rate across Asia and well-known in the world.
Approved by the SASAC in Reply to Matters related to restructuring of CSAH Co., Ltd. (GZGG[2017] No. 1082), CSAH
Corporation has been restructured and become a wholly state owned company from a company owned by the whole people,
and also renamed CSAH Co., Ltd. For details, please see Announcements on Rename of Southern Airlines due to Restructure
of Controlling Shareholders and Changes in Related Matters of Industrial and Commercial Registration released on the
website of Shanghai Stock Exchange on November 23, 2017.
CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTSCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 100
V. OTHER CORPORATE SHAREHOLDERS WITH MORE THAN 10%
SHAREHOLDING
Name of corporate
shareholders
Responsible person or
legal representative
Date of Establishment
Registered
capital
Unit: HKD
Major business
operation or
management
activities
Nan Lung
Wu Ying Xiang
(吳穎湘)
VI. DISCLOSURE OF INTERESTS
November 1992
1,674,497,700
Investment holding
As at 31 December 2017, 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
of the
Company
% of the
total issued
H Shares
of the
Company
% of the
total issued
share
capital
of the
Company
CSAH (note 1)
Beneficial owner
Interest of controlled
A Shares
H Shares
4,039,228,665 (L)
1,070,362,000 (L)
57.52%
/
/
34.92%
40.04%
10.61%
corporations
Sub-total
5,109,590,665 (L)
Nan Lung Holding Limited
(“Nan Lung”) (note 1)
Beneficial owner
Interest of controlled
H Shares
1,070,362,000 (L)
corporations
American Airlines Group Inc.
Interest in controlled
H Shares
270,606,272(L)
(note 2)
corporations
Notes:
/
/
/
/
50.65%
34.92%
10.61%
8.83%
2.68%
1. CSAH was deemed to be interested in an aggregate of 1,070,362,000 H Shares through its direct and indirect wholly-owned subsidiaries in
Hong Kong, of which 31,150,000 H Shares were directly held by Yazhou Travel Investment Company Limited (representing approximately
1.02% of its then total issued H Shares) and 1,039,212,000 H Shares were directly held by Nan Lung (representing approximately 33.90%
of its then total issued H Shares). As Yazhou Travel Investment Company Limited is also an indirect wholly-owned subsidiary of Nan Lung,
Nan Lung was also deemed to be interested in the 31,150,000 H Shares held by Yazhou Travel Investment Company Limited.
2. American Airlines Group Inc. was deemed to be interested in 270,606,272 H Shares due to 100% control over American Airlines.
Save as disclosed above, as at 31 December 2017, 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.
CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTSChanges in the Share Capital, Shareholders’ Profile and Disclosure of InterestsChina Southern Airlines Company LimitedANNUAL REPORT 2017
101
I. DIRECTORS, SUPERVISORS AND 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
Wang Chang Shun
Tan Wan Geng
Yuan Xin Annote 2
Yang Li Huanote 2
Zhang Zi Fang
Li Shao Binnotes 1,2
Ning Xiang Dongnote 2
Liu Chang Lenote 2
Tan Jin Song
Guo Weinote 2
Jiao Shu Ge
Zheng Fannote 4
Gu Hui Zhongnote 4
Pan Fu
Li Jia Shinote 1
Zhang Weinote 2
Yang Yi Huanotes 2,3
Wu De Mingnote 2
Mao Juan
Han Wen Sheng
Xiao Li Xin
Ren Ji Dongnote 1
Wang Zhi Xuenotes 1,3
Li Tong Binnote 1
Zhang Zheng Rong
Su Liangnote 3
Chen Wei Huanote 1
Guo Zhi Qiangnote 1
Xie Bingnote 1
Feng Hua Nannotes 1,3
Yang Ben Sennotes 1,3
Guo Jian Yenote 1
Chairman of the Board
Executive Director
Vice Chairman of the Board
Executive Director
President
Non-executive Director
Non-executive Director
Executive Director
Executive Vice President
Executive Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Independent Director
Chairman of the Supervisory
Committee
Supervisor
Supervisor
Supervisor
Supervisor
Supervisor
Executive Vice President
Chief Accountant
Chief Financial Officer
Executive Vice President
Executive Vice President
Executive Vice President
Chief Engineer
Executive Vice President
Chief Operation Officer
Chief Economist
Chief Legal Adviser
Chief Marketing Officer
Secretary to the Board
COO Flight Safety
Chief Pilot
Chief Customer Officer
Male
Male
Male
Female
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Female
Female
Male
Female
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
60
53
61
62
59
52
52
66
53
55
52
62
61
55
56
51
57
59
44
50
51
53
56
56
55
55
51
54
44
55
60
55
27 May 2016
27 May 2016
24 January 2013
15 June 2006
13 January 2009
30 November 2011
24 January 2013
30 June 2009
27 December 2007
24 January 2013
29 December 2010
30 November 2011
26 December 2013
30 June 2015
30 June 2015
20 December 2017
20 December 2017
29 December 2010
30 June 2009
25 June 2008
16 June 2004
26 December 2013
20 December 2017
22 November 2017
27 March 2015
27 March 2015
22 November 2017
7 May 2009
3 August 2012
30 April 2014
14 September 2015
4 January 2017
27 December 2007
16 June 2004
27 September 2012
26 November 2007
15 August 2014
4 January 2017
4 January 2017
To date
To date
20 December 2017
20 December 2017
To date
20 December 2017
20 December 2017
20 December 2017
To date
20 December 2017
To date
To date
To date
To date
To date
20 December 2017
20 December 2017
20 December 2017
To date
To date
To date
To date
To date
To date
To date
To date
To date
To date
To date
To date
To date
To date
The total
remuneration
before tax
received from
the Company
during the
reporting
period
(RMB0’000)
Had received
remuneration
from related
party of the
Company
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)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
93.53
15
15
15
15
15
0
0
0
102.72
0
0
54.62
44.37
0
0
102.62
175.91
108.70
0
37.07
93.54
93.68
93.12
172.4
155.19
71.79
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No
Yes
No
Yes
No
No
No
Yes
Yes
No
No
No
Yes
No
No
No
No
No
No
No
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
102
Notes:
1. According to proposals relating to performance appraisals, partial remuneration of some Directors, Supervisors and senior management
shall be delayed as subject to evaluation result, total remuneration set out above includes such delay remuneration obtained during the
reporting period;
2. The 7th session of the Board and Supervisory Committee of the Company have expired on 20 December 2017, and work regarding to
it has finished. Mr. Yuan Xin An, Ms. Yang Li Hua, Mr. Li Shao Bin, Mr. Ning Xiang Dong, Mr. Liu Chang Le and Mr. Guo Wei
ceased to serve as the Directors of our Company, and Ms. Zhang Wei, Ms. Yang Yi Hua and Mr. Wu De Ming ceased to serve as the
Supervisors of our Company. For details, please refer to the circular of the Company published on 23 November 2017;
3. Ms. Yang Yi Hua, a Supervisor of the Company, has been retired in September 2015, therefore she didn’t receive any remuneration
from the Company during the reporting period. Mr. Wang Zhi Xue, an Executive Vice President, Mr. Feng Hua Nan, the COO Flight
Safety, Mr. Yang Ben Sen, a Chief Pilot also served as pilots, and their remunerations were inclusive of crew allowance; Mr. Su Liang,
the Chief Economist, returned to office of the Company from Skyteam, therefore he received remuneration from our Company since
April 2017;
4. Mr. Zheng Fan and Mr. Gu Hui Zhong have been elected as independent directors of the Company at the second extraordinary general
meeting of 2017 convened on 20 December 2017, therefore they didn’t receive any remuneration from the Company during the
reporting period.
As at 31 December 2017, 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 of the Listing Rules.
(II) Other positions held in other Companies by Directors, Supervisors and Senior Management
1. Positions held in shareholder entities
Name
Name of entities
Position
Appointment date Expiry date
Wang Chang
China Southern Air Holding
Chairman, Party Secretary
6 December 2016
To date
Shun
Limited Company
Tan Wan Geng China Southern Air Holding
President, Director, Deputy Party
6 December 2016
To date
Limited Company
Secretary
Zhang Zi Fang China Southern Air Holding
Deputy Party Secretary, Executive
26 August 2016
To date
Limited Company
Vice President
Pan Fu
China Southern Air Holding
Limited Company
Party Leadership Group Member,
Team Leader of the Discipline
Inspection Commission
29 October 2010
To date
Han Wen Sheng China Southern Air Holding
Party Leadership Group Member,
11 October 2016
To date
Limited Company
Executive Vice President
Xiao Li Xin
China Southern Air Holding
Party Leadership Group Member,
11 October 2016
To date
Limited Company
Li Jia Shi
China Southern Air Holding
Limited Company
Chief Accountant
Labour Union chairman
27 November 2017 To date
Zhang Zheng
China Southern Air Holding
President Assistant
9 November 2017 To date
Rong
Mao Juan
Limited Company
China Southern Air Holding
General Manager of the Audit
25 November 2017 To date
Limited Company
Department
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017
103
2. Positions held in other entities
Name of position
holder
Name of other entities
Zhang Zi Fang China Southern Airlines Henan Airlines Company Limited
Tan Jin Song
Tan Jin Song
Tan Jin Song
Tan Jin Song
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Guangzhou Hengyun Enterprises Holdings Limited
Poly Real Estate Company Limited
Shanghai RAAS Blood Products Co., Ltd.
Zhuhai Huafa Industrial Company Limited
CDH China Management Company Limited
Fujian Nanping Nanfu Battery Company Limited
Hainan Clear water Bay Tourism Company Limited
Hainan Aloha Hotels Company Limited
Shanghai Qing Chen Real Estate Development Company Limited
Shanghai Maitai Jun’Ao Biological Technology Co., Ltd
(formerly as Shanghai Bai An Yi Xing Investment Company Limited)
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Shanghai Hightech Pharmaceutical Company Limited
Shanghai Zhangjiang Biotechnology Company Limited
Shanghai Mai Tai Ya Bo Biotechnology Company Limited
Shanghai Biomabs Pharmaceuticals Co., Ltd.
Taizhou Mabtech Pharmaceutical Co., Ltd.
Taizhou Mabtech Biological Technology Co., Ltd
Henan Shuanghui Investment & Development Company Limited
Inner Mongolia Hetao Spirit Group Company Limited
CDH Equity Investment Management (Tianjin) Company Limited
Beijing Taiyang Pharmaceutical Industry Company Limited
Henan Luohe Shineway Industry Group Company Limited
WH Group Limited
United Global Food (US) Holdings, Inc
Smithfield Foods,Inc
Rotary Vortex Ltd
Joyoung Company Limited
Chery Automobile Company Limited
Mabtech Limited
Mabtech Holdings Limited
GeneMab Limited
China Mengniu Dairy Company Limited
Tianjin Guan Jing Investment Advisory Company Limited
Plymouth Hainan Pharmaceutical Company Limited
Shanghai Haimozexin Pharmaceutical Technology Development
Company Limited
Shanghai Haimo Biotechnology Company Limited
Beijing Dongfanglue Biomedical Technology Co., Ltd.
Tianjin Wei Yuan Investment Management Company Limited
Ningbo Economic and Technological Development Zone Wei Jun
Investment Advisory Company Limited
Jiao Shu Ge
Ningbo Economic and Technological Development Zone Xu Bo
Jiao Shu Ge
Investment Advisory Company Limited
Ningbo Yafeng Electric Products Co., Ltd.
Jiao Shu Ge
Ningbo Akin Electronic Technology Co., Ltd.,
(Formerly as Fujian Nanping Dafeng Electric Products Co., Ltd.)
Position(s) held
in other entities
Chairman
Independent Director
Independent Director
Independent Director
Independent Director
Director and President
Chairman
Chairman
Chairman
Chairman
Chairman
Chairman
Chairman
Chairman
Chairman
Chairman
Chairman
Vice Chairman
Vice Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Independent Director
Chairman
Director
Director
Director
Director
Executive Director
Executive Director,
General Manager
Executive Director,
General Manager
Executive Director,
General Manager
Chairman, General
Manager
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
104
Name of position
holder
Name of other entities
Jiao Shu Ge
Jiao Shu Ge
Mao Juan
Beijing Yuanbo Hengrui Investment Consultation Co., Ltd
Shenzhen DH Venture Capital Investment Management Co., Ltd
Guangzhou Nanland Air Catering Company Limited
Position(s) held
in other entities
Director, Manager
Director
Chairman of Supervisory
Committee
Mao Juan
Nan Lung Freight Company Limited (南龍貨運有限公司)
Chairman of Supervisory
Committee
Guangzhou Air Cargo Terminals Company Limited
Shantou Airlines Company Limited
Guizhou Airlines Company Limited
Xiamen Airlines Company Limited
China Southern Airlines Overseas (Hong Kong) Company Limited
Southern Airlines Group Finance Company Limited
Xiamen Airlines Company Limited
Chongqing Airlines Company Limited
Guizhou Airlines Company Limited
Zhuhai Airlines Company Limited
China Southern Airlines Henan Airlines Company Limited
Guangzhou Baiyun International Logistic Company Limited
Supervisor
Mao Juan
Supervisor
Mao Juan
Supervisor
Mao Juan
Supervisor
Mao Juan
Supervisor
Mao Juan
Supervisor
Mao Juan
Supervisor
Mao Juan
Vice Chairman
Han Wen Sheng Sichuan Airlines Corporation Limited
Vice Director General
Han Wen Sheng China Air Transport Association
Director
Xiao Li Xin
Chairman
Xiao Li Xin
Chairman
Xiao Li Xin
Director
Xiao Li Xin
Director
Xiao Li Xin
Chairman
Wang Zhi Xue Zhuhai Airlines Company Limited
Chairman
Li Tong Bin
Chairman
Li Tong Bin
Chairman
Li Tong Bin
Director
Su Liang
Chairman
Su Liang
Chairman
Su Liang
Director
Chen Wei Hua Xiamen Airlines Company Limited
Chairman
Guo Zhi Qiang China Southern Jia Yuan (Guangzhou) Air Products Co., Ltd.
Guo Zhi Qiang Guangzhou Nanland Air Catering Company Limited
Chairman
Guo Zhi Qiang Guangzhou China Southern PRC Zhongmian Dutyfree Store Co., Limited Chairman
Chairman
Guo Zhi Qiang China Southern Airlines General Aviation Limited
Chairman
Guo Zhi Qiang Shenzhen Air Catering Company Limited
Chairman
Xie Bing
Shenyang Northern Aircraft Maintenance Engineering Co., Ltd.
Southern Airlines Group Import and Export Trading Company Limited
Guangzhou Aircraft Maintenance Engineering Co., Ltd
Sichuan Airlines Corporation Limited
Southern Airlines Culture and Media Company Limited
China Southern West Australian Flying College Pty Ltd.
China Southern Airlines Group Capital Holding Limited
(中國南航集團資本控股有限公司)
Xie Bing
Feng Hua Nan
CSA International Finance Leasing Co., Ltd.
Zhuhai Xiang Yi Aviation Technology Company Limited
Chairman
Chairman
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017
105
(III) 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
Wang Chang Shun
Yuan Xin An
Yang Li Hua
Li Shao Bin
Ning Xiang Dong
Liu Chang Le
Guo Wei
Zheng Fan
Gu Hui Zhong
Zhang Wei
Yang Yi Hua
Wu De Ming
Mao Juan
Han Wen Sheng
Xiao Li Xin
Wang Zhi Xue
Zhang Zheng Rong
Yang Ben Sen
Guo Jian Ye
Executive Director
Non-executive Director
Non-executive Director
Executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Supervisor
Supervisor
Supervisor
Supervisor
Deputy General Manager
Deputy General Manager
Chief Pilot
COO
Chief Pilot
Chief Customer Officer
Elected
Resigned
Resigned
Resigned
Resigned
Resigned
Resigned
Elected
Elected
Resigned
Resigned
Resigned
Elected
Appointed
Appointed
Resigned
Appointed
Appointed
Appointed
Elected by the general meeting
Retired
Retired
Job Changes
Expired
Expired
Job Changes
Elected by the general meeting
Elected by the general meeting
Work Changes
Retired
Work Changes
Elected at the staff representative meeting
Appointed by the Board
Appointed by the Board
Work Changes
Appointed by the Board
Appointed by the Board
Appointed by the Board
(IV) Changes of Information of Directors and Supervisors under Rule 13.51B(1) of the Stock Exchange
Listing Rules
Below are the information relating to the changes of Directors and Supervisors required to be disclosed pursuant to Rule
13.51B(1) of the Stock Exchange Listing Rules since the date of 2017 interim report:
1. Mr. Wang Chang Shun served as executive Director of the Company and chairman of CSAH;
2. Mr. Tan Wan Geng served as executive Director of the Company, vice president and general management of CSAH;
3. Mr. Zhang Zi Fang served as executive Director of the Company, Executive Vice President of CSAH, resigned as
Vice Director General of China Air Transport Association and Vice Director General of Guangdong Lingnan Culture
Development Foundation;
4. Mr. Yuan Xin An resigned as non-executive Director of the Company;
5. Ms. Yang Li Hua resigned as non-executive Director of the Company and Chairman of China Southern Airlines Group
Ground Services Company Limited;
6. Mr. Li Shao Bin resigned as executive Director of the Company;
7. Mr. Ning Xiang Dong resigned as independent non-executive Director of the Company;
8. Mr. Liu Chang Le resigned as independent non-executive Director of the Company;
9. Mr. Guo Wei resigned as independent non-executive Director of the Company;
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
106
10. Mr. Zheng Fan served as independent non-executive Director of the Company;
11. Mr. Gu hui Zhong served as independent non-executive Director of the Company;
12. Mr. Tan Jin Song served as independent non-executive Director of the Company and resigned as independent non-
executive Director of Welling Holding Limited;
13. Mr. Jiao Shu Ge served as independent non-executive Director of the Company;
14. Mr. Pan Fu served as Supervisor of the Company and chairman of supervisory committee of CSAH;
15. Mr. Li Jia Shi served as Supervisor of the Company;
16. Ms. Zhang Wei resigned as Supervisor of the Company;
17. Ms. Yang Yi Hua resigned as Supervisor of the Company;
18. Mr. Wu De Ming resigned as Supervisor of the Company;and
19. Ms. Mao Juan served as Supervisor of the Company;
Save as disclosed above, there is no other information required to be disclosed pursuant to Rule 13.51B(1) of the Stock
Exchange Listing Rules.
(V) 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 shareholders’ meeting. Remuneration of Senior Management are adjusted and paid
pursuant to Administrative Measures on Remuneration of Senior Management after approval of the Board.
During the reporting period, the total remuneration before tax received from the Company by Directors, supervisors and
senior management amounted to RMB14,742,600 (2016: RMB10,564,000)
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.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017 107
Details of the remuneration of the Directors, Supervisors and senior management of the Group are set out in note 50 and 58
to the financial statements prepared under IFRSs.
Details of other employees’ pension scheme and housing benefits are set out in note 45 and 51 the financial statements
prepared under IFRSs.
Remuneration Band
HK$
0-500,000
500,001-1,000,000
1,000,001-1,500,000
1,500,001-2,000,000
2,000,001-2,500,000
Total
Senior Management
2017
2016
1
1
5
2
1
10
1
5
1
2
0
9
6. 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 2017, none of the Directors or Supervisors has any material interests in any significant
contract to which the Company or its subsidiaries was a party.
7. Profiles of Current Directors, Supervisors and Senior Management
Directors
Wang Chang Shun, male, aged 60, Ph.D. degree, graduated from University of Science and Technology of China majoring
in management science and engineering and is a member of Communist Party of China (“CPC”). He began his career in
February 1976. 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 General Manager and Deputy Party Secretary of the Company. In
April 2001, he also acted as the Vice Chairman 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. In October 2011, he was appointed as General
Manager and Deputy Party Secretary of CSAH and in January 2012, he also was appointed as the Chairman of Air China
International Corporation. He was appointed as Vice Minister and Party Leadership Group Member of Ministry of Transport
and Secretary of Communist Party Committee of the direct department in January 2014, General Manager and Deputy Party
Secretary of CSAH from February 2016 to May 2016, General Manager and Deputy Party Secretary of CSAH and Chairman
of the Company from May 2016 to December 2016. From December 2016 to November 2017, 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 and 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, standing committee member of the 13th National
Committee of the Chinese People’s Political Consultative Conference and a member of the 12th CPC Guangdong Provincial
Committee.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
108
Tan Wan Geng, male, aged 53, graduated from Sun Yat-sen University, majoring in regional geography, with qualification
of a Master’s degree. He is an economist and a member of CPC. Mr. Tan began his career in August 1990 and served as
the head of the Infrastructure Department and Director of Human Resources and Administration Department of the Beijing
Aircraft Maintenance and Engineering Corporation from 1992 to 1996. He served as the Deputy Director General of Human
Resources Division of the CAAC from May 1996 to September 1998. Mr. Tan served as the Deputy Director General of
Personnel and Education Division of the CAAC from September 1998 to December 2000. He had been the Director General
and Party Secretary of the CAAC Northeast Regional Administration from December 2000 to January 2006, and became
the Party Secretary and Executive Vice President of the Company from January 2006 to February 2007. He has been the
Director of the Company since June 2006. He had been the Party Member of CSAH and the Party Secretary and Executive
Vice President and Director of the Company from February 2007 to January 2009. He had been the Party Member of CSAH
and the President, the Party Secretary and the Director of the Company from January 2009 to February 2009. He had been
the Party Member of CSAH and the President, the Deputy Party Secretary and the Director of the Company from February
2009 to May 2011. He had been the Party Secretary of CSAH and General Manager, the Deputy Party Secretary and the
Director of the Company from May 2011 to January 2013. He was the Party Secretary of CSAH and General Manager, the
Deputy Party Secretary and the Vice Chairman of the Board from January 2013 to December 2016. Since December 2016
to date, Mr. Tan has been the President, Director and Deputy Party Secretary of CSAH and General Manager, the Deputy
Party Secretary and the Vice Chairman of the Board. Mr. Tan has been a member of the 11th CPC Guangdong Provincial
Committee.
Zhang Zi Fang, male, aged 59, graduated with a college degree from foundation science profession for Party administrative
cadres of Liaoning University. While Mr. Zhang was at work, he obtained an Executive Master of Business Administration
(EMBA) degree from Tsinghua University and is a senior expert of political science. Mr. Zhang is a CPC member and began
his career in February 1976. He served as Deputy Commissioner of the China Northern Airlines Company as well as the
Deputy Commissioner of the Office, Deputy Commissioner of Shenyang Flight Team from 1993 to 2000. He served as the
Party Secretary of the Jilin Branch of China Northern Airlines Company and the General Manager of Dalian Branch from
2000 to 2003. He had been the Director of Political Works Department of CSAH from October 2003 to February 2005.
Subsequently, Mr. Zhang was appointed as the Deputy Party Secretary and Secretary of the Commission for Discipline of
the Company from February 2005 to December 2007. He had been Executive Vice President and the Deputy Party Secretary
of the Company from December 2007 to February 2009. He was the Party Secretary and Executive Vice President of the
Company from February 2009 to August 2011. Mr. Zhang has been the Director of the Company since June 2009. He had
been the Party member of CSAH and the Party Secretary, Executive Vice President and the Director of the Company from
August 2011 to April 2016. He had acted as the Party Member of the CSAH and the Director, Party Secretary, Executive
Vice President of the Company as well as the Director and Chairman of China Southern Henan Airlines Company Limited
from April 2016 to August 2016. Mr. Zhang has been Deputy Party Secretary, Executive Vice President of CSAH and
Director, Party Secretary, Executive Vice President of the Company as well as the Director and Chairman of China Southern
Henan Airlines Company Limited since August 2016. Since November 2017, he has been Deputy Party Secretary and
Executive Vice President of CSAH, Director, Deputy Party Secretary and Executive Vice President of China Southern
Airlines Company Limited, Chairman of China Southern Airlines Henan Airlines Company Limited. He has been a member
of Standing Committee of 12th Guangdong Provincial Committee of the Chinese People’s Political Consultative Conference
since January 2018 to date.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017 109
Zheng Fan, male, aged 62, 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, chief supervisor
since December 2014 and Professional External Director for Central State-owned Enterprises since February 2016. 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
Macao 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 independent non-executive Director of the company
since 20 December 2017.
Gu Hui Zhong, male, aged 61, graduated with a master degree from Beihang University majoring in International Finance
and is a senior accountant with 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 supervisors of the Bank of Communications, is a chairman of the Expert Committee of
government authorities in the PRC and vice chairman of the Accounting Society of China. Since 20 December 2017, Mr. Gu
has been independent non-executive Director of the Company.
Tan Jin Song, male, aged 53, 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 member of China Audit Society.
Currently, Mr. Tan also serves as the independent Director of Poly Real Estate Company Limited, Guangzhou Hengyun
Enterprises Holdings Limited, Shanghai RAAS Blood Products Co., Ltd. and Zhuhai Huafa Industrial Company Limited. Mr.
Tan has been the independent non-executive Director of the Company since 26 December 2013.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 110
Jiao Shu Ge, male, aged 52, 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 management. 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. Currently, he is also the Director of the
associated companies of CDH Investments, the independent non-executive Director of China Mengniu Dairy Company
Limited, the non-executive Director and Vice Chairman of WH Group Limited, the Director of Joyoung Co., Ltd., the Vice
President of Henan Shuanghui Investment & Development Co.,Ltd. and the Director of a number of companies including
Beijing Taiyang Pharmaceutical Industry Company Limited, Chery Automobile Co., Ltd., Inner Mongolia Hetao Spirit Group
Co., Ltd., Fujian Nanping Nanfu Battery Co.,Ltd. and Shanghai Qingchen Real Estate Development Co., Ltd. Mr Jiao has
been the independent non-executive Director of the Company since 30 June 2015.
Supervisor
Pan Fu, male, aged 55, graduated with a master degree from Chongqing University majoring in Power Systems and
Automation, and is a senior engineer. Mr. Pan is a CPC member and began his career in July 1986, and served successively
as the Deputy Head of the Planning Department of Electric Power Industry Bureau of Yunnan Province, the Deputy Director
of the Planning & Development Department of Yunnan Electric Power Group Co., Ltd., the Deputy Director and Director
of Kunming Power Plant, the Deputy Chief Engineer and chief engineer of Yunnan Electric Power Corporation from 1994
to 2003. He served as the deputy Director (work as chair) and Director of the Department of Security Supervision of China
Southern Power Grid Company Ltd. from February 2003 to April 2004, he served as the Director of the China Southern
Power Grid Technology and Research Center from April 2004 to January 2005, and served as the General Manager (legal
representative) and Deputy Party Secretary of the Guizhou Power Grid Corporation from January 2005 to November 2007.
Mr. Pan served as the Director of the Planning Development Department of China Southern Power Grid Company Ltd.
from November 2007 to November 2010. Mr. Pan has been the party member and team leader of the Discipline Inspection
Commission of CSAH since November 2010 and the supervisor and chairman of the Supervisory Committee of the Company
since December 2010.
Li Jia Shi, male, aged 56, graduated from Guangdong Polytechnic Normal University majoring in Economics and
Mathematics, and obtained an Economic Administration bachelor degree from Correspondence School under the Party
School of the CPC Central Committee and an Executive Master of Business Administration (EMBA) degree from Tsinghua
University and is an expert of political science. Mr. Li is a CPC member and began his career in August 1976. He served
as the Deputy Head of the Organization Division of the Party Committee of the China Southern Airlines (Group) Company,
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 from 1994 to 1999. Mr. Li
served as the head of the Organization Division of the Party Committee of CSAH from December 1999 to December 2003;
and served as the Deputy Secretary of the Disciplinary Committee and the Director of the Disciplinary Committee Office
of the Company from December 2003 to December 2007. Mr. Li served as a member of the Standing Committee of the
CPC, the Secretary of the Disciplinary Committee and the Director of the Disciplinary Committee Office of the Company
from December 2007 to February 2012. 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 the Standing Committee of the
CPC, Secretary of the Disciplinary Committee of the Company from February 2012 to November 2017. He has acted as the
Chairman of the Labour Union of CSAH and the Standing Member of Party Committee and Chairman of the Labour Union
of China Southern Airlines Company Limited since November 2017.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017 111
Mao Juan, female, aged 44, with a bachelor’s degree, graduated from Operation and Management Department in Civil
Aviation College of China majoring in civil aviation program and finance, and obtained an on-job bachelor degree in Auditing
from the School of Adult Education, Harbin University of Science and Technology. Ms. Mao is a CPC member and began
her career in July 1993. She served as Deputy General Manager of Hainan Branch Comprehensive Trading Company of the
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 to May 2016, she acted as Deputy General Manager of
Audit Department in the Company. She has served various positions in the Company, such as general manager of Audit
Department, from June 2016 to May 2017. She has been the deputy general manager of Audit Department in the Company
from May 2017 to November 2017. She has served as the General Manager of the Company’s Audit Department since
December 2017. She currently serve as the general manager of audit department of CSAH, the Chairman of the Supervisory
Committee of Guangzhou Nanland Air Catering Company Limited and Nan Lung Freight Company Limited, as well as the
supervisor of Southern Airlines Group Finance Company Limited, Xiamen Airlines Company Limited, Chongqing Airlines
Company Limited, Guizhou Airlines Company Limited, Zhuhai Airlines Company Limited, China Southern Airlines Henan
Airlines Company Limited, and Guangzhou Baiyun International Logistic Company Limited, etc.
Senior Management
Han Wen Sheng, male, aged 50, graduated from Management Department of Tianjin University, majoring in engineering
management, with qualification of a Master’s degree. He is a member of CPC and began his career in August 1987.From
September 1999 to June 2001, he acted as Deputy Director General of Cadre Training Center of the Company. He served
as Director of The Research Bureau of the Company from June 2001 to January 2002. From January 2002 to November
2005, he acted as general manager of Labour Department and Secretary of CPC General Committee of the Company. From
November 2005 to June 2007, he served as a member of Party Committee and the Deputy Director of the Commercial
Steering Committee and general manager as well as Deputy Party Secretary of the sales and marketing department of the
Company. From June 2007 to December 2009, he served as general manager of Shanghai base and Deputy Party Secretary
of the Company. He acted as Deputy Party Secretary and Deputy Director of the Marketing Management Committee of the
Company from December 2009 to October 2011. From October 2011 to October 2016, he was Party Secretary and Deputy
Director of the Marketing Management Committee of the Company. From October 2016 to November 2017, he has been
the Party member and Deputy General Manager of China Southern Air Holding Limited Company. He served as the Party
member and Deputy General Manager of China Southern Air Holding Limited Company and Deputy General Manager of the
Company since November 2017. For now, he also acts as Vice Chairman of Sichuan Airlines Corporation Limited and Vice
Director General of China Air Transport Association.
Xiao Li Xin, male, aged 51, graduated from Guangdong Academy of Social Sciences with a master degree in Economics
and then obtained an on-job Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is a
qualified senior accountant and a certified public accountant. Mr. Xiao is a CPC member and began his career in July 1991.
From June 1999 to March 2001, he acted as the General Manager Assistant of the Finance Department of the China Southern
Airlines (Group) Company and served as the Deputy General Manager of the Finance Department of the Company from
March 2001 to January 2002. He served as the General Manager and Deputy Secretary of the General Party Branch of the
Finance Department of the Company from January 2002 to February 2007. Mr. Xiao served as the deputy chief accountant
and general manager of the Finance Department of the Company from February 2007 to October 2007, and served as the
General Manager and Secretary of the General Party Branch of Southern Airlines Group Finance Company Limited from
October 2007 to February 2008. He served as the General Manager and Party Secretary of Southern Airlines Group Finance
Company Limited from February 2008 to April 2015. Mr. Xiao has been the Chief Accountant and Chief Financial Officer
of the Company since April 2015 to October 2016. From October 2016 to November 2017, he has served as Party member
and Chief Accountant of CSAH and Chief Accountant and Chief Financial Officer of the Company. From December 2017
till now, he has served as Party member and Chief Accountant of CSAH and Executive Vice President, Chief Accountant
and Chief Financial Officer of the Company. For now, he also serves as chairman of Guizhou Airlines Company Limited,
Chairman of Shantou Airlines Company Limited, Chairman of Xiamen Airlines as well as Director of China Southern
Airlines Overseas (Hong Kong) Co. Ltd.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 112
Ren Ji Dong, male, aged 53, graduated from Nanjing University of Aeronautics and Astronautics, 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 is a CPC member and began his career in August 1986. Mr. Ren served as the No. 2 Workshop
Manager, Deputy Plant Manager and Deputy General Manager of Engineering Department of the aircraft maintenance factory
of Urumqi Civil Aviation Administration (Xinjiang Airlines) from 1995 to 2000. 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) from January 2000 to December 2001, and a member of the party committee and the Deputy General Manager
of Xinjiang Airlines from December 2001 to June 2004, and the Party Secretary and Deputy General Manager of CSAH
Xinjiang Company from June 2004 to December 2004, the Party Secretary and Deputy General Manager of Xinjiang Branch
of the Company from January 2005 to February 2015, a member of the Standing Committee of the CPC and the Executive
Vice President of the Company from March 2005 to February 2007; 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 to April 2009.
Mr. Ren has been a member of the Standing Committee of the CPC of the Company and the Executive Vice President of the
Company since May 2009.
Wang Zhi Xue, male, aged 56, has a college degree from Civil Aviation Flight University of China majoring in Aircraft
Piloting, and obtained an on-job university degree from Civil Aviation Flight University of China majoring in Wingmanship,
and is a command pilot. Mr. Wang is a CPC member, and began his career in February 1981. Mr. Wang successively served
as the Deputy General Manager and Manager of the Flight Safety Technology Division of Zhuhai Airlines Company Limited,
the Senior Flight Instructor of Model B737, Deputy Chief Pilot and Director of the Flight Safety Technology Division as
well as the Deputy Chief Pilot and Manager of the Flight Safety Technology Management Division from 1995 to 2002 of
Shantou Airlines Company Limited of CSAH. He also acted as the Deputy General Manager of Shantou Airlines Company
Limited from June 2002 to October 2004, and the General Manager of the Flight Management Division of the Company from
October 2004 to February 2009, and the General Manager and Deputy Party Secretary of Guangzhou Flight Division of the
Company from February 2009 to July 2012. Mr. Wang has been a member of the Standing Committee of the CPC, Executive
Vice President and chief pilot of the Company from August 2012 to December 2016. He has been a member of the Standing
Committee of the CPC and Executive Vice President of the Company from December 2016 until now. For now, he also
serves as Chairman of Zhuhai Airlines Company Limited.
Li Tong Bin, male, aged 56, has college qualification and graduated from Civil Aviation Institute of China majoring in
Maintenance of Aircraft Electrical Equipment. He obtained on-job Master of Business Administration (MBA) from Hainan
University and Executive Master of Business Administration (EMBA) form Tsinghua University, and is a senior engineer. Mr.
Li is a CPC member and began his career in August 1983, and successively served as the Deputy Head of Technical Division
of Aircraft Maintenance Plant, the head of Maintenance Plant and the deputy Director of Aircraft Engineering Department
(aircraft maintenance base), the Director of Aircraft Engineering Department (aircraft maintenance base) of China Northern
Airlines Company, the General Manager of Jilin branch of China Northern Airlines Company from 1994 to 2003. He also
acted as the Deputy General Manager and Deputy Party Secretary of Zhuhai Airlines Company Limited from September
2004 to January 2005, the General Manager and Deputy Party Secretary of Zhuhai Airlines Company Limited from January
2005 to April 2012, and the party secretary and Deputy General Manager of Northern Branch of the Company from April
2012 to April 2014. Mr. Li was the Chief Engineer, General Manager and Deputy Party Secretary of Aircraft Engineering
Department of the Company from April 2014 to August 2015. Mr. Li has been a member of the Standing Committee of
the CPC, Executive Vice President and Chief Manager, as well as General Manager and Deputy Party Secretary of Aircraft
Engineering Department of the Company since September 2015 to December 2016. From December 2016 till now, he has
been a member of the Standing Committee of the CPC, Executive Vice President and Chief Manager. For now, Mr. Li
also serves as Chairman of Shenyang Northern Aircraft Maintenance Co., Ltd., Southern Airlines Group Import and Export
Trading Company and Guangzhou Aircraft Maintenance Engineering Co., Ltd.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017 113
Zhang Zheng Rong, male, aged 55, has a college degree from Civil Aviation Flight University of China majoring in Aircraft
Piloting, and obtained an on-job Executive Master of Business Administration (EMBA) degree from Tsinghua University.
He is a CPC member and began his career in February 1982. He served as Vice Captain of the Fifth Sub- Flight Corps under
Sixth Flight Corps of Civil Aviation Administration, Sub-Captain, Vice Captain and Captain of China Southern Airlines
Flight Corps, Vice President of Flight Corps of the Company, 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 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. Since April 2012, he served as the Chief Pilot and Director of Aviation Security Department
of CSAH and in July 2012, he served as the chief pilot and Aviation Security Minister of China Southern Airlines (Group)
Company. Since April 2014, he has acted as Chief Pilot, Chief Safety Officer and Director of Aviation Security Department
of CSAH. He has served as COO of the Company since January 2017. Since November 2017, he has been the General
Manager Assistant of CSAH and COO of the Company.
Su Liang, male, aged 55, graduated from the University of Cranfield, United Kingdom with a master degree majoring in Air
Transport Management, and is an engineer. Mr. Su is a CPC member and began his career in December 1981. From 1998 to
2000, 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 to December 2003, the Secretary to the Board and Director of Board Secretariat of the Company from December
2003 to November 2005, the Secretary to the Board and Vice Director of Commercial Steering Committee of the Company
from November 2005 to February 2006, the Company Secretary and Director of Company Secretary Office and Vice Director
of Commercial Steering Committee of the Company from February 2006 to January 2007, and the Secretary to the Board
and Director of Company Secretary Office from January 2007 to November 2007. 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 chairman of China Southern West Australian Flying College Pty Ltd..
Chen Wei Hua, male, aged 51, graduated from the School of Law of Peking University with a bachelor degree, who is
an economist, a qualified lawyer in the PRC and a qualified corporate legal counselor. Mr. Chen is a CPC member and
joined the aviation industry in July 1988. He successively served as Deputy Director of China Southern Airlines (Group)
Corporation, Deputy Director of the Office (Director of the Legal Department) of the Company and China Southern Airlines
(Group) Corporation from 1997 to 2004. Mr. Chen was the Chief Legal Adviser of the Company and Director of the Legal
Department of the Company from June 2004 to October 2008. Mr. Chen has been the General Counsel and General Manager
of the Legal Department 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.
Guo Zhi Qiang, male, aged 54, is an economist who graduated with a master degree from Party School of Xinjiang Uyghur
Autonomous Region majoring in Business Administration. Mr. Guo is a CPC member and began his career in January
1981. He successively served as the Xi’an Office manager, Beijing Office manager and General Manager of Transportation
Department of Xinjiang Airlines; the Deputy General Manager of Xinjiang Airlines; the Beijing Office Director of CSAH,
the General Manager and the Party Secretary of China Southern Airlines Beijing Office from 1995 to 2004. He served as a
member of the Standing Committee of the CPC and the Deputy General Manager of CSAH Xinjiang Branch from June 2004
to December 2004, a member of the Standing Committee of the CPC and the Deputy General Manager of China Southern
Airlines Xinjiang Branch from January 2005 to December 2005. Mr. Guo served as a member of Party Committee and the
Deputy General Manager of the Shenzhen Branch of the Company from December 2005 to February 2008 and the President
and Chief Executive Officer as well as Deputy Party Secretary of Chongqing Airlines Company Limited from February 2008
to May 2009. He served as a member of Party Committee and the Deputy Director of the Commercial Steering Committee
of the Company from May 2009 to September 2009, the Director and Deputy Party Secretary of the Commercial Steering
Committee of the Company from September 2009 to September 2012. Mr. Guo acted as the COO Marketing and Sales of
the Company, the Director and the Deputy Party Secretary of the Commercial Steering Committee of the Company from
September 2012 to July 2014. Mr. Guo has been the COO Marketing and Sales of the Company since July 2014. For now, he
also serves as Chairman of China Southern Jia Yuan (Guangzhou) Air Products Co., Ltd., Guangzhou Nanland Air Catering
Co., Ltd., Guangzhou China Southern PRC Zhongmian Dutyfree Store Co., Limited., China Southern Airlines General
Aviation Limited and Shenzhen Air Catering Company Limited.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 114
Xie Bing, male, aged 44, with a university degree, graduated from Nanjing University of Aeronautics and Astronautics,
majoring in Civil Aviation Management. He subsequently received a master degree of business administration, a master
degree of business administration (international banking and finance) and an Executive Master of Business Administration
(EMBA) degree from Jinan University, the University of Birmingham, Britain and Tsinghua University, respectively. Mr.
Xie is a Senior Economist, fellow member 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 is a CPC member and began his career in July 1995. He successively served as
the Assistant of Company Secretary of the Company, and the Executive Secretary of the General Office of CSAH from 2003
to 2007. Mr. Xie has been the Company Secretary and Deputy Director of the Company Secretary Office from November
2007 to December 2009. Mr. Xie has been the Company Secretary and Director of the Company Secretary Office from
December 2009 to May 2017. Form May 2017 till now, he has been the Company Secretary and Director of the Company
Secretary Bureau of the company. For now, he also acts as Chairman of China Southern Airlines Group Capital Holding
Limited (中國南航集團資本控股有限公司) and CSA International Finance Leasing Co., Ltd..
Feng Hua Nan, male, aged 55, graduated with a college degree from China Civil Aviation Flying College, majoring in
Aircraft Piloting, and obtained an on-job master degree in Aeronautical Engineering from Beijing University of Aeronautics
and Astronautics and an Executive Master of Business Administration (EMBA) from the School of Economics and
Management of Tsinghua University. He is a commanding pilot. Mr. Feng is a CPC member and began his career in January
1983. He successively served as the Director of Zhuhai Flight Training Centre of China Southern Airlines (Group) Company
and the Deputy General Manager of Flight Operation Division of the Company from 1994 to 1999. He was the General
Manager of Flight Safety Technology Department from December 1999 to October 2002, and the General Manager of Flight
Technology Management Department of the Company from November 2002 to September 2004. Mr. Feng also served as the
Party Secretary and Deputy General Manager of Guizhou Airlines Company Limited from September 2004 to February 2006,
and then served as the General Manager and Deputy Party Secretary of Guizhou Airlines Company Limited from February
2006 to July 2014. He has been the COO Flight Safety of the Company since August 2014. For now, he also serves as
President of Zhuhai Xiang Yi Aviation Technology Co., Ltd..
Yang Ben Sen, male, aged 60, has a college degree from Civil Aviation Flight University of China majoring in Aircraft
Piloting. He is a CPC member and began his career in December 1978. He was appointed as Secondary Captain of Sixth
Flight Corps of Civil Aviation Administration, Director of Technology Division, Vice Captain and Captain of Flight Corps
of Urumqi Civil Aviation Administration as well as General Manager, Deputy Party Secretary of Flight Corps Urumqi Civil
Aviation Administration. In January 2002, he served as General Manager and Deputy Party Secretary of Flight Department of
Xinjiang Airlines and acted as Vice General Manager of CSAH Xinjiang Company in December 2002. In January 2005, he
acted as Party member and Deputy General Manager of Xinjiang Branch of the Company. From July 2005 to January 2017,
he was appointed as Party member, Party Secretary and Deputy General Manager of Xinjiang Branch of the Company. Since
January 2017, he has been Chief Pilot of the Company.
Guo Jian Ye, male, aged 55, graduated with a master degree from Party School of Civil Aviation Flight University of China
majoring in Aircraft Piloting. He got the on-job university degree from South China Normal University majoring in Political
Education in Education Management Department. He also obtained a master’s degree from the Party School of the Central
Committee of CPC majoring in economics and management. He is a CPC member and began his career in May 1980. He
was appointed as Committee Secretary, Director of Advertising and Promotion Department of CAAC Central and Southern
Regional Administration, Director of Air Transportation Administration Political Office of CAAC Central and Southern
Regional Administration, Vice Director of Air Transportation Administration under CAAC Central and Southern Regional
Administration and General Manager, Vice Director of Guangdong CAAC Central and Southern Industrial Co., Ltd., Head of
CAAC Henan Safety Supervision Office, Director of Safety Supervision Administration, Secretary of standing committee and
the member of standing committee of CAAC Central and Southern Regional Administration, as well as the Vice Director.
In July 2012, he served as a member of standing committee, General Manager and Deputy Party Secretary of Heilongjiang
Branch of the Company. From July 2014 to January 2017, he acted as a Party member, Director and Deputy Party Secretary
of marketing management committee of the Company. Since January 2017, he has been the Chief Customer Officer of the
Company.
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.
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017 115
II. STAFF OF PARENT COMPANY AND SUBSIDIARIES
1. Staff
As of 31 December 2017, the Group had an aggregate of 96,234 employees(31 December 2016: 93,132)
Number of current staff in the parent company
68,872
Professions composition
Categories by profession
Pilots
Cabin attendants (including part-time security personnel)
Air marshals
Engineering unit
Navigation unit
Passenger transportation unit
Cargo transportation unit
Ground services unit
Information unit
Financial unit
Others
Total
Educational level
Categories by education levels
Postgraduates
Undergraduates
Junior college
Technical School or below
Total
Number of
current staff in
major subsidiaries
Total number of
current staff
27,362
96,234
Number of professionals
8,957
19,632
2,301
16,031
2,519
9,409
6,791
10,340
1,474
2,485
16,295
96,234
Number (by person)
3,602
41,731
29,759
21,142
96,234
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
116
2. Professions Composition Chart and Education Composition Chart
Professions Composition
(Person)
16,295
2,485
1,474
10,340
6,791
9,409
2,519
Educational level
(Person)
8,957
19,632
2,301
16,031
Pilots
Ground services unit
Information unit
Financial unit
Others
Cabin attendants
(including part-time
security personnel)
Air marshals
Engineering unit
Navigation unit
Passenger transportation unit
Cargo transportation unit
21,142
3,602
41,731
29,759
Postgraduates
Undergraduates
Junior college
Technical School or below
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESDirectors, Supervisors, Senior Management and EmployeesChina Southern Airlines Company LimitedANNUAL REPORT 2017 117
3. Emolument Policy of Employees
During the reporting period, the Company, centered on strategic priorities, created innovation allocation methods. The
Company focused on increase in input in key posts and key groups and explored remuneration incentives applicable to
different posts and different groups. It continued to increase the of correlation of remuneration allocation with posts and
employee performance to secure the Company’s operation goals could be implemented in place. In terms of allocation
system, the Company continued to insists on post and performance oriented, established and improved measures for classified
management of total remunerations of subordinate enterprises, increased performance correlation, strictly prepared budgets
and executed appropriate regulations, stopped any act in violation of regulations to pay remunerations, and secured to control
total annual remunerations within the budgets.
4. Training Plan
In 2018, the Company’s training plan is as follows:
In 2018, the Company will focus on enhancing talent pool construction, raise the internationalization of talent pool to a
strategic height, focus on broadening international vision and thinking and improving international capacity, provide support
for training international talent pool of marketing system, establish standardized mechanism for training reserve talents for
international marketing of marketing system, and train a team of international talents to be familiar with overseas markets,
understand international marketing rules, and with intercultural communication ability, so as to promote the Company’s
internationally strategic development.
The Company will implement “Hundred-Talent Program” and develop detailed talent development plan, conduct top-level
policy design from talent recruitment, selection, training, cultivation, remuneration incentive, technology channel, and etc.
In addition, the Company will regard advanced levels inside and outside the industry and also at home and abroad as a
benchmark for cultivating a team of “craftsmen” for all posts, such as, flight, maintenance, flight operation, information,
flight attendant, ground service.
The Company will focus on secure sufficient resources are input for qualification trainings of its all business systems.
In the flight system, the Company will mainly provide all types of trainings as to flight technology training, and annual
refresher training for pilots. In the maintenance system, the Company will mainly provide all types of domestic and overseas
maintenance trainings, such as, pre-job training for new maintenance employees, basic license training for maintenance
personnel. In the flight operation system, the Company will mainly provide all kinds of domestic and overseas flight operation
trainings, such as, training for new dispatchers, refresher training for dispatchers, international operation familiarization
training.
5.
Information on Labor Outsourcing
Total hours of outsourced labor
48.64 million hours
Total pay for outsourced labor (RMB)
2,601 million
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEESCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
to
Offline ONLINE
Offline ONLINE
We focused on advancing intelligent marking, roundly promoted “China Southern e-travel”, and
made 271 functions online. The platform was visited 240 million times, representing a year on
year growth of 48.4%. We remained the leading position in the industry as to various indicators,
such as APP download, the number of social media followers, number of monthly active users.
120
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 senior 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 China Securities Regulator Commission. 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 strived to strictly comply with
the regulatory requirements of the China Securities Regulatory Commission, the Shanghai Stock Exchange, the Stock Exchange,
the New York Stock Exchange Inc. 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 of the Listing Rules for the
year ended 31 December 2017.
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 government rules. During the reporting period, the Company modified its Articles of Association, the
rules and procedures of shareholders’ general meeting, the rules and procedures of board meeting, Rules of Procedures of the
Supervisory Committee as per the regulatory requirements, such as, CSRC Guidelines for Articles of Association of Chinese Listed
Companies. Such modifications were considered and adopted in the first extraordinary general meeting of 2017.
During the reporting period, in order to strengthen the construction of special committees under the Board, the Company changed
the strategic decision-making committee to Strategy and Investment Committee, and the audit committee to Audit and Risk
Management Committee, set up Aviation Safety Committee, enhanced the pre-audit and monitoring powers and functions of the
special committees as to major investments, major risks, aviation safety, and modified Work Rules of Strategy and Investment
Committee, Work Rules of Audit and Risk Management Committee, and Work Rules of Aviation Safety Committee.
During the reporting period, in order to improve the decision-making quality and efficiency of the Board, the Company set up
standing committee under the Board, and developed the Rules of Procedures of the Standing Committee. The standing committee
was consisted of the Company’s executive Directors, held accountable to the Board, fulfilled a part of the decision-making powers
and functions of the Board upon the authorization of the Board, and supervised and checked the execution of matters decided by
the Board.
THE GENERAL MEETING
The general meeting 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 the rules and procedures of shareholders’ general
meeting, and etc. to conduct all work of the general meeting and fully secure shareholders to legally exercise their rights of
shareholders. During the reporting period, the Company held 3 general meetings and engaged lawyers to witness the procedures
for calling and holding a general meeting. Such procedures were legal and effective and ensured all shareholders to fairly exercise
their rights, without causing damage to the benefits of the minority shareholders.
CORPORATE GOVERNANCE REPORTCorporate Governance ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 121
THE BOARD
The Board manages the Company on behalf of shareholders with the objective of enhancing the shareholder value. The Board,
headed by the Chairman, is responsible for the formulation and the approval of the Group’s development and business strategies
and policies, approval of annual budgets and business plans, recommendation of dividend, ensuring a prudent and effective internal
control system and monitoring the performance of the management in accordance with the Articles of Association, the rules and
procedures of shareholders’ general meeting and the rules and procedures of board meeting.
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, 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 General Manager, the management of the Company is responsible for the day-to-day operations of the
Group. The roles of the Chairman are separated from that of the President. 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. 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 Presidents, 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 Presidents 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 at 31 December 2017, 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 107 to 110 of this Annual Report.
The Board held 44 meetings in 2017, all of which were convened in accordance with the Articles of Association. The Company
held 3 general meetings in 2017, the Directors actively participated general meeting in person and have been doing their best to
develop a balanced understanding of the views of shareholders.
CORPORATE GOVERNANCE REPORTCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 122
The individual attendance of each Director, on a named basis, is as follows:
Attendance of board meetings
whether
independent
Director or not
Numbers
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
No
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
44
44
44
43
43
43
43
43
44
43
44
1
1
4
2
2
3
0
3
2
0
4
3
4
1
1
40
40
40
40
40
40
40
40
40
40
40
0
0
0
2
2
0
3
0
1
3
0
0
0
0
0
0 No
0 No
0 No
0 No
0 No
0 No
0 No
0 No
0 No
0 No
0 No
0 No
0 No
Name of Directors
Wang Chang Shun
Tan Wan Geng
Zhang Zi Fang
Yuan Xin An
Yang Li Hua
Li Shao Bin
Ning Xiang Dong
Liu Chang Le
Tan Jin Song
Guo Wei
Jiao Shu Ge
Zheng Fan
Gu Hui Zhong
Attendance of
Shareholders’
Meetings
Numbers
of meetings
that required
attendance
1
2
1
3
0
1
2
0
1
1
2
1
1
Meetings of the Board held during the year
Of which: number of meetings that required attendance in person
Number of meetings held by way of conference communication
Number of meetings held by combination of attendance in person
and by way of conference communication
44
4
40
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 2017, the independent non-executive
Directors expressed their views and opinions about certain matters relevant to the shareholders and the Company as a whole at
board meetings.
The Board has adopted a board diversity policy setting out the approach to diversity of members of the Board. 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.
CORPORATE GOVERNANCE REPORTCorporate Governance ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017
123
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 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 related transactions, external guarantees, cash dividends, 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, in the Company’s second extraordinary general meeting
of shareholders in 2017, Mr. Wang Chang Shun, Mr. Tan Wan Geng, Mr. Zhang Zi Fang were elected as executive Directors
of the 8th session of the Board while Mr. Zheng Fan, Mr. Gu Hui Zhong, Mr. Tan Jin Song, Mr. Jiao Shu Ge were elected as
independent non-executive Directors of 8th session of the Board. In the first meeting of the 8th session of the Board, Mr. Wang
Chang Shun was elected as the Chairman of the Company, while Mr. Tan Wan Geng was elected as the Vice Chairman of the
Company.
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 2017, 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 2017 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.
SUPERVISORY COMMITTEE
The Company’s Supervisory Committee is consisted of the shareholder representative supervisors who are elected and removed
by the general meeting, and staff representatives supervisors who are elected by the Company’s worker representatives. Currently,
the Supervisory Committee is consisted of 3 supervisors, of which, 2 are shareholder representative supervisors, and 1 is worker
representative supervisor. The Supervisory Committee has 1 chairman. None of the Company’s Directors, general managers,
deputy general managers or the responsible financial persons serve concurrently as supervisors. The Supervisory Committee strictly
follows the requirements of laws and regulations, Articles of Association, and Rules of Procedures of the Supervisory Committee
to standardize its operation. The supervisors work diligently, are honest, actively attend meetings of the Supervisory Committee,
sit in on the general meetings and the Board meeting, legally supervise the decision-making procedures of the Company’s related
transactions, cash dividends, external guarantees, and many other major affairs, as well as the performance of duties of the
Company’s Directors and senior management. In addition, they also receive the report on the preparation and audit work of the
financial reports, and actively understand the construction and execution of the Company’s internal control systems. During the
reporting period, the Supervisory Committee convened a total of 3 on-site meetings. Meanwhile, it audited, as per the requirements
of the Company Law, Articles of Association, Rules of Procedures of the Supervisory Committee, the Company’s major affairs,
such as, the Company’s standardized operation, periodical reports, financial work, cash dividends, related transactions, internal
control, and gave audit opinions.
CORPORATE GOVERNANCE REPORTCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 124
BOARD COMMITTEES
The Company has put in place a Strategic and Investment Committee, an Audit and Risk Management Committee, a Remuneration
and Assessment Committee, a Nomination Committee and a Aviation Safety Committee. Further details of the roles and functions
and the composition of each of the committees are set out below:
STRATEGIC AND INVESTMENT COMMITTEE
The Strategic and Investment Committee comprises three members and is chaired by Mr. Wang Chang Shun. The other two
members are Mr. Gu Hui Zhong as independent non-executive Director and Mr. Jiao Shu Ge as independent non-executive
Director.
AUDIT AND RISK MANAGEMENT COMMITTEE
The Audit and Risk Management Committee comprises three independent non-executive Directors, one of whom, Mr. Tan Jin
Song, possesses the appropriate professional qualifications or accounting or financial management expertise to understand financial
statements. As at 31 December 2017, the Audit and Risk Management Committee was chaired by Mr. Tan Jin Song with Mr. Gu
Hui Zhong and Mr. Jiao Shu Ge as the members of the Audit and Risk Management Committee. The Audit Committee has been
provided with sufficient resources to discharge its duties and has access to independent professional advice if necessary.
The terms of reference of the Audit and Risk Management Committee of the Company are in compliance with the provision of C.3.3
of the Code, and applicable policies, rules and regulations that the Company is subject to. The details of the roles and functions
of the Audit and Risk Management Committee are set out in the Terms of Reference of Audit and Risk Management Committee
of the Company which has been published on the websites of the Stock Exchange and the Company at “www.hkexnews.hk” and
“www.csair.com”. In 2017, the Audit and Risk Management Committee carried out the work, amongst other things, to oversee the
relationship with the external auditors, to review the Group’s 2017 quarterly results, 2017 interim results and 2016 annual financial
statements, to monitor compliance with statutory and listing requirements, to review the scope, if necessary, to engage independent
legal or other advisers as it determines is necessary and to perform investigations. In addition, the Audit Committee also examined
the effectiveness of the Company’s internal controls, which involves regular reviews of the internal controls of various corporate
structures and business processes on a continuous basis, and takes into account their respective potential risks and severity, in order
to ensure the effectiveness of the Company’s business operations and the realization of its corporate objectives and strategies. The
scope of such examinations and reviews includes finance, operations, regulatory compliance and risk management. The Audit
and Risk Management Committee also reviewed the Company’s internal audit plan, and submitted relevant reports and concrete
recommendations to the Board on a regular basis.
The Audit and Risk Management Committee held 18 meetings in 2017. The Audit and Risk Management Committee has
performed all its obligations under their terms of reference. The attendance of each member of the Audit and Risk Management
Committee is as follows:
Members of the Audit Committee
Tan Jin Song (Chairman)
Gu Hui Zhong (appointed on 20 December 2017)
Jiao Shu Ge
Ning Xiang Dong (resigned on 20 December 2017)
(No. of meetings)
Attended/Eligible to attend
18/18
3/3
18/18
15/15
CORPORATE GOVERNANCE REPORTCorporate Governance ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017
125
EXTERNAL AUDITORS
The Audit Committee reviewed the performance, independence and objectivity of the Company’s auditors and was satisfied with
the results.
The Audit Committee concludes that the independence of the auditors of the Company has not been compromised by non-audit
services provided for the Group.
The 2013 and 2014 annual general meetings considered and approved the appointment of PricewaterhouseCoopers Zhong Tian
LLP to provide professional services to the Company for its domestic financial reporting, U.S. financial reporting and internal
control for the year 2014 and year 2015, respectively and PricewaterhouseCoopers to provide professional services to the Company
for its Hong Kong financial reporting for the year 2014 and year 2015, respectively.
A resolution was considered and approved at the 2015 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, U.S. financial reporting and
internal control reporting for the year 2016 and KPMG to provide professional services to the Company for its Hong Kong
financial reporting for the year 2016. A resolution was reviewed and approved at the 2016 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, U.S.
financial reporting and internal control reporting for the year 2017 and KPMG to provide professional services to the Company for
its Hong Kong financial reporting for the year 2017.
The following table sets forth the type of, and fees for, the principal audit services and non-audit services provided by the
Company’s external auditor to the Group in 2016 and 2017:
Audit fees
Non-audit fees
Total
2017
RMB Million
2016
RMB Million
14
0
14
13
0
13
REMUNERATION AND ASSESSMENT COMMITTEE
As at 31 December 2017, the Remuneration and Assessment Committee comprises three members and chaired by Mr. Gu Hui
Zhong (independent non-executive Director) together with Mr. Zhang Zi Fang (executive Director) and Mr. Zheng Fan (independent
non-executive Director) as members.
The main responsibilities of the Remuneration and Assessment Committee are to make recommendations to the Board on the
remuneration policy, structure and packages for Directors and senior management of the Company, and to establish regular and
transparent procedures on remuneration policy development and improvement. In particular, the Remuneration and Assessment
Committee has the duty to ensure that the Directors or any of their associates shall not be involved in the determination of their
own remuneration packages. The details of the roles and functions of the Remuneration and Assessment Committee are set out in
the Terms of Reference of Remuneration and Assessment Committee of the Company which has been published on the websites of
the Stock Exchange and the Company at “www.hkexnews.hk” and “www.csair.com”.
CORPORATE GOVERNANCE REPORTCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
126
The Remuneration and Assessment Committee held 3 meeting in 2017, which was held according to its rules and procedures. The
meeting reviewed the total remuneration accounts for the year 2015, the total remuneration budgets and accounts for the year 2016
and the total remuneration budget for the year 2017. The attendance of each member is as follows.
Members of Remuneration and Assessment Committee
Gu Hui Zhong (chairman) (appointed on 20 December 2017)
Zhang Zi Fang (appointed on 20 December 2017)
Zheng Fan (appointed on 20 December 2017)
Ning Xiang Dong (resigned on 20 December 2017)
Guo Wei (resigned on 20 December 2017)
Yuan Xin An (resigned on 20 December 2017)
(No. of meeting)
Attended/Eligible to attend
0/0
0/0
0/0
3/3
3/3
3/3
The Remuneration and Assessment Committee consulted, when appropriate, the Chairman and/or the General Manager about its
proposals relating to the remuneration of other executive Directors. The Remuneration and Assessment Committee is provided with
sufficient resources to discharge its duties and professional advice is available if necessary. The Remuneration and Assessment
Committee is also responsible for assessing performance of executive Directors and approving the terms of executive Directors’
service contracts. The Remuneration and Assessment Committee has performed all its responsibilities under its terms of reference
in 2017.
NOMINATION COMMITTEE
As at 31 December 2017, the Nomination Committee consists of three members, including Mr. Zheng Fan (independent non-
executive Director) as chairman and Mr. Wang Chang Shun (executive Director) and Mr. Jiao Shu Ge (independent non-executive
Director) as members. The responsibilities of the Nomination Committee are to make recommendations to the Board in respect of
the size and composition of the Board based on the operational activities, assets and shareholding structure of the Company; study
the selection criteria and procedures of Directors and Management and give advice to the Board by consideration of the board
diversity policy; identify qualified candidates for Directors and Management; investigate and propose candidates for Directors and
Management and other senior management members to the Board.
In accordance with relevant laws and regulations as well as the provisions of the Articles of Association, the Nomination
Committee shall study and resolve on the selection criteria, procedures and terms of office for Directors and managers with
reference to the Company’s actual situation and the board diversity policy. Any resolution made in this regard shall be filed
and proposed to the Board for approval and shall be implemented accordingly. The Nomination Committee is provided with
sufficient resources to discharge its duties and independently engage intermediate agencies to provide professional advice on its
proposals if necessary. The details of the roles and functions of the Nomination Committee are set out in the Terms of Reference
of Nomination Committee of the Company which has been published on the websites of the Stock Exchange and the Company at
“www.hkexnews.hk” and “www.csair.com”.
CORPORATE GOVERNANCE REPORTCorporate Governance ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017
127
The Nomination Committee held 3 meetings in 2017, to nominate Mr. Wang Chang Shun as the non-executive Director of the
Company and to appoint Mr. Zhang Zheng Rong as COO of the Company, Mr. Yang Ben Sen as Chief Pilot and Guo Jian Ye as
Chief Service Officer. Mr. Wang Zhi Xue was not Chief Pilot of the Company anymore. And to appoint Mr. Han Wen Sheng as
Executive Vice President of the Company and Mr. Xiao Li Xin, the Chief Accountant and Chief Financial Officer of the Company,
as Executive Vice President, Chief Accountant and Chief Financial Officer of the Company, as well as to nominate Mr. Wang
Chang Shun, Mr. Tan Wan Geng, Mr Zhang Zi Fang as candidates of executive Directors of 8th session of the Board of the
Company and to nominate Mr. Zheng Fan, Mr. Gu Hui Zhong, Mr. Tan Jin Song, Mr. Jiao Shu Ge as candidates of independent
non- executive Directors of 8th session of the Board of the Company. The Nomination Committee has performed all its obligations
under their terms of reference in 2017. The attendance of each member of the Nomination Committee is as follows:
Members of the Nomination Committee
Zheng Fan (chairman) (appointed on 20 December 2017)
Wang Chang Shun
Jiao Shu Ge
Tan Jin Song (resigned on 20 December 2017)
AVIATION SAFETY COMMITTEE
(No. of meetings)
Attended/Eligible to attend
0/0
3/3
3/3
3/3
The Aviation Safety Committee comprises three members and is chaired by Mr. Tan Wan Geng as non-executive Director. The
other two members are Mr. Zheng Fan as independent non-executive Director and Mr. Tan Jin Song as independent non-executive
Director.
CORPORATE GOVERNANCE FUNCTIONS
The Board is responsible for performing the corporate governance duties set out in the code provision D.3.1 of the revised
Corporate Governance Code.
During the year, the Board established board diversity policy in accordance with new code provisions. The Board reviewed the
compliance of the Model Code and disclosure in this Corporate Governance Report during the Board meeting to approve the
annual result.
MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS AND
SUPERVISORS OF LISTED ISSUERS
Having made specific enquiries with all the Directors and Supervisors, they confirmed that the Directors had for the year ended 31
December 2017 complied with the Model Code. The code of conduct adopted by the Company regarding securities transactions by
Directors and Supervisors is no less stringent than the Model Code.
RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The following statement, which sets out the responsibilities of the Directors in relation to the financial statements, should be read
in conjunction with, but distinguished from, the reports prepared by the auditor of the Company, which acknowledges the reporting
responsibilities of the Group’s auditor.
The Directors are responsible for the preparation of periodic accounts for each financial year which should give a true and fair
view of the state of affairs, results and cash flows of the Group during that period.
The responsibilities of the Company’s external auditor, KPMG, are set out on pages 144 to 149 to auditor’s report. The Directors
consider that in preparing the financial statements, the Group uses appropriate accounting policies that are consistently applied, and
that all applicable accounting standards are followed.
The Directors are responsible for ensuring that the Group keeps accounting records which disclose with reasonable accuracy of
the financial position of the Group and which enables the preparation of financial statements in accordance with PRC laws and
regulations and disclosure requirements of the Hong Kong Companies Ordinance and the applicable accounting standards.
CORPORATE GOVERNANCE REPORTCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017
128
COMMUNICATIONS WITH SHAREHOLDERS AND INVESTOR RELATIONS
During the reporting period, the Company adhered to the concept of transparent communication and established a systematic
communication mechanism. The Company further enhanced the management of investors by level, classification and time.
It established communication systems for communication beforehand, detailed communication halfway and communication
afterwards. The Company held or attended over 130 various results presentations, roadshows, investigations and teleconference
throughout the year, in which the Company made honest, sufficient and deep communications with more than 500 capital markets
on hot topics, such as industry trends, strategic planning, production and operation during the year. Meanwhile, investors’ opinions
and suggestions on the Company were timely returned to the management of the Company, which provided high-value information
for the development and played a good role in the bridge between the Company and investors.
During the reporting period, the Company upheld the concept of meticulous communication and created a diversified
communication channels. The Company established institutions, analysts and individual shareholders database to strengthen the
dynamic tracking and meticulous research of shareholder structure and continuously enhance the shareholders’ analysis ability.
In combination of differentiated demands of investors, the Company continuously improved online and offline platforms, enrich
the functions of official website and developed WeChat interactive programs. What’s more, the Company created diversified
communication channels, actively responded to questions and demands of investors, and further improved communication
experience for investors.
During the reporting period, the Company received Listed Company with Most Investment Potentials from the Seventh Award of
China Securities “Golden Bauhinia Award”
Investors and the public may refer to the Company’s website (www.csair.com) to understand and obtain details relating to our
corporate governance structure, organizational structure, stock information, production statistics, results announcement and other
announcements. The procedures are as follows:
1. Open the Home page of the Company’s website and click “Investor Relations”
2. Click the content you want to read
For enquiries about shareholders’ general meetings and Board meetings, investors may contact the Company Secretary by phone
at (8620)8612-4462, by fax to (8620)8665-9040 or by e-mail to ir@csair.com. Investors may also raise questions directly at the
annual general meetings or extraordinary general meetings. Enquiries about attending annual general meetings or extraordinary
general meetings and the procedures for proposing resolutions at such meetings may also be made to the Company Secretary by
the above means.
INFORMATION DISCLOSURE
The Company has strictly complied with the relevant listing rules of all the listing places to perform its information disclosure
obligation truthfully, accurately, completely, timely, fair and effectively.
During the reporting period, under the background of comprehensive, strict and legal supervision, the Company strengthened the
system establishment and amended Connected Transactions Management System of China Southern Airlines Company Limited;
fully optimized process, improved information-delivery efficiency and internal and external communication efficiency. Further,
the Company also enhanced information disclosure and staff training, and sent staff to attend information disclosure compliance
training of Shanghai Stock Exchange several times.
In August 2017, the Company received a level-A information disclosure rating for the year 2016 from Shanghai Stock Exchange.
In September 2017, the Annual Report 2016 for H shares of the Company won the 31th international ARC (Annual Report
Competition) GOLD WINNER.
CORPORATE GOVERNANCE REPORTCorporate Governance ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 129
MODIFICATIONS TO ARTICLES OF ASSOCIATION
On 27 May 2016, in the Company’s 2015 Annual general meeting, a resolution was passed to grant general authorization to the
Company’s the Board to issue H shares and appropriately modify the Company’s Articles of Association upon the completion of
issue of H shares, so as to reflect the increase in the Company’s registered capital. On 10 August 2017, according to the general
authorization granted in 2015 Annual general meeting, the Company completed its issue of 270,606,272 H shares to American
Airlines, and smoothly completed related shares subscription and closing matters. On 18 September 2017, the Company convened
an interim meeting of the 7th session of the Board, and unanimously passed a resolution for supplementary modification to related
terms of the Articles of Association according to the authorization granted in 2015 Annual general meeting and the foregoing H
shares issue results. For details, please see the Company’s announcement dated on 18 September 2017. Such related supplementary
modifications were approved by the Company’s first extraordinary general meeting of 2017 on 8 November 2017.
On 10 October 2017, the Company convened an interim meeting of the 7th session of the Board and approved a resolution to
modify the Company’s Articles of Association, the rules and procedures of shareholders’ general meeting, the rules and procedures
of board meeting, and Rules of Procedures of the Supervisory Committee (“Proposed Modifications”). The proposed modifications
were based on the following requirements: (i) the Company included the general requirements for party building into the Articles
of Association and the rules and procedures of board meeting according to Notice on Related Matters for Speeding up the
Advancement of Inclusion of General Requirements for Party Building Work of the Central Government-led Enterprises into the
Articles of Association (GZDWDJ [2017] No. 1) and many other related requirements; (ii) the Company followed Guidelines for
Articles of Association of Chinese Listed Companies (2016) modified and released by CSRC in 2016 to modify and improve the
Articles of Association, the rules and procedures of shareholders’ general meeting, and the rules and procedures of board meeting
by combining the Company’s standardized operation practice; (iii) the Company adjusted the member number structure of the
Board according to its actual operation needs in order to further improve the decision-making efficiency; (iv) the Company made
other corresponding modifications to the Articles of Association according to the needs for industrial and commercial registration;
and (v) the Company modified and improved the Rules of Procedures of the Supervisory Committee according to the relevant
modifications made to the Articles of Association and by combining the Company’s standardized operation practice. For details,
please see refer to the Company’s announcement dated 10 October 2017. Such proposed modifications were approved by the
Company’s first extraordinary general meeting of 2017 on 8 November 2017.
Save as disclosed above, in 2017, there was no other amendments made to the Articles of Association.
SHAREHOLDERS’ RIGHTS
As one of the measures to safeguard shareholders’ interests and rights, separate resolutions are proposed at shareholders’ meetings
on each substantial issue, including the election of individual Directors, for shareholders’ consideration and voting. All resolutions
put forward at shareholders’ meetings will be voted by poll pursuant to the Listing Rules and the poll results will be published on
the website of the Stock Exchange at “www.hkexnews.hk” and the website of the Company at “www.csair.com” after the relevant
shareholders’ meetings.
Extraordinary general meetings may be convened by the Board on written requisition of shareholder(s) individually or jointly
holding 10% or more of the Company’s issued and outstanding shares carrying voting rights pursuant to Article 80(3) of the
Articles of Association. Such requisition must be stated in the agenda to be addressed in general meeting and signed by the
applicant and then reported to the Board and Company Secretary of the Company in written form. Shareholders should follow the
requirements and procedures as set out in such Article for convening an extraordinary general meeting.
For putting forward any enquiries to the Board, shareholders may send written enquiries to the Company. Shareholders may send
their enquiries or requests in respect of their rights as mentioned above to the Company Secretary Bureau of the Company or via
email as set out in the above section headed “Communications with shareholders and investors and investor relations”.
CORPORATE GOVERNANCE REPORTCORPORATE GOVERNANCEChina Southern Airlines Company LimitedANNUAL REPORT 2017 130
I. BASIC SITUATION OF CORPORATE BONDS
Name
Abbreviation
Code
Issue date
Expiry Date
Unit: RMB million
Outstanding
balance of
corporate
bonds
Repayment of
principal and
interest
Interest rate
Trading floor
Corporate
bonds
15 China Southern
Airlines 01
Corporate
bonds
16 China Southern
Airlines 01
Corporate
bonds
16 China Southern
Airlines 02
136053
20 November 2015 20 November 2020 3,000
3.63%
136256
3 March 2016
3 March 2019
5,000
2.97%
136452
25 May 2016
25 May 2021
5,000
3.12%
SSE
SSE
SSE
Pay interests once
a year, pay back
principal plus
interests when due
Pay interests once
a year, pay back
principal plus
interests when due
Pay interests once
a year, pay back
principal plus
interests when due
Repayment of principal and interest of corporate bonds
On 3 March 2017, the Company settled the interests of 2016 corporate bonds of China Southern Airlines Company Limited (the
first tranche, hereinafter referred to as “Current Bonds”) from 3 March 2016 to 2 March 2017. The coupon rate of Current Bonds
was 2.97%. For each lot of bonds with a carrying amount of RMB1,000, interests of RMB29.70 (before tax) will be paid. Holders
of individual bonds will be paid RMB23.76 for every RMB1,000 of bonds (after tax). Interests paid to holders of non-resident
enterprises (including QFII, RQFII) were RMB26.73 for every RMB1,000 current bonds they effectively held.
On 25 May 2017, the Company settled the interests of 2016 corporate bonds of China Southern Airlines Company Limited (the
second tranche, hereinafter referred to as “Current Bonds”) from 25 May 2016 to 24 May 2017. The coupon rate of Current Bonds
was 3.12%. For each lot of bonds with a carrying amount of RMB1,000, interests of RMB31.20 (before tax) will be paid. Holders
of individual bonds will be paid RMB24.96 for every RMB1,000 of bonds (after tax). Interests paid to holders of non-resident
enterprises (including QFII, RQFII) were RMB28.08 for every RMB1,000 current bonds they effectively held.
On 20 November 2017, the Company settled the interests of 2015 corporate bonds of China Southern Airlines Company Limited
(the first tranche, hereinafter referred to as “Current Bonds”) from 20 November 2016 to 19 November 2017. The coupon rate of
Current Bonds was 3.63%. For each lot of bonds with a carrying amount of RMB1,000, interests of RMB36.30 (before tax) will
be paid. Holders of individual bonds will be paid RMB29.04 for every RMB1,000 of bonds (after tax). Interests paid to holders of
non-resident enterprises (including QFII, RQFII) were RMB32.67 for every RMB1,000 current bonds they effectively held.
II. CONTACT PERSON & INFORMATION FOR TRUSTEE MANAGEMENT OF
CORPORATE BONDS AND THE CONTACT INFORMATION OF CREDIT
RATING AGENCY
Name
Office business
Contact persons Contact numbers
Name
Office business
Trustee of bonds
Credit rating agency
Guosen Securities Co., Ltd. Floors 16-26, Guosen
Zhou Lei
13501582885
Lianhe Credit Information
No. 80 Qufu Avenue,
Securities Tower, No.
1012 Hongling Middle
Road, Luohu District,
Shenzhen
Service Co., Ltd.
Heping District, Tianjin
CORPORATE BONDCorporate BondChina Southern Airlines Company LimitedANNUAL REPORT 2017
131
III. RATING OF CORPORATE BONDS
During the reporting period, Lianhe Credit Information Service Co., Ltd. conducted a follow-up rating on the credit conditions
of Corporate Bond issued by the Company and determined the credit rating of both “15 China Southern Airlines 01”, “16 China
Southern Airlines 01” and “16 China Southern Airlines 02” issued by the Company to be AAA. Further, it also maintained the
AAA credit rating of “16 Xiamen Airlines MTN001”, “16 Xiamen Airlines MTN002” and “16 Xiamen Airlines MTN003”.
IV. CREDIT ENHANCEMENT MECHANISM, DEBT REPAYMENT PLAN AND
OTHER RELATED INFORMATION OF CORPORATE BONDS DURING THE
REPORTING PERIOD
During the reporting period, there was no credit enhancement mechanism for corporate bonds of the Company.
Debt repayment plan:
The interest date of 15 China Southern Airlines No.01 corporate bonds was 20 November 2015. The interests of the bonds of the
Company was paid once each year since the interest date, the last period interest was paid together with the repayment of principal,
the interest date is 20 November of each year from 2016 to 2020, respectively. If the investors exercise the option for redemption,
then the interest date to redeem a portion of the bonds will be on November 20 annually from 2016 to 2018. If the interest date is
a legal holiday day or rest day, it shall be postponed to the first following trading day. The repayment date of 15 China Southern
Airlines No.01 corporate bonds was 20 November 2020. If the investors exercise the option for redemption, then the interest date
to redeem a portion of the bonds will be on 20 November 2018 . If the interest date is a legal holiday day or rest day, it shall be
postponed to the first following trading day.
The interest date of 16 China Southern Airlines No.01 corporate bonds was 3 March 2016. The interests of the bonds of the
Company was paid once each year since the interest date, the last period interest was paid together with the repayment of principal,
the interest date is 3 March of each year from 2017 to 2019, respectively. The repayment date of 16 China Southern Airlines No.01
corporate bonds was 3 March 2019. If such date is a legal holiday day or rest day, it shall be postponed to the first following
trading day; no interest is calculated separately for each payment of interests.
The interest date of 16 China Southern Airlines No.02 corporate bonds was 25 May 2016. The interests of the bonds of the
Company was paid once each year since the interest date, the last period interest was paid together with the repayment of principal,
the interest date is 25 May of each year from 2017 to 2021, respectively. If the investors exercise the option for redemption,
then the interest date to redeem a portion of the bonds will be on 25 May annually from 2017 to 2019. If the interest date is a
legal holiday day or rest day, it shall be postponed to the first following trading day; no interest is calculated separately for each
payment of interests during the postponing period. The repayment date of 16 China Southern Airlines No.02 corporate bonds was
25 May 2021. If such date is a legal holiday day or rest day, it shall be postponed to the first following trading day; no interest is
calculated separately for each payment of interests.
CORPORATE BONDCORPORATE BONDChina Southern Airlines Company LimitedANNUAL REPORT 2017 132
V. INTEREST PAYMENT AND ENCASHMENT OF OTHER BONDS AND DEBT
FINANCING INSTRUMENTS OF THE COMPANY
On 15 February 2017, the sixth tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,024,831,780.82 were fully paid.
On 10 March 2017, the twelfth tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,017,889,315.07 were fully paid.
On 21 April 2017, the seventh tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,033,797,260.27 were fully paid.
On 12 May 2017, the fifth tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,037,430,136.99 were fully paid.
On 9 June 2017, the eighth tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,038,323,287.67 were fully paid.
On 16 June 2017, the ninth tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,039,649,315.07 were fully paid.
On 14 July 2017, the tenth tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,039,355,616.44 were fully paid.
On 11 August 2017, the eleventh tranche of Ultra-short-term Financing Bills of the Company in 2016 expired and the principal and
interests totaling RMB2,044,621,917.81 were fully paid.
On 17 November 2017, the first tranche of Ultra-short-term Financing Bills of the Company in 2017 expired and the principal and
interests totaling RMB1,027,369,863.01 were fully paid.
On 22 January 2017, the first tranche of Xiamen Airlines 2016 Ultra-short-term Financing Bills expired and the principal and
interests totaling RMB2,044,679,452.05 were fully paid.
On 3 March 2017, the sixth tranche of Xiamen Airlines 2016 Ultra-short-term Financing Bills expired and the principal and
interests totaling RMB511,095,890.41 were fully paid.
On 23 March 2017, the eighth tranche of Xiamen Airlines 2016 Ultra-short-term Financing Bills expired and the principal and
interests totaling RMB712,427,397.26 were fully paid.
On 17 April 2017, the seventh tranche of Xiamen Airlines 2016 Ultra-short-term Financing Bills expired and the principal and
interests totaling RMB714,032,602.74 were fully paid.
On 25 May 2017, the ninth tranche of Xiamen Airlines 2016 Ultra-short-term Financing Bills expired and the principal and
interests totaling RMB611,527,397.26 were fully paid.
On 19 June 2017, the tenth tranche of Xiamen Airlines 2016 Ultra-short-term Financing Bills expired and the principal and
interests totaling RMB1,530,957,534.25 were fully paid.
On 17 August 2017, the principal and interests totaling RMB38,610,000.00 of the first medium-term notes of Xiamen Airlines
2016 were fully paid.
CORPORATE BONDCorporate BondChina Southern Airlines Company LimitedANNUAL REPORT 2017 133
On 21 October 2017, the principal and interests totaling RMB49,760,000.00 of the second medium-term notes of Xiamen Airlines
2016 were fully paid.
On 22 November 2017, the principal and interests totaling RMB60,840,000.00 of the third medium-term notes of Xiamen Airlines
2016 were fully paid.
VI. BANK CREDIT-GRANTING OF THE COMPANY DURING THE REPORTING
PERIOD
As at 31 December 2017, the Group has gained from many domestic banks the line of credit with a ceiling of RMB181.922 billion,
among which the used bank line of credit is about RMB39.683 billion and the unused is about RMB142.239 billion.
During the reporting period, the Group repaid bank borrowings amounting approximately to RMB18.311 billion.
VII. COMPANY’S IMPLEMENTATION OF THE RELEVANT AGREEMENTS OR
COMMITMENTS AS SPECIFIED IN BOND PROSPECTUS DURING THE
REPORTING PERIOD
During the reporting period, the Company, in accordance with the provisions in Prospectus for Public Offering of Corporate Bonds
2016 (First Tranche) of China Southern Airlines Company Limited (Intended for Eligible Investors), Prospectus for Public Offering
of Corporate Bonds 2016 (Second Tranche) of China Southern Airlines Company Limited (Intended for Eligible Investors) (hereinafter
referred to as “Prospectus”), utilized the fund raised by the current bonds deducted by the issuance expenses for repayment of bank
loans and supplement of working capital in 2016. The Company accepted the supervision by investors in strict accordance with the
Prospectus and the related rules for information disclosure, and strictly complied with the agreements and commitments made by
the Company.
CORPORATE BONDCORPORATE BONDChina Southern Airlines Company LimitedANNUAL REPORT 2017 134
The Board is responsible for maintaining sound and effective risk management and internal control systems, and reviewing its
effective to ensure the safety of shareholder investment and corporate assets. The risk management and internal control systems are
designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable but not
absolute assurance.
The Board has existing process to identify, assess and manage major risks to which Group is exposed. It is part of the process to
renew the risk management and internal control systems in case of changes in operating environment or regulation. The Board has
conducted a review of, and is satisfied with the effectiveness of the Group’s risk management and internal control systems for the
financial year ended 31 December 2017.
I. DISCLAIMER ON INTERNAL CONTROL AND THE ESTABLISHMENT OF
INTERNAL CONTROL SYSTEM
The Board is responsible for establishing perfect internal control system and effectively implementing such internal control system,
evaluating its effectiveness, accurately disclosing the assessment report on the relevant internal control. The objectives of the
internal control system are to the legitimacy and compliance of operating management, the safety of assets, and the truthfulness
and completeness of relevant information, to improve the operation efficiency and effectiveness, and to promote the realization of
development strategies of the Company. Given the inherent limitations of the internal control system, only reasonable assurance
can be provided for the above objectives.
The Board has carried out self-assessment on the effective of relevant internal control in accordance with the “Basic Standard for
Enterprise Internal Control” and its supporting guidelines, and has considered it effective as at 31 December 2017 (being the base
date of assessment report) and free from significant or important deficiencies in internal control on financial reporting. In addition,
no significant or important deficiencies in internal control on non-financial reporting were identified.
II. PARTICULARS OF THE AUDIT REPORT ON THE COMPANY’S INTERNAL
CONTROL
KPMG Huazhen LLP was engaged by the Company to conduct an audit on the effectiveness of the Company’s internal control
over financial reporting and issued an unqualified audit report.
For details of the audit report on the Company’s internal control, please visit the website of the Shanghai Stock Exchange.
III. PARTICULARS OF THE ACCOUNTABILITY SYSTEMS FOR MAJOR
ERRORS IN ANNUAL REPORTS AND THEIR IMPLEMENTATIONS
The Company established the “Information Disclosure Management System” in June 2007, the “Material Inside Information
Reporting System” in April 2008, and the “Insider Information Management System” in December 2009, and also made
amendments in accordance with requirements of the regulatory bodies. With these systems in place, the Company regulated its
work on the dissemination and disclosure of inside information, and clearly defined the requirements of accountability for major
errors in disclosure of information, including those in annual reports.
During the reporting period, no major errors were found in the Company’s annual report.
RISK MANAGEMENT AND INTERNAL CONTROLRisk Management and Internal ControlChina Southern Airlines Company LimitedANNUAL REPORT 2017 135
IV. IMPLEMENTATION OF EVALUATION OF INTERNAL CONTROL
1. Organizational structure of internal control
The Company adopts the decentralized management of internal control, and has set out the linear management structure
composed of the Board, Audit and Risk Management Committee, Comprehensive Risk and Internal Control Management
Committee, Internal Control Team, and business units and departments, which is shown as follows:
Board
Audit and Risk Management Committee
Comprehensive Risk and Internal
Control Management Committee
Internal Control Team
Business units and departments
The Board is responsible for approving the final achievements, and submitting annual statement on risk management and
internal control systems. Audit and Risk Management Committee is responsible for approving the internal control plan and
important matters, and supervising the progress. The Comprehensive Risk and Internal Control Management Committee
is required to review the internal control achievements in each progress, and reviewing the management and decision-
making of material matters in the implementation process to identify great defects. The Internal Control Team is responsible
for the specific organization and implementation of the internal control. All business units and departments is responsible
for maintaining their respective internal control measures on-going and effective, describing and updating their respective
business processes and control points, identifying the record documents, recognizing the significant control measures, and
organizing the rectification of defects.
RISK MANAGEMENT AND INTERNAL CONTROLRISK MANAGEMENT AND INTERNAL CONTROLChina Southern Airlines Company LimitedANNUAL REPORT 2017 136
2. Evaluation procedures of internal control
Based on the internal control framework issued by the Committee of Sponsoring Organisations of the U.S. Treadway
Commission (“COSO”), the evaluation of internal control of the Company is designed on five components of internal control,
and fully complies with relevant requirement of U.S. Sarbanes – Oxley Act, PRC Standard Regulations on Corporate Internal
Control and its supporting guidelines. In order to comply with the further enhanced requirement on corporate governance
under the Listing Rules in 2016, the Company employs a professional independent third-party institution for guidance.
The Company has determined the content involved in the evaluation of internal control in the qualitative and quantitative
principles, mainly including the Company-level internal control framework and the internal control at the level of business
process. The Company-level internal control framework is based on the five components set down by the COSO, namely
control environment, risk assessment, control activities, information and communication, and monitoring. The level of
business process fully reflects the industrial characteristics of aviation transport enterprises. The evaluation content covers the
information related to both financial reports and non-financial reports, and the evaluated units include the Company itself and
all of its branches (subsidiaries), bases and even the general aviation subsidiaries and investment unit.
The Company performs the annual evaluation of internal control in the flow of plan, record, test, rectification and report
stages.
Firstly, the internal control at the level of the Company and the business process is recorded and updated by means of
interview, questionnaire, etc. in order to identify and control the risks. The walk-through test is performed to evaluate the
effectiveness of the design of internal control. Secondly, the risks are marked and ranked to determine area with high,
moderate and low risks and screen out key risk control points by combing the risk control points. These key risk control
points are tested in the two halves of the year by means of observation, interview, re-calculation, inspection, confirmation,
knowledge evaluation, system inquiry, etc. so as to evaluate the effectiveness of the implementation of internal control.
In case of any defects of the internal control, the Company will analyze the cause of such defects, put forward rectification
opinions and management suggestions and urge the process principal concerned to develop effective rectification measures
and implement the same for rectification purposes to eventually achieve effective risk control. Once great or major defects
of internal control are found, they will be reported to the Comprehensive Risk and Internal Control Management Committee
without delay.
3. Key features of the evaluation of internal control
With years of accumulation, the evaluation of internal control of the Company has gradually developed the working method
and characteristics adapted to the management pattern of the Company. Firstly, the management structure has defined
responsibility, clear division of work and clear path of reporting complying with the listing regulatory requirements in the US,
the People’s Republic of China and Hong Kong. Secondly, the evaluation covers most organization, relates to full processes
and has a complete set of basic data.
RISK MANAGEMENT AND INTERNAL CONTROLRisk Management and Internal ControlChina Southern Airlines Company LimitedANNUAL REPORT 2017 137
V. SUMMARY OF RISK MANAGEMENT AND INTERNAL CONTROL
The Board recognizes its responsibility for supervising the risk management and internal control system of the Group and reviews
the effectiveness of the same at least once a year by the Audit and Risk Management Committee. The Audit and Risk Management
Committee assists the Board in performing its role in supervising finance, operation, compliance, risk management and internal
monitoring as well as financial and internal audit function resources of the Group and in corporate governance. The Company has
the internal audit function.
Based on the disclosure above, appropriate policies and monitoring have been established and formulated to ensure that the
encumbered assets will not be used or disposed of without approval and comply with and abide by relevant laws, regulations
and rules. Reliable financial and accounting records are kept in accordance with the relevant accounting standards and regulatory
requirements. Major risks with potential effect on the performance of the Group are properly identified and managed. The system
and the internal control can only make a reasonable but not absolute guarantee to prevent major misrepresentations or losses, which
are designed to manage rather than eliminate the risk of failing to meet business objectives.
The Company regulates the processing and issuance of insider information in accordance with a number of insider information
disclosure procedures to ensure the proper maintenance of confidentiality prior to the disclosure of such information and to publish
such information in an efficient and consistent manner.
As disclosed above, the Audit and Risk Management Committee held 18 meetings in 2017, where the risk management and
internal control systems of the Group were reviewed. For the year ended 31 December 2017, the Board has conducted through the
Audit and Risk Management Committee an annual review of the effectiveness of the risk management and internal control systems
of the Group covering all significant financial, operating and compliance controls, and considers the risk management and internal
control of the Group is effective and adequate.
RISK MANAGEMENT AND INTERNAL CONTROLRISK MANAGEMENT AND INTERNAL CONTROLChina Southern Airlines Company LimitedANNUAL REPORT 2017 138
scope of reservation for special food.
And Guangzhou hub was the first to
realize the comprehensive whole-journey
combined transport. In 2017, we were
awarded by China quality association
in 2017 the title of “National User
Satisfaction Benchmark Enterprise”.
Our service quality is recognized by all
circles of the society and passengers at
home and abroad.
We paid attention to climate changes
and protected green hills and clear
waters. Our input in environmental
protection reached a new height. We
arranged special person to be responsible
for such related work, improved our
environmental protection management
system, and planned to save energy and
reduce emission in scientific ways. We
continued to explore how to improve the
As the rapid development of the world,
taking plane for trip has become a choice
of more and more people now. China
Southern Airlines transports more than
300,000 passengers each and every day
to more than 40 countries and regions
and more than 200 destinations. We
deeply think about “how and where to
fly” for each flight because we burden
responsibilities. “Sunshine Flight” is our
attitude to each flight. We make efforts
to provide passengers with sunshine-like
services. We care about the society and
we are happy to give back to the society.
We carefully create air route network
via which, family, friends, partners can
get together. We operate our company
in sunshine. We create in all-round way
a warm, transparent, and responsible
sunshine company to help you live a
beautiful life.
We insisted on the idea of safety comes
first and improving our service quality.
We have created a safety culture of
“capable, keeping the rules, and trustful”.
We have maintained safety flight for
more than 18 consecutive years and
air defense security for 23 consecutive
years. We have maintained the best
safety records among China’s airlines.
We were the first to launch such services
as boarding by face recognition, and
“stand-up luggage”, barrier free websites.
We optimized automatic ticket canceling
and alteration flows and enlarged the
energy utilization efficiency. We tried
all kinds of methods to reduce emissions
of carbon dioxide, such as technology
innovation, increasing efficiency,
using alternative fuels. We actually
fulfilled our responsibility for reducing
emissions according to our development
stage and ability by actually using the
carbon trading scheme. As a result, the
Company reduced a total of 63,000 tons
of carbon dioxide emissions throughout
2017. We signed Buckingham Place
Declaration to announce our participation
in the suppression of illegal transport and
trading of wildlife and its products to
jointly guard the home of human beings.
We gathered diversified talents and
promoted employees to work happily.
We incorporated our core values of
“respect talents” into the whole process
of employee recruitment, training and
management. We constantly improved
our employees’ work skills and
integrated quality. We strove to create a
fair and impartial growth environment
to promote the employees to get a good
balance between work and life, so as
to achieve common development of
the employees and the Company. In
2017, the Company was again awarded
two awards, i.e. “China’s Top 30 Best
Employers” and “The Most Attractive
Employers to Women”.
SOCIAL RESPONSIBILITYSocial ResponsibilityChina Southern Airlines Company LimitedANNUAL REPORT 2017 139
We actively gave back to the society to
help the society develop harmoniously.
We kept developing ourselves while
making contributions to the society.
We never forgot our original desire
aspiration to give back to the society.
In 2017, we gave full play to our own
professional advantages to execute for
many times, among others, international
peacekeeping, governmental chartered
airplane, emergency rescue and disaster
relief aviation transport tasks. We
actively participated in public welfare
cause. We fulfilled our responsibility
to spread love and civilization and give
back to the society by virtue of charitable
donation, poverty alleviation, volunteer
service activities and etc. Throughout
2017, we invested a total of RMB15.30
million for poverty alleviation and
materials donation, and donated a total
of RMB2.8 million for China Southern
Airlines ‘Ten-Cent’ Caring Foundation.
Our goal was to achieve a whole
“traceable trading” process to create
“sunshine purchase”. We also actively
promote our suppliers to fulfill their
social responsibility together with us.
Meanwhile, we continued to strengthen
communication with stakeholders. We
launched large Public Day activities
to build a bridge for communication
between the public and us.
For details of the Company’s work
to fulfill its social responsibility,
please see 2017 Social Responsibility
Report of China Southern Airlines Co.,
Ltd. disclosed on the website of the
HKEXnews on 26 March 2018.
SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITYChina Southern Airlines Company LimitedANNUAL REPORT 2017 140
1.
2.
3.
4.
5.
6.
7.
8.
9.
In 2017, we were awarded the title of “The Best Enterprise in Social Responsibility” in the 9th session annual social
responsibility meeting of China’s enterprises held by Southern Weekly.
“Annual Enterprise of Social Responsibility · Public Services Award” by Guangzhou Daily.
In 2017, we were awarded by China quality association in 2017 as the “National User Satisfaction Benchmark Enterprise”
and got the first place for the air service of China’s customers recommendation rate.
In 2016 and 2017, we were awarded consecutively by Fortune China “China’s Top 500 Enterprises”, ranking first in the
transport industry.
China Southern Airlines ‘Ten-Cent’ Caring Foundation was awarded by SASAC of the State Council the title of “Excellent
Volunteer Service Project of Central Government-led Enterprises” and the first batch of the top ten volunteer service
brands of central government-led enterprises.
We ranked sixth in “2017 World’s Top 50 Most Valuable Airlines Brands” released by Brand Finance, a British
independent brand assessment and consultation company. Our brand grade was AAA. We ranked first among China’s
airlines.
We were highly commended by the Euro Finance for “2016-2017 Annual Best Fund Management Team” and “Best Cash
Management” of “Taozhu Gong Awards”.
Our 2016 annual report was awarded gold prize of Gold Awards for the 30th Session of International ARC (Annual
Report Competition).
In 2017, our “China Southern e-travel”, an e-commerce project, was awarded IDC “Integrated Digital Transformation
Leader”.
10.
The 7th session of “China Securities Golden Bauhinia Award” ceremony was held in Hong Kong. Mr. Wang Chang
Shun, the chairman of China Southern Airlines, was awarded the most influential leader of listed companies, the most
valuable prize among the eleven prizes of the 7th session of “China Securities Golden Bauhinia Award”.
SOCIAL RESPONSIBILITYSocial ResponsibilityChina Southern Airlines Company LimitedANNUAL REPORT 2017 141
11.
12.
13.
14.
15.
In the 10th session international seminar on report of social responsibility of China’s enterprises, we were awarded “2017
GoldenBee Excellent Enterprise in Corporate Social Responsibility Report and Responsibility for Employees Information
Disclosure”.
In Weibo V Influence Summit held by Sina Weibo, we were awarded “2017 Weibo Top 10 Influential Airlines”.
In Guangdong-Hong Kong-Macao Bay Area “New Wealth · Heart Mission” 2017 corporate social responsibility forum,
we were awarded “Annual Enterprise of Social Responsibility · Public Services Award”.
In 2017 annual new media meeting of China enterprises held by SASAC News Office, our official Weibo account –
“@ China Southern Airlines” and official Wechat account – “China Southern Airlines” were awarded as “2017 Most
Influential New Media Accounts among Central Government-led Enterprises”.
In the award ceremony of the 9th session of “Most Popular Outbound Travel among Chinese Families”, we were awarded
“2017 China’s Most Popular Airlines among Chinese Families”.
SOCIAL RESPONSIBILITYSOCIAL RESPONSIBILITYChina Southern Airlines Company LimitedANNUAL REPORT 2017 to
Supplementary SYNERGY
During the reporting period, the Company were deeply integrated with Xiamen Airlines and Sichuan
Airlines to enhance the influence of “China Southern” on the markets. We reached a strategic
cooperation agreement with American Airlines, continuously strengthen the cooperation with
SkyTeam’s members, partnered with British Airways, Etihad Airways, South American Airlines
and other airlines, which provided more convenient and diversified trip options for passengers and
further enlarged our sales channels and route network.
144
To the shareholders of China Southern Airlines Company Limited
(Incorporated in the People’s Republic of China with limited liability)
Opinion
We have audited the consolidated financial statements of China Southern Airlines Company Limited (“the Company”) and its
subsidiaries (“the Group”) set out on pages 150 to 236, which comprise the consolidated statement of financial position as at 31
December 2017, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement
of changes in equity and the consolidated cash flow statement for the year then ended and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at
31 December 2017 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance
with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and
have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”) issued by the International Auditing and
Assurance Standards Board. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the
audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with International
Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (“IESBA Code”) together with any ethical
requirements that are relevant to our audit of the consolidated financial statements in the People’s Republic of China, and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Independent Auditor’s ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 145
Key audit matters (continued)
Recognition of passenger revenue
Refer to note 2(x)(i), note 2(x)(ii), note 3(a)(iii), note 5 and note 40 to the consolidated financial statements.
The Key Audit Matter
How the matter was addressed in our audit
Passenger revenue is recognised at the fair value of the
consideration received when the transportation service is
provided. Unearned passenger revenue at the reporting
date is included within sales in advance of carriage in the
consolidated statement of financial position.
The amount received in relation to mileage earning flights is
allocated, based on fair value, between the flight and mileage
earned by members of the Group’s frequent flyer award
programmes. The value attributed to the awarded mileage
is deferred as a liability, within deferred revenue, until the
mileage is redeemed and the related benefits are received
or used or they expire. The amount received from third
parties for the issue of mileage under the Group’s frequent
flyer award programmes is also deferred as a liability within
deferred revenue.
The Group maintains complex computer systems to keep
track of transportation services to determine the timing
of recognition and accuracy of passenger revenue, which
involves the processing of a large volume of data.
The Group also maintains computer systems to track the
issuance and subsequent redemption and utilisation of
awarded mileage. The Group estimates the amount of revenue
attributable to the mileage earned by the members of the
Group’s frequent flyer award programmes based on the fair
value of the mileage awarded and the expected redemption
rate. The fair value of mileage awarded is estimated by
reference to external sales. The expected redemption rate
is estimated based on historical experience, anticipated
redemption patterns and the frequent flyer programmes’
design.
We identified the recognition of passenger revenue as a key
audit matter because it involves complex computer systems,
which give rise to an inherent risk that passenger revenue
could be recorded inaccurately or in the incorrect period
and because the estimations of the fair value and expected
redemption rate of mileage awarded give rise to an inherent
risk that passenger revenue could be recorded inaccurately, in
the incorrect period or could be subject to manipulation.
Our audit procedures to assess the recognition of passenger
revenue included the following:
•
•
•
•
•
•
•
with the assistance of our internal information technology
specialists, assessing the Group’s relevant computer
application controls relating to revenue recognition,
including assessing whether the computer systems
operated as they were designed and were protected
from data manipulation or software logic that could
result in inaccurate accounting information relating to
passenger revenue being recorded. The selected computer
application controls assessed included those relating to
the completeness of transfers of data between computer
systems, ticket validation to identify data errors and the
assignment of ticket prices to each flight;
evaluating the Group’s key internal manual controls
to assess the treatment of exceptions identified upon
reconciliation of the outputs from computer systems with
the Group’s financial and operating records;
performing analytical procedures on the Group’s
passenger revenue by developing an expectation
for passenger revenue using independent inputs and
information generated from the Group’s computer
systems and comparing such expectations with the
passenger revenue recorded by the Group;
assessing the design and implementation and operating
effectiveness of the Group’s internal controls over the
determination of the fair value of and redemption rate for
mileage awarded;
evaluating the fair value of mileage awarded by
comparing the Group’s calculations with observable
external sales of mileage;
challenging the Group’s assumptions relating to the
redemption rate for mileage by comparison with historical
experience and planned changes to the programmes that
may impact future redemption activities;
inspecting underlying documentation for manual journal
entries relating to passenger revenue which were material
or met specified risked-based criteria.
Independent Auditor’s ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 146
Key audit matters (continued)
Impairment of the aircraft fleet
Refer to note 2(l)(ii), note 3(a)(i) and note 20(e) to the consolidated financial statements.
The Key Audit Matter
How the matter was addressed in our audit
As at 31 December 2017, the carrying value of the Group’s
aircraft and related equipment was RMB147,563 million.
Our audit procedures to assess impairment of the aircraft fleet
included the following:
A number of factors, including but not limited to, significant
decreases in the market value of aircraft and net operating
cash outflows associated with the use of the aircraft, could
result in significant impairment of aircraft and related
equipment.
Impairment of the aircraft fleet was assessed by management
based on the higher of fair value less costs of disposal and
value in use. In determining the value in use, expected
future cash flows to be generated by the aircraft fleet were
discounted to their present value, which requires significant
management judgement relating to forecast air traffic revenue,
forecast operating costs and the discount rate applied.
We identified impairment of the aircraft fleet as a key audit
matter because of its significance to the consolidated financial
statements and because of the inherent uncertainty involved
in forecasting and discounting future cash flows.
•
•
•
•
•
•
•
assessing the design and implementation and operating
effectiveness of the Group’s key internal controls over the
assessment of impairment of the aircraft fleet;
challenging management’s assessment of potential
indicators of impairment based on our own expectations
developed from our knowledge of the Group and our
experience of the airline industry;
assessing the design and implementation of the Group’s
budgeting process, upon which the forecasts of air traffic
revenue and related operating costs were based, and the
principles and integrity of the Group’s discounted cash
flow model;
with the assistance of our internal valuation specialists,
evaluating the assumptions and methodology adopted
by management in its impairment assessment, including
forecast revenue growth, forecast profit margins and the
discount rate applied, with reference to the requirements
of the prevailing accounting standards;
with the assistance of our internal valuation specialists,
comparing the key assumptions adopted by management
in its impairment assessment with externally derived data
as well as our own assessments in relation to key inputs,
which included projected economic growth, competition,
cost inflation and the discount rate applied;
assessing the sensitivity of the outcome of the impairment
assessment to changes in key assumptions, including
forecast revenue growth and forecast profit margins
and considering whether there were any indicators of
management bias in the selection of the key assumptions;
comparing the actual results of aircraft operations
in the current year with management’s forecasts as
at 31 December 2016 to evaluate the reliability of
management’s forecasting process.
Independent Auditor’s ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 147
Key audit matters (continued)
Provisions for major overhauls
Refer to note 2(z), note 3(a)(ii) and note 44 to the consolidated financial statements.
The Key Audit Matter
How the matter was addressed in our audit
The Group operated 264 aircraft held under external operating
leases as at 31 December 2017. Under the terms of the
operating lease arrangements, the Group has responsibility to
fulfill certain conditions upon the return of the aircraft at the
end of the leases.
Provisions for the cost of major overhauls to fulfil the lease
return conditions for airframes and engines held under
operating leases are accrued and charged to the income
statement over the estimated overhaul period.
This requires management to estimate the expected overhaul
cycles and overhaul costs, based on the historical experience
of the actual costs incurred for the overhaul of airframes and
engines of the same or similar types and current economic
and airline-related developments.
As at 31 December 2017, provisions for major overhauls
of RMB3,370 million were recorded in the consolidated
statement of financial position.
We identified provisions for major overhauls as a key audit
matter because of the inherent uncertainty involved in
forecasting the overhaul cycles and future overhaul costs for
each different airframes and engine types.
Our audit procedures to assess provisions for major overhauls
included the following:
•
•
•
•
assessing the design, implementation and operating
effectiveness of the Group’s key internal controls over
the provisions for major overhauls for aircraft held under
operating leases;
comparing the information used by the Group’s financial
management team to calculate the provisions for major
overhauls with the Group’s engineering department’s
expected overhaul cycles, overhaul costs and actual
maintenance costs based on information obtained from
discussions with engineering department management
responsible for aircraft maintenance;
evaluating the key assumptions adopted by management
in its assessment of the overhaul cycles and future
overhaul costs by taking into consideration the terms of
the operating lease agreements and the Group’s historical
maintenance experience;
challenging the key assumptions adopted by management
in calculating the provisions of major overhauls based on
our own expectations developed from our knowledge of
the Group and experience of the airline industry.
Independent Auditor’s ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 148
Information other than the consolidated financial statements and auditor’s
report thereon
The directors are responsible for the other information. The other information comprises all the information included in the annual
report, other than the consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated financial statements
The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance
with IFRSs issued by the IASB and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control
as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. This report is made solely
to you, as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the
contents of this report.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
Independent Auditor’s ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 149
Auditor’s responsibilities for the audit of the consolidated financial statements
(continued)
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the
audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal
control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding
independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence and, where applicable, related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of
the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our
auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Chung Kai Ming.
KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong
26 March 2018
Independent Auditor’s ReportChina Southern Airlines Company LimitedANNUAL REPORT 2017 150
Operating revenue
Traffic revenue
Other operating revenue
Total operating revenue
Operating expenses
Flight operation expenses
Maintenance expenses
Aircraft and transportation service expenses
Promotion and selling expenses
General and administrative expenses
Depreciation and amortisation
Impairment on property, plant and equipment
Others
Total operating expenses
Other net income
Operating profit
Interest income
Interest expense
Share of associates’ results
Share of joint ventures’ results
Exchange gain/(loss), net
Fair value movement of derivative financial instruments
Gain on deemed disposal of a subsidiary
Remeasurement of the originally held equity interests in a joint venture
Profit before income tax
Income tax
Profit for the year
Profit attributable to:
Equity shareholders of the Company
Non-controlling interests
Profit for the year
Earnings per share
Basic and diluted
Note
2017
RMB million
2016
RMB million
5
7
8
9
10
11
12
13
20
15
16
25
26
37(d)
29
24(iv)
17
19
19
121,873
5,933
127,806
62,978
11,877
22,935
6,881
3,391
13,162
324
1,550
109,693
5,288
114,981
51,461
11,318
20,215
6,304
2,815
12,619
71
1,401
123,098
106,204
4,448
9,156
89
(2,747)
431
99
1,801
(64)
–
109
8,874
(1,976)
6,898
5,961
937
6,898
3,835
12,612
89
(2,465)
509
102
(3,276)
–
90
–
7,661
(1,763)
5,898
5,044
854
5,898
RMB0.60
RMB0.51
The accompanying notes form part of these financial statements.
For the year ended 31 December 2017Consolidated Income Statement China Southern Airlines Company LimitedANNUAL REPORT 2017
151
Profit for the year
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
– Cash flow hedge: fair value movement of derivative financial
instruments
– Fair value movement of available-for-sale financial assets
– Share of other comprehensive income of associates
– Deferred tax relating to above items
Other comprehensive income for the year
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity shareholders of the Company
Non-controlling interests
Total comprehensive income for the year
Note
18
18
25
18
2017
RMB million
6,898
2016
RMB million
5,898
25
123
2
(37)
113
7,011
6,028
983
7,011
8
362
(2)
(92)
276
6,174
5,196
978
6,174
The accompanying notes form part of these financial statements.
For the year ended 31 December 2017Consolidated Statement of Comprehensive IncomeChina Southern Airlines Company LimitedANNUAL REPORT 2017
152
Non-current assets
Property, plant and equipment, net
Construction in progress
Lease prepayments
Goodwill
Interest in associates
Interest in joint ventures
Other investments in equity securities
Aircraft lease deposits
Available-for-sale financial assets
Derivative financial instruments
Deferred tax assets
Other assets
Current assets
Inventories
Trade receivables
Other receivables
Cash and cash equivalents
Assets held for sale
Restricted bank deposits
Prepaid expenses and other current assets
Amounts due from related companies
Current liabilities
Derivative financial instruments
Borrowings
Current portion of obligations under finance leases
Trade payables
Sales in advance of carriage
Deferred revenue
Current income tax
Amounts due to related companies
Accrued expenses
Other liabilities
Net current liabilities
Total assets less current liabilities
31 December
2017
RMB million
31 December
2016
RMB million
Note
20
21
22
23
25
26
27
28
29
30
31
32
33
34
35
36
41
29
37
38
39
40
41
42
43
158,926
30,233
2,923
237
3,031
1,015
103
642
622
46
1,662
1,394
200,834
1,622
2,675
5,232
6,826
8
111
1,334
76
17,884
64
27,568
8,341
2,125
7,853
1,502
919
101
15,370
5,734
69,577
146,746
28,910
2,687
182
2,590
1,522
103
725
499
21
1,685
1,008
186,678
1,588
2,989
3,387
4,152
–
135
1,415
98
13,764
–
26,746
8,695
1,903
8,420
1,299
647
103
15,147
4,972
67,932
(51,693)
149,141
(54,168)
132,510
At 31 December 2017Consolidated Statement of Financial PositionChina Southern Airlines Company LimitedANNUAL REPORT 2017
153
Non-current liabilities
Borrowings
Obligations under finance leases
Deferred revenue
Provision for major overhauls
Provision for early retirement benefits
Deferred benefits and gains
Deferred tax liabilities
Net assets
Capital and reserves
Share capital
Reserves
Total equity attributable to equity shareholders of the Company
Non-controlling interests
Total equity
Approved and authorised for issue by the Board of Directors on 26 March 2018.
Note
37
38
40
44
45
46
30
47
48
31 December
2017
RMB million
31 December
2016
RMB million
20,719
59,583
1,849
2,808
3
1,053
583
86,598
62,543
10,088
39,848
49,936
12,607
62,543
18,758
53,527
1,622
2,089
6
691
841
77,534
54,976
9,818
33,638
43,456
11,520
54,976
Wang Chang Shun
Director
Tan Wan Geng
Director
The accompanying notes form part of these financial statements.
At 31 December 2017Consolidated Statement of Financial Position (continued)China Southern Airlines Company LimitedANNUAL REPORT 2017
154
Balance at 1 January 2016
Changes in equity for 2016:
Profit for the year
Other comprehensive income
Total comprehensive income
Appropriations to reserves
Dividends relating to 2015
Capital injection of non-
controlling interests in a
subsidiary
Decrease in non-controlling
interests as a result of loss of
control of a subsidiary
Distributions to non-controlling
interests
Balance at 31 December 2016
Attributable to equity shareholders of the Company
Share
capital
RMB
million
9,818
Share
premium
RMB
million
14,131
Fair value
reserve
RMB
million
Other
reserves
RMB
million
Retained
earnings
RMB
million
55
1,675
13,366
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
154
154
–
–
–
–
–
–
(2)
(2)
405
–
–
–
–
5,044
–
5,044
(405)
(785)
–
–
–
Non-
controlling
interests
RMB
million
10,579
854
124
978
–
–
Total
RMB
million
39,045
5,044
152
5,196
–
(785)
Total
equity
RMB
million
49,624
5,898
276
6,174
–
(785)
–
–
–
260
260
(83)
(83)
(214)
(214)
and 1 January 2017
9,818
14,131
209
2,078
17,220
43,456
11,520
54,976
Changes in equity for 2017:
Profit for the year
Other comprehensive income
Total comprehensive income
Appropriations to reserves
Dividends relating to 2016
(Note 48(b))
Issuance of shares
(Note 47(ii))
Capital injection of non-
controlling interests in
subsidiaries
Dilution and change in non-
controlling interests and
other reserves
Distributions to non-controlling
interests
–
–
–
–
–
–
–
–
–
–
270
1,051
–
–
–
–
–
–
–
66
66
–
–
–
–
–
–
–
1
1
492
–
–
–
113
–
5,961
–
5,961
(492)
5,961
67
6,028
–
(982)
(982)
1,321
937
46
983
–
–
–
6,898
113
7,011
–
(982)
1,321
–
–
–
–
–
404
404
113
–
(39)
74
(261)
(261)
Balance at 31 December 2017
10,088
15,182
275
2,684
21,707
49,936
12,607
62,543
The accompanying notes form part of these financial statements.
For the year ended 31 December 2017Consolidated Statement of Changes in EquityChina Southern Airlines Company LimitedANNUAL REPORT 2017
155
Note
35(b)
24(iv)&(v)
Operating activities
Cash generated from operating activities
Interest received
Interest paid
Income tax paid
Net cash generated from operating activities
Investing activities
Acquisition of subsidiaries, net of cash acquired
Deemed disposal of a subsidiary
Proceeds from disposal of property, plant and equipment and lease
prepayments
Proceeds from sale of a joint venture
Dividends received from associates
Dividends received from joint ventures
Dividends received from other investments in equity securities and
available-for-sale financial assets
Acquisition of term deposits
Proceeds from maturity of term deposits
Additions of property, plant and equipment, lease prepayments and other
assets
Capital injection into associates
Payments for aircraft lease deposits
Refund of aircraft lease deposits
Net cash used in investing activities
Financing activities
Dividends paid to equity shareholders of the Company
Proceeds from issuance of shares
Proceeds from bank borrowings
Proceeds from ultra-short-term financing bills
Proceeds from corporate bond
Proceeds from medium-term notes
Repayment of bank borrowings
Repayment of principal under finance lease obligations
Repayment of ultra-short-term financing bills
Capital injection from the non-controlling interests of subsidiaries
Dividends paid to non-controlling interests
Payment for purchase of non-controlling interests
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange (loss)/gain on cash and cash equivalents
Cash and cash equivalents at 31 December
2017
RMB million
2016
RMB million
23,478
119
(3,758)
(2,107)
17,732
(682)
–
5,922
7
195
9
18
(313)
568
(13,846)
(185)
(40)
111
(8,236)
(982)
1,321
42,854
1,000
–
–
(18,311)
(9,835)
(22,986)
404
(261)
–
(6,796)
2,700
4,152
(26)
6,826
27,681
118
(2,629)
(1,406)
23,764
(189)
(67)
3,111
2
143
18
14
(263)
456
(18,967)
(34)
(55)
81
(15,750)
(785)
–
17,539
33,886
10,000
4,689
(46,695)
(6,994)
(19,900)
260
(221)
(238)
(8,459)
(445)
4,560
37
4,152
The accompanying notes form part of these financial statements.
For the year ended 31 December 2017Consolidated Cash Flow StatementChina Southern Airlines Company LimitedANNUAL REPORT 2017
156
1 Corporate information
China Southern Airlines Company Limited (the “Company”), a joint stock limited company, was incorporated in the People’s
Republic of China (the “PRC”) on 25 March 1995. The address of the Company’s registered office is Unit 301, 3/F, Office
Tower, Guanhao Science Park Phase I, 12 Yuyan Street, Huangpu District, Guangzhou, Guangdong Province, the PRC. The
Company and its subsidiaries (the “Group”) are principally engaged in the operation of civil aviation, including the provision of
passenger, cargo, mail delivery and other extended transportation services.
The Company’s majority interest is owned by China Southern Air Holding Limited Company (“CSAH”), formerly known as
China Southern Air Holding Company, a state-owned enterprise incorporated in the PRC.
The Company’s shares are traded on the Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and the New
York Stock Exchange.
2 Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.
(a) Basis of preparation
The consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting
Standards (“IFRSs”), which collective term includes all applicable individual IFRSs, International Accounting Standards
(“IASs”) and Interpretations issued by the International Accounting Standards Board (the “IASB”). The consolidated financial
statements also comply with the applicable disclosure requirements of the Hong Kong Companies Ordinance and the applicable
disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The
measurement basis used in the preparation of the financial statements is the historical cost basis, except that available-for-sale
equity securities and derivative financial instruments are stated at their fair value as explained in the accounting policies set out
in Note 2(f) and Note 2(g). Non-current assets and disposal groups held for sale are stated at the lower of carrying amount and
fair value less costs to sell (Note 2(q)).
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates
and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
Judgements made by management in the application of IFRSs that have significant effect on the financial statements and major
sources of estimation uncertainty are discussed in Note 3.
The consolidated financial statements comprise the Company and its subsidiaries and the Group’s interest in associates and joint
ventures.
(b) Changes in accounting policies
The IASB has issued several amendments to IFRSs that are first effective for the current accounting period of the Group. None
of these developments have had a material effect on how the Group’s results and financial position for the current or prior
periods have been prepared or presented. However, additional disclosure has been included in Note 35(c) to satisfy the new
disclosure requirements introduced by the amendments to IAS 7, Statement of cash flows: Disclosure initiative, which require
entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing
activities, including both changes arising from cash flows and non-cash changes.
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Note 59
provides information on the possible impact of amendments, new standards and interpretations issued but not yet effective for
the year ended 31 December 2017.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 157
2 Significant accounting policies (continued)
(c) Subsidiaries and non-controlling interests
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are
considered.
An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences
until the date that control ceases. Intra-group transactions, balances and cash flows and any unrealised gains on transactions
between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the transferred asset. When necessary, amounts reported by subsidiaries have been adjusted to conform with the
Group’s accounting policies.
Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in
respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the
Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability.
With regards to each business combination, the Group recognised non-controlling interests based on the proportion of the net
identifiable assets of the subsidiary owned by the non-controlling interests.
Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity
attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the
face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total
profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the
Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented
as financial liabilities in the consolidated statement of financial position in accordance with Note 2(o) or Note 2(p) depending on
the nature of the liability.
Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions,
whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect
the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with
a resulting gain or loss being recognised in consolidated income statement. Any interest retained in that former subsidiary at
the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a
financial asset (Note 2(f)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture
(Note 2(d)).
In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (Note
2(l)).
The Group applies the acquisition method to account for business combinations. The consideration transferred in the acquisition
is generally measured at fair value, as are the identifiable net assets acquired. Transaction costs are expensed as incurred.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are
generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration
that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted
for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent
changes in the fair value of the contingent consideration are recognised in profit or loss.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 158
2 Significant accounting policies (continued)
(d) Associates and joint arrangements
An associate is an entity in which the Group or the Company has significant influence, but not control or joint control, over its
management, including participation in the financial and operating policy decisions.
The Group has applied IFRS 11, Joint Arrangements (“IFRS 11”) to all joint arrangements. Under IFRS 11, investments in joint
arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each
investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures.
An investment in an associate or a joint venture is accounted for in the consolidated financial statements under the equity
method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of
the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the
post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment
(Notes 2(e) and 2(l)). The Group’s share of the post-acquisition, post-tax results of the investees, adjusted for any acquisition-
date excess over cost and any impairment losses for the year are recognised in the consolidated income statement, whereas
the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the
consolidated statement of comprehensive income.
When the Group’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil
and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations
or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment
under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment
in the associate or the joint venture.
Unrealised profits and losses resulting from transactions between the Group and its associates and joint ventures are eliminated
to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the
asset transferred, in which case they are recognised immediately in the consolidated income statement.
In the Company’s statement of financial position, investments in associates and joint ventures are stated at cost less impairment
losses (Note 2(l)).
(e) Goodwill
Goodwill represents the excess of
(i)
the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree
and the fair value of the Group’s previously held equity interest in the acquiree; over
(ii)
the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognised immediately in the consolidated income statement as a gain on a
bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each
cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is
tested annually for impairment (Note 2(l)).
(f) Other investments in equity securities
The Group’s and the Company’s policies for investments in equity securities, other than investments in subsidiaries, associates
and joint ventures, are as follows:
Investments in equity securities are initially stated at fair value, which is their transaction price unless fair value can be more
reliably estimated using valuation techniques whose variables include only data from observable markets. Cost includes
attributable transaction costs, except where indicated otherwise below. These investments are subsequently accounted for as
follows, depending on their classification:
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 159
2 Significant accounting policies (continued)
(f) Other investments in equity securities (continued)
Available-for-sale equity securities are those non-derivative financial assets that are designated as available for sale or that
are not classified as loans and receivable, held-to-maturity investments, or financial assets at fair value through profit or loss.
At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in other
comprehensive income and accumulated separately in equity in the fair value reserve. Dividend income from these investments
is recognised in the consolidated income statement in accordance with the policy set out in Note 2(x)(iv). When these
investments are derecognised or impaired (Note 2(l)), the cumulative gain or loss is reclassified from equity to profit or loss.
The Group’s other investments in equity securities represent investments in equity securities that do not have a quoted price in
an active market for an identical instrument and whose fair value cannot otherwise be reliably measured. Accordingly, they are
recognised in the consolidated statement of financial position at cost less impairment losses (Note 2(l)). Dividend income from
equity securities is recognised in profit or loss in accordance with the policy set out in Note 2(x)(iv).
Investments are recognised on the date the Group commits to purchase the investments, and are derecognized on the date the
Group commits to sell investments or the Group’s rights to the cash flows from the investments expired.
(g) Derivative financial instruments
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged.
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as
well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of hedged items.
Derivative financial instruments that do not qualify for hedge accounting are accounted for as trading instruments and any
unrealised gains or losses, being changes in fair value of the derivatives, are recognised in the profit or loss immediately.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are
recorded in the profit or loss, along with any changes in the fair value of the hedged assets or liabilities that are attributable to
the hedged risk.
Derivative financial instruments that qualify for hedge accounting and which are designated as a specific hedge of the variability
in cash flows of a highly probable forecast transaction, are accounted for as follows:
(i)
The effective portion of any gains or losses on remeasurement of the derivative financial instrument to fair value are
recognised in other comprehensive income and accumulated separately in equity in the fair value reserve. The cumulative
gain or loss on the derivative financial instrument recognised in other comprehensive income is reclassified from equity to
profit or loss in the same period during which the hedged forecast cash flows affects profit or loss; and
(ii) The ineffective portion of any gains or losses on remeasurement of the derivative financial instrument to fair value is
recognised in the profit or loss immediately.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gains or losses existing in equity at that time remains in equity and is recognised in the profit or loss when the
committed or forecast transaction ultimately occurs. When a committed or forecast transaction is no longer expected to occur,
the cumulative gains or losses that was recorded in equity is immediately transferred to the profit or loss.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 160
2 Significant accounting policies (continued)
(h) Investment properties
Investment properties are land and/or buildings which are owned to earn rental income and/or for capital appreciation.
Investment properties are stated at cost, less accumulated depreciation and impairment losses (Note 2(l)). Depreciation is
calculated to write off the cost of items of investment properties, less their estimated residual value, if any, using the straight-
line method over their estimated useful lives. Rental income from investment properties is accounted for as described in Note
2(x)(iii).
(i) Other property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (Note 2(l)).
The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial
estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located,
and an appropriate proportion of production overheads and borrowing costs (Note 2(aa)).
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the
consolidated income statement during the financial period in which they are incurred.
When each major aircraft overhaul is performed, its cost is recognised in the carrying amount of the component of aircraft and
is depreciated over the appropriate maintenance cycles. Components related to overhaul cost, are depreciated on a straight-line
basis over 3 to 12 years. Upon completion of an overhaul, any remaining carrying amount of the cost of the previous overhaul is
derecognised and charged to the consolidated income statement.
Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the
difference between the net disposal proceeds and the carrying amount of the item and are recognised in consolidated income
statement on the date of retirement or disposal.
Except for components related to overhaul costs, the depreciation of other property, plant and equipment is calculated to write
off the cost of items, less their estimated residual value, if any, using the straight line method over their estimated useful lives as
follows:
Buildings
Owned and finance leased aircraft
Other flight equipment
–Jet engines
–Others, including rotables
Machinery and equipment
Vehicles
5 to 35 years
15 to 20 years
15 to 20 years
3 to 15 years
4 to 10 years
6 to 8 years
Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a
reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value,
if any, are reviewed annually.
(j) Construction in progress
Construction in progress represents advance payments for the acquisition of aircraft and flight equipment, office buildings,
various infrastructure projects under construction and equipment pending for installation, and is stated at cost less impairment
losses (Note 2(l)). Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and
equipment when the asset is substantially ready for its intended use, notwithstanding any delay in the issue of the relevant
commissioning certificates by the relevant PRC authorities.
No depreciation is provided in respect of construction in progress.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 161
2 Significant accounting policies (continued)
(k) Leased assets
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the
arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of
payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether
the arrangement takes the legal form of a lease.
(i) Classification of assets leased to the Group
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of
ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and
rewards of ownership to the Group are classified as operating leases, except for land held for own use under an operating
lease, the fair value of which cannot be measured separately from the fair value of a building situated thereon at the
inception of the lease, is accounted for as being held under a finance lease, unless the building is also clearly held under
an operating lease. For these purposes, the inception of the lease is the time that the lease was first entered into by the
Group, or taken over from the previous lessee.
(ii) Assets acquired under finance leases
Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased
asset, or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and
equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases.
Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or,
where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in Note 2(i). Impairment
losses are accounted for in accordance with the accounting policy as set out in Note 2(l). Finance charges implicit in
the lease payments are charged to consolidated income statement over the period of the leases so as to produce an
approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
Contingent rentals are charged to consolidated income statement in the accounting period in which they are incurred.
(iii) Operating lease charges
Where the Group has the use of assets held under operating leases, payments made under the leases are charged to
consolidated income statement in equal instalments over the accounting periods covered by the lease term, except where
an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives
received are recognised in consolidated income statement as an integral part of the aggregate net lease payments made.
Contingent rentals are charged to consolidated income statement in the accounting period in which they are incurred.
The cost of acquiring land held under an operating lease is amortised on a straight-line basis over the respective periods of
lease terms which range from 30 to 70 years.
(iv) Sale and leaseback transactions
Gains or losses on aircraft sale and leaseback transactions which result in finance leases are deferred and amortised over
the terms of the related leases.
Gains or losses on aircraft sale and leaseback transactions which result in operating leases are recognised immediately
if the transactions are established at fair value. If the sale price is below fair value then the gain or loss is recognised
immediately. However, if a loss is compensated for by future rentals at a below-market price, then the loss is deferred
and amortised over the period that the aircraft is expected to be used. If the sale price is above fair value, then any gain is
deferred and amortised over the useful life of the assets.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 162
2 Significant accounting policies (continued)
(l) Impairment of assets
(i)
Impairment of investments in equity securities and receivables
Investments in equity securities and current and non-current receivables that are stated at cost or amortised cost or are
classified as available-for-sale equity securities are reviewed at the end of each reporting period to determine whether
there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the
attention of the Group about one or more of the following loss events:
–
–
–
–
significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse effect on the
debtor; and
–
a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
If any such evidence exists, any impairment loss is determined and recognised as follows:
–
–
–
For investments in associates and joint ventures accounted for under the equity method in the consolidated financial
statements (Note 2(d)), the impairment loss is measured by comparing the recoverable amount of the investment
with its carrying amount in accordance with Note 2(l)(ii). The impairment loss is reversed if there has been a
favourable change in the estimates used to determine the recoverable amount in accordance with Note 2(l)(ii).
For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the
carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of
return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities
carried at cost are not reversed.
For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss
is measured as the difference between the asset’s carrying amount and the present value of estimated future cash
flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at
initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively
where these financial assets share similar risk characteristics, such as similar past due status, and have not been
individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment
collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective
group.
If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to
an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss.
A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have
been determined had no impairment loss been recognised in prior years.
–
For available-for-sale equity securities, the cumulative loss that has been recognised in the fair value reserve is
reclassified to profit or loss. The amount of the cumulative loss that is recognised in consolidated income statement
is the difference between the acquisition cost and current fair value, less any impairment loss on that asset
previously recognised in consolidated income statement.
Impairment losses recognised in consolidated income statement in respect of available-for-sale equity securities are
not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised directly in
other comprehensive income.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 163
2 Significant accounting policies (continued)
(l) Impairment of assets (continued)
(i)
Impairment of investments in equity securities and receivables (continued)
Impairment losses are written off against the corresponding asset directly, except for impairment losses recognised in
respect of trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment
losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote,
the amount considered irrecoverable is written off against trade and other receivables directly and any amounts held in
the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the
allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent
recoveries of amounts previously written off directly are recognised in consolidated income statement.
(ii) Impairment of other assets
Internal and external sources of information are reviewed at the end of each reporting period to identify indications that
the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no
longer exists or may have decreased:
–
–
–
–
–
–
–
–
Investment properties;
Other property, plant and equipment;
Construction in progress;
Lease prepayments;
Goodwill;
Investments in subsidiaries, associates and joint ventures in the Company’s statement of financial position;
Aircraft lease deposits; and
Other assets
If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount of goodwill is estimated
annually whether or not there is any indication of impairment.
–
–
–
Calculation of recoverable amount
The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where
an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is
determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
Recognition of impairment losses
An impairment loss is recognised in consolidated income statement if the carrying amount of an asset, or the
cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect
of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-
generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group
of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair
value less costs of disposal, or value in use, if determinable.
Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the
estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.
A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no
impairment loss been recognised in prior years. Reversals of impairment losses are credited to consolidated income
statement in the year in which the reversals are recognised.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 164
2 Significant accounting policies (continued)
(l) Impairment of assets (continued)
(iii) Interim financial reporting and impairment
Under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Group is required
to prepare an interim financial report in compliance with IAS 34, Interim financial reporting, in respect of the first six
months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition,
and reversal criteria as it would at the end of the financial year (Notes 2(l)(i) and (ii)).
Impairment losses recognised in an interim period in respect of goodwill, available-for-sale equity securities and unquoted
equity securities carried at cost are not reversed in a subsequent period. This is the case even if no loss, or a smaller loss,
would have been recognised had the impairment been assessed only at the end of the financial year to which the interim
period relates. Consequently, if the fair value of an available-for-sale equity security increases in the remainder of the
annual period, or in any other period subsequently, the increase is recognised in other comprehensive income and not
profit or loss.
(m) Inventories
Inventories, which consist primarily of consumable spare parts and supplies, are stated at cost less any applicable provision for
obsolescence, and are charged to consolidated income statement when used in operations. Cost represents the average unit cost.
Inventories held for sale or disposal are carried at the lower of cost and net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make
the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the
related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories
are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of
inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal
occurs.
(n) Trade and other receivables
Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective
interest method, less allowance for impairment of doubtful debts (Note 2(l)), except where the effect of discounting would be
immaterial. In such cases, the receivables are stated at cost less allowance for impairment of bad and doubtful debts.
(o) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised
and redemption value being recognised in consolidated income statement over the period of the borrowings, together with any
interest and fees payable, using the effective interest method.
(p) Trade and other payables
Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance
with (Note 2(s)(i)), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be
immaterial, in which case they are stated at cost.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 165
2 Significant accounting policies (continued)
(q) Non-current assets held for sale
A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will be
recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale
in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and
liabilities directly associated with those assets that will be transferred in the transaction.
Immediately before classification as held for sale, the measurement of the non-current assets (and all individual assets and
liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the classification. Then, on
initial classification as held for sale and until disposal, the non-current assets (except for certain assets as explained below), or
disposal groups, are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to
this measurement policy so far as the financial statements of the Group and the Company are concerned are deferred tax assets,
assets arising from employee benefits, financial assets (other than investments in subsidiaries, associates and joint ventures) and
investment properties. These assets, even if held for sale, would continue to be measured in accordance with the policies set out
elsewhere in Note 2.
Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised
in profit or loss. As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified
as held for sale, the non-current asset is not depreciated or amortised.
(r) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions,
and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value, having been generally within three months of maturity at acquisition. Bank overdrafts that
are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash
and cash equivalents for the purpose of the consolidated cash flow statement.
(s) Financial guarantees issued, provisions and contingent liabilities
(i) Financial guarantees issued
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the
beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment
when due in accordance with the terms of a debt instrument.
Where the Group issues a financial guarantee, the fair value of the guarantee (being the transaction price, unless the fair
value can otherwise be reliably estimated) is initially recognised.
The amount of the guarantee initially recognised is amortised in consolidated income statement over the term of the
guarantee as income from financial guarantees issued. In addition, provisions are recognised in accordance with Note 2(s)
(ii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and
(ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables
in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.
(ii) Provisions and contingent liabilities
Provisions are recognised for other liabilities of uncertain timing or amount when the Group or the Company has a
legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits
will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material,
provisions are stated at the present value of the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably,
the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote.
Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future
events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 166
2 Significant accounting policies (continued)
(t) Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated financial statements
in the period in which the dividends are approved by the Company’s shareholders.
(u) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as
a deduction, net of tax, from the proceeds.
(v) Deferred benefits and gains
In connection with the acquisitions or leases of certain aircraft and engines, the Group receives various credits. Such credits are
deferred until the aircraft and engines are delivered, at which time they are either applied as a reduction of the cost of acquiring
the aircraft and engines, resulting in a reduction of future depreciation, or amortised as a reduction of rental expense for aircraft
and engines under leases.
(w) Income tax
Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements
in deferred tax assets and liabilities are recognised in consolidated income statement except to the extent that they relate to items
recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in
other comprehensive income or directly in equity, respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the
end of the reporting year, and any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets
also arise from unused tax losses and unused tax credits.
Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that
future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may
support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from
the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the
same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary
difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same
criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax
assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same
taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit
can be utilised.
The limited exception to the recognition of deferred tax assets and liabilities are those temporary differences arising from
goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part
of a business combination), and temporary differences relating to investments in subsidiaries, associates and joint ventures, to the
extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences
will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in
the future and it is probable that future taxable profit will be available against which the temporary difference can be utilised.
The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying
amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period and are
expected to apply when related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets and
liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that
it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such
reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 167
2 Significant accounting policies (continued)
(w) Income tax (continued)
Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are
not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if
the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the
following additional conditions are met:
–
–
in the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously; or
in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on
either:
–
–
the same taxable entity; or
different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or
assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax
liabilities on a net basis or realise and settle simultaneously.
(x) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Provided it is probable that the economic
benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in
income statement as follows:
(i) Passenger, cargo and mail revenue
Passenger revenue is recognised at the fair value of the consideration received when the transportation service is provided.
Unearned passenger revenue at the reporting date is included within sales in advance of carriage in the consolidated
statement of financial position.
Cargo and mail revenue are recognised when the transportation is provided.
Revenue from airline-related business are recognised when services are rendered.
(ii) Frequent flyer revenue
The Group maintains two major frequent flyer award programmes, namely, the China Southern Airlines Sky Pearl Club
and the Xiamen Airlines’ Egret Card Frequent Flyer Programme, which provide travel and other awards to members based
on accumulated mileages.
The amount received in relation to mileage earning flights is allocated, based on fair value, between the flight and mileage
earned by members of the Group’s frequent flyer award programmes. The value attributed to the awarded mileage is
deferred as a liability, within deferred revenue, until the mileage is redeemed and the related benefits are received or used
or they expire.
The amount received from third parties for the issue of mileage under the Group’s frequent flyer award programmes is
also deferred as a liability, within deferred revenue.
As members of the frequent flyer award programmes redeem mileages for an award, revenue in relation to flight awards
is recognised when the transportation is provided; revenue in relation to non-flight rewards is recognised at the point of
redemption where non-flight rewards are selected.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 168
2 Significant accounting policies (continued)
(x) Revenue recognition (continued)
(iii) Operating rental income
Receivable under operating leases is recognised in income statement in equal instalments over the periods covered by the
lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of
the leased asset. Lease incentives granted are recognised in income statement as an integral part of the aggregate net lease
payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.
(iv) Dividends
–
Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is
established.
–
Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.
(v) Government grants
Government grants are recognised in consolidated statement of financial position initially when there is reasonable
assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that
compensate the Group for expenses incurred are recognised as other net income in income statement on a systematic basis
in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are
deducted from the carrying amount of the asset and consequently are effectively recognised in income statement over the
useful life of the asset by way of reduced depreciation expense.
(vi) Interest income
Interest income is recognised as it accrues using the effective interest method.
(y) Traffic commissions
Traffic commissions are expensed in income statement when the transportation is provided and the related revenue is recognised.
Traffic commissions for transportation not yet provided are recorded on the consolidated statement of financial position as
prepaid expense.
(z) Maintenance and overhaul costs
Routine maintenance, repairs and overhauls are charged to income statement as and when incurred.
In respect of owned and finance leased aircraft, components within the aircraft subject to replacement during major overhauls
are depreciated over the average expected life between major overhauls. When each major overhaul is performed, its cost is
recognised in the carrying amount of property, plant and equipment and is depreciated over the estimated period between major
overhauls. Any remaining carrying amount of cost of previous major overhaul is derecognised and charged to income statement.
In respect of aircraft held under operating leases, the Group has responsibility to fulfil certain return conditions under relevant
lease agreements. In order to fulfil these return conditions, major overhauls are required to be conducted. Accordingly, estimated
costs of major overhauls are accrued and charged to the income statement over the estimated overhaul period. Differences
between the estimated costs and the actual costs of overhauls are charged to income statement in the period when the overhaul is
performed.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 169
2 Significant accounting policies (continued)
(aa) Borrowing costs
General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost
of those assets, until such time when substantially all the activities necessary to prepare the qualifying asset for its intended use
or sale are interrupted or complete.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Borrowing costs include interest expense, finance charges in respect of finance leases and exchange differences arising from
foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
(ab) Employee benefits
(i) Short term employee benefits and contributions to defined contribution retirement schemes
Salaries, annual bonuses and contributions to defined contribution retirement schemes are accrued in the year in which the
associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material,
these amounts are stated at their present values.
(ii) Termination benefits
Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate
employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without
realistic possibility of withdrawal.
(ac) Translation of foreign currencies
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are
presented in Renminbi, which is the Company’s functional and the Group’s presentation currency.
Foreign currencies transactions during the year are translated into Renminbi at the applicable rates of exchange quoted by the
People’s Bank of China (“PBOC”) prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign
currencies are translated into Renminbi at the PBOC exchange rates prevailing at the end of the reporting period. Exchange
gains and losses are recognised in income statement.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into
Renminbi at the PBOC exchange rates prevailing at the transaction dates. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are translated into Renminbi at the PBOC exchange rates prevailing at the dates
the fair value was determined.
(ad) Related parties
(a) A person, or a close member of that person’s family, is related to the Group if that person:
(i)
has control or joint control over the Group;
(ii)
has significant influence over the Group; or
(iii)
is a member of the key management personnel of the Group or the Group’s parent.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 170
2 Significant accounting policies (continued)
(ad) Related parties (continued)
(b) An entity is related to the Group if any of the following conditions applies:
(i)
The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow
subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a
group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to
the Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management
personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a Group of which it is a part, provides key management personnel services to the
Group or to the Group’s parent.
Close members of the family of a person are those family members who may be expected to influence, or be influenced
by, that person in their dealings with the entity.
(ae) Segment reporting
Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial
information provided regularly to the Group’s most senior executive management, who is the chief operating decision maker, for
the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical
locations.
Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar
economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the
type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory
environment. Operating segments which are not individually material may be aggregated if they share a majority of these
criteria.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 171
3 Accounting estimates and judgements
The Groups’ financial position and results of operations are sensitive to accounting methods, assumptions and estimates that
underlie the preparation of the financial statements. The Group bases the assumptions and estimates on historical experience and
on various other assumptions that the Group believes to be reasonable and which form the basis for making judgements about
matters that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates. Actual results
may differ from those estimates as facts, circumstances and conditions change.
The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and
the sensitivity of reported results to changes in condition and assumptions are factors to be considered when reviewing the
financial statements. In addition to the assumptions and estimates regarding fair value measurements of financial instruments
disclosed in Note 4(g), the Group believes the following also involve key accounting estimates and judgements used in the
preparation of the financial statements.
(a) Accounting estimates
(i)
Impairment of long-lived assets (other than goodwill)
If circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the asset may be
considered “impaired”, and an impairment loss may be recognised in accordance with IAS 36, Impairment of Assets. The
carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have
declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances
indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying
amount is reduced to the recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal
and value in use. In particular, in determining the value in use of the Group’s aircraft fleet, expected future cash flows to
be generated by the asset are discounted to their present value, which requires significant judgement relating to forecast
traffic revenue, forecast operating costs and discount rate applied. The Group uses all readily available information in
determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable
and supportable assumptions for projections of traffic revenue and operating costs and application of discount rate.
(ii) Provision for major overhauls
Provision for the cost of major overhauls to fulfil the lease return conditions for airframes and engines held under
operating leases are accrued and charged to the income statement over the estimated overhaul period. This requires
estimation of the expected overhaul cycles and overhaul costs, which are based on the historical experience of actual costs
incurred for overhauls of airframes and engines of the same or similar types and current economic and airline-related
developments. Different estimates could significantly affect the estimated provision and the results of operations.
(iii) Frequent flyer revenue
The amount of revenue attributable to the mileage earned by the members of the Group’s frequent flyer award
programmes is estimated based on the fair value of the mileage awarded and the expected redemption rate. The fair
value of mileage awarded is estimated by reference to external sales. The expected redemption rate is estimated based on
historical experience, anticipated redemption patterns and the frequent flyer programmes’ design. Different estimates could
significantly affect the estimated deferred revenue and the results of operations.
(iv) Depreciation
Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into
account the estimated residual value. The Group reviews the estimated useful lives of assets annually in order to determine
the amount of depreciation expense to be recorded during any financial year. The useful lives are based on the Group’s
historical experience with similar assets and take into account anticipated technological changes. The depreciation expense
for future periods is adjusted if there are significant changes from previous estimates.
(v) Provision for consumable spare parts and maintenance materials
Provision for consumable spare parts and maintenance materials is made based on the difference between the carrying
amount and the net realisable value. The net realisable value is estimated based on current market condition, historical
experience and the Group’s future operation plan for the consumable spare parts and maintenance materials. The net
realisable value may be adjusted due to the change of market condition and the future plan for the consumable spare parts
and maintenance materials.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 172
3 Accounting estimates and judgements (continued)
(a) Accounting estimates (continued)
(vi) Income tax
There are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary
course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether
additional tax will be due. Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the current and deferred income tax assets and liabilities in the year in which such
determination is made.
(vii) Impairment of trade receivables
When there is objective evidence that the Group will not be able to collect all amounts due according to the original
terms of the receivables, a provision for impairment of trade receivables is established based on the difference between
the receivable’s carrying amount and the present value of estimated future cash flows, discounted at the original effective
interest rate.
(b) Accounting judgements
Retirement benefits
According to IAS 19, Employee Benefits, an entity shall account not only for its legal obligation under the formal terms of a
defined benefit plan, but also for any constructive obligation that arises from the entity’s informal practices where the entity has
no realistic alternative but to pay the employee benefits. The Company believes the payments of welfare subsidy to those retirees
who retired before the establishment of Pension Scheme (as defined in Note 51(a)) are discretionary and have not created a legal
or constructive obligation. Such payments are made according to the Group’s business performance, and can be suspended at
any time (note 14).
4 Financial risk management and fair values
The Group is exposed to liquidity, interest rate, currency, credit risks and commodity jet fuel price risk in the normal course
of business. The Group’s overall risk management programme focuses on the unpredictability of financial market and seeks to
minimize the adverse effects on the Group’s financial performance. The Group’s exposure to these risks and the financial risk
management policies and practices used by the Group to manage these risks are described below.
(a) Liquidity risk
As at 31 December 2017, the Group’s current liabilities exceeded its current assets by RMB51,693 million. For the year ended
31 December 2017, the Group recorded a net cash inflow from operating activities of RMB17,732 million, a net cash outflow
from investing activities of RMB8,236 million and a net cash outflow from financing activities of RMB6,796 million, which in
total resulted in a net increase in cash and cash equivalents of RMB2,700 million.
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 2017, the Group had banking
facilities with several banks and financial institutions for providing bank financing up to approximately RMB181,922 million, of
which approximately RMB142,239 million was unutilised. The Directors of the Company believe that sufficient financing will
be available to the Group when and where needed.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 173
4 Financial risk management and fair values (continued)
(a) Liquidity risk (continued)
The following tables show the remaining contractual maturities at the end of the reporting period of the Group’s non-derivative
financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using
contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be
required to pay:
2017 Contractual undiscounted cash outflow
More than
1 year but
less than
2 years
More than
2 years but
less than
5 years
Within
1 year or
on demand
Carrying
amount at
31 December
RMB million RMB million RMB million RMB million RMB million RMB million
More than
5 years
Total
Borrowings
Obligations under finance leases
Trade and other payables and
accrued charges
28,776
10,764
19,701
59,241
9,676
10,257
–
19,933
11,975
29,627
–
41,602
28
28,251
–
28,279
50,455
78,899
19,701
149,055
48,287
67,924
19,701
135,912
2016 Contractual undiscounted cash outflow
More than
1 year but
less than
2 years
More than
2 years but
less than
5 years
Within
1 year or
on demand
Carrying
amount at
31 December
RMB million RMB million RMB million RMB million RMB million RMB million
More than
5 years
Total
Borrowings
Obligations under finance leases
Trade and other payables and
accrued charges
27,654
10,663
19,015
57,332
1,039
8,683
–
9,722
19,124
24,795
–
43,919
61
27,247
–
27,308
47,878
71,388
19,015
138,281
45,504
62,222
19,015
126,741
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
174
4 Financial risk management and fair values (continued)
(b) Interest rate risk
The interest rates and maturity information of the Group’s borrowings and obligations under finance leases are disclosed in Note
37 and Note 38, respectively. The Group’s borrowings and obligations under finance leases issued at floating and fixed interest
rates expose the Group to cash flow interest rate risk and fair value interest rate risk, respectively. The Group determines the
ratio of fixed-rate and floating-rate instruments according to the market environment, and maintains an appropriate combination
of fixed-rate and floating-rate instruments by reviewing and monitoring it on a regular basis.
Interest rate swaps, denominated in United States Dollars (“USD”), have been entered into to mitigate its cash flow interest
rate risk. Under the interest rate swaps, the Group agrees with other third parties to exchange, at specified intervals (primarily
quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed
notional amounts (Note 29).
Cross currency swaps have been entered into to mitigate its interest rate risk and foreign currency risk. Under the cross currency
swaps, the Group agrees with other third parties to exchange the floating interest and principal payments in USD for fixed
interest and principal payments in RMB for certain USD bank loans (Note 29).
As at 31 December 2017, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other
variables held constant, would have decreased/increased the Group’s profit after tax and retained profits by approximately
RMB530 million (2016: RMB376 million).
The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax and retained profits and other
components of consolidated equity that would arise assuming that the change in interest rates had occurred at the end of the
reporting period and had been applied to re-measure those financial instruments held by the Group which expose the Group to
fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising
from floating rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group’s
profit after tax (and retained profits) and other components of consolidated equity is estimated as an annualised impact on
interest expense or income of such a change in interest rates. This analysis is performed on the same basis as that for 2016.
(c) Foreign currency risk
Renminbi is not freely convertible into foreign currencies. All foreign exchange transactions involving Renminbi must take place
either through the PBOC or other institutions authorised to buy and sell foreign exchange or at a swap centre.
The Group has significant exposure to foreign currency risk as majority of the Group’s obligations under finance leases (Note
38) and certain of the bank borrowings (Note 37) are denominated in foreign currencies, principally USD, Euro and Japanese
Yen. Depreciation or appreciation of Renminbi against foreign currencies affects the Group’s results significantly because the
Group’s foreign currency liabilities generally exceed its foreign currency assets.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 175
4 Financial risk management and fair values (continued)
(c) Foreign currency risk (continued)
The following table indicates the instantaneous change in the Group’s profit after tax and retained profits that would arise if
foreign exchange rates to which the Group has significant exposure at the end of the reporting period had changed at that date,
assuming all other risk variables remained constant. The range of such sensitivity was considered to be reasonably possible at
the end of the reporting date.
USD
Euro
Japanese Yen
USD
Euro
Japanese Yen
2017
Appreciation/
(depreciation) of
Renminbi against
foreign currency
Increase/(decrease)
on profit after tax
and retained profits
RMB million
1%
(1%)
1%
(1%)
10%
(10%)
2016
278
(278)
31
(31)
116
(116)
Appreciation/
(depreciation) of
Renminbi against
foreign currency
Increase/(decrease)
on profit after tax
and retained profits
RMB million
1%
(1%)
1%
(1%)
10%
(10%)
305
(305)
31
(31)
134
(134)
Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Group
entities’ profit after tax and retained profits measured in the respective functional currencies, translated into Renminbi at the
exchange rate ruling at the end of the reporting period for presentation purposes.
The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial
instruments, borrowings, and finance lease obligations held by the Group which expose the Group to foreign currency risk at
the end of the reporting period, including inter-company payables and receivables within the Group which are denominated in a
currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result
from the translation of the financial statements of foreign operations into the Group’s presentation currency. The analysis is
performed on the same basis for 2016.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
176
4 Financial risk management and fair values (continued)
(d) Credit risk
The Group’s credit risk is primarily attributable to cash and cash equivalents, trade receivables and the guarantees on personal
bank loans provided to the Group’s pilot trainees.
Substantially all of the Group’s cash and cash equivalents are deposited with major reputable PRC financial institutions, which
management believes are of high credit quality.
A significant portion of the Group’s air tickets are sold by agents participating in the Billing and Settlement Plan (“BSP”), a
clearing scheme between airlines and sales agents organised by International Air Transportation Association. The use of the BSP
reduces credit risk to the Group. As at 31 December 2017, the balance due from BSP agents amounted to RMB1,015 million (31
December 2016: RMB1,267 million). The credit risk exposure to BSP and the remaining trade receivables balance are monitored
by the Group on an ongoing basis and the allowance for impairment of doubtful debts is within management’s expectations.
Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade receivables is set out in Note
33.
The Company and its subsidiary, Xiamen Airlines Company Limited (“Xiamen Airlines”), entered into agreements with their
pilot trainees and certain banks to provide guarantees on personal bank loans amounting to RMB696 million (31 December
2016: RMB696 million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31
December 2017, total personal bank loans of RMB361 million (31 December 2016: RMB409 million), under these guarantees,
were drawn down from the banks. During the year, the Group has paid RMB5 million (2016: RMB4 million) to the banks due to
the default of payments of certain pilot trainees (Note 53(b)).
(e) Jet fuel price risk
The Group’s results of operations may be significantly affected by fluctuations in fuel prices since the jet fuel expenses are a
significant cost for the Group. A reasonable possible increase/decrease of 10% (2016: 10%) in jet fuel price, with volume of
fuel consumed and all other variables held constant, would have increased/decreased the fuel costs by approximately RMB3,190
million (2016: RMB2,380 million). The sensitivity analysis indicates the instantaneous change in the Group’s jet fuel costs that
would arise assuming that the change in fuel price had occurred at the beginning of the financial year.
(f) Capital management
The Group’s primary objectives in managing capital are to safeguard the Group’s ability to continue as a going concern, and to
generate sufficient profit to maintain growth and provide returns to its shareholders, by securing access to finance at a reasonable
cost.
The Group manages the amount of capital in proportion to risk and manages its debt portfolio in conjunction with projected
financing requirements. The Group monitors capital on the basis of the debt ratio, which is calculated as total liabilities divided
by total assets. During 2017, the Group’s strategy, which was unchanged from 2016, was to maintain a debt ratio at a range of
levels to support the operations and development of the Group’s business in the long run. In order to maintain or adjust the debt
ratio, the Group may adjust the amount of dividends paid to shareholders, issue new shares, return capital to shareholders, raise
new debt financing or sell assets to reduce debt.
The Group’s debt ratio was 71% as at 31 December 2017 (31 December 2016: 73%).
Except for the compliance of certain financial covenants for maintaining the Group’s banking facilities and borrowings, the
Group is not subject to any externally imposed capital requirements. The Group complied with the financial covenants attached
to borrowings as of and for the year ended 31 December 2017.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 177
4 Financial risk management and fair values (continued)
(g) Fair value
(i) Financial instruments carried at fair value
Fair value hierarchy
The following table presents the carrying value of financial instruments measured at the end of the reporting period on a
recurring basis, categorised into the three-level fair value hierarchy as defined in IFRS 13, Fair value measurement. The
level into which a fair value measurement is classified is determined with reference to the observability and significance
of the inputs used in the valuation technique as follows:
•
•
•
Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for
identical assets or liabilities at the measurement date
Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and
not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available
Level 3 valuations: Fair value measured using significant unobservable inputs
Fair value measurements as at
31 December 2017 categorised into
Recurring fair value measurement
Financial assets:
Available-for-sale equity securities:
– Listed shares
– Non-tradable shares
Derivative financial instruments:
– Interest rate swaps
Financial liabilities:
Derivative financial instruments:
– Cross currency swaps
Recurring fair value measurement
Financial assets:
Available-for-sale equity securities:
– Listed shares
– Non-tradable shares
Derivative financial instruments:
– Interest rate swaps
Note
28
28
29
29
Note
28
28
29
Fair value at
31 December
2017
Level 3
RMB million RMB million RMB million RMB million
Level 1
Level 2
85
537
46
(64)
85
–
–
–
–
–
46
(64)
–
537
–
–
Fair value measurements as at
31 December 2016 categorised into
Fair value at
31 December
2016
Level 3
RMB million RMB million RMB million RMB million
Level 2
Level 1
88
411
21
88
–
–
–
–
21
–
411
–
During the years ended 31 December 2017 and 2016, there were no transfers among level 1, level 2 and level 3. The
Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in
which they occur.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
178
4 Financial risk management and fair values (continued)
(g) Fair value (continued)
(i) Financial instruments carried at fair value (continued)
Valuation techniques and inputs used in Level 2 fair value measurements
Fair value of interest rate swaps in derivative financial instruments is measured by discounting the expected receivable
or payable amounts under the assumption that these swaps had been terminated at the end of the reporting period. The
discount rates used are the US Treasury bond yield curve as at the end of the reporting period.
The fair value of cross currency swaps is the estimated amount that the Group would receive or pay to terminate the
swaps at the end of the reporting period, taking into account current exchange rates and interest rates and the current
creditworthiness of the swap counterparties.
Information about Level 3 fair value measurements
Available-for-sale equity securities:
Discounted cash flow
Expected profit growth rate during
10% to 15%
Valuation technique
Significant
unobservable inputs
Range
– Non-tradable shares
the projection period
Terminal growth rate
Expected dividend payout rate
Discount rate
9%
27%
12.29%
The fair value of non-tradable available-for-sale equity securities is determined by discounting a projected cash flow series
associated with the investment. The valuation takes into account the expected profit growth rates and expected dividend
payout rate of the investee. The discount rate used have been adjusted to reflect specific risks relating to the investments.
The fair value measurement is positively correlated to the expected profit growth rates and expected dividend rate of the
investee, and negatively correlated to the discount rate.
For the year ended 31 December 2017, the net unrealised gains of RMB126 million (2016: RMB378 million) relating to
the available-for sale equity securities – non-tradable shares are recognised in fair value reserve in other comprehensive
income.
(ii) Financial instruments not carried at fair value
(a) Other investments in equity securities represent investments in equity securities that do not have a quoted price in an
active market for an identical instrument and whose fair value cannot otherwise be reliably measured. Accordingly,
they are recognised in the consolidated statement of financial position at cost less impairment losses.
(b) All other financial instruments, including cash and cash equivalents, amounts due from/to related companies, trade
and other receivables, trade and other payables, borrowings and obligations under finance leases are carried at
amounts not materially different from their fair values as at 31 December 2017 and 2016.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
179
5 Traffic revenue
Passenger
Cargo and mail
6 Segment reporting
(a) Business segments
2017
RMB million
2016
RMB million
112,791
9,082
121,873
102,502
7,191
109,693
The Group has two reportable operating segments “airline transportation operations” and “other segments”, according to internal
organisation structure, managerial needs and internal reporting system. “Airline transportation operations” comprises the Group’s
passenger and cargo and mail operations. “Other segments” includes hotel and tour operation, air catering services, ground
services, cargo handling and other miscellaneous services.
For the purposes of assessing segment performance and allocating resources between segments, the Group’s chief operating
decision maker (“CODM”) monitors the results, assets and liabilities attributable to each reportable segment based on financial
results prepared under the People’s Republic of China Accounting Standards for Business Enterprises (“PRC GAAP”). As such,
the amount of each material reconciling item from the Group’s reportable segment revenue, profit before taxation, assets and
liabilities arising from different accounting policies are set out in Note 6(c). The comparative figures in the Group’s financial
statements prepared in accordance with PRC GAAP are restated as the Group acquired a subsidiary under common control in
2017 (Note 24(v)). Management considered the impact of the above restatement is not material. Therefore, the Group’s segment
results for the year ended 31 December 2016 and its segment assets and liabilities as at 31 December 2016 as disclosed in these
financial statements have not been restated.
Inter-segment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then
prevailing market prices.
Information regarding the Group’s reportable segments as provided to the Group’s CODM for the purposes of resource
allocation and assessment of segment performance is set out below.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
180
6 Segment reporting (continued)
(a) Business segments (continued)
The segment results of the Group for the year ended 31 December 2017 are as follows:
Airline
transportation
operations
RMB million
Other
segments
RMB million
Elimination
RMB million
Unallocated*
RMB million
Total
RMB million
Revenue from external customers
Inter-segment sales
Reportable segment revenue
Reportable segment profit before taxation
Reportable segment profit after taxation
Other segment information
Income tax
Interest income
Interest expense
Depreciation and amortisation
Impairment loss
Share of associates’ results
Share of joint ventures’ results
Remeasurement of the originally held equity
interests in a joint venture
Fair value movement of derivative financial
instruments
Non-current assets additions during the year#
126,077
159
126,236
7,708
5,875
1,833
74
2,724
13,112
440
–
–
–
–
30,776
1,412
2,823
4,235
529
381
148
15
23
201
2
–
–
–
–
1,828
–
(2,982)
(2,982)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
561
577
(16)
–
–
–
–
420
99
88
(64)
–
127,489
–
127,489
8,798
6,833
1,965
89
2,747
13,313
442
420
99
88
(64)
32,604
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
181
6 Segment reporting (continued)
(a) Business segments (continued)
The segment results of the Group for the year ended 31 December 2016 are as follows:
Airline
transportation
operations
RMB million
Other
segments
RMB million
Elimination
RMB million
Unallocated*
RMB million
Total
RMB million
Revenue from external customers
Inter-segment sales
Reportable segment revenue
Reportable segment profit before taxation
Reportable segment profit after taxation
Other segment information
Income tax
Interest income
Interest expense
Depreciation and amortisation
Impairment loss
Share of associates’ results
Share of joint ventures’ results
Gain on deemed disposal of a subsidiary
Non-current assets additions during the year#
113,490
101
113,591
6,471
4,834
1,637
79
2,458
12,693
127
–
–
–
29,126
1,302
2,231
3,533
459
337
122
10
7
96
3
–
–
–
120
–
(2,332)
(2,332)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
717
717
–
–
–
–
–
511
102
90
–
114,792
–
114,792
7,647
5,888
1,759
89
2,465
12,789
130
511
102
90
29,246
The segment assets and liabilities of the Group as at 31 December 2017 and 31 December 2016 are as follows:
As at 31 December 2017
Reportable segment assets
Reportable segment liabilities
As at 31 December 2016
Reportable segment assets
Reportable segment liabilities
Airline
transportation
operations
RMB million
Other
segments
RMB million
Elimination
RMB million
Unallocated*
RMB million
Total
RMB million
208,116
154,391
192,881
144,768
5,799
2,111
3,201
1,355
(402)
(402)
(376)
(370)
4,816
64
4,755
–
218,329
156,164
200,461
145,753
*
#
Unallocated assets primarily include goodwill, interest in associates and joint ventures, available-for-sale financial assets, derivative
financial instruments and other investments in equity securities. Unallocated results primarily include the share of results of associates
and joint ventures, dividend income from available-for-sale financial assets and other investments in equity securities, remeasurement of
the originally held equity interests in a joint venture, gain on deemed disposal of a subsidiary, and the fair value movement of derivative
financial instruments recognised through profit or loss.
The additions of non-current assets do not include goodwill, interests in associates and joint ventures, other investments in equity
securities, available-for-sale financial assets, derivative financial instruments and deferred tax assets.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
182
6 Segment reporting (continued)
(b) The Group’s business segments operate in three main geographical areas, even
though they are managed on a worldwide basis.
The Group’s revenue by geographical segment are analysed based on the following criteria:
(1) Traffic revenue from services of both origin and destination within the PRC (excluding Hong Kong Special Administrative
Region, Macau Special Administrative Region and Taiwan (“Hong Kong, Macau and Taiwan”)), is classified as domestic
revenue. Traffic revenue with origin and destination among PRC, Hong Kong, Macau and Taiwan is classified as Hong
Kong, Macau and Taiwan revenue; while that with origin and destination from/to other overseas markets is classified as
international revenue.
(2) Revenue from commission income, hotel and tour operation, ground services, cargo handling and other miscellaneous
services are classified on the basis of where the services are performed.
Domestic
International
Hong Kong, Macau and Taiwan
2017
RMB million
2016
RMB million
92,986
32,117
2,386
127,489
84,380
28,096
2,316
114,792
The major revenue earning asset of the Group is its aircraft fleet which is registered in the PRC and is deployed across its
worldwide route network. Majority of the Group’s other assets are located in the PRC. CODM considers that there is no
suitable basis for allocating such assets and related liabilities to geographical locations. Accordingly, geographical segment
assets and liabilities are not disclosed.
(c) Reconciliation of reportable segment revenue, profit before income tax, assets
and liabilities to the consolidated figures as reported in the consolidated financial
statements.
Revenue
Reportable segment revenue
Reclassification of expired sales in advance of carriage
Reclassification of sales tax
Adjustments arising from business combinations under common
control
Consolidated revenue
Profit before income tax
Reportable segment profit before taxation
Capitalisation of exchange difference of specific loans
Government grants
Adjustments arising from business combinations under common
control
Consolidated profit before income tax
Note
(i)
(ii)
(v)
Note
(iii)
(iv)
(v)
2017
RMB million
2016
RMB million
127,489
396
(65)
(14)
127,806
114,792
376
(161)
(26)
114,981
2017
RMB million
2016
RMB million
8,798
47
21
8
8,874
7,647
48
1
(35)
7,661
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
183
6 Segment reporting (continued)
(c) Reconciliation of reportable segment revenue, profit before income tax, assets
and liabilities to the consolidated figures as reported in the consolidated financial
statements. (continued)
Assets
Reportable segment assets
Capitalisation of exchange difference of specific loans
Government grants
Adjustments arising from business combinations under common
control
Others
Consolidated total assets
Liabilities
Reportable segment liabilities
Government grants
Others
Consolidated total liabilities
Notes:
Note
(iii)
(iv)
(v)
Note
(iv)
31 December
2017
RMB million
31 December
2016
RMB million
218,329
196
(8)
237
(36)
200,461
149
(316)
184
(36)
218,718
200,442
31 December
2017
RMB million
31 December
2016
RMB million
156,164
–
11
156,175
145,753
(287)
–
145,466
(i)
Expired sales in advance of carriage are recorded under non-operating income in the PRC GAAP financial statements. Such income is
recognised as other operating revenue in the IFRS financial statements.
(ii)
In accordance with the PRC GAAP, sales tax is separately disclosed rather than deducted from revenue under IFRSs.
(iii)
(iv)
In accordance with the PRC GAAP, exchange difference arising on translation of specific loans and related interest denominated in a
foreign currency is capitalised as part of the cost of qualifying assets. Under IFRSs, such exchange difference is recognised in income
statement unless the exchange difference represents an adjustment to interest.
Prior to the year 2017, under the PRC GAAP, special funds granted by the government are accounted for as increase in capital reserve
if they are clearly defined on approval documents as part of “capital reserve”. Government grants that relate to the purchase of assets are
recognised as deferred income and amortised to profit or loss on a straight line basis over the useful life of the related assets.
Pursuant to the accounting policy change under PRC GAAP which became effective in 2017, the Group deducted the government grants
related to purchase of assets (other than special funds) from the cost of the related assets. The accounting treatment is consistent with
IFRSs.
(v)
In accordance with the PRC GAAP, 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,
comparative figures are restated under PRC GAAP. Under IFRSs, the Group adopts the purchase accounting method for acquisition of
business under common control.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
184
7 Other operating revenue
Commission income
Expired sales in advance of carriage
Hotel and tour operation income
General aviation income
Ground services income
Air catering income
Cargo handling income
Rental income
Others
8 Flight operation expenses
Jet fuel costs
Flight personnel payroll and welfare
Aircraft operating lease charges
Air catering expenses
Civil Aviation Development Fund
Training expenses
Aircraft insurance
Others
9 Maintenance expenses
Aviation repair and maintenance charges
Staff payroll and welfare
Maintenance materials
10 Aircraft and transportation service expenses
Landing and navigation fees
Ground service and other charges
2017
RMB million
2016
RMB million
2,781
396
547
467
429
335
241
184
553
5,933
2,518
376
625
461
384
253
201
179
291
5,288
2017
RMB million
2016
RMB million
31,895
10,574
8,022
3,379
2,720
1,184
175
5,029
62,978
23,799
9,215
7,330
2,965
2,565
1,120
197
4,270
51,461
2017
RMB million
2016
RMB million
7,930
2,620
1,327
11,877
7,952
2,363
1,003
11,318
2017
RMB million
2016
RMB million
14,910
8,025
22,935
13,109
7,106
20,215
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
185
11 Promotion and selling expenses
Sales commissions
Ticket office expenses
Computer reservation services
Advertising and promotion
Others
12 General and administrative expenses
General corporate expenses
Auditors’ remuneration
– Audit services
– Non-audit services
Other taxes and levies
13 Depreciation and amortisation
Depreciation
– Owned assets
– Assets acquired under finance leases
Amortisation of deferred benefits and gains
Other amortisation
14 Staff costs
Salaries, wages and welfare
Defined contribution retirement scheme
Other retirement welfare subsidy
Early retirement benefits (Note 45)
2017
RMB million
2016
RMB million
1,935
3,160
835
196
755
6,881
1,926
2,875
777
173
553
6,304
2017
RMB million
2016
RMB million
3,218
14
14
–
159
3,391
2,671
13
13
–
131
2,815
2017
RMB million
2016
RMB million
8,080
4,883
(161)
360
13,162
7,569
4,849
(131)
332
12,619
2017
RMB million
2016
RMB million
21,400
2,114
194
1
23,709
18,774
1,886
183
3
20,846
Staff costs relating to flight operation and maintenance are also included in the respective total amounts disclosed separately in
Note 8 and Note 9 above.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
186
14 Staff costs (continued)
Five highest paid individuals
None of the directors (2016: none), whose emoluments are reflected in Note 58, is among the five highest paid individuals in the
Group for 2017. The aggregate emoluments in respect of the five (2016: five) individuals during the year are as follows:
Salaries, wages and welfare
Retirement scheme contributions
2017
RMB’000
9,533
599
10,132
The emoluments of the five (2016: five) individuals with the highest emoluments are within the following bands:
HK$1,500,000 to HK$2,000,000
HK$2,000,001 to HK$2,500,000
15 Other net income
2017
Number of
individuals
–
5
2016
RMB’000
8,368
649
9,017
2016
Number of
individuals
1
4
Government grants (Note)
Gains on disposal of property, plant and equipment and construction in progress
– Aircraft and spare engines and relating construction in progress
– Other property, plant and equipment
Others
Note:
2017
RMB million
2016
RMB million
3,075
960
29
384
4,448
2,837
523
34
441
3,835
Government grants mainly represent (i) subsidies based on certain amount of tax paid granted by governments to the Group; (ii) subsidies
granted by various local governments to encourage the Group to operate certain routes to cities where these governments are located.
There are no unfulfilled conditions and other contingencies related to subsidies that have been recognised during the year ended 31 December
2017.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
187
16 Interest expense
Interest on borrowings
Interest relating to obligations under finance leases
Interest relating to provision for early retirement benefits (Note 45)
Total interest expense on financial liabilities not at fair value
through profit or loss
Less: interest expense capitalised (Note)
Interest rate swaps: cash flow hedge, reclassified from equity (Note 18)
2017
RMB million
2016
RMB million
1,628
2,009
1
3,638
(908)
2,730
17
2,747
1,444
1,598
1
3,043
(624)
2,419
46
2,465
Note:
The weighted average interest rate used for interest capitalisation was 3.32% per annum in 2017 (2016: 3.22%).
17 Income tax
(a) Income tax expense in the consolidated income statement
PRC income tax
– Provision for the year
– (Over)/under-provision in prior year
Deferred tax (Note 30)
Origination and reversal of temporary differences
Tax expense
2017
RMB million
2016
RMB million
2,280
(2)
2,278
(302)
1,976
2,203
47
2,250
(487)
1,763
In respect of majority of the Group’s airlines operation outside mainland China, the Group has either obtained exemptions from
overseas taxation pursuant to the bilateral aviation agreements between the overseas governments and the PRC government, or
has sustained tax losses in those overseas jurisdictions. Accordingly, no provision for overseas income tax has been made for
overseas airlines operation in the current and prior years.
Under the Corporate Income Tax Law of the PRC, the Company and majority of its PRC subsidiaries are subject to PRC income
tax at 25% (2016: 25%). Certain PRC subsidiaries of the Company are subject to preferential income tax rate at 15% either
because they are qualified as Advanced and New Technology Enterprises, or according to the preferential tax policy in locations,
where those subsidiaries are located.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
188
17 Income tax (continued)
(b) Reconciliation between actual tax expense and calculated tax based on accounting
profit at applicable tax rates
2017
RMB million
2016
RMB million
Profit before income tax
Notional tax on profit before taxation, calculated at the rates applicable to
profits in the tax jurisdictions concerned (Note 17(a))
Adjustments for tax effect of:
Non-deductible expenses
Share of results of associates and joint ventures and other non-taxable income
Taxable temporary differences for which no deferred tax liabilities were
recognised
Unused tax losses and deductible temporary differences for which no deferred
tax assets were recognised
Utilisation of unused tax losses and deductible temporary differences for which
no deferred tax assets were recognised in prior years
(Over)/under-provision in prior year
Tax expense
18 Other comprehensive income
Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised
during the year
Reclassification adjustments for amounts transferred to profit or loss:
– interest expense (Note 16)
Net deferred tax debited to other comprehensive income
Net movement in the fair value reserve during the year recognised in other
comprehensive income
Available-for-sale financial assets:
Changes in fair value recognised during the year
Net deferred tax debited to other comprehensive income
Net movement in the fair value reserve during the year recognised in other
comprehensive income
8,874
2,179
9
(137)
(27)
26
(72)
(2)
1,976
7,661
1,857
4
(154)
–
48
(39)
47
1,763
2017
RMB million
2016
RMB million
8
17
(6)
19
123
(31)
92
(38)
46
(2)
6
362
(90)
272
19 Earnings per share
The calculation of basic earnings per share for the year ended 31 December 2017 is based on the profit attributable to equity
shareholders of the Company of RMB5,961 million (2016: RMB5,044 million) and the weighted average of 9,923,585,348
shares in issue during the year (2016: 9,817,567,000 shares).
Issued ordinary shares at 1 January
Effect of issuance of H Shares (Note 47)
Weighted average number of ordinary shares at 31 December
2017
million
9,818
106
9,924
2016
million
9,818
–
9,818
The amounts of diluted earnings per share are the same as basic earnings per share as there were no dilutive potential ordinary
shares in existence for the years ended 31 December 2017 and 2016.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
189
20 Property, plant and equipment, net
Aircraft
Investment
properties
RMB million
Buildings
RMB million
Owned
RMB million
Acquired
under
finance
leases
RMB million
Other flight
equipment
including
rotables
RMB million
Machinery,
equipment
and vehicles
RMB million
Total
RMB million
730
10,074
93,708
86,832
18,970
6,109
216,423
–
–
–
(21)
(64)
148
–
–
(124)
669
669
–
–
–
(18)
(75)
225
–
–
(7)
5
39
1,145
–
64
(148)
–
(32)
(79)
11,068
11,068
326
28
1,506
(143)
75
(225)
–
(20)
(4)
–
1,675
–
–
–
–
4,470
(2,536)
–
97,317
97,317
–
1,336
1,098
–
–
–
–
5,112
6,745
–
–
–
(4,470)
(347)
–
93,872
93,872
–
7,592
10,684
–
–
–
12,669
(12,669)
–
1,148
203
–
–
–
–
(751)
–
19,570
19,570
1,136
1,635
317
–
–
–
–
–
(6,446)
–
(112)
–
(752)
2
453
143
–
–
–
–
(466)
(41)
6,200
6,200
94
569
77
–
–
–
–
7
8,427
8,236
(21)
–
–
–
(4,132)
(244)
228,696
228,696
1,556
11,160
13,682
(161)
–
–
–
–
(311)
6,629
(20)
(7,632)
247,281
Cost:
At 1 January 2016
Acquisitions through business
combinations
Additions
Transfer from construction in
progress (Note 21)
Transfer to lease prepayments
Transfer to buildings upon cease of
lease intention
Transfer to investment properties
upon lease out
Reclassification on exercise of
purchase option
Disposals
Deemed disposal of a subsidiary
At 31 December 2016
At 1 January 2017
Acquisitions through business
combinations (Note 24(iv))
Additions
Transfer from construction in
progress (Note 21)
Transfer to lease prepayments
Transfer to buildings upon cease of
lease intention
Transfer to investment properties
upon lease out
Reclassification on exercise of
purchase option
Transfer to assets held for sale
(Note 36)
Disposals
At 31 December 2017
794
12,611
105,974
99,367
21,906
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
190
20 Property, plant and equipment, net (continued)
Aircraft
Investment
properties
RMB million
Buildings
RMB million
Owned
RMB million
Acquired
under
finance
leases
RMB million
Other flight
equipment
including
rotables
RMB million
Machinery,
equipment
and vehicles
RMB million
Total
RMB million
Accumulated depreciation and
impairment losses:
At 1 January 2016
Depreciation charge for the year
Transfer to lease prepayments
Transfer to buildings upon cease of
lease intention
Transfer to investment properties
upon lease out
Reclassification on exercise of
purchase options
Disposals
Deemed disposal of a subsidiary
Provision for impairment losses
Impairment losses written off on
disposal
At 31 December 2016
At 1 January 2017
Depreciation charge for the year
Transfer to lease prepayments
Transfer to buildings upon cease of
lease intention
Transfer to investment properties
upon lease out
Reclassification on exercise of
purchase options
Transfer to assets held for sale
(Note 36)
Disposals
Provision for impairment losses
(Note 20(e))
Impairment losses written off on
disposal (Note 20(d))
At 31 December 2017
Net book value:
At 31 December 2017
At 31 December 2016
223
20
(5)
(21)
39
–
–
(27)
–
–
229
229
29
(5)
(26)
48
–
–
(5)
–
–
270
524
440
3,349
358
–
21
(39)
–
(18)
(25)
–
–
3,646
3,646
390
(36)
26
(48)
–
(12)
(1)
–
–
3,965
8,646
7,422
40,782
5,476
–
–
–
2,141
(2,468)
–
21
–
45,952
45,952
5,783
–
–
–
14,586
4,849
–
–
–
(2,141)
(347)
–
50
–
16,997
16,997
4,883
–
–
–
4,757
(4,757)
–
(5,351)
324
(470)
50,995
54,979
51,365
–
(112)
–
–
17,011
11,678
82,356
76,875
10,228
8,548
10,600
1,159
–
–
–
–
(736)
–
–
(1)
11,022
11,022
1,280
–
–
–
–
–
(623)
–
(1)
4,013
556
–
–
–
–
(426)
(39)
–
–
4,104
4,104
598
–
–
–
–
–
(266)
–
–
4,436
2,193
2,096
73,553
12,418
(5)
–
–
–
(3,995)
(91)
71
(1)
81,950
81,950
12,963
(41)
–
–
–
(12)
(6,358)
324
(471)
88,355
158,926
146,746
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
191
20 Property, plant and equipment, net (continued)
(a) As at 31 December 2017, the accumulated impairment provision of aircraft and flight equipment of the Group is RMB1,495
million and RMB123 million respectively (31 December 2016: RMB1,641 million and RMB124 million respectively).
(b) As at 31 December 2017, certain aircraft of the Group with an aggregate carrying value of approximately RMB83,687 million
(31 December 2016: RMB78,318 million) were mortgaged under certain loans or certain lease agreements (Note 37(a)(i) and
Note 38).
(c) As at 31 December 2017, other flight equipment of the Group with an aggregate carrying value of approximately RMB206
million (31 December 2016: Nil) were mortgaged under certain loans (Note 37(a)(iii)).
(d) For the year ended 31 December 2017, 3 Boeing 737-300 aircraft and 2 Boeing 777-200 aircraft against which impairment
provision had been provided in previous years were disposed of and the impairment provision of RMB470 million for these
aircraft was written off on disposal.
(e) During the year, the Group estimated the recoverable amounts of certain aged fleet based on the disposal plans, and made an
impairment provision of RMB314 million towards the fleet and related assets. The Group also made an additional impairment
of RMB10 million for certain EMB 190 aircraft. The estimates of recoverable amounts were based on the greater of the assets’
fair value less cost to sell and the value in use. The fair value on which the recoverable amount is based on is categorised as a
level 3 measurement and it was determined by reference to the recent observable market prices for the aircraft fleet and flight
equipment. In cases when value in use are based, the pre-tax discount rate used in the estimate is 9.74% (2016: 8.87%).
(f) As at 31 December 2017 and up to the date of approval of these financial statements, the Group is in the process of applying
for the property title certificates in respect of the properties located in Guangzhou (including Guangzhou Baiyun International
Airport), Guangxi, Guizhou, Chengdu, Xiamen, Heilongjiang, Jilin, Dalian, Hunan, Beijing, Zhuhai, Shenyang, Shenzhen,
Henan, Shantou, Xinjiang, Hainan, Shanghai, Hubei, Chongqing and Hangzhou, in which the Group has interests and for which
such certificates have not been granted. As at 31 December 2017, carrying value of such properties of the Group amounted to
RMB5,196 million (31 December 2016: RMB4,294 million). The Directors of the Company are of the opinion that the use of
and the conduct of operating activities at the properties referred to above are not affected by the fact that the Group has not yet
obtained the relevant property title certificates.
(g) The Group leased out investment properties under operating leases. The leases typically run for an initial period of one
to fourteen years, with an option to renew the leases after that date at which time all terms are renegotiated. None of the
leases includes contingent rentals. In this connection, rental income totalling RMB184 million (2016: RMB179 million) was
received by the Group during the year in respect of the leases. Directors estimated the fair value of these investment properties
approximate the carrying amount.
The properties are reclassified between investment properties and other property, plant and equipment, upon the intention of
commencement or cease of lease.
The Group’s total future minimum lease income under non-cancellable operating leases are as follows:
Within 1 year
After 1 year but within 5 years
After 5 years
2017
RMB million
2016
RMB million
61
70
14
145
91
59
54
204
(h) As at 31 December 2017, certain investment properties of the Group with an aggregate carrying value of approximately RMB20
million (31 December 2016: RMB34 million) were mortgaged for certain bank borrowings (Note 37(a)(ii)).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
192
21 Construction in progress
At 1 January 2016
Additions
Transferred to property, plant and equipment (Note 20)
Transferred to other assets upon completion of
development (Note 31)
Disposals
At 31 December 2016
At 1 January 2017
Additions
Transferred to property, plant and equipment (Note 20)
Transferred to other assets upon completion of
development (Note 31)
Transferred to lease prepayments
Disposals
At 31 December 2017
22 Lease prepayments
Advance
payment for
aircraft and
flight equipment
RMB million
Others
RMB million
Total
RMB million
17,700
18,930
(6,948)
–
(2,415)
27,267
27,267
16,319
(12,099)
–
–
(3,944)
27,543
1,733
1,362
(1,288)
(128)
(36)
1,643
1,643
2,920
(1,583)
(211)
(79)
–
2,690
19,433
20,292
(8,236)
(128)
(2,451)
28,910
28,910
19,239
(13,682)
(211)
(79)
(3,944)
30,233
Lease prepayments relate to the Group’s land use rights. In 2017, the amount of amortisation charged to consolidated income
statement was RMB78 million (2016: RMB75 million).
A majority of the Group’s properties are located in the PRC. The Group was formally granted the rights to use certain parcels of
land in Guangzhou, Shenzhen, Zhuhai, Beihai, Changsha, Shantou, Haikou, Zhengzhou, Jilin, Guiyang and other PRC cities by
the relevant PRC authorities for periods of 30 to 70 years, which expire between 2020 and 2073.
As at 31 December 2017 and up to the date of approval of these financial statements, the Group is in the process of applying for
land use right certificates in respect of certain land used by the Group. As at 31 December 2017, carrying value of such land use
rights of the Group amounted to RMB827 million (31 December 2016: RMB866 million). The Directors of the Company are of
the opinion that the use of and the conduct of operating activities at the land referred to above are not affected by the fact that
the Group has not yet obtained the relevant land use right certificates.
As at 31 December 2017, certain land use rights of the Group with an aggregate carrying value of approximately RMB90
million (31 December 2016: RMB79 million) were mortgaged for certain bank borrowings (Note 37(a)(ii)).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
193
23 Goodwill
Cost and carrying amount:
At 1 January
Acquisitions through business combinations (Note 24(v))
At 31 December
2017
RMB million
2016
RMB million
182
55
237
–
182
182
Impairment tests for cash-generating units containing goodwill
Southern Airlines Group Import and Export Trading Company (“SAIETC”)
Xiamen Airlines Culture and Media Co., Ltd. (“XACM”) (Note 24(v))
Total
2017
RMB million
2016
RMB million
182
55
237
182
–
182
The recoverable amount of the CGU is determined based on value-in-use calculation. The calculation uses cash flow projections
based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are
extrapolated using an estimated weighted average growth rate which does not exceed the long-term average growth rates for the
business in which the CGU operates.
The cash flows of SAIETC are discounted using a pre-tax discount rate of 13.40% (2016: 13.40%).
The cash flows of XACM are discounted using a pre-tax discount rate of 11.10%.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
194
24 Subsidiaries
All the subsidiaries of the Company are unlisted. The following list contains only the particulars of subsidiaries which
principally affect the results, assets or liabilities of the Group:
Name of company
Henan Airlines Company Limited (i)
Xiamen Airlines (i)&(v)
Chongqing Airlines Company Limited (i)
Shantou Airlines Company Limited (i)
Zhuhai Airlines Company Limited (i)
Guizhou Airlines Company Limited (i)
Place of
establishment/
operation
PRC
PRC
PRC
PRC
PRC
PRC
Proportion
of ownership
interest held by
Registered capital
the Company Principal activity
RMB6,000,000,000
60% Airline transportation
RMB8,000,000,000
55% Airline transportation
RMB1,200,000,000
60% Airline transportation
RMB280,000,000
60% Airline transportation
RMB250,000,000
60% Airline transportation
RMB910,000,000
60% Airline transportation
Guangzhou Nanland Air Catering Company
PRC
RMB240,000,000
70.5% Air catering
Limited (ii)
Guangzhou Baiyun International Logistic
PRC
RMB50,000,000
61% Logistics operations
Company Limited (i)
Beijing Southern Airlines Ground Services
PRC
RMB18,000,000
100% Airport ground services
Company Limited (i)
Nan Lung International Freight Limited
Hong Kong
HKD3,270,000
51% Freight services
Southern Airlines General Aviation Company
PRC
RMB1,000,000,000
100% General aviation
Limited (i)
SAIETC (i)
PRC
RMB15,000,000
100% Import and export agent
services
Zhuhai Xiang Yi Aviation Technology Company
PRC
RMB469,848,000
100% Flight simulation services
Limited (“Zhuhai Xiang Yi”)(i)&(iv)
(i)
These subsidiaries are PRC limited liability companies.
(ii)
This subsidiary is a sino-foreign equity joint venture company established in the PRC.
(iii) Certain subsidiaries of the Group are PRC equity joint ventures which have limited terms pursuant to the PRC law.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
195
24 Subsidiaries (continued)
(iv)
Pursuant to the equity transfer agreement entered into between the Company and a third party, the Company acquired 49% equity
interests in Zhuhai Xiang Yi, a former joint venture of the Company, at a cash consideration of USD99.52 million (equivalent to
RMB678 million) on 10 July 2017. Zhuhai Xiang Yi became a wholly-owned subsidiary of the Company upon completion of the
acquisition. The acquisition of Zhuhai Xiang Yi enables the Group to engage in flight simulation services.
In the period from the acquisition date to 31 December 2017, Zhuhai Xiang Yi contributed revenue of RMB196 million and profit of
RMB15 million to the Group’s results. If the acquisition had occurred on 1 January 2017, management estimates that consolidated
revenue would have been increased by RMB424 million, and consolidated profit for the year would have been increased by RMB53
million. In determining these amounts, management have assumed that the fair value adjustments that arose on the acquisition date
would have been the same if the acquisition had occurred on 1 January 2017. The information above is the amount before inter-company
eliminations.
The above acquisitions had the following effect on the Group’s assets and liabilities on acquisition date:
Property, plant and equipment, net
Lease prepayments
Trade and other receivables
Cash and cash equivalents
Other assets
Trade and other payables
Borrowings
Deferred tax liabilities
Other liabilities
Total net identifiable assets
Analysis of the net outflow of cash and cash equivalents in respect of the acquisitions:
Cash consideration paid
Cash and cash equivalents acquired
Net cash outflow
Effect of the acquisition on the Group’s consolidated income statement
Fair value of the originally held 51% equity interests
Less: carrying value of the originally held 51% equity interests
Remeasurement of the originally held 51% equity interests
Note
20
35(c)
Recognised values
on acquisition
RMB million
1,556
115
70
41
32
(34)
(342)
(30)
(24)
1,384
678
(41)
637
706
(597)
109
Acquisition-related costs were minimal and included in “general and administrative expenses” in the consolidated income statement.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
196
24 Subsidiaries (continued)
(v)
Pursuant to the equity transfer agreement entered into between the Company’s subsidiary, Xiamen Airlines, and Southern Airlines Culture
and Media Co., Ltd. (“SACM”, an associate of the Company) on 13 October 2017, Xiamen Airlines acquired 51% equity interests in
XACM, at a consideration of RMB47 million. Xiamen Airlines held 49% equity interest in XACM before the acquisition. XACM became
a wholly-owned subsidiary of the Xiamen Airlines upon completion of the acquisition. The acquisition of XACM enables the Group to
engage in advertising agency business.
In the period from the acquisition date to 31 December 2017, XACM contributed revenue of RMB7 million and profit of RMB1 million
to the Group’s results. If the acquisition had occurred on 1 January 2017, management estimates that consolidated revenue would have
been increased by RMB44 million, and consolidated profit for the year would have been increased by RMB2 million. In determining
these amounts, management have assumed that the fair value adjustments that arose on the acquisition date would have been the same if
the acquisition had occurred on 1 January 2017. The information above is the amount before inter-company eliminations.
The above acquisitions had the following effect on the Group’s assets and liabilities on acquisition date:
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Total net identifiable assets
Analysis of the net outflow of cash and cash equivalents in respect of the acquisitions:
Cash consideration paid
Cash and cash equivalents acquired
Net cash outflow
Goodwill
Goodwill was recognised as a result of the acquisitions as follows:
Total consideration transferred
The fair value of 49% equity of XACM on the acquisition date
Less: fair value of identifiable net assets
Goodwill (Note 23)
Recognised values
on acquisition
RMB million
46
2
(11)
37
47
(2)
45
Recognised values
on acquisition
RMB million
47
45
(37)
55
The goodwill resulting from this acquisition represented the expected synergies from combining operations of XACM and the Group.
Acquisition-related costs were minimal and included in “general and administrative expenses” in the consolidated income statement.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
197
24 Subsidiaries (continued)
(vi) Material non-controlling interests
As at 31 December 2017, the balance of total non-controlling interests is RMB12,607 million (31 December 2016: RMB11,520 million),
of which RMB8,547 million (31 December 2016: RMB7,623 million) is for Xiamen Airlines. The rest of non-controlling interests are not
individually material.
Set out below are the summarised financial information for Xiamen Airlines.
Non-controlling interests percentage
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Carrying amount of non-controlling interests
Revenue
Profit for the year
Total comprehensive income
Profit allocated to non-controlling interests
Dividend paid to non-controlling interests
Net cash generated from operating activities
Net cash generated from/(used in) investing activities
Net cash (used in)/generated from financing activities
The information above is the amount before inter-company eliminations.
2017
RMB million
2016
RMB million
45%
2,422
39,689
(9,963)
(14,086)
18,062
8,547
26,114
1,477
1,578
651
73
3,696
3,671
(7,613)
45%
2,386
41,689
(13,739)
(13,997)
16,339
7,623
21,874
1,223
1,500
532
–
4,510
(7,776)
2,764
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
198
25 Interest in associates
Share of net assets
2017
RMB million
3,031
2016
RMB million
2,590
All the Group’s associates are unlisted without quoted market price. The particulars of the Group’s principal associates as at 31
December 2017 are as follows:
Place of
establishment/
operation
Southern Airlines Group Finance Co.,Ltd
PRC
(“SA Finance”)
Sichuan Airlines Co.,Ltd (“Sichuan Airlines”)
PRC
SACM
Xinjiang Civil Aviation Property
Management Limited
PRC
PRC
Group’s
effective
interest
33.98%
39%
40%
39%
40%
42.80%
42.80%
Proportion of ownership
interest held by
Proportion of
voting rights held
The Company
Subsidiaries
by the Group Principal activity
25.28%
8.70%
33.98% Provision of Airlines
financial services
39% Airline transportation
40% Advertising services
42.80% Property management
–
–
–
There is no associate that is individually material to the Group.
The Group has interests in a number of individually immaterial associates that are accounted for using the equity method. The
aggregate financial information of these associates is summarised as following:
Aggregate carrying amount of individually immaterial associates
Aggregate amounts of the Group’s share of:
Profit from continuing operations
Other comprehensive income
Total comprehensive income
2017
RMB million
3,031
431
2
433
2016
RMB million
2,590
509
(2)
507
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
199
26 Interest in joint ventures
Share of net assets
2017
RMB million
1,015
2016
RMB million
1,522
All the Group’s joint ventures are unlisted without quoted market price. The particulars of the Group’s principal joint ventures as
at 31 December 2017 are as follows:
Place of
establishment/
operation
Guangzhou Aircraft Maintenance Engineering
PRC
Co.,Ltd (“GAMECO”)
Group’s
effective
interest
50%
Guangzhou China Southern Zhongmian
PRC
50%
Dutyfree Store Co., Limited
China Southern West Australian Flying College
Australia
48.12%
48.12%
Pty Ltd (“Flying College”)
There is no joint venture that is individually material to the Group.
Proportion of ownership
interest held by
The Company
Subsidiaries
by the Group Principal activity
Proportion of
voting rights held
50%
50%
–
–
–
50% Aircraft repair and
maintenance services
50% Sales of duty free goods
in flight
50% Pilot training services
The Group has interest in a number of individually immaterial joint ventures that are accounted for using the equity method. The
aggregate financial information of these joint ventures is summarized as following:
Aggregate carrying amount of individually immaterial joint ventures
Aggregate amounts of the Group’s share of:
Profit from continuing operations and total comprehensive income
27 Other investments in equity securities
Unlisted equity securities, at cost
2017
RMB million
2016
RMB million
1,015
99
1,522
102
2017
RMB million
103
2016
RMB million
103
Dividend income from unlisted equity securities of the Group amounted to RMB1 million during the year ended 31 December
2017 (2016: RMB1 million).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
200
28 Available-for-sale financial assets
Available-for-sale financial assets
– Listed shares
– Non-tradable shares
2017
RMB million
2016
RMB million
85
537
622
88
411
499
Dividend income from available-for-sale financial assets of the Group amounted to RMB17 million during the year ended 31
December 2017 (2016: RMB13 million).
29 Derivative financial instruments
Assets:
Interest rate swaps (a)
Liabilities:
Cross currency swaps (b)
2017
RMB million
2016
RMB million
46
64
21
–
(a)
(b)
In 2015, the Group entered into interest rate swaps to mitigate its cash flow interest rate risk. The interest rate swaps allow
the Group to pay at fixed rate from 1.64% to 1.72% to receive LIBOR. The notional principal of the outstanding interest
rate swap contracts as at 31 December 2017 amounted to USD460 million (31 December 2016: USD527 million).
In 2017, the Group entered into cross currency swaps to mitigate its interest rate risk and currency risk. Under the cross
currency swaps, the Group agrees with other third parties to exchange the floating interest and principal payments in USD
for fixed interest (ranging from 3.58% to 4.04%) and principal payments in RMB. At 31 December 2017, the fair value of
the cross currency swaps amounted to RMB64 million (31 December 2016: Nil). The notional principal of the outstanding
cross currency swaps amounted to USD920 million (31 December 2016: Nil).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
201
30 Deferred tax assets/(liabilities)
(a) Movements of net deferred tax assets are as follows:
At the beginning
of the year
RMB million
Acquired
in business
combination
RMB million
(Charged)/credited
to consolidated
income statement
RMB million
Charged to other
comprehensive
income
RMB million
At the end
of the year
RMB million
For the year ended 31 December 2017
Deferred tax assets:
Accrued expenses
Provision for major overhauls
Deferred revenue
Provision for impairment losses
Provision for tax losses
Change in fair value of derivative
financial instruments
Others
Deferred tax liabilities:
Provision for major overhauls
Depreciation allowances under tax in
excess of the related depreciation under
accounting
Change in fair value of derivative
financial instruments
Change in fair value of available-for-sale
equity securities
Fair value remeasurement of identifiable
assets in business combination
Others
Net deferred tax assets
1,065
505
87
174
–
–
86
1,917
(261)
(659)
(5)
(110)
–
(38)
(1,073)
844
–
–
–
–
–
–
–
–
–
–
–
–
(30)
–
(30)
(30)
(45)
186
1
74
10
16
(4)
238
45
26
–
–
4
(11)
64
302
–
–
–
–
–
–
–
–
–
–
(6)
(31)
–
–
(37)
(37)
1,020
691
88
248
10
16
82
2,155
(216)
(633)
(11)
(141)
(26)
(49)
(1,076)
1,079
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
202
30 Deferred tax assets/(liabilities) (continued)
(a) Movements of net deferred tax assets are as follows: (continued)
At the beginning
of the year
RMB million
Credited/(charged)
to consolidated
income statement
RMB million
Charged to other
comprehensive
income
RMB million
At the end
of the year
RMB million
For the year ended 31 December 2016
Deferred tax assets:
Accrued expenses
Provision for major overhauls
Deferred revenue
Provision for impairment losses
Others
Deferred tax liabilities:
Provision for major overhauls
Depreciation allowances under tax in excess of
the related depreciation under accounting
Change in fair value of derivative financial
instruments
Change in fair value of available-for-sale
equity securities
Others
Net deferred tax assets
751
472
82
201
62
1,568
(384)
(687)
(3)
(20)
(25)
(1,119)
449
314
33
5
(27)
24
349
123
28
–
–
(13)
138
487
–
–
–
–
–
–
–
–
(2)
(90)
–
(92)
(92)
1,065
505
87
174
86
1,917
(261)
(659)
(5)
(110)
(38)
(1,073)
844
(b) Deferred tax assets not recognised
Tax losses in the PRC are available for carrying forward to set off future assessable income for a maximum period of five years.
As at 31 December 2017, the Group’s unused tax losses of RMB543 million (31 December 2016: RMB704 million) have not
been recognised as deferred tax assets, as it was determined by management that it is not probable that future taxable profits
against which the losses can be utilised will be available before they expire. The expiry dates of unrecognised unused tax losses
are analysed as follows:
Expiring in:
2017
2018
2019
2020
2021
2022
2017
RMB million
2016
RMB million
–
171
193
–
96
83
543
200
214
194
–
96
–
704
As at 31 December 2017, the Group’s other deductible temporary differences amounting to RMB653 million (31 December
2016: RMB626 million) have not been recognised as deferred tax assets as it was determined by management that it is not
probable that future taxable profits will be available for these deductible temporary differences to reverse in the foreseeable
future.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
203
31 Other assets
At 1 January 2016
Additions
Transferred from construction in progress (Note 21)
Disposals
Amortisation for the year
At 31 December 2016
At 1 January 2017
Additions
Acquisitions through business combinations
Transferred from construction in progress (Note 21)
Disposals
Amortisation for the year
At 31 December 2017
Representing:
Amounts due from related parties
Amounts due from third parties and others
Prepayment
for exclusive
use right of an
airport terminal
RMB million
Software
RMB million
Leasehold
improvement
RMB million
Others
RMB million
Total
RMB million
240
–
–
–
(10)
230
230
–
–
–
–
(10)
220
247
4
91
(2)
(85)
255
255
33
2
142
(4)
(112)
316
118
5
36
–
(40)
119
119
44
–
56
–
(38)
181
283
268
1
(26)
(122)
404
404
402
–
13
(20)
(122)
677
888
277
128
(28)
(257)
1,008
1,008
479
2
211
(24)
(282)
1,394
Note
41(a) & 50(c)
2017
RMB million
2016
RMB million
160
1,234
1,394
–
1,008
1,008
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
204
32 Inventories
Consumable spare parts and maintenance materials
Other supplies
Less: impairment
Impairment of inventory is shown as below:
At 1 January
Provision for impairment of inventories
Provision written off in relation to disposal of inventories
At 31 December
33 Trade receivables
Trade receivables
Less: allowance for doubtful debts
(a) Ageing analysis
2017
RMB million
2016
RMB million
1,638
210
1,848
(226)
1,622
1,534
198
1,732
(144)
1,588
2017
RMB million
2016
RMB million
144
110
(28)
226
110
44
(10)
144
2017
RMB million
2016
RMB million
2,712
(37)
2,675
3,026
(37)
2,989
Credit terms granted by the Group to sales agents and other customers generally range from one to three months. Ageing
analysis of trade receivables based on transaction date is set out below:
Within 1 month
More than 1 month but less than 3 months
More than 3 months but less than 12 months
More than 1 year
Less: allowance for doubtful debts
All of the trade receivables are expected to be recovered within one year.
2017
RMB million
2016
RMB million
2,067
497
112
36
2,712
(37)
2,675
2,536
321
142
27
3,026
(37)
2,989
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
205
33 Trade receivables (continued)
(a) Ageing analysis (continued)
(i)
Impairment loss in respect of trade receivables is recorded using an allowance account unless the Group is satisfied that
recovery of the amount is remote, in which case the impairment loss is written off against trade receivables directly (Note
2 (l)(i)).
The movements in the allowance for doubtful debts during the year are as follows:
At 1 January
Impairment loss recognised
Impairment loss written back
Uncollectible amounts written off
At 31 December
2017
RMB million
2016
RMB million
37
8
–
(8)
37
33
14
(1)
(9)
37
(ii) As at 31 December 2017, trade receivables of RMB36 million (31 December 2016: RMB31 million) were past due but
not impaired. These relate to a number of independent customers for whom there is no significant financial difficulty and
based on experience, the overdue amounts can be recovered.
The ageing analysis of these trade receivables is as follows:
3 to 12 months
More than 1 year
2017
RMB million
2016
RMB million
31
5
36
26
5
31
(iii) As at 31 December 2017, trade receivables of RMB40 million (31 December 2016: RMB50 million) were impaired. The
amount of the provision was RMB37 million as at 31 December 2017 (31 December 2016: RMB37 million). The impaired
receivables mainly relate to customers which are in unexpectedly difficult economic situations. It was assessed that a
portion of the receivables is expected to be recovered. The ageing of these receivables is as follows:
3 to 12 months
More than 1 year
2017
RMB million
2016
RMB million
9
31
40
28
22
50
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
206
33 Trade receivables (continued)
(b) Trade receivables that are not impaired
The ageing analysis of trade receivables that are neither individually nor collectively considered to be impaired is as follows:
Neither past due nor impaired
2017
RMB million
2,636
2016
RMB million
2,945
Trade receivables that were neither past due nor impaired relate to customers for whom there was no recent history of default.
(c) Trade receivables by currencies
The carrying amounts of the Group’s trade receivables are denominated in the following currencies:
RMB
USD
EURO
AUD
TWD
GBP
Others
2017
RMB million
2016
RMB million
2,061
179
171
52
33
36
180
2,712
2,303
268
129
53
40
23
210
3,026
As at 31 December 2017, the fair value of trade receivables approximates its carrying amount.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
207
34 Other receivables
VAT recoverable
Rebate receivables on aircraft acquisitions
Term deposits
Deposits for aircraft purchase
Interest receivables
Others
Less: allowance for doubtful debts
2017
RMB million
2016
RMB million
3,684
699
313
–
1
538
5,235
(3)
5,232
1,404
749
568
13
33
623
3,390
(3)
3,387
Term deposits have a maturity over 3 months at acquisition. The weighted average annualised interest rate of term deposits as at
31 December 2017 is 2.01% (31 December 2016: 3.22%).
As at 31 December 2017, the fair value of other receivables approximates its carrying amount.
35 Cash and cash equivalents
(a) Cash and cash equivalents comprise:
Deposits in banks and other financial institutions
Cash at bank and other financial institutions and on hand
Cash and cash equivalents in the consolidated statement of financial position
2017
RMB million
2016
RMB million
–
6,826
6,826
26
4,126
4,152
As at 31 December 2017, the fair value of cash and cash equivalents approximates its carrying amount.
The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:
RMB
USD
EURO
JPY
HKD
Others
2017
RMB million
2016
RMB million
4,377
2,038
71
27
123
190
6,826
3,494
472
31
15
13
127
4,152
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
208
35 Cash and cash equivalents (continued)
(b) Reconciliation of profit before income tax to cash generated from operating
activities:
Note
2017
RMB million
2016
RMB million
13
13
13
20
25
26
15
29
24(iv)
16
27&28
Profit before income tax
Depreciation charges
Other amortisation
Amortisation of deferred benefits and gains
Impairment losses on property, plant, equipment
Share of associates’ results
Share of joint ventures’ results
Gain on disposal of property, plant and equipment and construction
in progress
Gain on deemed disposal of equity interest in a subsidiary
Fair value movement of derivative financial instruments
Remeasurement of the originally held equity interests in a joint
venture
Interest income
Interest expense
Dividend income from other investments in equity securities and
available-for-sale financial assets
Exchange (gain)/losses, net
(Increase)/decrease in inventories
Decrease/(increase) in trade receivables
(Increase)/decrease in other receivables
Decrease/(increase) in prepaid expenses and other current assets
Increase in net amounts due to related companies
Increase/(decrease) in trade payables
(Decrease)/increase in sales in advance of carriage
Increase in accrued expenses
Increase/(decrease) in other liabilities
Increase in deferred revenue
Increase in provision for major overhauls
Decrease in provision for early retirement benefits
Increase/(decrease) in deferred benefits and gains
Cash generated from operating activities
8,874
12,963
360
(161)
324
(431)
(99)
(989)
–
64
(109)
(89)
2,747
(18)
(642)
(34)
314
(1,840)
81
15
222
(567)
223
762
430
719
(3)
362
23,478
7,661
12,418
332
(131)
71
(509)
(102)
(557)
(90)
–
–
(89)
2,465
(14)
3,368
18
(409)
637
(224)
186
(597)
1,289
2,066
(186)
86
194
(7)
(195)
27,681
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
209
35 Cash and cash equivalents (continued)
(c) Reconciliation of liabilities arising from financing activities
Interest rate
swaps held
to hedge
borrowings
(assets)
RMB million
(Note 29)
Obligations
under finance
leases
RMB million
(Note 38)
Bank loans
and other
borrowings
RMB million
(Note 37)
At 1 January 2017
45,504
62,222
(21)
Changes from financing cash flows:
Proceeds from bank borrowings
Proceeds from ultra-short-term financing bills
Repayment of bank borrowings
Repayment of ultra-short-term financing bills
Repayment of principal under finance lease
obligations
Total changes from financing cash flows
Exchange adjustments
Changes in fair value
Other changes:
Acquisitions through business combinations
(Note 24(iv))
Additions of obligations under finance leases
(Note 52)
Total other changes
At 31 December 2017
42,854
1,000
(18,311)
(22,986)
–
2,557
(116)
–
342
–
342
48,287
–
–
–
–
(9,835)
(9,835)
(1,746)
–
–
17,283
17,283
67,924
–
–
–
–
–
–
–
(25)
–
–
–
(46)
Cross currency
swaps
RMB million
(Note 29)
Total
RMB million
–
–
–
–
–
–
–
–
64
–
–
–
64
107,705
42,854
1,000
(18,311)
(22,986)
(9,835)
(7,278)
(1,862)
39
342
17,283
17,625
116,229
36 Assets held for sale
Assets held for sale mainly represent buildings which are planned to be sold in the next 12 months and are measured at the
lower of their carrying amounts and fair values less costs to sell.
Property, plant and equipment
Note
20
Recognised values
RMB million
8
As at 31 December 2017, the carrying amount of the assets held for sale is RMB8 million, while their fair value less cost to sell
is RMB27 million. The fair value on which the recoverable amount is based on is categorised as a level 3 measurement.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
210
37 Borrowings
(a) As at 31 December 2017, borrowings are analysed as follows:
2017
RMB million
2016
RMB million
Non-current
Long-term borrowings
– secured (Notes (i)&(ii)&(iii))
– unsecured
Corporate bond
– unsecured (Note (iv))
Medium-term notes
– unsecured (Note (v))
Current
Current portion of long-term borrowings
– secured (Notes (i)&(ii)&(iii))
– unsecured
Short-term borrowings
– unsecured
Ultra short-term financing bills
– unsecured
Current portion of corporate bond
– unsecured (Note (iv))
Total borrowings
The borrowings are repayable:
Within one year
In the second year
In the third to fifth year
After the fifth year
Total borrowings
596
5,427
6,023
10,000
4,696
20,719
208
3,734
20,626
–
24,568
3,000
27,568
48,287
27,568
9,126
11,566
27
48,287
755
314
1,069
13,000
4,689
18,758
220
345
4,195
21,986
26,746
–
26,746
45,504
26,746
440
18,260
58
45,504
Notes:
(i)
As at 31 December 2017, bank borrowings of the Group totalling RMB440 million (31 December 2016: RMB660 million) were secured
by mortgages over certain of the Group’s aircraft with aggregate carrying amounts of RMB1,331 million (31 December 2016: RMB1,443
million).
(ii) As at 31 December 2017, bank borrowings of the Group amounting to RMB265 million (31 December 2016: RMB315 million) were
secured by certain land use rights of RMB90 million (31 December 2016: RMB79 million) and investment properties of RMB20 million
(31 December 2016: RMB34 million).
(iii) As at 31 December 2017, bank borrowings of the Group totalling RMB99 million (31 December 2016: Nil) were secured by certain of
the other flight equipment with aggregate carrying amounts of RMB206 million (31 December 2016: Nil).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
211
37 Borrowings (continued)
(a) As at 31 December 2017, borrowings are analysed as follows: (continued)
Notes (continued):
(iv) The Group issued corporate bonds with aggregate nominal value of RMB3,000 million on 20 November 2015 at a bond rate of 3.63%.
The corporate bonds mature in five years. The Company will be entitled at its option to adjust its bond rate and the investors will be
entitled to request the Company to redeem all or a portion of the bonds after three years of the issue date.
The Group issued corporate bonds with aggregate nominal value of RMB5,000 million on 3 March 2016 at a bond rate of 2.97%. The
corporate bonds mature in three years.
The Group issued corporate bonds with aggregate nominal value of RMB5,000 million on 25 May 2016 at a bond rate of 3.12%. The
corporate bonds mature in five years. The Company will be entitled at its option to adjust its bond rate and the investors will be entitled
to request the Company to redeem all or a portion of the bonds after three years of the issue date.
(v) Xiamen Airlines issued medium-term notes with aggregate nominal value of RMB1,300 million on 15 August 2016 at an interest rate of
2.97%. The medium-term notes mature in three years.
Xiamen Airlines issued medium-term notes with aggregate nominal value of RMB1,600 million on 20 October 2016 at an interest rate of
3.11%. The medium-term notes mature in five years.
Xiamen Airlines issued medium-term notes with aggregate nominal value of RMB1,800 million on 21 November 2016 at an interest rate
of 3.38%. The medium-term notes mature in three years.
(b) As at 31 December 2017, the Group’s weighted average interest rates on short-term borrowings were 3.76% per annum (31
December 2016: 3.92% per annum).
(c) Details of borrowings with original maturity over one year are as follows:
Renminbi denominated loans
Fixed interest rate at 1.20% per annum as at 31 December 2017, with maturities
through 2027
Corporate Bond – Fixed bond rate at 2.97%~3.63%
Medium-term notes – Fixed interest rate at 2.97%~3.38%
Floating interest rates 90%, 95%, 100% of benchmark interest rate (stipulated by
PBOC) as at 31 December 2017, with maturities through 2023
USD denominated loans
Floating interest rates at three-month LIBOR + 3.30% per annum as at
31 December 2017, with maturities through 2019
Floating interest rates at three-month LIBOR + 2.1% per annum as at
31 December 2017, with maturities through 2018
Less: loans due within one year classified as current liabilities
2017
RMB million
2016
RMB million
20
13,000
4,696
9,781
98
66
27,661
(6,942)
20,719
20
13,000
4,689
1,406
–
208
19,323
(565)
18,758
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
212
37 Borrowings (continued)
(d) The carrying amounts of the borrowings are denominated in the following
currencies:
Renminbi
USD
2017
RMB million
2016
RMB million
40,086
8,201
48,287
45,296
208
45,504
The Group has certain borrowings as well as significant obligations under finance leases (Note 38) which are denominated in
USD as at 31 December 2017. The net exchange gain of RMB1,801 million for the year ended 31 December 2017 (2016: net
exchange loss of RMB3,276 million) was mainly attributable to the translation of balances of borrowings and obligations under
finance lease which are denominated in USD.
(e) The balance of short-term borrowings as at 31 December 2017 included entrusted loans from CSAH via SA Finance to the
Group amounted to RMB105 million (31 December 2016: RMB105 million) (Note 50(d)(ii)).
(f) As at 31 December 2017, the fair value of borrowings approximate their carrying amount. The fair value is within level 2 of the
fair value hierarchy.
(g) Certain of the Group’s banking facilities are subject to the fulfillment of covenants relating to certain of the Group’s balance
sheet ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the
covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these
covenants. Further details of the Group’s management of liquidity risk are set out in Note 4(a). As at 31 December 2017 and
2016 none of the covenants relating to drawn down facilities had been breached.
38 Obligations under finance leases
The Group has commitments under finance lease agreements in respect of aircraft and related equipment. The majority of these
leases have terms of 10 to 15 years expiring during the years 2018 to 2032. The Group has made careful assessment on the
classification of leased aircraft pursuant to IAS 17 and believes all leased aircraft classified as finance lease meet one or more of
the criteria as set out in IAS 17 that would lead to a lease being classified as a finance lease.
As at 31 December 2017, future payments under these finance leases are as follows:
2017
Present
value of the
minimum lease
payments
RMB million
Total
minimum lease
payments
RMB million
10,764
10,257
29,627
28,251
78,899
8,341
8,145
25,376
26,062
67,924
(8,341)
59,583
Interest
RMB million
2,423
2,112
4,251
2,189
10,975
2016
Present
value of the
minimum lease
payments
RMB million
Total
minimum lease
payments
RMB million
10,663
8,683
24,795
27,247
71,388
8,695
6,973
21,583
24,971
62,222
(8,695)
53,527
Interest
RMB million
1,968
1,710
3,212
2,276
9,166
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
After 5 years
Less: balance due within one year
classified as current liabilities
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
213
38 Obligations under finance leases (continued)
Details of obligations under finance leases are as follows:
USD denominated obligations
Fixed interest rates ranging from 1.75% to 5.03% per annum as at 31 December
2017
Floating interest rates ranging from three-month LIBOR + 0.18% to three-month
LIBOR + 2.95% per annum as at 31 December 2017
Floating interest rates ranging from six-month LIBOR + 0.03% to six-month
LIBOR + 3.30% per annum as at 31 December 2017
Singapore Dollars denominated obligations
Floating interest rate at six-month SIBOR + 1.44% per annum as at 31
December 2017
Japanese Yen denominated obligations
Floating interest rate at three-month TIBOR + 0.75% to three-month TIBOR +
1.90% per annum as at 31 December 2017
Floating interest rate at six-month TIBOR + 3.00% per annum as at 31
December 2017
Renminbi denominated obligations
Fixed rate at 4.1% to 4.3% as at 31 December 2017
Floating interest rates ranging from 75.0% to 106.5% of five-year RMB
loan benchmark interest rate announced by the PBOC per annum as at 31
December 2017
Floating interest rate at three-month CHN HIBOR + 0.38% as at
31 December 2017
Euro denominated obligations
Floating interest rate ranging from three-month EURIBOR + 0.32%
to three-month EURIBOR + 2.20% per annum as at 31 December 2017
Floating interest rates ranging from six-month EURIBOR + 1.45%
to six-month EURIBOR + 1.80% per annum as at 31 December 2017
2017
RMB million
2016
RMB million
7,803
12,544
11,327
9,761
15,878
15,720
292
341
1,279
295
856
28,804
455
2,701
1,568
67,924
1,502
332
–
13,852
503
2,785
1,548
62,222
As at 31 December 2017, certain of the Group’s aircraft with carrying amounts of RMB82,356 million (31 December 2016:
RMB76,875 million) secured finance lease obligations totalling RMB67,924 million (31 December 2016: RMB62,222 million).
As at 31 December 2017, the fair value of obligations under finance leases approximate their carrying amount. The fair value is
within level 2 of the fair value hierarchy.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
214
39 Trade payables
Ageing analysis of trade payables based on transaction date is set out below:
Within 1 month
More than 1 month but less than 3 months
More than 3 months but less than 6 months
More than 6 months but less than 1 year
More than 1 year
2017
RMB million
2016
RMB million
465
533
497
443
187
2,125
612
529
484
173
105
1,903
As at 31 December 2017, the fair value of trade payables approximate their carrying amount.
The carrying amounts of the Group’s trade payables are denominated in the following currencies:
Renminbi
USD
Others
2017
RMB million
2016
RMB million
1,832
209
84
2,125
1,809
85
9
1,903
40 Deferred revenue
Deferred revenue represents the unredeemed credits under the frequent flyer award programme.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
215
41 Amounts due from/to related companies
(a) Amounts due from related companies
Current
CSAH and its affiliates
Associates
Joint ventures
Non-current
CSAH and its affiliates
Note
2017
RMB million
2016
RMB million
50(c)
31 & 50(c)
9
18
49
76
160
236
7
15
76
98
–
98
The amounts due from related companies are unsecured, interest free and have no fixed terms of repayment. They are expected
to be recovered within one year.
(b) Amounts due to related companies
CSAH and its affiliates
Joint ventures of CSAH
Associates
A joint venture
Other related companies
Note
2017
RMB million
2016
RMB million
28
22
1
48
2
101
20
1
4
76
2
103
50(c)
The amounts due to related companies are unsecured, interest free and have no fixed terms of repayment. They are expected to
be settled within one year.
42 Accrued expenses
Repairs and maintenance
Jet fuel costs
Salaries and welfare
Landing and navigation fees
Computer reservation services
Provision for major overhauls (Note 44)
Interest expense
Air catering expenses
Provision for early retirement benefits (Note 45)
Others
2017
RMB million
2016
RMB million
4,806
1,345
3,362
2,757
541
562
740
148
4
1,105
5,290
1,530
2,851
2,327
436
768
844
504
7
590
15,370
15,147
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
216
43 Other liabilities
Civil Aviation Development Fund and airport tax payable
Payable for purchase of property, plant and equipment
Sales agent deposits
Other taxes payable
Deposit received for chartered flights
Others
2017
RMB million
2016
RMB million
1,788
1,194
507
569
191
1,485
5,734
1,559
900
430
508
216
1,359
4,972
As at 31 December 2017, the fair value of the balance approximate their carrying amount.
44 Provision for major overhauls
Details of provision for major overhauls in respect of aircraft held under operating leases are as follows:
At 1 January
Additional provision
Utilisation
At 31 December
Less: current portion (Note 42)
2017
RMB million
2016
RMB million
2,857
1,063
(550)
3,370
(562)
2,808
2,365
1,020
(528)
2,857
(768)
2,089
45 Provision for early retirement benefits
Details of provision for early retirement benefits in respect of obligations to early retired employees are as follows:
At 1 January
Provision for the year (Note 14)
Financial cost (Note 16)
Payments made during the year
At 31 December
Less: current portion (Note 42)
2017
RMB million
2016
RMB million
13
1
1
(8)
7
(4)
3
25
3
1
(16)
13
(7)
6
The Group has implemented an early retirement plan for certain employees. The benefits of the early retirement plan are
calculated based on factors including the remaining number of years of service from the date of early retirement to the normal
retirement date and the salary amount on the date of early retirement of the employees. The present value of the future cash
flows expected to be required to settle the obligations is recognised as provision for early retirement benefits.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
217
46 Deferred benefits and gains
Leases rebates (Note (i))
Maintenance rebates (Note (ii))
Gains relating to sale and leaseback (Note (iii))
Government grants
Others
2017
RMB million
2016
RMB million
54
807
28
149
15
1,053
77
419
51
127
17
691
Notes:
(i)
(ii)
The Group was granted rebates by the lessors under certain lease arrangements when it fulfilled certain requirements. The rebates are
deferred and amortised using the straight line method over the remaining lease terms.
The Group was granted rebates by the engine suppliers under certain arrangements when it fulfilled certain requirements. The rebates are
deferred and amortised over the beneficial period.
(iii) The Group entered into sale and leaseback transactions with certain third parties under operating leases. The gains are deferred and
amortised over the lease terms of the aircraft.
47 Share capital
Registered, issued and paid up capital:
4,039,228,665 domestic state-owned shares of RMB1.00 each
(2016: 4,039,228,665 shares of RMB1.00 each)
2,983,421,335 A shares of RMB1.00 each
(2016: 2,983,421,335 shares of RMB1.00 each)
3,065,523,272 H shares of RMB1.00 each
(2016: 2,794,917,000 shares of RMB1.00 each)
2017
RMB million
2016
RMB million
4,039
2,984
3,065
10,088
4,039
2,984
2,795
9,818
(i) All the domestic state-owned, H and A shares rank pari passu in all material respects.
(ii) On 10 August 2017, the Company issued 270,606,272 H shares to American Airlines, Inc. for a cash consideration
equivalent to RMB1,321 million, of which RMB270 million was credited to share capital and RMB1,051 million was
credited to share premium (Note 48 and Note 57). According to the Share Subscription Agreement signed by the Company
and American Airlines, the H Shares are subject to a lock-up period of three years.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
218
48 Reserves
Share premium
At 1 January and 31 December
Addition (Note 47(ii))
At 31 December
Fair value reserve
At 1 January
Change in fair value of available-for-sale equity securities
Change in fair value of derivative financial instruments
At 31 December
Statutory and discretionary surplus reserve
At 1 January
Appropriations to reserves (Note(a))
At 31 December
Other reserve
At 1 January
Share of an associate’s reserves movement
Dilution and change in non-controlling interests and other reserves
At 31 December
Retained profits
At 1 January
Profit for the year
Appropriations to reserves (Note(a))
Dividends approved in respect of the previous year
At 31 December
Total
(a) Appropriations to reserves
2017
RMB million
2016
RMB million
14,131
1,051
15,182
209
47
19
275
1,957
492
2,449
121
1
113
235
17,220
5,961
(492)
(982)
21,707
39,848
14,131
–
14,131
55
148
6
209
1,552
405
1,957
123
(2)
–
121
13,366
5,044
(405)
(785)
17,220
33,638
According to the PRC Company Law and the Articles of Association of the Company and certain of its subsidiaries, the
Company and the relevant subsidiaries are required to transfer 10% of their annual net profits after taxation, as determined under
the PRC accounting rules and regulations, to a statutory surplus reserve until the reserve balance reaches 50% of the registered
capital. The transfer to this reserve must be made before distribution of dividend to shareholders and when there are retained
profits at the end of the financial year.
Statutory surplus reserve can be used to offset prior years’ losses, if any, and may be converted into share capital by the issue of
new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held
by them, provided that the balance after such issue is not less than 25% of the registered capital.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
219
48 Reserves (continued)
(b) Dividends
Dividends payable to equity shareholders of the Company attributable to the year:
2017
RMB million
2016
RMB million
Final dividend proposed after the end of the reporting year of
RMB0.10 per share (2016: RMB0.10 per share) (inclusive of applicable tax)
1,009
982
A dividend in respect of the year ended 31 December 2017 of RMB1.00 per 10 shares (inclusive of applicable tax) (2016:
RMB1.00 per 10 shares (inclusive of applicable tax)), amounting to a total dividend of RMB1,009 million (2016: RMB982
million), was proposed by the directors on 26 March 2018. The dividend proposed after the end of the financial year has not
been recognised as a liability at the end of the financial year.
49 Commitments
(a) Capital commitments
Capital commitments outstanding as at 31 December 2017 not provided for in the financial statements were as follows:
Commitments in respect of aircraft and flight equipment
– authorised and contracted for
Investment commitments
– authorised and contracted for
– capital contributions for acquisition of interests in associates
– share of capital commitments of a joint venture
– authorised but not contracted for
– share of capital commitments of a joint venture
Commitments for other property, plant and equipment
– authorised and contracted for
– authorised but not contracted for
2017
RMB million
2016
RMB million
86,834
83,532
–
18
18
22
40
6,386
15,636
22,022
108,896
170
25
195
19
214
2,297
19,312
21,609
105,355
As at 31 December 2017, the approximate total future payments, including estimated amounts for price escalation through
anticipated delivery dates for aircraft and flight equipment are as follows:
2017
2018
2019
2020
2021 and afterwards
2017
RMB million
2016
RMB million
–
28,125
28,370
22,686
7,653
86,834
25,971
24,355
17,878
13,871
1,457
83,532
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
220
49 Commitments (continued)
(b) Operating lease commitments
As at 31 December 2017, the total future minimum lease payments under non-cancellable operating leases in respect of
properties, aircraft and flight equipment are as follows:
Payments due:
Within 1 year
After 1 year but within 5 years
After 5 years
2017
RMB million
2016
RMB million
8,283
31,175
30,007
69,465
7,948
27,140
26,127
61,215
50 Material related party transactions
(a) Key management personnel remuneration
Remuneration for key management personnel of the Group, including amounts paid to the Company’s directors (excluding
independent non-executive directors) and certain of the highest paid employees as disclosed in Note 58, is as follows:
Salaries, wages and welfare
Retirement scheme contributions
Directors and supervisors (Note 58)
Senior management
2017
RMB’000
12,151
1,841
13,992
2017
RMB’000
2,952
11,040
13,992
2016
RMB’000
8,219
1,594
9,813
2016
RMB’000
2,159
7,654
9,813
Total remuneration is included in “staff costs” (Note 14).
(b) Transactions with CSAH and its affiliates (the “CSAH Group”), associates, joint
ventures and other related companies of the Group
The Group provided various operational services to the CSAH Group, associates, joint ventures and other related companies of
the Group during the normal course of its business. The Group also received operational services provided by these entities.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
221
50 Material related party transactions (continued)
(b) Transactions with CSAH and its affiliates (the “CSAH Group”), associates, joint
ventures and other related companies of the Group (continued)
Details of the significant transactions carried out by the Group are as follows:
Income received from the CSAH Group
Cargo handling income and rental income*
Aviation material sales income
Rental income
Others
Expenses paid to the CSAH Group
Cargo handling charges*
Commission expenses*
Maintenance material purchase expense and lease charges for
aviation material
Software service expenses
Air catering supplies expenses*
Repairing charges*
Lease charges for land and buildings*
Handling charges*
Property management fee*
Others
Expenses paid to joint ventures and associates
Repairing charges
Maintenance material purchase expenses
Flight simulation service charges
Training expenses
Ground service expenses
Air catering supplies
Advertising expenses*
Property management fee
Others
Income received from joint ventures and associates
Maintenance material sales and handling income
Disposal of equipment
Rental income
Entrustment income for advertising media business
Repairing income
Air catering supplies expenses
Commission income*
Ground service income
Labor service income
Others
Income received from other related company
Air tickets income
Expenses paid to other related company
Advertising expenses
Computer reservation services
Aviation supplies expenses
Canteen Service
Others
Note
(i)
(ii)
(iii)
(i)
(i)
(ii)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(ix)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
(xvi)
(xvi)
(x)
(xiv)
(xvii)
(xvii)
(xviii)
(xix)
(xx)
(xxi)
(xxi)
(xxii)
(xxiii)
(xxiii)
2017
RMB million
2016
RMB million
3
4
7
1
112
44
43
4
125
1,537
189
–
72
12
2,424
68
194
36
123
109
74
26
6
28
–
27
20
1
26
26
10
15
3
6
10
576
39
15
4
6
–
–
1
117
99
–
–
124
1,877
193
60
70
14
2,032
41
342
110
120
115
71
–
3
10
39
37
22
12
23
26
9
–
4
9
9
523
36
–
–
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 222
50 Material related party transactions (continued)
(b) Transactions with CSAH and its affiliates (the “CSAH Group”), associates, joint
ventures and other related companies of the Group (continued)
Acquisition from CSAH Group
Acquisition of a subsidiary*
Acquisition of property, plant and equipment*
Leases from CSAH Group
Finance lease of aircraft*
2017
RMB million
2016
RMB million
Note
(vi) & (xiv)
(xxiv)
47
–
(viii)
6,831
400
56
–
(i)
China Southern Airlines Group Ground Services Co., Ltd. (“GSC”), is a wholly-owned subsidiary of CSAH. Cargo handling income/
charges are earned/payable by the Group in respect of the cargo handling services with GSC.
Commission is earned by GSC in connection with the air tickets sold by them on behalf of the Group. Commission is calculated based on
the rates stipulated by the Civil Aviation Administration of China and International Air Transportation Association.
In addition, the Group leased certain equipment to GSC under operating lease agreements.
(ii)
China Aviation Supplies Holding Company (“CASC”), a joint venture of CSAH.
The Group purchases software service, as well as purchases and leases maintenance material and from CASC, and CASC also purchases
maintenance material from the Group.
(iii) Shenzhen Air Catering Co., Ltd. (“SACC”), a joint venture of CSAH.
Air catering supplies income/expenses are earned/payable by the Group in respect of certain in-flight meals and related services with
SACC.
In addition, the Group leased certain buildings to SACC under operating lease agreements.
(iv) MTU Maintenance Zhuhai Co., Ltd., a joint venture of CSAH, provides comprehensive maintenance services to the Group.
(v)
The Group leases certain land and buildings in the PRC from CSAH Group. The amount represents rental payments for land and
buildings paid or payable to CSAH Group.
(vi) The Group acquires aircraft, flight equipment and other airline-related facilities through SAIETC and pays handling charges to SAIETC,
which used to be a wholly-owned subsidiary of CSAH. In August 2016, the Company acquired 100% equity interests in SAIETC from
CSAH at a consideration of approximately RMB400 million. SAIETC became a wholly owned subsidiary of the Company since then.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
223
50 Material related party transactions (continued)
(b) Transactions with CSAH and its affiliates (the “CSAH Group”), associates, joint
ventures and other related companies of the Group (continued)
(vii) China Southern Airlines Group Property Management Co., Ltd., a wholly-owned subsidiary of CSAH. Citic Southern Airlines
Construction and Development Company Limited, an associate of CSAH. Both of them provide property management services to the
Group.
(viii) China Southern Airlines International Finance Leasing Co., Ltd., a wholly-owned subsidiary of CSAH, provides financial lease of aircraft
services to the Group.
(ix) GAMECO and Shenyang Northern Aircraft Maintenance Ltd., joint ventures of the Group, provide comprehensive maintenance services
to the Group.
The Group also purchases maintenance material from GAMECO.
(x)
Zhuhai Xiang Yi, a joint venture of the Group, provides flight simulation services to the Group. In addition, the Group leased certain
flight training facilities and buildings to Zhuhai Xiang Yi under operating lease agreements.
In July 2017, the Company acquired 49% equity interests in Zhuhai Xiang Yi, which then became a wholly-owned subsidiary of the
Company upon completion of the acquisition (Note 24(iv)). The amount represents the transactions in 2017 which incurred prior to the
acquisition.
(xi)
Flying College, a joint venture of the Group, provides training services to the Group.
(xii) Beijing Aviation Ground Services Co.,Ltd., and Shenyang Konggang Logistic Co., Ltd., associates of the Group provides ground service
to the Group.
(xiii) Beijing Airport Inflight Kitchen Co.,Ltd. is an associate of the Group and provides air catering related services to the Group.
(xiv) SACM, an associate of the Group, provides advertising services to the Group.
XACM, originally an associate of Xiamen Airlines with 49% equity interests held, also a subsidiary of SACM, provided advertising
service to Xiamen Airlines. In October 2017, Xiamen Airlines acquired the remaining 51% equity interests in XACM at a consideration
of RMB47 million. XACM became a wholly-owned subsidiary of Xiamen Airlines upon completion of the acquisition since then (Note
24(v)). Xiamen Airlines provides certain media resources to Xiamen Airlines Media Co., Ltd., before the acquisition.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 224
50 Material related party transactions (continued)
(b) Transactions with CSAH and its affiliates (the “CSAH Group”), associates, joint
ventures and other related companies of the Group (continued)
(xv) Xinjiang Civil Aviation Property Management Ltd., an associate of the Group, provides property management services to the Group.
(xvi) The Group imports and sales maintenance material to GAMECO and earns maintenance material sales and handling income. The Group
disposed of equipment to GAMECO in 2016.
(xvii) The Group provides repairing service and Air catering supplies service to Sichuan Airlines.
(xviii) The Group provides certain website resources to SA Finance for the sales of air insurance.
(xix) The Group provides ground services to Shenyang Konggang Logistic Co., Ltd., and Sichuan Airlines, which are associates of the Group.
(xx) The Group provides labor service to Shenyang Northern Aircraft Maintenance Limited, and the charge rates are determined by reference
to prevailing market price.
(xxi) Phoenix Satellite Television Holdings Ltd., (“the Phoenix Group”) is a related party of the Group as the board chairman of the Phoenix
Group was appointed as a non-executive director of the Group. It provides advertising services to the Group.
In addition, the Group sells tickets to the Phoenix Group on market price.
(xxii) China Travel Sky Holding Company is a related party of the Group as a director of the Group was appointed as the director of China
Travel Sky Holding Company. It provides computer reservation services to the Group.
(xxiii) The Chairman of Guangdong Southern Airline Pearl Aviation Services Company Limited (“Pearl Aviation Services”) is the executive
director of the Company. The Group purchases aviation supplies and canteen services from Pearl Aviation Services.
(xxiv) The Group acquires properties from Citic Southern Airlines Construction and Development Company Limited, which is an associate of
CSAH.
*
These related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter
14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in section “CONNECTED
TRANSACTION” of the Report of Director.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 225
50 Material related party transactions (continued)
(c) Balances with the CSAH Group, associates, joint ventures and other related
companies of the Group
Details of amounts due from/to the CSAH Group, associates, joint ventures and other related company of the Group:
Receivables:
The CSAH Group
Associates
Joint ventures
Prepayments of acquisition of long-term assets:
The CSAH Group
Payables:
The CSAH Group
Associates
A joint venture
Other related companies
Accrued expenses:
The CSAH Group
Associates
Joint ventures
Other related companies
Obligations under finance leases:
The CSAH Group
Note
41(a)
Note
31&41(a)
Note
41(b)
2017
RMB million
2016
RMB million
9
18
49
76
7
15
76
98
2017
RMB million
2016
RMB million
160
160
–
–
2017
RMB million
2016
RMB million
50
1
48
2
101
21
4
76
2
103
2017
RMB million
2016
RMB million
1,023
95
1,086
571
2,775
1,117
121
864
256
2,358
2017
RMB million
2016
RMB million
6,656
6,656
–
–
Except the obligations under finance leases, the amounts due from/to the CSAH Group, associates, joint ventures and other
related companies of the Group are unsecured, interest-free and have no fixed terms of repayment.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
226
50 Material related party transactions (continued)
(d) Loans from and deposits placed with related parties
(i) Loans from related parties
At 31 December 2017, loans from SA Finance to the Group amounted to RMB431 million (31 December 2016: Nil).
The unsecured loans are repayable as follows:
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
2017
RMB million
2016
RMB million
273
58
100
431
–
–
–
–
Interest expense paid on such loans amounted to RMB14 million (2016: RMB7 million) and the interest rates range from
3.92% to 4.51% per annum during the year ended 31 December 2017 (2016: 3.92%).
(ii) Entrusted loans from CSAH
In 2017, CSAH, SA Finance and the Group entered into an entrusted loan agreement, pursuant to which, CSAH, as the
lender, entrusted SA Finance to lend RMB105 million to the Group from 28 April 2017 to 28 April 2018. The interest rate
is 90% of benchmark interest rate stipulated by PBOC per annum.
The unsecured entrusted loans are repayable as follows:
Within 1 year
Note
37(e)
2017
RMB million
105
2016
RMB million
105
Interest expense paid on such loans amounted to RMB4 million (2016: RMB4 million) at interest rates 3.92% per annum
during the year ended 31 December 2017 (2016: 3.92% per annum).
(iii) Deposits placed with SA Finance
As at 31 December 2017, the Group’s deposits with SA Finance are presented in the table below. The applicable interest
rates are determined in accordance with the rates published by the PBOC.
Deposits placed with SA Finance
2017
RMB million
6,095
2016
RMB million
3,759
Interest income received on such deposits amounted to RMB72 million during the year ended 31 December 2017 (2016:
RMB37 million).
(e) Commitments to CSAH
As at 31 December 2017, the Group had operating lease commitments to CSAH in respect of lease payments for land and
buildings of RMB334 million (31 December 2016: RMB476 million).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
227
51 Employee benefits plan
(a) Retirement benefits
Employees of the Group participate in several defined contribution retirement schemes organised separately by the PRC
municipal and provincial governments in regions where the major operations of the Group are located. The Group is required to
contribute to these schemes at rates ranging from 13% to 20% (2016: 13% to 20%) of salary costs including certain allowances.
A member of the retirement schemes is entitled to pension benefits from the Local Labour and Social Security Bureau upon his/
her retirement. The retirement benefit obligations of all retired staff of the Group are assumed by these schemes. The Group, at
its sole discretion, had made certain welfare subsidy payments to these retirees.
In 2014, the Company and its major subsidiaries joined a new defined contribution retirement scheme (“Pension Scheme”) that
was implemented by CSAH. The annual contribution to the Pension Scheme is based on a fixed specified percentage of prior
year’s annual wage. There will be no further obligation beyond the annual contribution according to the Pension Scheme. The
total contribution into the Pension Scheme in 2017 was approximately RMB546 million (2016: RMB486 million).
(b) Housing benefits
The Group contributes on a monthly basis to housing funds organised by municipal and provincial governments based on certain
percentages of the salaries of employees. The Group’s liability in respect of these funds is limited to the contributions payable in
each year.
The Group also pays cash housing subsidies on a monthly basis to eligible employees. The monthly cash housing subsidies are
charged to income statement.
52 Supplementary information to the consolidated cash flow statement
Non-cash transactions-acquisition of aircraft
During the year ended 31 December 2017, aircraft acquired under finance leases amounted to RMB17,283 million (2016:
RMB10,487 million).
53 Contingent liabilities
(a) The Group leased certain properties and buildings from CSAH which located in Guangzhou, Wuhan and Haikou, etc. However,
to the knowledge of the Group, 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 such properties and buildings.
In addition, as disclosed in Note 20 and Note 22, the Group is applying title certificates for certain of the Group’s properties
and land use rights certificates for certain properties and parcels of land. The Company is of the opinion that the use of and the
conduct of operating activities at these properties and these parcels of land are not affected by the fact that the Group has not yet
obtained the relevant certificates.
(b) 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 2016: RMB696 million) that can be
drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December 2017, total personal bank
loans of RMB361 million (31 December 2016: RMB409 million), under these guarantees, were drawn down from the banks.
During the year, the Group paid RMB5 million (2016: RMB4 million) to the banks due to the default of payments of certain
pilot trainees.
54 Immediate and ultimate controlling party
As at 31 December 2017, the Directors of the Company consider the immediate parent and ultimate controlling party of the
Group to be CSAH, a state-owned enterprise established in the PRC. CSAH does not produce financial statements available for
public use.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 228
55 Non-adjusting events after the financial year end
(a) On 26 March 2018, the Directors of the Company proposed a final dividend in respect of the year ended 31 December 2017.
Further details are disclosed in Note 48(b).
(b) On 26 June 2017, the Company entered into the A Share Subscription Agreement with CSAH, pursuant to which the Company is to issue
not more than 1,800,000,000 (inclusive) new A Shares to not more than 10 specific investors (including CSAH) (“the A Share Issuance”).
The total funds to be raised from the A Share Issuance will be not more than RMB9,500 million (inclusive). CSAH will subscribe for
no less than 31% of the new A Shares, the consideration of which shall be satisfied by transfer of assets and cash. In the meantime, the
Company entered into the H Share Subscription Agreement with Nan Lung (a wholly-owned subsidiary of CSAH), pursuant to which the
Company is to issue not more than 600,925,925 (inclusive and adjusted) new H shares at the subscription price of HK$6.156 per H Share
(“the H Share Issuance”). The total funds to be raised from the H Share Issuance will be not more than HKD3,699 million (inclusive).
The consideration 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 8 November 2017. On 12 March 2018, the H Share Issuance was approved by
China Securities Regulatory Commission. The A Share Issuance and the H Share Issuance are inter-conditional upon each other, and the
Company shall obtain all of the approvals required under the applicable laws and regulations before issuance.
(c) On 21 March 2018, Xiamen Airlines, a subsidiary of the Company, entered into an agreement with Boeing Company to
purchase 20 Boeing B373-8 aircraft and 10 Boeing B737-10 aircraft, which are scheduled for delivery from 2019 to 2022.
According the information provided in the market, the total catalogue price for the aircraft is around USD$3.24 billion.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 229
56 Company-level statement of financial position
31 December
2017
RMB million
31 December
2016
RMB million
Non-current assets
Property, plant and equipment, net
Construction in progress
Lease prepayments
Investments in subsidiaries
Interest in associates
Interest in joint ventures
Other investments in equity securities
Derivative financial instruments
Aircraft operating lease deposits
Available-for-sale financial assets
Deferred tax assets
Other assets
Current assets
Inventories
Trade receivables
Other receivables
Cash and cash equivalents
Restricted bank deposits
Prepaid expenses and other current assets
Amounts due from subsidiaries and other related companies
Current liabilities
Derivative financial instruments
Borrowings
Current portion of obligations under finance leases
Trade payables
Sales in advance of carriage
Deferred revenue
Current income tax
Amounts due to subsidiaries and other related companies
Accrued expenses
Other liabilities
123,047
20,467
1,335
7,961
832
269
100
46
498
26
1,623
613
156,817
1,024
1,952
3,761
4,631
85
677
639
12,769
64
24,871
6,854
386
6,634
1,440
825
4,148
12,236
4,081
61,539
114,903
15,346
1,291
6,804
648
483
100
21
610
34
1,623
648
142,511
1,036
2,192
1,976
3,120
82
800
179
9,385
–
19,593
7,336
274
7,167
1,224
583
5,620
12,472
3,435
57,704
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
230
56 Company-level statement of financial position (continued)
Non-current liabilities
Borrowings
Obligations under finance leases
Deferred revenue
Provision for major overhauls
Provision for early retirement benefits
Deferred benefits and gains
Net assets
Capital and reserves
Share capital
Reserves
Total equity
31 December
2017
RMB million
31 December
2016
RMB million
Note
15,170
51,848
1,568
2,223
2
754
71,565
36,482
10,088
26,394
36,482
13,000
46,300
1,315
1,527
5
542
62,689
31,503
9,818
21,685
31,503
57
Approved and authorised for issue by the Board of Directors on 26 March 2018.
Wang Chang Shun
Director
Tan Wan Geng
Director
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
231
57 Reserves movement of the Company
2017
RMB million
2016
RMB million
Share premium
At 1 January
Addition (Note 47(ii))
At 31 December
Fair value reserve
At 1 January
Change in fair value of available-for-sale equity securities
Change in fair value of derivative financial instruments
At 31 December
Statutory and discretionary surplus reserve
At 1 January
Appropriations to reserves (Note 48(a))
At 31 December
Other reserve
At 1 January and 31 December
Retained profits
At 1 January
Profit for the year
Appropriations to reserves(Note 48(a))
Dividends approved in respect of the previous year
At 31 December
Total
13,878
1,051
14,929
34
(6)
19
47
1,957
492
2,449
146
5,670
4,627
(492)
(982)
8,823
26,394
13,878
–
13,878
34
(6)
6
34
1,552
405
1,957
146
3,286
3,574
(405)
(785)
5,670
21,685
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
232
58 Benefits and interests of directors and supervisors
(a) Directors’ and supervisors’ emoluments
The remuneration of every director and supervisor for the year ended 31 December 2017 is set out below:
Emoluments paid or receivable in respect of a person’s services as a director or supervisor, whether of the Company or its
subsidiary undertaking:
Emoluments
paid or
receivable
in respect of
director’s or
supervisor’s
other services in
connection with
the management
of the affairs of
the Company
or its subsidiary
undertaking
RMB’000
Remunerations
paid or
receivable
in respect of
accepting office
as director or
supervisor
RMB’000
Employer’s
contribution
to a retirement
benefit scheme
RMB’000
Directors’
fees
RMB’000
Salaries, wages
and welfare
RMB’000
Housing
allowance
RMB’000
–
–
–
–
–
–
–
–
–
–
–
–
150
150
150
150
150
–
–
–
–
–
–
–
812
–
901
–
–
419
324
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123
–
126
–
–
127
120
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
RMB’000
–
–
–
–
–
935
–
1,027
–
–
546
444
150
150
150
150
150
–
–
Name
Non-executive directors
Yuan Xin An
(Note (i) & (ii))
Yang Li Hua
(Note (i) & (ii))
Executive directors
Wang Chang Shun
(Note (i) & (v))
Tan Wan Geng (Note (i))
Zhang Zi Fang (Note (i))
Li Shao Bin (Note (ii))
Supervisors
Pan Fu (Note (i))
Li Jia Shi
Zhang Wei (Note (i) & (ii))
Yang Yi Hua
(Note (ii) & (iv))
Wu De Ming (Note (ii))
Mao Juan (Note (iii))
Independent
non-executive directors
Ning Xiang Dong
(Note (ii))
Liu Chang Le (Note(ii))
Tan Jin Song
Guo Wei (Note (ii))
Jiao Shu Ge
Zheng Fan (Note (iii))
Gu Hui Zhong (Note (iii))
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
233
58 Benefits and interests of directors and supervisors (continued)
(a) Directors’ and supervisors’ emoluments (continued)
For the year ended 31 December 2016:
Emoluments paid or receivable in respect of a person’s services as a director or supervisor, whether of the Company or its
subsidiary undertaking:
Emoluments
paid or
receivable
in respect of
director’s or
supervisor’s
other services in
connection with
the management
of the affairs of
the Company
or its subsidiary
undertaking
RMB’000
Remunerations
paid or
receivable
in respect of
accepting office
as director or
supervisor
RMB’000
Employer’s
contribution
to a retirement
benefit scheme
RMB’000
Directors’
fees
RMB’000
Salaries, wages
and welfare
RMB’000
Housing
allowance
RMB’000
–
–
–
–
–
–
–
–
–
–
–
150
150
150
150
150
–
–
–
–
–
639
–
711
–
–
413
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
130
–
133
–
–
133
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
RMB’000
–
–
–
–
–
769
–
844
–
–
546
150
150
150
150
150
Name
Non-executive directors
Wang Chang Shun
(Note (i) & (v))
Yuan Xin An
(Note (i) & (ii))
Yang Li Hua
(Note (i) & (ii))
Executive directors
Tan Wan Geng (Note (i))
Zhang Zi Fang (Note (i))
Li Shao Bin (Note (ii))
Supervisors
Pan Fu (Note (i))
Li Jia Shi
Zhang Wei (Note (i) & (ii))
Yang Yi Hua (Note (ii) & (iv))
Wu De Ming (Note (ii))
Independent
non-executive directors
Ning Xiang Dong
(Note (ii))
Liu Chang Le (Note (ii))
Tan Jin Song
Guo Wei (Note (ii))
Jiao Shu Ge
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
234
58 Benefits and interests of directors and supervisors (continued)
(a) Directors’ and supervisors’ emoluments (continued)
Note:
(i)
These directors or supervisors did not receive any remuneration for their services in the capacity of the directors or supervisors of the
Company. They also held management positions in CSAH and their salaries were borne by CSAH.
(ii)
Resigned on 20 December 2017.
(iii) Appointed on 20 December 2017.
(iv) Ms. Yang Yi Hua retired in September 2015, while still served as supervisor before 20 December 2017. Ms. Yang Yi Hua did not receive
any remuneration for her service in the capacity of the supervisor of the Company since September 2015.
(v) Mr Wang Chang Shun was a non-executive director of the Company before 20 December 2017 and was appointed to be the executive
director since 20 December 2017.
(b) Directors’ and supervisors’ termination benefits
None of the directors and supervisors received or will receive any termination benefits for the year ended 31 December 2017
(2016: Nil).
(c) Consideration provided to third parties for making available directors’ and
supervisors’ services
For the year ended 31 December 2017, the Group did not pay consideration to any third parties for making available directors’
and supervisors’ services (2016: Nil).
(d) Information about loans, quasi-loans and other dealings in favour of directors
and supervisors, controlled bodies corporate by and connected entities with such
directors and supervisors
As at 31 December 2017, there is no loans, quasi-loans and other dealing arrangements in favour of directors and supervisors,
controlled bodies corporate by and connected entities with such directors and supervisors (2016: Nil).
(e) Directors’ and supervisors’ material interests in transactions, arrangements or
contracts
No significant transactions, arrangements and contracts in relation to the Group’s business to which the Company was a party
and in which a director or supervisor of the Company had a material interest, whether directly or indirectly, subsisted at the end
of the year or at any time during the year (2016: Nil).
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 235
59. Possible impact of amendments, new standards and interpretations issued
but not yet effective for the year ended 31 December 2017
Up to the date of issue of these financial statements, the IASB has issued a number of amendments and new standards which
are not yet effective for the year ended 31 December 2017 and which have not been adopted in these financial statements. These
include the following which may be relevant to the Group.
IFRS 9, Financial instruments
IFRS 15, Revenue from contracts with customers
Effective for
accounting periods
beginning on or after
1 January 2018
1 January 2018
Amendments to IFRS 2, Share-based payment: Classification and measurement of share-based
1 January 2018
payment transactions
Amendments to IAS 40, Transfers of investment property
IFRIC 22, Foreign currency transactions and advance consideration
IFRS 16, Leases
1 January 2018
1 January 2018
1 January 2019
The Group has made an assessment of IFRS 9 and IFRS 15, and is in the process of making an assessment of IFRS 16, for
the impact of these new standards in the period of initial application. So far the Group has identified some aspects of the new
standards which may have a significant impact on the consolidated financial statements. Further details of the expected impacts
are discussed below. As the Group has not completed its assessment of IFRS 16, further impacts may be identified in due course
and will be taken into consideration when determining the adoption of these new requirements and which transitional approach
to take, where there are alternative approaches allowed under the new standards.
IFRS 9, Financial instruments
IFRS 9 “Financial Instruments” is relevant to the Group and becomes effective for accounting periods beginning on or after
1 January 2018. IFRS 9 contains three principal classification categories for financial assets: measured at (a) amortised cost,
(b) fair value through profit or loss and (c) fair value through other comprehensive income. If an equity security is designated
as fair value through other comprehensive income, then only dividend income on that security will be recognised in profit or
loss. Gains, losses and impairments on that security will be recognised in other comprehensive income without recycling. With
respect to the Group’s financial assets currently classified as “available-for-sale financial assets” and “other investments in
equity securities”, these are investments in equity securities which now default to fair value through profit or loss unless there
is an irrevocable election to designate as fair value through other comprehensive income (without recycling) on transition to
IFRS 9. The Group has decided to irrevocably designate those investments it considers to be long term strategic investments as
fair value through other comprehensive income. This standard, and the irrevocable election, gives rise to a change in accounting
policy as: 1) for available-for-sale equity investments, the current accounting policy is to recognise fair value changes in
other comprehensive income until disposal or impairment, when gains or losses are recycled to profit or loss; and 2) for other
investments in equity securities, the current accounting policy is to recognise such investments in the consolidated statement of
financial position at cost less impairment losses, and dividend income from such equity securities is recognised in profit or loss.
This change in policy will have no impact on the Group’s net assets and total comprehensive income but the Group expects
there to be a credit adjustment to opening reserves on adoption of IFRS 9.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017
236
59. Possible impact of amendments, new standards and interpretations issued
but not yet effective for the year ended 31 December 2017 (continued)
IFRS 15, Revenue from contracts with customers
IFRS 15 “Revenue from Contracts with Customers” is relevant to the Group and became effective for accounting periods
beginning from the 1 January 2018. The standard establishes a framework for reporting to users of financial statements about the
nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The Group
has assessed the impact of the new standard, and expects there to be a credit adjustment to opening reserves on adoption of
IFRS 15 in respect to the timing of recognition of unflown ticket breakage income and the transaction price allocated to mileage
awarded. For the unflown ticket breakage income, the Group currently adopts a more prudent policy than that required under
IFRS 15 where breakage is to be recognised on each flight based on an assessment that it is highly probable that the income
will not result in a significant reversal of the cumulative revenue recognised in the future. This assessment will be based on the
historic patterns of breakage. For the transaction price allocated to mileage awarded, the Group currently allocates the amount
received in relation to mileage earning flights based on fair value, between the flight and mileage earned by members of the
Group’s frequent flyer award programmes. Under IFRS 15, the Group shall estimate the stand-alone selling price of mileage
awarded by the members of the Group’s frequent flyer award programmes and allocates the transaction price to performance
obligation for flight and mileage awarded. IFRS 15 is also expected to impact the classification, presentation and disclosure of
ancillary income, change fees and interline cargo transactions, albeit the impact is not expected to be material. The Group will
adopt the cumulative effect approach when applying the new standard at the date of initial application.
IFRS 16, Leases
IFRS 16 “Leases” is relevant to the Group and becomes effective for accounting periods beginning on or after 1st January 2019.
The standard eliminates the lessee’s classification of leases as either operating leases or finance leases and, instead, introduces
a single lease accounting model. Applying that model, a lessee is required to recognise assets and liabilities for all leases with
a term of more than 12 months, unless the underlying asset is of low value, and depreciation of lease assets separately from
interest on lease liabilities in the statement of profit or loss. IFRS 16 will primarily affect the Group’s accounting as a lessee of
leases for aircraft and related equipment, and buildings and other equipment which are currently classified as operating leases.
The application of the new accounting model is expected to lead to a material increase in both assets and liabilities and to
impact on the timing of the expense recognition in the statement of profit or loss over the period of the lease. The Group is in
the process of making an assessment of IFRS 16 to determine the amounts of new assets and liabilities arising from operating
lease commitments on adoption of IFRS 16.
(Expressed in Renminbi unless otherwise indicated)Notes to the Financial StatementsChina Southern Airlines Company LimitedANNUAL REPORT 2017 237
Condensed Consolidated Income Statement
The following consolidated financial information is extracted from the consolidated financial statements of the Group, prepared under
the PRC Accounting Standards.
Revenue
Less: Cost of operation
Taxes and surcharges
Selling and distribution expenses
General and administrative expense
Finance expense, net
Impairment loss
Add: Fair value change of derivative financial liabilities
Investment income
Gain on disposal of non-current assets
Other income
Operating profit
Add: Non-operating income
Less: Non-operating expenses
Total profit
Less: Income tax
Net profit
Net profit classified by continuity of operations:
– Net profit from continuing operations
– Net profit from discontinued operations
Net profit classified by ownership:
– Non-controlling interests
– Shareholders of the Company
2017
RMB million
2016
RMB million
(Restated)
127,489
111,687
217
6,967
3,599
1,121
442
(64)
625
1,006
3,058
8,081
886
169
8,798
1,965
6,833
6,833
–
919
5,914
114,803
96,368
246
6,402
3,064
5,835
130
–
716
527
–
4,001
3,735
88
7,648
1,759
5,889
5,889
–
833
5,056
Supplementary Financial InformationFor the year ended 31 December 2017(Prepared in accordance with PRC Accounting Standards)China Southern Airlines Company LimitedANNUAL REPORT 2017
238
Condensed Consolidated Statement of Financial Position
Assets
Total current assets
Long-term equity investments
Fixed assets and construction in progress
Intangible assets and other non-current assets
Deferred tax assets
Derivative financial instruments
Total assets
Liabilities and equity
Current liabilities
Deferred tax liabilities
Other non-current liabilities
Total liabilities
Equity shareholders of the Company
Non-controlling interests
Total equity
Total liabilities and equity
31 December
2017
RMB million
31 December
2016
RMB million
(Restated)
17,884
4,045
188,448
6,208
1,698
46
218,329
69,577
572
86,015
156,164
49,594
12,571
62,165
218,329
13,807
4,098
175,336
5,487
1,721
21
200,470
67,939
841
76,980
145,760
43,187
11,523
54,710
200,470
At 31 December 2017(Prepared in accordance with PRC Accounting Standards)Supplementary Financial InformationChina Southern Airlines Company LimitedANNUAL REPORT 2017
239
Reconciliation of Differences in Financial Statements Prepared Under
Different GAAPs
(1) The effect of the differences between PRC GAAP and IFRSs on profit attributable to equity shareholders of the Company is
analysed as follows:
Note
2017
RMB million
Amounts under PRC GAAP
Adjustments:
Capitalisation of exchange difference of specific loans
Government grants
Adjustments arising from the Company’s business combination under
common control
Tax impact of the above adjustments
Effect of the above adjustments on non-controlling interests
(a)
(b)
(c)
5,914
47
21
8
(11)
(18)
2016
RMB million
(Restated)
5,056
48
1
(36)
(4)
(21)
Amounts under IFRSs
5,961
5,044
(2) The effect of the differences between PRC GAAP and IFRSs on equity attributable to equity shareholders of the Company is
analysed as follows:
Note
2017
RMB million
Amounts under PRC GAAP
Adjustments:
Capitalisation of exchange difference of specific loans
Government grants
Adjustment arising from the Company’s business combination under
common control
Tax impact of the above adjustments
Effect of the above adjustments on non-controlling interests
(a)
(b)
(c)
49,594
196
(8)
237
(47)
(36)
2016
RMB million
(Restated)
43,187
149
(29)
182
(36)
3
Amounts under IFRSs
49,936
43,456
Notes:
(a)
In accordance with the PRC GAAP, exchange difference arising on translation of specific loans and related interest denominated in a foreign
currency is capitalised as part of the cost of qualifying assets. Under IFRSs, such exchange difference should be recognised in income statement
unless the exchange difference represents an adjustment to interest.
(b)
Prior to the year 2017, under the PRC GAAP, special funds granted by the government are accounted for as increase in capital reserve if they
are clearly defined on approval documents as part of “capital reserve”. Government grants that relate to the purchase of assets are recognised as
deferred income and amortised to profit or loss on a straight line basis over the useful life of the related assets.
Pursuant to the accounting policy change under PRC GAAP which became effective in 2017, the Group deducted the government grants related
to purchase of assets (other than special funds) from the cost of the related assets. The accounting treatment is consistent with IFRSs.
(c)
In accordance with the PRC GAAP, the Company accounts for the business combination under common control by applying the pooling-
of-interest method. Under the pooling-of-interest method, the difference between the historical carrying amount of the acquiree and the
consideration paid is accounted for as an equity transaction. Business combinations under common control are accounted for as if the acquisition
had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established; for this
purpose, relevant comparative figures are restated under PRC GAAP. Under IFRSs, the Company adopts the purchase accounting method for
acquisition of business under common control.
Supplementary Financial InformationFor the year ended 31 December 2017China Southern Airlines Company LimitedANNUAL REPORT 2017
240
The following consolidated financial information is extracted from the consolidated financial statements of the Group, prepared under
International Financial Reporting Standards.
Consolidated Income Statement Summary
Operating revenue
Operating expenses
Other net income
Operating profit
Interest income
Interest expense
Share of associates’ results
Share of joint ventures’ results
Exchange gain/(loss), net
Other non-operating income
Profit before income tax
Income tax
Profit for the year
Profit attributable to:
Equity shareholders of the Company
Non-controlling interests
Profit for the year
Earnings per share
Basic and diluted
2017
RMB million
2016
RMB million
2015
RMB million
2014
RMB million
2013
RMB million
Year ended 31 December
127,806
(123,098)
4,448
114,981
(106,204)
3,835
111,652
(101,492)
3,278
108,584
(106,026)
2,190
9,156
89
(2,747)
431
99
1,801
45
8,874
(1,976)
6,898
5,961
937
6,898
12,612
89
(2,465)
509
102
(3,276)
90
7,661
(1,763)
5,898
5,044
854
5,898
13,438
253
(2,188)
460
108
(5,953)
–
6,118
(1,300)
4,818
3,736
1,082
4,818
4,748
376
(2,193)
261
140
(292)
26
3,066
(668)
2,398
1,777
621
2,398
98,547
(98,280)
1,243
1,510
307
(1,651)
294
96
2,903
25
3,484
(734)
2,750
1,986
764
2,750
RMB0.60
RMB0.51
RMB0.38
RMB0.18
RMB0.20
Consolidated Statement of Financial Position Summary
2017
RMB million
2016
RMB million
2015
RMB million
2014
RMB million
2013
RMB million
As at 31 December
Non-current assets
200,834
186,678
171,876
162,147
144,634
Net current liabilities
Non-current liabilities
Total equity attributable to equity
shareholders of the Company
Non-controlling interests
51,693
86,598
49,936
12,607
54,168
77,534
43,456
11,520
51,422
70,830
39,045
10,579
26,545
91,109
28,640
73,543
35,748
34,329
8,745
8,122
For the year ended 31 December 2017(Prepared in accordance with International Financial Reporting Standards)Five Year SummaryChina Southern Airlines Company LimitedANNUAL REPORT 2017
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