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H Share Stock Code: 1055
A Share Stock Code: 600029 ADR Code: ZNH
中
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南
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股
份
有
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Annual Report
2018
PERSISTENCE&
Perspective
Perspective
PERSISTENCE
Mobile App
WeChat App
南 方 航 空
C S N
&
ABOUT US
China Southern Airlines Company Limited is an airline with the largest
China Southern Airlines has maintained the best safety record among
number of transport aircrafts, the most developed route network and
China’s airlines. During the reporting period, the Company was
the largest annual passenger turnover in China. By the end of the
awarded “Two-Star Diamond Award for Flight Safety”, the top award
reporting period, China Southern Airlines has operated a total of 840
for flight safety from CAAC, and has been an airline with the highest
passenger and cargo transport aircrafts and served nearly 140 million
safety star in China.
passengers. It is ranked first in Asia and third in the world in terms of
fleet scale and passenger turnover.
CONTENTS
ABOUT US
150 CORPORATE BOND
2
4
5
6
8
Definitions
Important Information
Company Profile
Corporate Information
Company Business Summary
OPERATING RESULTS
20
Principal Accounting Information and
Financial Indicators
Summary of Operating Data
Summary of Fleet Data
Highlights of the Year
Management Discussion and Analysis
22
27
30
36
82
SIGNIFICANT EVENTS
CORPORATE GOVERNANCE
91
Report of Directors
112
120
Changes in the Share Capital, Shareholders’
Profile and Disclosure of Interests
Directors, Supervisors, Senior Management
and Employees
138 Corporate Governance Report
153
RISK MANAGEMENT AND INTERNAL
CONTROL
156 SOCIAL RESPONSIBILITY
FINANCIAL REPORT
Financial Statements Prepared under
International Financial Reporting Standards
160
Independent Auditor’s Report
167 Consolidated Income Statement
168
Consolidated Statement of Comprehensive
Income
169 Consolidated Statement of Financial Position
171 Consolidated Statement of Changes in Equity
172 Consolidated Cash Flow Statement
173 Notes to the Financial Statements
273
SUPPLEMENTARY FINANCIAL
INFORMATION
276 FIVE YEAR SUMMARY
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
Xiongan Airlines
MTU
SAGA
Hebei Airlines
Jiangxi Airlines
Finance Company
China Southern Airlines Company Limited and its subsidiaries
China Southern Air Holding Limited 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
China Southern Airlines Xiongan Airlines Company Limited
MTU Maintenance Zhuhai Co., Ltd.
Southern Airlines General Aviation Co., Ltd.
Hebei Airlines Company Limited
Jiangxi Airlines Company Limited
China Southern Airlines Group Finance Company Limited
Freight and Logistic Company
Southern Airlines Freight and Logistic (Guangzhou) Co., Ltd.
GSC
CSAGPMC
Nan Lung
SACC
SACM
SPV
American Airlines
Sichuan Airlines
PRC
CSRC
NDRC
SASAC
CAAC
SSE
Stock Exchange
Articles of Association
Listing Rules of the Stock Exchange
Model Code
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.
Special Purpose Vehicles exclusively set up by China Southern Airlines
and its subsidiaries for leased aircraft
American Airlines, Inc.
Sichuan Airlines Corporation Limited
The People’s Republic of China
China Securities Regulatory Commission
National Development and Reform Commission
State-owned Assets Supervision and Administration Commission of the
State Council
General Administration of Civil Aviation of China
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 to the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited
2
ANNUAL REPORT 2018DEFINITIONS Corporate Governance Code
SFO
Available Seat Kilometers or “ASK”
Available Tonne Kilometers or “ATK”
Available Tonne Kilometers – passenger
Available Tonne Kilometers – cargo
Revenue Passenger Kilometers or “RPK”
Revenue Tonne Kilometers or “RTK”
Corporate Governance Code as set out in Appendix 14 to the Rules
Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited
Securities and Futures Ordinance (Chapter 571 of the laws of Hong
Kong)
the number of seats made available for sale multiplied by the kilometers
flown
the tonnes of capacity available for the transportation multiplied by the
kilometers flown
the tonnes of capacity available for passenger multiplied by the
kilometers flown
the tonnes of capacity available for cargo and mails multiplied by the
kilometers flown
i.e. passengers traffic volume, the number of passengers carried
multiplied by the kilometers flown
i.e. total traffic volume, the load (passengers and cargo) in tonnes
multiplied by the kilometers flown
Revenue Tonne Kilometers – cargo or
“RFTK”
i.e. cargo and mail traffic volume, the load for cargo and mail in tonnes
multiplied by the kilometers flown
Revenue Tonne Kilometers – passenger
the load for passenger in tonnes multiplied by the kilometers flown
Passenger Load Factor
Revenue flight hours
Overall Load Factor
Yield per RPK
Yield per RFTK
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
3
China Southern Airlines Company LimitedAbout Us IMPORTANT
INFORMATION
I.
II.
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.
This annual report was considered and approved at the sixth meeting of the eighth session
of the Board of the Company on 29 March 2019. 6 Directors were required to attend the
meeting and 5 of them attended in person. Director Zhang Zi Fang did not attend the meeting
due to business reasons, and authorized Director Wang Chang Shun to attend and vote on
his behalf.
III. KPMG issued the independent auditor’s report with unqualified auditor opinion to the
Company.
IV. The Board recommends the payment of a dividend of RMB0.05 (inclusive of applicable tax)
per share to shareholders for the year ended 31 December 2018, totalling approximately
RMB613 million based on the Company’s 12,267,172,286 issued shares, accounted for
31% of the realized distributable profit of the Company for the year 2018 under PRC GAAP.
A proposal for the dividend payment will be submitted at the 2018 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 Saturday, 31 August 2019.
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”.
4
ANNUAL REPORT 2018 CORPORATE
PROFILE
The Company is one of
the largest airlines in
the PRC.
The Company is the largest airlines
in China with the largest number
of transport aircrafts, the most
developed route network and the
largest annual passenger throughput.
Its headquarters is located in
Guangzhou. It has 16 branches in
Beijing, Shenzhen, and other cities
and 8 holding aviation subsidiaries
including Xiamen Airlines. The
Company has set up SAGA in Zhuhai,
and has set up domestic business
departments in 22 cities including
Hangzhou, Qingdao, and 69 foreign
branch offices in Sydney, New York
and other places. By the end of 2018,
the Company has operated a total of
840 passenger and cargo transport
aircrafts including Boeing 787, 777,
747, 737 series, Airbus 380, 330, 320
series. In 2018, the Company handled
nearly 140 million passengers, ranking
first among China’s airlines for 40
consecutive years. It ranked first in
Asia and third in the world both in
terms of fleet size and passenger
throughput. The Company maintains
the best safety record among China’s
airlines. In June 2018, the Company
won the highest flight safety award of
China’s civil aviation industry – “Two-
Star Diamond Award for Flight Safety”.
The Company was the airlines with the
highest safety star ranking in China.
At present, the Company provides
more than 3,000 flights to more
than 40 countries and regions, and
224 destinations in more than 1,300
routes with more than 300,000 seats.
By working closely with partners,
its routes extended to cover more
destinations around the world. In
recent years, the Company has
continuously opened new flight routes
and add new flights as needed for
some flight routes, strengthened
transfer function, made full use of
the sixth freedom right to build the
international aviation hub of “Canton
Route”. There are more than 50 flight
points in Guangzhou for international
and regional destinations. On the
map of the world, the links between
Guangzhou and such destinations
form two fan-shaped centers in
Europe and Oceania, with Southeast
Asia, South Asia and East Asia as
hinterland, and cover the route layout
in North America, Middle East and
Africa. It has become the first gateway
hub from mainland China to Oceania
and Southeast Asia. The Company
actively responded to the national
initiative to provide strong support
for the promotion of the construction
of “The Belt and Road Initiative". In
the areas, such as South Asia,
Southeast Asia, the South
Pacific, Western and Central
Asia, mainly covered along
the routes of “The Belt and
Road Initiative", the Company
has established perfect route
networks. As to the number
of routes, the frequency of
flights and the market share,
the Company ranked first
among domestic airlines.
This makes the Company
become the main force of
interconnection between
China and the countries
and regions.
5
China Southern Airlines Company LimitedAbout Us Chinese Name:
中國南方航空股份有限公司
Chinese Short Name:
南方航空
English Name:
WeChat Official Account:
China Southern Airlines
Sina Weibo:
http://weibo.com/csair
Place of Business:
China Southern Airlines Company Limited
China Southern Air Building, 68 Qixin Road, Baiyun District,
Guangzhou, Guangdong Province, PRC
English Short Name:
CSN
Legal Representative:
Wang Chang Shun
Place of Business in Hong Kong:
Unit B1, 9th Floor, United Centre,
95 Queensway, Hong Kong
Website of the Company:
Board and Company Secretary:
www.csair.com
Xie Bing
Securities Affairs Representative:
Xu Yang
Shareholder Enquiry:
Company Secretary Bureau
Telephone:
+86-20-86112480
Fax:
+86-20-86659040
E-mail:
ir@csair.com
Address:
China Southern Air Building, 68 Qixin Road, Baiyun District,
Guangzhou, Guangdong Province, PRC
Registered Address:
Authorized Representative under the Listing Rules of
the Stock Exchange:
Tan Wan Geng (retired on 30 November 2018)
Xie Bing
Zhang Zi Fang (appointed on 30 November 2018)
Controlling Shareholder:
China Southern Air Holding Limited Company
Principal Bankers:
China Development Bank
Agricultural Bank of China
Bank of China
Industrial & Commercial Bank of China
China Construction Bank
Designated Newspapers for Information Disclosure
(A Shares):
China Securities Journal, Shanghai Securities News,
Securities Times
Designated Website for Information Disclosure
(A Shares):
Unit 301, 3/F, Office Tower Guanhao Science Park
Phase I, 12 Yuyan Street, Huangpu District, Guangzhou,
Guangdong Province, PRC
www.sse.com.cn
APP:
China Southern Airlines
6
ANNUAL REPORT 2018CORPORATE INFORMATION Designated Website for Information Disclosure
(H Shares):
Place of Listing of N Shares:
The New York Stock Exchange
Short Name of N Shares:
China Southern Air
Stock Code of N Shares:
ZNH
N Share Registrar:
BNY Mellon Shareowner Services
P.O.Box 505000
Louisville, KY40233-5000, USA
Domestic Legal Adviser:
Z&T Law Firm
Overseas Legal Adviser:
DLA Piper Hong Kong
Domestic Auditors:
KPMG Huazhen LLP
Address of Domestic Auditor:
8th Floor, KPMG Tower Oriental Plaza,
1 East Chang An Avenue,
Beijing, China
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
www.hkexnews.hk
Annual Report Available for Inspection:
Company Secretary Bureau
WeChat QR Code:
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
H Share Registrar:
Hong Kong Registrars Limited
17M Floor, Hopewell Centre, 183 Queen’s Road East,
Hong Kong
7
China Southern Airlines Company LimitedAbout Us I. The Principal Business and
Operating Model of the Company
and the Industry Summary during
the Reporting Period
(I) Principal Business
The scope of business of the Company includes:
(1) provision of services of domestic, regional and
international scheduled and unscheduled air transportation
of passenger, cargo, mail and baggage; (2) provision of
services of general aviation; (3) provision of services of
aircraft maintenance; (4) acting as an agency of domestic
and foreign airlines; (5) offering airlines catering services
(operated by branch office only); (6) conducting other
aviation and relevant businesses, including advertising for
such businesses; (7) conducting other aviation business
and related business, limited to insurance and agency
business: personal accident insurance; provision of
airlines ground services; civil aircraft training (operated
by branch office only according to license); asset leasing
services; project management and technical consultancy
services; sales of aviation equipment; travel agency
business; merchandise retail and wholesale (for all
projects being subject to approval in accordance with the
laws, the business activities can only be carried out after
approval by relevant authorities in accordance with the
laws).
(II) Profit Model, Operating Characteristics
and Development Strategies
The Company has established a strategic framework:
In specific, we strive for a strategic goal of “three first-
class”: first-class safety quality, first-class profitability,
and first-class brand image, a strategic layout of building
Guangzhou-Beijing “dual hubs”, and a strategic direction
of “standardization, integration, intelligentization and
internationalization”. Our governance system consists
of five parts, namely party leadership, governance
structure, strategic management, market mechanism, and
corporate culture. The capability in operation assurance
8
ANNUAL REPORT 2018COMPANY BUSINESS SUMMARY is a safeguard to enhance “conditions,
resources, and environment”.
In order to optimize the management
and control mode and improve the
efficiency of resource allocation, the
Company put forward an integrated
operation program focusing on the
optimization of the function of the
headquarters and branches to achieve
high-efficient coordination as a way to
clarify rights and liabilities, mobilize the
enthusiasm, and focus on quality and
efficiency enhancement. We will build
an integrated operation system with
centralized management and control,
efficient decision-making, smooth
communication, and coordinated
system. We will coordinate actions
under unified deployment to enhance
synergy, and further consolidate the
foundation of safety management
to comprehensively improve the
development quality and efficiency of
the Company.
By the end of the “13th Five-year
Plan” period, the Group will develop
into a large international airlines
with an annual passenger volume of
approximately 160 million and cargo
and mail volume of more than 2
million tonnes.
9
China Southern Airlines Company LimitedAbout Us The Total Traffic Volume of
China’s Civil Aviation
RANKED SECOND IN
THE WORLD FOR 14
CONSECUTIVE YEARS
(III) Development of Civil
Aviation Industry and
Industrial Position of the
Company
1.
Information of Development
of International and Domestic
Civil Aviation Industry
(1) Development of International
Civil Aviation Industry
The growth of passenger transport
volume slowed down. According to
the preliminary data released by the
International Civil Aviation Organization
(ICAO), in 2018, global airlines
transported 4.3 billion passengers, up
by 6.5% over 2017; the passengers
traffic volume (RPK) reached 8,200
billion, increased by 6.7% on a year
on year basis, lower than the growth
rate of 7.9% in 2017. In 2018, the
international scheduled passenger
transport volume (RPK) increased by
6.4% year-on-year, lower than the
growth rate of 8.4% in 2017. Among
them, Asia Pacific region recorded
the fastest growth rate of 7.3% year-
on year, followed by the growth rate
of each of European region and
North America region of 6.7% and
5.2%, respectively. Middle East region
witnessed the lowest growth rate of
4.7%.
The passenger load factor hit a
new record high. In 2018, the total
capacity (ASK) offered by the global
airlines increased by approximately
6.0%, with the passenger load factor
up by 0.6 percentage point to 81.9%,
hitting an all-time high. Due to the
slowdown in passenger growth,
the passenger load factors in Latin
America and the Caribbean region
and Africa region have declined. In
addition, the passenger load factor
varied from region to region, such
10
ANNUAL REPORT 2018COMPANY BUSINESS SUMMARY as 71.8% in Africa and 84.5% in
European region.
Low-cost carriers (LCCs) were active.
The growth rate of LCCs has been
faster than the world average, and
their market share in developed
markets and emerging economies
has continued to grow. In 2018,
the passenger volume of LCCs
was expected to reach 1.3 billion,
accounting for approximately 31% of
the total number of scheduled airlines
passengers worldwide. LCCs had
their highest market share in Europe,
accounting for 36%, followed by Latin
America and the Caribbean region,
North America and Asia Pacific region,
accounting for 35%, 30% and 29%,
respectively.
Rising fuel costs affected the profits
of airlines. For global airlines, the year
of 2018 was full of pressure, with the
biggest pressure from fuel prices,
followed by economic and geopolitical
headwinds. The average fuel prices in
2018 increased by about 31% year-
on-year, and the profits of airlines
around the world were affected to
varying degrees.
(2) Development of China Civil
Aviation Industry
According to the data released by
CAAC:
Flight safety. In 2018, China’s aviation
transport achieved safe flight of 11.53
million hours, an increase of 8.9%
year-on-year, and the incident sign
rate per 10,000 hours was down
8.3% year-on-year. The air transport
achieved a new safety record in
continuous safety flight of 100
months and 68.36 million hours, and
secured aviation safety without liability
accidents for16 years and 8 months.
Operation service. In 2018, in light of
tight airspace resources, complicated
operating environment and frequent
extreme weather, the flight on-time
performance rate in the whole industry
reached 80.13%, an increase of 8.46
percentage points year-on-year, being
the highest since 2010. Through the
sincere service, the total number of
passenger complaints decreased by
16.1% year-on-year. The customer
satisfaction rate for the airlines and
airport service increased by 2.2 and
1.9 percentage points, respectively.
Production and operation. By the end
of 2018, there were 60 air transport
enterprises in China and 423 general
aviation enterprises; the number of
routes totaled 4,206, including 3,420
domestic routes and 786 international
routes. In 2018, the total civil aviation
traffic volume was 120.64 billion ton-
kilometers, up by 11.4% year-on-year;
11
China Southern Airlines Company LimitedAbout Us passenger traffic volume was 610
million, up by 10.9% year-on-year;
and cargo and mail transportation
volume was 7.385 million tons, up by
4.6% year-on-year, with the volume
of international routes increased by
9.3% year-on-year. The total traffic
volume of China’s civil aviation
ranked second in the world for 14
consecutive years. The proportion of
civil aviation passenger turnover over
the comprehensive transportation
system reached 31%, representing
an increase of 1.9 percentage points
year-on-year.
2. Features of Civil 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 cannot
replace in promotion of international
communication, providing service
for public travel, emergency rescue
and disaster relief, and many other
social and public services. Aviation
passenger transport is the basis for the
development of the tourism industry
and a safeguard for international
political, economic and cultural
communications. Aviation transport
is routinely used for international
transoceanic passenger transport.
Aviation cargo transport is a must for
the development of trade, logistics,
high-tech and many other industries
and the basis for the development of
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. 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,
12
ANNUAL REPORT 2018COMPANY BUSINESS SUMMARY 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.
(IV) Challenges
The major challenges faced by the
Group include:
1. Exchange rate fluctuation
Renminbi is expected to fluctuate
significantly in 2019. Downward
pressure on the economy, narrowing
Sino-US spread, and the Sino-US
trade war are main pressures for
Renminbi exchange rate depreciation
at present. In the second half of 2019,
with the expansion of reform and
opening-up, tax and fee reduction
and other measures will boost the
Renminbi exchange rate. However, as
uncertainties exist in the development
of Sino-US trade war, agencies
predict that the Renminbi exchange
rate will fluctuate sharply in 2019.
2. Crude oil prices
Crude oil prices are expected to
fluctuate upward in 2019. With
OPEC pushing a new round of
production cuts in 2019, Sino-US
trade negotiations are expected to
heat up. It is expected that oil prices
will continue to fluctuate under the
pressure of all parties. According
to the latest forecast of the Energy
Information Administration (EIA), in
2019, Brent crude oil forward prices
will average around US$61 per barrel,
lower than the US$71.4 per barrel
in 2018, but still significantly higher
than US$43.74 per barrel in 2016
and US$54.15 per barrel in 2017.
Fluctuations in crude oil prices have
led to changes in the Company’s fuel
costs. As fuel costs forms main part
of the Company’s operating cost, the
13
China Southern Airlines Company LimitedAbout Us fluctuations in fuel costs would affect
the Company’s performance directly.
more than 800 km) will be impacted in
the future to a certain extent.
3. Rapid expansion of high-speed
4.
rail network
Intensifying competition in the
industry
According to the data released by
China Railway Corporation (中國鐵路
總公司), by the end of 2018, China’s
railway mileage has reached 131,000
kilometers, of which high-speed rail
mileage attaining 29,000 kilometers.
By 2025, the railway mileage will reach
175,000 kilometers, including 38,000
kilometers of high-speed railways. The
Eight Vertical and Eight Horizontal
network of high-speed railways will
cover China’s economically developed
southeast coastal areas, densely
populated central areas and major
western cities. The operating results
of the Company’s routes that overlap
with the high-speed railway network
(especially routes with mileage of no
In the domestic market, LCCs will
continue to open up domestic bases
and increase their efforts to develop
short to medium-distance international
market, even with the possibility
of launching remote international
routes in the future. The domestic
competition will continue to intensify.
In the international market, the growth
rate of LCCs is faster than the world
average, and their market share in
developed markets and emerging
economies continues to grow. As
China’s outbound travel market
continues to be hot, a large number of
international direct flights are launched
in second- and third-tier cities,
impacting on Beijing, Shanghai and
Guangzhou hubs to a certain extent.
Among the 90 remote international
routes newly launched in China in the
past five years, 41 are connected to
second-tier cities in China.
(V) Security Ensurence Input
During the reporting period, the
Company always insisted on the
principle of “safety first”, constantly
strengthened safety management
system, and continued to modify
safety rules and regulations and
enhance security ensurence input.
First, we have strictly implemented
the safe production responsibility
system. Both Party and government
officials take responsibility, and they
both fulfill official duties and uphold
clean governance. Safety events are
investigated and those responsible are
held accountable in a strict way.
14
ANNUAL REPORT 2018COMPANY BUSINESS SUMMARY Second, we have increased efforts
to improve safety management
capabilities. We have enhanced our
internal safety management capability.
Focusing on event investigation,
statutory self-examination,
safety performance, information
management, safety audit, QAR data
application and other management
projects, we organized over 24
batches of company-level training and
seminars throughout the year, with the
number of trainees reaching 1,700, up
by 33% year-on-year.
Third, security supervision has been
advanced in depth. We have extended
the supervision measures to the
organizational and business levels
by carrying out investigations and
inspections, and making comments.
Fourth, we highlighted the positive
incentives to strengthen the act of
being responsible. We rewarded 103
persons for outstanding performance
in handling special situations, and
reduced and exempted liabilities for 16
graded incidents that were reported
voluntarily. The Company received
6,221 voluntary reports and rewarded
534 persons for the year.
By the end of the reporting period,
the Group continued to keep the best
safety records among Chinese airlines
by successively realizing 19 aviation
safety years.
II. Analysis on Core
Competitiveness
during the Reporting
Period
The Company’s five core
competitivenesses have 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. 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, China
Southern Airlines has 16
branches, including Beijing
and Shenzhen and 8 majority-
held civil aviation subsidiaries,
including Xiamen Airlines.
Establishment of subsidiaries
created advantage to better
coordinate resources including
local market, airports, large
customers, channel and media,
and transport passengers for the
hub. Meanwhile, the Company
has set up 22 domestic offices
and established 69 overseas
offices in all continents.
Therefore, the Company has
formed a comprehensive sales
network with branches, holding
companies, regional marketing
center, domestic offices and
overseas offices.
2. Constantly enhanced ability to
operate and manage Guangzhou
as core hubs. China Southern
Airlines’ strategic transformation
mainly focused on developing
transit and links with international
long-distant flights in hubs,
thereby establishing a new
profit model and development
mode, and gradually became a
network-based airlines. In 2018,
the Company further improved
its international layout, opened
new routes of Guangzhou-
Rome and Guangzhou – Lahore,
and increased the frequency of
routes between Guangzhou to
Toronto, Phuket, Penang, Phu
Quac Island, Langkawi, Bali,
Adelaide. The Company has 56
international and regional routes.
By the end of 2018, China
Southern Airlines input more
than 200 aircraft in Guangzhou.
At present, Guangzhou hub
has formed its route network
featured with Europe and
Oceania as its core, Southeast
Asia, Southern Asia and Eastern
Asia as its hinterlands, and with
North America, Middle East,
Africa covered. The passengers
transferred in the Guangzhou
hub and revenue maintain growth
trend. The hub effect continued
to appear.
3. Constantly improved control
and resources interoperability.
With its scale of having multiple
bases, hubs, models and fleet,
the Company initially formed a
control pattern of “headquarter
for overall management,
branches and subsidiaries,
regional marketing center,
business department and offices
for strategy planning, matrix unit
for construction”, enabled more
concentrated core resource,
powerful coordinated command.
timely dynamic responses and
15
China Southern Airlines Company LimitedAbout Us enhanced efficiency of resources
distribution. We should adapt
advanced technologies so as
to be on par with international
standards and optimize
management model. We
launched integrated operation to
complete organization of Chief
Flight Team, new operation
command center, general affairs
and properties management
department. We commenced
operation of AOC and GOC. The
control pattern is taking shape
due to deep reformation of
marketing domain, establishment
of marketing development
department, data services
division, setting up marketing
center in north and east China,
implementation of the project
manager and client manager
system on pilot manner, which
increased concentration of the
core resources, strengthened the
joint direct function.
4. Striving for the world’s first-
class brand service. In order
to create the world’s first-class
service brand, China Southern
Airlines continuously improved
its service quality, and its brand
influence was gradually enhanced
in China and the world by brand
benchmarking with 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. The Company was
the first among Chinese airlines
to open a green passage for
human organs and introduce
“in-flight medical volunteers”
service. China Southern Airlines
fully performed political and
social responsibilities including
guarantees for material tasks,
supporting the poor to overcome
difficulties, energy conservation
and emission reduction, which
strongly demonstrated the
positive images of “Sunshine
CSA” and “responsible state-
owned enterprise”. The Company
was awarded with “The World’s
Most Improved Airlines” by
“Skytrax” in 2018.
5. All-round leading position of
information system. China
Southern Airlines attached
16
ANNUAL REPORT 2018COMPANY BUSINESS SUMMARY importance to corporate
information construction and
has an information technology
team composed of over
1,000 experts, which laid solid
foundation for relevant research
and development. The Company
constructed and reconstructed
several IT systems, such as
new version of official websites,
mobile APP, Wechat platform,
B2B, etc. This has formed
passenger marketing, operation
control, ground services, aviation
safety, cargo transport, corporate
management and public platform
and many other systems,
providing 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
Weibo account and Wechat
account, “China Southern
Airlines” were awarded “2018
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 order to realize the
concept of “a hassle free journey
with one mobile device” as soon
as possible, “China Southern
e-Travel” has been fully covered,
with number of social media
followers more than 32 million,
accumulative number of 40
million of APP startup in 2018.
The key indicators continue to
lead in industry.
In addition, the Group also
actively stationed in the Beijing
DaXing International Airport,
established Xiongan Airlines, and
will focus on the new airport to
build Beijing’s core hub. The
Group built an international and
domestic route network according
to the goal of assuming 40% of
the air passenger business of
the Beijing DaXing International
Airport. According to the
development plan, by 2025, 250
aircraft are expected to operate in
Beijing’s new airport with the daily
departure and landing flights of
more than 900.
17
China Southern Airlines Company LimitedAbout Us FIRST-CLASS
SAFETY QUALITY
FIRST-CLASS
PROFITABILITY
FIRST-CLASS
BRAND IMAGE
First-class safety quality means solid safety foundation and controllable safety
risk for ensuring continuous safety; First-class profitability refers to the synchronous and
stable growth of efficiency in quantity and the effectiveness in quality, and the effective
prevention of operating risks; First-class brand image is to enhance international
visibility, influence and industry reputation. “Three first-class”
(三個一流) is the goal of high-quality development.
C S N
Principal Accounting Information
OPERATING REVENUE
(RMB million)
NET PROFIT ATTRIBUTABLE TO EQUITY
SHAREHOLDERS OF THE COMPANY
(RMB million)
160,000
140,000
120,000
108,584
111,652
114,981
143,623
127,806
100,000
80,000
60,000
40,000
20,000
0
2014
2015
2016
2017
2018
5,961
5,044
3,736
2,895
6,000
5,000
4,000
3,000
2,000
1,777
1,000
0
2014
2015
2016
2017
2018
TOTAL ASSETS
(RMB million)
EARNINGS PER SHARE ATTRIBUTABLE TO
EQUITY SHAREHOLDERS OF THE COMPANY
(RMB/share)
250,000
225,000
200,000
175,000
150,000
125,000
100,000
75,000
50,000
25,000
0
189,688
185,989
200,442
246,949
218,718
2014
2015
2016
2017
2018
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.60
0.51
0.27
0.38
0.18
2014
2015
2016
2017
2018
20
ANNUAL REPORT 2018PRINCIPAL ACCOUNTING INFORMATION AND FINANCIAL INDICATORS Operating revenue
2018
2017
143,623
127,806
Net profit attributable to equity shareholders of the Company
2,895
5,961
Unit: RMB million
Increase/
(decrease)%
12.38
(51.43)
Total equity 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)
As of 31 December
2018
65,257
2017
49,936
246,949
218,718
Increase/
(decrease)%
30.68
12.91
2018
0.27
0.27
2017
0.60
0.60
Increase/
(decrease)%
(55.00)
(55.00)
21
Operating ResultsChina Southern Airlines Company Limited RPK
(million)
250,000
200,000
150,000
100,000
50,000
0
ASK
(million)
300,000
250,000
200,000
150,000
100,000
50,000
0
259,194
230,697
206,106
189,588
166,629
2014
2015
2016
2017
2018
314,421
280,646
255,992
235,616
209,807
2014
2015
2016
2017
2018
RTK
(million)
30,000
25,000
20,000
15,000
10,000
5,000
0
ATK
(million)
40,000
30,334
27,321
24,387
22,388
19,780
2014
2015
2016
2017
2018
42,728
38,332
34,980
32,205
32,000
28,454
24,000
16,000
8,000
0
2014
2015
2016
2017
2018
PASSENGER LOAD FACTOR
(%)
TOTAL LOAD FACTOR
(%)
100
80
60
40
20
0
79.4
80.5
80.5
82.2
82.4
2014
2015
2016
2017
2018
100
80
60
40
20
0
22
69.5
69.5
69.7
71.3
71.0
2014
2015
2016
2017
2018
ANNUAL REPORT 2018SUMMARY OF OPERATING DATA Traffic
Revenue passenger kilometers (RPK) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Revenue tonne kilometers (RTK) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Revenue tonne kilometers (RTK) – Passenger (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Revenue tonne kilometers (RTK) – Cargo (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
2018
2017
Increase/
(decrease)(%)
178,972.96
160,427.72
3,304.83
2,934.65
76,916.01
67,334.50
259,193.80
230,696.87
17,437.56
15,833.96
315.39
282.52
12,580.72
11,204.15
30,333.67
27,320.63
15,764.81
14,143.67
290.36
257.77
6,745.45
5,910.35
22,800.62
20,311.80
1,672.75
1,690.29
25.03
24.75
5,835.27
5,293.80
7,533.05
7,008.83
119,494.01
108,616.65
2,527.08
2,329.80
17,863.96
15,352.29
139,885.04
126,298.75
11.56
12.61
14.23
12.35
10.13
11.63
12.29
11.03
11.46
12.64
14.13
12.25
(1.04)
1.15
10.23
7.4
10.01
8.47
16.36
10.76
23
Operating ResultsChina Southern Airlines Company Limited Cargo and mail carried (thousand tonnes)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Capacity
Available seat kilometers (ASK) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Available tonne kilometers (ATK) (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Available tonne kilometers (ATK) – Passenger (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
Available tonne kilometers (ATK) – Cargo (million)
Domestic
Hong Kong, Macau and Taiwan
International
Total:
For the year ended 31 December
2018
2017
Increase/
(decrease)(%)
1,043.91
1,048.18
21.85
666.52
22.01
601.97
1,732.28
1,672.16
216,160.94
194,354.34
4,383.59
3,843.89
93,876.41
82,447.49
314,420.95
280,645.72
24,549.52
22,168.17
503.53
446.80
17,674.93
15,717.21
42,727.99
38,332.18
19,454.49
17,491.89
394.52
345.95
8,448.88
7,420.27
28,297.89
25,258.11
5,095.03
4,676.28
109.01
100.85
9,226.06
8,296.93
14,430.10
13,074.07
(0.41)
(0.71)
10.72
3.60
11.22
14.04
13.86
12.03
10.74
12.70
12.46
11.47
11.22
14.04
13.86
12.03
8.95
8.09
11.20
10.37
24
ANNUAL REPORT 2018SUMMARY OF OPERATING DATA 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
2018
2017
Increase/
(decrease)
percentage
points
0.25
(0.96)
0.26
0.23
(0.40)
(0.60)
(0.11)
(0.28)
Increase/
(decrease) (%)
1.89
(5.13)
5.41
/
/
10.40
3.03
2.31
1.45
(3.79)
4.53
2.02
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
82.80
75.39
81.93
82.44
71.03
62.63
71.18
70.99
0.54
0.74
0.39
0.49
1.17
4.67
1.36
1.33
5.60
8.13
3.00
4.55
25
Operating ResultsChina Southern Airlines Company Limited For the year ended 31 December
2018
2017
Increase/
(decrease)(%)
Cost
Operating expenses per ATK (RMB)
3.28
3.21
2.18
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:
1,762.92
1,623.01
8.62
2,107.10
1,964.04
41.13
624.35
36.60
565.87
2,772.58
2,566.51
923.67
19.44
126.32
878.58
18.03
113.85
1,069.43
1,010.46
7.28
12.35
10.33
8.03
5.13
7.82
10.95
5.84
Note: Discrepancies between the column sum are due to rounding of percentage numbers.
26
ANNUAL REPORT 2018SUMMARY OF OPERATING DATA As at 31 December 2018, the scale and structure of fleet 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
Unit: number of aircraft
Delivery
during the
reporting
period
Disposal
during the
reporting
period
Total number
of aircraft at
the end of
the reporting
period
Models
Passenger Aircraft
A380 Series
A330 Series
A320 Series
B787 Series
B777 Series
B757 Series
B737 Series
EMB190
Freighter
B777 Series
B747 Series
0
10
126
5
0
0
165
20
0
0
2
30
83
21
9
0
82
0
5
0
3
10
90
4
1
4
155
6
7
2
0
5
28
10
0
0
61
0
0
0
0
0
0
0
2
2
14
0
0
0
18
5
50
299
30
10
4
402
26
12
2
840
Total
326
232
282
104
27
Operating ResultsChina Southern Airlines Company LimitedSUMMARY OF FLEET DATA COMPOSITION OF FLEET IN THE FORM OF POSSESSION IN 2018
(Number of Aircraft)
282
(33.6%)
326
(38.8%)
232
(27.6%)
Purchased
Under finance lease
Under operating lease
COMPOSITION OF PASSENGER AIRCRAFT IN 2018
(Number of Aircraft)
Narrow-body aircraft
Wide-body aircraft
95
(11.5%)
731
(88.5%)
28
ANNUAL REPORT 2018SUMMARY OF FLEET DATA From 2019 to 2021, the delivery and disposal of aircraft of the Group will be as follows:
2018
2019
2020
2021
Number of
aircraft at
the end of
the period
Delivery
Disposal
Estimated
number at
the end of
the period
Delivery
Disposal
Estimated
number at
the end of
the period
Delivery
Disposal
Estimated
number at
the end of
the period
Unit: number of aircraft
Models
Passenger aircraft
Airbus
A380 Series
A330 Series
A350 Series
A320 Series
Boeing
B787 Series
B777 Series
B757 Series
B737 Series
Other
EMB190
Passenger Aircraft
Sub-total
Freighter
B777 Series
B747 Series
Freighter Sub-total
5
50
/
299
30
10
4
402
26
/
/
6
51
7
5
/
45
/
/
3
/
30
/
/
4
2
6
826
114
45
12
2
14
/
/
/
/
/
/
5
47
6
320
37
15
/
445
20
895
12
2
14
909
/
/
6
26
5
1
/
51
/
89
2
/
2
91
/
7
/
8
/
/
/
2
11
28
/
/
/
28
5
40
12
338
42
16
/
494
9
956
14
2
16
972
/
/
4
/
/
/
/
25
/
29
/
/
/
29
/
/
/
/
/
/
/
/
3
3
/
/
/
3
5
40
16
338
42
16
/
519
6
982
14
2
16
998
Total
840
114
45
Note: The Company’s fleet change will be subject to actual operation.
29
Operating ResultsChina Southern Airlines Company Limited JAN
China Southern Airlines (CSA)
established a partnership with
American Airlines as to code share
As of 18 January, China Southern Airlines has
formally established a code-share partnership
with American Airlines. Passengers of China
Southern Airlines can, through the official network
of CSA or the third-party authorized channels,
purchase flights from Los Angeles or San
Francisco to other central cities of the United
States. American Airlines passengers can also
fly from Beijing to other central cities in China,
including Guangzhou, by China Southern Airlines.
FEB
China Southern Airlines launched
integrated operation construction
On 26 February, China Southern Airlines convened
a meeting to launch integrated operation and
construction work, taking an important step
forward in the reform of management system
and mechanism in key areas. The purpose of this
round of reform was to promote the optimization,
coordination and efficiency of the functions of
headquarters and branches. It aimed to build
a large-scale operation system featured with
centralized management and control, efficient
decision-making, smooth communication and
coordination, so as to further consolidate the safety
management foundation of the Company, and
comprehensively improve the quality and efficiency
of the development of China Southern Airlines.
MAR
CSA Yunnan Branch was established
On 6 March, CSA Yunnan Branch was officially
established in Kunming. Yunnan Branch is the
23rd aviation transport branch of China Southern
Airlines. China Southern Airlines would speed up
the development of Yunnan market, and further
strengthen the route layout in Southwest China
to form new strategic support points, thereby
improving and optimizing the routes of China
Southern Airlines in the whole country and even
in the whole world.
MAY
China Southern Airlines officially transitted to Terminal T2 of
Guangzhou Baiyun International Airport
On 19 May, China Southern Airlines Guangzhou
Hub transitted as a whole to Guangzhou Baiyun
International Airport Terminal T2. Such Terminal
T2 is designed to handle 45 million passengers
per year. China Southern Airlines will undertake
more than 90% of the throughput of Terminal
T2. With the help of the new service facilities of
Terminal T2, China Southern Airlines will provide
smart, international and humanized high-quality
services for the vast number of passengers,
expand the service coverage both in depth and
breadth of Canton Route, and promote the
formation of a four-hour air traffic circle between
Guangzhou and major cities in China and
Southeast Asia, and of a 12-hour air traffic circle
with major cities in the world.
JUL
Sanya-London Direct Flight Route
launched
On 12 July, China Southern Airlines officially opened
Sanya-London route. This is the first regular route
in China’s civil aviation industry to fly directly from
Hainan to Europe. With the opening of Sanya-
London route as an opportunity, China Southern
Airlines will continue to improve the international
routes departing from Hainan, and promote
passenger flow, logistics, information flow and
capital flow between Hainan and international cities
and other domestic cities to build an air bridge
to better serve Hainan’s economic and social
development, and also serve the construction of
Hainan Free Trade Zone and Free Trade Port.
30
ANNUAL REPORT 2018HIGHLIGHTS of the Year AUG
“Internet +” strategy — “China
Southern e-travel” was officially
released
On 15 August, China Southern Airlines officially
released its strategy of “Internet +” in Guangzhou.
“China Southern e-travel” is important for China
Southern Airlines to fully implement its strategy
of conducting digital transformation to build a
world-class air transport enterprise. This aims
to provide full-process electronic services for
passengers and partners through independently
developed and operated mobile terminal.
SEP
The largest hangar in Asia was
officially capped at Beijing Daxing
International Airport
On 3 September, the steel roof truss of No. 1
hangar of Beijing Daxing International Airport Base
of China Southern Airlines was successfully lifted
in place and the hangar was officially capped. No.
1 hangar covers an area of nearly 40,000 square
meters, equivalent to five football fields or 80
basketball courts. It is the largest single project in
Beijing Daxing International Airport Base of China
Southern Airlines. After being built, it will become
the largest maintenance hangar of its kind in Asia
and the largest longest-span single maintenance
hangar of its kind in the world.
Non-public offering project was
successfully completed
On 11 September, the Company issued
600,925,925 H shares to Nan Lung with the
proceeds of approximately HK$3.626 billion.
On 27 September, the Company, by way of
non-public issuance, issued 1,578,073,089 A
shares to seven investors including CSAH. The
proceeds is approximately RMB9.5 billion. After
the completion of the Company’s non-public
Issuance, the total share capital increased to
12,267,172,286 shares.
OCT
China Southern Airlines established
Freight Logistics Company
On 24 October, China Southern Airlines Freight
Logistics (Guangzhou) Co. Ltd. (南方航空貨運物
流（廣州）有限公司) was formally established. The
newly established company integrates the related
freight resources of China Southern Airlines, such as
the capacity of cargo aircraft and ventral warehouse,
cargo station and apron support, international logistics,
and so on. Through market-oriented operation, such
new company manages the freight business of China
Southern Airlines and becomes the operational entity
and profit center. This is an important measure for
China Southern Airlines to deepen the reform of state-
owned enterprise.
NOV
China Southern Airlines participated
in China International Import Expo
and signed 40 contracts with 26
foreign suppliers
On 7 November, China Southern Airlines held a
signing ceremony at the first China International
Import Expo. It signed 40 contracts with 26
worldwide world-renowned large manufacturers in
the field of aviation manufacturing, including Pratt
& Whitney, General Electric, Rolls Royce, Rockwell
Collins, Thales and Honeywell, as to aircraft
engines, aviation equipment, special vehicles,
cabin equipment and on-board entertainment
facilities and many other products to be imported.
DEC
The goal of full-year safety operation
was achieved successfully
At 23:29 p.m., 31 December, China Southern
Airlines Flight CZ3546 from Hongqiao Shanghai
to Guangzhou landed smoothly at Guangzhou
Baiyun International Airport. It marks the
Company’s successful realization of safety
operation all year round in 2018. The Company
safely handled nearly 140 million passengers in
2018 and continued to maintain the best safety
record of domestic civil aviation.
31
China Southern Airlines Company LimitedOperating Results 32
ANNUAL REPORT 2018MAJOR AWARDS RECEIVED BY THE COMPANY DURING THE REPORTING PERIOD 8. The Company won “China’s
tourism award – the best on-
board food award for Europe
routes” by the International
Aviation Research Institute
9. APS theory on aircraft
maintenance put forward by
China Southern Airlines was
awarded the Red Crown Award
Management Innovation Award in
the first session of MRO China
10. The Company was awarded
“The Listed Company Most
Respected by Investors” by
China Listed Companies
Association
11. The Company received a
level-A information disclosure
rating for the year 2017-2018
from Shanghai Stock Exchange
1. The Company was awarded
as the Fortune’s “Top 50 Best
Board of Directors in China”,
the only airlines selected
2. The evaluation results of the
the Company’s responsibility
system of party building work
in 2017 ranked fifth among the
central enterprises
3. The Company ranked sixth
in the world in brand value
of aviation industry, and first
among domestic airlines by
Brand Finance 2018
4. The Company won the highest
flight safety award of CAAC –
“Two-Star Diamond Award for
Flight Safety” and is the airlines
with the highest safety star
ranking in China
5. The Company was awarded
by Skytrax as “the most
outstanding and progressive
airlines in the world”
6. The Company was awarded
by Skytrax as “China’s best
first-class”
7. The Company was awarded by
Skytrax as “China’s best first-
class lounge”
33
Operating ResultsChina Southern Airlines Company Limited GUANGZHOU-BEIJING
“DUAL HUB”
The layout of core hubs determines the long-term development of airlines.
The Company has built Guangzhou-Beijing “Dual Hub”, Guangzhou hub
is the foundation of steady development and Beijing hub is the key of
strategic breakthrough. Building “Dual Hub” is to open up space for high-
quality development.
Mr. Wang Chang Shun
Chairman
During the reporting period, the
Group must remain committed
to the underlying principle of
making progress while keeping
performance stable, strengthen
development confidence,
maintain strategic strength,
perfect, optimize and enhance
the strategic framework,
focus on quality development
under the joint effort of the
management and all staff,
and move forward with aim
to build a international
first-class airlines.
36
MANAGEMENT DISCUSSION AND ANALYSIS ANNUAL REPORT 2018 The Company was awarded by
SKYTRAX
as “The World’s Most
Improved Airlines ” in 2018
The Board was admitted
as one of the “China’s
TOP 50
Board of Directors”
by Fortune
I. BUSINESS REVIEW
In 2018, the world economy continued
growing at a moderate pace, with
signs of a slowdown in development
momentum. The growth trend,
inflation level and monetary policy of
major economies in the world have
diverged markedly. Among them,
the the major developed economies
maintained relatively strong economic
growth. The US economy exceeded
market expectations; the Eurozone
economy kept steady growth; the
Japan’s economy was still in the
state of expansion; the capital outflow
of emerging economies intensified;
and the financial market continued
fluctuating.
In 2018, China faced a more
complicated external environment to
develop its economy, with growing
uncertainties including intensified
changes in international financial
market, constant changes in the
world’s multilateral trading system,
and the trend of the Fed’s interest
rate policy. Various external factors
and domestic macroeconomic policy
adjustments have had a profound
impact on China’s economy. From the
perspective of macro data, China’s
investment has maintained steady
growth, while consumption growth
has stabilized with a slight decline.
The overall foreign trade situation
was better than expected. China’s
private investment has maintained a
relatively high growth rate. China has
the world’s most promising consumer
market. Its trade structure has been
continuously optimized, and its
economy still has great potential for
development.
The oil price soared and declined
significantly, while RMB exchange
rate fluctuated sharply. In facing of
such external environment, the Group
sought progress while working to
keep performance stable, and pushed
forward our strategy with the joint
effort of the management and all staff.
During the reporting period, the Group
saw a stable safety situation and a
continued improvement in operation
and service level. Meanwhile, the
Group sped up to push forward its
reform and innovation and witnessed
a stable rise in its comprehensive
competitiveness. The Company
was named by “SKYTRAX” as “The
World’s Most Improved Airlines” in
2018 and awarded by the China
Association for Public Companies
as the “Listed Companies Most
Respected by Investors”, and the
Board was admitted as one of the
37
Operating ResultsChina Southern Airlines Company Limited “China’s Top 50 Board of Directors”
by Fortune.
1. Safety Operation
During the reporting period, the Group
carried out “special improvement
of work style and discipline, special
investigation of qualification and
ability, special improvement of
ground agency”. We upheld a safety
concept of “working happily for
safety and happiness” in our key
professional teams, continued to
advance the construction of SMS
system and deepened the application
of technologies such as QAR, striving
to enhance safety management
and control. During the reporting
period, the Group has achieved safe
flight of 2.773 million hours with an
accumulated safe flight of 23.435
During the reporting
period, the Group has
achieved safe flight of
2.773
million hours
We have maintained
aviation safety for
19years
38
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 The flight on-time
performance rate increased by
points7.7
percentage
year-on-year, leading the industry
The fuel consumption
per ton kilometer decreased by
3.53%
year-on-year
The international and regional routes of
Guangzhou hub has reached
56up to
million hours and with 13,700 hours
for general aviation flights. We have
maintained aviation safety for 19
years and aviation security for 24
years. During the reporting period, the
Company was awarded the “Two-star
Diamond Award for Safety Flight” by
CAAC, being firstly awarded in China,
and continued to keep the best safety
record among China’s airlines.
During the reporting period, the Group
promoted the integrated operation
reform and achieved initial results. It
built a integrated operation system
with centralized management and
control, efficient decision-making,
smooth communication and system
coordination, gradually improving the
management efficiency and economic
benefits. In the whole year, the flight
on-time performance rate increased
by 7.7 percentage points year-
on-year, leading the industry. The
passenger load factor increased by
0.23 percentage point year-on-year,
and the fuel consumption per ton
kilometer decreased by 3.53% year-
on-year.
2. Network and Hub
During the reporting period, the
Group accelerated to push forward
the landing of Guangzhou-Beijing
“dual hubs” strategy. We were fully
committed to building the Beijing
hub, and launched Beijing-Istanbul
and other new routes, and Xiong’an
Airlines was approved for construction.
We have built the base project of
Beijing Daxing International Airport
with high standards, and actively
prepared for the operation and studied
the transfer plan in advance.
We continued to optimize the
Guangzhou hub, completed the
transfer operation to T2 terminal of
Guangzhou Baiyun Airport, launched
Guangzhou to Rome and Lahore
routes, and increased the frequency
of Guangzhou routes to and from
Toronto, Phuket, Penang, Phu Quoc
Island, Langkawi, Bali and Adelaide,
with international and regional routes
up to 56. At present, the Company’s
Guangzhou hub has formed its route
network featured with Europe and
Oceania as its core, Southeast Asia,
Southern Asia and Eastern Asia as its
hinterlands, and with North America,
Middle East, Africa covered. In 2018,
39
Operating ResultsChina Southern Airlines Company Limited Guangzhou hub’s transfer passengers
and revenue maintain growth trend.
The hub effect continued to appear.
3. Marketing
During the reporting period, we
boosted marketing reform, piloting the
establishment of regional marketing
centers in North China and East China
and making innovation in mechanism
such as adding marketing account
manager on trial basis. We upgraded
the cabin layout of 31 wide-body
aircraft, increasing 1,046 seats, and
the annual revenue increased by
about RMB270 million. We continued
to advance intelligent strategy,
launching the first face recognition
APP in civil aviation field and
establishing an intelligent data sharing
platform to achieve precise marketing.
The platform of “China Southern
e-Travel” has basically digitalized the
whole process of travel services. We
promoted the in-depth integration of
marketing and service to launch a full-
scale dynamic exchange program for
pearl members and formulate new
strategies for major accounts, as a
way to develop group customers.
Sales revenue from major accounts
was RMB11.679 billion, increased
by 23% year-on-year. In 2018, the
“China Southern e-Travel” was visited
371 million times, a year-on-year
increase of 54.58%. The website
ranking, the number of monthly active
APP users, and the new media index
of central enterprises of CSA were
in leading position among airlines in
China, and its new media overseas
communication ranked first among
central enterprises.
year-on-year. Our revenue from
frequent passengers amounted to
RMB43.696 billion, up by 20.84%
year-on-year. We consolidated
freight resources and set up freight
logistics companies to continuously
optimize the freighter route network,
improve the high-end product system,
deepen our cooperation with major
accounts, and increase investment in
the construction of intelligent freight
platform. The Group recorded a
revenue generated from cargo and
mail transport of RMB10.026 billion for
the whole year, up by 10.39% year-
on-year, and a revenue generated
from cargo aircraft of RMB5.2 billion,
up by 12% year-on-year.
During the reporting period, the
Company registered a direct sales
revenue of RMB54.454 billion, with
the proportion of e-services increased
by 14.07 percentage points year-on-
year. CSA pearl members reached
39.78 million, increased by 15.24
4.
International Cooperation
During the reporting period, given the
demand from its own development
strategy and the new trend of
cooperation model in the global air
transport industry, the Company
40
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 decided not to renew the SkyTeam Alliance Agreement
from 1 January 2019. We will continue to properly carry
out the work of exit and fully guarantee the rights and
interests of passengers. We will carry out bilateral and
multilateral cooperation in a more targeted manner while
deepening the cooperation with the existing partners
such as France Airlines and KLM Royal Dutch Airlines,
expand code sharing and frequent passenger cooperation
with American Airlines, and launch strategic cooperation
with numbers of internationally renowned airlines such
as British Airways, Finnair and Emirates to provide
passengers with more convenient and high-quality travel
options. At the same time, we continue to strengthen the
coordinated development of the “China Southern Alliance”
by gradually integrating with Xiamen Airlines and Sichuan
Airlines in terms of capacity layout, route cooperation,
resource sharing and customer collaboration.
At present, the Company has shared codes with 31
international and domestic airlines, such as, France
Airlines, KLM Royal Dutch Airlines, American Airlines,
Qantas Airways, Finnair in 790 routes (including trunk
routes and beyond routes). This further enlarged our sales
channels and flight route network. In 2018, the Company
achieved more than RMB2.828 billion sales revenue from
multilateral cooperation including code sharing.
s
t
l
u
s
e
R
g
n
i
t
a
r
e
p
O
“China Southern e-Travel”
was visited
371million
times yearly, a year-on-year increase of
54.58%
CSA pearl members reached
39.78million
41
China Southern Airlines Company Limited
5. Product and Service
During the reporting period, the Company actively
improved key services such as check-in, baggage, flight
delay, transfer, language, catering and entertainment,
and strived to improve passenger experiences. We
launched smart ground service. Guangzhou hub
achieved self-service and paperless convenient travel in
the whole process of domestic flight covering check-
in, consignment, checking, and boarding, with non-
counter check-in rate reaching 65.35%. We take the lead
in providing baggage transport status display function,
reducing baggage error rate by 48.6% year-on-year. It
was the first among domestic airlines to launch full self-
service refund and rescheduling function for passengers’
tickets, with 100% seats for booking. We established a
marketing and service coordination mechanism for large-
scale ticket rescheduling due to flight delay, making
it more convenient for passengers. We have further
improved the quality of transfer services. The transfer
rate of passengers in Guangzhou hub was 98.2%, up by
0.7 percentage point year-on-year. We have enhanced
our multilingual service capabilities to serve passengers
in nine languages. We have increased the varieties of
meals on board and enlarged the range of meal booking
for passengers. Following the development trend of the
Internet, we continued to promote cabin interconnection
and Local Area Network (LAN) service. During the
reporting period, the Company was named by “Skytrax”
as “The World’s Most Improved Airlines” in 2018.
Upholding the core service concept of “Sincerity First,
Customer First”, Xiamen Airlines comprehensively has
upgraded its membership system of frequent passengers,
and published the first black diamond member card in
China civil aviation filed, which provides distinguished
Egret members with more relaxed, considerate and
honorable service.
6. Corporate Governance and Social
Responsibility
During the reporting period, we have continued to
build and improve the corporate governance system
with the formulation of rules of procedure for the
Standing Committee of the Board of Directors and
the establishment of a full-time director and full-time
supervisory system for investment companies, a a way to
operate the Company in a more standardized and efficient
manner.We mobilize the initiative of independent directors
to improve the decision-making quality and efficiency of
42
It was
THE FIRST
AMONG DOMESTIC
AIRLINES
to Launch Full Self-Service Refund
completed a equity financing of
RMB12.7billion
In 2018, recommend the distribution
of cash dividend based on issued shares of
the Company, totaling approximately
RMB613million
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 the Board. The Board was admitted
as one of the “China’s Top 50 Board
of Directors” by Fortune.
We released the Sunshine CSA
Convention to cultivate a corporate
culture of being politically and socially
responsible, including the fulfillment
of major tasks, poverty alleviation,
energy conservation and emission
reduction. The good image of a
“Sunshine CSA” and a “responsible
central enterprises” was strongly
demonstrated. We have upheld such
a working mode as “led by aviation,
driven by industry, underpinned by
education, assisted with care and
alleviated with sunshine” in mind. By
exerting our own strengths, we made
continued efforts to reduce poverty
through industrial development, job-
creation and education. We have built
a green development strategy, actively
responded to the change of global
climate change, and deeply involved
in the international aviation emission
control process, and constantly
created a new situation of green
development.
7. Reform and Development
During the reporting period, we
deepened the integrated operation
reform, strengthened the leadership
in operational management and
organization, and established an
operational decision-making system
featuring efficient operation, clear
responsibility, and scientific decision-
making. We further unified flight
resource management covering
aircraft, human resources, technical
management, operational standards,
and flight training. We promoted
the reform of regional management
of marketing system, achieving
centralized and unified management
of aviation capacity and flights.
With concentrated core resource,
powerful coordinated command,
timely dynamic response, and efficient
resource allocation, the Company
has gradually developed a new group
management and control pattern
with the headquarters focusing on
the management of the entire group,
branch office on daily operation and
other units on construction.
We initiated the reform of
employment compensation system
to further motivate all employees. We
consolidated freight resources and
established freight logistics companies
to explore industrial development
paths. We made continued efforts to
promote standardized management,
and carried out activities centered
43
Operating ResultsChina Southern Airlines Company Limited on “Manual Implementation Year” to encourage
all leaders and staff to follow the manual. We
accomplished a financing project of 10 billion,
completed a equity financing of RMB12.7 billion.
We continued to optimize our debt structure.
During the reporting period, the Company’s dollar
debt ratio decreased from 34.31% to 26.60%,
which reduced the Company’s exchange rate
fluctuation risk and laid a solid foundation for the
Company to develop into a world-class aviation
transportation group.
8. Operating Results
During the reporting period, passengers
transported by the Group reached nearly 140
million, representing a year-on-year growth of
10.8%. The passenger load factor reached
82.44%, representing a year-on-year growth of
0.23 percentage point. We achieved an operating
revenue of RMB143,623 million. Its operating
expense reached RMB140,242 million, with the
cost of Available Tonne kilometers (ATK) (excluding
jet fuel cost) decreased by 3.80%. We achieved
the profit attributable to equity shareholders of the
Company of RMB2,895 million. As of the end of
the reporting period, the Group’s asset to liability
ratio was 68.22%, representing a year-on-year
decrease of 3.18 percentage points.
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 cash
dividend of RMB0.05 (inclusive of applicable tax)
per share for the year ended 31 December 2018,
totaling approximately RMB613 million based on
the Company’s 12,267,172,286 issued shares.
A resolution for the profit distribution will be
submitted for consideration at the 2018 annual
general meeting of the Company.
44
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 DILIGENT
PRACTICAL &
INCLUSIVE
INNOVATIVE
45
Operating ResultsChina Southern Airlines Company Limited Yield per RTK was
RMB4.55, increased by
2.02%
in 2018
Passenger load factor increased by
0.23
percentage point
to 82.44%
in 2018
46
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 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
recorded in 2018 was RMB2,895
million as compared to the profit
attributable to equity shareholders of
the Company of RMB5,961 million in
2017. The Group’s operating revenue
increased by RMB15,817 million or
12.38% from RMB127,806 million in
2017 to RMB143,623 million in 2018.
Passenger load factor increased by
0.23 percentage point from 82.20% in
2017 to 82.44% in 2018. Passenger
yield (in passenger revenue per RPK)
was RMB0.49 in 2017 and 2018.
Average yield (in traffic revenue
per RTK) increased by 2.02% from
RMB4.46 in 2017 to RMB4.55 in
2018. Operating expenses increased
by RMB17,144 million or 13.93%
from RMB123,098 million in 2017
to RMB140,242 million in 2018.
As a result of increase of operating
revenue netted off by the increase of
operating expenses, operating profit
of RMB8,819 million was recorded
in 2018 as compared to operating
profit of RMB9,156 million in 2017,
decreased by RMB337 million.
III. OPERATING
REVENUE
Substantially all of the Group’s
operating revenue is attributable to
airlines transport operations. Traffic
revenues accounted for 95.36% and
96.13% of the total operating revenue
in 2017 and 2018, respectively.
Passenger revenue and cargo and mail
revenues accounted for 92.74% and
7.26%, respectively of the total traffic
revenue in 2018. During the reporting
period, the Group’s total traffic revenue
was RMB138,064 million, representing
an increase of RMB16,191 million
or 13.29% from prior year, mainly
due to the increase in transport
During the reporting period, the
Group saw a stable safety
situation and a continued
improvement in operation and
service level. The Group sped up
to push forward its reform and
innovation and witnessed a
stable rise in its comprehensive
competitiveness, achieving the
operation profit of RMB8,819
million.
Mr. Ma Xu Lun
President
47
Operating ResultsChina Southern Airlines Company Limited capacity and traffic volume. The other
operating revenue is mainly derived
from commission income, hotel and
tour operation income, general aviation
income and ground services income.
The increase in operating revenue was
primarily due to 13.52% increase in
passenger revenue from RMB112,791
million in 2017 to RMB128,038
million in 2018. The total number
of passengers carried increased by
10.76% to 139.89 million passengers
in 2018. RPKs increased by 12.35%
from 230,697 million in 2017 to
259,194 million in 2018, primarily as
a result of the increase in number of
passengers carried.
Domestic passenger revenue, which
accounted for 74.80% of the total
passenger revenue in 2018, increased
by 12.16% from RMB85,392 million
in 2017 to RMB95,773 million in
2018. Domestic passenger traffic in
RPKs increased by 11.22%, while
passenger capacity in ASKs increased
by 11.56%, resulting in an increase
in passenger load factor by 0.25
percentage point from 82.54% in
2017 to 82.80% in 2018. Domestic
passenger yield per RPK increased
by 1.89% from RMB0.53 in 2017 to
RMB0.54 in 2018.
Hong Kong, Macau and Taiwan
passenger revenue, which accounted
for 1.91% of total passenger revenue,
increased by 7.23% from RMB2,281
million in 2017 to RMB2,446 million
in 2018. For Hong Kong, Macau and
Taiwan flights, passenger traffic in
RPKs increased by 12.61%, while
passenger capacity in ASKs increased
by 14.04%, resulting in a decrease
in passenger load factor by 0.96
percentage point from 76.35% in 2017
to 75.39% in 2018. Passenger yield
per RPK decreased from RMB0.78 in
2017 to RMB0.74 in 2018.
International passenger revenue,
which accounted for 23.29% of total
passenger revenue, increased by
18.72% from RMB25,118 million in
2017 to RMB29,819 million in 2018.
For international flights, passenger
traffic in RPKs increased by 14.23%,
while passenger capacity in ASKs
increased by 13.86%, resulting in
a 0.26 percentage point increase
in passenger load factor from
81.67% in 2017 to 81.93% in 2018.
Passenger yield per RPK increased
from RMB0.37 in 2017 to RMB0.39
in 2018.
2018
2017
Operating revenue
RMB Million
Percentage
%
Operating revenue
RMB Million
Percentage
%
Changes in 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
138,064
128,038
95,773
2,446
29,819
10,026
5,559
2,619
429
–
476
676
143,623
(7,454)
136,169
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
95.36
4.64
100.00
13.29
13.52
12.16
7.23
18.72
10.39
(6.30)
(5.83)
–
(100.00)
1.93
23.58
12.38
39.20
11.20
96.13
3.87
100.00
48
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018
TRAFFIC REVENUE COMPOSITION
(RMB million)
128,038
(92.74%)
2018
10,026
(7.26%)
112,791
(92.55%)
2017
9,082
(7.45%)
Revenue from cargo
and mail
Revenue from passengers
PASSENGER REVENUE COMPOSITION
(RMB million)
95,773
(74.80%)
2018
2,446
(1.91%)
29,819
(23.29%)
85,392
(75.71%)
2017
2,281
(2.02%)
25,118
(22.27%)
Hong Kong, Macao and
Taiwan passenger
International passenger
Domestic passenger
49
Operating ResultsChina Southern Airlines Company Limited Cargo and mail revenue, which accounted for 7.26% of the Group’s total traffic revenue and 6.98% of total operating
revenue, increased by 10.39% from RMB9,082 million in 2017 to RMB10,026 million in 2018. The increase was mainly
attributable to the increase in cargo and mail carried.
Other operating revenue decreased by 6.30% from RMB5,933 million in 2017 to RMB5,559 million in 2018. The decrease
was primarily due to the reclassification of expired sales in advance of carriage and change fees, from other operating
revenue to traffic revenue, as a result of the adoption of IFRS 15.
COMPOSITION OF OPERATING EXPENSES IN 2018
(RMB million)
Flight operation expenses
Aircraft and transportation
service expenses
Depreciation and amortisation
Maintenance expenses
Promotion and selling expenses
General and administrative
expenses
Others
62,978
76,216
76,216
(54.35%)
24,379
(17.38%)
2018
1,829
(1.30%)
14,308
(10.20%)
3,770
(2.69%)
12,704
(9.06%)
7,036
(5.02%)
COMPARISON OF OPERATING EXPENSES IN 2018 AND 2017
(RMB million)
22,935
24,379
13,162
14,308
11,877
12,704
Flight operation
expenses
Aircraft and
transportation
service expenses
Depreciation &
amortisation
Maintenance
expenses
Promotion and
selling expenses
General and
administrative
expenses
Impairment on
property, plant
and equipment
Others
6,881
7,036
3,391
3,770
324
-
1,550
1,829
2017
2018
50
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 IV OPERATING EXPENSES
Total operating expenses in 2018 amounted to RMB140,242 million, representing an increase of 13.93% or RMB17,144
million over 2017, primarily due to the increase in flight operation expenses and aircraft and transportation service
expenses, as a result of the increase in traffic volume. Total operating expenses as a percentage of total operating revenue
increased from 96.32% in 2017 to 97.65% in 2018.
Operating expenses
2018
2017
RMB Million
Percentage (%)
RMB Million
Percentage (%)
Flight operation expenses
76,216
54.35
62,978
51.16
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
equipments
Hotel and tour operation expenses
External air catering service expenses
Financial institution charges
Cargo handling expenses
Others
42,922
8,726
11,467
12,704
24,379
7,036
3,770
14,308
–
587
326
289
236
319
31,895
8,022
10,574
11,877
22,935
6,881
3,391
13,162
324
467
265
254
235
329
9.06
17.38
5.02
2.69
10.20
–
0.42
0.23
0.20
0.17
0.28
9.65
18.63
5.59
2.75
10.69
0.26
0.38
0.21
0.21
0.19
0.27
Total operating expenses
140,242
100.00
123,098
100.00
51
Operating ResultsChina Southern Airlines Company Limited
Flight operation expenses, which accounted for
54.35% of total operating expenses, increased
by 21.02% from RMB62,978 million in 2017 to
RMB76,216 million in 2018, primarily due to the
drastic increase in jet fuel costs. Jet fuel costs, which
accounted for 56.32% of flight operation expenses,
increased by 34.57% from RMB31,895 million in 2017
to RMB42,922 million in 2018.
Maintenance expenses, which accounted for 9.06%
of total operating expenses, increased by 6.96% from
RMB11,877 million in 2017 to RMB12,704 million in
2018. The increase was mainly due to the expansion
of aircraft fleet of the Company.
Aircraft and transportation service expenses, which
accounted for 17.38% of total operating expenses,
increased by 6.30% from RMB22,935 million in
2017 to RMB24,379 million in 2018. The increase
was primarily due to a 7.78% increase in landing
and navigation fee and ground service fees from
RMB15,540 million in 2017 to RMB16,749 million in
2018, which resulted from the increase in the numbers
of flights.
Promotion and selling expenses, which accounted for
5.02% of total operating expenses, increased by 2.25%
from RMB6,881 million in 2017 to RMB7,036 million in
2018, mainly due to the increase in handling charges
and ticket office expenses.
General and administrative expenses, which accounted
for 2.69% of the total operating expenses, increased
by 11.18% from RMB3,391 million in 2017 to
RMB3,770 million in 2018, mainly due to the increase
in general corporate expenses.
Depreciation and amortisation, which accounted for
10.20% of the total operating expenses, increased by
8.71% from RMB13,162 million in 2017 to RMB14,308
million in 2018, mainly due to the expansion of aircraft
fleet of the Company.
52
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 V. OPERATING PROFIT
VI. OTHER NET INCOME
Operating profit of RMB8,819
million was recorded in 2018 (2017:
RMB9,156 million). The decrease in
operating profit was mainly due to
the increase of operating revenue
netted off by the increase of operating
expense. The increase in operating
revenue by RMB15,817 million or
12.38% compared with that of 2017,
as a result of the increase in transport
capacity and traffic volume; and
the increase in operating expenses
by RMB17,144 million or 13.93%
compared with that of 2017, due to
the increase in jet fuel costs and traffic
volume.
Other net income increased by
RMB990 million from RMB4,448
million in 2017 to RMB5,438 million
in 2018, mainly due to the increase
in government grants. Details of other
net income of the Group are set out
in note 14 to the financial statements
prepared under IFRS.
VII. TAXATION
Income tax expense of RMB1,000
million was recorded in 2018,
decreased by RMB976 million
compared to 2017, which is in line
with the decrease of profit before tax
in the reporting period.
VIII. LIQUIDITY, FINANCIAL
RESOURCES AND
CAPITAL STRUCTURE
As at 31 December 2018, the Group’s
current liabilities exceeded its current
assets by RMB59,615 million. For
the year ended 31 December 2018,
the Group recorded a net cash
inflow from operating activities of
RMB15,388 million, a net cash outflow
from investing activities of RMB20,517
million and a net cash inflow from
financing activities of RMB5,220
million, which in total resulted in a net
increase in cash and cash equivalents
of RMB91 million.
Net cash generated from operating activities
Net cash used in investing activities
Net cash generated from/(used in) financing activities
Exchange gain/(loss) on cash and cash equivalents
Net increase in cash and cash equivalents
2018
RMB million
2017
RMB million
15,388
(20,517)
5,220
11
102
17,732
(8,236)
(6,796)
(26)
2,674
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
2018, the Group had banking facilities with several banks and financial institutions for providing bank financing up to
approximately RMB243,910 million (31 December 2017: RMB181,922 million), of which approximately RMB193,871 million
(31 December 2017: RMB142,239 million) was unutilised. The Directors of the Company believe that sufficient financing
will be available to the Group when and where needed.
53
Operating ResultsChina Southern Airlines Company Limited
The analysis of the Group’s borrowings and obligations under finance leases are as follows:
Composition of borrowings and obligations under finance leases
2018
RMB million
2017
RMB million
Change
%
Total borrowings and obligations under finance
leases
126,638
116,211
8.97
Fixed rate borrowings and obligations under
finance leases
Floating rate borrowings and obligations under
finance leases
33,692
92,946
26,805
89,406
25.69
3.96
33,692
(26.60%)
2018
92,946
(73.40%)
26,805
(23.07%)
2017
89,406
(76.93%)
RMB million
Fixed rate borrowings and
obligations under finance
leases
Floating rate borrowings
and obligations under
finance leases
Analysis of borrowings and obligations under finance leases by currency
USD
RMB
Others
Total
2018
RMB million
33,677
87,333
5,628
2017
RMB million
39,875
70,201
6,135
126,638
116,211
54
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018
5,628
(4.45%)
33,677
(26.59%)
2018
87,333
(68.96%)
6,135
(5.28%)
39,875
(34.31%)
2017
70,201
(60.41%)
RMB million
USD
RMB
Others
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
Total borrowings and obligations under finance leases
2018
RMB million
2017
RMB million
48,296
17,329
38,289
22,724
126,638
35,909
17,271
36,942
26,089
116,211
22,724
(17.94%)
48,296
(38.14%)
2018
38,289
(30.24%)
17,329
(13.68%)
35,909
(30.90%)
26,089
(22.45%)
2017
17,271
(14.86%)
36,942
(31.79%)
RMB million
After 5 years
After 2 years but
within 5 years
After 1 year but
within 2 years
Within 1 year
55
Operating ResultsChina Southern Airlines Company Limited
Interest expense and exchange gain or loss
Interest expense increased by RMB455 million from RMB2,747 million in 2017 to RMB3,202 million in 2018, mainly due to
the increase in the interest rate and the weighted average balance of obligations under finance leases during the year.
Net exchange loss of RMB1,853 million was recorded in 2018, as compared with a net exchange gain of RMB1,801
million in 2017, primarily attributable to the exchange difference arising from the borrowing balances and obligations under
finance leases dominated in USD, which resulted from the appreciation of USD against RMB.
The Group’s capital structure as at 31 December is as follows:
Total liabilities (RMB million)
Total assets (RMB million)
Debt ratio
2018
168,480
246,949
68.22%
2017
156,175
218,718
71.40%
Change
7.88%
12.91%
Decreased by 3.18
percentage points
The Group monitors capital on the basis of debt ratio, which is calculated as total liabilities divided by total assets.
IX. MAJOR CHARGE ON ASSETS
As at 31 December 2018, certain aircraft of the Group with an aggregate carrying value of approximately RMB89,170
million (2017: RMB83,687 million) was mortgaged under certain loans or certain lease agreements.
X. COMMITMENTS AND CONTINGENCIES
Commitments
As at 31 December 2018, the Group had capital commitments (excluding investment commitment) of RMB103,485 million
(31 December 2017: RMB108,856 million). Of such amounts, RMB82,199 million related to the acquisition of aircraft and
related flight equipment and RMB21,286 million for other projects of our Group.
As at 31 December 2018, the Group had investment commitments as follows:
Authorised and contracted for:
Capital contributions for acquisition of interests in an associate
Share of capital commitments of a joint venture
Subtotal
Authorised but not contracted for:
Share of capital commitments of a joint venture
Total
2018
RMB million
2017
RMB million
14
26
40
21
61
–
18
18
22
40
56
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018
Contingent Liabilities
(a) The Group leased certain properties and buildings from CSAH which were located in Guangzhou, Wuhan, Haikou,
etc. However, such properties and buildings lack adequate documentation evidencing CSAH’s rights thereto.
Pursuant to the indemnification agreement dated 22 May 1997 between the Group and CSAH, CSAH has agreed to
indemnify the Group against any loss or damage arising from any challenge of the Group’s right to use the certain
properties and buildings.
(b) The Group entered into certain agreements with CSAH in prior years to acquire certain land use right and buildings
from CSAH. The change of business registration of such land use right and buildings are still in progress. On 7
February 2018, CSAH issued a letter of commitment to the Company, committing to indemnify the Group against
any claims from third parties to the Group, or any loss or damage in the Group’s operation activities due to lack of
adequate documentation of the certain properties and buildings, without recourse to the Group.
(c) The Company and its subsidiary, Xiamen Airlines, entered into agreements with certain pilot trainees and certain
banks to provide guarantees on personal bank loans amounting to RMB696 million (31 December 2017: RMB696
million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31 December
2018, total personal bank loans of RMB318 million (31 December 2017: RMB361 million), under these guarantees,
were drawn down from the banks. During the year, the Group paid RMB1 million (2017: RMB5 million) to the banks
due to the default of payments of certain pilot trainees.
(d) During the year, the Group was aware that the Group, together with certain third party companies, were claimed as
defendants in an alleged dispute over a loan contract between a local commercial bank and a third party company
(“the Defendant”). The amount of the action was around RMB98 million. As of the date of this announcement, the
claim was passed to Tianjin High People’s Court for further hearing process. The claim relates to a suspected use
of forgery company stamps of the Group by the Defendant, and the Group has already reported to the local Public
Security Bureau for investigations. The management consider that given the preliminary status of the claim, the
Group cannot reasonably predict the result and potential financial impact of this pending claim, if any. Therefore, no
provision has been made against this pending claim.
57
Operating ResultsChina Southern Airlines Company Limited XI. RECONCILIATION OF DIFFERENCES IN FINANCIAL STATEMENTS PREPARED
UNDER PRC GAAP AND IFRSs
Difference in net profit and total equity attributable to equity shareholders of the Company under
consolidated financial information in financial statements between IFRSs and PRC GAAP
Net profit attributable to equity
shareholders of the Company
Total equity attributable to equity
shareholders of the Company
January – December
2018
January – December
2017
31 December 2018
1 January 2018
Unit: RMB million
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
2,983
1
(124)
–
31
4
5,914
65,003
49,594
21
47
8
(11)
(18)
(7)
72
237
(16)
(32)
(8)
196
237
(47)
(36)
Amounts under IFRSs
2,895
5,961
65,257
49,936
Explanation of differences between PRC GAAP and IFRSs
1. 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 new government grants accounting policy 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.
The difference is resulted from government grants received prior to 2017 and recognised in capital reserve under
PRC GAAP.
2.
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.
58
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018
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
Contractual arrangement
Time schedule
Currency: RMB
Financing
methods
Authorized and contracted
RMB38,141 million within 1 year
debt financing
Commitments in respect of
aircraft, engines and flight
equipment of RMB82,199 million
(inclusive of 1 year);
RMB32,395 million after 1 year
but within 2 years (inclusive of 2
years);
RMB8,628 million after 2 years
but within 3 years (inclusive of 3
years);
RMB3,035 million after 3 years
/
other
other
Investment commitments of
Authorized and contracted
RMB14 Million (Note)
Other commitments of RMB7,224
Authorized and contracted
/
million
Operating lease commitments of
Non-cancellable operating leases
RMB9,217 million within 1 year
other
RMB75,729 million
in respect of aircraft, flight
equipment and properties
(inclusive of 1 year);
RMB9,978 million after 1 year but
within 2 years (inclusive of 2
years);
RMB8,850 million after 2 years
but within 3 years (inclusive of 3
years);
RMB47,684 million after 3 years
Note: excluding the capital commitment of joint venture attributable to the Company amounted to RMB26 million.
Upon prediction on the cash flows for the twelve months ended 31 December 2019, 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
2018, the Group has obtained a maximum credit line of RMB243,910 million for 2018 and subsequent years from several
PRC banks, of which, the unused bank credit lines reached RMB193,871 million. The Group believes that it will be able to
obtain such financing.
59
Operating ResultsChina Southern Airlines Company Limited
XIII. ANALYSIS OF OPERATIONAL INFORMATION FROM INDUSTRIAL PERSPECTIVE
1. Major information of operations
Models
Passenger aircraft
A380 series
A330 series
A320 series
B787 series
B777 series
B757 series
B737 series
EMB190
Freighter
B777 series
B747 series
Average
Volume of
passenger
transported
(person)
983,211
9,607,556
50,391,449
3,896,180
1,807,410
492,051
69,623,473
3,083,712
/
/
/
Passenger load
factor (%)
Total load factor
(%)
Daily utilization
rate (hours)
87.1
84.2
82.2
81.3
88.2
75.5
81.6
78.6
/
/
82.4
66.5
61.1
74.4
59.6
61.9
56.7
72.9
67.6
85.2
70.7
71
9.6
11.8
9.7
11.8
13.1
6.8
9.4
8.1
13.2
1
9.73
2. Capital arrangement for introducing aircraft and related equipment during the reporting
period
Capital arrangement
(unit: number of aircraft)
Models introduced during
the reporting period
Operating lease
Finance lease
Purchased
Number of aircraft
introduced during
the reporting
period
A320NEO
A321
A321NEO
A330-300
B737-8
B737-800
B787-9
Total
12
0
13
0
8
22
3
58
0
1
0
3
11
8
6
29
1
0
1
2
7
5
1
17
13
1
14
5
26
35
10
104
60
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018
3. Capital expenditure plan and relevant financing plan for aircraft and related equipment
during 2019-2021
Capital expenditure
commitments of aircraft and
related equipment
Commitments in respect of
aircraft, engines and flight
equipment of RMB79,164 million
Contractual
arrangement
Authorized and
contracted
Financing
methods
debt financing
Time schedule
RMB38,141 million within 1 year (inclusive
of 1 year); RMB32,395 million after 1
year but within 2 years (inclusive of 2
years); RMB8,628 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, Xiamen Airlines, a subsidiary of the Company, entered into the Purchase Contract for
B737MAX Aircraft with the Boeing Company to purchase a total of 20 B737-8 aircraft and 10 B737-10 aircraft from
the Boeing Company. The transaction shall take effect upon receiving approvals from relevant government authorities.
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, it is expected that the overall yield per
RPK will be approximately RMB0.405 and approximately RMB0.402, respectively, after B737-8 aircraft and B737-10
aircraft purchased during this period have 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 (person)
312
401
35
Annual average flying
hours
842
796
/
6. New Air Routes and Future Route Plan During the Reporting Period
During the Reporting Period, the Group focused on the domestic market, and increased Beijing-Shenzhen, Beijing-
Harbin, Beijing-Urumqi, Guangzhou-Shanghai, Guangzhou-Qingdao-Shenyang, Shanghai-Shenzhen, Shanghai-
Wuhan, Shenzhen-Chengdu, Chengdu-Shenyang, Chengdu-Zhengzhou, Chengdu-Changchun, Wuhan-Changchun,
Wuhan-Shenyang, Xi’an-Changsha and other main routes. Moreover, the Group launched 311 domestic routes,
including Guangzhou-Chengdu-Daocheng, Wuhan-Zhanjiang, Haikou-Jieyang-Hefei, Urumqi-Dunhuang-Xi’an and
Zhengzhou-Kumul to enrich the route network. The Group steadily promoted remote international market, and
launched 40 international and regional routes, including Guangzhou-Lahore, Guangzhou-Sanya-London, Guangzhou-
Cebu, Beijing-Istanbul, Beijing-Teheran, Shenyang-Los Angeles, Shenyang-Irkutsk, Wuhan-London, Shenzhen-Dubai,
Shenzhen-Kuala Lumpur, Shenzhen-Singapore, Urumqi-Bangkok, Shenzen-Rangoon, Zhengzhou-Da Nang, Urumqi-
Lahore, Shenzhen-Sabah, Wuhan-Ho Chi Minh, Wuhan-Phuket. In 2019, the Group will continue to improve the
international network layout and plans to launch Guangzhou-Urumqi-Vienna, Changsha-Singapore, Harbin-Nagoya
and other international routes. There is currently no plan to exit the route.
61
Operating ResultsChina Southern Airlines Company Limited
XIV. ANALYSIS ON INVESTMENTS
1. Major equity investment
During the reporting period, the Company established a wholly-owned subsidiary, Xiongan Airlines in Xiong’an New
Zone. It plans to invest RMB2.5 billion in cash, RMB7.5 billion in kind and RMB10 billion in stages. This investment
is conducive to promoting the development of the Company’s main aviation industry and enhancing the Company’s
competitiveness in the aviation market.
During the reporting period, the Company completed the non-public issuance of A shares, and CSAH participated
in the non-public issuance of A shares subscription with its 50.00% equity interest in MTU and part of cash. The
appraisal value of 50% equity interest in MTU assessed and filed by the SASAC is the benchmark, and the asset
consideration is determined to be RMB1,741,080,000 after the adjustment of 2016 annual dividend of MTU. As of the
end of the reporting period, transfer of all 50.00% equity of MTU and the procedures and the registration of industrial
and commercial had been completed, and the Company holds 50.00% equity interest in MTU.
During the reporting period, the Company established a wholly-owned freight logistics company in Guangzhou,
invested RMB1 billion by way of cash and assets, and subscribed in installments within the operating period.
2.
Important non-equity investment
On 21 March 2018, Xiamen Airlines, a subsidiary of the Company entered into the B737MAX Aircraft Acquisition
Agreement with Boeing Company to purchase 20 B737-8 aircraft and 10 B737-10 aircraft from Boeing Company.
The transaction shall take effect after approvals are obtained from the relevant government authorities.
62
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 3. Financial assets carried at fair value
Unit: RMB million
Initial
Investment
cost
Equity
ownership
(%)
Carrying
value at the
end of the
period
Profit and
loss during
the reporting
period
9
16
2
1
33
100
161
0.48
0.013
1.00
2.50
2.25
2.62
16
55
2
30
846
234
/
1,183
(10)
(1)
(1)
7
17
/
12
Changes
in owners’
equity during
the reporting
period Accounting item
/ Other non-current
financial assets
/ Other non-current
financial assets
/ Other non-current
financial assets
/ Other non-current
financial assets
309 Other investments
in equity securities
10 Other investments in
equity securities
Sources of the
shares
Purchase
Purchase
Capital increase
Capital increase
Establishment
Capital increase
319 /
/
Stock code
Abbreviation
000099
Citic Offshore Helicopter Co.,Ltd.**
601328
Bank of Communications Co.,Ltd.**
N/A
N/A
China Air Service Ltd.
Aviation Data Communication Corporation
00696
Travelsky Technology Limited*
Haikou Meilan International Airport Co., Ltd.*
N/A
Total
* As those equity instruments are investments that the Group plans to hold for a long time for strategic purpose, the Group
designates it as financial assets measured at fair value through other comprehensive income. The Group adjust other
comprehensive income as at 1 January 2018 at its fair value as a results of the adoption of New Standards of Financial
Instruments.
** As at 1 January 2018, the Group reclassifies these equity instrument investments at fair value through other comprehensive
income to financial assets at fair value through profit or loss, and the cumulated profits included in other comprehensive
income are reclassified to retained earnings.
63
Operating ResultsChina Southern Airlines Company Limited
XV. ANALYSIS ON MAJOR SUBSIDIARIES AND CONTROLLING COMPANIES
1. Major operational data of the controlling civil aviation subsidiaries of the Group:
Name of subsidiaries
Number of
aircraft
Contribution
to the
Group’s
RPK (%)
Number of
passengers
carried
(thousand)
Contribution
to the
Group’s
RPK (%)
Cargo and
mail carried
(tonne)
Contribution
to the
Group’s
RPK (%) RTK (million)
Contribution
to the
Group’s
RPK (%) RPK (million)
Contribution
to the
Group’s
RPK (%)
Xiamen Airlines
Shantou Airlines
Zhuhai Airlines
Guizhou Airlines
Chongqing Airlines
Henan Airlines
210
16
13
20
27
31
25
1.9
1.5
2.4
3.2
3.7
35,893.96
3,218.53
2,192.53
3,566.96
3,659.48
6,051.89
25.7
2.3
1.6
2.6
2.6
4.3
285,171.2
19,185.9
13,968.4
26,227.9
20,688.6
43,648.6
16.5
1.1
0.8
1.5
1.2
2.5
5,875.17
390.46
328.32
514.58
453.90
807.05
19.4
1.3
1.1
1.7
1.5
2.7
58,878.66
4,135.04
3,492.36
5,391.90
4,835.63
8,440.78
22.7
1.6
1.4
2.1
1.9
3.3
Note: 1. The operational information of Xiamen Airlines includes operational information of its subsidiaries, Hebei Airlines and
Jiangxi Airlines.
2. Xiongan Airlines is under construction, no operational data is available.
2.
Information of the
Controlling Companies
(1) Xiamen Airlines
Xiamen Airlines was
established in August 1984
with registered capital of
RMB8 billion. The legal
representative is Wang Zhi
Xue. The Company holds
55% of the shares in Xiamen
Airlines, and Xiamen Jianfa
Group Co., Ltd. and Fujian
Investment Group Co., Ltd.
hold 34% and 11% of the
shares in Xiamen Airlines,
respectively.
As at 31 December 2018,
Xiamen Airlines (including
Hebei Airlines and Jiangxi
Airlines) had a fleet of 210
aircraft. During the reporting
period, Xiamen Airlines
(including Hebei Airlines and
Jiangxi Airlines) completed
5,875 million revenue tonne
kilometers, representing
an increase of 17.79% as
compared to the same
period of the previous year.
Xiamen Airlines carried
64
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018
35,894,000 passengers and
285,200 tonnes of cargos,
representing an increase
of 13.00% and 10.45%,
respectively as compared
to the same period of the
previous year. The average
passenger load factor was
81.47%, representing an
increase of 1.55 percentage
points as compared to
the same period of the
previous year. The average
load factor was 67.84%,
representing an increase
of 0.43 percentage point
as compared to the same
period of the previous year.
In 2018, Xiamen Airlines
recorded operating revenue
of RMB30,225 million,
representing an increase
of 15.74% as compared
to the same period of the
previous year; and it had a
net profit of RMB915 million,
representing a decrease of
38.05% as compared to the
same period of the previous
year. As at 31 December
2018, Xiamen Airlines’
total assets amounted to
RMB47,263 million, and
net assets amounted to
RMB19,188 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 Shanton
Airlines, and Shantou
Aviation Investment Co.,
Ltd. holds 40% of the
Shantou in Shantou Airlines.
As at 31 December 2018,
Shantou Airlines had a fleet
of 16 aircraft. During the
reporting period, Shantou
Airlines completed 390
million revenue tonne
kilometers, representing
an increase of 3.97% as
compared to the same
period of the previous year.
Shantou Airlines carried
3,218,500 passengers,
representing an increase
of 2.57% as compared
to the same period of
65
the previous year, and
carried 19,200 tonnes
of cargos, representing
a decrease of 6.36% as
compared to the same
period of the previous year.
The average passenger
load factor was 79.47%,
representing a decrease
of 1.56 percentage points
as compared to the same
period of the previous
year. The average load
factor was 72.06%,
representing an increase
of 0.38 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, and Zhuhai Stated-
owned Asset Supervision
and Administration
Commission holds 40% of
the shares in Zhuhai Airlines.
Operating ResultsChina Southern Airlines Company Limited OUR GROUP HAS
8 HOLDING AVIATION
SUBSIDIARIES
including Xiamen Airlines,
Shantou Airlines, Zhuhai Airlines,
Guizhou Airlines, Chongqing
Airlines, Henan Airlines,
Xiongan Airlines and Freight and
Logistic Company.
As at 31 December 2018,
Zhuhai Airlines had a fleet
of 13 aircraft. During the
reporting period, Zhuhai
Airlines completed 328 million
revenue tonne kilometers,
representing an increase of
13.55% as compared to the
same period of the previous
year. Zhuhai Airlines carried
2,192,500 passengers and
14,000 tonnes of cargos,
representing an increase
of 13.45% and a decrease
of 7.15%, respectively as
compared to the same
period of the previous year.
The average passenger
load factor was 81.89%,
representing a decrease
of 0.91 percentage point
as compared to the same
period of the previous year.
The average load factor
was 72.78%, representing a
decrease of 2.72 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 RMB1.22 billion. The
legal representative is Yi
Hong Lei. The Company
holds 60% of the shares
in Guizhou Airlines,
and Guizhou Industrial
Investment (Group) Co., Ltd.
holds 40% of the shares in
Guizhou Airlines.
As at 31 December 2018,
Guizhou Airlines had a fleet
of 20 aircraft. During the
reporting period, Guizhou
Airlines completed 515
million revenue tonne
kilometers, representing
an increase of 4.31% as
compared to the same
period of the previous year.
Guizhou Airlines carried
3,567,000 passengers,
representing an increase
of 7.01% as compared
to the same period of the
previous year, and carried
26,200 tonnes of cargos,
representing an increase of
1.22% as compared to the
same period of the previous
year. The average passenger
load factor was 81.17%,
66
representing a decrease
of 0.23 percentage point
as compared to the same
period of the previous year.
The average load factor was
73.85%, representing an
increase of 0.65 percentage
point as compared to the
same period of the previous
year.
(5) Chongqing Airlines
Chongqing Airlines Company
Limited was established in
May 2007 with registered
capital of RMB1.2 billion.
The legal representative
is Jin Wei Feng. 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 2018,
Chongqing Airlines had
a fleet of 27 aircraft.
During the reporting
period, Chongqing Airlines
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 period of the previous year. The average load
factor was 68.75%, representing a decrease
of 3.58 percentage points as compared to the
same period of the previous year.
(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, and
Henan Civil Aviation and Investment Co., Ltd.
holds 40% of the shares in Henan Airlines.
As at 31 December 2018, Henan Airlines had a
fleet of 31 aircraft. During the reporting period,
Henan Airlines completed 807 million revenue
tonne kilometers, representing an increase
of 14.47% as compared to the same period
of the previous year. Henan Airlines carried
6,051,900 passengers and 43,600 tonnes of
cargos, respectively, representing an increase of
16.67% and a decrease of 5.1%, respectively,
as compared to the same period of the previous
year. The average passenger load factor
was 82.7%, representing a decrease of 0.45
percentage point as compared to the same
period of the previous year. The average load
factor was 75.93%, representing an increase of
0.34 percentage point as compared to the same
period of the previous year.
completed 454 million revenue tonne kilometers,
representing an increase of 15.42% as compared
to the same period of the previous year.
Chongqing Airlines carried 3,659,500 passengers
and 20,700 tonnes of cargos, respectively,
representing an increase of 16.80% and 4.05%,
respectively, as compared to the same period of
the previous year. The average passenger load
factor was 81.45%, representing a decrease of
1.55 percentage points as compared to the same
3.
Information of other major joint stock companies
Name of investee
companies
1. Joint ventures
Nature of business
Registered capital
Proportion of shares held at the
investee companies (%)
Direct
Indirect
Guangzhou Aircraft
Aircraft repair and
USD65,000,000
Maintenance Engineering
Co., Ltd.
maintenance services
MTU
Aircraft repair and
USD63,100,000
maintenance services
2. Associates
50
50
0
0
Finance Company
Provision of financial
RMB1,072,907,050
25.28
8.70
services
SACM
Advertising agency
RMB200,000,000
services
Sichuan Airlines
Airlines transportation
RMB1,000,000,000
40
39
0
0
67
Operating ResultsChina Southern Airlines Company Limited
IN THE FUTURE, CHINA’S
CIVIL AVIATION TRANSPORT
MARKET WILL CONTINUE
TO MAINTAIN A MIDDLE
AND HIGHSPEED GROWTH,
& THERE STILL IS A HUGE
DEVELOPMENT SPACE
XVI. INDUSTRY
COMPETITION
LANDSCAPE AND
DEVELOPMENT
TREND
At present, there are three
distinct features as to the
competition landscape of the
global aviation market. First,
frequent merger and acquisition
transactions are seen among
large airlines. This weakens step
by step the role of the aviation
alliance. Meanwhile, growing
deep cooperation with equity as
a link is also seen among large
airlines in the alliance or across
the alliance. Second, with the
deepening of the globalization of
world economy and trade, the
world aviation industry center
moves eastward. The center
of future world economic and
trade development, such as
the countries around the Indian
Ocean and the BRICS countries,
is also the fastest growing
area with respect to passenger
throughput in the past 10 years.
Airports Council International
(ACI) predicts that by 2040, the
10 fastest-growing countries in
the aviation industry will also be
in the East, including ASEAN
countries such as China, India,
Vietnam and countries around
the Indian Ocean such as the
Middle East region. Third, digital
transformation will continue to
accelerate. IATA has made great
efforts to promote NDC (New
Distribution Capability Project).
The marketing revolution initiated
by large airlines in Europe and
the United States is based on
digital transformation, while the
pursuit of ancillary revenue has
become an important strategic
goal of airlines.
In the future, the transport market
of China’s civil aviation industry
will continue to maintain a middle
and high-speed growth, and
68
there still is a huge development
space. It is embodied in the
following three aspects:
1. Huge Market Potential
China’s civil aviation market will
keep growing. China’s civil aviation
industry witnesses an average
annual growth rate of passenger
throughput of 11.5% in the past
10 years. However, the per capita
air travel is only 0.4 times, while
the per capita air travel in the
United States is basically stable at
2.3-2.4 times, which is equivalent
to 5-6 times of that in China. In
the future, China’s civil aviation
transport market will continue to
maintain a middle and high-speed
growth, and there still is a huge
development space. IATA predicts
that China will surpass the United
States and become the world’s
largest aviation market around
2022; and that, by 2036, China’s
total air passenger throughput will
reach 1.5 billion.
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 2. China’s development
strategy and macro-policy
are conducive to the
development of aviation
industry
The development strategies
implemented in China has greatly
expanded the development space
of the aviation industry. The
implementation of the three major
development strategies, such
as “the Belt and Road Initiative”,
the coordinated development
strategy of Beijing, Tianjin and
Hebei, and the development
strategy of the Yangtze River
Economic Belt, and the policy
for construction of Xiong An
new area and Guangdong-
Hong Kong-Macau Greater Bay
Area foreshadow the broad
prospects for the development of
the aviation industry. The CAAC
issued the Outline of Action for
Building a Civil Aviation Power
in the New Era, which clearly
defined the goal of building a
civil aviation power in an all-
round way by the middle of this
century. At the same time, in
recent years, CAAC’s policies
for “control over total number of
flights, and structure adjustment”
and fare reform have been
continuously implemented and
effective, and the occupancy
rate of the whole industry has
continued to rise. The NDRC and
the CAAC have gradually relaxed
their control over airlines’ fares
and allowed airlines to adjust
their fares to a certain extent in
accordance with market demand,
which is conducive to airlines’
flexible adjustment of their freight
rates and improvement of their
operating quality.
3.
Industry challenges and
opportunities co-exist
Challenges and opportunities
always coexist in the aviation
industry and have a profound
impact on the development of
69
the industry. On the one hand,
the competition in the aviation
industry is increasing. The
number of domestic transport
airlines is gradually increasing,
and the resources of domestic
hub airports’ route timetables
are tight. A large number of
new direct flight routes to other
countries have been opened in
China’s second- and third-tier
cities, which attract a part of the
passengers of the three major
portal hubs in Beijing, Shanghai
and Guangzhou. On the other
hand, the high-speed rail network
continues to grow. By the end of
2018, the operating mileage of
China’s high-speed rails reached
29,000 kilometers. By 2025,
it is estimated that the railway
and high-speed rail mileage
will respectively reach 38,000
kilometers. The eight vertical and
eight horizontal high-speed rail
network will affect the domestic
short-and medium-distance
aviation market.
Operating ResultsChina Southern Airlines Company Limited 70
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 N
O
I
T
C
A
F
S
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T
A
S
N
O
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T
C
E
F
R
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P
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T
71
Facing with risks and
challenges, the Group must
remain committed and
move forward with aim to
build a international first-
class airlines.
XVII. BUSINESS PLAN IN 2019
Looking forward to 2019, the global situation
is more complicated and unstable, with
uncertainties on the rise. The recovery process is
difficult and tortuous. The International Monetary
Fund (IMF) and the Organisation for Economic
Co-operation and Development (OECD) generally
expect that the global economic growth rate in
2019 will be 0.2 to 0.3 percentage points lower
than that in 2018. With the profound changes
in the external environment, China faces more
challenges and growing downward pressure
on economy. China’s economy is expected
to perform within an appropriate range and is
shifting from a high-speed growth to a high-
quality development.
The International Air Transport Association (IATA)
predicts that the global airlines will transport 4.59
billion passenger and 65.9 million tons of cargo,
up 6% and 3.7% year-on-year respectively in
2019, lower than the growth rate of 6.5% and
4.1% in 2018. Asia Pacific region will be a major
force to drive global passenger aviation demand,
with China as the biggest market. CAAC predicts
that the transport turnover, passenger volume
Operating ResultsChina Southern Airlines Company Limited
and cargo volume of China’s
civil aviation market will increase
by 11.8%, 11% and 5.7%,
respectively, to 136 billion ton-
kilometers, 680 million and 7.93
million tons.
At the same time, however, we
also face uncertainties in the
Company’s operation due to
factors such as the divergence
of the world economy, financial
market turmoil, frequent
trade frictions, fluctuations in
commodity prices, and rising
non-economic factors. In the
face of risks and challenges, the
Group must remain committed
to the underlying principle of
making progress while keeping
performance stable, maintain
strategic strength, optimize and
enhance the strategic framework,
focus on quality development,
strive for better business
performance, and move forward
with aim to build a international
first-class airlines.
1. Put safety first and
continue to lay a solid
foundation for security.
We must set up safety red
lines awareness, think about
worst-case scenarios and take
safety as the Company’s top
priority. We must strengthen
the accountability of safety
management personnel,
and make sure the safety
responsibility at each level. We
shall enhance qualifications
of professional teams, and
strictly improve the quality of
training; continue to advance
discipline practice and push
for the big data management
of core human resources such
as pilots to eliminate regulatory
dead spots and blind spots;
make continued efforts to
strengthen risk prevention and
control, continuously improve
safety through various technical
means, and intensify safety
risk prevention and judgment
in respect of new airports, new
aircraft types, new routes, and
navigation, and continue to
improve emergency response
plan. In 2019, the Group will
ensure its continuation in aviation
safety as in past years.
2. Deepen the development
of integrated operation
and continue to enhance
operational efficiency.
We must continue to implement
large-scale fleet management
and unified scheduling of
flight resources, and advance
centralized operation reform
to ensure that the integrated
operation delivers practical
results. We must implement
industry-specific benchmarking
for flight punctuality rate, enhance
internal and external coordination,
and continue to improve flight
on-time rate. It is necessary
to launch a new generation of
flight information system, build
a reliable big data platform, and
strengthen aircraft maintenance
to guarantee reliable aviation
capacity for the normal operation
of the flight. We will reconstruct
72
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 s
t
l
u
s
e
R
g
n
i
t
a
r
e
p
O
the financial accounting system and improve the value
management report for sound financial support.
3. Push forward the landing of the dual-hub
strategy and comprehensively strengthen
the fleet construction.
We will continue to increase investment in the
Guangzhou hub and build a high-quality Beijing hub to
accelerate the landing of the dual-hub strategy, giving
full play of their synergies. We must build the base
project of Beijing Daxing Airport with high standards,
strive for resources from all parties to smooth the
transitional stage of Beijing Daxing Airport, and ensure
a high-quality start. To seize strategic opportunities,
We must focus on the planning of Guangdong-Hong
Kong-Macao Greater Bay Area, and optimize the
route network by launching new routes and flights and
adjusting existing ones to develop the “Canton Route”
and further enhance the aviation capacity concentration
and operation ability of the Guangzhou hub. We must
fully strengthen the fleet building, and optimize the
Company’s fleet from the aspects of aircraft purchase
strategy, introduction method and speed, and aircraft
structure to lay a good foundation for the Company’s
operation.
4. Adhere to sincere service, and build a first-
class brand image.
We will continue to improve our ground services
by benchmarking the world first-class level, and
continuously improve passenger satisfaction. We
will promote “paperless” travel service in the whole
process throughout the Company, and display baggage
conveying status at more sites. We will purchase
more on-board entertainment programs, enhance the
standard of on-board supplies and meals, and continue
to improve LAN coverage. We should speed up the
process of offering international services, promote the
construction of overseas language center, optimize and
upgrade overseas official website, and fully implement
the standard of fine routes on international beyond
routes.
73
China Southern Airlines Company Limited
ANNUAL REPORT 2018
MANAGEMENT
DISCUSSION AND ANALYSIS
5. Accelerate the
improvement of quality
and efficiency, and
enhance the profitability
of the Company.
We must emphasize input
and output, strengthen the
centralized control of freight
rates, lay a solid foundation for
domestic profitability, ensure that
superior resources are invested
in core hubs, key markets and
golden routes, actively explore
new business models such as
capacity purchases, and continue
to increase market share. We
should steadily develop the long-
distance international market,
strive to improve international
quality, strengthen the match
of routes and models, increase
the sales of international
products in the international and
domestic markets, and reinforce
cooperation in important
international markets. We will
continue to enhance precision
marketing, broaden revenue
sources, and improve revenue
from major accounts, frequent
passengers and miscellaneous
income. Beside, we will explore
the potential of freight logistics,
optimize the layout of freighter
network, and focus on key
marketing projects.
6.
Intensify financial
management and
continuously improve the
assessment system.
We must expand the channels
for fund raising, make full use of
the internal and external capital
market, and strengthen the risk
management and control in
terms of exchange rates, interest
rates, and oil prices. We should
establish a comprehensive
assessment system, and promote
“pro forma profit” assessment
to effectively enhance the
initiative and enthusiasm of value
management. We will strengthen
the integration of operation and
finance, enhance cost control,
implement the linkage mechanism
of income and cost, continue to
promote comprehensive budget
management, standardize unified
procurement standards, improve
procurement bargaining capacity,
and coordinate management and
control of stock resources.
74
7. Continue to promote
standardized, integrated,
intelligent and
international development,
and consolidate
the Company’s core
competitive advantages.
We must continue to play the
role of the manual and improve
the standardization level. We
should make constant efforts to
advance the “China Southern
e-Travel” platform, optimize
flight dynamics, seat selection
and check-in, refund and
rescheduling, meal booking and
green flight services, and pursue
“digital cabin” and “de-check-
in”. It is necessary to classify and
formulate different international
market competition strategies,
comprehensively expand
pragmatic bilateral cooperation
with major international and
domestic partners, accelerate the
establishment of new international
cooperation relations, and
exert the supporting role of
international cooperation in
production and operation. We will
expand the cooperation between
the Company and Xiamen
s
t
l
u
s
e
R
g
n
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t
a
r
e
p
O
Airlines and Sichuan Airlines in
terms of ground service and
aircraft, deepen the cooperation
in through transit, ticket changing
and code sharing, and enhance
the integration effect of the “China
Southern Alliance”.
8. Lay a solid foundation
for development and
continuously enhance the
Company’s development
momentum.
We must comprehensively
strengthen party building and
provide strong political guarantee
for the Company’s development;
improve management by
benchmarking leading enterprises
in the industry, and accelerate the
establishment of a management
and control mechanism that is
compatible with the development
of enterprises; continue to
improve the internal control
system and the level of internal
control informationization; and
enhance talent pool construction,
comprehensively carry out the
“100-person plan” for professional
talents, continue to develop
talents with international view,
improve our compensation
75
policies and give high priority to
efficiency and market orientation.
Effective mechanism shall be
established to optimize person-
post matching, performance
matching and improve labor
efficiency. We should enhance the
supporting role of IT, formulate
overall IT development plans,
and steadily push forward the
construction of big data, cloud
platform, and business platform.
XVIII. RISK FACTORS
ANALYSIS
1. Macro Environment Risks
(1) Risks of Fluctuation in
Macro Economy
The degree of prosperity of
the civil aviation industry is
closely linked to the status
of the development of the
domestic and international
macro economy. Macro
economy has a direct
impact on the economic
activities, the disposable
income of the residents
and the import and export
trade volume, which in
turn affects the demand of
China Southern Airlines Company Limited
the air passenger and air
cargo and further affects
the business and operating
results of the Group.
2.
Industry risks
(1) Risks of intensifying
competition in the
industry
(2) Risks of Macro Policies
Macro economic policies
made by the government,
in particular the cyclical
adjustment in 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 liberalisation
of freedoms of the air,
routes, fuel surcharges,
air ticket fares and other
aspects are regulated by
the government, and the
fuel surcharges pricing
mechanism is also required
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.
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, if the Company
fails to further improve
the operational quality
of international routes, it
may affect the Company’s
operating income and profit
levels.
(2) Risks of competition
from other modes of
transportation
There 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.
(3) Other Force Majeure and
Unforeseeable 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
76
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 health incidents as well as
terrorist attacks, international
political turmoil and other
factors will affect the normal
operation of the airlines,
which brings unfavourable
effect to the results and
long-term development of
the Company.
3. Risks of the Company
management
(1) Safety Risks
Flight safety is the
prerequisite and foundation
for the normal operation
of the airlines. Adverse
weather, mechanical failure,
human error, aircraft defects
as well as other force
majeure incidents may have
effect on the flight safety.
With large-scale aircraft fleet
and more cross-location,
overnight and international
operations, the Company
faces certain challenges in
its safety operation. In case
of any flight accident, it will
have an adverse effect on
the normal operation of the
Company and its reputation.
(2)
Information Safety Risk
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.
(3) Risks of High Capital
Expenditure
The major capital
expenditure of the Company
is to purchase aircraft. In
recent years, the Company
has been optimizing the
fleet structure and reducing
the operational cost through
introducing more advanced
models, 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.
4. Financial risks of the
Company
(1) Risk of Fluctuation in
Interest Rate
Since the civil aviation
industry is featured with
high investments, the
gearing ratio of the airlines
is generally high. Therefore,
the interest rate fluctuation
resulting from the change
of capital in the market has
a relatively greater influence
on the Group’s financial
expenses, so as to further
affect the Group’s operating
results. At 31 December
2018, assuming all other risk
variables other than interest
rate remained constant, in
the case of 100 base points
increase (or decrease) of
77
Operating ResultsChina Southern Airlines Company Limited the Group’s comprehensive
capital cost would decrease
(or increase) equity and net
profit of the Group by the
amount of RMB539 million.
(2) Risk of Fluctuation in
Exchange Rate Currency
Renminbi is not freely
convertible into foreign
currencies. All foreign
exchange transactions
involving Renminbi must
take place either through
the People’s Bank of China
(“PBOC”) or other institutions
authorised to buy and sell
foreign exchange or at a
swap centre. Substantially
all of the Group’s
obligations under finance
leases, certain bank and
other loans and operating
lease commitments are
denominated in foreign
the shareholders’ equity
and net profit of the Group
will increase (or decrease)
by RMB195 million in the
case of each and every 1%
appreciation (or depreciation)
of the exchange rate of
RMB to US dollar at 31
December 2018.
(3) Risk of Fluctuation in Jet
Fuel Price
The jet fuel cost is the
most major expenditure
for the Company. Both
the fluctuation in the
international crude oil prices
and the adjustment of
domestic fuel prices by the
NDRC has big impact on
the profit of the Company.
Although the Company has
adopted various fuel saving
measures to control the
unit fuel cost and decrease
currencies, principally US
dollars, Euro and Japanese
Yen. Depreciation or
appreciation of Renminbi
against foreign currencies
therefore affects the Group’s
results significantly.
As of 31 December 2018,
the Group has recorded a
total of RMB2,395 million
of financial assets in foreign
currencies, and a total
of RMB40,017 million of
financial liabilities in foreign
currencies, of which,
liabilities in US dollars
reached RMB34,299 million.
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,
78
MANAGEMENT DISCUSSION AND ANALYSISANNUAL REPORT 2018 the fuel consumption
volume, provided there is
significant fluctuation in
the international oil prices,
the operating results 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 is
currently no effective means
available to manage the
Group’s exposure to the
fluctuations of domestic
jet fuel prices. However,
according to a “Notice on
Questions about Establishing
Linked Pricing Mechanism
for Fuel Surcharges of
Domestic Routes and Jet
Fuel” jointly published by
the NDRC and the CAAC
in 2009, airlines may, within
a prescribed scope, make
its own decision as to fuel
surcharges for domestic
routes and the pricing
structure. The linked pricing
mechanism, to a certain
extent, reduces the Group’s
exposure to fluctuation in jet
fuel price.
As of 31 December 2018,
the Company’s fuel oil cost
accounted for 30.61% of
the operating expenses
and it was the Company’s
main operating expenses.
Assuming that the fuel
oil consumption remains
unchanged, in the case
of 10% increases (or
decreases) in fuel price,
the Group’s operating cost
would increase (or decrease)
by RMB4,292 million.
79
Operating ResultsChina Southern Airlines Company Limited STANDARDIZATION &
INTEGRATION &
INTELLIGENTIZATION &
INTERNATIONALIZATION
To promote standardization, the Company puts emphasis on manual management, and ensure that
all actions are institutionalized, incorporated into the manual, and implemented into actions. To
promote integration, we need to build the “China Southern Alliance”, strengthen strategic coordination,
market synergy, resource consolidation and cultural integration. To promote the intelligentization, we
should take “China Southern e-travel” as the starting point, reshape the business process, and reform
the system and mechanism. To promote globalization, we need to build a new type of international
cooperative relations and open up new prospects for international cooperation. The “Four Criteria” (四化)
are the path to high-quality development.
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 of China Southern Airlines Company Limited, stipulating that “The
Company’s dividend payment policy is:
Principles of dividend payment by the Company: Provided that the long-term and sustainable development of
the Company are ensured, the dividend payment policy of the Company should pay close attention to ensuring a
reasonable return of investment to investors and establishing a firm intention of rewarding the shareholders, and such
dividend payment policy should maintain its continuity and stability.
Ways of dividend payment 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 dividend payment 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 dividend payment 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.
82
ANNUAL REPORT 2018SIGNIFICANT EVENTS According to PRC GAAP, the Company realized the net profit of RMB2,214 million for the year 2018. After
withdrawing 10% of the net profit of the Company as the statutory surplus reserve amounting to RMB221 million, the
remaining distributable profit of the Company amounted to RMB1,993 million for the year 2018.
In order to allow investors, especially small and medium-sized investors, to share the operating results of the
Company, The Board recommended the distribution of a cash dividends of RMB0.05 per share (inclusive of
applicable tax) to shareholders for the year ended 31 December 2018, totalling approximately RMB613 million based
on the Company’s 12,267,172,286 issued shares. Under PRC GAAP, total cash dividends of the Company for the
year 2018 accounted for 31% of the realized distributable profit of the Company for the year 2018.
Considering that China’s civil aviation industry is still in the stage of rapid development, the Company needs more
capital in aircraft introduction and the construction of Beijing DaXing International Airport. At the same time, the
implementation of the new lease standards will enhance the Company’s gearing ratio. Therefore, the retention of
some undistributed profits will be conducive to the healthy and steady development of the company.
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 2019.
2. Plans or 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
0.5
1.0
1.0
0
0
0
613
1,009
982
2,983
5,914
5,056
20.55
17.06
19.42
Year
2018
2017
2016
II. 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 2018, there were 326 and 232 aircraft under operating lease and under finance lease,
respectively.
83
China Southern Airlines Company LimitedSignificant Events
2. Guarantee
Total amount of guarantees provided by the Company (not including guarantees provided for its subsidiaries)
Relationship
between
guarantor and
listed company Guarantee
Commencement
date of guarantee
(Agreement
execution date)
Commencement
date of guarantee
Guaranteed
amount
Guarantor
Expiry date of
guarantee
Type of
guarantee
Guarantee fully
fulfilled
Overdue, if any
Currency: RMB million
Counter
guarantee
available,
if any
Overdue
amount of
guarantee
Guarantee
provided to
the related
parties,
if any
Connected
party
relationship
The Company /
Self-sponsored
291.39
30 June 2008
30 June 2008
20 April 2033
Xiamen Airlines /
trainee pilots of
the Company
Half self-sponsored
trainee pilots of
Xiamen Airlines
26.94
4 May 2010
4 May 2010
6 July 2025
Joint liability
guarantee
Joint liability
guarantee
Partial
Partial
19.27
Yes
No
performance
completed
performance
of joint liability
guarantee
Partial
Partial
1.38
Yes
No
/
/
performance
completed
performance
of joint liability
guarantee
Total guarantee incurred during the reporting period (excluding those provided to subsidiaries)
Total balance of guarantee as at the end of the reporting period (A) (excluding those provided to subsidiaries)
0
318.33
Total guarantee to subsidiaries incurred during the reporting period
Total balance of guarantee to subsidiaries as at the end of the reporting period (B)
19,444.14
23,442.65
Guarantee provided by the Company and its subsidiaries to subsidiaries
Aggregate guarantee of the Company (including those provided to subsidiaries)
Aggregate guarantee (A+B)
Percentage of aggregate guarantee to net assets of the Company (%)
Representing:
Amount of guarantee provided to shareholders, ultimate controller and their connected parties (C)
Amount of debts guarantee directly or indirectly provided to guaranteed parties with gearing ratio over 70% (D)
Excess amount of aggregate guarantee over 50% of net assets (E)
Aggregate amount of the above three categories (C+D+E)
Statement on the contingent joint and several liability in connection with unexpired guarantee
Statement on guarantee
23,760.98
30.39
0
/
0
0
/
On 16 May 2018, an extraordinary meeting was held by the Eighth Session of the Board by way of communication, to consider and approve
the Company and its controlled subsidiary, Chongqing Airlines, to provide a total guarantee not exceeding USD3.632 billion (equivalent to
approximately RMB23.243 billion) to 15 new or SPV established from 1 July 2018 to 30 June 2019. On 16 May 2018, the 2017 annual
general meeting was held by the Company, to consider and pass the above guarantee authorization matter. For details, please refer to
the Announcement of China Southern Airlines Company Limited in relation to the Provision of Guarantee for Wholly-owned Subsidiary and
Poll Result of 2017 Annual General Meeting of China Southern Airlines Company Limited published on China Securities Journal, Shanghai
Securities News and Securities Times and the website of the SSE on 17 May 2018 and 6 June 2018.
As at the date of this report, the Company has established 12 new SPV in total which are China Southern Airlines No. 10, China Southern
Airlines No. 15 to China Southern Airlines No. 20, China Southern Airlines No. 24 to China Southern Airlines No. 27, Chong Qing Airlines
No.1. The company has actually provided guarantees about USD517 million for China Southern Airlines No. 10, about USD311 million for
China Southern Airlines 15, about USD527 million for China Southern Airlines 16, about USD149 million for China Southern Airlines 17, about
USD250 million for China Southern Airlines 18, about USD51 million for China Southern Airlines 19, about USD51 million for China Southern
Airlines 20, about USD76 million for China Southern Airlines 25, about USD159 million for China Southern Airlines 26 and about USD334
million for Chong Qing Airlines No.1. The total guarantee amounts provided for the aforementioned 10 SPV is approximately USD2,424
million (equivalent to approximately RMB16.241 billion, calculated by exchange rate of 1:6.7 of US dollar against RMB), which are within the
scope of the amount of guarantee authorization considered and approved by the 2017 annual general meeting of the Company.Save for the
aforementioned 10 SPV, the Company did not provided guarantees for other SPV within the scope of authorization.
84
ANNUAL REPORT 2018SIGNIFICANT EVENTS
3. Entrusted wealth management
(1) Overall condition entrusted wealth management
Type
Source of funding
Closed-ended and principal-
guaranteed RMB Wealth
Management Product
idle raised fund from the non-
public issuance of A shares
Other conditions
Unit: RMB million
Amount
incurred
Balance not
yet due
Amount due
but not yet
recovered
440
440
/
Apart from the above-mentioned wealth management products, the Company also purchased Seven-day notice
deposit using part of non-public issuance of A shares idle fund. As of the date of disclosure, the above wealth
management products and Seven-day notice deposit have been recovered.
(2) Single entrusted wealth management
trustees
China
Development
Bank
Type of entrusted
wealth management
Closed-ended and
principal-guaranteed
RMB Wealth
Management Product
China
Closed-ended and
Development
Bank
principal-guaranteed
RMB Wealth
Management Product
Amount of
entrusted
wealth
management
Start date
of entrusted
wealth
management
End date of
entrusted
wealth
management
220
21 December
2018
30 January
2019
220
21 December
2018
11 February
2019
Source of funding
the non-public issuance
of A shares idle
raised fund
the non-public issuance
of A shares idle
raised fund
Method to
determine
return
entered into
Agreement
entered into
Agreement
Committed
investment
project
Wealth
management
product in
bank
Wealth
management
product in
bank
Unit: RMB million
Annual rate
of return
Expected
return or
loss
Actual
Income
obtained
Through
a legal
procedure
or no
3.25%
0.7836
obtained
Yes
3.25%
1.0186
obtained
Yes
III. APPOINTMENT AND DISMISSAL OF AUDITORS
At 2017 annual general meeting of the Company held on 15 June 2018, 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 2018 and appointment of KPMG to
provide professional services to the Company for its Hong Kong financial reporting for the year 2018, and authorized the
Board to determine its remuneration.
Name of the domestic accounting firm
Remuneration of the domestic accounting firm (RMB million)
Term of service of the domestic accounting firm
Name of the overseas accounting firm
Accounting firm for audit of internal control
Term of service of the overseas accounting firm
Sponsor
Current
KPMG Huazhen LLP
15.5
3
KPMG
KPMG Huazhen LLP
3
UBS Securities Co., Limited
85
China Southern Airlines Company LimitedSignificant Events
IV. UNDERTAKING
Undertakings given by CSAH, the controlling shareholder of the Company, during the reporting period or existing to the
reporting period are as follow:
Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Long-term
Yes
Yes
Long-term
Yes
Yes
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Undertaking Related to
Other
CSAH
Share Reform
Other Undertaking
Other
CSAH
Upon completion of the Share Reform
Plan, and subject to compliance with the
relevant laws and regulations of the PRC,
CSAH will support the Company in respect
of the formulation and implementation of a
management equity incentive system.
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.
86
ANNUAL REPORT 2018SIGNIFICANT EVENTS
Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Long-term
Yes
Yes
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.
87
China Southern Airlines Company LimitedSignificant Events
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Yes
Yes
Time and term
of undertaking
Before 31
December 2019
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Other Undertaking
CSAH
Solve the issues
in relation to
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
above title certificates should be completed
before 31 December 2019; (2) all the costs
and expenses arising from the application of
the relevant title certificates would be borne
by CSAH; and (3) CSAH would be liable
for all the losses suffered by the Company
as a result of the above two undertakings.
Due to such kind of change of ownership
title requires compliance with the state and
local laws and regulations, and a series of
formalities in relation to the government
approval is required to be attended to,
CSAH has been actively communicating with
the government. However, as at the end of
the reporting period, such undertakings are
still in the course of being implemented.
88
ANNUAL REPORT 2018SIGNIFICANT EVENTS
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Yes
Yes
Time and term
of undertaking
Within six
months
upon the
completion of
the Company’s
Non-public
Issuance
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Other Undertaking
Other
CSAH
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 subscription
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 subscription of Non-
public Issuance of H Shares in cash. The
undertakings made 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 subsidiary, 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.
89
China Southern Airlines Company LimitedSignificant Events
Time and term
of undertaking
Is there a
fulfillment
time limit
Whether
fulfilled
strictly in
time
Long-term
Yes
Yes
Background of
undertaking of CSAH
Type of
undertakings
Undertakings
making party Content of undertakings
Other Undertaking
Other
CSAH
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.
90
ANNUAL REPORT 2018SIGNIFICANT EVENTS
The Board hereby presents this annual report and the audited financial statements for the year ended 31 December 2018
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
2018, 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 2018 in accordance with IFRSs. Please refer to pages 167 to 272 of this
annual report for details.
DIVIDENDS
The Board recommended the payment of a dividend of RMB0.05 (inclusive of applicable tax) per share to the shareholders
for the year ended 31 December 2018, totalling approximately RMB613 million based on the Company’s 12,267,172,286
issued shares. The dividend will be payable in RMB to holders of A share, and in HKD to holders of H shares. A proposal
for the dividend payment will be submitted at the 2018 annual general meeting of the Company for consideration. If
approved, the final dividend is expected to be paid to the shareholders on or before Saturday, 31 August 2019.
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 2018 are set out on page 276 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 36 to the financial
statements prepared under IFRSs.
INTEREST CAPITALISATION
For the year ended 31 December 2018, RMB1,085 million (2017: RMB908 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 2018 are set out in note 19 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 2018.
The sales from the top five customers was RMB1,071 million, representing 0.75% of the total sales in 2018, of which
sales to related parties was RMB0 million.
The Group’s purchases from the largest supplier was RMB17,751 million, representing 22.35% of the Group’s total
purchases in 2018. The purchases from the top five suppliers was RMB35,060 million, representing 44.15% of the total
purchases in 2018, of which purchases from related parties was RMB4,604 million. 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.
91
China Southern Airlines Company LimitedCorporate GovernanceREPORT OF DIRECTORS RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS
The Group understands that it is important to maintain good relationship with its suppliers and customers to fulfill its long-
term goals and maintain the leading position in the market.
The Group continues to improve service quality, and provide customers with world-class service. We continue to
improve in-flight meals and entertainment, improve member service and maintenance; we continue to carry out intelligent
innovation, introduce face recognition, intelligent robots and the construction of “China Southern Airlines e Trip” experience
hall, to achieve the integration of wisdom and service, and continue to improve customer experience. The Company was
named by SKYTRAX as “The World’s Most Improved Airlines”.
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 2018, 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
Shenzhen Cheng Yuan Aviation Oil Co., Ltd.(深圳承遠航空油料有限公司)
Total
Unit: RMB million
Percentage as
total operating
revenue (%)
Operating
revenue
457
197
142
111
164
1,071
Purchase
17,751
11,076
2,633
1,971
1,629
35,060
0.32
0.14
0.10
0.08
0.11
0.75
Unit: RMB million
Percentage as
total purchase
(%)
22.35
13.95
3.32
2.48
2.05
44.15
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.
92
ANNUAL REPORT 2018REPORT OF DIRECTORS
TAXATION
Details of taxation of the Group are set out in notes 16 and 29 to the financial statements prepared under IFRSs.
Enterprise Income Tax of Overseas Non-Resident Enterprises
In accordance with the relevant tax laws and regulations in the PRC, the Company is obliged to withhold and pay
PRC enterprise income tax on behalf of non-resident enterprise shareholders at a tax rate of 10% when the Company
distributes any dividends to non-resident enterprise shareholders. As such, any H Shares of the Company which are
not registered in the name(s) of individual(s) (which, for this purpose, includes shares registered in the name of 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 notes 59 and 49 to the financial
statements prepared under IFRSs.
SUBSIDIARIES
Details of the principal subsidiaries of the Company are set out in note 23 to the financial statements prepared under
IFRSs.
PURCHASE, SALE AND REDEMPTION OF SHARES
Neither the Company nor any of its subsidiaries purchased, sold or redeemed any shares during the year ended 31
December 2018.
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.
93
China Southern Airlines Company LimitedCorporate Governance 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 2018.
THE MODEL CODE
Having made specific enquiries with all the Directors, the Directors have complied with the Model Code as set out in
Appendix 10 to the Listing Rules for the year ended 31 December 2018.
The Company has adopted a code of conduct which is no less stringent than the Model Code regarding securities
transactions of the Directors.
COMPLIANCE WITH THE CODE PROVISIONS OF THE CORPORATE GOVERNANCE
CODE
In the opinion of the Board of the Company, the Group has complied with the code provisions of the Corporate
Governance Code as set out in Appendix 14 to the Listing Rules for the year ended 31 December 2018.
COMPLIANCE WITH LAWS AND REGULATIONS
Laws and regulations that have a significant impact on the operations of the Group include: Civil Aviation Law of the
People’s Republic of China, Opinions of the State Council on Promoting the Development of the Civil Aviation Industry,
Regulation on the Civil Airport Administration, Regulation of the People’s Republic of China on Civil Aviation Security,
Provisions on the Administration of Flight Procedures and Minimum Operation Standards for Civil Airports, Provisions of
the CAAC on the Administration of the Transport of Dangerous Goods by Air, Provisions of China’s Civil Aviation Business
Permits for Domestic Routes and Provisions on the Business License for Public Air Transport Enterprises.
For the year ended 31 December 2018, 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 2018, the Group has complied with laws and regulations that has material effect on the
operation of the Group.
94
ANNUAL REPORT 2018REPORT OF DIRECTORS 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 has kept introducing the new generation of green aircrafts, selected new aero-engines, and adopted
new light and thin seats. Meanwhile, it has improved cockpit and cabin layout, reduced fuel consumption level, and
continued to build a green fleet. It has optimized route layout and path, modified aircrafts and installed shark fin
wings. The Company had independently developed an “Aviation Fuel e-Cloud” data platform to monitor in real time
the aircraft’s fuel consumption data of a flight, such as, planned refueling, actual refueling, fuel consumption in a leg
of a flight and so on, and to provide information support for refined management of aircraft’s fuel consumption and
for improving the efficiency of fuel use.
2. Participation in carbon trading
Participation in carbon trading is an important measure for the aviation industry to implement carbon emission
management and cope with global climate change. China Southern Airlines actively participates in the EU carbon
emission trading of two-point flights within the EU, actively provides cooperation in formulation of relevant technical
rules for carbon trading in Guangdong civil aviation industry, and achieves annual reduction in international and
domestic overall performance costs. In 2018, China Southern Airlines and its Zhuhai company successfully completed
the performance work of carbon trading in Guangdong Province in 2017, and further expanded the surplus of trading
quotas.
3. Ground Emission Reduction
Ground emissions cover all non-flight emissions, including waste water, exhaust gas, noise and harmful and harmless
waste. Although ground emissions are much lower than those from air flights, they also have an impact on the
environment. China Southern Airlines strictly abides by relevant laws and regulations such as the Environmental
Protection Law of the People’s Republic of China, constantly improves the efficiency of water resources use, and
reduces exhaust gas emissions. Furthermore, the Company strives to minimize the environmental impact by digging
deep into potential of ground emission reduction such as strengthening waste management, implementing green
office, etc.
4. Promoting Green Life
While practicing green development, China Southern Airlines also strives to transmit the concept of green to more
public and passengers. In addition, the Company guides the public to cultivate environmental and conservation
awareness and choose a low-carbon, thrifty, and green lifestyle and consumption mode to jointly promote the
sustainable development of human society.
Through electronic service platforms such as “China Southern e-travel", the Company provides one-stop electronic
service for passengers in the whole process. In addition, the Company promotes QR codes boarding service,
electronic invoice and so on, so as to reduce in printing of paper. In 2018, China Southern Airlines provided a total of
614,000 electronic invoices for passenger transport and 7.538 million electronic boarding flights, equivalent to saving
3,261 trees from being felled. China Southern Airlines also promotes electronic freight orders. By the end of 2018,
electronic freight orders have been widely used in 39 departure stations and 137 arrival stations. The usage rate of
electronic freight orders reached 81%. It is estimated that more than 1.5 million paper freight orders will be saved
annually, equivalent to three Canton Tower in height if stacked up.
95
China Southern Airlines Company LimitedCorporate Governance 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 2018 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 2018 was the Company or any of its subsidiaries a party to any
arrangement that would enable the Directors/Supervisors to acquire benefits by means of acquisition of shares in, or
debentures of, the Company or any other body corporate, and none of the Directors/Supervisors or any of their spouses
or children under the age of 18 were granted any right to subscribe for the equity or debt securities of the Company or
any other body corporate or had exercised any such right.
DIRECTORS AND SUPERVISORS’ INTEREST IN COMPETING BUSINESS
As at 31 December 2018, 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 2018.
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 2018 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.
96
ANNUAL REPORT 2018REPORT OF DIRECTORS (2) Continuing Connected Transactions between the Company and CSAH (or their respective
subsidiaries)
A. SACM, which is 40% owned by the Company and 60% owned by CSAH
(a) 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 fee for the media services to be provided
to members of the Group by SACM and its subsidiaries are determined, among others, the prevailing
market price. Pricing are based on prevailing market price and agreed upon between the parties for each
transaction on arm’s length negotiations in accordance with the following pricing mechanism: (a) if there are
prevailing market prices for same or similar types of services in the same or similar locations of the services
being provided, the pricing of the services shall 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 2018, the media fees incurred by the Group for the media services
amounted to RMB105 million.
(b) As the Media Services Framework Agreement expired on 31 December 2018 and the transactions
contemplated under the Media Services Framework Agreement continue to be entered into on a recurring
basis, the Company entered into a new Media Services Framework Agreement on 27 December 2018 with
SACM to renew the media services transaction and extend the term for an additional term of three years,
commencing from 1 January 2019 to 31 December 2021.
The annual caps will be RMB150 million, RMB170 million and RMB190 million (excluding tax) for each of
the financial years ending 31 December 2019, 2020 and 2021, respectively. In particular, the transaction
amounts for in-flight TV and movie program agency services are expected to increase annually by 15%
since the Company has fully entrusted SACM to purchase all in-flight TV and movie programs and are
committed to the improvement of quality. An annual growth of 10% reflecting the increases in number of
flights and number of passengers are also factored into when ascertaining the transaction amounts for the
newly-added media printing, production and procurement services.
The service fee for the media services to be provided by SACM Group are determined, among others, the
prevailing market price. Pricing are based on prevailing market price and agreed upon between the parties
for each transaction on arm’s length negotiations in accordance with the following pricing mechanism: (a)
if there are prevailing market prices for same or similar types of services in the same or similar locations
of the services being provided, the pricing of the services shall be on terms which are no less favourable
than the terms which can be obtained from independent third parties; or (b) if there are no such prevailing
market price in the same or similar locations, the service to be provided by SACM Group shall be on terms
which are no less favourable than the terms which can be obtained by the Group from independent third
parties within the PRC market. The Company will satisfy the service fee by its internal resources.
97
China Southern Airlines Company LimitedCorporate Governance 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 8 November 2013 for
a term of three years and contain the insurance business platform services provided by the Group to Finance
Company under the Cooperation Framework Agreement entered into by the Company and Finance Company
on 19 November 2015. The term of the Agreement is three years, starting from 1 January 2017 to 31 December
2019.
Under such agreement, financial services provided by the Finance Company to the Group including deposit
services (“Deposit Services”), loan services (“Loan Services”) and other financial services (“other financial
services”). Both parties agreed that: (1) the Finance Company shall accept deposit of money from the Group
at interest rates not lower than interest rate set by the PBOC for the same term of deposit. The Finance
Company will in turn deposit the whole of such sums of money deposited by the Group with it with state-owned
commercial banks and listed commercial banks; (2) The Finance Company shall make loans or provide credit
line services to the Group and the entering into of separate loan agreements upon application by the Company
during the term of the New Financial Services Framework Agreement, and the Finance Company shall not
charge interest rates higher than the interest rate set by the PBOC for the same term of loans. The total amount
of outstanding loans extended by the Finance Company to the CSAH Group (excluding the Group) must not
exceed the sum of the Finance Company’s shareholders’ equity, capital reserves and money deposit received
from other parties (except the Group); (3) Upon request by the Company, the Finance Company shall also
provide other financial services to the Group, including financial and financing consultation, credit certification and
other relevant advice and agency services, insurance agency services, and other businesses which are approved
by China Banking Regulatory Commission to be operated by the Finance Company by entering into of separate
agreements. In relation to the insurance business platform services arrangements under the New Financial
Services Framework Agreement, as the platform service provider, the Company agreed to cooperate with the
Finance Company, and authorize Finance Company to use each platform of the Group (including electronic
platforms and ground service counter channels) as the sales platforms for sale of various insurances relating to
aviation transportation (including baggage insurance and aviation passenger accident insurance). For the sale of
insurance policies through the Group’s ground service counter channels and its electronic platforms, the Group
is currently charging a fixed ratio of the insurance premium of each of the different kinds of insurance policies.
The pricing model has been agreed on an arm’s length basis by the Company and the Finance Company with
reference to the determination basis as set out in the table disclosed in the Company’s announcement dated 29
August 2016.
The rates should be determined on an arm’s length basis and based on fair market rate, and should not be
higher than those available from independent third parties. 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 the financial year ending 31 December 2019. On 16
December 2016, the extraordinary general meeting of the Company considered and approved the New Financial
Services Framework Agreement.
98
ANNUAL REPORT 2018REPORT OF DIRECTORS In light of the increase in the amount of deposits actually required to be placed by the Group with the Finance
Company exceeds the original projection, the original cap will no longer be sufficient to cover the maximum daily
balance of the deposits to be placed by the Group with the Finance Company during the remaining term of the
New Financial Services Framework Agreement. Accordingly, the Company and the Finance Company entered
into a supplemental agreement to the Financial Services Framework Agreement (“Supplemental Agreement”)
on 27 April 2018 to revise the cap for the period from the effective date of the Supplemental Agreement to
31 December 2019 from RMB8 billion to RMB10 billion. On 15 June 2018, the Supplemental Agreement was
considered and approved at annual general meeting. For details, please see the Company’s circular dated 18
May 2018 and announcement dated 15 June 2018.
As of 31 December 2018, the Group’s deposits placed with the Finance Company amounted to RMB5,583
million. The service fee received by the Group amounted to RMB20 million for the year ended 31 December
2018.
C. GSC, a wholly-owned subsidiary of CSAH
On 16 December 2016, the Company entered into a Passenger and Cargo Sales and Ground Services
Framework Agreement (the “Passenger and Cargo Sales and Ground Services Framework Agreement”) for a
term of three years starting from 1 January 2017 to 31 December 2019. Under Passenger and Cargo Sales
and Ground Services Framework Agreement, GSC agreed to provide certain services and charge agent
service fee while the Company agreed to lease certain assets including transportation tools and equipment and
workplace and charge rental thereon. GSC agrees to provide the following services to the Group: (i) domestic
and international air ticket sales agency services; (ii) domestic and international airfreight forwarding sales agency
services; (iii) chartered flight and pallets sales agency services; (iv) import and export port and transfer services
related to cargo operations; (v) ground services, including aircraft maintenance, cabin cleaning, cleaning,
collecting and issuing of towels, entertaining equipment maintenance within aircraft, surface cleaning of aircraft
and comprehensive ground services; and (vi) support to sales and services oriented to major direct customers
of the Company. In respect of the services provided by GSC to the Group, the agency fee for sales agency
services is determined by reference to the agency ratio paid to the agency companies by the airlines companies
of the same types of the industry in the same regions (including domestic and foreign market). The service fee
for internal operation services is determined by the fee standard prescribed by the local government. The service
fee for other maintenance and ground services is mainly determined based on related costs (mainly including
labor costs, operation costs, management costs and taxes) in addition to 10% profit ratio. With respect to the
rentals to be received by the Company, rentals are determined with reference to the valuation prepared by
valuation agency (independent third party). The Company expects the annual fees payable to the 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 2018, agency fees, service fee and transportation fee paid to, rental
income and extended transportation services received from GSC by the Group was RMB111 million, RMB14
million, RMB10 million and RMB4 million, respectively.
99
China Southern Airlines Company LimitedCorporate Governance D. CSAGPMC, a wholly-owned subsidiary of CSAH
The Company has entered into the new Property Management Framework Agreement (the “Property
Management Framework Agreement”) with CSAGPMC on 19 December 2017 for a term of three years from 1
January 2018 to 31 December 2020 to renew the property management transactions. Pursuant to the Property
Management Framework Agreement, the Company has renewed the appointment of CSAGPMC for the provision
of property management and maintenance services for the Company’s properties at the old Baiyun Airport
and the new Baiyun International Airport and surrounding in Guangzhou, the Company’s leased properties in
the airport terminal at new Baiyun International Airport, the base and the 110KV transformer substation at the
new Baiyun International Airport to ensure the ideal working conditions of the Company’s production and office
facilities and physical environment, and the normal operation of equipment and for the provision of the property
management and maintenance services for the power transformation and distribution equipment at Guangzhou
cargo terminal, and the provision of the electricity charge agency services. In addition, the scope of the property
under the Property Management Framework Agreement has been reviewed and adjusted.
The annual cap for management and maintenance services fee payable pursuant to the new Property
Management Framework Agreement is set at RMB155 million for each of the three years ending 31 December
2018, 2019 and 2020, respectively. The annual cap was determined at an arm’s length negotiation between
both parties with reference to (i) the original annual caps, the actual transaction amount for 2015 and 2016,
and the expected transaction amount for 2017 which will possible nearly reach the original annual cap; (ii) the
substantial increase in the labour cost; and (iii) the expected substantial increase in the coverage of properties,
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.
For the year ended 31 December 2018, the property management and maintenance fee incurred by the Group
amounted to RMB106 million pursuant to the Property Management Framework Agreement.
E. SACC, which is 50.1% owned by CSAH
(a) 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 ended 31 December
2016, 2017 and 2018 is RMB152 million, RMB175 million and RMB201 million, respectively.
For the year ended 31 December 2018, the service fee paid by the Group to SACC amounted to RMB135
million.
100
ANNUAL REPORT 2018REPORT OF DIRECTORS (b) As the existing Catering Services Framework Agreement expired on 31 December 2018 and the
transactions contemplated under the existing Catering Services Framework Agreement continue to
be entered into on a recurring basis, the Company entered into a new Catering Services Framework
Agreement (the “New Catering Services Framework Agreement”) on 27 December 2018 with SACC
to renew the catering services transaction and extend the term for an additional term of three years,
commencing from 1 January 2019 to 31 December 2021.
The annual caps for the Catering Services Framework Agreement shall be RMB231 million, RMB266 million
and RMB306 million for each of the three financial years ending 31 December 2019, 2020 and 2021,
respectively. The proposed annual caps were determined at an arm’s length basis between both parties
by reference to historical figures as disclosed above, the estimated flight growth in the next three financial
years and the natural market growth. In particular, according to the data released by the CAAC, the growth
rate of passenger traffic in China in 2017 was 13%. The number of inbound and outbound flights operated
by the Company at Shenzhen Airport is estimated to continue to increase in 2019 to 2021, accordingly,
the demand for in-flight meals and supplies will also increase. Secondly, the labor costs in Shenzhen has
increased annually. The average annual growth rate of the minimum wage in Shenzhen from 2014 to 2018
was approximately 6.7%. At the same time, the Company takes into consideration a buffer to cater for
future growth given the historical figures and possible changes in the standard of in-flight meals.
The service fee for new catering services transaction mainly include four parts, i.e. in-flight meal boxes fees,
service fee, in-flight supply service fee and storage management fees. The in-flight meal boxes fees are
the main charging item, the determination of which is in accordance with raw material costs, labor costs,
management fees, tax and fixed profit rate in the corresponding proportions of 35%, 35%, 10%, 10% and
10%, respectively. Other charges will be determined based on applicable items such as rental, labor costs,
facilities depreciation costs and management fees. For the labor costs, it will be determined by reference to
the average wage of the previous year issued by the Shenzhen Municipal Government. The various service
fee charged by SACC should not be higher than the fees charged by any independent third parties in the
similar locations providing similar services. The Company will fund the services fee wholly by its internal
resources.
F. MTU which is 50% owned by CSAH before 28 August 2018
The Company entered into an agreement relating to continuing connected transactions with CSAH, MTU Aero
Engines GmbH (“MTU GmbH”) and MTU on 28 September 2009, by which 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 MTU according to related
charging standard. The agreement is effective from its effective date to 5 April 2031.
For the year ended 28 August 2018, the Group’s engine repair and maintenance service fee incurred under the
agreement amounted to RMB1,184 million.
As of 28 August 2018, CSAH has completed the registration for the transfer of its 50.00% equity interest
in MTU to the Company. For details, please refer to the Company’s circular dated 22 September 2017 and
announcement dated 27 September 2018.
101
China Southern Airlines Company LimitedCorporate Governance (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. The Company and CSAH entered into the new Asset Lease Framework Agreement (the “Asset Lease
Framework Agreement”) on 26 January 2018 for a term of three years commencing from 1 January 2018 to
31 December 2020 to continue the asset lease transactions originally covered under the original Asset Lease
Agreement. Pursuant to the new Asset Lease Framework Agreement, CSAH has agreed to continue to lease
to the Company certain buildings, land and equipment assets at existing locations in Guangzhou, Wuhan,
Changsha, Haikou, Zhanjiang and Nanyang. The annual cap for rent payable pursuant to the new Asset Lease
Framework Agreement is set at RMB116 million. The annual cap was determined after arm’s length negotiation
by the parties and with reference to (i) rental assessment report with the valuation date on 30 June 2017
prepared by Pan-China Assets Appraisal Co., Ltd. (北京天健興業資產評估有限公司); and (ii) the historical annual
rent paid and the annual cap.
For the year ended 31 December 2018, the rent incurred by the Group amounted to RMB90 million pursuant to
the Asset Lease Agreement.
B. The Company and CSAH entered into an indemnification agreement dated 22 May 1997 in which CSAH has
agreed to indemnify the Company against any loss or damage caused by or arising from any challenge of, or
interference with, the Company’s right to use certain lands and buildings.
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 2018, the rents for property lease and land lease incurred by the Company
amounted to RMB32 million and RMB66 million, respectively pursuant to the Property and Land Lease
Framework Agreement.
102
ANNUAL REPORT 2018REPORT OF DIRECTORS D. On 27 April 2017, the Company entered into a finance lease agreement in relation to one Airbus A321 aircraft
(“A321 Finance Lease Agreement”) and a finance lease agreement in relation to one Airbus A330 aircraft (“A330
Finance Lease Agreement”) with Guangzhou Nansha CSA Tianru Leasing Co., Ltd. (“CSA Leasing Company”),
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 2018, the transaction fees paid by the Company to CSA Leasing Company
under the A321 Finance Lease Agreement and A330 Finance Lease Agreement was RMB1,166 million in total
(include the principal, interest payable and handling fee).
E. On 17 October 2017, the Company entered into the 2018-2019 Finance and Lease Service Framework
Agreement (“2018-2019 Finance and Lease Service Framework Agreement”) with CSA International Finance
Leasing Co., Ltd. ("CSA International") 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.
103
China Southern Airlines Company LimitedCorporate Governance
(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 year ended 31
December 2018 and the year ending 31 December 2019 is US$2,621 million and US$3,126 million.
For the year ended 31 December 2018, the transaction amounts of the Finance Lease transaction paid by the
Company under the 2018-2019 Finance and Lease Service Framework Agreement was RMB8,221 million.
(b) Subject matter under the Operating Lease Transactions under the 2018-2019 Finance and Lease Service
Framework Agreement contains the aircraft and engines in the Company’s introduction plan through operating
lease from 1 January 2018 to 31 December 2019. The rental fee will be further determined and agreed by the
Company and CSA International with reference to the results of the Company’s requests for proposals or other
bidding processes in respect of leasing of aircraft and engines satisfying certain prerequisites.
104
ANNUAL REPORT 2018REPORT OF DIRECTORS During the lease period, the Company have ownerships of the aircraft and engines and CSA International 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 year ended 31 December 2018 and the year ending 31 December 2019 is
US$150 million and US$240 million.
For the year ended 31 December 2018, the rental fee of the operating Lease transaction paid by the Company
under the 2018-2019 Finance and Lease Service Framework Agreement was RMB91 million.
F. On 19 January 2018, the Company has entered into the CSA Building Asset Lease Agreement (“Building Asset
Lease Agreement”) with Guangzhou Southern Airlines Construction Company Limited (“GSAC”, a wholly-owned
subsidiary of CSAH through itself and its wholly-owned subsidiaries) for a term of three years commencing from
19 January 2018 to 18 January 2021. Pursuant to the Building Asset Lease Agreement, GSAC has agreed to
lease to (i) certain offices at floors 1-10, 12 and 17-36 in CSA Building located at West Side of Yuncheng East
Road, Baiyun Xincheng, Baiyun District, Guangzhou with an aggregate gross floor area of not exceeding 88,396
square meters at an annual rental of not exceeding RMB159,112,800; and (ii) 550 parking lots in CSA Building
at an annual rental of not exceeding RMB5,520,000. The annual rental was determined after arm’s length
negotiation by the parties, and the annual rental for the offices was adjusted with reference to real property rental
assessment report prepared by Shenzhen Cushman & Wakefield Land & Property Appraisal Co., Ltd. (深圳市
戴德梁行土地房地產評估有限公司) taking into account the nature and development of the surrounding areas,
the transportation condition, the prevailing market rental for office buildings located at Guangzhou and similar
locations. For the year ended 31 December 2018 and each of the two years ending 31 December 2019 and 31
December 2020, the Group’s maximum rental payable to GSAC under the Building Asset Lease Agreement will
be no more than RMB156,513,922, RMB164,632,800 and RMB164,632,800, respectively.
For the year ended 31 December 2018, the rental fee paid by the Company under Building Asset Lease
Agreement to Southern Airlines Construction was RMB106 million.
G. On 16 March 2018, the Company entered into the Aircraft Sale and Leaseback Agreement with Guangzhou
Nansha CSA Tianshui Leasing Co., Ltd (“Guangzhou Tianshui”, an indirect wholly-owned subsidiary of CSAH)
to carry out the aircraft sale transaction in relation to 14 A320 aircraft (“14 Aircraft”). The 14 Aircraft are used
for air transportation of passengers after introduction by the Company. The 14 Aircraft will be leased by
Guangzhou Tianshui to the Company with rental fee payable as RMB687,000 per aircraft per month for various
terms ranging from 8 to 22 months, which constitute part of the Operating Lease Transactions under the 2018-
2019 Finance and Lease Service Framework Agreement. The annual aggregate rental fee for 2018 and 2019 is
estimated to be RMB107.895 million and RMB55.647 million, respectively.
The consideration for the 14 Aircraft of RMB371 million was determined after arm’s length negotiations between
the Company and Guangzhou Tianshui with reference to the actual conditions of the 14 Aircraft and the
valuation prepared by China United Assets Appraisal Group Co., Ltd.. For details, please refer to the Company’s
announcement dated 16 March 2018.
105
China Southern Airlines Company LimitedCorporate Governance H. On 23 November 2018, Chongqing Airlines Company Limited (“Chongqing Airlines”), a subsidiary of the
Company, entered into the Aircraft Sale and Leaseback Agreement with Guangzhou Yunde Aircraft Leasing Co.,
Ltd. (“Guangzhou Yunde”) to carry out the sale transaction in relation to 4 A320 aircraft (“4 Aircraft”). Chongqing
Airlines introduced the 4 Aircraft for air transportation of passengers, three of which are still in use and one is
grounded and retired. The 4 Aircraft will be leased by Guangzhou Yunde to Chongqing Airlines with rental fee
payable as RMB687,000 per aircraft per month for a term of 3 months, which constitute part of the operating
lease transactions under the 2018-2019 Finance and Lease Service Framework Agreement. The aggregate
rental fee is estimated to be RMB2.061 million.
The consideration for the 4 Aircraft of RMB121.31 million was determined after arm’s length negotiations
between the Company and Guangzhou Yunde with reference to the actual conditions, technical conditions
and status of depreciation of the 4 Aircraft and the pricing information of aircraft of similar age published by
the international aircraft price consulting firm AVITAS, Inc., as well as the valuation of the 4 Aircraft prepared by
China United Assets Appraisal Group Co., Ltd. as mentioned above. For details, please refer to the Company’s
announcement dated 23 November 2018.
(5) 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, 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 (a wholly-owned subsidiary of CSAH) 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 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 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.
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 A Share Issuance and H Share Issuance is subject to
the approval from CSRC.
106
ANNUAL REPORT 2018REPORT OF DIRECTORS On 15 November 2017, the Company received the “CSRC’s Acceptance Notice of the Application for Administration
Permission” (No. 172237) (《中國證監會行政許可受理通知書》172237號) issued by the CSRC. Pursuant to the
Acceptance Notice, CSRC reviewed the administrative permission application materials submitted by the Company,
i.e. China Southern Airlines Company Limited’s Application for Permission of Non-public Issuance of New Shares by
Listed Company and considered the application materials had complied with the statutory form in accordance with
laws, and it has decided to accept such application for administrative permission for further processing.
On 21 November 2017, the Company received the “CSRC’s Acceptance Notice of the Application for Administration
Permission” (No. 172240) (《中國證監會行政許可受理通知書》172240号) issued by the CSRC. Pursuant to the
Acceptance Notice, CSRC considered the application materials for the Non-public Issuance of H Shares had
complied with the statutory form in accordance with laws, and it has decided to accept such application for
administrative permission for further processing.
On 16 March 2018, the Company has received the Approval on Non-public Issuance of Overseas Listed Foreign
Shares by China Southern Airlines Company Limited (Zheng Jian Xu Ke [2018] No. 431) (《關於核准中國南方航空股份
有限公司非公開發行境外上市外資股的批復》(證監許可[2018]431號)) issued by the CSRC. Pursuant to such approval,
the CSRC has approved the Company to issue new overseas listed foreign shares of not more than 600,925,925
shares, all of which are ordinary shares with the nominal value of RMB1 per share.
On 7 May 2018, the Issuance Examination Committee of the CSRC reviewed the application for the Non-public
Issuance of A Shares. According to the review results, the Company’s application for the Non-public Issuance of A
Shares was approved.
On 16 August 2018, the Company received the “Approval on the Non-Public Issuance of Shares of China Southern
Airlines Company Limited” (Zheng Jian Xu Ke [2018] No. 1235) issued by the CSRC. According to the approval, the
CSRC has approved the Company’s non-public issuance of not more than 1.8 billion new A shares. The issuance
of shares shall be implemented in strict compliance with the application documents submitted to the CSRC by the
Company.
On 30 August 2018, as the 2017 profit distribution plan of the Company has been completed, the issue price of the
H Shares Issuance was adjusted to HK$6.034 per H Share. H Shares to be issued after the adjustment will be no
more than 613,075,903 H Shares (including 613,075,903 H Shares) based on the adjusted issue price of HK$6.034
per H Share.
On 11 September 2018, the Company issued 600,925,925 H Shares in total to Nan Lung at the issue price of
HK$6.034.
Gross proceeds and the use of proceeds from H Shares Issuance:
Gross proceeds
from H Shares
Issuance (HKD)
Intended use of the
proceeds as previously
disclosed
3,625,987,031.45 supplement of general working
capital
Utilized proceeds
as of 31
December 2018
(HK$)
Unutilized
proceeds as of 31
December 2018
(HK$)
Expected timeline
for the use
of unutilized
proceeds
3,623,577,031.45
374,288.83
May 2019
Note: The total amounts of funds raised from Non-public Issuance of H shares is HK$3,625,987,031.45. As of 31 December
2018, the raised funds of HK$3,625,612,742.62 have been used, including the supplementary general working capital of
HK$3,623,577,031.45 and the payment of issuing fees and handling fees of HK$2,035,711.17. The remaining unused funds
raised was HK$374,288.83.
107
China Southern Airlines Company LimitedCorporate Governance
On 27 September 2018, the Company issued 1,578,073,089 A Shares in total at the issue price of RMB6.02 per A
Share, raising gross proceeds and net proceeds of RMB9,499,999,995.78 and RMB9,488,178,222.86, respectively.
Number of A shares subscribed:
No.
Placee(s)
1
2
3
4
5
6
7
CSAH
China National Aviation Fuel Group Corporation
Spring Airlines Co., Ltd.
Guo Xin Central Enterprise Operation (Guangzhou) Investment
Fund (LLP)
China Structural Reform Fund Co., Ltd.
Hotland Innovation Asset Management Co., Ltd.
China Life Asset Management Company Limited
Gross proceeds and the use of proceeds from A Shares Issuance:
Number of Shares
Subscribed
(Share)
Subscription
amount (RMB)
489,202,658
498,338,870
140,531,561
2,945,000,001.16
2,999,999,997.40
845,999,997.22
121,262,458
242,524,916
68,106,312
18,106,314
729,999,997.16
1,459,999,994.32
409,999,998.24
109,000,010.28
Gross proceeds
from A Shares
Issuance (RMB)
Intended use of the proceeds
as previously disclosed
9,499,999,995.78 1. The project for introducing 41
aircraft
Utilized proceeds
as of 31 December
2018 (RMB)
Unutilized proceeds
as of 31 December
2018 (RMB)
6,844,048,661.10
902,938,302.38
2. The project for selection and
installation of lightweight seats
for A320 series aircraft
Expected timeline
for the use
of unutilized
proceeds
It is expected that
the unutilized
proceeds will be
used in full in
2019 and subject
to changes due to
the delivery time
of aircraft which
depends on the
actual capital
payment
Note: The total amounts of funds raised from Non-public Issuance of A shares were RMB9,499,999,995.78, and the total amounts
of cash raised was RMB7,758,919,995.78. After deducting the underwriting expenses, the net cash subscription amount
actually received was RMB7,748,254,995.79. the net cash subscription amounts (net of other issuance expenses (including
VAT) paid by the Company and bank handling fee) was RMB1,268,032.31 in total, the actual net proceeds raised was
RMB7,746,986,963.48. As of 31 December 2018, RMB6,844,048,661.10 has been invested into the intended use of the
proceeds as previously disclosed and the remaining funds raised was RMB902,938,302.38.
108
ANNUAL REPORT 2018REPORT OF DIRECTORS
(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 Airlines 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 Property was delivered on 28 September 2018.
(7) Acquisition of Customised Property in the PRC
On 24 December 2018, the Company, as purchaser (“Purchaser”), entered into the Sale and Purchase Agreement
with Zhuhai China Southern Air Real Property Development Co., Ltd., as vendor (“Vendor”), pursuant to which the
Purchaser agreed to purchase the 1st to 42th floor and the basement of the hotel building A1 under the Zhuhai
International Civil Aviation Standard Service Development and Training Centre Project to be constructed on the
western side of the northern part of Lot No. 36 of Zhuhai Free Trade Zone, Zhuhai City, the PRC (“Customised
Property”) with a planned floor area of approximately 60,927.8 square meters at a total consideration of not more
than RMB798,560,000 (subject to tax assessment). The Customised Property is constructed to provide logistics
support to pilots who receive training at Zhuhai Xiangyi.
The consideration for the Customised Property Acquisition was determined after arm’s length negotiations between
the Company and the Vendor, with reference to: (i) the prevailing selling prices of office buildings or apartments
located in the same areas in Zhuhai, which ranges from RMB20,000 per square meter to RMB25,000 per square
meter, as there is no hotel for sale or sold in the relevant areas in Zhuhai; and (ii) results of applying the cost-plus
pricing approach (including the project development costs and expenses, tax estimation and the cost-profit margin at
the rate of 8% to 15%). The Company intends to satisfy the consideration by its internal resources.
109
China Southern Airlines Company LimitedCorporate Governance The Vendor is a company indirectly owned as to 49% by CSAH. CSAH is the controlling shareholder of the Company
and is therefore a connected person of the Company under the Listing Rules. As the Vendor is an associate of
CSAH, the Vendor is also a connected person of the Company under the Listing Rules. Accordingly, the transaction
contemplated under the Sale and Purchase Agreement constitutes a connected transaction of the Company under
Chapter 14A of the Listing Rules.
Since the Customised Property is situated next to Zhuhai Xiangyi, the Company believes that the purchase of the
Customised Property can better meet the needs of the pilots who receive training at Zhuhai Xiangyi by providing
convenient accommodation, improving the rest and training qualities for the pilots and reducing potential safety risks.
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 2018 has followed the pricing principles of
such continuing connected transactions.
The independent non-executive Directors of the Company have confirmed to the Board that they have reviewed all
non-exempt continuing connected transactions and are of the view that:
(a)
those transactions were conducted in the ordinary and usual course of business of the Group;
(b)
those transactions were entered into on normal commercial terms or better; and
(c)
those transactions were conducted in accordance with the relevant agreement governing them on terms that
were fair and reasonable and in the interests of the shareholders of the Company as a whole.
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 (Revised) “Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter
on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of
Certified Public Accountants. The auditor has issued their unqualified letter containing their conclusions in respect of
the above-mentioned continuing connected transactions in accordance with the Rule 14A.56 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 those 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 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 disclosed in the announcement previously issued.
Certain related party transactions as disclosed in note 51 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.
110
ANNUAL REPORT 2018REPORT OF DIRECTORS DONATIONS
For the year ended 31 December 2018, the Group made donations for charitable purposes amounting to RMB17.23
million.
DESIGNATED DEPOSITS AND OVERDUE TIME DEPOSITS
As at 31 December 2018, 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 54 to the annual report, as at 31 December 2018, the Group was not involved in any material
litigation.
SUBSEQUENT EVENTS
On 29 March 2019, the Board of the Company proposed a final dividend of RMB0.05 per share (inclusive of applicable
tax), amounting to a total dividend of RMB613 million. The dividend payment proposal is subject to shareholders’ approval
at the general meeting. The dividend proposed after the end of the financial year has not been recognised as a liability at
the end of the financial year.
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 reportings for the year 2019 and KPMG to provide professional services to the Company for its Hong
Kong financial reporting for the year 2019.
By order of the Board
Wang Chang Shun
Chairman
Guangzhou, the PRC
29 March 2019
111
China Southern Airlines Company LimitedCorporate Governance I. CHANGE IN SHARE CAPITAL
(I) Changes in Shareholdings
31 December 2017
Increase/
(decrease)
in 2018
31 December 2018
Number of Shares
Percentage (%) Number of Shares Number of Shares
Percentage (%)
Unit: Share
I.
1.
2.
II.
1.
2.
III.
Shares subject to restrictions
on sales
RMB ordinary shares
Overseas listed foreign shares
Total
Shares not subject to
restrictions on sales
RMB ordinary shares
Overseas listed foreign shares
Total
Total number of shares
0
0
0
0
0
0
1,578,073,089
600,925,925
2,178,999,014
1,578,073,089
600,925,925
2,178,999,014
7,022,650,000
3,065,523,272
10,088,173,272
10,088,173,272
69.61
30.39
100
100
0
0
0
2,178,999,014
7,022,650,000
3,065,523,272
10,088,173,273
12,267,172,286
12.86
4.90
17.76
57.25
24.99
82.24
100
During the reporting period, the Company published the “Announcement in relation to the completion of issuance
of H shares by the Company to Nan Lung Holding Limited” on 11 September 2018. The Company completed the
issuance of 600,925,925 H shares to Nan Lung Holding Limited according to the subscription agreement, at the
issue price of HKD6.034 per share. 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
12 September 2018 for details.
On 27 September 2018, the Company published the “Announcement on results of non-public issuance of A shares
by the Company and change in shareholdings”. The Company, according to the issuance proposal, issued by way
of non-public issuance, 1,578,073,089 domestically listed RMB ordinary shares (A shares), at the issue price of
RMB6.02 per share, to a total of seven investors, including CSAH, China National Aviation Fuel Group Corporation,
Spring Airlines Co., Ltd., Guo Xin Central Enterprise Operation (Guangzhou) Investment Fund (LLP), China Structural
Reform Fund Co., Ltd., Hotland Innovation Asset Management Co., Ltd. and China Life Asset Management Company
Limited, with a total proceeds of RMB9,499,999,995.78. 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 28 September 2018 for details.
112
ANNUAL REPORT 2018CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTS
(II) Changes in Shares subject to Lock-up
Number of
shares subject
to lock-up at
the beginning
of the year
Number
of shares
unlocked
during the
year
Name of the shareholder
Nan Lung
China Southern Air Holding
Limited Company
China National Aviation Fuel
Group Corporation
China Structural Reform Fund
Co., Ltd.
Spring Airlines Co., Ltd.
Guo Xin Central Enterprise
Operation (Guangzhou)
Investment Fund (LLP)
Hotland Innovation Asset
Management Co., Ltd.
China Life Asset Management
Company Limited
Total
0
0
0
0
0
0
0
0
0
Increase in
the number of
shares subject
to lock-up
during the
year
600,925,925
Number of
shares subject
to lock-up at
the end of the
year Reasons for lock-up
Unit: share
Date of
unlocking
600,925,925 Non-public Issuance of
Shares undertakings
10 September
2021
489,202,658
489,202,658 Non-public Issuance
27 September
of Shares subject to
Lock-up
2021
498,338,870
498,338,870 Non-public Issuance
26 September
of Shares subject to
Lock-up
2019
242,524,916
242,524,916 Non-public Issuance
26 September
of Shares subject to
Lock-up
2019
140,531,561
140,531,561 Non-public Issuance
26 September
of Shares subject to
Lock-up
2019
121,262,458
121,262,458 Non-public Issuance
26 September
of Shares subject to
Lock-up
2019
68,106,312
68,106,312 Non-public Issuance
26 September
of Shares subject to
Lock-up
2019
18,106,314
18,106,314 Non-public Issuance
26 September
of Shares subject to
Lock-up
2019
0
0
0
0
0
0
0
0
0
2,178,999,014
2,178,999,014 /
/
113
China Southern Airlines Company LimitedCorporate Governance
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
HK$5.74/per share
270,606,272 10 August 2017
270,606,272
Overseas listed foreign shares
11 September 2018 HK$6.034/per share
600,925,925 11 September 2018
600,925,925
(H share)
RMB ordinary shares
12 September 2018
RMB6.02/per share
1,578,073,089 27 September 2018
1,578,073,089
/
/
/
(A share)
Convertible corporate
bonds, bonds with
detachable warrants
and corporate bonds
Corporate Bonds (18 China
Southern Airlines 01)
Other derivatives
The first tranche of Ultra-
short-term Financing Bills
of the Company in 2017
27 November 2018
3.92%
RMB2.0 billion 12 December 2018
RMB2.0 billion 26 November 2021
16 February 2017
3.70%
RMB1.0 billion 21 February 2017
RMB1.0 billion 17 November 2017
The first tranche of Ultra-
21 May 2018
3.70%
RMB0.5 billion 24 May 2018
RMB0.5 billion
21 August 2018
short-term Financing Bills
of the Company in 2018
The second tranche of Ultra-
short-term Financing Bills
of the Company in 2018
The third tranche of Ultra-
short-term Financing Bills
of the Company in 2018
The fourth tranche of Ultra-
short-term Financing Bills
of the Company in 2018
24 May 2018
3.10%
RMB0.5 billion 28 May 2018
RMB0.5 billion
24 June 2018
25 May 2018
3.30%
RMB0.5 billion 29 May 2018
RMB0.5 billion
6 August 2018
25 October 2018
3.25%
RMB1.5 billion 30 October 2018
RMB1.5 billion
26 July 2019
The fifth tranche of Ultra-
26 October 2018
2.60%
RMB1.0 billion 30 October 2018
RMB1.0 billion
27 January 2019
short-term Financing Bills
of the Company in 2018
The sixth tranche of Ultra-
short-term Financing Bills
of the Company in 2018
The seventh tranche of Ultra-
short-term Financing Bills
of the Company in 2018
26 October 2018
3.08%
RMB1.0 billion 30 October 2018
RMB1.0 billion
27 April 2019
30 October 2018
3.10%
RMB0.5 billion 1 November 2018
RMB0.5 billion
29 April 2019
114
ANNUAL REPORT 2018CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTS
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 215,108. As at 28
February 2019, total number of ordinary shareholders of the Company was 195,106.
(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
Pledged or frozen
Status
Number
Capacity
Unit: share
Name of the shareholder (in full)
China Southern Air Holding Limited
489,202,658
4,528,431,323
36.92
489,202,658
Nil
Company
HKSCC (Nominees) Limited
1,217,920
1,750,929,908
14.27
0
Unknown
Nan Lung Holding Limited
600,925,925
1,634,575,925
13.32
600,925,925
China National Aviation Fuel Group
498,338,870
498,338,870
4.06
498,338,870
Corporation
Hong Kong Securities Clearing Company
457,025,017
483,433,236
Limited
China Securities Finance Corporation
(81,123,784)
320,484,156
Limited
American Airlines
0
270,606,272
3.94
2.61
2.21
0
0
0
China Structural Reform Fund Co., Ltd.
242,524,916
242,524,916
1.98
242,524,916
Spring Airlines Co., Ltd.
140,531,561
140,531,561
1.15
140,531,561
121,262,458
121,262,458
0.99
121,262,458
Guo Xin Central Enterprise Operation
Investment Fund Management
(Guangzhou) Co., Ltd. – Guo Xin Central
Enterprise Operation (Guangzhou)
Investment Fund (LLP)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
0 Stated-owned
legal entity
– Overseas legal
entity
0 Stated-owned
legal entity
0 Stated-owned
legal entity
0 Overseas legal
entity
0 Stated-owned
legal entity
0 Overseas legal
entity
0 Stated-owned
legal entity
0 Domestic non-
stated-
owned legal
entity
0 Domestic non-
stated-
owned legal
entity
115
China Southern Airlines Company LimitedCorporate Governance
2. Particulars of the top ten shareholders not subject to trading restrictions
Unit: Share
Particulars of the top ten shareholders holding the Company’s shares
not subject to trading restrictions
Number of
tradable shares
not subject to
Type and number of shares
Name of Shareholder
trading restriction Type
China Southern Air Holding Limited Company
HKSCC (Nominees) Limited
Nan Lung
4,039,228,665 RMB ordinary shares
1,750,929,908 Overseas listed
foreign shares
1,033,650,000 Overseas listed
foreign shares
Number
4,039,228,665
1,750,929,908
1,033,650,000
Hong Kong Securities Clearing Company
483,433,236 RMB ordinary shares
483,433,236
Limited
China Securities Finance Corporation Limited
American Airlines
National Social Security Fund 118
Central Huijin Investment Ltd.
Zhong Hang Xin Gang Guarantee Co., Ltd.
China Life Insurance Co., Ltd. – Dividend –
Personal Dividend – 005L-FH002 Shanghai
Explanation of the connected relationship or
acting in concert relationship of the above
shareholders
Explanation of the preference shareholders
with restored voting rights and its number
of shares
320,484,156 RMB ordinary shares
270,606,272 Overseas listed
foreign shares
92,595,542 RMB ordinary shares
64,510,900 RMB ordinary shares
57,528,800 RMB ordinary shares
55,799,232 RMB ordinary shares
320,484,156
270,606,272
92,595,542
64,510,900
57,528,800
55,799,232
CSAH held aggregate 1,671,287,925 (including shares subject to
trading restrictions) H shares of the Company through its wholly-
owned subsidiaries in Hong Kong, namely Nan Lung and Perfect
Lines (Hong Kong) Limited. The Company is not aware of any
other connected relationship between other shareholders.
Not applicable
116
ANNUAL REPORT 2018CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTS
3. Particulars of the top ten shareholders subject to trading restrictions and the conditions of trading
restrictions
Unit: Share
Number
of shares
held subject
to trading
restrictions
Listing status of shares
which are subject to trading
restrictions
Eligible listing
time
Number of
new listed
shares
Conditions for trading
restrictions
Name of shareholder
subject to trading restrictions
No.
1
2
3
4
5
6
7
8
Nan Lung Holding Limited
600,925,925 10 September
600,925,925 Non-public Issuance
2021
of shares subject to
commitments
China Southern Air Holding Limited Company
489,202,658 27 September
489,202,658 Non-public Issuance
2021
China National Aviation Fuel Group Corporation
498,338,870 26 September
2019
China Structural Reform Fund Co., Ltd.
242,524,916 26 September
2019
Spring Airlines Co., Ltd.
140,531,561 26 September
2019
Guo Xin Central Enterprise Operation (Guangzhou)
121,262,458 26 September
Investment Fund (LLP)
2019
Hotland Innovation Asset Management Co., Ltd.
68,106,312 26 September
2019
China Life Asset Management Company Limited
18,106,314 26 September
2019
of shares subject to
trading restrictions
498,338,870 Non-public Issuance
of shares subject to
trading restrictions
242,524,916 Non-public Issuance
of shares subject to
trading restrictions
140,531,561 Non-public Issuance
of shares subject to
trading restrictions
121,262,458 Non-public Issuance
of shares subject to
trading restrictions
68,106,312 Non-public Issuance
of shares subject to
trading restrictions
18,106,314 Non-public Issuance
of shares subject to
trading restrictions
Explanation of the connected relationship or acting in
concert relationship of the above shareholders
CSAH held aggregate 1,671,287,925 (including shares subject to trading
restrictions) H shares of the Company through its wholly-owned subsidiaries
in Hong Kong, namely Nan Lung and Perfect Lines (Hong Kong) Limited. The
Company is not aware of any other connected relationship between other
shareholders.
117
China Southern Airlines Company LimitedCorporate Governance
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
Others
2.
Information of de facto controllers
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 6.93%)
Reputation Favorable
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
36.92%
Nan Lung Holding Limited
100%
13.37%
Perfect Lines
(Hong Kong) Limited
0.25%
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 air transportation and also covers relevant industries including financing, construction and development and media
and advertising.
118
ANNUAL REPORT 2018CHANGES IN THE SHARE CAPITAL, SHAREHOLDERS’ PROFILE AND DISCLOSURE OF INTERESTS V. DISCLOSURE OF INTERESTS
As at 31 December 2018, 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
share
capital
of the
Company
(Note 3)
% of
the total
issued A
Shares
(Note 3)
% of
the total
issued H
Shares
(Note 3)
CSAH (note 1)
Beneficial owner
Interest of controlled
A Shares
H Shares
4,528,431,323 (L)
1,671,287,925 (L)
52.65%
/
/
45.58%
36.92%
13.62%
corporations
Subtotal
6,199,719,248 (L)
Nan Lung Holding Limited
(“Nan Lung”) (note 1)
Beneficial owner
Interest of controlled
H Shares
1,671,287,925 (L)
corporations
American Airlines Group Inc.
Interest in controlled
H Shares
270,606,272 (L)
(note 2)
corporations
/
/
/
/
50.54%
45.58%
13.62%
7.38%
2.21%
Qatar Airways Group
Beneficial owner
A Shares
430,036,166 (L)
5.00%
/
3.51%
Q.C.S.C.
Notes:
Beneficial owner
H Shares
183,324,000 (L)
Subtotal
613,360,166 (L)
/
/
5.00%
1.49%
/
5.00%
1. CSAH was deemed to be interested in an aggregate of 1,671,287,925 H Shares through its direct and indirect wholly-owned
subsidiaries in Hong Kong, of which 31,150,000 H Shares were directly held by Perfect Lines (Hong Kong) Limited (representing
approximately 0.85% of its then total issued H Shares) and 1,640,137,925 H Shares were directly held by Nan Lung (representing
approximately 44.73% of its then total issued H Shares). As Perfect Lines (Hong Kong) Limited is a wholly-owned subsidiary of Nan
Lung, Nan Lung was also deemed to be interested in the 31,150,000 H Shares held by Perfect Lines (Hong Kong) Limited.
2. American Airlines Group Inc. was deemed to be interested in 270,606,272 H Shares by virtue of its 100% control over American
Airlines.
3. The percentage was calculated according to the relevant total issued A Shares, total issued H Shares and the total issued share
capital of the Company as at 31 December 2018.
Save as disclosed above, as at 31 December 2018, 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.
119
China Southern Airlines Company LimitedCorporate Governance
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:
*Tan Wan Geng
Ma Xu Lun
Zhang Zi Fang
Name
Wang Chang Shun
Zheng Fan
Gu Hui Zhong
Tan Jin Song
Jiao Shu Ge
Pan Fu
Li Jia Shi
Mao Juan
Han Wen Sheng
Xiao Li Xin
Position (note)
Chairman
Executive Director
Vice Chairman
Executive Director
President
President
Executive Director
Executive Vice President
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Chairman of Supervisory Committee
Supervisor
Supervisor
Executive Vice President
Executive Vice President
Chief Accountant
Chief Financial Officer
Zhang Zheng Rong
Executive Vice President
*Zhang Zheng Rong Chief Operation Officer
Executive Vice President
Luo Lai Jun
Executive Vice President
Ren Ji Dong
Executive Vice President
Cheng Yong
Executive Vice President
Wang Zhi Xue
Chief Engineer
Li Tong Bin
Executive Vice President
Chief Economist
Chief Legal Adviser
Chief Marketing Officer
Secretary to the Board
COO Flight Safety
Chief Pilot
Chief Customer Officer
Chief Pilot
Chief Operation Officer
/
Su Liang
Chen Wei Hua
*Guo Zhi Qiang
Xie Bing
Feng Hua Nan
*Yang Ben Sen
Guo Jian Ye
Luo Ming Hao
Wang Ren Jie
Total
Number of
shares held
as at the
beginning
of the year
(shares)
0
Number of
shares held
as at the end
of the year
(shares)
0
Increase or
decrease of
shares during
the year
(shares)
0
The total
remuneration
before tax
received from
the Company
during the
reporting period
(RMB0’000)
0
Had received
remuneration
from related
party of the
Company
Yes
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
6
15
15
0
9.58
78.23
0
0
Yes
/
Yes
No
No
No
No
Yes
Yes
No
Yes
Yes
0
Yes
/
114.28
192.08
188.01
120.53
95.84
95.25
71.76
94.71
176.95
29.78
95.39
172.84
166.23
1,737.46
/
No
No
No
No
No
No
Yes
No
No
No
No
No
No
/
Gender
Male
Age
61
Male
Male
Male
Male
Male
Male
Male
Male
Male
Female
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
Male
/
54
54
60
63
62
54
53
56
57
46
52
52
56
56
47
54
56
58
57
56
52
55
45
56
61
56
56
54
/
Appointment date for
the term of office
27 May 2016
27 May 2016
24 January 2013
15 June 2006
13 January 2009
18 March 2019
30 June 2009
27 December 2007
20 December 2017
20 December 2017
26 December 2013
30 June 2015
29 December 2010
30 June 2009
20 December 2017
22 November 2017
22 November 2017
27 March 2015
27 March 2015
10 August 2018
4 January 2017
18 March 2019
7 May 2009
21 August 2018
3 August 2012
30 April 2014
14 September 2015
27 December 2007
16 June 2004
27 September 2012
26 November 2007
15 August 2014
4 January 2017
4 January 2017
28 March 2018
15 November 2018
/
Expiry date for the
term of office
up to date
30 November 2018
up to date
up to date
16 January 2019
up to date
up to date
up to date
up to date
up to date
up to date
up to date
16 January 2019
up to date
up to date
15 November 2018
up to date
up to date
up to date
up to date
up to date
up to date
up to date
24 October 2018
up to date
up to date
28 March 2018
up to date
up to date
up to date
/
120
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
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. Mr. Cheng Yong, Mr. Wang Zhi Xue, Mr. Feng Hua Nan, Mr. Yang Ben Sen, Mr. Luo Ming Hao and Mr. Wang Ren Jie serve
as pilots, and their remunerations are inclusive of crew allowance; Mr. Li Jia Shi’s remuneration was paid by CSAH since
February 2018; Mr. Guo Zhi Qiang’s remuneration was paid by CSAH since October 2018; Mr. Yang Ben Sen resigned in
March 2018; and Mr. Zheng Fan, Mr. Gu Hui Zhong receives remuneration in accordance with the relevant provisions of the
PRC;
3. * represents the personnel has already resigned as at the end of the reporting period.
As at 31 December 2018, 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 of position
holder
Name of
entities
Position
Wang Chang Shun
*Tan Wan Geng
Zhang Zi Fang
Pan Fu
CSAH
CSAH
CSAH
CSAH
Chairman, Party Secretary
President, Director,
Deputy Party Secretary
Deputy Party Secretary,
Executive Vice President
Party Leadership Group Member,
Team Leader of the Discipline
Inspection Commission
Appointment date Expiry date
6 December 2016
6 December 2016
To date
30 November 2018
26 August 2016
29 November 2018
29 October 2010
12 January 2019
*Han Wen Sheng
CSAH
Party Leadership Group Member,
11 October 2016
29 November 2018
Han Wen Sheng
Xiao Li Xin
Li Jia Shi
* Zhang Zheng Rong
Zhang Zheng Rong
Mao Juan
CSAH
CSAH
CSAH
CSAH
CSAH
CSAH
Executive Vice President
Director, Deputy Party Secretary
Party Leadership Group Member,
29 November 2018
11 October 2016
To date
To date
Chief Accountant
Chairman of Labour Union
President Assistant
Party Leadership Group Member,
27 November 2017
9 November 2017
15 June 2018
To date
15 June 2018
To date
Executive Vice President
General Manager of the Audit
Department
25 November 2017
To date
Xie Bing
CSAH
Director general of the Company
7April 2017
To date
Secretary Bureau
Wang Ren Jie
CSAH
Secretary of CPC General
6 September 2018
To date
Committee of the Legal Standard
Department
Note: Those with * are those who has resigned at the end of the reporting period.
121
China Southern Airlines Company LimitedCorporate Governance
2. Positions held in other entities
Name of
position holder Name of other entities
Gu Hui Zhong
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
China Bank of Communications Company Limited
Guangzhou Hengyun Enterprises Holdings Ltd.
COSCO SHIPPING Specialized Carriers Co., Ltd.
Shanghai RAAS Blood Products Co., Ltd.
Huafa Industrial Co.,Ltd. Zhuhai.
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
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 Bai An Yi Xing Investment Company Limited)
Shanghai Hightech Pharmaceutical 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
Plymouth Hainan Pharmaceutical 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
Position(s) held
in other entities
Supervisor
Independent Director
Independent Director
Independent Director
Independent Director
Director and President
Chairman
Chairman
Chairman
Chairman
Director
Director
Director
Director
Director
Director
Director
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Independent Director
Director
Director
Executive Director
Executive Director,
President
Jiao Shu Ge
Ningbo Economic and Technological Development Zone Xu Bo
Executive Director,
Investment Advisory Company Limited
President
Jiao Shu Ge
Ningbo Yafeng Electric Products Co., Ltd. (Formerly as Fujian
Executive Director,
Nanping Dafeng Electric Products Co., Ltd.)
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Jiao Shu Ge
Ningbo Akin Electronic Technology Co., Ltd.
Shenzhen DH Venture Capital Investment Management Co., Ltd
Wuhu Zhengding Investment Management Co., Ltd.
CP&CDH Capital Company Limited
Shanghai Ruiyou Equity Investment Fund Management Company
Limited (上海瑞有股權投資基金管理有限公司)
President
Chairman, President
Director
Chairman
Director
Director
122
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
Name of
position holder Name of other entities
Mao Juan
Nan Lung International Freight Limited
Mao Juan
Southern Airlines Group Finance Company Limited
Xiamen Airlines Company Limited
China Southern Airlines Henan Airlines Company Limited
Mao Juan
Zhang Zi Fang
Han Wen Sheng Sichuan Airlines Corporation Limited
Han Wen Sheng China Air Transport Association
Han Wen Sheng TravelSky Technology Limited
Xiao Li Xin
Xiao Li Xin
Xiao Li Xin
Xiao Li Xin
Wang Zhi Xue
Wang Zhi Xue
Li Tong Bin
Li Tong Bin
Li Tong Bin
Su Liang
Su Liang
Su Liang
Chen Wei Hua
Guo Zhi Qiang
Xie Bing
Shantou Airlines Company Limited
Guizhou Airlines Company Limited
Xiamen Airlines Company Limited
China Southern Airlines Overseas (Hong Kong) Company Limited
Zhuhai Airlines Company Limited
Xiamen Airlines Company Limited
Shenyang Northern Aircraft Maintenance Engineering Co., Ltd.
Guangzhou Aircraft Maintenance Engineering Co., Ltd.
MTU Maintenance Zhuhai Co., Ltd.
Sichuan Airlines Corporation Limited
Southern Airlines Culture and Media Company Limited
China Southern West Australian Flying College Pty Ltd.
Xiamen Airlines Company Limited
China Southern Airlines Xiongan Airlines Company Limited
China Southern Airlines Group Capital Holding Limited
Position(s) held
in other entities
Chairman of
Supervisory
Committee
Chairman of
Supervisory
Committee
Supervisor
Chairman
Vice Chairman
Vice Director General
Director
Chairman
Chairman
Director
Director
Chairman
President
Chairman
Chairman
Chairman
Director
Chairman
Chairman
Director
Executive Director
Chairman
(中國南航集團資本控股有限公司)
Xie Bing
Feng Hua Nan
Guo Jian Ye
Guo Jian Ye
Guo Jian Ye
CSA International Finance Leasing Co., Ltd.
Zhuhai Xiang Yi Aviation Technology Company Limited
Shenzhen Air Catering Co., Ltd.
Guangzhou Nanland Air Catering Company Limited
Guangzhou China Southern PRC Zhongmian Dutyfree Store Co.,
Chairman
Chairman
Chairman
Chairman
Chairman
Limited
Guo Jian Ye
China Southern Jia Yuan (Guangzhou) Air Products Co., Ltd.
Chairman
123
China Southern Airlines Company LimitedCorporate Governance
(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
Tan Wan Geng
Zhang Zi Fang
Han Wen Sheng
Zhang Zheng Rong
Cheng Yong
Guo Zhi Qiang
Yang Ben Sen
Luo Ming Hao
Wang Ren Jie
Vice Chairman
Executive Director
President
Executive Vice President
Executive Vice President
Executive Vice President
Chief Operation Officer
Executive Vice President
Chief Marketing Officer
Chief Pilot
Chief Pilot
Chief Operation Officer
Resigned
Resigned
Resigned
Resigned
Resigned
Appointed
Resigned
Appointed
Resigned
Resigned
Appointed
Appointed
Job Changes
Job Changes
Job Changes
Retired
Job Changes
Appointed by the Board
Job Changes
Appointed by the Board
Job Changes
Retired
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 2018 interim report:
1. Mr. Tan Wan Geng resigned Executive Director of the Company, Vice Chairman of the Board, the member of
Aviation Safety Committee of the Board and the President of the Company, and ceased to act as the authorized
representative of the Company under the Rule 3.05 of the Listing Rules of the Stock Exchange.
2. Mr. Zhang Zi Fang, an Executive Director, was appointed as the authorized representative of the Company
under the Rule 3.05 of the Listing Rules of the Stock Exchange.
3. Mr. Gu Hui Zhong serves as Supervisor of China Bank of Communications Company Limited.
4. Mr. Tan Jin Song serves as Independent Director of COSCO SHIPPING Specialized Carriers Co., Ltd. and no
longer acts as Independent Director of Poly Real Estate Company Limited.
5. Mr. Jiao Shu Ge serves as Director of Shanghai Ruiyou Equity Investment Fund Management Company Limited
(上海瑞有股權投資基金管理有限公司) and no longer acts as Chairman of Tianjin Guan Jing Investment Advisory
Company Limited.
6. Ms. Mao Juan no longer acts as Chairman of Supervisory Committee of Guangzhou Nanland Air Catering
Company Limited, Supervisor of Chongqing Airlines Company Limited, Supervisor of Guizhou Airlines Company
Limited, Supervisor of Zhuhai Airlines Company Limited, Supervisor of China Southern Airlines Henan Airlines
Company Limited and Supervisor of Guangzhou Baiyun International Logistic Company Limited.
124
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
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 RMB17,374,600 (2017: RMB14,742,600).
The emolument policy of the Directors and senior management of the Company are recommended by the
Remuneration and Assessment Committee to the Board, having regard to the Group’s operating results, individual
performance and comparable market statistics in accordance with the above-mentioned Administrative Measures on
Remuneration of Directors and Administrative Measures on Remuneration of Senior Management of the Group.
Details of the remuneration of the Directors, Supervisors and senior management of the Group are set out in notes
51 and 60 to the financial statements prepared under IFRSs.
Details of other employees’ pension scheme and housing benefits are set out in notes 46 and 52 the financial
statements prepared under IFRSs.
Remuneration Band
RMB
0-500,000
500,001-1,000,000
1,000,001-1,500,000
1,500,001-2,000,000
Total
Senior Management
2018
2017
1
5
2
5
13
1
4
2
3
10
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 2018, none of the Directors or Supervisors has any material interests in any
significant contract to which the Company or its subsidiaries was a party.
125
China Southern Airlines Company LimitedCorporate Governance
7. Profiles of Current Directors, Supervisors and Senior Management
Profiles of Current Directors, Supervisors and Senior Management
Directors
Wang Chang Shun, male, born in July 1957 (aged 61), graduated from University of Science and Technology of
China majoring in management science and engineering and he has a Ph.D. degree. He is a Doctor of Management
and senior expert of political science. He began his career in February 1976. He joined the Chinese Communist Party
in March 1982. He has acted as Vice Director and Director of aeronautical meteorology supervision department of
CAAC Urumqi Administration, Vice President and a member of standing committee of Xinjiang Airlines (Vice Chairman
of CAAC Urumqi Administration) and then as Party Secretary and Vice President of Xinjiang Airlines (Vice Chairman
of CAAC Urumqi Administration). In November 2000, he acted as Vice Chairman, General Manager and Deputy
Party Secretary of the Company. In September 2002, he acted as Vice President and Party member of CSAH and
also as Vice Chairman, General Manager and Deputy Party Secretary of the Company. In August 2004, he served
as Deputy Director and Party member of Civil Aviation Administration of China. In March 2008, he acted as Deputy
Director and Party member of Civil Aviation Administration of China (Deputy ministerial). In October 2011, he was
appointed as General Manager and Deputy Party Secretary of China National Aviation Holding Company and also
was appointed as the Chairman of Air China Limited. He was appointed as Vice Minister and Party Leadership Group
Member of Ministry of Transport in January 2014, General Manager and Deputy Party Secretary of China National
Aviation Holding Company in February 2016, General Manager and Deputy Party Secretary of CSAH and Chairman
of the Company in May 2016. In December 2016, he has been Chairman, Party Secretary of CSAH and Chairman
of the Company. Since November 2017, he has been Chairman, Party Secretary of CSAH and Chairman, Party
Secretary of the Company. He is also a deputy to the 12th National People’s Congress. He is the representative of
the 19th Communist Party of China National Congress, a member of the 12th CPC Guangdong Provincial Committee
and standing committee member and member of the 13th National Committee of the Chinese People’s Political
Consultative Conference.
Zhang Zi Fang, male, born in October 1958 (aged 60), graduated with a college degree from foundation science
profession for Party administrative cadres of Liaoning University. He obtained an Executive Master of Business
Administration (EMBA) degree from Tsinghua University and is a senior expert of political science. He began his career
in March 1976. He joined the Chinese Communist Party in February 1980. He served as the Deputy Commissioner
of the Office of Northern Airlines Company, Deputy Commissioner and Commissioner of Shenyang Flight Team
Northern Airlines Company and Party Secretary of Jilin Branch of Northern Airlines Company. He served as the
General Manager of Dalian Branch China Northern Airlines Company in January 2003. He had been the Director of
Political Works Department of CSAH in October 2003. Subsequently, Mr. Zhang was appointed as the Deputy Party
Secretary and Secretary of the Commission for Discipline of the Company in February 2005. He had been the Deputy
Party Secretary and Executive Vice President of the Company in December 2007. He was the Party Secretary and
Executive Vice President of the Company since February 2009. Mr. Zhang has been the Director, the Party Secretary
and Executive Vice President of the Company in June 2009. He had been the Party member of CSAH and the
Director, the Party Secretary and Executive Vice President of the Company in August 2011. 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 Chairman of China Southern Airlines 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; In November
2018, he ceased to act as Deputy Party Secretary and Executive Vice President of CSAH and Deputy Party Secretary
of China Southern Airlines Company Limited due to his retirement. In January 2019, he ceased to act as Executive
Vice President of China Southern Airlines Company Limited.
126
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES Zheng Fan, male, born in November 1955 (aged 63), graduated with a bachelor’s degree from Beijing Normal
University majoring in School Education and is a senior expert of political science. Mr. Zheng is a CPC member and
began his career in 1974. He served as a teacher of Faculty of Education at Beijing Normal University from February
1982. He worked as a cadre at public relationship department of the Chinese Communist Party Central Committee
and was a deputy Director level investigator from January 1986, deputy Director-general (temporary post) of public
relationship department of CBRC Shenzhen Municipality Luohu District Committee and deputy Director general
(temporary post) of public relationship department of Shenzhen Committee of Communist Party of China from March
1988, deputy Director of public relationship department of CBRC Shenzhen Municipality Futian District Committee
and office Director of working committee under the CBRC Shenzhen Municipality Committee from March 1991. Since
August 1994, he has been appointed as general manager of general administration office of Overseas Chinese Town
Economic Development Company, general manager’s assistant of OCT Group and managing Director of Overseas
Chinese Town (HK) Company Limited since December 1997, deputy secretary of the Party Committee, secretary
of Discipline Inspection Commission and Chief Cultural Officer of Overseas Chinese Group Company since August
2000, secretary of the Party Committee and vice-president of Overseas Chinese Group Company since March 2008,
secretary of the Party Committee and vice-chairman of Overseas Chinese Town Company Limited since January
2010. He acted as Council Member of China Overseas Exchange Association, Director of relation of the Two Shores
Across the Strait Association, vice president of Guangdong’s Association For Promotion of Cooperation between
Guangdong, Hong Kong and 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 an independent Director of the company since 20 December 2017.
Gu Hui Zhong, male, born in November 1956 (aged 62), graduated with a master degree from Zhengzhou Aviation
Iudustry Institute and Beihang University majoring in International Finance and is a senior accountant of professor
level. Mr. Gu is a CPC member and began his career in 1974. He served as deputy chief and chief of the General
Office of Financial Division of Aviation Industry Department, Director of International Affairs Financial Division of
Aviation Industry Corporation of China, general manager of Zhongzhen Accounting Consultative Corporation, vice
Director general of Financial Department of Aviation Industry Corporation of China and deputy Director-general of
Financial Department of State Commission of Science, Technology and Industry for National Defence. From June
1999 to February 2005, he acted as a member of the Communist Party and vice president of Aviation Industry
Corporation of China I. From February 2005 to August 2008, he acted as a member of Party Leadership Group, vice
president and chief accountant of Aviation Industry Corporation of China I. From August 2008 to January 2017, he
acted as a member of Party Leadership Group, vice president and chief accountant of Aviation Industry Corporation
of China. He previously served as chairman of AVIC I International Leasing Co., Ltd., chairman of AVIC I Financial
Co., Ltd., chairman of CATIC International Holdings Limited, chairman of AVIC Capital Co., Ltd and chairman of AVIC
International Vanke Company Limited. He is currently served as a supervisor of the Bank of Communications and vice
chairman of the Accounting Society of China. Since 20 December 2017, Mr. Gu has been an independent Director of
the Company.
Tan Jin Song, male, born in January 1965 (aged 54), graduated from Renmin University of China with an on-
job doctor degree in Accounting. Mr. Tan is a Chinese Certified Public Accountant and a CPC member. Mr. Tan
began his career in 1985 and was a teacher in Shaoyang School of Finance and Accounting of Hunan Province
and the Deputy Dean of the School of Management of Sun Yat-sen University. Mr. Tan is currently a professor
and a doctorate-tutor of the School of Management of Sun Yat-sen University. He is also a member of the MPAcc
Education Instruction Committee, a member of China Institute of Internal Audit, Vice President of Guangdong Institute
of Certified Public Accountants and a council member of China Audit Society. Currently, Mr. Tan also serves as the
independent Director of COSCO SHIPPING Specialized Carriers Co., Ltd., Guangzhou Hengyun Enterprises Holdings
Limited, Shanghai RAAS Blood Products Co., Ltd. and Zhuhai Huafa Industrial Company Limited. Mr. Tan has been
an independent Director of the Company since 26 December 2013.
127
China Southern Airlines Company LimitedCorporate Governance Jiao Shu Ge, male, born in February1966 (aged 53), with a master degree, first graduated from the Control Theory
Faculty of the Department of Mathematics of Shandong University with a bachelor degree, and then graduated from
the Systems Engineering Faculty of No. 2 Research Institute of the Ministry of Aerospace Industry with a Master’s
degree in Engineering. Mr. Jiao has extensive experience in funds management and equity investment. Currently,
Mr. Jiao is the Director and President of CDH China Management Company Limited (“CDH Investments”) and is
the founder of CDH Investments. He was a computer researcher of 710 Research Institute of the former Ministry of
Aerospace Industry of China, the Deputy General Manager of Direct Investment Department of China International
Capital Corporation Ltd. (“CICC”). Mr. Jiao was the non-executive Director of China Yurun Food Group Limited
and China Shanshui Cement Group Limited. He is also the President of Fujian Nanping Nanfu Battery Company
Limited, Inner Mongolia Hetao Spirit Group Company Limited, Shanghai Maitai Jun’Ao Biological Technology Co.,
Ltd, Shanghai Hightech Pharmaceutical Company Limited, Wuhu Zhengding Investment Management Co., Ltd. and
other companies; He acted as a director of a number of companies including WH Group Limited, Henan Shuanghui
Investment & Development Co.,Ltd., Joyoung Co., Ltd. and Chery Automobile Co., Ltd.; and also acted as an
independent director of China Mengniu Dairy Company Limited and associated companies of CDH Investments.
Mr. Jiao has been an independent Director of the Company since 30 June 2015.
Supervisor
Pan Fu, male, born in February1963 (aged 56), graduated from Chongqing University majoring in Electrical
Engineering Department of Power Systems and Automation. He has a Master’s Degree of Science. Also, he is a
senior engineer. He began his career in July 1986 and joined the Chinese Communist Party in June 1986. He served
as the Deputy Head of the Planning Department of Electric Power Industry Bureau of Yunnan Province, the Director
of Yang Tsung Hai Electricity Supply Limited Liability Company of Yunnan Province (雲南省陽宗海發電有限責任公司.),
the Deputy Director of the Planning & Development Division of Electric Power Industry Bureau of Yunnan Province
and the Deputy Director and Director of Kunming Power Plant, the Deputy Chief Engineer and Chief Engineer of
Yunnan Electric Power Corporation. He served as the Deputy Director and Director of the Department of Security
Supervision of China Southern Power Grid Company Ltd., the Director of China Southern Power Grid Company Ltd.
and Research Center, and served as the General Manager and Deputy Party Secretary of the Guizhou Power Grid
Corporation. Mr. Pan served as the Director of the Planning Development Department of China Southern Power Grid
Company Ltd.. In October 2010, Mr. Pan has been the team leader and party member of the Discipline Inspection
Commission of CSAH; in December 2010, he has been the team leader and party member of the Discipline
Inspection Commission of CSAH and Chairman of Supervisory Committee of China Southern Airlines Company
Limited; In November 2017, he has been the team leader and party member of the Discipline Inspection Commission
of China Southern Air Holding Limited Company and Secretary of the Commission for Discipline, Party member and
Chairman of Supervisory Committee of China Southern Airlines Company Limited. In January 2019, he ceased to be
the team leader and party member of the Discipline Inspection Commission of China Southern Air Holding Limited
Company and Secretary of the Commission for Discipline and Party member of China Southern Airlines Company
Limited due to his work reallocation.
128
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES Li Jia Shi, male, born in May 1961 (aged 57), graduated from Party School of the CPC majoring in Economic
Administration and has a bachelor degree. He has an Executive Master of Business Administration (EMBA) degree
from Tsinghua University and is an expert of political science. Mr. Li began his career in August 1976 and joined
the Chinese Communist Party in June 1986. In February 1998, he served as the party secretary of Guangzhou
Nanland Air Catering Company Limited and the Deputy Head (work as chair) of the Organization Division of the
Party Committee of the China Southern Airlines (Group) Company in April 1999. Mr. Li served as the head of the
Organization Division of the Party Committee of CSAH in December 1999; and served as the Deputy Secretary of
the Disciplinary Committee and the Director of the Disciplinary Committee Office of the Company in December 2003.
Mr. Li served as the Secretary of the Disciplinary Committee, member of the Standing Committee of the CPC and
the Director of the Disciplinary Committee Office of the Company in December 2007. Mr. Li has been the supervisor
of the Company since June 2009. He has been the team deputy leader of the Discipline Inspection Commission of
CSAH, and member of Secretary of the Disciplinary Committee, the Director of the Disciplinary Committee Office
in February 2012, and the Standing Member of Party Committee of China Southern Airlines Company Limited in
November 2017. He has acted as the Labour Union chairman and the Standing Member of Party Committee of
China Southern Airlines Company Limited in November 2017. He acted as the Chairman of the Labour Union of
CSAH and the Chairman of the Labour Union and Standing Member of Party Committee of the Company from
January 2018. He has served as the Chairman of the Labour Union of CSAH and the Chairman of the Labour Union
of the Company since July 2018.
Mao Juan, female, born in December 1972 (aged 46), obtained a bachelor degree in Accounting from Harbin
University of Science and Technology. Ms. Mao began her career in July 1993, and joined the Chinese Communist
Party in April 1992. She served as Deputy General Manager of Hainan Branch Comprehensive Trading Company,
Deputy Manager of Finance Department in Hainan Branch of the Company and Manager of Audit and System
Office of Finance Department in the Company. From August 2011, she acted as Deputy General Manager of Audit
Department in the Company and acted as General Manager of Audit Department in the Company since June 2016.
She has been the deputy general manager of Audit Department in the CSAH and the Company from April 2017.
She has served as the General Manager of CSAH and the Company’s Audit Department since November 2017. She
served as the supervisor of the Company, general manager of Audit Department of CSAH and the Company since
December 2017. Currently, she is the Chairman of the Supervisory Committee of Southern Airlines Group Finance
Company Limited and Nan Lung International Freight Limited, as well as the supervisor of Xiamen Airlines Company
Limited.
Senior Management
Mr. Ma Xu Lun, male, born in July 1964 (aged 54). He graduated from the School of Mechanical Science &
Engineering of HUST, majoring in industrial engineering. He has a master degree of engineering and is a certified
public accountant. He started his career in August 1984, and joined in the Chinese Communist Party in October
1990. He has been the deputy general manager of China Commodities Storing and Transportation Corporation,
deputy director general of the Finance Department of the CAAC, vice president and Standing Member of Party
Committee of Air China Corporation Limited. He was appointed as vice president of general affairs and deputy party
secretary of Air China Corporation Limited in October 2002; and served as the director, president and deputy party
secretary of Air China Corporation Limited in September 2004. He served as a party member of China National
Aviation Holding Company and director, president and deputy party secretary of Air China Corporation Limited in
December 2004, and deputy general manager and party member of China National Aviation Holding Company
from February 2007. In December 2008, he was appointed as deputy party secretary of China Eastern Air Holding
Company and general manager and deputy party secretary of China Eastern Airlines Corporation Limited. He served
as secretary to the Party Committee and deputy general manager of China Eastern Air Holding Company and
general manager of China Eastern Airlines Corporation Limited in October 2011. In November 2016, he served as
the director, general manager and deputy party secretary of China Eastern Air Holding Company, and vice Chairman,
general manager and deputy party secretary of China Eastern Airlines Corporation Limited in December 2016; In
January 2019, he acted as the director, general manager and deputy party secretary of China Southern Air Holding
Limited Company. In March 2019, he acted as the director, general manager and deputy party secretary of China
Southern Air Holding Limited Company and president of China Southern Airlines Company Limited.
129
China Southern Airlines Company LimitedCorporate Governance Mr. Han Wen Sheng, male, born in January 1967 (aged 52), graduated from Management Department of Tianjin
University, majoring in engineering management, with qualification of a Master’s degree. He obtained a Master’s
Degree of Science and was a economist. He began his career in August 1987, and joined the Chinese Communist
Party in May 1985. He was served as Deputy Director General of Cadre Training Center of the Company, Director
of The Research Bureau of the Company, general manager of Labour Department and Secretary of CPC General
Committee of the Company, Deputy Director General and a member of Party Committee of the Commercial Steering
Committee and general manager as well as Deputy Party Secretary of the sales and marketing department of the
Company, general manager and Deputy Party Secretary of Shanghai base. He acted as Deputy Party Secretary and
Deputy Director General of the Commercial Steering Committee of the Company since December 2009 and Party
Secretary and Deputy Director General of the Commercial Steering Committee of the Company since October 2011.
He served as vice president and party member of China Southern Air Holding Company from October 2016. From
November 2017, he served as vice president and party member of China Southern Air Holding Limited Company,
the vice president and Party member of the Company. He was appointed as director and Deputy Party Secretary
of China Southern Air Holding Limited Company, Vice president of the Company in November 2018. From January
2019, he served as director and Deputy Party Secretary of China Southern Air Holding Limited Company. Currently,
he also served as Vice Chairman of Sichuan Airlines Corporation, director of TravelSky Technology Limited and Vice
Director General of China Air Transport Association.
Xiao Li Xin, male, born in June 1966 (aged 52), graduated from Guangdong Academy of Social Sciences with a
master degree in Economics and then obtained an Executive Master of Business Administration (EMBA) degree from
Tsinghua University. He is a qualified senior accountant and a certified public accountant. Mr. Xiao began his career in
July 1991, and joined the Chinese Communist Party in February 1998. He served as the Deputy General Manager of
the Finance Department of the Company from March 2001. He served as the General Manager and Deputy Secretary
of the General Party Branch of the Finance Department of the Company from January 2002. Mr. Xiao served as
the deputy chief accountant and general manager of the Finance Department of the Company from February 2007,
and served as the General Manager and Secretary of the General Party Branch of Southern Airlines Group Finance
Company Limited from October 2007. He served as the General Manager and Party Secretary of Southern Airlines
Group Finance Company Limited from February 2008. Mr. Xiao has been the Chief Accountant and Chief Financial
Officer of the Company since March 2015. From October 2016, he has served as Chief Accountant and Party
member of China Southern Air Holding Limited Company (CSAH) and Chief Accountant and Chief Financial Officer of
the Company. From November 2017, he has served as Chief Accountant and Party member of CSAH and Executive
Vice President, Chief Accountant, Chief Financial Officer and a member of the Party Committee of the Company.
For now, he also serves as Chairman of Guizhou Airlines Company Limited, Chairman of Shantou Airlines Company
Limited, Director of Xiamen Airlines Company Limited as well as Director of China Southern Airlines Overseas (Hong
Kong) Co. Ltd.
130
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES Zhang Zheng Rong, male, born in September 1962 (aged 56), has a college degree from Civil Aviation Flight
University of China majoring in Aircraft Piloting. He was graduated from Party School of the Central Committee
of CPC majoring in economic management with a bachelor degree. He also obtained an Executive Master of
Business Administration (EMBA) degree from Tsinghua University. He began his career in February 1982, and
joined the Chinese Communist Party in April 1988. He served as Vice Captain of Third Flight Corps of Civil Aviation
Administration, Vice Captain of Fourth Flight Corps and Captain of First Flight Corps of CSAH. From May 2002, he
has been the Deputy General Manager of Civil Aviation Administration of the Company and Captain of First Flight
Corps of the Company. From November 2002, he has been General Manager of Department of Security Supervision
of the Company, as well as General Manager and Deputy Party Secretary of Guangzhou Flight Division of the
Company in May 2004. In August 2007, he was appointed as Chief Pilot of the Company and General Manager and
Deputy Party Secretary of Guangzhou Flight Division of the Company. From March 2009, he has been Chief Pilot and
Director of Aviation Security Department of the Company. Since April 2012, he served as the Chief Pilot, COO Flight
Safety and Director of Aviation Security Department of the Company and in July 2012, he served as the Chief Pilot
and Aviation Security Minister of CSAH. Since April 2014, he has acted as Chief Pilot, COO Flight Safety and Director
of Aviation Security Department of CSAH. Since December 2016, he has been Chief Pilot of CSAH. He has served
as Chief Pilot of CSAH and Chief Operation Officer of the Company since January 2017. Since November 2017, he
has been the General Manager Assistant of CSAH and Chief Operation Officer of the Company. From June 2018, he
has been the Vice President, Party Member of CSAH and Chief Operation Officer of the Company. In August 2018,
he served as the Deputy general manager, Party Member of CSAH and the Executive Vice President, Chief Operation
Officer of the Company. Since November 2018, he acted as the Deputy General Manager, Party Member of CSAH
and the Executive Vice President of the Company.
Luo Lai Jun, male, born in October 1971 (aged 47), graduated from Nanjing University of Aeronautics and
Astronautics, majoring in Accounting and also obtained an Executive Master of Business Administration (EMBA)
degree from Tsinghua University. He began his career in July 1993 and joined the Communist Party of China in
September 1992. He served as the Manager of Finance Department in Shanghai Branch of the Company, Deputy
Director of the Purchasing Office in Finance Department of the Company, Deputy Manager and Manager of Finance
Department of Guizhou Airlines Company Limited. He has acted as a member of the party committee, Chief Financial
Officer and manager of Finance Department of Guizhou Airlines Company Limited in June 2003; Director of Business
Assessment Office of the Company in June 2005; Deputy Director of Commercial Steering Committee and General
Manager and Party member of Financing Plan Department of the Company in November 2005; General Manager
and Deputy Party Secretary of Freight Department of the Company in February 2009; the General Manager and the
Deputy Party Secretary of Dalian Branch of the Company in July 2012; Executive Deputy Director and the Deputy
Party Secretary of Commercial Steering Committee of the Company in November 2016; Director and the Deputy
Party Secretary of Commercial Steering Committee of the Company in August 2017; Executive Vice President and
the Party member of China Southern Air Holding Limited Company in February 2019; Executive Vice President and
the Party member of China Southern Air Holding Limited Company and Executive Vice President of the Company in
March 2019.
Ren Ji Dong, male, born in January 1965 (aged 54), Bachelor of Engineering, graduated from Power Engineering
Department of Nanjing University of Aeronautics and Astronautics with a bachelor’s degree, majoring in Aircraft
Engine Design and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University,
and he is a senior engineer. Mr. Ren began his career in August 1986 and joined the Chinese Communist Party in
June 1986. He served as the Deputy Director (deputy general manager) and a member of the Standing Committee
of the CPC of Urumqi Civil Aviation Administration (Xinjiang Airlines) and the Deputy General Manager and a member
of the Standing Committee of the CPC of Xinjiang Airlines. He acted as the Party Secretary and Deputy General
Manager of CSAH Xinjiang Company from June 2004, the Party Secretary and Deputy General Manager of Xinjiang
Branch of the Company from January 2005, a member of the Standing Committee of the CPC of the Company from
February 2005, Deputy General Manager and a member of the Standing Committee of the CPC of the Company
from March 2005, a member of the Standing Committee of the CPC of the Company and the General Manager and
Deputy Party Secretary of Xinjiang Branch from January 2007, a member of the Standing Committee of the CPC of
the Company from April 2009, Deputy General Manager and a member of the Standing Committee of the CPC of the
Company from May 2009 and the Executive Vice President of the Company from July 2018.
131
China Southern Airlines Company LimitedCorporate Governance Cheng Yong, male, born in April 1962 (aged 56), graduated from Civil Aviation Flight College of China (中國民用航
空飛行專科學校) majoring in Aircraft Piloting and Civil Aviation Flight University of China majoring in Wingmanship,
with a bachelor degree. He obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua
University and is a command pilot. He began his career in January 1982, and join the Chinese Communist Party
in August 1984. He has been the Deputy Head of Shenyang Chief Flight Corps Team of China Northern Airlines
Company (中國北方航空公司瀋陽飛行總隊), vice president of China Northern Airlines Company Tian’e LLC (中國
北方航空公司天鵝航空有限責任公司) and president of China Northern Airlines Company Sanya Co., Ltd. (中國北
方航空公司三亞有限公司). He served as the General Manager of CSAHC Northern Division in November 2004;
president and deputy party secretary of Northern Branch of the Company in January 2005; deputy leader of steering
group for reoganization of Liaoning Airport Management Group Company, president and deputy party secretary of
Northern Branch of the Company in October 2008; deputy leader of steering group for reoganization of Liaoning
Airport Management Group Company in January 2009; president and deputy party secretary of Beijing Branch of
the Company in April 2009; a member of the Standing Member of Party Committee of the Company and General
Manager and Deputy Party Secretary of Beijing Branch of the Company from April 2010; a Standing Member of Party
Committee of the Company in July 2017; and Executive Vice President of the Company in August 2018.
Wang Zhi Xue, male, born in January 1961 (aged 58), has a college degree from Civil Aviation Flight University
of China majoring in Aircraft Piloting, and obtained a degree from Civil Aviation Flight University of China majoring
in Wingmanship, and is a command pilot. Mr. Wang began his career in February 1981, and joined the Chinese
Communist Party in December 1980. Mr. Wang successively served as the Deputy Chief Pilot and Director of
the Flight Safety Technology Department of Shantou Airlines Company Limited of CSAH, Deputy Chief Pilot and
Manager of the Flight Safety Technology Division of Shantou Airlines Company Limited of CSAH. He also acted
as the Deputy General Manager of Shantou Airlines Company Limited of CSAH from June 2002, and the General
Manager of the Flight Management Division of the Company from October 2004, and the General Manager and
Deputy Party Secretary of Guangzhou Flight Division of the Company from February 2009. Mr. Wang has been Chief
Pilot and a member of the Standing Committee of the CPC of the Company from July 2012, and Executive Vice
President, chief pilot and a member of the Standing Committee of the CPC of the Company from August 2012.
He has been Executive Vice President and a member of the Standing Committee of the CPC of the Company from
December 2016. He has been Executive Vice President of the Company from July 2018, and was appointed as
legal representative, vice chairman, president and Deputy Secretary of CPC of Xiamen Airlines Company Limited in
February 2019. For now, he also serves as Chairman of Zhuhai Airlines Company Limited.
Li Tong Bin, male, born in December 1961 (aged 57), graduated with a bachelor degree from Northeastern
University majoring in industrial Electric Automation, and Business Administration (MBA) from School of Economics
and Management of Hainan University. He obtained an Executive Master of Business Administration (EMBA) Degree
form Tsinghua University, and is a senior engineer. Mr. Li began his career in August 1983, and joined the Chinese
Communist Party in May 1983. He successively served as the Director of Aircraft Engineering Department and the
Director of aircraft maintenance base of China Northern Airlines Company, the General Manager of Jilin branch of
China Northern Airlines Company. He also acted as the Deputy General Manager and Deputy Party Secretary of
Zhuhai Airlines Company Limited from September 2004, the General Manager and Deputy Party Secretary of Zhuhai
Airlines Company Limited from January 2005, and the party secretary and Deputy General Manager of Northern
Branch of the Company from April 2012. Mr. Li was the Chief Engineer, General Manager of Aircraft Engineering
Department and Deputy Party Secretary of the Company from April 2014. He has been the Chief Engineer, a
member of the Standing Committee of the CPC, General Manager of Aircraft Engineering Department and Deputy
Party Secretary of the Company from August 2015. Mr. Li has been the Executive Vice President, Chief Engineer, a
member of the Standing Committee of the CPC, as well as General Manager of Aircraft Engineering Department and
Deputy Party Secretary of the Company since September 2015. From December 2016, he has been Executive Vice
President, Chief Engineer and a member of the Standing Committee of the CPC. In July 2018, he was appointed
as the Executive Vice President and Chief Engineer of the Company. For now, Mr. Li also serves as Chairman of
Shenyang Northern Aircraft Maintenance Co., Ltd., Guangzhou Aircraft Maintenance Engineering Co., Ltd. and MTU
Maintenance Zhuhai Co., Ltd..
132
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES Su Liang, male, born in April 1962 (aged 56), graduated from the University of Cranfield, United Kingdom with a
master degree majoring in Air Transport Management, and is an engineer. Mr. Su began his career in December
1981, and joined the Chinese Communist Party in May 1996. He successively served as Deputy General Manager of
the Flight Operations Division, Deputy General Manager and Manager of Planning and Management Division of CSAH
Shenzhen Company. Mr. Su was the Secretary to the Board from July 2000, the Secretary to the Board and Director
of Board Secretariat of the Company from December 2003, the Secretary to the Board, Deputy Director and Party
member of Commercial Steering Committee of the Company from November 2005, the Company Secretary and
Director of Company Secretary Office and Deputy Director and Party member of Commercial Steering Committee
of the Company from February 2006. Mr. Su has been the Chief Economist of the Company since December 2007.
For now, he also serves as Director of Sichuan Airlines Company Limited, Chairman of Southern Airlines Culture and
Media Co., Ltd. and China Southern West Australian Flying College Pty Ltd..
Chen Wei Hua, male, born in October 1966 (aged 52), graduated from the School of Law of Peking University
with a bachelor degree and obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua
University, who is an economist, a qualified lawyer in the PRC and a qualified corporate legal counselor. Mr. Chen
joined the aviation industry in July 1988, and joined the Chinese Communist Party in February 2001. He successively
served as Deputy Director of Legal Department of China Southern Airlines (Group) Corporation, Deputy Director of the
Office (Director of the Legal Division) of the Company and China Southern Airlines (Group) Corporation. Mr. Chen was
the Chief Legal Adviser of the Company and Director of the Legal Division of the Company from December 2003. Mr.
Chen has been the Chief Legal Adviser and General Manager of the Legal Division of the Company since October
2008. He has served as Chief Legal Adviser of the Company since April 2017. For now, he also acts as Director of
Xiamen Airlines Company Limited.
Xie Bing, male, born in September 1973 (aged 45), graduated from Nanjing University of Aeronautics and
Astronautics, majoring in Civil Aviation Management. He subsequently received a master degree of business
administration from the Management School of Jinan University, a master degree of business administration (international
banking and finance) from the University of Birmingham, Britain and a MBA, an Executive Master of Business
Administration (EMBA) degree from Tsinghua University, respectively. Mr. Xie is a Senior Economist, fellow member
and FCS of The Hong Kong Institute of Chartered Secretaries, and has the qualification for Company Secretary of
companies listed on Shanghai Stock Exchange and also has the qualification for Company Secretary of companies
listed on Stock Exchange. Mr. Xie began his career in July 1995, and joined the Chinese Communist Party in January
1994. He successively served as the Assistant of Company Secretary of the Company, and the Executive Secretary
of the General Office of CSAH. Mr. Xie has been the Company Secretary and Deputy Director of the Company
Secretary Office from November 2007. From December 2009, Mr. Xie has been the Secretary to the Board and
Director of the Company Secretary Office of the Company. Form April 2017, he has been the the Secretary to the
Board of the Company, Director of the Company Secretary Bureau of China Southern Air Holding Limited Company
and Director of the Company Secretary Bureau of the Company. For now, he also acts as Chairman and Party
Secretary of China Southern Airlines Group Capital Holding Limited (中國南航集團資本控股有限公司) and Chairman
of CSA International Finance Leasing Co., Ltd., Deputy President of Central Enterprises Overseas students Sodality (中
央企業留學人員聯誼會) and a Council Member of The Hong Kong Institute of Chartered Secretaries.
Feng Hua Nan, male, born in November 1962 (aged 56), graduated with a college degree from China Civil Aviation
Flying College, majoring in Aircraft Piloting, and obtained a master degree in Aeronautical Engineering from School of
Automation Science and Electrical Engineering of Beijing University of Aeronautics and Astronautics and an Executive
Master of Business Administration (EMBA) from Tsinghua University. He is a commanding pilot. Mr. Feng began
his career in January 1983, and joined the Chinese Communist Party in October 1986. He successively served as
the Director of Zhuhai Flight Training Centre of China Southern Airlines (Group) Company and the Deputy General
Manager of Flight Operation Division of the Company. He was the General Manager of Flight Safety Technology
Department from December 1999, and the General Manager of Flight Technology Management Department of
the Company from November 2002. Mr. Feng also served as the Party Secretary and Deputy General Manager of
Guizhou Airlines Company Limited from September 2004, and then served as the General Manager and Deputy
Party Secretary of Guizhou Airlines Company Limited from February 2006. He has been the COO Flight Safety of the
Company since August 2014. For now, he also serves as the Chairman of Zhuhai Xiang Yi Aviation Technology Co.,
Ltd..
133
China Southern Airlines Company LimitedCorporate Governance Guo Jian Ye, male, born in December 1962 (aged 56), graduated from Party School of Civil Aviation Flight University
of China majoring in Aircraft Piloting, South China Normal University majoring in Political Education in Education
Management Department and the Party School of the Central Committee of CPC majoring in economic management.
He obtained a master’s degree from the Party School of the Central Committee of CPC and also obtained a Bachelor
of Philosophy. He is an expert of political science. He began his career in May 1980, and joined the Chinese
Communist Party in May 1986. He was appointed as Secretary of Youth League Committee, Deputy Director of
Advertising and Promotion Department of CAAC Central and Southern Regional Administration, Director of Political
Department of Air traffic management bureau under CAAC Central and Southern Regional Administration, Vice
Director of Air traffic management bureau under CAAC Central and Southern Regional Administration and General
Manager of Guangdong CAAC Central and Southern Industrial Co., Ltd., Deputy Head of CAAC Hainan Safety
Supervision Office, Head and Party Secretary of CAAC Henan Safety Supervision Office, Director and Party Secretary
of CAAC Henan Safety Supervision Administration, the member of standing committee of CAAC Central and Southern
Regional Administration, as well as the Vice Director. In July 2012, he served as General Manager and Deputy Party
Secretary of Heilongjiang Branch of the Company. From July 2014, he acted as, Director and Deputy Party Secretary
of Commercial Steering committee of the Company. Since January 2017, he has been the Chief Customer Officer
of the Company. For now, he also acts as Chairman of Shenzhen Air Catering Co., Ltd., Guangzhou Nanland Air
Catering Company Limited, Guangzhou China Southern Zhongmian Dutyfree Store Co., Limited, China Southern Jia
Yuan (Guangzhou) Air Products Co., Ltd..
Luo Ming Hao, male, born in September 1962 (aged 56), graduated from the Civil Aviation Flight University of China
for professional flying. He graduated with a master degree from the Party School of Hunan Provincial Committee (湖
南省委黨校) majoring in economics. He obtained an Executive Master of Business Administration (EMBA) degree
from Tsinghua University. He is Second Class Pilot (二級飛行員). He began his career in July 1982, and joined
the Communist Party of China in December 1984. He served as the deputy general manager of the flight division of Hunan
Branch of CSAH and deputy manager, manager of Bei Hai Sales Department in Hunan Branch of the Company. He
served as the deputy general manager of Hunan Branch of the Company in May 2002, General Manager and Deputy
Party Secretary of the Cabin Department of the Company in December 2006. He acted as General Manager and
Deputy Party Secretary of Dalian Branch of the Company in December 2010, General Manager and Deputy Party
Secretary of Guangzhou Flight Department of the Company in July 2012 and Chief Pilot of the Company in March
2018.
Wang Ren Jie, male, born in October 1964 (aged 54), has bachelor’s degrees from People’s Liberation Army Air
Force No.1 Flight Academy (中國人民解放軍空軍第一飛行學院) majoring in Aircraft Piloting and Aviation Theory and
obtained an Executive Master of Business Administration (EMBA) degree from Tsinghua University. He is a Second
Class Pilot. He began his career in June 1983, and join in the Chinese Communist Party in December 1990. He has
been the Vice President of the Flight Management Division of the Company, Vice President and a party member of
Guangzhou Flight Division of the Company, President of the Flight Management Division of the Company. He served
as the President and Deputy Party Secretary of Xi’an branch of the Company in August 2014; President of the
Flight Management Division of the Company in December 2016, and President of the Flight Management Division,
a member of the Party Committee of Administrative Office of the Company in February 2017; President of the Flight
Management Division of China Southern Air Holding Limited Company and the Company in April 2017; Deputy Chief
Operation Officer of the Company in May 2018; the Secretary of CPC General Branch of laws & standards Division
of China Southern Air Holding Limited Company and the Company in September 2018; Chief Operation Officer of the
Company and Secretary of CPC General Branch of laws & standards Division of China Southern Air Holding Limited
Company and the Company in November 2018.
Save as disclosed above, none of the above Directors, Supervisors or senior management of the Company has any
relationship with any Directors, Supervisors, senior management, substantial shareholders of the Company.
134
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES II. STAFF OF THE COMPANY AND SUBSIDIARIES
1. Staff
As of 31 December 2018, the Group had an aggregate of 100,831 employees (31 December 2017: 96,234).
Number of current staff in the Company
67,808
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
Number of current
staff in major
subsidiaries
Total number of
current staff
33,023
100,831
Number of
professionals
(by person)
9,698
21,297
2,595
16,589
2,546
9,108
6,370
10,963
1,855
2,376
17,434
100,831
Categories by education levels
Number (by person)
Postgraduates
Undergraduates
Junior college
Technical School or below
Total
4,061
44,887
32,248
19,635
100,831
135
China Southern Airlines Company LimitedCorporate Governance
2. Professions Composition Chart and Education Composition Chart
PROFESSIONS COMPOSITION CHART
2,595
16,589
2,546
9,108
6,370
10,963
21,297
9,698
17,434
1,855
2,376
EDUCATION COMPOSITION CHART
44,887
4,061
19,635
32,248
136
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
Postgraduates
undergraduates
Diplomas
Technical School or below
ANNUAL REPORT 2018DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES 3. Emolument Policy of Employees
During the reporting period, the Company adhered to the principle of giving priority to efficiency and market-oriented,
established and improved the measures for management of grading and classification of the gross wages of its
subordinate enterprises, and enlaeged the extent of benefits-linked. Meanwhile, the Company also strictly monitored
the implementation of budget and eliminated budget distribution against the rules so as to control the annual labor
costs and total wages occurred within the budget. Focusing on strategic key tasks, the Company innovated salary
allocation methods, allocated more salaries to key positions and key groups, and explored salary incentive schemes
adapted to different positions and groups. In addition, it also insisted on paying salaries according to positions,
abilities and performance, implemented vertical assessment, and enhanced the link between salary allocation and
performance appraisal of units, departments and employees, in order to promote the Company to achieve its
strategic objectives.
4. Training Plan
The Company will continue to adhere to the concept of “training creates value” and accelerate the construction of an
integrated education and training system with the characteristics of China Southern Airlines.
In 2019, the Company plans to focus on providing qualification training to employees, with improvement training
supplemented. Training resources will focus on ensuring the qualification training of flight, maintenance, flight
operation, passenger cabin, ground service, security and many other systems, so as to improve the Company’s
safety operation level and service quality level.
In 2019, key employee training projects of the Company include: for flight system, flight technology training and
pilots’ annual retraining; for maintenance system, pre-job training for new employees and basic license training for
maintenance personnel; for maintenance system, training for new dispatchers, re-training for dispatchers and training
for international operation familiarity; for passenger cabin system, regular re-training for attendants; and for marketing
system, training for international talents as to passenger and freight transportation marketing, etc.
At the same time, the Company will start, in maintenance, passenger cabin and other systems, the pilot projects of
selecting and training highly-skilled talents on the basis of the plan for construction of highly-skilled talent teams. It will
also promote top-level policy design from the aspects of selection, utilization, education and retention of talents, and
train a group of “China Southern Aviation Craftsmen” and “Skill Masters” by reference to the advanced level inside
and outside the industry and both at home and abroad.
5.
Information on Labor Outsourcing
Total hours of outsourced labor
Total pay for outsourced labor (RMB)
52.95 million hours
2,756.43 million
137
China Southern Airlines Company LimitedCorporate Governance
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 to the Listing Rules for the year ended 31 December 2018.
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.
Such modifications were considered and approved in the annual general meeting of 2017. After the completion of the
Non-public Issuance of A Shares and Non-public Issuance of H Shares, with change in the registered capital, number of
shares, capital structure and shareholdings of the Company incurred, the Company amended responding provisions of the
Articles of Association accordingly.
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 1 general meeting and engaged lawyers to
witness the procedures for calling and holding a general meeting. Such procedures were legal and effective and ensured
all shareholders, especially minority investors, to participate in decision to fairly exercise their rights by online voting at the
general meeting.
138
ANNUAL REPORT 2018CORPORATE GOVERNANCE REPORT THE BOARD
The Board is the decision-making body of the Company and accountable to the General Meeting of Shareholders.
Within the scope of its functions and powers stipulated in the Articles of Association, it shall formulate the Company’s
development strategies in accordance with the procedures stipulated in the Rules of Procedure of the Board. In addition,
it shall supervise the implementation of the operation and management and the financial performance, and provide
recommendations on appointment of directors and executives. It shall also make decisions on major contracts and
transactions, as well as other major policies and financial matters. The Board reasonably authorized executive directors
and senior managers according to law. This helped improve the decision-making level and procedure efficiency, and
promote the development of the Company’s production and operation.
The major issues which were brought before the Board for their decisions included:
1. Direction of the operational strategies of the Group;
2. Setting the policies relating to key business and financial objectives of the Company;
3. Monitoring the performance of the management;
4. Approval of material acquisitions, investments, disposal of assets or any significant capital expenditure of the Group;
5. Ensuring a prudent and effective internal control system; and
6. Review of the financial performance and results of the Company.
Under the leadership of the President, the management of the Company is responsible for the day-to-day operations
of the Group. The roles of the Chairman 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 President, is responsible for the day-to-day management of the business of the Group, attends to
the formulation and successful implementation of policies, and assumes full accountability to the Board for all operations of
the Group. Working with the Executive Vice President and the executive management team of each core business division,
the President ensures the effective operations and sustained development of the Group. He maintains a continuing
dialogue with the Chairman and all Directors to keep them fully informed of all major business development issues. He is
also responsible for building and maintaining an effective executive team to support him in his role. The Chairman and the
President are not connected with each other. None of the other Directors is connected with one another.
As at 31 December 2018, the members of the 8th session of the Board comprise two executive Directors and four
independent non-executive Directors. All of the Directors have a term of three years. The brief biographical details of the
Directors are set out on pages 126 to 128 of this Annual Report.
The Board held 36 meetings in 2018, all of which were convened in accordance with the Articles of Association. The
Company held 1 general meeting in 2018, the Directors actively participated general meeting in person and have been
doing their best to develop a balanced understanding of the views of shareholders.
139
China Southern Airlines Company LimitedCorporate Governance The individual attendance of each Director, on a named basis, is as follows:
Whether
independent
Director or not
Numbers of
meetings
that required
attendance
Number of
meetings
attended in
person
Name of Directors
Attendance of board meetings
Number of
meetings
participated
by way of
conference
communication
Number of
meetings
attended by
proxy
Attendance of
General
Meetings
Number of
meetings
absent
Absence in two
consecutive
meetings
Numbers of
meetings
attendance
No
Wang Chang Shun
Tan Wan Geng (Retired on
30 November 2018)
Zhang Zi Fang
Zheng Fan
Gu Hui Zhong
Tan Jin Song
Jiao Shu Ge
No
No
Yes
Yes
Yes
Yes
36
34
36
36
36
36
36
4
2
2
4
4
4
3
32
31
32
32
32
32
32
0
1
2
0
0
0
1
0 No
0 No
0 No
0 No
0 No
0 No
0 No
1
1
0
1
1
1
0
Meetings of the Board held during the year
Of which: number of meetings attended 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
36
4
32
0
The experience and views of our independent non-executive Directors are held in high regard and serve as an effective
guidance for the operation of the Group. The independent non-executive Directors provide the Group with a wide range
of expertise and experience and bring in independent judgment on issues relating to the Group’s strategy, performance
and management process, taking into account the interests of all shareholders. The independent non-executive Directors
represent more than one-third of the Board. 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 2018, 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.
140
ANNUAL REPORT 2018CORPORATE GOVERNANCE REPORT
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 connected 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, Mr. Wang Chang Shun, Mr. Tan Wan Geng and Mr. Zhang Zi Fang are the
executive Directors of 8th session of the Board. Mr. Zheng Fan, Mr. Gu Hui Zhong, Mr. Tan Jin Song and Mr. Jiao Shu
Ge are independent non-executive Directors of 8th session of the Board. Mr. Tan Wan Geng, a former executive Director,
resigned on 30 November 2018.
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 2018, 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 2018 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 consists 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, President, Vice President 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, honestly, 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 connected 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 2 on-site meetings and 4 extraordinary meetings. Meanwhile, it audited, as per the
requirements of the Company Law, Articles of Association, Rules of Procedures of the Supervisory Committee, the
Company’s major affairs, such as, the Company’s compliance, periodical reports, financial work, cash dividends,
connected transactions, internal control, and gave audit opinions.
141
China Southern Airlines Company LimitedCorporate Governance 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.
The Strategic and Investment Committee held 1 meeting in 2018, which was held according to its rules and procedures,
and considered a report on the Company's proposed development program for world-class air transport enterprises. The
attendance of each member is as follows.
Members of Strategic and Investment Committee
Wang Chang Shun (chairman)
Gu Hui Zhong
Jiao Shu Ge
(No. of meetings)
Attended/Eligible to attend
1/1
1/1
1/1
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 2018, 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 and Risk Management Committee has been provided with sufficient resources to discharge its
duties and has access to independent professional advice if necessary.
The terms of reference of the Audit and Risk Management Committee of the Company are in compliance with the
provision of C.3.3 of the 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 2018, 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
2018 quarterly results, 2018 interim results and 2017 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 and Risk Management 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.
142
ANNUAL REPORT 2018CORPORATE GOVERNANCE REPORT
The Audit and Risk Management Committee held 13 meetings in 2018. The Audit and Risk Management Committee has
performed all its obligations under its terms of reference. The attendance of each member is as follows:
Members of the Audit and Risk Management Committee
Tan Jin Song (Chairman)
Gu Hui Zhong
Jiao Shu Ge
(No. of meetings)
Attended/Eligible to attend
13/13
13/13
13/13
The Audit and Risk Management Committee reviewed the performance, independence and objectivity of the Company’s
auditors and was satisfied with the results.
The Audit and Risk Management Committee concludes that the independence of the auditors of the Company has not
been compromised by non-audit services provided for the Group.
At 2017 annual general meeting of the Company, the Company has considered and approved the appointment of KPMG
Huazhen LLP to provide professional services to the Company for its domestic financial reporting and internal control
reporting, U.S. financial reporting and internal control for the year 2018 and appointment of KPMG to provide professional
services to the Company for its Hong Kong financial reporting for the year 2018.
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 2017 and 2018:
Audit fees
Non-audit fees
Total
2018
RMB Million
2017
RMB Million
15.5
2.7
18.2
14
0
14
Note: Non-audit fees are mainly derived from tax services.
REMUNERATION AND ASSESSMENT COMMITTEE
As at 31 December 2018, 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”.
143
China Southern Airlines Company LimitedCorporate Governance
The Remuneration and Assessment Committee held 2 meetings in 2018, which was held according to its rules and
procedures. The meeting reviewed the resolutions including the total remuneration accounts for the year 2016, the
total remuneration budgets and accounts for the year 2017, and the total remuneration budget for the year 2018, the
Company’s labour and salary system reform plan. The attendance of each member is as follows.
Members of Remuneration and Assessment Committee
Gu Hui Zhong (chairman)
Zhang Zi Fang
Zheng Fan
(No. of meeting)
Attended/Eligible to attend
2/2
2/2
2/2
The Remuneration and Assessment Committee consulted, when appropriate, the Chairman and/or the President about
its proposals relating to the remuneration of other executive Directors. The Remuneration and Assessment Committee
is provided with sufficient resources to discharge its duties and professional advice is available if necessary. The
Remuneration and Assessment Committee is also responsible for assessing performance of executive Directors and
approving the terms of executive Directors’ service contracts. The Remuneration and Assessment Committee has
performed all its responsibilities under its terms of reference in 2018.
NOMINATION COMMITTEE
As at 31 December 2018, 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 Senior Management and give
advice to the Board by consideration of the board diversity policy; identify qualified candidates for Directors and Senior
Management; investigate and propose candidates for Directors and Senior Management and other senior management
members to the Board.
In accordance with relevant laws and regulations as well as the provisions of the Articles of Association, the Nomination
Committee shall study 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 selection procedures of Directors
and senior management are (1) the Nomination Committee shall actively communicate with the relevant departments of
the Company to research on the demand of the Company for new Directors and senior management and report the same
in writing; (2) the Nomination Committee may extensively look for the candidates of Directors and senior management
within the Company and its controlled (associated) companies as well as in the market; (3) to obtain information regarding
the occupation, academic qualification, job title, detailed working experience and all the part-time positions of the initially
proposed candidates and to report the same in writing; (4) to seek the nominees’ acceptance on nomination, otherwise
he or she shall not be put on the list of candidates of Directors and senior management; (5) to convene meetings of the
Nomination Committee and to inspect the qualification of initially proposed candidates according to the job qualifications
of Directors and senior management; (6) to make recommendations and submit relevant materials about the candidates
of Directors and senior management to the Board one to two months prior to the election of new Directors and the
appointment of new senior management; and (7) to conduct other follow-up work according to the decision and feedbacks
of the Board. The criteria to be considered as reference by the Nomination Committee in assessing a proposed candidate
include the required skills, knowledge and quality to perform the duties. Details of the criteria are set out in the Procedural
Rules of the Board of Directors which has been published by the Company on the website of the Stock Exchange at “www.
hkexnews.hk”. 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”.
144
ANNUAL REPORT 2018CORPORATE GOVERNANCE REPORT
The Nomination Committee held 4 meetings in 2018, to nominate and appoint Mr. Luo Ming Hao as the Chief Pilot of the
Company, Mr. Zhang Zheng Rong and Mr. Cheng Yong as Executive Vice President of the Company, and Mr. Wang Ren
Jie as Chief Operation Officer of the Company. The Nomination Committee has performed all its obligations under their
terms of reference in 2018. The attendance of each member of the Nomination Committee is as follows:
Members of the Nomination Committee
Zheng Fan (chairman)
Wang Chang Shun
Jiao Shu Ge
AVIATION SAFETY COMMITTEE
(No. of meetings) Attended/
Eligible to attend
4/4
4/4
4/4
The Aviation Safety Committee comprises three members and is chaired by Mr. Tan Wan Geng as the former 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. Mr. Tan Wan Geng has resigned with effective from 30 November 2018.
The Aviation Safety Committee held 1 meeting in 2018, which was held according to its rules and procedures, and
considered a report on the Company's work on flight safety in 2018. The attendance of each member is as follows.
Members of Aviation Safety Committee
Tan Wan Geng (resigned on 30 November 2018)
Zheng Fan
Tan Jin Song
CORPORATE GOVERNANCE FUNCTIONS
(No. of meeting)
Attended/Eligible to attend
0/1
1/1
1/1
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. 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 2018 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 160 to 166 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.
145
China Southern Airlines Company LimitedCorporate Governance
The Directors are responsible for ensuring that the Group keeps accounting records which disclose with reasonable
accuracy of the financial position of the Group and which enables the preparation of financial statements in accordance
with PRC laws and regulations and disclosure requirements of the Hong Kong Companies Ordinance and the applicable
accounting standards.
COMMUNICATIONS WITH SHAREHOLDERS AND INVESTOR RELATIONS
During the reporting period, the Company upheld a professional, open and positive attitude, adhered to investor-centered
policy, actively responded to complex external environment changes, and continuously improved the quality of investor
relations work.
The Company improved its communication mechanism and strengthened two-way communication. The Company held
or attended over 100 performance release conferences, road shows and telephone conferences throughout the year, and
deeply communicated with more than 1,500 investors. On the one hand, it accurately, comprehensively and objectively
conveyed the information of its development strategy, production and operation, financial management and so on; on the
other hand, it actively collected and summarized the views of capital market and shareholders’ suggestions to provide
valuable information for the Company’s development.
The Company strengthened infrastructure construction and built multiple pipelines. It continued to improve the databases
of institutions, analysts and individual shareholders, strengthened the dynamic tracking of shareholder structure, and kept
improving online and offline platforms in the light of the different needs of investors. In addition, it also gave full play to
the advantages of Internet channels to enable the Company to response more quickly to the public opinion in the capital
market.
During the reporting period, the Company was awarded the title of “The Listed Company Most Respected by Investors”
by China Listed Companies Association, and its brand image was further enhanced.
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)8611-2480, 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 Implementation Rules regarding Information submitted by the
Board; 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 2018, the Company received a level-A information disclosure rating for the year 2017-2018 from Shanghai Stock
Exchange.
146
ANNUAL REPORT 2018CORPORATE GOVERNANCE REPORT AMENDMENTS TO ARTICLES OF ASSOCIATION
On 26 April 2018, the Company convened an extraordinary meeting of the 8th session of the Board and approved a
resolution to amend the Company’s Articles of Association (“Proposed Amendments”). The Proposed Amendments
reflects the change of the company name of the controlling shareholder of the Company from “China Southern Air Holding
Company”to “China Southern Air Holding Limited Company”. For details, please refer to the Company’s announcement
dated 26 April 2018. The Proposed Amendments were approved by the Company’s shareholders at the annual general
meeting on 15 June 2018.
On 16 October 2018, the Company convened an extraordinary meeting of the 8th 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 the Company’s first extraordinary general meeting of 2017 and the non-public issue results, thus
to reflect the increase in registered capital of the Company. For details, please refer to the Company’s announcement
dated 16 October 2018.
Save as disclosed above, in 2018, 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 79(3) of
the Articles of Association. Such requisition must be stated in the agenda to be addressed in general meeting and signed
by the applicant and then reported to the Board and Company Secretary of the Company in written form. Shareholders
should follow the requirements and procedures as set out in 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”.
147
China Southern Airlines Company LimitedCorporate Governance FIVE GOVERNANCE
SYSTEMS WITH
MODERN STANDARDS
The world's first-class airlines have modern governance systems and capabilities. We also must establish
modern corporate systems with Chinese characteristics. To realize this, we need to strengthen the
leadership of CCP, perfect the governance structure, enhance strategic management, improve market
mechanism and build our corporate culture. The building of modern governance systems is to drive our
high-quality development.
I. BASIC INFORMATION OF CORPORATE BONDS
Abbreviation
Code
Issuance date
Maturity date
Unit: RMB million
Outstanding
balance of
bonds
Interest
Rate(%)
Repayment of principal and
interest
Trading floor
15 China Southern Airlines 01
136053
20 November 2015
20 November 2020
2,654.98
4.15
16 China Southern Airlines 01
136256
3 March 2016
3 March 2019
5,000
2.97
16 China Southern Airlines 02
136452
25 May 2016
25 May 2021
5,000
3.12
18 China Southern Airlines 01
155052
27 November 2018
27 November 2021
2,000
3.92
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
Pay interests once a year, pay
back principal plus interests
when due
SSE
SSE
SSE
SSE
Note: As at the date of this report, 16 China Southern Airlines 01 has been delisted.
II. 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 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 for the redeemed portion of the bonds will be on 20 November
annually from 2016 to 2018. The repayment date of 15 China Southern Airlines 01 corporate bonds is 20 November 2020.
If the investors exercise the option for redemption, then the interest date for the redeemed portion of the bonds will be on
20 November 2018. 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 during the postponed period.
The interest date of 16 China Southern Airlines 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 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 during the
postponed period.
150
ANNUAL REPORT 2018CORPORATE BOND
The interest date of 16 China Southern Airlines 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 for the redeemed portion of the bonds will be on 25 May annually from 2017 to
2019. The repayment date of 16 China Southern Airlines 02 corporate bonds is 25 May 2021. If the investors exercise the
option for redemption, then the repayment date for the redeemed portion of the bonds will be on 25 May 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 during the postponed period.
The interest date of 18 China Southern Airlines 01 corporate bonds was 27 November 2018. 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 period is from 27 November 2018 to 26 November 2021. 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 postponed period. The principal is repaid in a lump sum on maturity. The repayment
date of 18 China Southern Airlines 01 corporate bonds is 27 November 2021. 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 postponed period.
The principal redemption and interest payment of the above corporate bonds will be handled by the registration authority
and relevant institutions. The specific matters of principal redemption and interest payment will be explained in the
relevant announcements issued by the Company in the designated media of the CSRC in accordance with relevant state
regulations.
Other debt repayment protection measures for the above corporate bonds: ① set up a special repayment working
group; ② set up special accounts and strictly implement the fund management plan; ③ formulate bondholders’ meeting
rules; ④ give full play to the role of bond trustee; ⑤ implement strict information disclosure. In addition, the Company
undertakes that in the event that it is not expected to pay the principal and interest of the bonds on time or fails to pay
the principal and interest of the bonds, the Company will at least take the following measures: ① not to distribute profits
to shareholders; ② limit the Company’s debt and the scale of external guarantees; and ③ restrict the Company’s material
foreign investment.
During the reporting period, the above credit enhancement mechanism, debt repayment plan and other debt repayment
guarantee measures for corporate bonds of the Company remained unchanged.
151
China Southern Airlines Company LimitedCorporate Bond III. INTEREST PAYMENT AND ENCASHMENT OF OTHER BONDS AND DEBT
FINANCING INSTRUMENTS OF THE COMPANY
On 24 June 2018, the second tranche of Ultra-short-term Financing Bills of the Company in 2018 expired and the principal
and interests totaling RMB501,273,972.60 were fully paid.
On 6 August 2018, the third tranche of Ultra-short-term Financing Bills of the Company in 2018 expired and the principal
and interests totaling RMB503,164,383.56 were fully paid.
On 21 August 2018, the first tranche of Ultra-short-term Financing Bills of the Company in 2018 expired and the principal
and interests totaling RMB504,561,643.84 were fully paid.
On 17 August 2018, the first tranche of medium-term notes of Xiamen Airlines in 2016 paid the interests and the interests
RMB38,610,000.00 were fully paid.
On 21 October 2018, the second tranche of medium-term notes of Xiamen Airlines in 2016 paid the interests and the
interests RMB49,760,000.00 were fully paid.
On 22 November 2018, the third tranche of medium-term notes of Xiamen Airlines in 2016 paid the interests and the
interests RMB60,840,000.00 were fully paid.
IV. BANKING FACILITIES OF THE COMPANY DURING THE REPORTING PERIOD
As at 31 December 2018, the Company has obtained banking facilities of up to RMB243.910 billion from several domestic
banks, among which the utilized banking facilities amounted to about RMB50.039 billion and the unutilized amount was
about RMB193.871 billion.
152
ANNUAL REPORT 2018CORPORATE BOND 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 the Company is exposed. It is part
of the process to renew the risk management and internal control systems in case of changes in operating environment
or regulation. The Board has conducted a review of, and is satisfied with the effectiveness of the Company’s risk
management and internal control systems for the financial year ended 31 December 2018.
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 them effective as at 31
December 2018 (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. 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:
153
China Southern Airlines Company LimitedRisk Management and Internal ControlRISK MANAGEMENT AND INTERNAL CONTROL 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.
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 from the year 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 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.
154
ANNUAL REPORT 2018RISK MANAGEMENT AND INTERNAL CONTROL 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.
IV. SUMMARY OF RISK MANAGEMENT AND INTERNAL CONTROL
The Board recognizes its responsibility for supervising the risk management and internal control system of the Group and
reviews the effectiveness of the same at least once a year by the Audit and Risk Management Committee. The Audit
and Risk Management Committee assists the Board in performing its role in supervising finance, operation, compliance,
risk management and internal monitoring as well as financial and internal audit function resources of the Group and in
corporate governance. The 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 inside information in accordance with a number of inside
information disclosure procedures to ensure the proper maintenance of confidentiality prior to the disclosure of such
information and to publish such information in an efficient and consistent manner.
As disclosed above, the Audit and Risk Management Committee held 13 meetings in 2018, where the risk management
and internal control systems of the Group were reviewed. As of 31 December 2018, 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.
155
China Southern Airlines Company LimitedRisk Management and Internal Control a policy of “one-click refund” and
launched a barrier-free ticket-buying
website to make travel more intelligent
and convenient. launched its on-board
unique fragrance, featured meals, rich
entertainment programs, etc. to make
passengers feel more pleasant during
flight journeys. The Company was
awarded by SKYTRAX as “the most
outstanding and progressive airline in
the world”.
We have deepened the reform.
Deepening reform in an all-round way
is an important way for the Company
to drive its development and enhance
its vitality. In 2018, China Southern
Airlines overcame difficulties when
deepening its reform and open up
new horizons. Guangzhou Hub has
transitted as a whole to Guangzhou
Baiyun International Airport Terminal
T2. Beijing DaXing International Airport
Base Project has fully been capped.
The Company has been approved to
set up Xiongan Airlines. Guangzhou
Hub in the south and Beijing Hub in
the north is forming a new landscape
for the Company’s development. We
has implemented SASAC’s Double-
Hundred Action to promote the
reform in terms of freight and logistics
company. We have set up freight
logistics companies, and studied
how to formulate a mixed reform
implementation plan for general aviation
airlines. We have deepened the reform
of three systems (i.e. work and salary
allocation and career progression
linked to work performance) and fully
mobilized the enthusiasm of all staff.
We protect the ecology. Respecting
nature and protecting ecology is the
long-standing corporate values of
China Southern Airlines. In 2018, China
Southern Airlines has upgraded its
leading group on energy conservation
and emission reduction to a leading
group on strengthening ecological
and environmental protection in an all-
round way, started the mechanism
of ecological and environmental
The world is moving forward rapidly,
and flying is now a travel choice
for more and more people. China
Southern Airlines carries more than
300,000 passengers every day to
more than 200 destinations in more
than 40 countries and regions around
the world. China Southern Airlines
deeply knows its responsibility. In
every departure, it thinks deeply
about “how to fly and where to fly”.
“Keeping company with the sun” is
the attitude of China Southern Airlines
towards every flight. We strive to
bring sunshine-like service to our
passengers. We are willing to give
back to the society. We are dedicated
to weaving route network, bringing
family, friends and business partners
together. We strive to create a warm,
transparent and responsible company
to add luster to your beautiful life.
Safety comes first. Safety is the lifeline
of airlines. China Southern Airlines
has always adhered to the strategic
principle of “safety comes first”. It has
further improved the management of
safety functions and of assessments,
and strengthened the inspection of the
conduct, discipline and qualifications
of the fleet. It also has promoted the
integration of resources such as fleet,
flight, assignment and maintenance,
and realized more specialized and
refined safety management. It has
firmly adhered to the safety bottom
line. In June 2018, China Southern
Airlines won the “Two-star Diamond
Award for Flight Safety” issued by
CAAC and became the airlines with the
highest safety star ranking in China.
We provide sincere service. Let
customers trust us and be moved
by our professional, sincere and
excellent quality service has always
been the goal of China Southern
Airlines. In 2018, China Southern
Airlines carried out projects to increase
flight punctuality rates. Due to these
efforts, the flight punctuality rate
witnessed a industry-leading growth
of 7.7 percentage points year on year.
Also, the Company formally released
“China Southern e-travel” strategy, and
established a global baggage inquiry
center. In addition, it implemented
156
ANNUAL REPORT 2018SOCIAL RESPONSIBILITY issued the Sunshine China Southern
Airlines Convention, to support its
development. The Company provided
continuous training to employees
to improve the training system and
promotion development channels to
help employees realize their value of
life, enhance their sense of security,
gain, and happiness.
We give back to society. China Southern
Airlines resolutely carries out the major
decision-making arrangements of the
Party Central Committee and the State
Council on poverty alleviation, so as
to make due contributions to poverty
alleviation and the construction of a well-
off society. In 2018, China Southern
Airlines carried out poverty alleviation
work in 21 villages of 2 counties covering
12 provinces and districts. and invested
and introduced RMB17,232,000 for
poverty alleviation. We appointed 63
cadres to work on secondment and
be stationed in villages. At the same
time, we actively carried out public
welfare activities and volunteer service
projects and provided special flight
support services for charter flights
for implementation of peacekeeping,
emergency rescue, escorting suspects,
etc. In the process of internationalization,
we were actively integrated into overseas
society, carried out in-depth cultural
construction and exchange activities, and
establised a good image of “Sunshine
China Southern” and a reponsible central
enterprise.
Details of the Company’s work as
to performing its corporate social
responsibility can be found in China
Southern Aviation Company Limited’s
Corporate Social Responsibility Report
2018 published on the website of
Shanghai Stock Exchange on 30
March 2019.
protection and issued relevant
guidelines, promoting the Company’s
ecological protection work to a new
level. Meanwhile, it has continued to
implement the main agreements of
the Buckingham Palace Declaration
and actively protected biodiversity. The
Company has launched aviation Oil
Consumption e-Cloud data platform
and electronic flight bag (EFB) to
promote energy saving and emission
reduction in flight process by means of
electronic and information technology.
The annual carbon dioxide emissions
were 8.88 tons/ten thousand tons
kilometers, down by 3.1% year on year.
We care for employees. Talents are
valuable resources for sustainable
development of enterprises. The
Company always upholds the concept
of “people-oriented, coexistence &
inclusiveness and win-win growth”,
and grows with its employees.
In 2018, China Southern Airlines
promoted innovation activities in
five aspects, namely, inventions,
innovations, renovations, designs and
constructions, initiated by employees
to be standardized, institutionalized
and normalized. In such activities, the
employee participation rate exceeded
100%, and 2,935 projects set up by
innovation received from empolyees.
It promoted the centralized training
of leading cadres in rotation and
157
China Southern Airlines Company LimitedSocial Responsibility THREE GUARANTEES
CONDITION, RESOURCE
& ENVIRONMENT
“Condition” means building a strong foundation of the front-line staff, prodecures and skills; “resource”
means strengthening talents and capital guarantee, thoroughly implementing strategy of development of
enterprise through talented team, deepening talent development system and mechanism reform, to
realize capital resource diversification, capital management centralization and capital cost minimization;
“environment” means improving relationship management, to gain support from all parties, unify ideas of
all staff and to reach a consensus, echo and resonance. These three guarantees will support the high
quality development.
Independent auditor’s report to the shareholders of
China Southern Airlines Company Limited
(Incorporated in the People’s Republic of China with limited liability)
OPINION
We have audited the consolidated financial statements of China Southern Airlines Company Limited (“the Company”) and
its subsidiaries (“the Group”) set out on pages 167 to 272, which comprise the consolidated statement of financial position
as at 31 December 2018, 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 2018 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.
160
ANNUAL REPORT 2018Independent Auditor’s Report 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.
Recognition of passenger revenue
Refer to note 2(y)(i), note 2(y)(ii), note 3(a)(iii), note 3(a)(viii), note 5, note 39, note 40 and note 41 to the consolidated
financial statements.
The Key Audit Matter
Passenger revenue is recognised 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 stand-alone selling price, between
the flight and mileage earned by members of the Group’s
frequent flyer award programmes. The value attributed to
the awarded mileage is recognised as a contract liability,
and subsequently recognised as revenue when 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 recognised as a contract liability.
How the matter was addressed in our audit
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 and
accuracy of transfers of data between computer
systems, ticket validation to identify data errors and
the assignment of ticket prices to each flight;
The Group recognises, in proportion to the pattern of rights
exercised by the customer, the breakage amount to which
the Group expects to be entitled as revenue. The expected
tickets breakage rate is estimated based on historical
experience.
•
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;
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.
161
China Southern Airlines Company LimitedIndependent Auditor’s Report
KEY AUDIT MATTERS (continued)
Recognition of passenger revenue
Refer to note 2(y)(i), note 2(y)(ii), note 3(a)(iii), note 3(a)(viii), note 5, note 39, note 40 and note 41 to the consolidated
financial statements.
The Key Audit Matter
How the matter was addressed in our audit
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 stand-alone selling price of the mileage awarded and
the expected redemption rate. 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 stand-alone
selling price, expected redemption rate of mileage awarded
and expected tickets breakage rate give rise to an inherent
risk that passenger revenue could be recorded inaccurately,
in the incorrect period or could be subject to manipulation.
•
•
•
•
•
•
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 recognition of the contract liabilities for
mileage awarded and ticket breakage revenue;
examining the allocation of the amount received in
relation to mileage earning flights between the flight
and mileage earned by members of the Group’s
frequent flyer award programmes;
challenging the Group’s assumptions of expected
ticket breakage rate by comparing the Group’s
historical experience and the policy changes that may
affect the tickets breakage rate;
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.
162
ANNUAL REPORT 2018Independent Auditor’s Report
KEY AUDIT MATTERS (continued)
Impairment of the aircraft fleet
Refer to note 2(l)(iii), note 3(a)(i) and note 19(d) to the consolidated financial statements.
The Key Audit Matter
How the matter was addressed in our audit
As at 31 December 2018, the carrying value of the Group’s
aircraft and related equipment was RMB158,961 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;
discussing potential indicators of impairment of aircraft
and related equipment with management, 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, and where such indicators
were identified, assessing whether management had
performed impairment testing in accordance with the
requirements of the prevailing accounting standards;
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 and with reference to the requirements
of the prevailing accounting standards, evaluating
the assumptions and methodology adopted in
management’s impairment assessment or the
valuation reports of management’s external experts,
comparing the key assumptions adopted in
management’s impairment assessment with externally
derived data as well as our own assessments in
relation to key inputs, which included projected
economic growth, competition, forecast revenue
growth, forecast profit margins, 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 2017 to evaluate the reliability of
management’s forecasting process.
•
•
•
•
•
•
163
China Southern Airlines Company LimitedIndependent Auditor’s Report
KEY AUDIT MATTERS (continued)
Provisions for major overhauls
Refer to note 2(aa), note 3(a)(ii) and note 45 to the consolidated financial statements.
The Key Audit Matter
How the matter was addressed in our audit
The Group operated 326 aircraft held under external
operating leases as at 31 December 2018. Under the
terms of the operating lease arrangements, the Group has
responsibility to fulfil 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 2018, provisions for major overhauls
of RMB3,652 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 expected overhaul
cycles, overhaul costs and actual maintenance costs
based on information obtained from discussions with
the Group’s 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.
164
ANNUAL REPORT 2018Independent Auditor’s Report
INFORMATION OTHER THAN THE CONSOLIDATED FINANCIAL
STATEMENTS AND AUDITOR’S REPORT THEREON
The directors are responsible for the other information. The other information comprises all the information included in the
annual report, other than the consolidated financial statements and our auditor’s report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,
in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED
FINANCIAL STATEMENTS
The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in
accordance with IFRSs issued by the IASB and the disclosure requirements of the Hong Kong Companies Ordinance and for
such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but
to do so.
The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial
reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
CONSOLIDATED FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. This
report is made solely to you, as a body and for no other purpose. We do not assume responsibility towards or accept liability
to any other person for the contents of this report.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations
or the override of internal control.
165
China Southern Airlines Company LimitedIndependent Auditor’s Report AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE
CONSOLIDATED FINANCIAL STATEMENTS (continued)
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal
control.
•
•
•
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding
independence and communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence and, where applicable, 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
29 March 2019
166
ANNUAL REPORT 2018Independent Auditor’s Report 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 (loss)/gain, net
Changes in fair value of financial instruments
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:
Note
5
7
8
9
10
11
12
19
14
15
24
25
36(d)
28
16
18
18
2018
RMB million
2017
RMB million
(Note)
138,064
5,559
143,623
76,216
12,704
24,379
7,036
3,770
14,308
–
1,829
121,873
5,933
127,806
62,978
11,877
22,935
6,881
3,391
13,162
324
1,550
140,242
123,098
5,438
8,819
125
(3,202)
263
200
(1,853)
12
–
4,364
(1,000)
3,364
2,895
469
3,364
4,448
9,156
89
(2,747)
431
99
1,801
(64)
109
8,874
(1,976)
6,898
5,961
937
6,898
RMB0.27
RMB0.60
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not
restated. See Note 2(b).
The accompanying notes form part of these financial statements.
167
China Southern Airlines Company LimitedFor the year ended 31 December 2018 Consolidated Income Statement
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss
– Equity investments at fair value through other comprehensive
income – net movement in fair value reserve (non-recycling)
– Share of other comprehensive income of associates
– Deferred tax relating to above items
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
(recycling)
– Share of other comprehensive income of associates
– Differences resulting from the translation of foreign currency
financial statements
– 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:
2018
RMB million
3,364
2017
RMB million
(Note)
6,898
Note
17
319
(4)
(80)
29
–
–
(2)
(7)
255
3,619
3,048
571
3,619
–
–
–
25
123
2
–
(37)
113
7,011
6,028
983
7,011
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not
restated. See Note 2(b).
The accompanying notes form part of these financial statements.
168
ANNUAL REPORT 2018For the year ended 31 December 2018Consolidated Statement of Comprehensive Income
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
Other equity instrument investments
Other non-current financial assets
Derivative financial instruments
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
Other financial assets
Assets held for sale
Amounts due from related companies
Current liabilities
Derivative financial liabilities
Borrowings
Current portion of obligations under finance leases
Trade payables
Contract liabilities
Sales in advance of carriage
Deferred revenue
Current income tax
Amounts due to related companies
Accrued expenses
Other liabilities
Note
19
20
21
22
24
25
26
26
26
26
27
29(b)
30
31
32
33
34
26
35
42
27
36
37
38
39
40
39
42
43
44
31 December
2018
RMB million
31 December
2017
RMB million
(Note)
170,692
37,791
2,970
237
3,181
2,812
–
594
–
1,080
103
75
1,566
1,776
222,877
1,699
2,901
8,015
6,928
116
3,659
440
224
90
24,072
44
38,741
9,555
2,309
1,693
8,594
–
369
127
15,682
6,573
83,687
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
111
1,334
–
8
76
17,884
64
27,568
8,341
2,125
–
7,853
1,502
919
101
15,370
5,734
69,577
Net current liabilities
Total assets less current liabilities
(59,615)
163,262
(51,693)
149,141
169
China Southern Airlines Company LimitedAt 31 December 2018Consolidated Statement of Financial Position
Non-current liabilities
Borrowings
Obligations under finance leases
Deferred revenue
Other non-current liabilities
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
Note:
Note
36
37
39
41
45
46
47
29(b)
48
49
31 December
2018
RMB million
31 December
2017
RMB million
(Note)
15,676
62,666
–
2,036
2,831
2
906
676
84,793
78,469
12,267
52,990
65,257
13,212
78,469
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
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not
restated. See Note 2 (b).
Approved and authorised for issue by the Board of Directors on 29 March 2019.
Wang Chang Shun
Director
Zhang Zi Fang
Director
The accompanying notes form part of these financial statements.
170
ANNUAL REPORT 2018At 31 December 2018Consolidated Statement of Financial Position (continued)
Attributable to equity shareholders of the Company
Share
capital
Total
equity
RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million
Retained
earnings
Share
premium
Other
reserves
Total
Non-
controlling
interests
Fair value
reserve
(recycling)
Fair value
reserve
(non-
recycling)
Balance at
1 January 2017
Changes in equity for
2017:
Profit for the year
Other comprehensive
income
Total comprehensive income
Appropriations to reserves
Dividends relating to 2016
Issuance of shares
Capital injection by non-
controlling interests in
subsidiaries
Dilution and change in non-
controlling interests and
other reserves
Distributions to
non-controlling interests
Balance at
31 December 2017
Impact on initial application
of IFRS 15 (Note 2 (b)(ii))
Impact on initial application
of IFRS 9 (Note 2 (b)(i))
Adjusted balance at
1 January 2018 (Note)
Changes in equity for
2018:
Profit for the year
Other comprehensive
income
Total comprehensive income
Appropriations to reserves
(Note 49 (a))
Dividends relating to 2017
(Note 49 (b))
Issuance of shares (Note
48 (ii))
Capital injection by non-
controlling interests in
subsidiaries
Changes in other reserves
Distributions to non-
controlling interests
Balance at
9,818
14,131
209
–
–
–
–
–
270
–
–
–
–
–
–
–
–
1,051
–
–
–
10,088
15,182
–
–
–
–
10,088
15,182
–
–
–
–
–
–
–
–
–
–
2,179
10,470
–
–
–
–
–
–
–
66
66
–
–
–
–
–
–
275
–
(240)
35
–
22
22
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
303
303
–
133
133
–
–
–
–
–
–
2,078
17,220
43,456
11,520
54,976
–
1
1
492
–
–
–
113
–
5,961
–
5,961
(492)
(982)
–
–
–
–
5,961
67
6,028
–
(982)
1,321
–
113
–
937
46
983
–
–
–
404
(39)
(261)
6,898
113
7,011
–
(982)
1,321
404
74
(261)
2,684
21,707
49,936
12,607
62,543
–
–
526
40
526
103
53
8
579
111
2,684
22,273
50,565
12,668
63,233
–
(2)
(2)
2,895
–
2,895
221
(221)
2,895
153
3,048
–
–
–
–
4
–
(1,009)
(1,009)
–
–
–
–
12,649
–
4
–
469
102
571
–
–
–
72
–
(99)
3,364
255
3,619
–
(1,009)
12,649
72
4
(99)
31 December 2018
12,267
25,652
57
436
2,907
23,938
65,257
13,212
78,469
Note:
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not
restated. See Note 2(b).
The accompanying notes form part of these financial statements.
171
China Southern Airlines Company LimitedFor the year ended 31 December 2018Consolidated Statement of Changes in Equity
Note
34(b)
23(iv)
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
Proceeds from disposal of property, plant and equipment and
lease prepayments
Proceeds from sale of a joint venture
Acquisition of other financial assets
Dividends received from associates
Dividends received from joint ventures
Dividends received from other investments in equity securities and
available-for-sale financial assets
Dividends received from other non-current financial assets and
other equity instrument investments
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 corporate bonds
Proceeds from issuance of ultra-short-term financing bills
Repayment of bank borrowings
Repayment of principal under finance lease obligations
Repayment of ultra-short-term financing bills
Repayment of corporate bonds
Capital injections by non-controlling interests in subsidiaries
Dividends paid to non-controlling interests
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange gain/(loss) on cash and cash equivalents
Cash and cash equivalents at 31 December
34(a)
2018
RMB million
2017
RMB million
21,174
131
(4,255)
(1,662)
15,388
6
3,550
–
(440)
114
144
–
20
(264)
313
(24,033)
–
(53)
126
(20,517)
(1,009)
10,908
34,385
2,000
5,500
(34,260)
(10,433)
(1,500)
(345)
72
(98)
5,220
91
6,826
11
6,928
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
The accompanying notes form part of these financial statements.
172
ANNUAL REPORT 2018For the year ended 31 December 2018Consolidated Cash Flow Statement
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”), a state-owned
enterprise incorporated in the PRC.
The Company’s shares are traded on the Shanghai Stock Exchange, The Stock Exchange of Hong Kong Limited and
the New York Stock Exchange.
2 SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with all applicable International Financial
Reporting Standards (“IFRSs”), which collective term includes all applicable individual IFRSs, International Accounting
Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (the “IASB”). The
consolidated financial statements also comply with the applicable disclosure requirements of the Hong Kong Companies
Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited. Significant accounting policies adopted by the Group are disclosed below.
The IASB has issued certain new and revised IFRSs that are first effective for the current accounting period of the
Group. Note 2(b) provides information on any changes in accounting policies resulting from initial application of these
developments to the extent that they are relevant to the Group for the current accounting period reflected in these
financial statements.
(a) Basis of preparation
The consolidated financial statements for the year ended 31 December 2018 comprise the Group and the Group’s
interest in associates and joint ventures.
The measurement basis used in the preparation of the financial statements is the historical cost basis except that the
following assets and liabilities are stated at their fair value as explained in the accounting policies set out below:
–
–
–
–
other equity instrument investments (see Note 2(f));
other non-current financial assets (see Note 2(f));
other financial assets (see Note 2(f)); and
derivative financial instruments (see 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 (see Note 2(r)).
The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates.
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.
173
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies
The IASB has issued a number of new IFRSs and amendments to IFRSs that are first effective for the current
accounting period of the Group. Of these, the following developments are relevant to the Group’s financial statements:
•
•
•
IFRS 9, Financial instruments
IFRS 15, Revenue from contracts with customers
IFRIC 22, Foreign currency transactions and advance consideration
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting year.
(i)
IFRS 9, Financial instruments
IFRS 9 replaces IAS 39, Financial instruments: recognition and measurement. It sets out the requirements for
recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial
items.
The Group has applied IFRS 9 retrospectively to items that existed at 1 January 2018 in accordance with the
transition requirements. The Group has recognised the cumulative effect of initial application as an adjustment to
the opening equity at 1 January 2018. Therefore, comparative information continues to be reported under IAS 39.
The following table summarises the impact of transition to IFRS 9 on retained earnings and reserves and the
related tax impact at 1 January 2018.
Retained earnings
Transferred from fair value reserve (recycling) relating to financial assets
now measured at fair value through profit or loss (FVPL)
Remeasurement of other investments in equity securities
now measured at FVPL at 1 January 2018
Related tax
Effect of the above changes on non-controlling interests
Net increase in retained earnings at 1 January 2018
Fair value reserve (recycling)
Transferred to retained earnings relating to financial assets now measured at FVPL
Transferred to fair value reserve (non-recycling) relating to equity securities
now measured at fair value through other comprehensive income (FVOCI)
Net decrease in fair value reserve (recycling) at 1 January 2018
Fair value reserve (non-recycling)
Transfer and remeasurement effect of other investments in
equity securities now measured at FVOCI at 1 January 2018
Related tax
Net increase in fair value reserve (non-recycling) at 1 January 2018
Non-controlling interests
Remeasurement of other investments in equity securities
now measured at FVPL in non-controlling interests at 1 January 2018
RMB million
30
23
(5)
(8)
40
(30)
(210)
(240)
334
(31)
303
8
174
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(i)
IFRS 9, Financial instruments (continued)
Further details of the nature and effect of the changes to previous accounting policies and the transition approach
are set out below:
(a) Classification of financial assets and financial liabilities
IFRS 9 categories financial assets into three principal classification categories: measured at amortised cost,
at FVOCI and at FVPL. These supersede IAS 39’s categories of held-to-maturity investments, loans and
receivables, available-for-sale financial assets and financial assets measured at FVPL. The classification of
financial assets under IFRS 9 is based on the business model under which the financial asset is managed
and its contractual cash flow characteristics. Under IFRS 9, derivatives embedded in contracts where the
host is a financial asset in the scope of the standard are not separated from the host. Instead, the hybrid
instrument as a whole is assessed for classification.
The following table shows the original measurement categories for each class of the Group’s financial assets
under IAS 39 and reconciles the carrying amounts of those financial assets determined in accordance with
IAS 39 to those determined in accordance with IFRS 9.
IAS 39
carrying
amount at
31 December
2017 Reclassification Remeasurement
RMB million
RMB million
RMB million
Financial assets measured at
FVOCI (non-recyclable)
Other equity instrument investments
Financial assets carried at FVPL
Other non-current financial assets
Financial assets classified as
available-for-sale under IAS 39
Available-for-sale financial assets
Other investments in equity securities
–
–
622
103
637
88
(622)
(103)
124
23
–
–
IFRS 9
carrying
amount at
1 January
2018
RMB million
761
111
–
–
Note:
(i)
For an explanation of how the Group classifies and measures financial assets and recognises related gains and
losses under IFRS 9, see respective accounting policy notes in Notes 2(f), (g), (l)(i), (o) and (s).
The measurement categories for all financial liabilities remain the same, except for financial guarantee
contracts (see Note 2(l)(ii)). The carrying amounts for all financial liabilities (including financial guarantee
contracts) at 1 January 2018 have not been impacted by the initial application of IFRS 9.
The Group had not designated or de-designated any financial asset or financial liability at FVPL at 1 January
2018.
175
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(i)
IFRS 9, Financial instruments (continued)
(b) Credit losses
IFRS 9 replaces the “incurred loss” model in IAS 39 with the “expected credit losses” (“ECL”) model. The
ECL model requires an ongoing measurement of credit risk associated with a financial asset and therefore
recognises ECLs earlier than under the “incurred loss” accounting model in IAS 39.
The Group applies the new ECL model to the following items:
–
–
–
financial assets measured at amortised cost (including cash and cash equivalents and trade and other
receivables);
lease receivables; and
financial guarantee contracts issued (see Note 2 (l)(ii)).
For further details on the Group’s accounting policy for accounting for credit losses, see Notes 2 (l)(i) and (ii).
The adoption of ECL model under IFRS 9 has no material impact on the Group.
(c) Hedge accounting
The Group has elected to adopt the new general hedge accounting model in IFRS 9. Depending on the
complexity of the hedge, this new accounting model allows a more qualitative approach to assessing
hedge effectiveness compared to IAS 39 to be applied, and the assessment is always forward-looking. The
adoption of IFRS 9 has not had a significant impact on the Group’s financial statements in this regard.
(d)
Transition
Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively,
except as described below:
–
–
–
–
Information relating to comparative periods has not been restated. Differences in the carrying amounts
of financial assets resulting from the adoption of IFRS 9 are recognised in retained earnings and
reserves as at 1 January 2018. Accordingly, the information presented for 2017 continues to be
reported under IAS 39 and thus may not be comparable with the current period.
The following assessments have been made on the basis of the facts and circumstances that existed
at 1 January 2018 (the date of initial application of IFRS 9 by the Group):
–
–
the determination of the business model within which a financial asset is held; and
the designation of certain investments in equity instruments not held for trading to be classified
as at FVOCI (non-recycling).
If, at the date of initial application, the assessment of whether there has been a significant increase in
credit risk since initial recognition would have involved undue cost or effort, a lifetime ECL has been
recognised for that financial instrument.
All hedging relationships designated under IAS 39 at 31 December 2017 met the criteria for hedge
accounting under IFRS 9 at 1 January 2018 and are therefore regarded as continuing hedging
relationships. Changes to hedge accounting policies have been applied prospectively.
176
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(ii)
IFRS 15, Revenue from contracts with customers
IFRS 15 establishes a comprehensive framework for recognising revenue and some costs from contracts with
customers. IFRS 15 replaces IAS 18, Revenue, which covered revenue arising from sale of goods and rendering of
services, and IAS 11, Construction contracts, which specified the accounting for construction contracts.
IFRS 15 also introduces additional qualitative and quantitative disclosure requirements which aim to enable users
of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows
arising from contracts with customers.
The Group has elected to use the cumulative effect transition method and has recognised the cumulative effect
of initial application as an adjustment to the opening balance of equity at 1 January 2018. Therefore, comparative
information has not been restated and continues to be reported under IAS 11 and IAS 18. As allowed by IFRS 15,
the Group has applied the new requirements only to contracts that were not completed before 1 January 2018.
The following table summarises the impact of transition to IFRS 15 on total equity at 1 January 2018:
Total equity
Earlier recognition of ticket breakage revenue
Change in measurement of revenue under frequent flyer award programmes
Related income tax
Total equity
Representing:
Attributable to equity shareholders of the Company
Non-controlling interests
RMB million
682
89
(192)
579
526
53
Further details of the nature and effect of the changes on previous accounting policies are set out below:
(a)
Timing of revenue recognition
Previously, revenue arising from construction contracts and provision of services was recognised over time,
whereas revenue from sale of goods was generally recognised at a point in time when the risks and rewards
of ownership of the goods had passed to the customers.
Under IFRS 15, revenue is recognised when the customer obtains control of the promised good or service
in the contract. This may be at a single point in time or over time. IFRS 15 identifies the following three
situations in which control of the promised good or service is regarded as being transferred over time:
A. When the customer simultaneously receives and consumes the benefits provided by the entity’s
performance, as the entity performs;
B. When the entity’s performance creates or enhances an asset (for example work in progress) that the
customer controls as the asset is created or enhanced;
C. When the entity’s performance does not create an asset with an alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date.
If the contract terms and the entity’s activities do not fall into any of these 3 situations, then under IFRS 15
the entity recognises revenue for the sale of that good or service at a single point in time, being when control
has passed. Transfer of risks and rewards of ownership is only one of the indicators that is considered in
determining when the transfer of control occurs.
177
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(ii)
IFRS 15, Revenue from contracts with customers (continued)
(a)
Timing of revenue recognition (continued)
The adoption of IFRS 15 does not have a significant impact on when the Group recognises revenue, except
for revenue arising from ticket breakage.
Ticket breakage relates to a portion of contractual rights that the Group does not expect to be exercised.
Previously, revenue arising from ticket breakage was recognised when the tickets expired. Whereas under
IFRS 15, the Group recognises, in proportion to the pattern of rights exercised by the customer, the
breakage amount to which the Group expects to be entitled as revenue. If the Group does not expect to be
entitled to a breakage amount, the Group recognises the expected breakage amount as revenue when the
likelihood of the customer exercising its remaining rights becomes remote.
As a result of this change in accounting policy, the Group has made adjustments to opening balances as
at 1 January 2018 which increased retained earnings and non-controlling interests by RMB460 million and
RMB52 million respectively, after an offsetting tax impact of RMB170 million. In addition, the positive impact
on the Group’s revenue for the current financial year was RMB57 million.
(b) Measurement of revenue under frequent flyer award programmes
Previously, the amount received in relation to mileage earning flights is allocated, based on fair value,
between the flight and mileage awarded under the Group’s frequent flyer award programmes. The value
attributed to the awarded mileage is deferred as a liability, and the remainder value is recognised as revenue
in current period. Under IFRS 15, the Group allocates the transaction price to flight and mileage awarded on
a relative stand-alone selling price basis. Therefore, the amount allocated to mileage awarded changed as
compared to the fair value of mileage awarded measured under IAS18, and in the meantime affecting the
amount recognised as current period revenue and contract liabilities.
As a result of this change in accounting policy, the Group has made adjustments to opening balances as
at 1 January 2018 which increased retained earnings and non-controlling interests by RMB66 million and
RMB1 million respectively, after an offsetting tax impact of RMB22 million. In addition, the positive impact on
the Group’s revenue for the current financial year was RMB70 million.
(c)
Presentation
(1)
Ticket Breakage Revenue
Previously, revenue arising from ticket breakage was presented separately as “Expired sales in advance
of carriage” in “Other operating revenue”. As a result of the adoption of IFRS15, ticket breakage
revenue of RMB698 million for the current financial year is included in the line item “Traffic revenue”.
(2) Change Fees
Previously, change fees was included in “Other operating revenue”. As a result of the adoption of
IFRS15, change fees of RMB655 million for the current financial year which is not considered distinct
from the transportation component is classified as “Traffic revenue”.
(3) Contract Liabilities
Previously, the amount received in relation to mileage awarded is deferred as a liability, within “Deferred
revenue”. Under IFRS 15, a contract liability is recognised when a customer pays consideration,
or is contractually required to pay consideration and the amount is already due, before the Group
recognises the related revenue.
As a result of the adoption of IFRS15, the amount allocated to mileage awarded under the Group’s
frequent flyer award programmes is presented as “Contract liabilities” as at 31 December 2018 and
the non-current portion is recorded in “Other non-current liabilities”.
178
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(ii)
IFRS 15, Revenue from contracts with customers (continued)
(d) Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 December 2018
as a result of the adoption of IFRS 15 on 1 January 2018
The following tables summarise the estimated impact of adoption of IFRS 15 on the Group’s consolidated
financial statements for the year ended 31 December 2018, by comparing the amounts reported under IFRS
15 in these consolidated financial statements with estimates of the hypothetical amounts that would have
been recognised under IAS 18 and IAS 11 if those superseded standards had continued to apply to 2018
instead of IFRS 15. These tables show only those line items impacted by the adoption of IFRS 15:
Amounts reported
in accordance
with IFRS 15
(A)
RMB million
Hypothetical
amounts under
IASs 18 and 11
(B)
RMB million
Difference:
Estimated impact
of adoption of
IFRS 15 on 2018
(A)-(B)
RMB million
Line items in the consolidated
income statement for year ended
31 December 2018 impacted by the
adoption of IFRS 15:
Traffic revenue
Other operating revenue
Total operating revenue
Profit before income tax
Income tax
Profit for the year
Profit attributable to:
Equity shareholders of the Company
Non-controlling interests
Earnings per share
Basic and diluted
Line items in the consolidated
statement of comprehensive income
for year ended 31 December 2018
impacted by the adoption of IFRS 15:
Total comprehensive income for
the year
Total comprehensive income
attributable to:
Equity shareholders of the Company
Non-controlling interests
138,064
5,559
143,623
4,364
(1,000)
3,364
2,895
469
136,641
6,855
143,496
4,237
(968)
3,269
2,805
464
1,423
(1,296)
127
127
(32)
95
90
5
RMB0.27
RMB0.26
RMB0.01
3,619
3,524
3,048
571
2,958
566
95
90
5
179
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(ii)
IFRS 15, Revenue from contracts with customers (continued)
(d) Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 December 2018
as a result of the adoption of IFRS 15 on 1 January 2018 (continued)
Amounts reported
in accordance
with IFRS 15
(A)
RMB million
Hypothetical
amounts under
IASs18 and 11
(B)
RMB million
Difference:
Estimated impact
of adoption of
IFRS 15 on 2018
(A)-(B)
RMB million
Line items in the consolidated
statement of financial position as at
31 December 2018 impacted by the
adoption of IFRS 15:
Deferred tax assets
Non-current assets
Contract liabilities
Sales in advance of carriage
Deferred revenue
Current income tax
Total current liabilities
Total assets less current liabilities
Deferred revenue
Other non-current liabilities
Total non-current liabilities
Reserves
Total equity attributable to equity
shareholders of the Company
Non-controlling interests
Total equity
1,566
222,877
(1,693)
(8,594)
–
(369)
(83,687)
163,262
–
(2,036)
(84,793)
(52,990)
(65,257)
(13,212)
(78,469)
1,570
222,881
–
(9,357)
(1,808)
(130)
(84,326)
162,627
(2,057)
(18)
(84,832)
(52,374)
(64,641)
(13,154)
(77,795)
(4)
(4)
(1,693)
763
1,808
(239)
639
635
2,057
(2,018)
39
(616)
(616)
(58)
(674)
180
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Changes in accounting policies (continued)
(ii)
IFRS 15, Revenue from contracts with customers (continued)
(d) Disclosure of the estimated impact on the amounts reported in respect of the year ended 31 December 2018
as a result of the adoption of IFRS 15 on 1 January 2018 (continued)
Amounts reported
in accordance
with IFRS 15
(A)
RMB million
Hypothetical
amounts under
IASs18 and 11
(B)
RMB million
Difference:
Estimated impact
of adoption of
IFRS 15 on 2018
(A)-(B)
RMB million
Line items in the reconciliation of
profit before income tax to cash
generated from operating activities
for year ended 31 December
2018 (Note 34(b)) impacted by the
adoption of IFRS 15:
Profit before income tax
Increase in contract liabilities
Increase in sales in advance of carriage
Increase in deferred revenue
Increase in other non-current liabilities
4,364
232
1,441
–
218
4,237
–
1,504
514
–
127
232
(63)
(514)
218
The significant differences arise as a result of the changes in accounting policies described above.
(iii) IFRIC 22, Foreign currency transactions and advance consideration
This interpretation provides guidance on determining “the date of the transaction” for the purpose of determining
the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) arising from a
transaction in which an entity receives or pays advance consideration in a foreign currency.
The Interpretation clarifies that “the date of the transaction” is the date on initial recognition of the non-monetary
asset or liability arising from the payment or receipt of advance consideration. If there are multiple payments or
receipts in advance of recognising the related item, the date of the transaction for each payment or receipt should
be determined in this way. The adoption of IFRIC 22 does not have any material impact on the financial position
and the financial result of the Group.
(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.
181
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(c ) Subsidiaries and non-controlling interests (continued)
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(p) or Note 2(q) depending on the nature of the liability.
Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity
transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within
consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or
loss is recognised.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary,
with a resulting gain or loss being recognised in consolidated income statement. Any interest retained in that former
subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on
initial recognition of a financial asset (Note 2(f)) or, when appropriate, the cost on initial recognition of an investment in
an associate or joint venture (Note 2(d)).
In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses
(Note 2(l)(iii)).
The Group applies the acquisition method to account for business combinations. The consideration transferred in
the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Transaction costs are
expensed as incurred.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such
amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent
consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and
settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each
reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
(d) Associates and joint arrangements
An associate is an entity in which the Group or the Company has significant influence, but not control or joint control,
over its management, including participation in the financial and operating policy decisions.
The Group has applied IFRS 11, Joint Arrangements (“IFRS 11”) to all joint arrangements. Under IFRS 11, investments
in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and
obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be
joint ventures.
182
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Associates and joint arrangements (continued)
An investment in an associate or a joint venture is accounted for in the consolidated financial statements under the
equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date
fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment
is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss
relating to the investment (Notes 2(e) and 2(l)(iii)). The Group’s share of the post-acquisition, post-tax results of the
investees, adjusted for any acquisition-date excess over cost and any impairment losses for the year are recognised in
the consolidated income statement, whereas the Group’s share of the post-acquisition post-tax items of the investees’
other comprehensive income is recognised in the consolidated statement of comprehensive income.
When the Group’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is
reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is
the carrying amount of the investment under the equity method together with the Group’s long-term interests that in
substance form part of the Group’s net investment in the associate or the joint venture.
Unrealised profits and losses resulting from transactions between the Group and its associates and joint ventures are
eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of
an impairment of the asset transferred, in which case they are recognised immediately in the consolidated income
statement.
In the Company’s statement of financial position, investments in associates and joint ventures are stated at cost less
impairment losses (Note 2(l)(iii)).
(e) Goodwill
Goodwill represents the excess of
(i)
the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the
acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over
(ii)
the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognised immediately in the consolidated income statement as a gain
on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated
to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the
combination and is tested annually for impairment (Note 2(l)(iii)).
(f) Other investments in debt and equity securities
The Group’s policies for investments in debt and equity securities, other than investments in subsidiaries, associates and
joint ventures, are set out below.
Investments in debt and equity securities are recognised/derecognised on the date the Group commits to purchase/
sell the investment. The investments are initially stated at fair value plus directly attributable transaction costs, except
for those investments measured at FVPL for which transaction costs are recognised directly in profit or loss. For an
explanation of how the Group determines fair value of financial instruments, see Note 4(g)(i). These investments are
subsequently accounted for as follows, depending on their classification.
183
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Other investments in debt and equity securities (continued)
(A) Policy applicable from 1 January 2018
Investments other than equity investments
Non-equity investments held by the Group are classified as FVPL as the investment does not meet the criteria
for being measured at amortised cost or FVOCI (recycling). Changes in the fair value of the investment (including
interest) are recognised in profit or loss.
Equity investments
An investment in equity securities is classified as FVPL unless the equity investment is not held for trading
purposes and on initial recognition of the investment the Group makes an irrevocable election to designate
the investment at FVOCI (non-recycling) such that subsequent changes in fair value are recognised in other
comprehensive income. Such elections are made on an instrument-by-instrument basis, but may only be made
if the investment meets the definition of equity from the issuer’s perspective. Where such an election is made,
the amount accumulated in other comprehensive income remains in the fair value reserve (non-recycling) until the
investment is disposed of. At the time of disposal, the amount accumulated in the fair value reserve (non-recycling)
is transferred to retained earnings. It is not recycled through profit or loss. Dividends from an investment in equity
securities, irrespective of whether classified as at FVPL or FVOCI, are recognised in profit or loss as other income
in accordance with the policy set out in Note 2(y)(iv).
(B) Policy applicable prior to 1 January 2018
Equity investments
Available-for-sale equity securities were those non-derivative financial assets that were designated as available for
sale or that were 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 was remeasured, with any resultant
gain or loss being recognised in other comprehensive income and accumulated separately in equity in the fair
value reserve (recycling). Dividend income from these investments was recognised in the consolidated income
statement in accordance with the policy set out in Note 2(y)(iv). When these investments were derecognised or
impaired (Note 2(l)(i)(B)), the cumulative gain or loss was 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)(i)(B)). Dividend income from equity securities is recognised in profit or loss in
accordance with the policy set out in Note 2(y)(iv).
The Group did not have other investments other than equity investments.
(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.
184
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(g) Derivative financial instruments (continued)
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.
(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)(iii)).
Depreciation is calculated to write off the cost of items of investment properties, less their estimated residual value,
if any, using the straight-line method over their estimated useful lives. Rental income from investment properties is
accounted for as described in Note 2(y)(iii).
(i) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (Note 2(l)(iii)).
The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the
initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they
are located, and an appropriate proportion of production overheads and borrowing costs (Note 2(ab)).
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of
the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and
maintenance are charged to the consolidated income statement during the financial period in which they are incurred.
When each major aircraft overhaul is performed, its cost is recognised in the carrying amount of the component
of aircraft and is depreciated over the appropriate maintenance cycles. Components related to 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.
185
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Property, plant and equipment (continued)
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)(iii)). Capitalisation of these costs ceases and the construction in progress is transferred
to property, plant and equipment when the asset is substantially ready for its intended use, notwithstanding any delay in
the issue of the relevant commissioning certificates by the relevant PRC authorities.
No depreciation is provided in respect of construction in progress.
(k) Leased assets
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.
186
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Leased assets (continued)
(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)(iii). 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.
(l) Credit losses and impairment of assets
(i) Credit losses from financial instruments and lease receivables
(A) Policy applicable from 1 January 2018
The Group recognises a loss allowance for ECLs on the following items:
–
financial assets measured at amortised cost (including cash and cash equivalents and trade and other
receivables); and
–
lease receivables.
Financial assets measured at fair value, including equity securities measured at FVPL, equity securities
designated at FVOCI (non-recycling) and derivative financial assets, are not subject to the ECL assessment.
187
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Credit losses and impairment of assets (continued)
(i) Credit losses from financial instruments and lease receivables (continued)
(A) Policy applicable from 1 January 2018 (continued)
Measurement of ECLs
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value
of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance
with the contract and the cash flows that the Group expects to receive).
The expected cash shortfalls are discounted using the following discount rates where the effect of
discounting is material:
–
–
–
fixed-rate financial assets, and trade and other receivables: effective interest rate determined at initial
recognition or an approximation thereof;
variable-rate financial assets: current effective interest rate;
lease receivables: discount rate used in the measurement of the lease receivable.
The maximum period considered when estimating ECLs is the maximum contractual period over which the
Group is exposed to credit risk.
In measuring ECLs, the Group takes into account reasonable and supportable information that is available
without undue cost or effort. This includes information about past events, current conditions and forecasts of
future economic conditions.
ECLs are measured on either of the following bases:
–
–
12-month ECLs: these are losses that are expected to result from possible default events within the 12
months after the reporting date; and
lifetime ECLs: these are losses that are expected to result from all possible default events over the
expected lives of the items to which the ECL model applies.
Loss allowances for trade receivables and lease receivables are always measured at an amount equal to
lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s
historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of
both the current and forecast general economic conditions at the reporting date.
For all other financial instruments, the Group recognises a loss allowance equal to 12-month ECLs unless
there has been a significant increase in credit risk of the financial instrument since initial recognition, in which
case the loss allowance is measured at an amount equal to lifetime ECLs.
Significant increases in credit risk
In assessing whether the credit risk of a financial instrument (including a loan commitment) has increased
significantly since initial recognition, the Group compares the risk of default occurring on the financial
instrument assessed at the reporting date with that assessed at the date of initial recognition. In making
this reassessment, the Group considers that a default event occurs when the borrower is unlikely to pay its
credit obligations to the Group in full, without recourse by the Group to actions such as realising security
(if any is held). The Group considers both quantitative and qualitative information that is reasonable and
supportable, including historical experience and forward-looking information that is available without undue
cost or effort.
188
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Credit losses and impairment of assets (continued)
(i) Credit losses from financial instruments and lease receivables (continued)
(A) Policy applicable from 1 January 2018 (continued)
Significant increases in credit risk (continued)
In particular, the following information is taken into account when assessing whether credit risk has
increased significantly since initial recognition:
–
–
–
–
failure to make payments of principal or interest on their contractually due dates;
an actual or expected significant deterioration in a financial instrument’s external or internal credit rating
(if available);
an actual or expected significant deterioration in the operating results of the debtor; and
existing or forecast changes in the technological, market, economic or legal environment that have a
significant adverse effect on the debtor’s ability to meet its obligation to the Group.
Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk
is performed on either an individual basis or a collective basis. When the assessment is performed on a
collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as
past due status and credit risk ratings.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30
days past due, unless the Group has reasonable and supportable information that is available without undue
cost or effort, that demonstrates that the credit risk has not increased significantly since initial recognition
even though the contractual payments are more than 30 days past due.
ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk
since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in
consolidated income statement. The Group recognises an impairment gain or loss for all financial instruments
with a corresponding adjustment to their carrying amount through a loss allowance account.
Basis of calculation of interest income
Interest income recognised in accordance with Note 2 (y)(v) is calculated based on the gross carrying
amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is
calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial
asset.
At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is
credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows
of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable events:
–
–
–
–
significant financial difficulties of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;
it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that have an adverse
effect on the debtor; or
–
the disappearance of an active market for a security because of financial difficulties of the issuer.
189
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Credit losses and impairment of assets (continued)
(i) Credit losses from financial instruments and lease receivables (continued)
(A) Policy applicable from 1 January 2018 (continued)
Write-off policy
The gross carrying amount of a financial asset and lease receivable is written off (either partially or in full)
to the extent that there is no realistic prospect of recovery. This is generally the case when the Group
determines that the debtor does not have assets or sources of income that could generate sufficient cash
flows to repay the amounts subject to the write-off.
Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment
in consolidated income statement in the period in which the recovery occurs.
(B) Policy applicable prior to 1 January 2018
Prior to 1 January 2018, an “incurred loss” model was used to measure impairment losses on financial
assets not classified as at FVPL (e.g. trade and other receivables, and available-for-sale investments). Under
the “incurred loss” model, an impairment loss was recognised only when there was objective evidence of
impairment. Objective evidence of impairment included:
–
–
–
–
–
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 would enter bankruptcy or other financial reorganisation;
significant changes in the technological, market, economic or legal environment that had an adverse
effect on the debtor; and
a significant or prolonged declined in the fair value of an investment in an equity instrument below its
cost.
If any such evidence existed, any impairment loss was determined and recognised as follows:
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For unquoted equity securities carried at cost, the impairment loss was 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 was
material. Impairment losses for equity securities carried at cost were not reversed.
For trade and other current receivables and other financial assets carried at amortised cost, the
impairment loss was 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 was material. This assessment was made collectively where these financial assets shared
similar risk characteristics, such as similar past due status, and had not been individually assessed as
impaired. Future cash flows for financial assets which were assessed for impairment collectively were
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 decreased and the decrease could be
linked objectively to an event occurring after the impairment loss was recognised, the impairment loss
was reversed through profit or loss. A reversal of an impairment loss was only recognised to the extent
that it did not result in the asset’s carrying amount exceeding that which would have been determined
had no impairment loss been recognised in prior years.
190
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Credit losses and impairment of assets (continued)
(i) Credit losses from financial instruments and lease receivables (continued)
(B) Policy applicable prior to 1 January 2018 (continued)
–
For available-for-sale equity securities, the cumulative loss that had been recognised in the fair value
reserve (recycling) was reclassified to profit or loss. The amount of the cumulative loss that was
recognised in consolidated income statement was the difference between the acquisition cost and
current fair value, less any impairment loss on that asset previously recognised in profit or loss.
Impairment losses recognised in profit or loss in respect of available-for-sale equity securities were
not reversed through profit or loss. Any subsequent increase in the fair value of such assets was
recognised directly in other comprehensive income.
Impairment losses were written off against the corresponding asset directly, except for impairment
losses recognised in respect of trade and other receivables, whose recovery was considered doubtful
but not remote. In this case, the impairment losses for doubtful debts were recorded using an
allowance account. When the Group was satisfied that recovery was remote, the amount considered
irrecoverable was written off against trade and other receivables directly and any amounts held in the
allowance account relating to that debt were reversed. Subsequent recoveries of amounts previously
charged to the allowance account were reversed against the allowance account. Other changes in
the allowance account and subsequent recoveries of amounts previously written off directly were
recognised in consolidated income statement.
(ii) Credit losses from financial guarantees issued
Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to
reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor
fails to make payment when due in accordance with the terms of a debt instrument.
After initial recognition at fair value, the Group, as an issuer of such a contract, subsequently measure it at the
higher of: (i) the amount of the loss allowance and (ii) the amount initially recognised less, when appropriate, the
cumulative amount of income recognised.
(A) Policy applicable from 1 January 2018
The Group monitors the risk that the specified debtor will default on the contract and recognises a provision
when ECLs on the financial guarantees are determined to be higher than the amount carried in “trade
and other payables” in respect of the guarantees (i.e. the amount initially recognised, less accumulated
amortisation).
To determine ECLs, the Group considers changes in the risk of default of the specified debtor since the
issuance of the guarantee. A 12-month ECL is measured unless the risk that the specified debtor will default
has increased significantly since the guarantee is issued, in which case a lifetime ECL is measured. The
same definition of default and the same assessment of significant increase in credit risk as described in Note
2(l)(i) apply.
As the Group is required to make payments only in the event of a default by the specified debtor in
accordance with the terms of the instrument that is guaranteed, an ECL is estimated based on the expected
payments to reimburse the holder for a credit loss that it incurs less any amount that the Group expects
to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then
discounted using the current risk-free rate adjusted for risks specific to the cash flows.
191
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Credit losses and impairment of assets (continued)
(ii) Credit losses from financial guarantees issued (continued)
(B) Policy applicable prior to 1 January 2018
Prior to 1 January 2018, a provision would be recognised if and when it became probable that (i) the
holder of the guarantee would call upon the Group under the guarantee and (ii) the amount of the claim
on the Group was expected to exceed the amount carried in “trade and other payables” in respect of the
guarantee, i.e. the amount initially recognised, less accumulated amortisation.
(iii) Impairment of other assets, and investment in associates and joint ventures
(A)
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.
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Calculation of recoverable amount
The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset. Where an asset does not generate cash inflows largely independent of
those from other assets, the recoverable amount is determined for the smallest group of assets that
generates cash inflows independently (i.e. a cash-generating unit).
Recognition of impairment losses
An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-
generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised
in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill
allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of
the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an
asset will not be reduced below its individual fair value less costs of disposal if measurable, or value in
use, if determinable.
192
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) Credit losses and impairment of assets (continued)
(iii) Impairment of other assets, and investment in associates and joint ventures
(continued)
(A)
Impairment of other assets (continued)
–
Reversals of impairment losses
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable
change in the estimates used to determine the recoverable amount. An impairment loss in respect of
goodwill is not reversed.
A reversal of an impairment loss is limited to the asset’s carrying amount that would have been
determined had no impairment loss been recognised in prior years. Reversals of impairment losses are
credited to profit or loss in the year in which the reversals are recognised.
(B)
Impairment of associates and joint ventures
For investments in associates and joint ventures accounted for under the equity method in the consolidated
financial statements (Note 2(d)), the impairment loss was measured by comparing the recoverable amount
of the investment with its carrying amount in accordance with Note 2(l)(iii)(A). The impairment loss was
reversed if there had been a favourable change in the estimates used to determine the recoverable amount
in accordance with Note 2(l)(iii)(A).
(iv) Interim financial reporting and impairment
Under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Group is
required to prepare an interim financial report in compliance with IAS 34, Interim financial reporting, in respect of
the first six months of the financial year. At the end of the interim period, the Group applies the same impairment
testing, recognition, and reversal criteria as it would at the end of the financial year (Notes 2(l)(iii)).
Impairment losses recognised in an interim period in respect of goodwill, if any, are not reversed in a subsequent
period. This is the case even if no loss, or a smaller loss of any, would have been recognised had the impairment
been assessed only at the end of the financial year to which the interim period relates.
(m) Inventories
Inventories, which consist primarily of consumable spare parts and supplies, are stated at cost less any applicable
provision for obsolescence, and are charged to consolidated income statement when used in operations. Cost
represents the average unit cost.
Inventories held for sale or disposal are carried at the lower of cost and net realisable value. Net realisable value is the
estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated
costs necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which
the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of
inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of
any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the
period in which the reversal occurs.
193
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(n) Contract assets and contract liabilities
A contract asset is recognised when the Group recognises revenue (see Note 2(y)) before being unconditionally entitled
to the consideration under the payment terms set out in the contract. Contract assets, if any, are assessed for ECL and
are reclassified to receivables when the right to the consideration has become unconditional (see Note 2(o)).
A contract liability is recognised when the customer pays non-refundable consideration before the Group recognises the
related revenue (see Note 2(y)). A contract liability would also be recognised if the Group has an unconditional right to
receive non-refundable consideration before the Group recognises the related revenue. In such cases, a corresponding
receivable would also be recognised (see Note 2(o)).
For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple
contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.
(o) Trade and other receivables
A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive
consideration is unconditional if only the passage of time is required before payment of that consideration is due. If
revenue has been recognised before the Group has an unconditional right to receive consideration, the amount is
presented as a contract asset (see Note 2(n)).
Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see Note 2
(l)(i)).
(p) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial
recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially
recognised and redemption value being recognised in consolidated income statement over the period of the borrowings,
together with any interest and fees payable, using the effective interest method.
(q) Trade and other payables
Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in
accordance with (Note 2(l)(ii)), 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.
(r ) Non-current assets held for sale
A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will
be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available
for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single
transaction, and liabilities directly associated with those assets that will be transferred in the transaction.
Immediately before classification as held for sale, the measurement of the non-current assets (and all individual
assets and liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the
classification. Then, on initial classification as held for sale and until disposal, the non-current assets (except for certain
assets as explained below), or disposal groups, are recognised at the lower of their carrying amount and fair value less
costs to sell. The principal exceptions to this measurement policy so far as the financial statements of the Group and
the Company are concerned are deferred tax assets, assets arising from employee benefits, financial assets (other than
investments in subsidiaries, associates and joint ventures) and investment properties. These assets, even if held for sale,
would continue to be measured in accordance with the policies set out elsewhere in Note 2.
Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are
recognised in profit or loss. As long as a non-current asset is classified as held for sale, or is included in a disposal
group that is classified as held for sale, the non-current asset is not depreciated or amortised.
194
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(s) Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial
institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and
which are subject to an insignificant risk of changes in value, having been generally within three months of maturity at
acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management
are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow
statement. Cash and cash equivalents are assessed for ECL in accordance with the policy set out in Note 2(l)(i).
(t) Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount when the Group 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.
(u) Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s consolidated financial
statements in the period in which the dividends are approved by the Company’s shareholders.
(v) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in
equity as a deduction, net of tax, from the proceeds.
(w) Deferred benefits and gains
In connection with the acquisitions 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.
(x) 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.
195
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(x) Income tax (continued)
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.
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.
196
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(y) Revenue and other income
Income is classified by the Group as revenue when it arises from the sale of goods, the provision of services or the use
by others of the Group’s assets under leases in the ordinary course of the Group’s business.
Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right
to use the asset, at the amount of promised consideration to which the Group is expected to be entitled, excluding
those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after
deduction of any trade discounts.
Further details of the Group’s revenue and other income recognition policies are as follows:
(i) Passenger, cargo and mail revenue
Revenue is recognised when the customers take possession of and accept the passenger, cargo and mail
transportation services. Unearned passenger revenue at the reporting date is included within “sales in advance
of carriage” in the consolidated statement of financial position. Ticket breakage relates to a portion of contractual
rights that the Group does not expect to be exercised.
When the Group expects that the consideration received in advance of carriage is not refundable, and the
customer is likely to give up a portion of the contractual rights, the Group recognises, in proportion to the pattern
of rights exercised by the customer, the breakage amount to which the Group expects to be entitled as revenue.
If the Group does not expect to be entitled to a breakage amount, the Group recognises the expected breakage
amount as revenue when the likelihood of the customer exercising its remaining rights becomes remote.
Revenue from airline-related business is recognised when the customers take possession of and accept the
relevant services.
In the comparative period, revenue from passenger, cargo and mail transportation, or airline-related business,
was recognised when the transportation service or relevant services was provided. As a result of the change in
accounting policy, adjustments have been made to opening balances as at 1 January 2018 (see Note 2(b)(ii)).
(ii) Frequent flyer revenue
The Group maintains two major frequent flyer award programmes, namely, the China Southern Airlines Sky Pearl
Club and the Xiamen Airlines’ Egret Card Frequent Flyer Programme, which provide travel and other awards to
members based on accumulated mileages.
According to the frequent flyer award programmes, the Group allocates the transaction price received in relation to
mileage earning flights to flight and mileage awarded on a relative stand-alone selling price basis, and recognised
the portion allocated to mileage awarded as “contract liabilities”. The mileage awarded to customers by third
parties through means other than flights are initially recognised as “contract liabilities”.
Contract liabilities in relation to mileage awarded are transferred out when customers redeem flights or take
possession of the redeemed goods or services. Revenue on redeemed flights is recognised in accordance with
the accounting policy set out in Note 2(y)(i), and revenue on redeemed goods or services is recognised when the
customers take possession of the goods or services.
In the comparative period, the amount received in relation to mileage earning flights was allocated, based on fair
value, between the flight and mileage awarded under the Group’s frequent flyer award programmes. As a result
of the change in accounting policy, adjustments have been made to opening balances as at 1 January 2018 (see
Note 2(b)(ii)).
197
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(y) Revenue and other income (continued)
(iii) Rental income from operating leases
Rental income receivable under operating leases is recognised in consolidated income statement in equal
instalments over the periods covered by the lease term, except where an alternative basis is more representative
of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised
in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are
recognised as income in the accounting period in which they are earned.
(iv) Dividends
–
–
Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is
established.
Dividend income from listed investments is recognised when the share price of the investment goes ex-
dividend.
(v)
Interest income
Interest income is recognised as it accrues under the effective interest method using the rate that exactly
discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying
amount of the financial asset. For financial assets measured at amortised cost or FVOCI (recycling) that are not
credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired
financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss
allowance) of the asset (see Note 2(l)(i)).
(vi) Government grants
Government grants are recognised in the statement of financial position initially when there is reasonable
assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants
that compensate the Group for expenses incurred are recognised as income in consolidated income statement on
a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group
for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively
recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.
(z) Traffic commissions
Traffic commissions are expensed in the consolidated 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.
(aa) Maintenance and overhaul costs
Routine maintenance, repairs and overhauls are charged to consolidated 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 consolidated 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 consolidated income statement over
the estimated overhaul period. Differences between the estimated costs and the actual costs of overhauls are charged
to consolidated income statement in the period when the overhaul is performed.
198
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(ab) 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.
(ac) Employee benefits
(i) Short term employee benefits and contributions to defined contribution retirement
schemes
Salaries, annual bonuses and contributions to defined contribution retirement schemes are accrued in the year in
which the associated services are rendered by employees. Where payment or settlement is deferred and the effect
would be material, these amounts are stated at their present values.
(ii) Termination benefits
Termination benefits are recognised when, and only when, the Group demonstrably commits itself to terminate
employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is
without realistic possibility of withdrawal.
(ad) Translation of foreign currencies
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are
presented in Renminbi, which is the Company’s functional and the Group’s presentation currency.
Foreign currencies transactions during the year are translated into Renminbi at the applicable rates of exchange quoted
by the People’s Bank of China (“PBOC”) prevailing at the transaction dates. Monetary assets and liabilities denominated
in foreign currencies are translated into Renminbi at the PBOC exchange rates prevailing at the end of the reporting
period. Exchange gains and losses are recognised in profit or loss.
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated into
Renminbi at the PBOC exchange rates prevailing at the transaction dates. The transaction date is the date on which
the Group initially recognises such non-monetary assets or liabilities. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are translated into Renminbi at the PBOC exchange rates prevailing at the
dates the fair value was determined.
The results of foreign operations are translated into Renminbi at the PBOC exchange rates approximating the foreign
exchange rates prevailing at the dates of the transactions. Statement of financial position items are translated into
Renminbi at the PBOC exchange rates prevailing at the end of the reporting period. The resulting exchange differences
are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.
199
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
(ae) Related parties
(a) A person, or a close member of that person’s family, is related to the Group if that person:
(i)
has control or joint control over the Group;
(ii)
has significant influence over the Group; or
(iii)
is a member of the key management personnel of the Group or the Group’s parent.
(b) An entity is related to the Group if any of the following conditions applies:
(i)
The entity and the Group are members of the same group (which means that each parent, subsidiary and
fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of
a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v)
The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity
related to the Group.
(vi)
The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management
personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to
the Group or to the Group’s parent.
Close members of the family of a person are those family members who may be expected to influence, or be
influenced by, that person in their dealings with the entity.
(af) Segment reporting
Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the
financial information provided regularly to the Group’s most senior executive management, who is the chief operating
decision maker, for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines
of business and geographical locations.
Individually material operating segments are not aggregated for financial reporting purposes unless the segments
have similar economic characteristics and are similar in respect of the nature of products and services, the nature of
production processes, the type or class of customers, the methods used to distribute the products or provide the
services, and the nature of the regulatory environment. Operating segments which are not individually material may be
aggregated if they share a majority of these criteria.
200
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 3 ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group’s financial position and results of operations are sensitive to accounting methods, assumptions and
estimates that underlie the preparation of the consolidated financial statements. The Group bases the assumptions
and estimates on historical experience and on various other assumptions that the Group believes to be reasonable
and which form the basis for making judgements about matters that are not readily apparent from other sources.
On an ongoing basis, management evaluates its estimates. Actual results may differ from those estimates as facts,
circumstances and conditions change.
The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies
and the sensitivity of reported results to changes in condition and assumptions are factors to be considered when
reviewing the financial statements. In addition to the assumptions and estimates regarding fair value measurements of
financial instruments disclosed in Note 4 (g), the Group believes the following also involve key accounting estimates and
judgements used in the preparation of the financial statements.
(a) 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
According to the frequent flyer award programmes, the allocation of stand-alone selling price of the mileage
awarded involves the estimation of the expected redemption rate. The expected redemption rate is estimated
based on historical experience, anticipated redemption patterns and the frequent flyer programmes’ design.
Different estimates could significantly affect the estimated contract liabilities and the results of operations.
In the comparative period, the amount of revenue attributable to the mileage earned by the members of the
Group’s frequent flyer award programmes was estimated based on the fair value of the mileage awarded and the
expected redemption rate. The fair value of mileage awarded was estimated by reference to external sales. The
method to estimate the expected redemption rate remains unchanged.
201
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 3 ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(a) Accounting estimates (continued)
(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.
(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) Loss allowances
Loss allowances for trade receivables are always measured at an amount equal to lifetime ECLs. The ECLs are
estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that
are specific to the debtors and an assessment of both the current and forecast general economic conditions at
the reporting date. Different estimates could significantly affect the results of operations.
In the comparative period, 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.
(viii) Ticket breakage revenue
The Group recognises, in proportion to the pattern of rights exercised by the customer, the breakage amount
to which the Group expects to be entitled as ticket breakage revenue. Such portion is estimated based on the
Group’s historical experiences, and the estimated revenue is recognised only to the extent that it is highly probable
that a significant reversal in cumulative revenue recognised will not occur when the uncertainty is resolved.
Different estimates could significantly affect the ticket breakage revenue recognised in the current financial year.
In the comparative period, ticket breakage revenue was recognised when the tickets expired, and such revenue
recognition did not involve significant accounting estimates.
(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 52(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 13).
202
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 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 minimise the adverse effects on the Group’s financial performance. The Group’s exposure to these risks
and the financial risk management policies and practices used by the Group to manage these risks are described
below.
(a) Liquidity risk
As at 31 December 2018, the Group’s current liabilities exceeded its current assets by RMB59,615 million. For the year
ended 31 December 2018, the Group recorded a net cash inflow from operating activities of RMB15,388 million, a net
cash outflow from investing activities of RMB20,517 million and a net cash inflow from financing activities of RMB5,220
million, which in total resulted in a net increase in cash and cash equivalents of RMB91 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 2018, the Group had banking facilities with several banks and financial institutions for providing bank
financing up to approximately RMB243,910 million, of which approximately RMB193,871 million was unutilised. The
Directors of the Company believe that sufficient financing will be available to the Group when and where needed.
The following tables show the remaining contractual maturities at the end of the reporting period of the Group’s non-
derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments
computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the
earliest date the Group can be required to pay:
2018 Contractual undiscounted cash outflow
More than
1 year but
less than
2 years
More than
2 years but
less than
5 years
Carrying
Within
amount at
1 year or
31 December
on demand
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
40,121
12,062
21,292
73,475
8,272
11,738
6,335
36,765
2,188
22,200
–
–
–
20,010
43,100
24,388
56,916
82,765
21,292
160,973
54,417
72,221
21,292
147,930
2017 Contractual undiscounted cash outflow
Within
1 year or
on demand
RMB million
More than
1 year but
less than
2 years
RMB million
More than
2 years but
less than
5 years
RMB million
More than
5 years
RMB million
Total
RMB million
28,776
10,764
19,701
59,241
9,676
10,257
11,975
29,627
28
28,251
–
–
–
19,933
41,602
28,279
50,455
78,899
19,701
149,055
Carrying
amount at
31 December
RMB million
48,287
67,924
19,701
135,912
Borrowings
Obligations under finance leases
Trade and other payables and
accrued charges
203
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
(b) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. The interest rates and maturity information of the Group’s borrowings and obligations
under finance leases are disclosed in Note 36 and Note 37, 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 27).
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 27).
As at 31 December 2018, 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 RMB539 million (2017: RMB530 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 2017.
(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 37) and certain of the bank borrowings (Note 36) 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.
204
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 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
2018
Appreciation/
(depreciation) of
Renminbi against
foreign currency
Increase/
(decrease) on
profit after
tax and
retained profits
RMB million
1%
(1%)
1%
(1%)
10%
(10%)
2017
195
(195)
28
(28)
103
(103)
Appreciation/
(depreciation) of
Renminbi against
foreign currency
Increase/
(decrease) on
profit after
tax and
retained profits
RMB million
1%
(1%)
1%
(1%)
10%
(10%)
278
(278)
31
(31)
116
(116)
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 2017.
205
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
(d) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss
to the Group. The Group’s credit risk is primarily attributable to cash and cash equivalents, trade receivables, lease
receivables and derivative financial instruments.
Cash and cash equivalents
Substantially all of the Group’s cash and cash equivalents are deposited with major reputable PRC financial institutions,
which management believes are of high credit quality.
Trade receivables
A significant portion of the Group’s air tickets are sold by agents participating in the Billing and Settlement Plan (“BSP”),
a clearing scheme between airlines and sales agents organised by International Air Transportation Association. The use
of the BSP reduces credit risk to the Group. As at 31 December 2018, the balance due from BSP agents amounted
to RMB955 million (31 December 2017: RMB1,015 million). The credit risk exposure to BSP and the remaining
trade receivables balance are monitored by the Group on an ongoing basis and the relevant credit risk is within
management’s expectations.
The Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is calculated
using a provision matrix. As the Group’s historical credit loss experience indicates significantly different loss patterns for
different customer segments, the loss allowance based on past due status is further distinguished between air ticket
receivables, mileage credits sales receivables, general aviation service receivables, receivables on cooperation flights and
other trade receivables.
The following table provides information about the Group’s exposure to credit risk and ECLs for air ticket receivables as
at 31 December 2018:
Within 3 month
More than 3 month but less than 1 year
More than 1 year but less than 2 years
More than 2 years but less than 3 years
More than 3 years
Expected
loss rate
%
Gross
carrying amount
RMB million
Loss
allowance
RMB million
0%
50%
100%
100%
100%
1,940
8
2
6
16
1,972
–
4
2
6
16
28
Expected loss rates are estimated with reference to actual loss experience over the past years. These rates are adjusted
to reflect differences between economic conditions during the period over which the historic data has been collected,
current conditions and the Group’s view of economic conditions over the expected lives of the receivables.
The credit risk of mileage credits sales receivables, receivables on cooperation flights and general aviation service
receivables are considered to be low. The Group does not make credit loss allowance for these receivables.
The Group measures credit loss allowance for other trade receivables amounted to RMB8 million based on ECL’s.
Comparative information under IAS 39
Prior to 1 January 2018, an impairment loss was recognised only when there was objective evidence of impairment (see
Note 2(l)(i) – policy applicable prior to 1 January 2018). At 31 December 2017, trade receivables of RMB37 million were
determined to be impaired. The aging analysis of trade debtors that were not considered to be impaired was as follows:
206
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
(d) Credit risk (continued)
Trade receivables (continued)
Comparative information under IAS 39 (continued)
Neither past due nor impaired
3 to 12 months
More than 1 year
2017
RMB million
2,636
31
5
2,672
Receivables that were neither past due nor impaired related to a wide range of customers for whom there was no
recent history of default.
Receivables that were past due but not impaired related to a number of independent customers that had a good track
record with the Group. Based on past experience, management believed that no impairment allowance was necessary
in respect of these balances as there had been no significant change in credit quality and the balances were still
considered fully recoverable.
Movement in the loss allowance account in respect of trade receivables during the year is as follows:
Balance at 31 December 2017 under IAS 39
Impact on initial application of IFRS 9 (Note 2(b)(i))
Balance at 1 January
Amounts written off during the year
Impairment losses written back
Impairment losses recognised during the year
Balance at 31 December
Derivative financial instruments
2018
RMB million
2017
RMB million
37
–
37
(2)
(4)
5
36
37
(8)
–
8
37
The Group entered into derivative financial instruments arrangements with counterparties such as banks. Such
arrangements are settled in net. As the counterparties have favourable credit ratings, the Group does not expect there
to be a risk of default.
(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% (2017:10%) in jet fuel price, with
volume of fuel consumed and all other variables held constant, would have increased/decreased the fuel costs by
approximately RMB4,292 million (2017: RMB3,190 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.
207
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
(f) Capital management (continued)
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 2018, the Group’s strategy, which was unchanged from 2017, 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 68% as at 31 December 2018 (31 December 2017: 71%).
Except for the compliance of certain financial covenants for maintaining the Group’s banking facilities and borrowings,
the Group is not subject to any externally imposed capital requirements. The Group complied with the financial
covenants attached to borrowings as of and for the years ended 31 December 2018 and 2017.
(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 2018 categorised into
Fair value at
31 December
2018
RMB million
Note
Level 1
RMB million
Level 2
RMB million
Level 3
RMB million
Recurring fair value
measurement
Financial assets:
Other equity instruments
investments:
– Non-listed shares
– Non-tradable shares
Other non-current financial
assets:
– Listed shares
– Non-listed shares
Other financial assets
Derivative financial instruments:
– Interest rate swaps
Financial liabilities:
Derivative financial instruments:
– Cross currency swaps
26
26
26
26
26
27
27
234
846
71
32
440
75
(44)
208
–
–
71
–
–
–
–
–
–
–
–
440
75
(44)
234
846
–
32
–
–
–
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
(g) Fair value (continued)
(i) Financial instruments carried at fair value (continued)
Fair value hierarchy (continued)
Fair value measurements as at
31 December 2017 categorised into
Fair value at
31 December
2017
RMB million
Level 1
RMB million
Level 2
RMB million
Level 3
RMB million
85
537
46
(64)
85
–
–
–
–
–
46
(64)
–
537
–
–
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
Note
26
26
27
27
During the years ended 31 December 2018 and 2017, there were no transfers among level 1, level 2 and level 3.
The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting
period in which they occur.
Valuation techniques and inputs used in Level 2 fair value measurements
Fair value of interest rate swaps in derivative financial 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.
The fair value of other financial assets are the estimated amount that the Group would receive at the end of the
reporting period, taking into account the current creditworthiness of the other financial assets counterparties.
209
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
4 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (continued)
(g) Fair value (continued)
(i) Financial instruments carried at fair value (continued)
Information about Level 3 fair value measurements
Valuation technique Significant unobservable inputs
Range
Other equity instrument
investments
– Non-listed shares (1)
Market comparable
Discount for lack of marketability
– Non-tradable shares (2)
Discounted cash flow Expected profit growth rate
companies
during the projection period
Perpetual growth rate
Perpetual dividend payout rate
Expected dividend payout rate
during the projection period
Discount rate
Other non-current financial
assets
– Non-listed shares (2)
Discounted cash flow Expected profit growth rate
20%
11%
3%
80%
33%
10.81%
during the projection period
Perpetual growth rate
Perpetual dividend payout rate
Expected dividend payout rate
during the projection period
Discount rate
11%-15%
1%-4%
80%
27%-44%
9.66%-13.40%
(1)
(2)
The fair value of non-listed shares are determined by using comparable listed companies adjusted for lack
of marketability discount. The fair value measurement is negatively correlated to the discount for lack of
marketability.
The fair value of these non-tradable shares and non-listed shares is determined by discounting projected
cash flow series associated with respective investments. The valuation takes into account the expected
profit growth rates and expected dividend payout rate of the investees. The discount rates used have been
adjusted to reflect specific risks relating to respective investees. The fair value measurement is positively
correlated to the expected profit growth rates during the projection period, perpetual growth rate, perpetual
dividend payout rate and expected dividend payout rates during the projection period of respective
investees, and negatively correlated to the discount rates.
(3)
From 1 January 2018, any gain or loss arising from the remeasurement of the Group’s unlisted equity
securities held for strategic purposes are recognised in the fair value reserve (non-recycling) in other
comprehensive income. Upon disposal of the equity securities, the amount accumulated in other
comprehensive income is transferred directly to retained earnings.
(ii) Financial instruments not carried at fair value
All other financial instruments, including cash and cash equivalents, amounts due from/to related companies, trade
and other receivables, 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 2018 and 2017.
210
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
5 OPERATING REVENUE
The Group is principally engaged in the operation of civil aviation, including the provision of passenger, cargo, mail
delivery, and other extended transportation services.
(i) Disaggregation of revenue
Note
2018
RMB million
2017
RMB million
(Note)
Revenue from contracts with customers within the scope
of IFRS 15:
Disaggregated by service lines
– Traffic revenue
– Passenger
– Cargo and mail
– Commission income
– Hotel and tour operation income
– General aviation income
– Ground services income
– Expired sales in advance of carriage
– Air catering income
– Cargo handling income
– Others
Revenue from other sources:
– Rental income
19(f)
128,038
10,026
2,619
676
476
429
–
391
254
536
143,445
178
143,623
112,791
9,082
2,781
547
467
429
396
335
241
553
127,622
184
127,806
Note: The Group has initially applied IFRS 15 at 1 January 2018, using the cumulative effect method. Under this method, the
comparative information is not restated (see Note 2(b)(ii)).
Disaggregation of revenue from contracts with customers by the timing of revenue recognition and by geographic
markets is disclosed in Notes 6(a) and 6(b) respectively.
(ii) Revenue expected to be recognised in the future arising from contracts with
customers in existence at the reporting date
As at 31 December 2018, the aggregated amount of the transaction price allocated to the remaining performance
obligation, which is the unredeemed credits under the frequent flyer award programmes, amounted to RMB3,711
million (Note 39). This amount represents revenue expected to be recognised in the future when the customers take
possession of the goods or services redeemed.
211
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
6 SEGMENT REPORTING
(a) Business segments
The Group has two reportable operating segments “airline transportation operations” and “other segments”, according
to internal organisation structure, managerial needs and internal reporting system. “Airline transportation operations”
comprises the Group’s passenger and cargo and mail operations. “Other segments” includes 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, which arises from different accounting policies, are set out in Note 6
(c).
Inter-segment sales and transfers are transacted with reference to the selling prices used for sales made to third parties
at the then prevailing market prices.
Information regarding the Group’s reportable segments as provided to the Group’s CODM for the purposes of resource
allocation and assessment of segment performance is set out below.
The segment results of the Group for the year ended 31 December 2018 are as follows:
Airline
transportation
operations
RMB million
Other
segments
RMB million
Elimination
RMB million
Unallocated*
RMB million
Total
RMB million
Disaggregated by timing of revenue
recognition
Point in time
Over time
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
Credit loss
Share of associates’ results
Share of joint ventures’ results
Fair value movement of financial
instruments
Non-current assets additions during
the year#
1,975
3,822
1,655
4,142
5,797
604
457
147
18
148
282
–
1
–
–
–
406
(1,596)
(2,781)
–
(4,377)
(4,377)
(60)
(60)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
495
492
3
–
–
–
–
–
263
200
12
–
2,911
140,712
143,623
–
143,623
4,487
3,456
1,031
125
3,202
14,366
12
3
263
200
12
37,561
2,532
139,671
141,968
235
142,203
3,448
2,567
881
107
3,054
14,084
12
2
–
–
–
37,155
212
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
6 SEGMENT REPORTING (continued)
(a) Business segments (continued)
The segment results of the Group for the year ended 31 December 2017 are as follows:
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#
Airline
transportation
operations
RMB million
126,077
159
126,236
Other
segments
RMB million
1,412
2,823
4,235
7,708
5,875
1,833
74
2,724
13,112
440
–
–
–
–
529
381
148
15
23
201
2
–
–
–
–
30,776
1,828
Elimination
RMB million
Unallocated*
RMB million
Total
RMB million
–
(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
The segment assets and liabilities of the Group as at 31 December 2018 and 31 December 2017 are as follows:
As at 31 December 2018
Reportable segment assets
Reportable segment liabilities
As at 31 December 2017
Reportable segment assets
Reportable segment liabilities
Airline
transportation
operations
RMB million
Other
segments
RMB million
Elimination
RMB million
Unallocated*
RMB million
Total
RMB million
234,755
167,806
208,116
154,391
6,479
2,391
5,799
2,111
(1,829)
(1,769)
(402)
(402)
7,250
44
4,816
64
246,655
168,472
218,329
156,164
*
#
Unallocated assets primarily include interest in associates and joint ventures, derivative financial instruments and equity securities.
Unallocated results primarily include the share of results of associates and joint ventures, dividend income from equity securities,
and the fair value movement of financial instruments recognised through profit or loss.
The additions of non-current assets do not include interest in associates and joint ventures, available-for-sale financial assets,
other investments in equity securities, other equity instrument investments, other non-current financial assets, derivative financial
instruments and deferred tax assets.
213
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
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 from or destination to other
overseas markets is classified as international revenue.
(2) Revenue from commission income, hotel and tour operation, air catering services, 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
2018
RMB million
2017
RMB million
103,287
37,773
2,563
143,623
92,986
32,117
2,386
127,489
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.
For the year ended 31 December 2018, disaggregation of revenue by major products or service lines in
connection with each segment of the Group is as follows:
Main operation revenue
Passenger
Cargo and mail
Others
Total
Other operation income
Hotel and tour operation income
Air catering income
Others
Total
Airline
transportation
operations
RMB million
Other
segments
RMB million
Elimination
RMB million
Total
RMB million
128,038
10,026
3,095
141,159
10
13
1,021
1,044
–
–
–
–
965
1,481
3,351
5,797
–
–
–
–
(299)
(1,103)
(2,975)
(4,377)
128,038
10,026
3,095
141,159
676
391
1,397
2,464
214
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
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.
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
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
Others
Consolidated total liabilities
Note
(i)
(iv)
Note
(ii)
(iii)
(iv)
Note
(ii)
(iii)
(iv)
2018
RMB million
2017
RMB million
143,623
–
–
–
143,623
127,489
396
(65)
(14)
127,806
2018
RMB million
2017
RMB million
4,487
(124)
1
–
4,364
8,798
47
21
8
8,874
31 December
2018
RMB million
31 December
2017
RMB million
246,655
72
(7)
237
(8)
218,329
196
(8)
237
(36)
246,949
218,718
31 December
2018
RMB million
31 December
2017
RMB million
168,472
8
168,480
156,164
11
156,175
215
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
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)
Notes:
(i)
(ii)
(iii)
Expired sales in advance of carriage are recorded under non-operating income in the 2017 PRC GAAP financial statements.
Such income is recognised as other operating revenue in the IFRS financial statements. Effective from 1 January 2018,
ticket breakage revenue is included in traffic revenue, as a result of the adoption of IFRS 15 (see Note 2 (b)(ii)), and the same
adjustment was also adopted in the PRC GAAP financial statements.
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 in 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.
The difference was resulted from government grants received prior to 2017 and recognised in capital reserve under PRC GAAP.
(iv)
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.
7 FLIGHT OPERATION EXPENSES
Jet fuel costs
Flight personnel payroll and welfare
Aircraft operating lease charges
Air catering expenses
Civil Aviation Development Fund
Training expenses
Others
8 MAINTENANCE EXPENSES
Aviation repair and maintenance charges
Staff payroll and welfare
Maintenance materials
216
2018
RMB million
2017
RMB million
42,922
11,467
8,726
3,734
2,940
894
5,533
76,216
31,895
10,574
8,022
3,379
2,720
1,184
5,204
62,978
2018
RMB million
2017
RMB million
8,394
2,736
1,574
12,704
7,930
2,620
1,327
11,877
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
9 AIRCRAFT AND TRANSPORTATION SERVICE EXPENSES
Landing and navigation fees
Ground service and other charges
10 PROMOTION AND SELLING EXPENSES
Sales commissions
Ticket office expenses
Computer reservation services
Advertising and promotion
Others
2018
RMB million
2017
RMB million
15,980
8,399
24,379
14,910
8,025
22,935
Note
(i)
2018
RMB million
2017
RMB million
2,027
3,173
892
217
727
7,036
1,935
3,160
835
196
755
6,881
Note:
(i)
The Group applies the practical expedient in IFRS 15 and therefore expenses the portion of sales commissions which are
regarded as directly related incremental costs of obtaining transportation contracts, as the amortisation period is less than one
year.
11 GENERAL AND ADMINISTRATIVE EXPENSES
General corporate expenses
Auditors’ remuneration
– Audit services
– Non-audit services
Other taxes and levies
12 DEPRECIATION AND AMORTISATION
Depreciation
– Owned assets
– Assets acquired under finance leases
Amortisation of deferred benefits and gains
Other amortisation
217
2018
RMB million
2017
RMB million
3,477
18
15
3
275
3,770
3,218
14
14
–
159
3,391
2018
RMB million
2017
RMB million
8,193
5,776
(68)
407
14,308
8,080
4,883
(161)
360
13,162
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
13 STAFF COSTS
Salaries, wages and welfare
Defined contribution retirement scheme
Other retirement welfare subsidy
Early retirement benefits (Note 46)
2018
RMB million
2017
RMB million
22,445
2,387
197
1
25,030
21,400
2,114
194
1
23,709
Staff costs relating to flight operation and maintenance are also included in the respective total amounts disclosed
separately in Note 7 and Note 8 above.
Five highest paid individuals
None of the directors (2017: none), whose emoluments are reflected in Note 60, is among the five highest paid
individuals in the Group for 2018. The aggregate emoluments in respect of the five (2017: five) individuals during the
year are as follows:
Salaries, wages and welfare
Retirement scheme contributions
2018
RMB million
2017
RMB million
9,157
738
9,895
9,533
599
10,132
The emoluments of the five (2017: five) individuals with the highest emoluments are within the following bands:
HK$2,000,001 to HK$2,500,000
14 OTHER NET INCOME
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
Penalty income
Others
Note:
2018
Number of
individuals
5
2017
Number of
individuals
5
2018
RMB million
4,348
2017
RMB million
3,075
584
18
216
272
5,438
960
29
126
258
4,448
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 2018.
218
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
15 INTEREST EXPENSE
Interest on borrowings
Interest relating to obligations under finance leases
Interest relating to provision for early retirement benefits (Note 46)
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 17)
2018
RMB million
2017
RMB million
1,891
2,409
–
4,300
(1,085)
3,215
(13)
3,202
1,628
2,009
1
3,638
(908)
2,730
17
2,747
Note:
The weighted average interest rate used for interest capitalisation was 3.54% per annum in 2018 (2017: 3.32%).
16 INCOME TAX
(a) Income tax expense in the consolidated income statement
PRC income tax
– Provision for the year
– Over-provision in prior year
Deferred tax (Note 29)
Origination and reversal of temporary differences
Tax expense
2018
RMB million
2017
RMB million
962
(27)
935
65
1,000
2,280
(2)
2,278
(302)
1,976
In respect of a majority of the Group’s airlines operation outside mainland China, the Group has either obtained
exemptions from overseas taxation pursuant to the bilateral aviation agreements between the overseas governments
and the PRC government, or has sustained tax losses in those overseas jurisdictions. Accordingly, no provision for
overseas income tax has been made for overseas airlines operation in the current and prior years.
Under the Corporate Income Tax Law of the PRC, the Company and a majority of its PRC subsidiaries are subject
to PRC income tax at 25% (2017: 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.
219
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
16 INCOME TAX (continued)
(b) Reconciliation between actual tax expense and calculated tax based on
accounting profit at applicable tax rates
Profit before income tax
2018
RMB million
4,364
2017
RMB million
8,874
Notional tax on profit before taxation, calculated at the rates
applicable to profits in the tax jurisdictions concerned (Note 16(a))
1,089
2,179
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-provision in prior year
Super deduction of research and development expenses
23
(121)
–
73
(17)
(27)
(20)
9
(137)
(27)
26
(72)
(2)
–
Tax expense
1,000
1,976
17 OTHER COMPREHENSIVE INCOME
2018
RMB million
2017
RMB million
(Note)
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 15)
Net deferred tax debited to other comprehensive income
Equity investments measured at FVOCI:
Changes in fair value recognised during the year
Net deferred tax debited to other comprehensive income
Share of other comprehensive income of associates
Will not be reclassified to profit or loss
May be reclassified subsequently to profit or loss
Differences resulting from the translation of foreign currency
financial statements
Available-for-sale financial assets:
Changes in fair value recognised during the year
Net deferred tax debited to other comprehensive income
42
(13)
(7)
22
319
(80)
239
(4)
–
(4)
(2)
–
–
–
8
17
(6)
19
–
–
–
–
2
2
–
123
(31)
92
Note:
The Group has initially applied IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information is not
restated. See Note 2(b)(i).
220
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
18 EARNINGS PER SHARE
The calculation of basic earnings per share for the year ended 31 December 2018 is based on the profit attributable
to equity shareholders of the Company of RMB2,895 million (2017: RMB5,961 million) and the weighted average of
10,718,916,979 shares in issue during the year (2017: 9,923,585,348 shares).
Issued ordinary shares at 1 January
Effect of issuance of A shares (Note 48)
Effect of issuance of H shares (Note 48)
Weighted average number of ordinary shares at 31 December
2018
million
10,088
450
181
10,719
2017
million
9,818
–
106
9,924
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 2018 and 2017.
19 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
Cost:
At 1 January 2017
Acquisitions through business combinations
Additions
Transfer from construction in progress
Transfer to lease prepayments
Reclassification on change of holding intention
Reclassification on exercise of purchase option
Transfer to assets held for sale
Disposals
At 31 December 2017
At 1 January 2018
Acquisitions through business combinations
Additions
Transfer from construction in progress
(Note 20)
Reclassification on change of holding intention
Reclassification on exercise of purchase option
Transfer to assets held for sale (Note 35)
Disposals
669
–
–
–
(18)
150
–
–
(7)
794
794
–
–
–
19
–
–
–
11,068
326
28
1,506
(143)
(150)
–
(20)
(4)
12,611
12,611
51
48
489
(19)
–
–
(26)
97,317
–
1,336
1,098
–
–
12,669
–
(6,446)
105,974
105,974
–
3,644
4,792
–
3,940
(1,804)
(7,784)
93,872
–
7,592
10,684
–
–
(12,669)
–
(112)
99,367
99,367
–
7,049
8,038
–
(3,940)
–
(154)
19,570
1,136
1,635
317
–
–
–
–
(752)
21,906
21,906
12
1,250
401
–
–
(106)
(774)
6,200
94
569
77
–
–
–
–
(311)
6,629
6,629
34
424
414
–
–
–
(252)
228,696
1,556
11,160
13,682
(161)
–
–
(20)
(7,632)
247,281
247,281
97
12,415
14,134
–
–
(1,910)
(8,990)
At 31 December 2018
813
13,154
108,762
110,360
22,689
7,249
263,027
221
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
19 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
229
29
(5)
22
–
–
(5)
–
–
270
270
29
15
–
–
–
–
314
499
524
3,646
390
(36)
(22)
–
(12)
(1)
–
–
3,965
3,965
413
(15)
–
–
(10)
–
4,353
8,801
8,646
45,952
5,783
–
–
4,757
–
(5,351)
324
(470)
50,995
50,995
5,667
–
1,072
(1,582)
(6,912)
(322)
48,918
59,844
54,979
16,997
4,883
–
–
(4,757)
–
(112)
–
–
17,011
17,011
5,776
–
(1,072)
–
(154)
–
11,022
1,280
–
–
–
–
(623)
–
(1)
11,678
11,678
1,462
–
–
(104)
(664)
(1)
21,561
12,371
88,799
82,356
10,318
10,228
4,104
598
–
–
–
–
(266)
–
–
4,436
4,436
622
–
–
–
(240)
–
4,818
2,431
2,193
81,950
12,963
(41)
–
–
(12)
(6,358)
324
(471)
88,355
88,355
13,969
–
–
(1,686)
(7,980)
(323)
92,335
170,692
158,926
Accumulated depreciation and
impairment losses:
At 1 January 2017
Depreciation charge for the year
Transfer to lease prepayments
Reclassification on change of holding intention
Reclassification on exercise of
purchase options
Transfer to assets held for sale
Disposal
Provision for impairment losses
Impairment losses written off on disposals
At 31 December 2017
At 1 January 2018
Depreciation charge for the year
Reclassification on change of holding intention
Reclassification on exercise of
purchase options
Transfer to assets held for sale (Note 35)
Disposals
Impairment losses written off on disposals
(Note 19 (c))
At 31 December 2018
Net book value:
At 31 December 2018
At 31 December 2017
(a) As at 31 December 2018, the accumulated impairment provision of aircraft and flight equipment of the Group is
RMB912 million and RMB122 million respectively (31 December 2017: RMB1,495 million and RMB123 million
respectively).
(b) As at 31 December 2018, certain aircraft of the Group with an aggregate carrying value of approximately
RMB89,170 million (31 December 2017: RMB83,687 million of aircraft and RMB206 million of other flight
equipment) were mortgaged under certain loans or certain lease agreements (Note 36(a)(i), Note 36(a)(iii) and Note
37).
(c)
For the year ended 31 December 2018, 4 Boeing aircraft were disposed directly and 18 Airbus aircraft were
disposed through sale and operating leaseback transactions, against which impairment provision had been
provided in previous years and the impairment provision of RMB322 million for these aircraft was written off.
222
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
19 PROPERTY, PLANT AND EQUIPMENT, NET (continued)
(d) As at 31 December 2018, the Group reviewed the recoverable amounts of the aircraft and related assets and
made no additional impairment. The estimates of recoverable amounts were based on the greater of the assets’
fair value less costs of disposal and the value in use. The fair value on which the recoverable amount is based 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.
(e) As at 31 December 2018 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, Xiamen, Hangzhou, Nanchang, Heilongjiang, Jilin,
Dalian, Hunan, Beijing, Zhuhai, Shenyang, Shenzhen, Henan, Shantou, Xinjiang, Hainan, Shanghai, Hubei, and
Chongqing, in which the Group has interests and for which such certificates have not been granted. As at 31
December 2018, carrying value of such properties of the Group amounted to RMB5,289 million (31 December
2017: RMB5,196 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.
(f)
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 RMB178 million (2017:
RMB184 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 cessation 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
2018
RMB million
2017
RMB million
55
39
7
101
61
70
14
145
(g) As at 31 December 2018, certain investment properties of the Group with an aggregate carrying value of
approximately RMB18 million (31 December 2017: RMB20 million) were mortgaged for certain bank borrowings
(Note 36(a)(ii)).
223
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
20 CONSTRUCTION IN PROGRESS
At 1 January 2017
Additions
Transferred to property, plant and equipment
Transferred to other assets upon completion of
development
Transfers to lease prepayments
Disposals
At 31 December 2017
At 1 January 2018
Additions
Transferred to property, plant and equipment
(Note 19)
Transferred to other assets upon completion of
development (Note 30)
Transferred to lease prepayments
Disposals
At 31 December 2018
Advance
payment for
aircraft and
flight
equipment
RMB million
27,267
16,319
(12,099)
–
–
(3,944)
27,543
27,543
19,973
(13,231)
–
–
(2,605)
31,680
Others
RMB million
Total
RMB million
1,643
2,920
(1,583)
(211)
(79)
–
2,690
2,690
4,486
(903)
(155)
(7)
–
6,111
28,910
19,239
(13,682)
(211)
(79)
(3,944)
30,233
30,233
24,459
(14,134)
(155)
(7)
(2,605)
37,791
21 LEASE PREPAYMENTS
Lease prepayments relate to the Group’s land use rights. In 2018, the amount of amortisation charged to consolidated
income statement was RMB92 million (2017: RMB78 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 2018 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 2018, carrying
value of such land use rights of the Group amounted to RMB922 million (31 December 2017: RMB827 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 2018, certain land use rights of the Group with an aggregate carrying value of approximately
RMB88 million (31 December 2017: RMB90 million) were mortgaged for certain bank borrowings (Note 36(a)(ii)).
224
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
22 GOODWILL
Cost and carrying amount:
At 1 January
Acquisitions through business combinations
At 31 December
2018
RMB million
2017
RMB million
237
–
237
182
55
237
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”)
Total
2018
RMB million
2017
RMB million
182
55
237
182
55
237
The recoverable amount of the CGU is determined based on value-in-use calculation. The calculation uses cash flow
projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the
five-year period are extrapolated using an estimated weighted average growth rate which does not exceed the long-
term average growth rates for the business in which the CGU operates.
The cash flows of the above entities are discounted using pre-tax discount rates ranging from 10.5% to 13.5% (2017:
10.5% to 13.5%).
225
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
23 SUBSIDIARIES
All the subsidiaries of the Company are unlisted. The following list contains only the particulars of subsidiaries which
principally affect the results, assets or liabilities of the Group.
Name of company
Place of
establishment/
operation
Proportion
of ownership
interest held by
Registered capital
the Company Principal activity
China Southern Airlines Henan Airlines
PRC
RMB6,000,000,000
60% Airline transportation
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)
PRC
PRC
PRC
PRC
PRC
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
RMB1,220,000,000
60% Airline transportation
Guangzhou Nanland Air Catering Company
PRC
RMB240,000,000
70.50% 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
(“Nan Lung Freight”)
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
PRC
RMB469,848,000
100% Flight simulation services
Company Limited (“Zhuhai Xiang Yi”) (i)
China Southern Airlines Xiongan Airlines
PRC
RMB600,000,000
100% Airline transportation
Company Limited (i)
China Southern West Australian Flying
College Pty Ltd (“Flying College”) (iv)
Australia
AUD39,651,627
84.30% Pilot training services
226
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
23 SUBSIDIARIES (continued)
(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.
(iv)
Flying College
Pursuant to the subscription agreement entered into between the Company, CAE International Holding Limited,
Nan Lung Holding Limited and Flying College, the Company made a capital injection of cash equivalent to
RMB63 million to Flying College on 20 November 2018, as a result of which the Company’s equity interests in
Flying College increased from 48.12% to 84.30%. After the capital injection, the Company is entitled to appoint
all 3 members of Board of directors of Flying College in accordance with the subscription agreement, and Flying
College thus became a subsidiary of the Company upon completion of the capital injection. The acquisition
through the capital injection of Flying College enables the Group to engage in pilot flying training services.
In the period from the acquisition date to 31 December 2018, Flying College contributed a loss of RMB5 million to
the Group’s results. If the acquisition had occurred on 1 January 2018, management estimates that consolidated
revenue would have been increased by RMB0 million, and consolidated profit for the year would have been
decreased by RMB60 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 2018. 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:
Non-current assets
Current assets
Current liabilities
Total net identifiable assets
Analysis of the net inflow of cash and cash equivalents
in respect of the acquisitions:
Cash consideration paid
Cash and cash equivalents acquired
Net cash inflow
Recognised
values on
acquisition
RMB million
153
77
(155)
75
(63)
69
6
227
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
23 SUBSIDIARIES (continued)
(v) Material non-controlling interests
As at 31 December 2018, the balance of total non-controlling interests is RMB13,212 million (31 December 2017:
RMB12,607 million), of which RMB9,035 million (31 December 2017: RMB8,547 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 investing activities
Net cash used in financing activities
The information above is the amount before inter-company eliminations.
2018
RMB million
45%
2017
RMB million
45%
4,029
43,234
(14,397)
(13,678)
19,188
9,035
30,225
915
1,111
393
68
3,559
889
(4,363)
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)
228
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
24 INTEREST IN ASSOCIATES
Share of net assets
2018
RMB million
3,181
2017
RMB million
3,031
All the Group’s associates are unlisted without quoted market price. The particulars of the Group’s principal associates
as at 31 December 2018 are as follows:
Place of
establishment/
operation
Group’s
effective
interest
Proportion of ownership
interest held by
The
Proportion of
voting rights
held by
Company Subsidiaries
the Group Principal ctivity
Southern Airlines Group Finance
PRC
33.98%
25.28%
8.70%
Co.,Ltd. (“SA Finance”)
Sichuan Airlines Co.,Ltd.
(“Sichuan Airlines”)
SACM
Xinjiang Civil Aviation Property
Management Limited
PRC
PRC
PRC
39%
39%
40%
40%
42.80%
42.80%
–
–
–
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 interest in a number of individually immaterial associates that are accounted for using the equity method.
The aggregate financial information of these associates is summarised as following:
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
2018
RMB million
3,181
2017
RMB million
3,031
263
(4)
259
431
2
433
229
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
25 INTEREST IN JOINT VENTURES
Share of net assets
2018
RMB million
2,812
2017
RMB million
1,015
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 2018 are as follows:
Place of
establishment/
operation
Group’s
effective
interest
Proportion of ownership
interest held by
The
Proportion of
voting rights
held by
Company Subsidiaries
the Group Principal ctivity
Guangzhou Aircraft Maintenance
PRC
50%
50%
Engineering Co.,Ltd. (“GAMECO”)
MTU Maintenance Zhuhai Co., Ltd.
PRC
50%
50%
(“MTU”)
–
–
50% Aircraft repair and
maintenance
services
50% Aircraft repair and
maintenance
services
There is no joint venture that is individually material to the Group.
The Group has interest in a number of individually immaterial joint ventures that are accounted for using the equity
method. The aggregate financial information of these joint ventures is summarised as follows:
Aggregate carrying amount of individually immaterial joint ventures
Aggregate amounts of the Group’s share of:
Profit from continuing operations and total comprehensive income
2018
RMB million
2017
RMB million
2,812
200
1,015
99
230
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
26 FINANCIAL ASSETS
Non-current financial assets
31 December
2018
RMB million
1 January
2018
RMB million
31 December
2017
RMB million
Note
Other equity instrument investments
(FVOCI)
– Non-listed shares
– Non-tradable shares
Other non-current financial assets
(FVPL)
– Listed shares
– Non-listed shares
Other investments in equity securities
– Unlisted equity securities, at cost
Available-for-sale financial assets
– Listed shares
– Non-tradable shares
(i)
(ii)
(ii)
(i)
(i)
(ii)
(ii)
Current financial assets
234
846
1,080
71
32
103
–
–
–
–
224
537
761
85
26
111
–
–
–
–
–
–
–
–
–
–
103
85
537
622
Other financial assets
31 December
2018
RMB million
440
1 January
2018
RMB million
–
31 December
2017
RMB million
–
Note
(iv)
Notes:
(i)
(ii)
Upon initial application of IFRS 9 at 1 January 2018 (see Note 2(b)), other investments in equity securities the Group held were
remeasured and were either reclassified to “other non-current financial assets” measured at FVPL, or designated as “other equity
instrument investments” measured at FVOCI, if such investments are held for strategic purpose.
Upon initial application of IFRS 9 at 1 January 2018 (see Note 2(b)), available-for-sale financial assets were either reclassified
to “other non-current financial assets” measured at FVPL, or designated as “other equity instrument investments” measured at
FVOCI, if such financial assets are held for strategic purpose.
(iii)
Dividends received on the investments listed in (i) and (ii) above amounted to RMB20 million for the year of 2018 (2017: RMB18
million).
(iv)
This represents certain financing product the Group purchased from a commercial bank.
231
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
27 DERIVATIVE FINANCIAL INSTRUMENTS
Asset:
Interest rate swaps (a)
Liability:
Cross currency swaps (b)
2018
RMB million
2017
RMB million
75
44
46
64
(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% per annum to receive LIBOR. The notional principal of the outstanding interest
rate swap contracts as at 31 December 2018 amounted to USD393 million (31 December 2017: USD460 million).
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 rate ranging from 3.20% to 3.91% per annum (2017: 3.58% to 4.04% per annum) and principal payments in RMB. At
31 December 2018, the fair value of the cross currency swaps amounted to RMB44 million (31 December 2017: RMB64 million).
The notional principal of the outstanding cross currency swaps as at 31 December 2018 amounted to USD979 million (31
December 2017: USD920 million).
28 CHANGES IN FAIR VALUE OF FINANCIAL INSTRUMENTS
Other non-current financial assets (FVPL) (Note 26)
Cross currency swaps (Note 27)
2018
RMB million
2017
RMB million
(8)
20
12
–
(64)
(64)
232
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
29 DEFERRED TAX ASSETS/(LIABILITIES)
(a) Movements of net deferred tax assets are as follows:
At the
beginning
of the year
RMB million
Impact on
initial
application
of IFRS 9/15
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
1,020
691
88
–
248
10
16
82
2,155
(216)
(633)
(11)
(141)
–
–
(26)
(49)
(1,076)
1,079
–
–
(88)
87
–
–
–
–
(1)
–
–
–
141
(156)
(21)
–
–
(36)
(37)
(91)
6
–
(6)
(38)
12
(5)
3
(119)
5
15
–
–
–
2
1
31
54
(65)
–
–
–
–
–
–
–
–
–
–
–
(7)
–
(80)
–
–
–
(87)
(87)
929
697
–
81
210
22
11
85
2,035
(211)
(618)
(18)
–
(236)
(19)
(25)
(18)
(1,145)
890
For the year ended 31 December 2018
Deferred tax assets:
Accrued expenses
Provision for major overhauls
Deferred revenue
Contract liabilities/other non-current liabilities
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
Change in fair value of other equity instrument
investments
Change in fair value of other non-current
financial assets
Fair value remeasurement of identifiable assets
in business combination
Others
Net deferred tax assets
233
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
29 DEFERRED TAX ASSETS/(LIABILITIES) (continued)
(a) Movements of net deferred tax assets are as follows: (continued)
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
–
–
–
–
–
–
–
–
–
–
–
–
(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
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
234
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
29 DEFERRED TAX ASSETS/(LIABILITIES) (continued)
(b) Reconciliation to the consolidated statement of financial position:
Net deferred tax asset recognised in the statement of financial position
Net deferred tax liability recognised in the statement of financial position
2018
RMB million
2017
RMB million
1,566
(676)
890
1,662
(583)
1,079
(c ) 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. The Group’s unused tax losses of RMB492 million (2017: RMB543 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:
2018
2019
2020
2021
2022
2023
2018
RMB million
2017
RMB million
–
193
–
95
82
122
492
171
193
–
96
83
–
543
As at 31 December 2018, the Group’s other deductible temporary differences amounting to RMB822 million
(31 December 2017: RMB653 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.
235
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
30 OTHER ASSETS
At 1 January 2017
Additions
Acquisitions through business combinations
Transferred from construction in progress
(Note 20)
Disposals
Amortisation for the year
At 31 December 2017
At 1 January 2018
Additions
Acquisitions through business combinations
Transferred from construction in progress
(Note 20)
Disposals
Amortisation for the year
At 31 December 2018
Representing:
Amount paid to related parties
Amount paid to third parties and others
Prepayment for
exclusive use
right of an
airport terminal
RMB million
Software
RMB million
Leasehold
improvements
RMB million
Others
RMB million
Total
RMB million
255
33
2
142
(4)
(112)
316
316
105
–
69
–
(118)
372
119
44
–
56
–
(38)
181
181
–
36
86
–
(61)
242
404
402
–
13
(20)
(122)
677
677
407
–
–
(6)
(126)
952
1,008
479
2
211
(24)
(282)
1,394
1,394
512
36
155
(6)
(315)
1,776
Note
42(b)&51(c)
2018
RMB million
2017
RMB million
227
1,549
1,776
160
1,234
1,394
230
–
–
–
–
(10)
220
220
–
–
–
–
(10)
210
236
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
31 INVENTORIES
Consumable spare parts and maintenance materials
Other supplies
Less: provision
Provision of inventory is shown as below:
At 1 January
Provision for inventories
Provision written off upon disposal
At 31 December
32 TRADE RECEIVABLES
Trade receivables
Less: loss allowance
(a) Ageing analysis
2018
RMB million
2017
RMB million
1,688
232
1,920
(221)
1,699
1,638
210
1,848
(226)
1,622
2018
RMB million
2017
RMB million
226
12
(17)
221
144
110
(28)
226
2018
RMB million
2017
RMB million
2,937
(36)
2,901
2,712
(37)
2,675
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: loss allowance
All of the trade receivables are expected to be recovered within one year.
2018
RMB million
2017
RMB million
2,325
492
90
30
2,937
(36)
2,901
2,067
497
112
36
2,712
(37)
2,675
237
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
32 TRADE RECEIVABLES (continued)
(b) 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
2018
RMB million
2017
RMB million
2,430
179
104
6
27
13
178
2,937
2,061
179
171
52
33
36
180
2,712
As at 31 December 2018, the fair value of trade receivables approximates its carrying amount.
33 OTHER RECEIVABLES
VAT recoverable
Rebate receivables on aircraft acquisitions
Term deposits
Deposits for aircraft purchase
Government grants receivables
Others
Less: loss allowance
Notes:
Note
(i)
(ii)
2018
RMB million
2017
RMB million
5,342
686
264
426
982
320
8,020
(5)
8,015
3,684
699
313
–
–
539
5,235
(3)
5,232
(i)
(ii)
Term deposits have a maturity over 3 months at acquisition. The weighted average annualised interest rate of term deposits as
at 31 December 2018 is 2.26% (31 December 2017: 2.01%).
Government grants receivables are recognised as there is reasonable assurance that they will be received and the Group has
complied with the conditions attaching to them.
As at 31 December 2018, the fair value of other receivables approximates its carrying amount.
238
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
34 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
2018
RMB million
2017
RMB million
19
6,909
6,928
–
6,826
6,826
As at 31 December 2018, 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
AUD
JPY
HKD
Others
2018
RMB million
2017
RMB million
6,281
267
53
138
22
22
145
6,928
4,377
2,038
71
–
27
123
190
6,826
239
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
34 CASH AND CASH EQUIVALENTS (continued)
(b) Reconciliation of profit before income tax to cash generated from operating
activities:
Note
2018
RMB million
2017
RMB million
(Note)
12
12
12
19
24
25
14
28
15
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
Changes in fair value of financial instruments
Remeasurement of the originally held equity interests in
a joint venture
Interest income
Interest expense
Dividends income from other non-current financial assets
Dividend income from investments
Exchange losses/(gain), net
Increase in inventories
(Increase)/decrease in trade receivables
Increase in other receivables
(Increase)/decrease in prepaid expenses and other
current assets
Increase in net amounts due to related companies
Increase in trade payables
Increase in contract liabilities
Increase/(decrease) in sales in advance of carriage
Increase in other non-current liabilities
Increase in accrued expenses
Increase in other liabilities
Increase in deferred revenue
Increase in provision for major overhauls
Decrease in provision for early retirement benefits
(Decrease)/increase in deferred benefits and gains
Cash generated from operating activities
Note:
4,364
13,969
407
(68)
–
(263)
(200)
(602)
(12)
–
(125)
3,202
(20)
–
2,820
(77)
(226)
(2,783)
(2,325)
12
184
232
1,441
218
312
839
–
23
(1)
(147)
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
21,174
23,478
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information
is not restated. See Note 2(b).
240
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
34 CASH AND CASH EQUIVALENTS (continued)
(c ) Reconciliation of liabilities arising from financing activities:
Bank loans
and other
borrowings
RMB million
(Note 36)
Obligations
under
finance
leases
RMB million
(Note 37)
Interest rate
swaps held
to hedge
borrowings
(assets)
RMB million
(Note 27)
Cross
currency
swaps
RMB million
(Note 27)
Total
RMB million
At 1 January 2018
48,287
67,924
(46)
64
116,229
Changes from financing cash flows:
Proceeds from bank borrowings
Proceeds from issuance of ultra-short-term
financing bills
Proceeds from corporate bonds
Repayment of bank borrowings
Repayment of ultra-short-term financing bills
Repayment of corporate bonds
Repayment of principal under finance lease
obligations
Total changes from financing cash flows
Exchange adjustments
Changes in fair value
Other changes:
Additions of obligations under finance leases
(Note 53)
Total other changes
At 31 December 2018
34,385
5,500
2,000
(34,260)
(1,500)
(345)
–
5,780
350
–
–
–
54,417
–
–
–
–
–
–
(10,433)
(10,433)
1,440
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34,385
5,500
2,000
(34,260)
(1,500)
(345)
(10,433)
(4,653)
1,790
–
(29)
(20)
(49)
13,290
13,290
72,221
–
–
(75)
–
–
44
13,290
13,290
126,607
241
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
34 CASH AND CASH EQUIVALENTS (continued)
(c ) Reconciliation of liabilities arising from financing activities (continued):
Bank loans
and other
borrowings
RMB million
(Note 36)
45,504
Obligations
under
finance
leases
RMB million
(Note 37)
62,222
Interest rate
swaps held
to hedge
borrowings
(assets)
RMB million
(Note 27)
(21)
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 27)
–
–
–
–
–
–
–
–
64
–
–
–
64
Total
RMB million
107,705
42,854
1,000
(18,311)
(22,986)
(9,835)
(7,278)
(1,862)
39
342
17,283
17,625
116,229
At 1 January 2017
Changes from financing cash flows:
Proceeds from bank borrowings
Proceeds from issuance of 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
Additions of obligations under finance leases
(Note 53)
Total other changes
At 31 December 2017
35 ASSETS HELD FOR SALE
Assets held for sale mainly represent property, plant and equipment 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.
Owned aircraft and other flight equipment
Buildings
Note
19
19
2018
RMB million
2017
RMB million
224
–
224
–
8
8
As at 31 December 2018, the carrying amount of the assets held for sale is RMB224 million, while their fair value less
cost to sell is RMB238 million. The fair value on which the recoverable amount is based is categorised as a level 3
measurement.
242
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
36 BORROWINGS
(a) As at 31 December, borrowings are analysed as follows:
2018
RMB million
2017
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
511
8,911
9,422
4,655
1,599
15,676
94
808
20,739
4,000
25,641
13,100
38,741
54,417
38,741
7,757
6,004
1,915
54,417
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
243
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
36 BORROWINGS (continued)
(a) As at 31 December, borrowings are analysed as follows: (continued)
Notes:
(i)
(ii)
(iii)
(iv)
As at 31 December 2018, bank borrowings of the Group totalling RMB390 million (31 December 2017: RMB440 million) were
secured by mortgages over certain of the Group’s aircraft with aggregate carrying amounts of RMB373 million (31 December
2017: RMB1,331 million).
As at 31 December 2018, bank borrowings of the Group amounting to RMB215 million (31 December 2017: RMB265 million)
were secured by certain land use rights of RMB88 million (31 December 2017: RMB90 million) and investment properties of
RMB18 million (31 December 2017: RMB20 million).
As at 31 December 2017, bank borrowings of RMB99 million were secured by certain of the other flight equipment with
aggregate carrying amounts of RMB206 million.
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
bonds with nominal value of RMB345 million were redeemed by the Company in 2018 at the request of investors.
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.
The Group issued corporate bonds with aggregate nominal value of RMB2,000 million on 26 November 2018 at a bond rate of
3.92%. The corporate bonds mature in three years.
(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 2018, the Group’s weighted average interest rates on short-term borrowings were 3.92% per
annum (31 December 2017: 3.76% per annum).
244
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 36 BORROWINGS (continued)
(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 2018,
with maturities through 2027
Corporate Bond – Fixed bond rate at 2.97%~3.92%
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 2018, with maturities
through 2033
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
Fixed interest rate at 3.32% per annum as at 31 December 2018,
with maturities through 2020
Less: loans due within one year classified as current liabilities
2018
RMB million
2017
RMB million
19
14,655
4,699
20
13,000
4,696
10,213
9,781
–
–
92
29,678
(14,002)
15,676
98
66
–
27,661
(6,942)
20,719
(d) The carrying amounts of the borrowings are denominated in the following
currencies:
Renminbi
USD
2018
RMB million
2017
RMB million
47,607
6,810
54,417
40,086
8,201
48,287
The Group has certain borrowings as well as significant obligations under finance leases (Note 37) which are
denominated in USD as at 31 December 2018. The net exchange loss of RMB1,853 million for the year ended 31
December 2018 (2017: net exchange gain of RMB1,801 million) was mainly attributable to the translation of balances of
borrowings and obligations under finance leases which are denominated in USD.
(e) The balance of short-term borrowings as at 31 December 2018 included entrusted loans from CSAH via SA Finance to
the Group amounted to RMB500 million (31 December 2017: RMB105 million) (Note 51(d)(ii)).
(f) As at 31 December 2018, the fair value of borrowings approximate their carrying amount. The fair value is within level 2
of the fair value hierarchy.
245
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
36 BORROWINGS (continued)
(g) Certain of the Group’s banking facilities are subject to the fulfilment of covenants relating to certain of the Group’s
consolidated statement of financial position ratios, as are commonly found in lending arrangements with financial
institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand.
The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of
liquidity risk are set out in Note 4(a). As at 31 December 2018 and 2017, none of the covenants relating to drawn down
facilities had been breached.
37 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 2019 to 2030. 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 2018, future payments under these finance leases are as follows:
2018
Total
minimum
lease
payments
RMB million
12,062
11,738
36,765
22,200
82,765
Interest
RMB million
2,507
2,166
4,480
1,391
10,544
Present
value of the
minimum
lease
payments
RMB million
9,555
9,572
32,285
20,809
72,221
(9,555)
62,666
Present
value of the
minimum
lease
payments
RMB million
8,341
8,145
25,376
26,062
67,924
(8,341)
59,583
2017
Total
minimum
lease
payments
RMB million
10,764
10,257
29,627
28,251
78,899
Interest
RMB million
2,423
2,112
4,251
2,189
10,975
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
After 5 years
Less: ba lance due within one year
classified as current liabilities
246
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
37 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 2018
Floating interest rates ranging from three-month LIBOR + 0.18% to
three-month LIBOR + 2.95% per annum as at 31 December 2018
Floating interest rates ranging from six-month LIBOR + 0.03%
to six-month LIBOR + 3.30% per annum as at 31 December 2018
Singapore Dollars denominated obligations
Floating interest rate at six-month SIBOR + 1.44% per annum as at
2018
RMB million
2017
RMB million
8,630
9,617
8,620
7,803
12,544
11,327
31 December 2018
244
292
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 2018
Floating interest rate at six-month TIBOR + 3.00% per annum as at
31 December 2018
Renminbi denominated obligations
Fixed rate at 4.1% to 4.3% as at 31 December 2018
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 2018
Floating interest rate at three-month CHN HIBOR + 0.38% as at 31
December 2018
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 2018
Floating interest rates ranging from six-month
EURIBOR + 1.45% to six-month EURIBOR + 1.80%
per annum as at 31 December 2018
1,228
229
1,097
1,279
295
856
38,222
28,804
407
455
2,440
2,701
1,487
72,221
1,568
67,924
As at 31 December 2018, certain of the Group’s aircraft with carrying amounts of RMB88,739 million (31 December
2017: RMB82,356 million) secured finance lease obligations totalling RMB72,221 million (31 December 2017:
RMB67,924 million).
As at 31 December 2018, the fair value of obligations under finance leases approximate their carrying amount. The fair
value is within level 2 of the fair value hierarchy.
247
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
38 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
2018
RMB million
2017
RMB million
406
829
476
423
175
465
533
497
443
187
2,309
2,125
As at 31 December 2018, 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
2018
RMB million
2017
RMB million
1,910
376
23
2,309
1,832
209
84
2,125
248
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
39 CONTRACT LIABILITIES/DEFERRED REVENUE
The amounts represent the unredeemed credits under the frequent flyer award programmes. Movement in the accounts
is set out below:
Deferred revenue:
Balance at 31 December 2017
Representing:
– Current
– Non-current
Impact on initial application of IFRS15
– Change in measurement of revenue under frequent flyer award programmes
– Change in presentation
Balance at 1 January 2018
Contract liabilities:
Balance at 31 December 2017
Impact on initial application of IFRS15
Balance at 1 January 2018
Addition as a result of increase of the unredeemed credits under the frequent flyer award
programmes
Reduction as a result of revenue recognised during the year
Representing:
– Recognised as revenue from opening balance of contract liabilities
– Recognised as revenue from current year addition of contract liabilities
Balance at 31 December 2018
Representing:
– Current
– Non-current (Note 41)
RMB million
3,351
1,502
1,849
3,351
(90)
(3,261)
–
–
3,261
3,261
2,161
(1,711)
(1,461)
(250)
3,711
1,693
2,018
As at 31 December 2018, the aggregated amount of the transaction price allocated to the remaining performance
obligation, which is the unredeemed credits under the frequent flyer award programmes, amounted to RMB3,711
million. This amount represents revenue expected to be recognised in the future when the customers take possession of
the goods or services redeemed.
40 SALES IN ADVANCE OF CARRIAGE
As at 31 December 2018, the amount of sales in advance of carriage represents revenue expected to be recognised
in the future when the customers take possession of and accept the passenger transportation services to be provided
by the Group. During the year, RMB7,279 million which was included in the opening balance of the sales in advance of
carriage was recognised as revenue.
41 OTHER NON-CURRENT LIABILITIES
Unredeemed credits under the frequent flyer award programmes (Note 39)
Others
Note
(i)
2018
RMB million
2,018
18
2,036
(i)
Prior to 1 January 2018, the Company recorded unredeemed credits under the frequent flyer award programmes with “deferred
revenue”. Upon initial application of IFRS 15, the current portion of such unredeemed credits is recorded under “contract
liabilities”, whereas the non-current portion is recorded under in “other non-current liabilities”.
249
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
42 BALANCES WITH RELATED COMPANIES
(a) Amounts due from related companies
Current
CSAH and its affiliates
Associates
Joint ventures
Note
2018
RMB million
2017
RMB million
51
22
17
90
9
18
49
76
51(c)
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 paid to related companies
Non-current
CSAH and its affiliates
An associate
(c) Amounts due to related companies
CSAH and its affiliates
Associates
Joint ventures
Other related companies
Note
30&51(c)
2018
RMB million
2017
RMB million
80
147
227
160
–
160
Note
2018
RMB million
2017
RMB million
49
12
63
3
127
50
1
48
2
101
51(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.
250
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
43 ACCRUED EXPENSES
Repairs and maintenance
Jet fuel costs
Salaries and welfare
Landing and navigation fees
Computer reservation services
Provision for major overhauls (Note 45)
Interest expenses
Air catering expenses
Provision for early retirement benefits (Note 46)
Others
44 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
2018
RMB million
2017
RMB million
4,468
1,900
3,212
2,492
585
821
771
166
2
1,265
4,806
1,345
3,362
2,757
541
562
740
148
4
1,105
15,682
15,370
2018
RMB million
2017
RMB million
2,012
1,608
597
443
186
1,727
6,573
1,788
1,194
507
569
191
1,485
5,734
As at 31 December 2018, the fair value of the balances approximate their carrying amount.
45 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 43)
2018
RMB million
2017
RMB million
3,370
943
(661)
3,652
(821)
2,831
2,857
1,063
(550)
3,370
(562)
2,808
251
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
46 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 13)
Financial cost (Note 15)
Payments made during the year
At 31 December
Less: current portion (Note 43)
2018
RMB million
2017
RMB million
7
1
–
(4)
4
(2)
2
13
1
1
(8)
7
(4)
3
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.
47 DEFERRED BENEFITS AND GAINS
Leases rebates (Note (i))
Maintenance rebates (Note (ii))
Gains relating to sale and leaseback (Note (iii))
Government grants
Others
2018
RMB million
2017
RMB million
47
746
15
85
13
906
54
807
28
149
15
1,053
Notes:
(i)
(ii)
(iii)
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.
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.
252
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
48 SHARE CAPITAL
Registered, issued and paid up capital:
Trade-restricted:
489,202,658 domestic state-owned shares of RMB1.00 each (Note (ii))
1,088,870,431 A shares of RMB1.00 each (Note (ii))
600,925,925 H shares of RMB1.00 each (Note (ii))
Tradable:
4,039,228,665 domestic state-owned shares of RMB1.00 each
(2017: 4,039,228,665 shares of RMB1.00 each)
2,983,421,335 A shares of RMB1.00 each
(2017: 2,983,421,335 shares of RMB1.00 each)
3,065,523,272 H shares of RMB1.00 each
(2017: 3,065,523,272 shares of RMB1.00 each)
2018
RMB million
2017
RMB million
489
1,089
601
2,179
4,039
2,984
3,065
10,088
12,267
–
–
–
–
4,039
2,984
3,065
10,088
10,088
Notes:
(i)
All the domestic state-owned, H and A shares rank pari passu in all material respects.
(ii)
In September 2018, the Company issued 1,578,073,089 A shares (“new A shares”) to CSAH and other six entities at the
price of RMB6.02 per share, and issued 600,925,925 H shares (“new H shares”) to a fellow subsidiary of CSAH at the price
of HKD6.034 per share. The total cash consideration for the above share issuances amounted to RMB12,664 million, of which
RMB15 million was issuance costs, RMB2,179 million was credited to share capital and RMB10,470 million was credited to
share premium (see Notes 49 and 59). The new A shares issued to CSAH are restricted for trading within 36 months upon
completion of the issuance, whereas other new A shares issued to other parties are restricted for trading within 12 months
upon completion of the issuances. Further, in accordance with the H shares subscription agreement entered into between the
Company and the fellow subsidiary of CSAH, the fellow subsidiary of CSAH committed not to trade or transfer any of the new H
shares within 36 months upon completion of the issuance.
253
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
49 RESERVES
Balance at 1 January 2017
Changes in equity for 2017:
Total comprehensive income for
the year
Dividends approved in respect of
the previous year
Appropriations to reserves
Issuance of shares
Dilution and change of non-
controlling interests and other
reserves
Balance at 31 December 2017
Impact on initial application of
IFRS 15
Impact on initial application of
IFRS 9
Adjusted balance at
1 January 2018 (Note)
Changes in equity for 2018:
Total comprehensive income for
the year
Dividends approved in respect of
the previous year
Appropriations to reserves
Issuance of shares
Change in other reserves
Balance at 31 December 2018
Note:
Share
premium
RMB
million
14,131
Fair value
reserve
(recycling)
RMB
million
209
Note
–
66
–
–
1,051
–
15,182
–
–
–
–
–
–
275
–
(240)
15,182
35
Fair value
reserve
(non-
recycling)
RMB
million
–
–
–
–
–
–
–
–
303
303
Other
reserves
RMB
million
Retained
profits
RMB
million
2,078
17,220
Total
RMB
million
33,638
1
–
492
–
5,961
6,028
(982)
(492)
–
(982)
–
1,051
113
2,684
–
113
21,707
39,848
–
–
526
40
526
103
2,684
22,273
40,477
49(b)
48(ii)
–
–
–
10,470
–
25,652
22
–
–
–
–
57
133
(2)
2,895
3,048
–
–
–
–
–
221
–
4
(1,009)
(221)
–
–
436
2,907
23,938
(1,009)
–
10,470
4
52,990
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative information
is not restated. See Note 2 (b).
(a) Appropriations to reserves
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.
254
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
49 RESERVES (continued)
(b) Dividends
Dividends payable to equity shareholders of the Company attributable to the year:
Final dividend proposed after the end of the reporting year
of RMB0.05 per share (2017: RMB0.10 per share)
(inclusive of applicable tax)
2018
RMB million
2017
RMB million
613
1,009
A dividend in respect of the year ended 31 December 2018 of RMB0.05 per share (inclusive of applicable tax) (2017:
RMB0.10 per share (inclusive of applicable tax)), amounting to a total dividend of RMB613 million (2017: RMB1,009
million), was proposed by the directors on 29 March 2019. The dividend proposed after the end of the financial year has
not been recognised as a liability at the end of the financial year.
50 COMMITMENTS
(a) Capital commitments
Capital commitments outstanding as at 31 December 2018 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 a joint venture
– 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
2018
RMB million
2017
RMB million
82,199
86,834
14
26
40
21
61
7,224
14,062
21,286
103,546
–
18
18
22
40
6,386
15,636
22,022
108,896
255
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
50 COMMITMENTS (continued)
(a) Capital commitments (continued)
As at 31 December 2018, the approximate total future payments, including estimated amounts for price escalation
through anticipated delivery dates for aircraft and flight equipment are as follows:
2018
2019
2020
2021
2022 and afterwards
2018
RMB million
2017
RMB million
–
38,141
32,395
8,628
3,035
82,199
28,125
28,370
22,686
4,808
2,845
86,834
(b) Operating lease commitments
As at 31 December 2018, 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
2018
RMB million
2017
RMB million
9,217
35,429
31,083
75,729
8,283
31,175
30,007
69,465
51 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 60, is
as follows:
2018
RMB’000
15,218
1,797
17,015
2018
RMB’000
878
16,137
17,015
2017
RMB’000
12,151
1,841
13,992
2017
RMB’000
2,952
11,040
13,992
Salaries, wages and welfare
Retirement scheme contributions
Directors and supervisors (Note 60)
Senior management
Total remuneration is included in “staff costs” (Note 13).
256
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
51 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(b) Transactions with CSAH and its affiliates, associates, joint ventures and
other related companies of the Group
The Group provided various operational services to CSAH and its affiliates, associates, joint ventures and other related
companies of the Group during the normal course of its business. The Group also received operational services
provided by these entities.
Details of the significant transactions carried out by the Group are as follows:
Income received from CSAH and its affiliates
Cargo handling income and rental income*
Aviation material sales income*
Entrusted management income*
Others
Expenses paid to CSAH and its affiliates
Cargo handling charges*
Commission expenses*
Transportation expense*
Maintenance material purchase expense and lease charges for
maintenance material*
Software service expenses*
Air catering supplies expenses*
Repairing charges*
Lease charges for land and buildings*
Property management fee*
Acquisition of property*
Others
Expenses paid to joint ventures and associates
Repairing charges
Repairing charges and 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
Rental income
Entrustment income for advertising media business*
Repairing income
Air catering supplies income
Commission income*
Ground service income
Labor service income and rental income
Others
Note
(i)
(ii)
(iii)
(i)
(i)
(i)
(ii)
(ii)
(iv)
(v)
(vi)
(vii)
(viii)
(v)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
(xvi)
(x)
(xiv)
(xvii)
(xvii)
(xviii)
(xix)
(xx)
257
2018
RMB million
2017
RMB million
4
6
27
9
111
14
10
98
5
135
1,184
294
106
160
5
786
2,692
–
–
123
98
105
28
7
15
–
1
11
16
20
13
22
13
3
4
–
8
112
44
–
43
4
125
1,537
189
72
–
12
–
2,492
194
36
123
109
74
26
6
28
18
20
1
26
26
10
20
7
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
51 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(b) Transactions with CSAH and its affiliates, associates, joint ventures and
other related companies of the Group (continued)
Income received from other related company
Air tickets income
Expenses paid to other related companies
Advertising expenses
Computer reservation services
Aviation supplies expenses
Canteen Service
Others
Acquisition from CSAH and its affiliates
Acquisition of a subsidiary*
Equity transaction*
Aircraft related transactions with CSAH and its affiliates
Finance lease of aircraft*
Operating lease charges on aircraft*
Consideration of disposal of aircraft*
Note
(xxi)
(xxi)
(xxiii)
(xxii)
(xxii)
(xiv)
(v)
(xxiv)
(xxiv)
(xxiv)
2018
RMB million
2017
RMB million
9
10
592
48
19
3
–
1,602
8,221
91
481
6
10
576
39
15
4
47
–
6,831
–
–
(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 service 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. GSC also provides transportation service to the Group.
In addition, the Group leased certain equipment to GSC under operating lease agreements.
(ii) China Aviation Supplies Holding Company (“CASC”) is an associate of CSAH.
The Group purchases software service, as well as purchases and leases maintenance material from CASC, and
CASC also purchases maintenance material from the Group.
(iii)
The Group provides entrusted management service to CSAH.
(iv) Shenzhen Air Catering Co., Ltd. (“SACC”) is an associate of CSAH.
Air catering supplies expenses are payable by the Group in respect of certain in-flight meals and related services
with SACC.
(v) MTU, a former joint venture of CSAH, provides comprehensive maintenance services to the Group.
The CSAH Group subscribed the new A shares (Note 48) of the Company with the equity interests held in MTU,
which representing 50% of the total equity interests, and a cash consideration of RMB1,204 million.
258
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
51 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(b) Transactions with CSAH and its affiliates, associates, joint ventures and
other related companies of the Group (continued)
(vi)
The Group leases certain land and buildings in the PRC from CSAH and its affiliates. The amount represents rental
payments for land and buildings paid or payable to CSAH and its affiliates.
(vii) China Southern Airlines Group Property Management Co., Ltd., a wholly-owned subsidiary of CSAH. COHL&
CSAH Construction Development Co.,Ltd., a joint venture of CSAH. Both of them provide property management
services to the Group.
(viii) The Group acquires properties from COHL&CSAH Construction Development Co.,Ltd.
(ix) GAMECO and Shenyang Northern Aircraft Maintenance Ltd. (“SNAM”), 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 former 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.
In July 2017, Zhuhai Xiang Yi became a wholly-owned subsidiary of the Company. The amount represents the
transactions in 2017 which incurred prior to the acquisition.
(xi)
Flying College, a former joint venture of the Group, provides training services to the Group.
Flying College became a subsidiary of the Group on 20 November 2018 (Note 23(iv)).
(xii) Beijing Aviation Ground Services Co.,Ltd. and Shenyang Konggang Logistic Co., Ltd., associates of the Group
provide ground services 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. The Group provides certain media
resources to SACM.
XACM, a former associate of Xiamen Airlines, provided advertising service to Xiamen Airlines. In October 2017,
XACM became a wholly-owned subsidiary of Xiamen Airlines. Xiamen Airlines provides certain media resources to
XACM before the acquisition.
(xv) Xinjiang Civil Aviation Property Management Ltd., an associate of the Group, provides property management
services to the Group.
(xvi) The Group imports and sells maintenance materials to GAMECO and earns maintenance material sales and
handling income.
(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.
259
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 51 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(b) Transactions with CSAH and its affiliates, associates, joint ventures and
other related companies of the Group (continued)
(xx) The Group provides labor service to SNAM, and the charge rates are determined by reference to prevailing market
price. In addition, the Group leases certain property and equipment to SNAM.
(xxi) Phoenix Satellite Television Holdings Ltd., (“the Phoenix Group”) was a related party of the Group as the board
chairman of the Phoenix Group was appointed as a non-executive director of the Group and resigned on 20
December 2017. The transaction incurred in the current year before 20 December 2018 was deemed to be the
related party transaction. It provides advertising services to the Group.
In addition, the Group sells tickets to the Phoenix Group on market price.
(xxii) The chairman of Guangdong Southern Airline Pearl Aviation Services Company Limited (“Pearl Aviation Services”)
is the key management personnel of the Company. The Group purchases aviation supplies and canteen services
from Pearl Aviation Services.
(xxiii) China Travel Sky Holding Company is a related party of the Group as a key management personnel of the
Group was appointed as the non-executive director of China Travel Sky Holding Company. It provides computer
reservation services.
(xxiv) China Southern Airlines International Finance Leasing Co., Ltd., a wholly-owned subsidiary of CSAH, provides
finance and operating lease of aircraft services to the Group. Also, the Group disposed aircraft to China Southern
Airlines International Finance Leasing Co., Ltd.
*
These related party transactions also constitute connected transactions or continuing connected transactions as defined
in Chapter 14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in section
“CONNECTED TRANSACTION” of the Report of Director.
260
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 51 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(c ) Balances with CSAH and its affiliates, associates, joint ventures and other
related companies of the Group
Details of amounts due from/to CSAH and its affiliates, associates, joint ventures and other related company of the
Group:
Receivables:
CSAH and its affiliates
Associates
Joint ventures
Prepayments of acquisition of long-term assets:
CSAH and its affiliates
An associate
Payables:
CSAH and its affiliates
Associates
Joint ventures
Other related companies
Accrued expenses:
CSAH and its affiliates
Associates
Joint ventures
Other related companies
Obligations under finance leases:
CSAH and its affiliates
Note
2018
RMB million
2017
RMB million
51
22
17
90
9
18
49
76
2018
RMB million
2017
RMB million
80
147
227
160
–
160
42(a)
Note
30&42(b)
Note
2018
RMB million
2017
RMB million
42(c)
49
12
63
3
127
50
1
48
2
101
2018
RMB million
2017
RMB million
62
139
2,320
633
3,154
1,023
95
1,086
571
2,775
2018
RMB million
2017
RMB million
13,360
13,360
6,656
6,656
Except the obligations under finance leases, the amounts due from/to CSAH and its affiliates, associates, joint ventures
and other related companies of the Group are unsecured, interest-free and have no fixed terms of repayment.
261
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
51 MATERIAL RELATED PARTY TRANSACTIONS (continued)
(d) Loans from and deposits placed with related parties
(i) Loans from related parties
At 31 December 2018, loans from SA Finance to the Group amounted to RMB758 million (31 December 2017:
RMB431 million).
The unsecured loans are repayable as follows:
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
2018
RMB million
2017
RMB million
630
10
118
758
273
58
100
431
Interest expense paid on such loans amounted to RMB18 million (2017: RMB14 million) and the interest rates
range from 3.92% to 4.51% per annum during the year ended 31 December 2018 (2017: 3.92% to 4.51%).
(ii) Entrusted loans from CSAH
In 2018, CSAH, SA Finance and the Group entered into an entrusted loan agreement, pursuant to which, CSAH,
as the lender, entrusted SA Finance to lend RMB500 million to the Group from 28 July 2018 to 28 July 2019. 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
36(e)
2018
RMB million
500
2017
RMB million
105
Interest expense paid on such loans amounted to RMB10 million (2017: RMB4 million) at interest rates 3.92% per
annum during the year ended 31 December 2018 (2017: 3.92% per annum).
(iii) Deposits placed with SA Finance
As at 31 December 2018, 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
2018
RMB million
5,583
2017
RMB million
6,095
Interest income received on such deposits amounted to RMB80 million during the year ended 31 December 2018
(2017: RMB72 million).
(e) Commitments to CSAH
As at 31 December 2018, the Group had operating lease commitments to CSAH in respect of lease payments for land
and buildings of RMB665 million (31 December 2017: RMB334 million) and aircraft of RMB78 million (31 December
2017: Nil). As at 31 December 2018, the Group had capital commitments to CSAH in respect of capital payments for
other flight equipment of RMB291 million (31 December 2017: Nil).
262
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
52 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% (2017: 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 2018 was approximately RMB598 million (2017:
RMB546 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.
53 SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED CASH
FLOW STATEMENT
Non-cash transactions
i. Acquisition of aircraft
During the year ended 31 December 2018, aircraft acquired under finance leases amounted to RMB13,290 million
(2017: RMB17,283 million).
ii. Acquisition of a joint venture through issuance of new shares
During the year ended 31 December 2018, CSAH subscribed the new A shares (Note 48) of the Company with
a cash consideration and the equity interests held in MTU, representing 50% of the total equity interests of MTU.
The related non-cash equity transaction of financing activities amounted to RMB1,741 million (2017: nil).
263
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
54 CONTINGENT LIABILITIES
(a)
(b)
(c)
The Group leased certain properties and buildings from CSAH which were located in Guangzhou, Wuhan, Haikou,
etc. However, such properties and buildings lack adequate documentation evidencing CSAH’s rights thereto.
Pursuant to the indemnification agreement dated 22 May 1997 between the Group and CSAH, CSAH has agreed
to indemnify the Group against any loss or damage arising from any challenge of the Group’s right to use the
certain properties and buildings.
The Group entered into certain agreements with CSAH in prior years to acquire certain land use right and
buildings from CSAH. The change of business registration of such land use right and buildings are still in progress.
On 7 February 2018, CSAH issued a letter of commitment to the Company, committing to indemnify the Group
against any claims from third parties to the Group, or any loss or damage in the Group’s operation activities due
to lack adequate documentation of the certain properties and buildings, without recourse to the Group.
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 2017: RMB696
million) that can be drawn by the pilot trainees to finance their respective flight training expenses. As at 31
December 2018, total personal bank loans of RMB318 million (31 December 2017: RMB361 million), under these
guarantees, were drawn down from the banks. During the year, the Group paid RMB1 million (2017: RMB5 million)
to the banks due to the default of payments of certain pilot trainees.
(d) During the year ended 31 December 2018, the Group was aware that the Group, together with certain third party
companies, were claimed as defendants in an alleged dispute over a loan contract between a local commercial
bank and a third party company (“the Defendant”). The amount of the action was around RMB98 million. As of
the issuance date of this financial report, the claim was passed to Tianjin High People’s Court for further hearing
process. The claim relates to a suspected use of forgery company stamps of the Group by the Defendant, and
the Group has already reported to the local Public Security Bureau for investigations. The management considers
that given the preliminary status of the claim, the Group cannot reasonably predict the result and potential financial
impact of this pending claim, if any. Therefore, no provision has been made against this pending claim.
55 COMPARATIVE FIGURES
The Group has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen,
comparative information is not restated. Further details of the changes in accounting policies are disclosed in Note 2(b).
56 IMMEDIATE AND ULTIMATE CONTROLLING PARTY
As at 31 December 2018, 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.
57 NON-ADJUSTING EVENTS AFTER THE FINANCIAL YEAR END
On 29 March 2019, the Directors of the Company proposed a final dividend in respect of the year ended 31 December
2018. Further details are disclosed in Note 49(b).
264
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 58 COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION
31 December
2018
RMB million
31 December
2017
RMB million
(Note)
130,279
29,634
1,316
8,727
832
1,839
–
497
–
234
16
75
1,534
1,103
176,086
1,053
2,071
5,231
3,620
78
2,891
440
956
16,340
44
32,280
7,883
281
1,572
7,007
–
310
5,069
12,562
4,560
71,568
123,047
20,467
1,335
7,961
832
269
100
498
26
–
–
46
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
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
Aircraft lease deposits
Available-for-sale financial assets
Other equity instrument investments
Other non-current financial assets
Derivative financial instruments
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
Other financial assets
Amounts due from subsidiaries and other related companies
Current liabilities
Derivative financial instruments
Borrowings
Current portion of obligations under finance leases
Trade payables
Contract liabilities
Sales in advance of carriage
Deferred revenue
Current income tax
Amounts due to subsidiaries and other related companies
Accrued expenses
Other liabilities
265
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
58 COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION
(continued)
Non-current liabilities
Borrowings
Obligations under finance leases
Deferred revenue
Other non-current liabilities
Provision for major overhauls
Provision for early retirement benefits
Deferred benefits and gains
Net assets
Capital and reserves
Share capital
Reserves
Total equity
Note:
31 December
2018
RMB million
31 December
2017
RMB million
(Note)
Note
13,417
52,395
–
1,817
2,077
1
642
70,349
50,509
12,267
38,242
50,509
15,170
51,848
1,568
–
2,223
2
754
71,565
36,482
10,088
26,394
36,482
59
The Company has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative
information is not restated.
Approved and authorised for issue by the Board of Directors on 29 March 2019.
Wang Chang Shun
Director
Zhang Zi Fang
Director
266
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
59 RESERVES MOVEMENT OF THE COMPANY
Share
premium
Fair value
reserve
(recycling)
Fair value
reserve
(non-
recycling)
Total
Note RMB million RMB million RMB million RMB million RMB million RMB million
Other
reserves
Retained
profits
Balance at 1 January 2017
13,878
34
Changes in equity for 2017:
Total comprehensive income
for the year
Dividends approved in respect
of the previous year
Appropriations to reserves
Issuance of shares
Balance at 31 December 2017
Impact on initial application
of IFRS 15
Impact on initial application
of IFRS 9
Adjusted balance at
1 January 2018 (Note)
Changes in equity for 2018:
Total comprehensive income
for the year
Dividends approved in respect
of the previous year
Appropriations to reserves
Issuance of shares
Balance at 31 December 2018
Note:
–
–
–
1,051
14,929
–
–
14,929
–
–
–
10,470
25,399
13
–
–
–
47
–
(13)
34
22
–
–
–
56
49(b)
48(ii)
–
–
–
–
–
–
–
93
93
8
–
–
–
2,103
5,670
21,685
–
4,627
4,640
–
492
–
(982)
(492)
–
(982)
–
1,051
2,595
8,823
26,394
–
–
461
13
461
93
2,595
9,297
26,948
–
1,803
1,833
–
221
–
(1,009)
(221)
–
9,870
(1,009)
–
10,470
38,242
101
2,816
The Company has initially applied IFRS 15 and IFRS 9 at 1 January 2018. Under the transition methods chosen, comparative
information is not restated.
267
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
60 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 2018 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
–
–
–
–
–
–
–
–
–
–
Total
RMB’000
–
–
–
–
96
782
150
150
–
60
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
–
–
–
–
12
124
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Name
Executive directors
Wang Chang Shun (Note (i))
Tan Wan Geng (Note (i) & (vii))
Zhang Zi Fang (Note (i))
Supervisors
Pan Fu (Note (i))
Li Jia Shi (Note (ii))
Mao Juan
Independent
non-executive directors
Tan Jin Song
Jiao Shu Ge
Zheng Fan (Note (viii))
Gu Hui Zhong (Note (viii))
Directors’
fees
RMB’000
Salaries,
wages and
welfare
RMB’000
Housing
allowance
RMB’000
–
–
–
–
–
–
150
150
–
60
–
–
–
–
84
658
–
–
–
–
–
–
–
–
–
–
–
–
–
–
268
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
60 BENEFITS AND INTERESTS OF DIRECTORS AND SUPERVISORS
(continued)
(a) Directors’ and supervisors’ emoluments (continued)
The remuneration of every director and supervisor for the year ended 31 December 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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
RMB’000
–
–
–
–
–
935
–
1,027
–
–
546
444
150
150
150
150
150
–
–
Name
Non-executive directors
Yuan Xin An (Note (i) & (iii))
Yang Li Hua (Note (i) & (iii))
Executive directors
Wang Chang Shun (Note (i) & (vi))
Tan Wan Geng (Note (i))
Zhang Zi Fang (Note (i))
Li Shao Bin (Note (iii))
Supervisors
Pan Fu (Note (i))
Li Jia Shi
Zhang Wei (Note (i) & (iii))
Yang Yi Hua (Note (iii) & (v))
Wu De Ming (Note (iii))
Mao Juan (Note (iv))
Independent non-executive
directors
Ning Xiang Dong (Note (iii))
Liu Chang Le (Note (iii))
Tan Jin Song
Guo Wei (Note (iii))
Jiao Shu Ge
Zheng Fan (Note (iv))
Gu Hui Zhong (Note (iv))
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
–
–
–
–
–
123
–
126
–
–
127
120
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150
150
150
150
150
–
–
–
–
–
–
–
812
–
901
–
–
419
324
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
269
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
60 BENEFITS AND INTERESTS OF DIRECTORS AND SUPERVISORS
(continued)
(a) Directors’ and supervisors’ emoluments (continued)
Notes:
(i)
(ii)
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.
Mr. Li Jia Shi did not receive any remuneration for his service in the capacity of the supervisor of the Company since 1 February
2018. He also held management position in CSAH and his salary was borne by CSAH.
(iii)
Resigned on 20 December 2017.
(iv)
Appointed on 20 December 2017.
(v) 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.
(vi) 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.
(vii) Mr. Tan Wan Geng was an executive director of the Company before 30 November 2018, and resigned from the Company on
30 November 2018.
(viii) Mr. Zheng Fan and Mr. Gu Hui Zhong receive remuneration in accordance with the relevant provisions of the PRC.
(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
2018 (2017: Nil).
(c ) Consideration provided to third parties for making available directors’ and
supervisors’ services
For the year ended 31 December 2018, the Group did not pay consideration to any third parties for making available
directors’ and supervisors’ services (2017: 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 2018, 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 (2017: 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 (2017: Nil).
270
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 61 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND
INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE
YEAR ENDED 31 DECEMBER 2018
Up to the date of issue of these financial statements, the IASB has issued a number of amendments, new standards
and interpretations which are not yet effective for the year ended 31 December 2018 and which have not been adopted
in these financial statements. These include the following which may be relevant to the Group.
IFRS 16, Leases
IFRIC 23, Uncertainty over income tax treatments
Annual Improvements to IFRSs 2015-2017 Cycle
Effective for
accounting periods
beginning on or after
1 January 2019
1 January 2019
1 January 2019
Amendments to IAS 28, Long-term interest in associates and joint ventures
1 January 2019
Amendments to IFRS 9, Prepayment features with negative compensation
1 January 2019
The Group is in the process of making an assessment of what the impact of these amendments, new standards and
interpretations is expected to be in the period of initial application. So far the Group has identified some aspects of the
IFRS 16 which may have a significant impact on the consolidated financial statements. Further details of the expected
impacts are discussed below.
271
China Southern Airlines Company Limited(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements
61 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND
INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE
YEAR ENDED 31 DECEMBER 2018 (continued)
IFRS 16, Leases
Currently the Group classifies leases into finance leases and operating leases and accounts for the lease arrangements
differently, depending on the classification of the lease. The Group enters into some leases as the lessor and others as
the lessee.
IFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under
a lease. However, once IFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating
leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance
lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability
at the present value of the minimum future lease payments and will recognise a corresponding “right-of-use” asset.
After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding
balance of the lease liability, and the depreciation of the right-of-use asset, instead of the current policy of recognising
rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the
lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less)
and to leases of low-value assets, in which case the rental expenses would continue to be recognised on a systematic
basis over the lease term.
IFRS 16 will primarily affect the Group’s accounting as a lessee of leases for properties, plant and equipment which
are currently classified as operating leases. The application of the new accounting model is expected to lead to an
increase in both assets and liabilities and to impact on the timing of the expense recognition in the consolidated income
statement over the period of the lease.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. As allowed by IFRS 16, the Group decides
to use the practical expedient to grandfather the previous assessment of which existing arrangements are, or contain,
leases. The Group will therefore apply the new definition of a lease in IFRS 16 only to contracts that are entered into on
or after the date of initial application.
The Group decides to elect to use the modified retrospective approach for the adoption of IFRS 16 and will recognise
the cumulative effect of initial application as an adjustment to the opening balance of equity at 1 January 2019 and
will not restate the comparative information. The Group will also apply IFRS 16’s low-value and short-term exemptions
prospectively.
The Group has substantially completed an assessment on the impact of IFRS 16. Based on information currently
available, excluding the impact from its associates’ and joint ventures’ initial application of IFRS 16, as well as the
overall impact on deferred tax, the Group expects to recognise right-of-use assets and lease liabilities of approximately
RMB44,000 million and RMB48,000 million respectively on 1 January 2019. The actual impact upon the initial adoption
of this standard, however, may differ as the assessment completed to date is based on the information currently
available to the Group, and further impacts may be identified before the standard is initially applied in the Group’s
interim financial report for the six months ending 30 June 2019.
272
ANNUAL REPORT 2018(Expressed in Renminbi unless otherwise indicated)Notes to the Financial Statements 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.
2018
RMB million
2017
RMB million
Revenue
Less: Operating costs
Taxes and surcharges
Selling and distribution expenses
General and administrative expenses
Research and development expenses
Finance expenses
Including: Interest expenses
Interest income
Impairment loss
Credit loss
Add: Other income
Investment income
Including: Income from investment in associates and joint ventures
Gain/(Loss) on fair value movement
Gain on assets disposals
Operating profit
Add: Non-operating income
Less: Non-operating expenses
Profit before income tax
Less: Income tax
Net profit for the year
(1) Net profit classified by continuity of operations:
– Net profit from continuing operations
– Net profit from discontinued operations
(2) Net profit classified by ownership:
– Shareholders of the Company
– Non-controlling interests
143,623
128,613
272
7,086
3,736
221
5,108
3,202
125
12
3
4,320
483
463
12
622
4,009
849
371
4,487
1,031
3,456
3,456
–
2,983
473
127,489
111,687
217
6,967
3,426
173
1,121
2,747
89
442
–
3,058
625
519
(64)
1,006
8,081
886
169
8,798
1,965
6,833
6,833
–
5,914
919
273
China Southern Airlines Company LimitedFor the year ended 31 December 2018(Prepared in accordance with PRC Accounting Standard)Supplementary Financial Information
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
Total equity attributable to equity shareholders of the Company
Non-controlling interests
Total equity
Total liabilities and equity
31 December
2018
RMB million
31 December
2017
RMB million
24,072
5,992
207,920
7,022
1,574
75
246,655
83,687
668
84,117
168,472
65,003
13,180
78,183
246,655
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
274
ANNUAL REPORT 2018For the year ended 31 December 2018(Prepared in accordance with PRC Accounting Standard)Supplementary Financial Information
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:
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
Amounts under IFRSs
Note
(a)
(b)
(c)
2018
RMB million
2,983
(124)
1
–
31
4
2,895
2017
RMB million
5,914
47
21
8
(11)
(18)
5,961
(2)
The effect of the differences between PRC GAAP and IFRSs on equity attributable to equity shareholders of the
Company is analysed as follows:
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
Amounts under IFRSs
Notes:
Note
(a)
(b)
(c)
2018
RMB million
65,003
2017
RMB million
49,594
72
(7)
237
(16)
(32)
196
(8)
237
(47)
(36)
65,257
49,936
(a)
(b)
(c)
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.
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.
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.
275
China Southern Airlines Company LimitedFor the year ended 31 December 2018Supplementary Financial Information
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 (loss)/gain, 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
2018
RMB million
Year ended 31 December
2017
RMB million
2016
RMB million
2015
RMB million
143,623
(140,242)
5,438
127,806
(123,098)
4,448
114,981
(106,204)
3,835
111,652
(101,492)
3,278
8,819
125
(3,202)
263
200
(1,853)
12
4,364
(1,000)
3,364
2,895
469
3,364
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
2014
RMB million
108,584
(106,026)
2,190
4,748
376
(2,193)
261
140
(292)
26
3,066
(668)
2,398
1,777
621
2,398
RMB0.27
RMB0.60
RMB0.51
RMB0.38
RMB0.18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION SUMMARY
2018
RMB million
2017
RMB million
2016
RMB million
2015
RMB million
2014
RMB million
As at 31 December
Non-current assets
222,877
200,834
186,678
171,876
162,147
Net current liabilities
59,615
51,693
54,168
51,422
26,545
Non-current liabilities
84,793
86,598
77,534
70,830
91,109
Total equity attributable to equity
shareholders of the Company
65,257
49,936
43,456
39,045
35,748
Non-controlling interests
13,212
12,607
11,520
10,579
8,745
276
ANNUAL REPORT 2018For the year ended 31 December 2018(Prepared in accordance with International Financial Reporting Standards)Five Year Summary
www.csair.com
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