Air China Regulatory News (AIRC)

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AIR CHINA LIMITED

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code:00753)

2015 ANNUAL RESULTSANDPROPOSED PUBLIC ISSUANCE OF CORPORATE BONDS

(I) 2015 Annual Results

The Board hereby announces the audited consolidated financial results of the Group for the year ended 31 December 2015 together with the corresponding comparative figures for the year ended 31 December 2014 as follows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended 31 December 2015

(Prepared under International Financial Reporting Standards)

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended 31 December 2015

(Prepared under International Financial Reporting Standards)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2015

(Prepared under International Financial Reporting Standards)

Notes:

1 Basis of preparation

The Group's financial statements have been prepared in accordance with all applicable International Financial Reporting Standards ("IFRSs"), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards ("IASs") and Interpretations issued by the International Accounting Standards Board ("IASB"). The financial statements also comply with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The financial statements have been approved and authorised for issue by the board of directors on 30 March 2016.

As at 31 December 2015, the Group's current liabilities exceeded its current assets by approximately RMB30,336 million. The liquidity of the Group is primarily dependent on its ability to maintain adequate cash inflows from operations and sufficient financing to meet its financial obligations as and when they fall due. Considering the Company's sources of liquidity and the unutilised bank facilities of RMB118,925 million as at 31 December 2015, the directors of the Company believe that adequate funding is available to fulfil the Group's debt obligations and capital expenditure requirements when preparing the financial statements for the year ended 31 December 2015. Accordingly, the financial statements have been prepared on a basis that the Group will be able to continue as a going concern.

The financial statements have been prepared on a historical cost basis, except for financial instruments classified as available-for-sale or as trading securities, which are measured at fair value, and non-current assets held for sale, which are stated at the lower of their carrying amounts and fair value less costs of disposal. The financial statements are presented in Renminbi ("RMB") and all values are rounded to the nearest thousand except when otherwise indicated.

China National Aviation Finance Co., Ltd ("CNAF") was acquired by the Company in 2015. As CNAF and the Company had been under the common control of China National Aviation Holding Company before and after the acquisition, the acquisition was reflected in the consolidated financial statements of the Group using the principles of merger accounting under Accounting Guideline 5, Merger accounting for common control combinations. Accordingly, the assets and liabilities of CNAF had been accounted for at historical amounts and the consolidated financial statements of the Group prior to the acquisition had been restated to include the result of operations and assets and liabilities of CNAF on a combined basis. Respective notes to the consolidated financial statements have also been restated. All significant intra-group transactions, balances, income and expenses are eliminated on combination.

2 Changes in accounting policies

The IASB has issued the following amendments to IFRSs that are first effective for the current accounting period of the Group:

• Amendments to IAS 19, Employee benefits: Defined benefit plans: Employee contributions

• Annual Improvements to IFRSs 2010-2012 Cycle

• Annual Improvements to IFRSs 2011-2013 Cycle

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Impacts of the adoption of the amended IFRSs are discussed below:

Amendments to IAS 19, Employee benefits: Defined benefit plans: Employee contributions

The amendments introduce a relief to reduce the complexity of accounting for certain contributions from employees or third parties under defined benefit plans. When the contributions are eligible for the practical expedient provided by the amendments, a company is allowed to recognise the contributions as a reduction of the service cost in the period in which the related service is rendered, instead of including them in calculating the defined benefit obligation. The amendments do not have significant impact on the financial statements as the defined benefit plans operated by the Group are wholly funded by contributions from the Group and do not involve contributions from employees or third parties.

Annual Improvements to IFRSs 2010-2012 Cycle and 2011-2013 Cycle

These two cycles of annual improvements contain amendments to nine standards with consequential amendments to other standards. Among them, IAS 24, Related party disclosures has been amended to expand the definition of a "related party" to include a management entity that provides key management personnel services to the reporting entity, and to require the disclosure of the amounts incurred for obtaining the key management personnel services provided by the management entity. These amendments do not have an impact on the Group's related party disclosures as the Group does not obtain key management personnel services from management entities.

3 Segment information

The Group's operating businesses are structured and managed separately, according to the nature of their operations and the services they provide. The Group has the following reportable operating segments:

(a) the "airline operations" segment which mainly comprises the provision of air passenger and air cargo services; and

(b) the "other operations" segment which comprises the provision of aircraft engineering, ground services and other airline-related services.

In determining the Group's geographical information, revenue is attributed to the segments based on the origin and destination of each flight. Assets, which consist principally of aircraft and ground equipment, supporting the Group's worldwide transportation network, are mainly located in Mainland China. An analysis of the assets of the Group by geographical distribution has therefore not been included.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

Operating segments

The following tables present the Group's consolidated revenue and profit before taxation regarding the Group's operating segments in accordance with the Accounting Standards for Business Enterprises of the PRC ("CASs") for the years ended 31 December 2015 and 2014 and the reconciliations of reportable segment revenue and profit before taxation to the Group's consolidated amounts under IFRSs:

Year ended 31 December 2015

Year ended 31 December 2014 (restated)

The following table presents the segment assets of the Group's operating segments under CASs as at 31 December 2015 and 2014 and the reconciliations of reportable segment assets to the Group's consolidated amounts under IFRSs:

Geographical information

The following table presents the Group's consolidated revenue under IFRSs by geographical location for the years ended 31 December 2015 and 2014, respectively:

Year ended 31 December 2015

Year ended 31 December 2014 (restated)

4 Air traffic revenue

Air traffic revenue represents revenue from the Group's airline operation business. An analysis of the Group's air traffic revenue during the year is as follows:

5 Other operating revenue

6 Profit from operations

The Group's profit from operations is arrived at after charging/(crediting):

7 Finance income and finance costs

An analysis of the Group's finance income and finance costs during the year is as follows:

Finance income

Finance costs

The interest capitalisation rates during the year ranged from 0.77% to 6.55% (2014: 0.77% to 6.55%) per annum.

8 Taxation

Under the relevant Corporate Income Tax Law and regulations in the PRC, except for two branches which are taxed at a preferential rate of 15% (2014: 15%) and a subsidiary which is exempted from the local income tax of the Inner Mongolia Autonomous Region from year 2013 to 2015, all group companies located in Mainland China are subject to a corporate income tax rate of 25% (2014: 25%) during the year. Subsidiaries in Hong Kong and Macau are taxed at corporate income tax rates of 16.5% and 12% (2014: 16.5% and 12%), respectively.

In respect of majority of the Group's overseas airline activities, 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 these overseas jurisdictions. Accordingly, no provision for overseas tax has been made for overseas airlines activities in the current and prior years.

9 Dividends

In accordance with the Company's articles of association, the profit after taxation of the Company for the purpose of dividend distribution is based on the lesser of (i) the profit determined in accordance with CASs; and (ii) the profit determined in accordance with IFRSs.

Pursuant to the shareholders' approval at the Annual General Meeting on 22 May 2015, a final dividend of RMB0.5223 (including tax) per ten shares totalling RMB683 million in respect of the year ended 31 December 2014 was paid out in 2015.

Pursuant to a resolution passed at the Directors' meeting on 30 March 2016, a final dividend in respect of the year ended 31 December 2015 of RMB1.0700 (including tax) per ten shares totalling RMB1,400 million was proposed for shareholders' approval at the Annual General Meeting. As the final dividend is declared after the balance sheet date, such dividend is not recognised as a liability as at 31 December 2015.

10 Earnings per share attributable to equity shareholders of the Company

The calculation of basic earnings per share for the year ended 31 December 2015 was based on the profit attributable to ordinary equity shareholders of the Company of RMB7,063 million (2014: RMB3,852 million) and the weighted average of 12,294,896,740 ordinary shares (2014: 12,294,896,740 ordinary shares) in issue during the year, as adjusted to reflect the weighted average number of treasury shares held by Cathay Pacific Airways Limited through reciprocal shareholding.

The Group had no potentially dilutive ordinary shares in issue during both years.

11 Accounts receivable

The Group normally allows a credit period of 30 to 90 days to its sales agents and other customers while some major customers are granted a credit period of up to six months or above. The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group's accounts receivable relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its accounts receivable balances.

The ageing analysis of the accounts receivable as at the end of the reporting period, net of provision for impairment, is as follows:

12 Accounts payable

The ageing analysis of the accounts payable as at the end of the reporting period is as follows:

Consolidated Income Statement

For the year ended 31 December 2015

(Prepared under the Accounting Standards for Business Enterprises of the PRC)

Consolidated Balance Sheet

At 31 December 2015

(Prepared under the Accounting Standards for Business Enterprises of the PRC)

Effects of differences between IFRSs and CASs

The effects of differences between the consolidated financial statements of the Group prepared under CASs and IFRSs are as follows:

2015 REVIEW

In 2015, recovery of global economy remained weak while the Chinese economy went through a period of transformation and upgrading. The global aviation passenger market was strong and China's civil aviation industry maintained double-digit growth, while the global cargo market remained slack. Although low fuel prices have helped to ease the pressure on operating cost, intensified industrial competition and substantial exchange rate fluctuations have posed severe challenges. By following the strategy of prudent operation and sustainable development, we have responded to market changes, improved the configuration of global network, enhanced marketing and service capability, strengthened cost management, brand positioning and profitability, and maintained our position as the market leader.

During the reporting period, our capacity measured in ATK reached 31,364 million and RTK reached 21,807 million, representing an increase of 13.57% and 12.19% respectively, over the previous year. We carried 89.82 million passengers, up by 8.20% year-on-year. Our cargo and mail volume reached 1.66 million tonnes, 7.18% more than the previous year. Our revenue reached RMB 110,057 million, representing a year-on-year increase of 3.86%, while our operating expenses reached RMB94,505 million, down by 4.26% over the previous year, among which, fuel cost dropped by RMB10,500 million compared with that of last year. Although exchange rate fluctuations caused a loss of RMB5,156 million, due to profitability in the main business, we still registered RMB7,063 million of profit attributable to equity shareholders, representing a year-on-year increase of 83.34%.

We continued to optimise our fleet structure and enhanced efficiency in operation. During the year, we introduced 66 aircraft and phased out 16 aircraft. The total fleet size numbered 590 aircraft with the average age of 6.2 years, which enabled our fleet to sustain its competitive advantages. With continued fleet expansion as well as improved overall planning and allocation of crew resources, our crew readiness has steadily enhanced. In keeping with market changes, we have been flexible in adjusting the structure and pace of deployment of capacity. Given the fast-growing demand in the international market, we have devoted more capacities to international routes and significantly increased the utilisation of wide-body aircraft. In domestic services, we focused on increasing capacities for high-yield routes, and took appropriate steps to control deployment in short-haul routes and increase operation in long-haul routes. At the same time, we capitalised on key opportunities like the Spring Festival holiday season and the summer peak-season to boost revenue, and properly handled unexpected incidents like the South Korean MERS outbreak and the Paris extremist attack. We have improved efficiency in the utilisation of key resources and enhanced the ability to grasp market opportunities. All these have ensured maximum returns for the Group.

The layout of our global network continued to improve and the commercial value of our aviation hub resources continued to increase. To implement the country's "One Belt, One Road" and "Go Global" strategies, we focused our efforts on global network expansion and launched 65 new routes (including reopening of old routes) during the year, e.g. from Beijing to Havana, Johannesburg and other overseas destinations, which made Air China the only Chinese airline company with operations covering all six continents. The development of the Beijing hub made further progress. We added international and domestic routes and optimised flight bank structure, resulting in a further increase in the number of connecting flights and connecting passengers. The network of Chengdu regional hub has been expanded to meet the changes in the Western China market. Apart from opening new routes and increasing the frequency of existing international and domestic flights, some of the international services have been extended to the main cities in Northwest China, thereby consolidating Chengdu's regional hub status. The Shanghai international gateway focused on developing a better-structured flight network by way of increasing frequency on trunk routes, strengthening support for connecting flights, advancing regional connectivity and enhancing transit capability.

Various measures have been taken to enhance marketing capabilities. We continued to optimise channel structure, and made vigorous efforts to support the expansion of direct sales channels, such as official website and mobile application platform (mobile phone App). The new online mobile application platform (new App) has attracted 2 million additional subscribers. At the same time, we have expanded marketing at our flagship stores on leading third-party online platforms, and established standard management procedures to improve the overall quality of distribution channels. We have strengthened international marketing capabilities, conducted comprehensive marketing campaigns for new routes, and enhanced the international sales capabilities of second- and third-tier domestic cities. We have diversified our product portfolio and built a new product system that focuses on ancillary revenue and value-added services, achieving initial breakthroughs in incremental revenue and diversified sources of revenue on the industrial chain.

The foundation of service management has been strengthened, resulting in the improvement in the management of the service system. We have enhanced the alignment of services with operation, and strengthened our ability for emergency response and risk control. We have focused on passenger needs, improved the quality of food and beverages, provided a wider choice of in-flight entertainment programs, and introduced easy travel and mobile internet technologies to deliver better travel experience for our passengers. We have completed WiFi modification on 24 wide-body aircraft and started to broadcast live TV programs using satellite broadband technology.

Cost control and risk prevention have been given greater emphasis. Through continuous optimization of flight network and better alignment of aircraft capacity with flight routes, cost efficiency has notably enhanced. We have exerted greater efforts to broaden the direct sales channels, leading to an increase in direct sales proportion to 30% and reduced agency fees. We have strengthened centralised management of capital under the Air China family, which improved the efficiency of capital circulation and utilisation. At the same time, we have taken the initiative to optimise our debt structure, reduced the amount of US dollar loans to offset a rise in US dollar exchange rate, and increased the proportion of aircraft leasing to minimise the risk in exchange rate and foreign exchange losses. As such, we have maintained the Company's cost advantage.

Cargo business made steady advances. In 2015, the global cargo market experienced another downturn. Against such a backdrop, Air China Cargo took active efforts to improve freighter operations, adapted to market developments, optimised route structure and improved the efficiency of capacity allocation. We have capitalised on the new routes to expand international cargo network, actively promoted new businesses and products, and strengthened mail, express delivery and special cargo services. We have accelerated the development of the Shanghai transit hub and improved the cargo load factor. In 2015, the volume of cargo transited through Shanghai rose by 76% over the previous year. We have strengthened combined passenger and cargo services and refined the management of belly capacity, thus maintaining our competitive advantage in belly space services. We have promoted professional operation of cargo terminals, expanded collaboration with third-party courier and launched the business of cross-border logistic centers for online merchants. Through business transformation and optimised cost control, Air China Cargo continued to make progress in business performance and recorded profits despite the unfavorable conditions in supply and demand and exchange rate.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS

The following discussion and analysis are based on the Group's consolidated financial statements and the notes prepared in accordance with the IFRSs and are designed to assist readers in further understanding the information in this announcement and better understanding the financial position and results of operation of the Group as a whole.

PROFIT ANALYSIS

In 2015, we proactively responded to changes in the competitive landscape and market demand by adopting various measures such as optimising operational arrangement, enhancing marketing capabilities and strengthening cost management. We recorded an operating profit of RMB15,552 million, representing an increase of RMB8,295 million or 114.30% as compared with that of the previous year. However, due to the offset by unfavorable factors including the depreciation of RMB against US dollars, profit attributable to equity shareholders of the Company and earnings per share amounted to RMB7,063 million and RMB0.57 respectively, representing a year-on-year increase of 83.34% and 83.34%, respectively.

REVENUE

In 2015, the Group's total revenue was RMB110,057 million, representing an increase of RMB4,092 million or 3.86% as compared with last year. Revenue from air traffic operations contributed RMB104,368 million to the total revenue, representing an increase of RMB2,983 million or 2.94% over last year. Other operating revenue was RMB5,689 million, representing a year-on-year increase of RMB1,109 million or 24.22%, mainly due to the contribution by a new subsidiary, AMECO, during the reporting period.

REVENUE CONTRIBUTION BY GEOGRAPHICAL SEGMENTs