Air China Regulatory News (AIRC)

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

中國國際航空股份有限公司

Air China Limited 

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

(Stock Code: 00753)

2017 ANNUAL RESULTS

2017 ANNUAL RESULTS

The Board hereby announces the audited consolidated financial results of the Group for the year ended 31 December 2017 together with the corresponding comparative figures for the year ended 31 December 2016 as follows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 31 DECEMBER 2017

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

1. BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board ("IASB"). In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules") and by the Hong Kong Companies Ordinance ("Companies Ordinance").

The consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

As at 31 December 2017, the Group's current liabilities exceeded its current assets by approximately RMB51,372 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 RMB148,563 million as at 31 December 2017, the Directors believe that adequate funding is available to fulfil the Group's debt obligations and capital expenditure requirements when preparing the consolidated financial statements for the year ended 31 December 2017. Accordingly, the consolidated financial statements have been prepared on a basis that the Group will be able to continue as a going concern.

2. CHANGES IN ACCOUNTING POLICIES

The IASB has issued a number of amendments to IFRSs that are first effective for the current accounting period of the Group. None of these developments have had a material effect on how the Group's results and financial position for the current or prior periods have been prepared or presented.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

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 registered/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 2017 and 2016 and the reconciliations of reportable segment revenue and profit before taxation to the Group's consolidated amounts under IFRSs:

Year ended 31 December 2017

Year ended 31 December 2016

The following tables present the segment assets, liabilities and other information of the Group's operating segments under CASs as at 31 December 2017 and 2016 and the reconciliations of reportable segment assets, liabilities and other information to the Group's consolidated amounts under IFRSs:

Year ended 31 December 2017

Year ended 31 December 2016

Geographical information

The following table presents the Group's consolidated revenue under IFRSs by geographical location for the years ended 31 December 2017 and 2016, respectively:

Year ended 31 December 2017

Year ended 31 December 2016

The Group's main assets to earn income are the aircraft, most of which are registered in China. According to the business demand, the Group needs to flexibly allocate the aircraft to match the need of the route network. Therefore, the Group has no proper benchmark to distribute these assets according to regional information. Except for the aircraft, most of the Group's assets are located in Mainland China.

There was no revenue from transactions with a single customer amounting to 10% or more of the Group's revenue during the year ended 31 December 2017 (2016: Nil).

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 was as follows:

5. OTHER OPERATING REVENUE

Note: Certain air traffic revenue in the comparative figure was reclassified to other operating revenue to conform with the presentation in this year in respect of subsidies granted by various local governments controlled parties to encourage the Group to operate certain routes to cities where these governments are located.

6. PROFIT FROM OPERATIONS

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

7. OTHER INCOME AND GAINS

An analysis of the Group's other income and gains during the year was as follows:

8. FINANCE COSTS

The interest capitalisation rates during the year ranged from 3.09% to 4.38% (2016: 1.03% - 4.62%) per annum relating to the costs of related borrowings during the year.

9. INCOME TAX EXPENSE

Under the relevant Corporate Income Tax Law and regulations in the PRC, except for two branches and a subsidiary which are taxed at a preferential rate of 15% (2016: 15%), all group companies located in Mainland China are subject to a corporate income tax rate of 25% (2016: 25%) during the year. Subsidiaries in Hong Kong and Macau are taxed at corporate income tax rates of 16.5% and 12% (2016: 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.

The taxation for the year can be reconciled to the profit before taxation per consolidated statement of profit or loss as follows:

10. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the owners of the Company is based on the following data:

The weighted average number of ordinary shares for the purpose of basic and diluted earnings per share is calculated based on the weighted average number of ordinary shares in issue during the year, as adjusted to reflect the number of treasury shares held by Cathay Pacific through reciprocal shareholding.

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

11. DIVIDENDS

Dividends for the shareholders of ordinary shares of the Company recognised as distribution during the year:

Subsequent to the end of the reporting period, final dividend in respect of the year ended 31 December 2017 of RMB1.1497 per ten ordinary share (approximately RMB1,670 million in aggregate for ordinary shares) has been proposed by the Directors and is subject to approval by the shareholders at the forthcoming annual general meeting.

12. ACCOUNTS RECEIVABLE

The Group normally allows a credit period of 30 to 90 days to its sales agents and other customers. 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 relates 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. Accounts receivables are non-interest-bearing.

The ageing analysis of the accounts receivable as at the end of the reporting period, based on the transaction date, net of provision for impairment, was as follows:

13. ACCOUNTS PAYABLE

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

The accounts payable are non-interest-bearing and have normal credit terms up to 90 days.

CONSOLIDATED BALANCE SHEET

At 31 December 2017

(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 IFRSs and CASs are as follows:

2017 REVIEW

2017 is an important year when the 19th National Congress of the Communist Party of China was successfully held, and the comprehensive implementation of the 13th Five-year Plan has entered a crucial stage. Air China studied and implemented Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and strived to guide its reform and development with new ideas, new thinking and new strategies, forge ahead and work in a down-to-earth way. The Group also spared no effort in safety management and strove to economic benefit, actively improved the service quality. We continuously pushed forward the deepening of reform, intensified the Party building, focused on the strategic target of becoming a top-tier aviation group in the world with global competitiveness, and achieved positive and stable progress in all aspects.

During the reporting period, the Group adhered to the general keynote of making progress while maintaining stability and quality and profit were improved significantly. In 2017, we recorded a profit before tax of RMB11,486 million, with a year-on-year increase of 12.47%. The net profit attributable to equity shareholders of the Company was RMB7,244 million, representing a year-on-year increase of 6.39%. We recorded 2.117 million accident-free flight hours, with a year-on-year increase of 4.2%; traffic measured by RTK reached 25,385 million tonne kilometres, with a year-on-year increase of 7.12%; 102 million passengers were carried, with a year-on-year increase of 5.15%; the passenger load factor was 81.14%, up by 0.46 percentage point year on year.

Continue to expand our route network and enhance airport hub construction. In view of the national development strategies including the Belt and Road Initiative and the coordinated development of the Beijing-Tianjin-Hebei region, 49 domestic routes such as Beijing-Maotai and 12 international and regional routes such as Beijing-Astana were newly launched in 2017. We have also made efforts to accelerate the consolidation of layout of the global route network covering six continents, which is connected by the nodes of Beijing, Chengdu, Shanghai and Shenzhen. The flight bank structure has been under continuous optimization and the number of O&D connected reached 5,918; the transfer capacity and quality continuously increased. The interlining service revenue reached RMB5.51 billion, representing a year-on-year increase of 15.3%. Luggage checking through service is now provided to all flights from Europe, North America and Australia transferring to domestic routes via Beijing and the competitiveness of our hubs were strengthened.

Steadily improve marketing capability and accelerate business model transformation. As at the end of the reporting period, the number of our frequent flyer member exceeded 50 million contributing 43.7% of our total revenue, representing a year-on-year increase of 3.8%. Due to the continuous efforts devoted to improving our mobile application platform, a turnover of RMB5.02 billion was recorded, representing a year-on-year increase of 39.4%. We conducted in-depth studies on passenger demands, and this has helped us to increase the revenue contributed by first class and business class service to RMB13.11 billion, representing a year-on-year increase of 12.7%. The revenue generated from ancillary services such as paid seat selection, prepaid luggage and boarding gate upgrade recorded a year-on-year increase of 32%. Air China Cargo has achieved positive operating results through exploring new business model, optimizing the arrangement of its routes and the structure of cargo sources, as well as focusing on the development and sale of high value-added services such as cold-chain logistics.

Promote premium brand strategy and improve service quality. Focusing on the concept of "Internet plus convenient transportation", we promoted products such as self-service check-in, self-service ticket endorsement, self-print itinerary and self-service luggage check-in on all routes and established the whole-process convenient travel service mode. We continuously improved our service hardware such as infrastructure and service software such as operating codes to improve service quality. We have also made efforts to promote the application of big data and the construction of "mobile cabin" to realize the timely transmission of operation related information and connect the whole service information chain. As the exclusive official partner of air passenger transport for the Beijing 2022 Winter Olympic and Paralympic Winter Games and the International Horticultural Exhibition 2019 Beijing China, the Group took such opportunity to promote its brand in a more innovative way and to build its brand image characterized by "the leader of civil aviation industry in China" and "international network coverage".

Strive to enhance cost control and maintain cost advantage. We devoted great energy to streamline and strengthen our management, and to improve the quality and efficiency of our services. We focused on the optimization of the operation of wide-body aircraft to improve our cost management system, strengthen cost process management and improve our performance. We actively carried out the policy of "Lower Leverage, Reduce Liability and Control Risk". As a result, as at 31 December 2017, the gearing ratio of the Group decreased by 6.15 percentage points to 59.75% compared with last year, which is at a relatively superior level in the industry. We promoted special projects such as "increase direct sales and reduce distribution costs", "reduce trade receivables and inventories" and "streamline management structure". Since 2014, the percentage of the Group's passenger transport direct sales has increased from 26% to 50.9%, and the percentage of agency commission expense of the marketing revenue has decreased from 4.2% to 1.5%. Therefore, our cost competitiveness was continuously improved.

2018 marks the 40th anniversary of the Reform and Opening of China, and also the first year to implement the guiding principles of the 19th National Congress of the Communist Party of China. The Group will fully implement the guiding principles of the 19th National Congress. Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, adhering to the development principles of "Innovation, Coordination, Green, Openness and Sharing", we will focus on the reform on quality, efficiency and growth driver, carry out our work in a down-to-earth manner, prevent and mitigate risks and strengthen Party building, and will take a solid step towards the strategic goal of building a world-class aviation group by achieving further spectacular performance in safety, results, service and reform.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

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

Profit Analysis

In 2017, the Group proactively grasped market opportunities, and further strengthened the advantages of our core air traffic business by adopting measures such as expanding the scale of production, optimising operational arrangement, stabilising the yield level and refining cost control. During the reporting period, despite of influences of unfavorable factors such as the oil price rebound, the Group still achieved satisfactory results. During the reporting period, the Group recorded a profit after tax of RMB8,641 million, representing a year-on-year increase of 11.38%.

Revenue

In 2017, the Group's revenue was RMB124,026 million, representing an increase of RMB8,882 million or 7.71% as compared with last year. Among which, air traffic revenue was RMB115,380 million, representing an increase of RMB8,082 million or 7.53% as compared with last year; other operating revenue was RMB8,646 million, representing a year-on-year increase of RMB800 million or 10.19%.

Revenue Contribution by Geographical Segments

Air Passenger Revenue

In 2017, the Group recorded an air passenger revenue of RMB105,125 million, representing an increase of RMB6,132 million over that of 2016. Among the air passenger revenue, the increase of capacity contributed an increase of RMB6,195 million to the revenue, and the increase of passenger load factor brought an increase of RMB602 million to the revenue, while the decrease of passenger yield resulted in a decrease in revenue of RMB665 million.

The Group's capacity, passenger load factor and yield per RPK in 2017 are as follows:

Air Passenger Revenue Contributed by Geographical Segments

Air Cargo and Mail Revenue

In 2017, the Group's air cargo and mail revenue was RMB10,255 million, representing an increase of RMB1,950 million as compared with last year. Among the air cargo and mail revenue, the increase of capacity contributed an increase of RMB380 million to the revenue, while the increase of cargo and mail load factor resulted in an increase in revenue of RMB282 million, and the increase of yield of cargo and mail resulted in an increase of RMB1,288 million to the revenue.

The capacity, cargo and mail load factor and yield per RFTK in 2017 are as follows:

Air Cargo and Mail Revenue Contributed by Geographical Segments

Operating Expenses

In 2017, the Group's operating expenses were RMB112,270 million, representing an increase of 15.02% from RMB97,612 million in 2016. The breakdown of the operating expenses is set out below: