山航Ｂ(200152)2003年年度报告摘要（英文版）

SHANDONG AIRLINES CO., LTD. SUMMARY OF ANNUAL REPORT 2003 §1. Important Notes 1.1 The Board of Directors of Shandong Airlines Co., Ltd. (hereinafter referred to as the Company) and its directors hereby confirm that there are no any fictitious representation, misleading statement or material omission carried in this report, and shall take all responsibilities, individually and/or jointly, for the reality, accuracy and completeness of the whole contents. The 2003 annual report summary is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details. 1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Director Mr. Zeng Guoqiang was absent from the Board meting and authorized Director Mr. Su Zhongmin to exercise the voting right on his behalf. 1.4 Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Hua Yong Certified Public Accountants Ltd. produced an unqualified Auditors’ Report with interpretative explanation. The Board of Directors and the Supervisory Committee of the Company also has particular explanation on the relevant issues. Welcome the investors to read carefully. 1.5 The Company’s Chairman of the Board Mr. Li Junhai, and Chief Accountant Mr. Li Qing’en hereby confirm that the Financial Report of the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock SHANHANG B Stock code 200152 Listed stock exchange Shenzhen Stock Exchange Registered address Yaoqiang International Airport, Jinan, Shandong Office address SDA Building, No. 5746, Er Huan East Road, Jinan, Shandong Post code 250014 Internet web site of the Company http://www.shandongair.com.cn E-mail of the Company zqb@shandongair.com.cn 2.2 Contact person and method Authorized representative in charge of Secretary of the Board of Directors securities affairs 1 Name Zheng Bao’an Huang Haiming Liaison address 18/F, SDA Building, No. 5746, Er Huan 10/F, SDA Building, No. 5746, Er Huan East Road, Jinan, Shandong East Road, Jinan, Shandong Telephone (86) 531-5698987 (86) 531-5698678 Fax (86) 531-5698679 (86) 531-5698679 E-mail zhengba@shandongair.com.cn huanghm@shandongair.com.cn §3. Summary of Accounting Data and Financial Indexes (According to the International Financial Reporting Standards (“IFRS”)) 3.1 Major accounting data Unit: RMB’000 Ｉｎｃｒｅａｓｅ／ｄｅｃｒｅａｓｅ ｔｈａｎ ｔｈｅ ｐｒｅｖｉｏｕｓ 2003 2002 ｙｅａｒ（％） 2001 Ｔｏｔａｌ ｏｐｅｒａｔｉｎｇ ｒｅｖｅｎｕｅ 1,771,806.00 1,614,271.00 9.76% 1,287,982.00 Ｐｒｏｆｉｔ ｂｅｆｏｒｅ ｔａｘａｔｉｏｎ 73,178.00 -83,789.00 - 79,493.00 Ｎｅｔ ｐｒｏｆｉｔ ｆｏｒ ｔｈｅ ｙｅａｒ 71,368.00 -80,384.00 - 69,570.00 Ｎｅｔ ｐｒｏｆｉｔ ａｆｔｅｒ ｄｅｄｕｃｔｉｎｇ ｎｏｎ－ｒｅｃｕｒｒｉｎｇ ｇａｉｎｓ ａｎｄ 65,822.00 -98,469.00 - 58,755.00 ｌｏｓｓｅｓ Ｉｎｃｒｅａｓｅ／ｄｅｃｒｅａｓｅ 2003 2002 ｔｈａｎ ｔｈｅ ｐｒｅｖｉｏｕｓ 2001 ｙｅａｒ（％） Ｔｏｔａｌ ａｓｓｅｔｓ 3,952,026.00 3,242,060.00 21.90% 1,960,839.00 Ｓｈａｒｅｈｏｌｄｅｒｓ’ ｅｑｕｉｔｙ （Ｅｘｃｌｕｄｉｎｇ Ｍｉｎｏｒｉｔｙ 510,111.00 438,743.00 16.27% 543,127.00 ｓｈａｒｅｈｏｌｄｅｒｓ’ ｅｑｕｉｔｙ） Ｎｅｔ ｃａｓｈ ｇｅｎｅｒａｔｅｄ ｆｒｏｍ 303,883.00 139,344.00 118.08% 93,996.00 ｏｐｅｒａｔｉｎｇ ａｃｔｉｖｉｔｉｅｓ 3.2 Major financial indexes Unit: RMB Ｉｎｃｒｅａｓｅ／ｄｅｃｒｅａｓｅ ｔｈａｎ ｔｈｅ ｐｒｅｖｉｏｕｓ 2003 2002 ｙｅａｒ（％） 2001 Ｄｉｌｕｔｅｄ Ｅａｒｎｉｎｇｓ ｐｅｒ ｓｈａｒｅ 0.18 -0.20 -- 0.17 Ｄｉｌｕｔｅｄ ｎｅｔ ａｓｓｅｔ－ｉｎｃｏｍｅ 13.99% -18.32% -- 12.81% ｒａｔｉｏ (%) 2 ｒａｔｉｏ (%) Ｄｉｌｕｔｅｄ ｎｅｔ ａｓｓｅｔ－ｉｎｃｏｍｅ （ ａｆｔｅｒ ｄｅｄｕｃｔｉｎｇ ｎｏｎ－ｒｅｃｕｒｒｉｎｇ ｇａｉｎｓ ａｎｄ ｌｏｓｓｅｓ） ｒａｔｉｏ （％） 12.90% -22.44% -- 10.82% Ｎｅｔ ｃａｓｈ ｆｌｏｗ ｐｅｒ ｓｈａｒｅ ａｒｉｓｉｎｇ ｆｒｏｍ ｏｐｅｒａｔｉｎｇ ａｃｔｉｖｉｔｉｅｓ 0.76 0.35 117.14% 0.23 Ｉｎｃｒｅａｓｅ／ｄｅｃｒｅａｓｅ ｔｈａｎ ｔｈｅ ｐｒｅｖｉｏｕｓ 2003 2002 ｙｅａｒ（％） 2001 Ｎｅｔ ａｓｓｅｔｓ ｐｅｒ ｓｈａｒｅ 1.28 1.10 16.36% 1.36 3.3 Differences in the net profit as calculated according to PRC GAAP and IFRS. √Applicable □Non-applicable Unit: In RMB’000 PRC GAAP IFRS Net profit 26,531 71,368 As reported under PRC GAAP 26,531 Adjustments to conform with IFRS: - Difference in calculation depreciation basis of high price Explanation on revolving parts and amortization year-limit 38,245 the difference - Difference in disposal of long-term expenses to be apportioned 7,748 - Deferred tax -1,679 - Pre-operating expense of subsidiaries 523 As reported under IFRS 71,368 §4. Changes in Share Capital and Particulars about the Shareholders 4.1 Statement of Changes in Share Capital (Unit: shares) Before the Increase/decrease in this After the change change (+,-) change Ｉ． Unlisted shares 1. Sponsor’s shares 260,000,000 0 260,000,000 Including: State-owned shares 259,801,000 0 259,801,000 Domestic legal person’s shares 199,000 0 199,000 Foreign legal person’s shares 0 0 Others 0 0 2. Raised legal person’s shares 0 0 3. Inner employees’shares 0 0 4. Preference shares or other 0 0 3 Total unlisted shares 260,000,000 0 260,000,000 Ⅱ. Listed shares 1. RMB ordinary shares 0 0 2. Domestically listed foreign shares 140,000,000 0 140,000,000 3. Overseas listed foreign shares 0 0 4. Other 0 0 Total listed shares 140,000,000 0 140,000,000 Ⅲ. Total shares 400,000,000 0 400,000,000 4.2 Statement of shares held by the top ten shareholders and the top ten shareholder of circulation share Total number of shareholders at the end of report year 23,155 Particulars about shares held by the top ten shareholders Nature of Increase / Number of Number shareholders decrease in shares held Type of shares Proportion of shares (state-owned Full name of Shareholder the report at the (Circulating/No (%) pledged shareholder or period year-end n-circulating) or frozen foreign capital (share) (share) shareholder) SHANDONG AVIATION State-owned 0 259,204,000 64.80 Non-circulating 0 GROUP shareholder BAI LING Foreign capital -88,000 1,077,091 0.27 Circulating Unknown shareholder PENG XIU MEI Foreign capital Unknown 950,300 0.24 Circulating Unknown shareholder WU HAO YUAN Foreign capital 36,400 945,700 0.24 Circulating Unknown shareholder JOHN POSS Foreign capital Unknown 937,190 0.23 Circulating Unknown shareholder XU ZHAO HUAN Foreign capital 0 608,000 0.15 Circulating Unknown shareholder XU QIAN Foreign capital Unknown 500,000 0.13 Circulating Unknown shareholder LI WEI GUANG Foreign capital 11,000 489,985 0.12 Circulating Unknown shareholder GAO QIAO CHENG Foreign capital Unknown 476,700 0.12 Circulating Unknown shareholder HE ZHI QIU Foreign capital -16,700 450,000 0.11 Circulating Unknown shareholder 4 Explanation of associated relationship Among the above the top ten shareholders, there exists no associated or consistent action of the top ten relationship between SDA, shareholder of state-owned legal person’ s shareholders share, and the other shareholders, and it does not belong to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies with the other shareholders. The Company is not aware of their associated relationship among the other shareholders of circulation share, whether belongs to the consistent actionist regulated by the Management Regulation of Information Disclosure on Change of Shareholding for Listed Companies. Particulars about shares held by the top ten shareholders Shareholder’s name (full name) Circulation share held at the Type（A-share, B-share, year-end (share) H-share or others） BAI LING 1,077,091 B-share PENG XIU MEI 950,300 B-share WU HAO YUAN 945,700 B-share JOHN POSS 937,190 B-share XU ZHAO HUAN 608,000 B-share XU QIAN 500,000 B-share LI WEI GUANG 489,985 B-share GAO QIAO CHENG 476,700 B-share HE ZHI QIU 450,000 B-share YE NIAN ZHAO 424,300 B-share Explanation on associated The Company is unknown whether there exists associated relationship among the top ten relationship among shareholders of circulation share, or whether the shareholders of circulation share shareholders belong to the consistent actionist regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of concrete conditions of controlling shareholder and other actual controller Particulars about the holding shareholder of the Company Name of the holding shareholder: Shandong Aviation Group Legal representative : Jia Fuwen Date of foundation: Feb. 9, 1995 Place of SDA: No. 5746, Er Huan East Road, Lixia District, Jinan, Shandong Business scope: Maintaining of aerostat and surface facilities; handicraft article, souvenir (excluding gold and silver jewelry), sale of general merchandise; accommodation and hotel (Red -crowned Crane Hotel). Registered capital: SDA, the holding shareholder of the Company, changed its 5 registration of industry and commerce dated June 22, 2003, and registered capital was changed from RMB 100,000,000 into RMB 413,375,900. The holding shareholder of SDA and actual controller: Shandong Province Economic Development & Investment Co.. The relevant matters are as follows: Legal Representative: Jiang Yanwei Structure of share equity: the Ministry of Finance of Shandong Province holds 100% equity Date of foundation: Apr. 10, 1992 Business scope: compensated investment in development of science and technology, renovation and circulation of technology; construction of socialize service system between urban and rural area, agr iculture comprehensive development and development of education, science, culture and health (excluding socialize fund deposit and loan, finance business and capital construction investment) Registered capital: 100,000,000 5. Particulars about Directors, Supervisors, Senior Executives 5.1 Change in shares held by directors, supervisors and senior executives Number of Number of Reason of Name Title Sex Age Office term shares held at shares held at change the year-begin the year-end Dec. 25, 2002 – Li Junhai Chairman of the Board Male 57 0 0 Dec. 24, 2005 Dec. 25, 2002 – Jia Fuwen Director Male 58 0 0 Dec. 24, 2005 Dec. 25, 2002 – Zeng Guoqiang General Manger Male 50 0 0 Dec. 24, 2005 Dec. 25, 2002 – Su Zhongmin Director Male 49 0 0 Dec. 24, 2005 Dec. 25, 2002 – Bai Weisan Director Male 46 0 0 Dec. 24, 2005 Dec. 25, 2002 – Song Yuxia Director Female 47 0 0 Dec. 24, 2005 Dec. 25, 2002 – Zheng Bao’an Director Male 41 0 0 Dec. 24, 2005 Dec. 25, 2002 – Wang Fuzhu Director Male 50 0 0 Dec. 24, 2005 Dec. 25, 2002 – Wang Zhi Independent Director Male 61 0 0 Dec. 24, 2005 Dec. 25, 2002 – Hu Jijian Independent Director Male 61 0 0 Dec. 24, 2005 May 21, 2003– Li Xiuqin Independent Director Female 40 Dec. 24, 2005 Dec. 25, 2002 – Wang kaixun Supervisor Male 50 0 0 Dec. 24, 2005 6 Dec. 25, 2002 – Wang Wuping Supervisor Male 38 0 0 Dec. 24, 2005 Dec. 25, 2002 – Wang Xianlin Supervisor Male 38 0 0 Dec. 24, 2005 Dec. 25, 2002 – Li Jiemin Supervisor Male 47 0 0 Dec. 24, 2005 Dec. 25, 2002 – Guo Caisen Supervisor Male 33 0 0 Dec. 24, 2005 Mar. 27, 2003 – Yu Haitian Deputy GM Male 34 0 0 Dec. 24, 2005 Dec. 25, 2002 – Zhang Qinshe Chief Pilot Male 45 0 0 Dec. 24, 2005 Mar. 27, 2003 – He Guobin Chief Engineer Male 54 0 0 Dec. 24, 2005 Dec. 25, 2002 – Li Qing’eng CFO Male 48 0 0 Dec. 24, 2005 5.2 Particulars about directors, supervisors holding the post in Shareholding Company √Applicable □Inapplicable Drawing the payment Name of shareholding Name Title in shareholding Company Office term from the Company Company (Yes / No) currently hold the Li Junhai SDA Secretary of Party Committee No post Chairman of the Board and currently hold the Jia Fuwen SDA Yes President post currently hold the Wang Fuzhu SDA Chief Accountant Yes post Deputy secretary of Party Committee, Secretary of currently hold the Wang Kaixun SDA Commission for Discipline Yes post Inspection and Chairman of Labor Union currently hold the Wang Wuping SDA Director of Financing Dept. Yes post 5.3 Particulars about the annual remuneration of directors, supervisors and senior executives Total amount of annual remuneration RMB 1,729,800 Total amount of remuneration of the top three directors RMB 550,600 drawing the highest payment Total amount of remuneration of the top three senior RMB 482,400 executives drawing the highest payment Allowance of independent director RMB 30,000 per person/year 7 Other treatment of Independent Directors Taking allowance of independent director amounting to RMB 30,000 per persons/year as base, independent directors received extra allowance of RMB 400 for every working day. Name of directors and supervisors receiving no payment Director Mr. Jia Fuwen, Mr. Wang Fuzhu, Convener of the or allowance from the Company Supervisory Committee Mr. Wang Kaixun, Supervisor Wang Wuping, Mr. Guo Caisen drew their remuneration from SDA, the holding shareholder of the Company, and received no payment from the Company. Range of remuneration Number of persons Over RMB 150,000 4 RMB 100,000 ～ RMB 150,000 7 Under RMB 100,000 1 §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period The Company, a civil aviation transport enterprise, belonged to the industry seriously influenced by SARS epidemic. In 2003, facing the complex and changing operating environment with both opportunities and challenges, all staffs of the Company always drew together and struggled with persisting in “Safety and Benefit” as the core, seriously carried out and fulfilled the total guideline for work of “Reinforcing safety, enhancing benefits, implementing adjustment and developing steadily” set up at the beginning of the year, strengthened the safety guarantee, enhanced the running efficiency and actively pushed the adjustments to all structures. Facing the market fluctuation caused by sudden SARS epidemic, the Company made quick response and took strong measures, which not only always ensured the normal operation of the Company, but also gained good benefits and realized the objectives of making up the deficits and getting surpluses for the whole year. In the appraisal for top 100 in foreign enterprises in Shandong for 2003, the Company ranked the 13th place. 1. Further reinforcement of safety management level The Company reinforced the training with persons as the base and enhanced the safety consciousness and theoretical technology level of the key personnel. After training, the pass rate of the two English certificates of airmen increased to 99.7% from 77%; aircrew strengthened tackling key technical problems and solved such several technical problems. In the aspect of safety supervision, based on the technical means, the Company made rewards and punishment strict and mobilized the enthusiasm of the production personnel, which effectively guaranteed the safety. In the report period, the Company totally flied 62471 hours in a safe way, guaranteed 40,700 sorties of flights and realized the safe flights for nine years. 2. Further enhancement of operating benefits Facing the sudden influence of SARS epidemic, decrease in price of air tickets, increase in price of oil used for flying and increase in flying-off and landing expenses and all other costs, the Company actively adopted replying measures, changed operating thought, enhanced transport income in unit hour, timely caught the good 8 opportunity in preferential policy for national civil aviation and recovery in market after SARS epidemic and improved the cost control measures through timely starting up all strategies in ma rket sales, which offset the losses and realized profits. In the report period, the Company’ s average ordinary shipping rate reached 72.8%, ranking st the 1 place in national civil aviation; average ordinary passenger-occupied rate reached 75%, ranking the 2nd place in national civil aviation. 3. Further improvement in service quality In 2003, the Company’s “96777” client service platform with such functions as aviation consultations, sales of air tickets, dynamic consultations in flights and etc. centralized was started up formally, which has enhanced the sales service level greatly. The Company strengthened the construction of frequent passenger club, thus the members holding “Rainbow Card”increased to 231% over the same period of last year. Through establishing demonstration team for refined products, exerting model’ s effect by extending from the point to the whole, the Company’ s “Rainbow Steward Team”pushed the enhancement of the whole level in passenger cabinet. Their service styles “Criterion, Relative Feeling, Particularity, Precision and Perfection Pursuit” gained recognition from vast passengers and were awarded honorary title “Satisfactory Service Items for National Consumers”by China Association of Quality. In the investigation for service quality sponsored by the Company in 2003, the satisfaction degree of passengers was 84.19%. 4. Further push of structure adjustment In the report period, the Company continued to push the adjustment strategy and gained material progress in the aspect of adjustment to structure of plane team. The Company signed introduction contract for 7 pieces of B737-700 and 800 planes; leased 4 pieces of 737-300 planes for short term, 2 of which was available in the report period, which timely offset the shortage in transport force; conducted lease-back after sales to 4 pieces of SAAB planes and aviation materials; transferred a pieces of CRJ-200 plane to CR Airways. Through a series of adjustment measures, the Company reduced those plane types incurring losses and thus enhanced profitability. 5. Further itemization of internal management In the report period, the Company itemized the management on all links such as operation, established cost control teams, implemented oil saving award, set up the provisions on assessment, rewards and punishment for guaranteeing the punctuality of flights and reinforced the management on such aspects of cost, earnings of flights and punctuality rate etc.. Through normative instruction and system restriction, the Company effectively controlled the productive consumption and oil consumption ton kilometer decreased to the lowest level in national civil aviation, which enhanced the operating benefits. 6.2 Statement of main operations classified according to industries or products (According to the Chinese Accounting Standards (“CAS”)) Unit: RMB’0000 Classified according to Income from Cost of Gross Increase/decrease Increase/decreas Increase/decrease industries or products main main profit ratio in income from e in cost of main in gross profit ratio operations operations (%) main operations operations over over the last year 9 over the last year the last year (%) (%) (%) Aviation transport 172,384.49 136,518.15 20.81 7.97 6.49 1.11 industry Including: related 0.00 0.00 transactions Pricing rules for related Inapplicable transactions Necessity and durative Inapplicable of related transactions 6.3 Particulars about main operations classified according to areas(According to CAS) Unit: RMB’0000 Areas Income from main operations Increase/decrease in income from main operations over the last year (%) Domestic and oversea lines 172,384.49 7.97 6.4 Particulars about the customers of purchase and sales(According to CAS) Unit: RMB’0000 Total amount of purchase Proportion in the total 136,518.15 19.56% of the top five suppliers amount of purchase Total amount of sales of the Proportion in the total 172,384.49 13.64% top five sales customers amount of sales 6.5 Operation of share- holding companies (applicable to the situation where investment equity takes over 10% of its net profit) □Applicable √Inapplicable 6.6 Explanation on reasons of material changes in main operations and its structure □Applicable √Inapplicable 6.7 Explanation on reasons of material changes in profitability capability of main operations (gross profit ratio) than that in the last year □Applicable √Inapplicable 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year □Applicable √Inapplicable Analysis to reasons of material changes in the whole financial position than that in the last year(According to CAS) √Applicable □Inapplicable The Company incurred a loss amounting to RMB 45,584,123 in 2002 and realized net profit amounting to RMB 26,531,043 in 2003 with reasons as follows: the Company’ s 10 operating cost decreased, earnings from flights increased and exempted the tax during the period of SARS epidemic in 2003. 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’ s financial position and operating results √Applicable □Inapplicable 1. In the first half of year 2003, SARS epidemic brought serious strike on the domestic market of aviation transport, thus the Company lost many clients and was forced to reduce the flights. During April to June, the number of passengers carried by the Company was only 55.8% over the same period of last year and the income decreased by a large margin, for instance, the income from main operations decreased by RMB 146 million just between May to June. In order to reduce the losses caused by SARS epidemic to the minimum, the Company timely adopted the decisive measures: Firstly, to reinforce the safety prevention, which ensured the safety flying and the Company’s normal operating order; Secondly, to leave no stone unturned to increase the earnings by “Supplementing passengers with goods”under the situation that the passenger sources were reduced and to strengthen the development in freight business, which made the freight business increase by 9.2% during April to May over the same period of last year; Thirdly, to centralize the staff to study and to be trained in order to enhance the business quality of flight personnel and aircrew, enhance the maintenance quality of planes and reduce the failure rate, which made the Company’ s punctuality rate of flights increase by 10% over the same period of last year; Fourthly, to catch the opportunity to improve the line layout. Through efforts of various parties, the Company pioneered the bases for staying over in Dalian and Hongqiao, Shanghai, which pushed the CRJ type to be permitted for entering into Guangzhou Baiyun Airport; gained operating rights in international lines and passed international operating certification of general aviation carriers, beneficial for expanding the operating fields and improving the line network, which made the Company timely catch the good opportunity of market rebound after SARS epidemic, recovery the production quickly and gain good earnings. In order to reduce the losses caused by SARS epidemic on aviation transport enterprises, Ministry of Finance of the P.R.C. released the preferential policy of exempting the funds of civil aviation and the Company strived for tax preferential and discount loan preference of exempting the passenger transport business operating tax from Shandong Provincial Government since May 1. The said policy played an active role to the Company’ s reducing losses. 2. In the report period, the general bureau’s restricting the by-staying flights of non-base aviation companies in 15 key citie s influenced on the Company’ s line layout, thus difficulties in market sales increased. In order to develop market resources as much as possible, on the one hand, the Company strengthened the market promotion, expanded the network of direct distribution and consolidated and enhanced the market share in Shandong; on the other hand, the Company adjusted the line layout in a reasonable way, planned the line network in a reasonable and flexible 11 way with all bases as the core, has opened the line from Qingdao to Macao combining the examination and approval of international operating right and prepared to open such international and local lines as from Qingdao to Qingzhou, from Qingdao to Fushan and from Qingdao to Hong Kong etc.. The Company also reinforced in developing freight market through developing various business cooperation, improved the flight earnings management and enhanced the passenger-occupied rate and earnings level. 3. In the report period, the three large aviation groups have finished combined reorganization basically and have realized optimization and integration of all resources. At the same time, the reform project of price for tickets in civil aviation would also be released after continuous amendment and improvement for over one year. Along with more competition mechanism’ s introducing into the market, the competition in civil aviation market would be more abundant. The Board of Directors of the Company fully understood that the reinforcement of the comprehensive strength and the enhancement of market competitive force was the only way for the Company to gain living and development in the intense competition and thus established the development planning and detailed business plan. The Board of the Company would diligently perform its duties in order to ensure the said plan to be implemented effectively. 6.10 Completion of the profit estimation □Applicable √Inapplicable 6.11 Completion of the business plan □Applicable √Inapplicable 6.12 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.13 Application of the proceeds not raised through shares offering (For details, please refer to 7.1 in this report) □Applicable √Inapplicable 6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants √Applicable □Inapplicable In 2003, Deloitte Touche Tohmatsu Certified Public Accountants (HK)presented auditors’report with interpretative explanation paragraph with details as follows: “Without qualifying our opinion we draw attention to note 2 to the financial statements which explains that the Group is dependent upon the support of its bankers and in particular on the renewal of existing, and the obtaining of new, bank loan facilities within the next twelve months. Provided that the bankers continue to support the Group, the directors are satisfied that the Group will have sufficient financial resources to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.” 12 The Board thinks the interpretative explanation from Deloitte Touche Tohmatsu Certified Public Accountants Ltd. in an objective way. However, the Board of the Company has predicted the Company’s profitability and cash flow in the next year, ensuring the Company has enough running capital for sustainable operation and pays the capital commitments signed; the Board of the Company shall improve the cash flow status through such means as adjusting the plane teams;the main loaning banks have promised to support the Company continually;SDA Group, the Company’s controlling shareholder, has committed to refund all arrearages to the Company with the payment gained from the equity transfer before June 30, 2004. To sum up, the Board thinks the Company’s status of cash flow shall be improved greatly in 2004, which shall not impact on the Company’s operation. 6.15 Business plan as of the next ye ar of the Board of Directors (If it has) √Applicable □Inapplicable The Board of the Company predicted along with the steady growth in national economy in 2004 and upgrading of the consumption structure of citizens, the civil aviation market was hopeful to keep stable growth, while under the market environment that the three large aviation groups have finished resources integration, the market competition faced by the Company would also be more brutal. In order to keep the Company’ s complete, coordinate and sustainable development, the Board would develop by making safety technology contents high, service quality excellent, economic benefits good and human resources fully exerted with reform as the drive, with improving modern enterprise system as the good chance and with resources optimization and structure adjustment as the means and established detailed measures for implementation. 1. To push the legal, standardized and scientific safety management with persons as bases. Firstly, base on improving the flight quality supervision and control system, aircraft MES system and internet preparation system, the Company developed the information system construction completely; Secondly, the Company continued to promote tackling key problems with science and technology, enhanced the level in flight and maintenance and reinforced the implementation and supervision of criterion and regulations combining the improvement in ISO 9001 quality system, which guaranteed the safety and realized the safety flying for 10 years. 2. To continue implementing adjustment strategy and firmly push the adjustment in structure of plane teams. According to the line network layout with the trunk as the core and trunk and lateral as the combination constructed by the Company, the reasonable structure of plane teams which could meet short, middle and long lines and adapt to various market demand was gradually formed, which enhanced the general planning of the Company’ s core competitive force. The Company planned to lease 4 to 6 pieces of B737-300 in short term to increase transport force before 7 pieces of B737-700/800 being fully funded in 2005. To continue to seek for cooperation parties and lease or sell CRJ planes. Moreover, according to the authorization, the Company actively helped the owners of SAAB planes to sell four pieces of SAAB so as to further optimize the structure of plane teams and reduce the operating costs. 3. To fully dig potential advantages and enhance the market competitive force. The 13 Company has established five strategies for market development including base layout, line network, earnings management, direct distribution of customers and competitive cooperation, namely, in the aspect of base layout, to consolidate Jinan, reinforce Qingdao, develop Yantai and construc t the base layout with regional advantage in Shandong; in the aspect of line network layout, to consolidate the old brands with trunk as the core and lateral as the supplement, create new brands, expand international business and strive for opening 1 to 2 international and local lines again in 2004; in the aspect of earnings management, do the market prospect well, reinforce the marginal earnings and do the berth management well; in the aspect of customer direct distribution, create 96777 customer service platform, reinforce the network construction of direct distribution and develop the business of ordinary passengers; in the aspect of competitive cooperation, while push the equity transfer between SDA and CATIC Group, the Company would develop a serious business cooperation with CATIC Group and realize resources share. Through such ways as code share and share of sales network etc., to enlarge the Company’ s market share and increase the income of flights. 4. To establish the service marketing concept and create the Company’ s service brands. In the aspect of cabin service, the Company studied and learned the experiences from excellent companies, researched and analyzed the customers’ demand, pushed the individualized and diversified service and reinforced the brand image of “Rainbow Aircraft Team”; in the aspect of commercial sales, the Company continued to improve 96777 passenger service telephones and rainbow ordinary passenger club business; in the aspect of ground guarantee, the Company strictly implemented Provisions on Guaranteeing Normal Flights and Provisions of Rewards and Punishment on Enhancing the Punctuality Rate of Flights, tried its best to enhance the punctuality rate of flights, strived for making the Company’ s punctuality rate reach the leading level in civil aviation industry and established the excellent service brand image of “Safety, Punctuality and Meticulosity”of SDA. The Board would really carry out all work measures with “Making SDA rich and strong”and go all out to strive for the Company’ s general benefits improving again based on year 2003 in 2004. Profit estimation of the next year (If it has) □Applicable √Inapplicable 6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors Audited by Deloitte Touche Tohmatsu Certified Public Accountants as per International Accounting Standards and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. as per Chinese Accounting Standards, the Company realized a net profit of ７１，３６８ ｔｈｏｕｓａｎｄ RMB and ２６，５３１ ｔｈｏｕｓａｎｄ RMB respectively. As the Company realized a loss of ４５，５８４ ｔｈｏｕｓａｎｄ RMB in Year 2002,it was not withdrew as statutory public reserve and statutory welfare fund.based on The Articles of Association. 14 Considering the actual situation of the Company’s cash flow, the Board would neither distribute profits nor convert reserve into share capital in 2003 so as to keep the sustainable, stable and healthy development of the Company. This profit distribution preplan should be submitted to Annual Shareholders’General Meeting 2003 for examination and approval before its implementation. §7. Significant Events 7.1 Purchase of assets □Applicable √Inapplicable 7.2 Sales of assets (According to CAS) √Applicable □Inapplicable Unit: RMB’0000 Contribution to net profit Related of the Company of the Profit or transaction or Transaction parties Date of sale Sale price assets sold from the loss from not (if yes, and the assets sold year-beginning to the sale explain principle date of sale of pricing) Four SAAB340B airplanes and associated aviation July 4, 2003 18,000.00 -3,179.18 0.00 No equipments of Shenzhen Financial Leasing Co., Ltd. Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale The above sale of assets has no influence on consistence of business and stability of managers of the Company. 7.3 Important guarantee □Applicable √Inapplicable 7.4 Related credits and liabilities current(According to CAS) √Applicable □Inapplicable Unit: RMB’0000 Supply funds to related parties Related parties supplied funds to the Related parties Company Occurred amount Balance Occurred amount Balance Shandong Airlines Group Co., 8,073.00 8,077.19 0.00 0.00 Ltd. Shandong Airlines Rainbow 7,562.00 196.25 0.00 0.00 Jet Co., Ltd. Total 15,635.00 8,273.44 0.00 0.00 7.5 Entrusted assets 15 □Applicable √Inapplicable 7.6 Implementation of commitment items √Applicable □Inapplicable On Dec. 15, 2003. SDA send Repay Plan and Commitment to the Company and promised to repay the amount owed to the Company in payment from equity transfer before June 30, 2004. In the report period, the Company or shareholders holding over 5% equity has no significant commitment events necessary to be disclosed. 7.7 Significant lawsuit and arbitration □Applicable √Inapplicable 7.8 Particulars about the performance of obligations of Independent Directors Since the Independent Directors of the Company, Mr. Wang Zhi, Mr. Hu Jijian and Mrs. Li Xiuqin, took their posts, they fulfilled their duties in an honest, diligent and responsible way, researched and studies actively the operation, business development and finance of the Company, supervised patiently over and guided the normative operation of the Company, participated actively in the decision-making of the Board of Directors and expressed independent and objective opinions on the nomination, appointing and removing of directors, engagement and disengagement of senior executives, suggestion and engagement of certified public accountants and significant related transactions of the Company. §8.Report of the Supervisory Committee (I) Particulars about work of Supervisory Committee In 2003, the Supervisory Committee exerted the duties authorized by Company Law of the P.R.C. and the Articles of Association of the Company according to laws, dutifully implemented supervision functions on the Company’s operation in the period and seriously safeguarded the rights and interests of the shareholders. The Supervisory Committee attended all shareholders’general meetings and meetings of the Board as nonvoting delegates in 2003. The Supervisory Meeting held 4 meetings in the report period and the average attending rate of the supervisors reached 90%. It considered such issues as the Company’ s financial budget and settlement report, quarterly report, plan on production and operation, amending rules of procedure of the Supervisory Committee and etc. and formed resolutions. For the related transactions between the Company and its controlling shareholders and subsidiaries, the Supervisory Committee especially requested the Board to pay attention to them and made special resolutions. Implementation Opinion on Reinforcing the Normative Operation of the Supervisory Committee was passed so as to further standard the operation of the Supervisory Committee, who dispatched its members to participate the annual auditing of the Company so as to further strengthen the supervision. In 2003, the Supervisory Committee totally held four meetings 1.On Mar. 27, 2003, the 2nd meeting of the 2nd Supervisory Committee was held in the meeting room of SDA Building. The meeting was presided by the Supervisory Committee caller Mr. Wang Kaixun. 5 supervisors should be present and actually 4 16 were present. The meeting examined and approved Supervisory Committee Work Report 2002 and Financial Settlement Report 2002 and Budge Report 2003. (The public notice of the resolutions was published on China Securities, Securities Times and Hong Kong Ta Kung Pao dated Mar.28, 2003). 2.On Aug. 13, 2003, the 3rd meeting of the 2nd Supervisory Committee was held in the meeting room of SDA Building. The meeting was presided by the Supervisory Committee caller Mr. Wang Kaixun. 5 supervisors should be present and actually 4 were present. The meeting examined and approved Shandong Air lines Co., Ltd. Semi-annual Report in 2003. The Supervisory Committee asked the Board of Directors of the Company to pay attention to such problems as the fund of the Company occupied by that Shanghang Group and other accounts receivable of Shandong Aviation Rainbow Official Airplane Co., Ltd. (The public notice of the resolutions were published on China Securities, Securities Times and Hong Kong Ta Kung Pao dated Aug.14, 2003). 3.On Oct.22, 2003, the 4th meeting of the 2nd Supervisory Committee was held in the meeting room of SDA Building. The meeting was presided by the Supervisory Committee caller Mr. Wang Kaixun. 5 supervisors should be present and actually 5 were present. Independent Directors attended as nonvoting delegates. The meeting examined and approved Proposal on Amending Discussion Rules of the Supervisory Committee (The public notice of the resolutions were published on China Securities, Securities Times and Hong Kong Ta Kung Pao dated Oct.23, 2003). 4.On Nov.26, 2003, the 5th meeting of the 2nd Supervisory Committee was held in the meeting room of SDA Building. The meeting was presided by the Supervisory Committee caller Mr. Wang Kaixun. 5 supervisors should be present and actually 5 were present. The contents of the meeting are as follows: (1) Organized to study the relevant training files of the Supervisory Committee of listed companies in the ruling area of Jinan Collection and Management Office of CSRC, the Supervisory Committee of the Company decided to strengthen Supervisory Committee Institutional Construction, increase its normative operation and strengthen its supervisory function according to the Guide Opinions on Strengthen the Normative Operation of Supervisory Committee of Listed Companies in the Ruling Area in Jinan Collection and Management Office. (2) The meeting examined and approved Implementation Opinions on Strengthen Normative Operation of Supervisory Committee of Shandong Airplanes Co., Ltd.. (3) The meeting approved Supervisor Mr. Guo Caisen as the secretary of the Supervisory Committee of the Company and in charge of recording the meeting of the Supervisory Committee, keeping the files of Supervisory Committee and collecting files of the Company, etc.. (II) Independent Opinions of the Supervisory Committee on relevant events in 2003 The Supervisory Committee conducted serious inspection and supervision on such conditions as the Company’ s finance, implementing resolutions of shareholders’ general meeting, operating decision- making, operation according to laws, operating behaviors of directors, managers and senior executives and related transactions etc.. 17 1.Operation according to laws In the report period, the Company conducted regulated operation complying to Company Law, Securities Law, Articles of Association of the Company, and Rules for Shares Listed with Shenzhe n Stock Exchange and other national relevant policies and regulations. It implemented effective internally control system in the inside of the Company. Following the regulations and laws and being honest with faith and diligence, directors and senior executives of the Company carefully implemented every resolutions approved by shareholders’general meeting with a view to protecting the shareholders’ interests. There was no such situation that directors or senior executives broke the laws, regulations, or Articles of Association or harmed the interests of the Company in their office term. 2.Inspection of finance The Supervisory Committee examined patiently and meticulously the financing situation of the Company. In opinion of the Supervisory Committee, 2003 Financial Report of the Company reflected the financing situation and operation result of the Company. The accountant materials as accountant vouchers, books and statements were genuine and standard. Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. audited 2003 financial report of the Company respectively according to international and domestic accounting standards and issued auditor’s non-reservation opinion with explanation. The Supervisory Committee thought that the Company’ s financing situation and operation result truly, objectively and accurately. 3.Purchase and sale of assets The trading prices for purchase or sales of assets of the Company were reasonable. Neither inside trading has been found, nor there occurred damage of the interests and rights of some shareholders or loss of the Company’s assets. 4.Related transactions The Company conducted related transactions strictly according to market principle in fair and juristic way. The price of the transactions was reasonable. The informationg disclosure was in-time and effective,and disclosing- information was true,accurate and complete.The Company vindicated the interest of the shareholders and listed company. 5. Opinions of the Company’ s Board of Directors on relevant events in the auditing report with non-reservation opinions with explanation issued by Deloitte Touche Tohmatsu Certified Public Accountants and Deloitte Touche Tohmatsu Certified Public Accountants Ltd. The Board of Directors of the Company has explained on the issues involved in the auditors’ report with interpretative explanations presented by Deloitte Touche Tohmatsu Certified Public Accountants Ltd. and the Supervisory Committee has examined the said explanation. The Supervisory Committee considered the relevant explanations of the Board on the issues involved in the auditors’ report with interpretative explanations presented by Deloitte Touche Tohmatsu Certified Public Accountants Ltd. were true and reasonable and the project of the Management on 18 solutions in keeping the Company’ s sustainable development involved in the explanation was workable and proper, which could improve the Company’ s financial status and safeguard the interest of the Company and the interests of vast shareholders, not disobeying laws and regulations and the Articles of Association of the Company and harming the interests of the Company and its shareholders. The Supervisory Committee requested the Board to push SDA Group, its controlling shareholder, to implement the commitment that it shall repay the arrearages to the Company on time. The Supervisory Committee specially requested the Board to pay attention to the problem of the Company’ s sustainable operation presented by CPA and to settle it down with planned measures. 19 §9. Financial Report 9.1 Auditor’ s opinion AUDITORS' REPORT TO THE SHAREHOLDERS OF SHANDONG AIRLINES CO., LTD. 山东航空股份有限公司 (Established in the People's Republic of China) We have audited the accompanying balance sheet of Shandong Airlines Co., Ltd. as of December 31, 2003 and the related statements of income, cash flows and changes in equity for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2003 and the results of its operations and its cash flows for the year then ended, in accordance with International Financial Reporting Standards. Without qualifying our opinion we draw attention to note 2 to the financial statements which explains that the Group is dependent upon the support of its bankers and in particular on the renewal of existing, and the obtaining of new, bank loan facilities within the next twelve months. Provided that the bankers continue to support the Group, the directors are satisfied that the Group will have sufficient financial resources to meet in full its financia l obligations as they fall due for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong, March 26, 2004 BASIS OF PREPARATION In preparing the financial statements the directors have given careful consideration to the future liquidity of the Group. The Group is dependent upon the support of its bankers and in particular on the renewal of existing, and the obtaining of new, bank loan facilities within the next twelve months. Provided that the bankers continue to support the Group, the directors are satisfied that the Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. Accordingly the financial statements have been prepared on a going concern basis. 20 9.2 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 NOTES 2003 2002 RMB'000 RMB'000 OPERATING REVENUE 4 Passenger 1,626,941 1,458,361 Cargo and mail 78,982 88,987 Interest income 3,261 13,325 Leasing income 47,366 29,284 Government grant 6 4,200 13,740 Others 11,056 10,574 _________ __________ TOTAL OPERATING REVENUE 1,771,806 1,614,271 OPERATING EXPENSES Depreciation and amortisation 184,495 176,694 Take-off and landing charges 200,163 179,536 Personnel 87,619 88,886 Fuel 348,285 335,379 Maintenance and overhaul 148,942 161,001 Catering 63,606 68,140 Rental 245,601 274,686 Insurance 25,960 26,525 Promotion and sales 108,122 116,929 General and administration 59,937 38,639 Others 89,684 85,120 _________ __________ TOTAL OPERATING EXPENSES 1,562,414 1,551,535 PROFIT FROM OPERATIONS 7 209,392 62,736 FINANCE COSTS 8 (136,539) (125,513) SHARE OF RESULTS OF ASSOCIATES 11 188 INCOME (LOSS) FROM INVESTMENTS 9 314 (21,200) _________ __________ PROFIT (LOSS) BEFORE TAX 73,178 (83,789) INCOME TAX (EXPENSE) CREDIT 10 (1,728) 3,029 _________ __________ PROFIT (LOSS) AFTER TAX 71,450 (80,760) MINORITY INTERESTS (82) 376 _________ __________ NET PROFIT (LOSS) FOR THE YEAR 71,368 (80,384) RMB RMB Basic earnings (loss) per share 12 17.8 cents (20.1 cents) 21 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2003 NOTES 2003 2002 RMB'000 RMB'000 ASSETS Non-current assets Property, plant and equipment 13 2,696,747 2,432,213 Negative goodwill 14 - - Intangible assets 15 51,565 44,192 Land use rights 16 15,453 - Interests in associates 18 1,082 831 Advances on aircraft and related equipment 289,463 81,724 Unlisted investments 19 80,190 45,940 Non-current prepayments 20 - 20,000 Deferred tax assets 29 20,563 22,242 _________ _________ 3,155,063 2,647,142 _________ _________ Current assets Flight equipment spare parts and other inventories 21 22,267 35,886 Trade and other receivables 318,731 195,616 Amount due from holding company 22 80,772 936 Amounts due from related parties 23 4,169 14,577 Tax recoverable - 1,384 Bank balances and cash 371,024 346,519 _________ _________ 796,963 594,918 _________ _________ TOTAL ASSETS 3,952,026 3,242,060 _________ _________ 22 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2003 NOTES 2003 2002 RMB'000 RMB'000 LIABILITIES AND SHAREHOLDERS' EQUITY Shareholders' equity Share capital 24 400,000 400,000 Reserves 25 110,111 38,743 _________ _________ 510,111 438,743 _________ _________ MINORITY INTERESTS 10,848 6,986 _________ _________ Non-current liabilities Bank loans - due after one year 26 389,616 465,977 Obligations under finance leases - due after one year 27 555,564 681,136 _________ _________ 945,180 1,147,113 _________ _________ Current liabilities Trade and other payables 361,184 264,217 Sales in advance of carriage 16,887 9,873 Amounts due to related parties 28 8,965 8,881 Tax liabilities 139 - Bank loans - due within one year 26 1,977,146 1,220,219 Obligations under finance leases - due within one year 27 121,566 146,028 _________ _________ 2,485,887 1,649,218 _________ _________ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,952,026 3,242,060 _________ _________ The financial statements on pages 2 to 34 were approved by the board of directors and authorised for issue on March 26, 2004 and are signed on its behalf by: _________Li Junhai______________ ____Zheng Bao’an________ DIRECTOR DIRECTOR 23 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2003 Statutory Statutory Retained Share Share Capital surplus public earnings capital premium reserve (note) reserve welfare fund (deficits) Total RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 Balance at January 1, 2002 400,000 76,258 (40,886) 15,202 7,601 84,952 543,127 Net loss for the year - - - - - (80,384) (80,384) Transfer to statutory surplus reserve - - - 13 - (13) - Transfer to statutory public welfare fund - - - 6 (6) - Dividends - - - - - (24,000) (24,000) _______ _______ _______ _______ _______ _______ _______ Balance at December 31, 2002 and January 1, 2003 400,000 76,258 (40,886) 15,215 7,607 (19,451) 438,743 Net profit for the year - - - - - 71,368 71,368 Transfer to statutory surplus reserve - - - 33 - (33) - Transfer to statutory public welfare fund - - - - 11 (11) - _______ _______ _______ _______ _______ _______ _______ Balance at December 31, 2003 400,000 76,258 (40,886) 15,248 7,618 51,873 510,111 _______ _______ _______ _______ _______ _______ _______ Note: Capital reserve arose from the reorganisation, in which the Company took over the air transportation service business from the holding company, Shandong Aviation Group 山东航空集团有限公司(formerly Shandong Airlines Limited. 山东航空集团有限公司 ), by issuing the Company 's shares to the holding company. The transfer of the Company's assets under the reorganisation was calculated based on the financial statements prepared in accordance with accounting standards and regulations applicable to enterprises in the People's Republic of China. 24 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2003 2003 2002 RMB'000 RMB'000 OPERATING ACTIVITIES Profit (loss) before tax 73,178 (83,789) Adjustments for: Depreciation and amortisation 184,495 176,694 Loss on disposal of property, plant and equipment 388 130 Interest expenses 136,539 125,513 Interest income (3,261) (13,325) Impairment loss (reversed) recognised on property, plant and equipment (6,900) 6,900 Impairment loss on investments in associates/ non-current prepayments 500 22,000 Dividend from unlisted investments (835) (800) Share of results of associates (11) (188) Negative goodwill released to income (183) (74) _________ _________ Operating cash flows before movements in working capital 383,910 233,061 Decrease (increase) in flight equipment spare parts and other inventories 13,619 (8,113) Increase in trade and other receivables (74,775) (44,944) Decrease (increase) in amounts due from related parties 10,408 (12,429) Increase in trade and other payables 97,063 93,863 Increase (decrease) in sales in advance of carriage 7,014 (539) Increase in amounts due to related parties 84 4,189 _________ _________ Net cash generated from operations 437,323 265,088 Interest paid (138,175) (128,998) Income tax paid 1,474 (10,071) Interest received 3,261 13,325 _________ _________ Net cash generated from operating activities 303,883 139,344 _________ _________ 25 NOTES 2003 2002 RMB'000 RMB'000 INVESTING ACTIVITIES Purchase of aircraft and related equipment (560,732) (73,264) Increase in advances on aircraft and related equipment (207,739) (18,698) Advance to holding company (79,836) (223,581) Purchase of property, plant and equipment other than aircraft and related equipment (31,323) (131,162) Purchase of land use rights (1,680) - Acquisition of unlisted investments (14,250) (39,250) Additions of intangible asset (9,996) (19,557) Additional interest in an associate (500) - Acquisition of investment in an associate (740) - Deregistration of a subsidiar 30 (180) - Prepayment for non-current prepayments - (42,000) Proceeds from disposal of property, plant and equipment 91,442 33,218 Dividends received from unlisted investments 835 800 Acquisition of subsidiaries 31 - 1,695 Decrease in bank deposits - 106,700 Decrease in advances on land and buildings - 39,000 Dividend received from an associate - 141 _________ _________ Net cash used in investing activities (814,699) (365,958) FINANCING ACTIVITIES New bank loans obtained 2,035,769 1,635,017 Capital contribution from minority shareholders 4,937 5,729 Repayment of bank loans (1,355,203) (1,137,657) Repayment of obligations under finance leases (150,034) (54,987) Repayment of other loans - (33,106) Dividend paid to minority shareholder (148) - Dividend paid - (24,000) _________ _________ Net cash generated from financing activities 535,321 390,996 _________ _________ NET INCREASE IN CASH AND CASH EQUIVALENTS 24,505 164,382 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 346,519 182,137 _________ _________ CASH AND CASH EQUIVALENTS A END OF THE YEAR 371,024 346,519 __________ __________ 26 9.3 In the report period, there were not changes in accounting policies and accounting estimate according to the International Financial Reporting Standards (“IFRS”). Chairman of the Board: Li Junhai Shandong Airlines Co., Ltd. March 26, 2004 27