Hong Kong company reporting season

China Southern Airlines posts 35pc rise in net profit for 2016

Carrier mitigates impact of depreciating yuan by repaying US dollar debt ahead of schedule

PUBLISHED : Thursday, 30 March, 2017, 10:12pm
UPDATED : Thursday, 30 March, 2017, 11:50pm

China Southern Airlines, the largest passenger carrier in Asia, saw its net profit surge 35 per cent last year to 5.04 billion yuan (US$731.6 million) last year as it repaid dollar debt ahead of schedule to mitigate the impact of the yuan’s depreciation.

Turnover rose 2.98 per cent to 114.98 billion yuan from 2015, according to the carrier’s filing to the Hong Kong stock exchange on Thursday.

The firm said it recorded an foreign-exchange loss of 3.27 billion yuan resulting from the yuan’s depreciation.

The group had taken the initiative to manage the risk of fluctuations in oil prices and the exchange rate, it said.

“The company strictly implemented the ‘income less, cost less’ linkage adjustment mechanism to effectively mitigate the impact of the rising trend of the oil prices, hence its costs and

expenses had been limited within the annual targets,” it said.

China Southern actively adjusted the debt structure to mitigate the challenge of the yuan’s depreciation, repaying a debt of US$1.84 billion ahead of schedule. Its yuan financing ratio rose to 51.16 per cent from 30.69 per cent.

The company continued to increase direct sales while cutting agency activities, it said.

China Southern’s direct sales percentage increased to more than 40 per cent with a drop of 1.2 billion yuan in agency fees compared with 2015, the company said.

The firm also carried out various forms of low-interest-rate financing such as issuing

corporate bonds and ultra-short-term financing bills. Its direct financing ratio excluding

obligations under finance leases increased to 88.9 per cent from 29.5 per cent.

China Southern takes American Airlines on board as minority shareholder

“The civil aviation industry in China maintained double-digit fast growth but was also faced with challenges such as increased market competition, the impact brought about by the operations of high-speed railways and foreign-exchange losses,” it said.

China Southern said on Tuesday that it had taken the biggest US airline on board as a minority shareholder, forging an alliance to help transform its operations to compete domestically and overseas.

The Guangzhou-based airline will issue 270.6 million shares valued at HK$1.55 billion, or HK$5.74 apiece, to American Airlines Group, giving the US carrier 8.83 per cent of the enlarged number of its issued H shares, according to another filing to the Hong Kong exchange.

The two carriers “may seek to increase cooperation in code-sharing, transport-sharing agreement, staff- and experience-sharing, sales, passenger loyalty programme and airport facilities sharing,” China Southern said in its statement.

Meanwhile, China Eastern Airlines Corp posted a 0.9 per cent increase in profit attributable to shareholders for last year to 4.5 billion yuan.

Air China reported a 0.6 per cent gain in profit, underperforming analysts’ expectations as earnings were hit by the weakening yuan and rising costs.

The company’s profit attributable to shareholders of 6.8 billion yuan fell short of forecasts from analysts, who expected mainland China’s flag carrier to report net income of 7.35 billion yuan, according to eight analysts polled by Thomson Reuters.

Additional reporting by Reuters