16:28 AIR CHINA<00753> - Results Announcement (2) In accordance with the Restructuring Agreement, CNACG transferred its approximately 69% equity interests in China National Aviation Company Limited ("CNAC") to the Company by way of a capital contribution. The effective date of the Restructuring was 30 September 2004. Further details of the restructuring are set out in the Company's prospectus dated 3 December 2004 issued in respect of the listing of the Company's H shares on the Hong Kong Stock Exchange and the UK Listing Authority. As CNAHC controlled the Relevant Businesses and Relevant Companies before the Restructuring and continues to control the Company after the Restructuring, the consolidated financial statements of the Company, its subsidiaries and joint ventures (collectively the "Group") for the years ended 31 December 2003 and 2004 have been prepared as a reorganisation of companies under common control in a manner similar to a pooling-of- interests. Accordingly, the assets and liabilities of the Company are stated at historical amounts, except for the measurement at fair value of financial instruments in accordance with International Accounting Standard 39 (amended 2004) "Financial Instruments: Recognition and Measurement". The Group's consolidated financial results include the Group's results of operations as if the Relevant Businesses and interests in the Relevant Companies had been transferred to the Group at 1 January 2003. The Company's Directors are of the opinion that the consolidated income statement prepared on this basis present fairly the consolidated results of the Group as a whole. Therefore, the net profit for the year ended 31 December 2004 includes the consolidated results before the Restructuring. Dilution gains on investments ----------------------------- Dilution gains on investments in an aggregate amount of RMB410 million were included in the Group's profit before tax for the year ended 31 December 2004, details of which are set out as follows: Group 2004 2003 RMB'000 RMB'000 Dilution gain on investment in Air Cargo Business (note (a)) 330,222 - Dilution gains on investments in BACL and SWACL (note (b)) 79,915 - ----------- --------- 410,137 - =========== ========= (a) Pursuant to the Restructuring, the air cargo business and relevant air cargo assets and liabilities (the "Air Cargo Business") were solely operated and owned solely by the Group as if it had been directly held by the Group as of 1 January 2003 in accordance with the aforesaid basis of presentation. In 2004, the entire Air Cargo Business was transferred to Air China Cargo, a 51% owned joint venture of the Company, for a total consideration of approximately RMB1,795 million. Subsequent to the transfer of Air Cargo Business to Air China Cargo, the Group's effective interest in Air Cargo Business was diluted from 100% to 51% and, accordingly, a gain on dilution of investment in Air Cargo Business of approximately RMB330 million arose. (b) In accordance with the aforesaid basis of presentation, 60% shareholding interest in Beijing Air Catering Co., Ltd. ("BACL") and 75% shareholding interest in Southwest Air Catering Co., Ltd. ("SWACL") were deemed to be held by the Group as of 1 January 2003. (b) On 21 April 2004, Fly Top Limited, a wholly-owned subsidiary of CNAC, entered into the following acquisition agreements which were supplemented on 26 April 2004: (i) a share purchase agreement with Air China International Corporation in relation to the acquisition of 60% of the equity interest in BACL ("BACL Agreement") for a consideration of RMB294 million; and (ii) a share purchase agreement with Air China International Corporation in relation to the acquisition of 60% of the equity interest in SWACL ("SWACL Agreement") for a consideration of RMB67 million. On 12 November 2004, all the pre-completion undertakings of BACL Agreement and SWACL Agreement were completed and these two acquisition agreements were effective on that date accordingly. On 20 April 2004, Air China International Corporation entered into a stock transfer agreement with HKSACL (the "HKSACL Agreement"), the minority shareholder of SWACL, pursuant to which, Air China International Corporation disposed of 15% of the equity interest in SWACL to HKSACL for a consideration of approximately RMB17 million. On 12 November 2004, all the pre-completion undertakings of HKSACL Agreement were completed and this agreement was effective on that date accordingly. Immediately after the completion of BACL Agreement, SWACL Agreement and HKSACL Agreement, the Group's effective shareholding interests in BACL and SWACL were diluted from 60% and 75% to approximately 41% and 41%, respectively. Accordingly, gains on dilution of investments in BACL and SWACL aggregating approximately RMB80 million arose.