山 航B:2016年半年度报告(英文版)

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Semi-Annual Report 2016

August 2016

Content

Section I Important Notice and Paraphrase .................................................................................... 1

Section II Company Profile ............................................................................................................... 3

Section III Accounting data and summary of finnaical indexes .................................................... 5

Section IV Report of the Board of Directors ................................................................................... 7

Section V Important Events ............................................................................................................ 15

Section VI Changes in shares and particular about shareholders............................................... 20

Section VII Preferred Stock ……………………………………………………………………... 24

Section VIII Directors, Supervisors and Senior Executives ....................................................... 25

Section IX Financial Report ............................................................................................................ 26

Section X Documents Available for Reference ........................................................................... 137

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section I. Important Notice and Paraphrase

Board of Directors, Supervisory Committee, all directors, supervisors and senior

executives of Shandong Airlines Co., Ltd. (hereinafter referred to as the

Company) hereby confirm that there are no any fictitious statements, misleading

statements, or important omissions carried in this report, and shall take all

responsibilities, individual and/or joint, for the reality, accuracy and completion

of the whole contents.

All directors have attend the Board Meeting for Report Deliberation

The Company has no plans of cash dividend distributed, no bonus shares and

has no share converted from capital reserve either.

Sun Xiujiang , person in charge of the Company, Xu Guojian, person in charge

of accounting works as well as person in charge of accounting institution

(accounting officer)Sun Jingping hereby confirm the accuracy, truthfulness and

completeness of the Financial Report in the Semi-annual Report 2016.

Concerning the forward-looking statements of future situation prediction and

business planning involved in the Report, they do not constitute a substantial

commitment for investors. Investors are advised to exercise caution of

investment risks.

1

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Paraphrases

Item Refers to Content

The Company, Company Refers to Shandong Airlines Co., Ltd.

Shandong Aviation Group, the first largest shareholder and controlling

SDA Refers to

shareholder of the Company,

Air China Refers to Air China Limited, the second largest shareholder of the Company

2

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section II. Company profile

I. Company profile

Short form of the stock SHANHANG B Stock code 200152

Listing stock exchange Shenzhen Stock Exchange

Legal Chinese Name of the

山东航空股份有限公司

Company

Abbr. of legal Chinese name

山东航空

of the Company (if applicable)

Legal English Name of the

SHANDONG AIRLINES CO.,LTD.

Company (if applicable)

Abbr. of legal English name of

SDA

the Company(if applicable)

Legal Representative Sun Xiujiang

II. Way to contact

Secretary of the Board Rep. of security affairs

Name Dong Qiantang Fan Peng

1/F Office Building, SDA, Yaoqiang International 3/F Office Building, SDA, Yaoqiang International

Contact adds.

Airport Licheng District Jinan Airport Licheng District Jinan

Tel. 0531-82085939 0531-82085586

Fax. 0531-85698767 ext. 8679 0531-85698767 ext. 8679

E-mail dongqt@shandongair.com.cn fanp@shandongair.com.cn

III. Others

1. Way to contact the Company

Register address, office address and code, Company website as well as the email of the Company have no changed in reporting

period, more details please found in the Annual Report of 2015.

2. Information disclosure and preparation place

Newspaper appointed for information disclosure, website for annual report publish appointed by CSRC and preparation place for

semi-annual report have no change in reporting period, more details please found in the Annual Report of 2015.

3

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

3. Registration changes of the Company

Whether the registration condition has changed in the period

√Applicable □ Not applicable

Business license

number of

Registration date Registration place Tax ID Organization code

enterprise legal

person

Shandong

Period-begin Administration for

2014-03-26 370000400002351 370112720721201 72072120-1

registration Industry &

Commerce

Jinan

Period-end Administration for

2016-04-13 91370000720721201F

registration Industry &

Commerce

4

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section III. Accounting data and summary of financial indexes

I. Main accounting data and financial indexes

Whether it has retroactive adjustment or re-statement on previous accounting data for accounting policy changed and accounting

error correction or not

□Yes √ No

Increase/decrease over same

Current Period Same period of last year

period of last year

Operating revenue (RMB) 6,309,749,290.22 5,713,724,522.71 10.43%

Net profit attributable to shareholders of

283,689,488.65 216,806,873.69 30.85%

the listed company(RMB)

Net profit attributable to shareholders of

the listed company after deducting 202,463,168.92 181,539,241.57 11.53%

non-recurring gains and losses(RMB)

Net cash flow arising from operating

1,024,495,732.22 781,582,655.71 31.08%

activities(RMB)

Basic earnings per share (RMB/Share) 0.71 0.54 31.48%

Diluted earnings per share (RMB/Share) 0.71 0.54 31.48%

Weighted average ROE (%) 8.09% 7.32% 0.77 percentage points up

Increase/decrease over same

End of current Period End of period of last year

period-end of last year

Total assets (RMB) 12,677,120,229.09 12,748,902,597.96 -0.56%

Net assets attributable to shareholder of

3,568,708,313.17 3,365,013,204.57 6.05%

listed company (RMB)

II. Difference of the accounting data under accounting rules in and out of China

1. Difference of the net profit and net assets disclosed in financial report, under both IAS (International

Accounting Standards) and Chinese GAAP (Generally Accepted Accounting Principles)

The Company has no condition of difference of the net profit and net assets disclosed in financial report, under both IAS

(International Accounting Standards) and Chinese GAAP (Generally Accepted Accounting Principles) in the reporting period

2. Difference of the net profit and net assets disclosed in financial report, under both foreign accounting

rules and Chinese GAAP (Generally Accepted Accounting Principles)

The Company has no condition of difference of the net profit and net assets disclosed in financial report, under both foreign

accounting rules and Chinese GAAP (Generally Accepted Accounting Principles) in the reporting period

5

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

III. Items and amounts of extraordinary profit (gains)/loss

√ Applicable □ Not applicable

In RMB

Item Amount Note

Gains/losses from the disposal of non-current asset (including the

-1,956,678.88

write-off parts that accrued for impairment of assets)

Governmental subsidy reckoned into current gains/losses (not

including the subsidy enjoyed in quota or ration according to

108,958,388.62

national standards, which are closely relevant to enterprise’s

business)

Losses/gains from changes of fair values occurred in holding

transaction financial assets and transaction financial liabilities,

and investment income obtaining from the disposal of transaction

-4,777,154.37

financial assets and transaction financial liabilities and financial

assets available for sales, excluded effective hedging business

relevant with normal operations of the Company

Other non-operating income and expenditure except for the

6,116,354.87

aforementioned items

Less: Impact on income tax 27,114,590.51

Total 81,226,319.73 --

In reporting period, the Company has no particular about items defined as recurring profit (gain)/loss according to the lists of

extraordinary profit (gain)/loss in Q&A Announcement No.1 on Information Disclosure for Companies Offering Their Securities to

the Public --- Extraordinary Profit/loss

6

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section IV. Report of the Board of Directors

I. Introduction

Since the beginning of the year, the company has been focusing closely on the development planning of “13th Five Year Plan” and

annual strategic objectives, leading by ten strategic administration points, continuing to consolidate security basis, making efforts to

enhance the operational quality, building first-rate service brand, and actively promoting the innovation and transformation and

upgrading, production has remained stable, and the company has achieved good operating management performance.

(I) Appropriately dealing with the grim situation both inside and outside the industry, and safety production situation

remaining stable

In the first half year, the transportation business has guaranteed safe flight of 167,200 hours and 79,800 vehicles, a respective

increase of 13.28% and 7.46%. No unsafe event has occurred due to the transport aviation incidents cause by company reasons or

external reasons. Safety quality evaluation index has reached 9.36, and the security situation has been basically stable. The company

has continued to promote the pilot work of safety performance management, and security management initiative has been enhanced;

improved the security management mechanism, and built the sustainable security management system; continued to improve security

policy, highlight and intensify the system control and closed-loop management, improve the security training and education system,

revise the investigation procedures for unsafe incidents; pay close attention to key aspects of governance and rectification of security

style, and the security guarantee capability of the basic level has been consolidated.

(II) Adhere to system control and scientific decision-making, and continue to improve operating efficiency

In the first half year, the company’s average flight punctuality rate has reached 80.11%, an increase of 9.57% on a year-on-year basis,

ranking number 3 among the major airlines. The company has improved the flight regularity control mechanism, and maintained a

high normal rate. The company has introduced flight regularity control program, established the index control mechanism, and the

flight scheduling rationality has been improved; completed the sector coordination linkage mechanism, and improved the operational

control level; strengthened the coordination interaction in production department, flight scheduling can better match with the

production and operation capabilities; further promoted the construction of operation system and the application of new technologies.

(III) Promote lean management and control of income and expenses, the benefit level basically meets the expectations

In the first half year, the company has completed transportation turnover of 1.232 billion ton-kilometers, an increase of 18.21% on a

year-on-year basis, passenger transport volume has reached 8,771,200 person-times, an increase of 9.82% on a year-on-year basis,

cargo and mail transport volume has reached 73,500 tons, an increase of 5.54% on a year-on-year basis; achieved main business

income of 6.174 billion Yuan, an increase of 9.59% on a year-on-year basis, total profits of 378 million Yuan, an increase of 25.97%

on a year-on-year basis. The company has established the resource investment linkage mechanism that the production, marketing and

benefit control department mutually coordinate, and realized the dynamic optimizing allocation of production resources; exerted to

optimize the airline network structure and consolidate the base advantage, sothat the transport capacity in Qingdao, Xiamen, and

Urumqi has increased significantly after the summer season. The company has also actively implemented the e-commerce direct

selling and surrounding internationalization strategy, which constantly improves the revenue structure of main business; continued to

expand the on-line marketing channel, the sales volume of flagship stores on cooperation platform and of wechat official Accounts

has been increasing rapidly. The company has also promoted the fine cost control, and the control effect of controllable cost is

remarkable.

(IV) Highlight service innovation and brand building, and service quality continues to enhance

In the first half year, the overall score of passenger satisfaction survey has reached 95.85 points, an increase of 2.18 points on a

year-on-year basis; effective customer complaint rate was 0.185 time / ten thousand person, a decrease of 0.025 time / ten thousand

person on a year-on-year basis; abnormal rate of luggage transport was 0.586 time / thousand person, a decrease of 9% on a

7

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

year-on-year basis. Passenger complaint rate and quality of service has continued to rank top among the best media authorities. The

company has won the “China 500 Most Valuable Brands”, its brand value has reached 28.528 billion Yuan, an increase of 5.313

billion Yuan over the previous year, ranking from number 105 to number 101. The company has vigorously carried out innovative

services, so that passengers can have more abundant experiences; actively promoted the passenger self-service, the self-service

probability at the base has increased dramatically; constantly expanded the influence of "Luyan flight crew", "Honest and Kind

Shandong Airlines" brand image has been initially established.

Summary of the operation data:

Index Jan.-Jun. 2016 Jan.-Jun. 2015 Changes

Total t-km load rate (10 thousand t-km) 123203.6 104228.8 18.21%

Volume of passenger traffic (10 877.12 798.70 9.82%

thousand passengers)

Cargo & mail traffic volume (10 7.35 6.97 5.54%

thousand tons)

Flying km (one million km) 100.20 84.27 18.91%

Flying hours(10 thousand hours) 16.72 14.76 13.28%

Number of flight (10 thousand times) 7.98 7.43 7.46%

PLF(passenger load factor) 76.19 76.46 0.27 percentage points down

Cargo & Mail OLF (overall load factor) 39.27 34.76 4.51 percentage points up

In the Period, totally five B737-800aircrafts are introduced by the Company. Up to 30 June 2016, the Company operates 95

aircrafts in total and the fleet distribution below as:

Model Numbers Average service age (Year)

737-700 3

737-800 90 4.4

CRJ-700 2

II. Main business analysis

Introduction

In RMB

Item of balance sheet 2016.6.30 2015.12.31 +,- Reasons

Monetary funds 592,355,497.98 1,415,399,630.60 -58.15% The balance of monetary funds at period-end

declined due to the repaymentsin the Period

for loans due

Account receivable 386,655,865.82 255,782,921.88 51.17% Receivable account of the wet leases have not

been settled in the period

Dividend receivable 4,381,900.00 -100.00% The bonus for year of 2014 have received

from Sichuan Airline in the Period

Other current assets 19,505,500.21 46,425,506.53 -57.99% The overpaid VAT declined in the Period

Deferred income tax assets 617,666,294.89 453,818,799.19 36.10% Deductable temporary difference increased

due to the increase of accrued expenses in the

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Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Period

Other non-current assets 8,892,890.28 23,794,314.90 -62.63% The sale-leaseback airplan resulted an

operating lease without earnings achived in

the period, thus the balance declined at

period-end

Financial liability measured 7,297,084.84 3,370,447.62 116.50% Changes of the fair value of interest rate swap

by fair value and with held in the Period

variation reckoned into

current gains/losses

Note payable 25,299,479.50 -100.00% The notes are paid on due in the Period

Taxes payable 210,356,564.84 105,147,871.19 100.06% The corporate income tax payable increased in

the period

Dividend payable 100,011,940.00 11,940.00 837520.94% Didicend payable for year of 2015 paid in the

period

Long-term loans 1,981,001,979.08 2,887,701,872.70 -31.40% Principal of the long-term loans are paid

partially in the Period

Profit statement Jan.- June. 2016 Jan.- June. 2015 +,- Reasons

Financial expenses 114,208,514.18 77,607,520.78 47.16% Exchange earnings due to the depreciation of

exchange rate (RMB:USD) in the Period,

while at same period of last year refers to the

exchange gains

Assets impairment loss 441,974.60 2,661,278.77 -83.39% Recognized by the accounting policy of bad

debt provision implemented by the Company

Investment income -850,513.68 -20,182,489.74 -95.79% The investment losses of Qingdao Airline are

recognized at same period of last year, while

there are no equity of Qingdao Airlines in the

period

Non-operating revenue 115,697,616.85 53,152,655.78 117.67% The route subsidies received in the Period are

increased from a year earlier

Non-operating expenditure 2,579,552.24 1,013,941.37 154.41% The net losses of the fixed assets dispsoal are

recognized in the Period are increased

Cash flow statement Jan.- June. 2016 Jan.- June. 2015 +,- Reasons

Cash received with other 161,074,121.88 119,263,089.42 35.06% The route subsidies received in the Period are

operation activities increased from a year earlier

concerned

Taxes paid 341,409,771.76 169,322,459.34 101.63% The enterprise income tax and VAT paid in

the Period are increaased from a year earlier

Net cash received by 37,726,458.52 -100.00% The Company disposed aircraft assets at same

disposing fixed assets, period of last year

intangible astes and other

long-term assets

Cash paid for purchasing 1,030,491,927.70 782,637,435.20 31.67% The plane schedule amount paid in the Peirod

9

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

fixed, intangible and other are more than that paid at same period of last

long-term assets year

Other cash paid concerning 421,533.02 1,390,588.27 -69.69% The actual delivery costs for trading financial

investing activities assets decreased in the Period

Cash received from loans 296,000,000.00 516,161,233.20 -42.65% The loans received from financing activies

decreased in the Period

Cash received concerning 195,845,614.80 883,986,750.53 -77.85% The price for original plane purcahsing right,

other financing activities which transfer to operating lease, are received

in the Period with lower amount

Cash paid for 56,263,754.65 111,445,222.20 -49.51% Part of the bonus are paid at same period of

dividend/profit distribution last year

or interest payment

Impact on cash and cash 12,768,432.70 -72,933.89 -17606.86% Changes of the RMB against foreign

equivalent from foreign currencies

exchange ratae change

Y-o-y changes of main financial data

In RMB

Same period of last

Current Period y-o-y changed Reasons

year

Operating revenue 6,309,749,290.22 5,713,724,522.71 10.43%

Operating cost 5,423,567,853.72 4,846,875,591.65 11.90%

Sale expenses 329,309,482.29 364,570,137.45 -9.67%

Management expenses 148,238,372.25 127,612,535.04 16.16%

Exchange earnings due to the

depreciation of exchange rate

(RMB:USD) in the Period,

Financial expenses 114,208,514.18 77,607,520.78 47.16%

while at same period of last

year refers to the exchange

gains

Income tax expenses 94,368,500.00 83,305,574.94 13.28%

Net cash flow arising from

1,024,495,732.22 781,582,655.71 31.08%

operating activities

Net cash flow arising from

-1,026,531,557.25 -740,190,249.03 38.68%

investment activities

Net cash flows arising from

-833,776,740.29 203,311,977.62 -510.10%

financing activities

Net increase of cash and cash

-823,044,132.62 244,631,450.41 -436.44%

equivalent

No major changes on profit composition or profit resources in reporting period

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Shandong Airlines Co., Ltd. Semi-Annual Report 2016

No future development and planning extended to reporting period that published in disclosure documents as prospectus, private

placing memorandum and recapitalize statement

Review on the previous business plan and its progress during reporting period

Nil

III. Main business composition

In RMB

Increase/decrease Increase/decrea

of operating se of operating Increase/decrease of gross

Operating Gross

Operating cost revenue over cost over same profit over same period the

revenue profit

same period the period the year year before

year before before

According to industries

Aviation

transportation 6,123,669,267.11 5,387,354,253.18 12.02% 9.51% 12.07% 2.02 percentage points down

service

Hotel and food

21,283,521.54 18,622,643.84 12.50% 8.99% 21.73% 9.16 percentage points down

service

Logistics

transportation 18,427,520.08 11,936,293.54 35.23% 34.76% -22.34% 47.63 percentage points up

service

Training Services 11,023,453.60 4,975,127.94 54.87% 26.24% 23.70% 0.93 percentage points up

According to region

Domestic 5,571,974,391.37 4,765,524,818.50 14.47% 6.95% 7.22% 0.22 percentage points down

Region 110,418,761.96 85,814,200.00 22.28% -14.88% -17.32% 2.30 percentage points up

16.49 percentage points dow

Overseas 492,010,609.00 571,549,300.00 -16.17% 67.09% 94.73%

n

IV. Core competitive-ness analysis

Core competitive-ness of the Company has no major changes in the Period.

V. Investment analysis

1. Outward equity investment

Invested company

Proportion of equity in invested company

Name Main business

for listed company (%)

11

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Qingdao International Airlines Logistic

Center Co., Ltd. Qingdao International Air cargo warehousing, ground delivery 100.00%

Airlines Logistics Center Co., Ltd.

Qingdao Feisheng International Aviation

Pilot training 100.00%

Technology Development Training Co., Ltd.

Shandong Rainbow Corporate Aircraft Co.,

Air transport 45.00%

ltd.

Sichuan Airlines Co., Ltd. Air transport 10.00%

Jinan International Airport Co., Ltd. Civil airport 2.53%

Civil aviation information technology

China Travelsky Holding Company 0.45%

service

The Company did not holding the equity of financial enterprise and other listed companies, no security investment either

2. Trust management, derivative investment and entrust loans

The Company has no trust management, derivative investment and entrust loans in the Period

3. Raised fund utilization

The Company has no raised fund utilization in the Period

4. Main subsidiaries and stock-jointly companies

√ Applicable□ Not applicable

Particular about main subsidiaries and stock-jointly companies

In RMB

Main

Register Operating Operating

Company name Type Industries products or Total assets Net Assets Net profit

capital revenue profit

service

Air cargo

Qingdao Transportati warehousin

International on and g, ground 30,000,000. 137,474,88 51,406,310. 28,297,900. 5,061,919

Subsidiary 3,791,205.16

Airlines Logistic warehousin delivery; 00 5.39 56 69 .53

Center Co., Ltd. g industry E-business

etc.

Qingdao

Feisheng

Pilot Pilot 51,545,500. 72,822,171. 70,997,413. 4,683,678.2 594,757.4

International Subsidiary 446,068.06

training training 00 13 81 9 1

Aviation

Technology

12

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Development

Training Co.,

Ltd.

Shandong

Air

Rainbow Joint-stock Air 50,000,000. 1,858,516.2 -165,907,29

transport -952.04 -952.04

Corporate company transport 00 8 7.05

industry

Aircraft Co., ltd.

5. Major projects invested by non-raised funds

The Company has no major projects invested by non-raised funds

VI. Prediction of business performance from January–September 2016

Estimation on accumulative net profit from the beginning of the year to the end of next report period to be loss probably or the

warning of its material change compared with the corresponding period of the last year and explanation on reason

□ Applicable√ Not applicable

VII. Explanation on “Qualified Opinion” from the Certified Public Accountants in the report

period by the Board and Supervisory Committee

□ Applicable√ Not applicable

VIII. Explanation on “Qualified Opinion” of last year from the Board

□ Applicable√ Not applicable

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Shandong Airlines Co., Ltd. Semi-Annual Report 2016

IX. Implementation of profit distribution in Period

Implementation or adjustment on profit distribution plan in reporting period, cash bonus scheme and transfer of public reserve to

common shares in particular

√ Applicable □ Not applicable

The equity allocation plan for year of 2015 was approved in the Annual General Meeting 2015 dated 23 June 2016, that is distributed

2.5 Yuan (tax included) in cash for every 10 shares held to all shareholders on basis of total share capital of the Company

400,000,000 shares, the distribution will implement within two months after the AGM closed

Special explanation on cash dividend policy

Satisfy regulations of General Meeting or requirement of Article of Association (Y/N): Y

Well-defined and clearly dividend standards and proportion (Y/N): Y

Completed relevant decision-making process and mechanism (Y/N): Y

Independent directors perform duties completely and play a proper role (Y/N): Y

Minority shareholders have opportunity to express opinions and demands totally and their

Y

legal rights are fully protected (Y/N):

Condition and procedures are compliance and transparent while the cash bonus policy

Y

adjusted or changed (Y/N):

X. Profit distribution plan and transfer of public reserve to common shares in the Period

The Company has no plans of cash dividend distributed, no bonus shares and has no share converted from capital reserve either for

the semi-annual year

XI. In the report period, reception of research, communication and interview

√ Applicable □ Not applicable

Contents discussed and material

Time Place Way Type Reception

provided

Telephone Operation of the Company and no

Jan. –June 2016 Jinan Individual Individual investor

communication material required

Institutional

Operation of the Company and no

2016-03-24 Jinan Field research Other shareholders and

material required

individual investor

News media, legal

person’s Operation of the Company and

2016-06-23 Jinan Field research Other

shareholders and annual report required

individual investor

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Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section V. Important Events

I. Corporate governance

Actual corporate governance of the Company shows no difference with the Company Law and relevant regulations of CSRC

II. Lawsuits

No significant lawsuits and arbitration in reporting period

III. Questions by media

No questions by media in Period.

IV. Bankruptcy reorganization

No bankruptcy reorganization in Period.

V. Transaction in assets

1. Assets acquisition

The Company had no assets acquisition in the Period.

2. Assets sold

No assets sold in Period.

3. Enterprise combination

No enterprise combination in Period.

VI. Implementation and its influence of equity incentive plan

No implementation of equity incentive plan carried out in reporting period

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Shandong Airlines Co., Ltd. Semi-Annual Report 2016

VII. Material related transactions

1. Related transaction with daily operation concerned

√ Applicable□ Not applicable

Market

Amount

Proporti Trading price

of Whether

Content on in limit of Index

Type of

of Pricing Dealing related amount approval

over the Settleme

similar Disclosu of

Related Relation related

related principl transacti approval nt

party ship transacti price of same (10 transacti re date disclos

transacti es on (10 limit method

on

on transacti thousan on ure

thousan (Y/N)

ons d Yuan) receivab

d Yuan)

le

Rent of

office

Controll

Labor and Cash

ing Market 15,513,3 15,513,3 2016-03 2016-1

SDA service board&l 1,551.33 28.26% 3,200 N settleme

sharehol price 31.65 31.65 -25 1

received odging nt

der

expense

s

Subsidia

Shandong

ry of Airplane

Taikoo Labor Cash

controlli mainten Market 28,803,0 28,803,0 2016-03 2016-1

Aircraft service 2,880.3 4.06% 7,600 N settleme

ng ance price 53.19 53.19 -25 1

Engineerin received nt

sharehol charge

g Co., Ltd.

der

Shandong Subsidia

Xiangyu ry of

Labor Mainten Cash

Air controlli Market 29,668,6 29,668,6 2016-03 2016-1

service ance 2,966.87 4.18% 7,000 N settleme

Technolog ng price 96.78 96.78 -25 1

received charge nt

y Service sharehol

Co., ltd der

Aircrafts

Subsidia

Maintenan

ry of

ce and Labor Mainten Cash

second Market 22,363,3 22,363,3 2016-03 2016-1

Engineerin service ance 2,236.34 3.15% 4,100 N settleme

largest price 36.17 36.17 -25 1

g received charge nt

sharehol

Corp.-Beiji

der

ng

Aircrafts Subsidia

Labor Ground Cash

Maintenan ry of Market 15,553,0 15,553,0 2016-03 2016-1

service service 1,555.3 1.66% 2,100 N settleme

ce and second price 50.00 50.00 -25 1

received charge nt

Engineerin largest

16

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

g sharehol

Corp.-Beij der

ing

Sichuan

Subsidia

Internation

ry of

al Airlines Labor Mainten Cash

second Market 202,356, 20,235.6 202,356, 2016-03 2016-1

Engine service ance 28.53% 20,000 Y settleme

largest price 167.14 2 167.14 -25 1

Maintenan received charge nt

sharehol

ce Co.,

der

Ltd.

Second Other

Wet Cash

largest related Negotiat 183,404, 18,340.4 100.00 183,404, 2016-03 2016-1

Air China lease 37,886 N settleme

sharehol transacti ed price 273.00 3 % 273.00 -25 1

business nt

der on

Frequen

Second Other t

Cash

largest related passeng Negotiat 36,000,0 100.00 36,000,0 2016-03 2016-1

Air China 3,600 7,000 N settleme

sharehol transacti er ed price 00.00 % 00.00 -25 1

nt

der on cooperat

ion

53,366.1

Total -- -- -- 88,886 -- -- -- -- --

9

Details of return of sales in significant

N/A

amount

Actual implementation for those daily

related transaction with

Implemented by the agreement, no amount exceed the budget approved in shareholders’

total amount estimated by types, which

general meeting

is going to happen in this Period (if

applicable)

Reasons for major difference between

trading price and market reference N/A

price (if applicable)

2. Related transaction as assets acquisition and assets sold

There are no related transaction as assets acquisition and sold occurred in the Period

3. Related transaction as common investment outside

There are no related transaction as common investment outside occurred in the Period

17

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

4. Related credits and liabilities

There are no related credits and liabilities occurred in the Period

5. Other related transaction

The Company has no other related transaction in the Period

VIII. Non-business capital occupying by controlling shareholders and its related parties

No non-business capital occupied by controlling shareholders and its related parties in Period

IX. Major contract and implantation

The Company had no trusteeship, contract and leasing occurred in the Period; and had no guarantee in the Period either; no other

material contracts and other major transaction in reporting period

X. Commitments made by the Company or shareholders holding above 5% shares of the

Company in reporting period or occurred in the previous reporting period but continued to

reporting period

√ Applicable□ Not applicable

Commitment Commitmen

Commitments Accepter Contents Implementation

time t period

In February 2004, China National Aviation

Holding Company (CNAHC) entered into a

equity transfer agreement with SDA , that is

Commitments in promise “to avoiding horizontal competition with

Strictly

report of the Company through reasonable business Long-term

Air China 2004-12-06 implement

acquisition or equity arrangement”; in December, being approved, the effective

timely

change equity assignee was replaced by Air China, and

all rights and obligations under the agreement

was transfer to Air China as the party who

implemented the commitments

Commitments make Controlling shareholder—SDA provide a

Strictly

in Initial public commitment letter of avoiding horizontal Long-term

SDA 2000-09-12 implement

offering or competition to the Company in year of 2000 effective

timely

re-financing when the Company initial public offering shares

Completed on

Y

time(Y/N)

18

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

XI. Appointment and non-reappointment (dismissal) of CPA

Whether financial report of this Semi-annual report is audited or not

□ Yes √No

The Semi-annual report of the Company has not been audit

XII. Penalty and rectification

No penalty and rectification in reporting period

XIII. Risk disclosure of delisting with laws and rules violated

The Company has no delisting risks with laws and rules violated in Period

XIV. Explanation on other significant events

Securities Times, Hong Kong Commercial Daily and Juchao Website (http: //www.cninfo.com.cn) , more details can be found in the

above said media.

XV. Issuance of corporate bonds

Whether the company has corporate bonds that have been publicly issued and listed on the stock exchange, and not yet due or due but

not fully cashed on the approval date of annual report

No

19

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section VI. Changes in Shares and Particulars about Shareholders

I. Changes in shares

In share

Before changed Increase/decrease in this time (+ , - ) After changed

Capitalizat

Bonus ion of

Amount Ratio New issue Other Subtotal Amount Ratio

share public

reserve

260,000,0 260,000,0

I. Unlisted shares 65.00% 65.00%

00 00

168,601,0 168,601,0

1. Sponsor’s shares 42.15% 42.15%

00 00

Including: State-owned 168,402,0 168,402,0

42.10% 42.10%

shares 00 00

Domestic legal person’s

199,000 0.05% 199,000 0.05%

shares

4. Preference shares or 91,399,00 91,399,00

22.85% 22.85%

other 0 0

140,000,0 140,000,0

II. Listed shares 35.00% 35.00%

00 00

2.Domestically listed 140,000,0 140,000,0

35.00% 35.00%

foreign shares 00 00

400,000,0 400,000,0

III. Total shares 100.00% 100.00%

00 00

Reasons for share changed

□ Applicable√ Not applicable

Approval of share changed

□ Applicable√ Not applicable

Ownership transfer for shares changed

□ Applicable√ Not applicable

Influence on the basic EPS and diluted EPS as well as other financial indexes of net assets per share attributable to common

shareholders of Company in latest year and period

□ Applicable√ Not applicable

Other information necessary to disclose for the Company or need to disclosed under requirement from security regulators

□ Applicable√ Not applicable

Changes of total shares and shareholders structure as well as explanation on changes of assets and liability structure

□ Applicable√ Not applicable

20

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

II. Number of shareholders of the Company and share-holding

In share

Total preference shareholders with

Total common shareholders at voting rights recovered at end of

15,459 0

period-end reporting period (if applicable)

(see Note 8)

Particulars about shares held above 5% by common shareholders or top ten common shareholders

Total Amount Number of shares

Amount of

common of pledged/frozen

Changes listed

Proportion shares hold un-listed

Nature of

Shareholders of shares in report common

shareholder at the end common

held

period shares State of share Amount

of report shares

held

period held

Shandong Aviation State-owned 168,004,

42.00% 168,004,000

Group corporate 000

State-owned 91,200,0

Air China Limited 22.80% 91,200,000

corporate 00

WANXIANG

INTERNATIONAL Overseas

0.62% 2,490,000 10,000 2,490,000

INVESTMENT corporate

CORPORATION

DZ S/A QUONIAM

FDS SELE

Overseas

SICAV-EMERGING 0.56% 2,259,178 2,259,178

corporate

MARKETS EQ

MINRISK

GUOTAI JUNAN

Overseas

SECURITIES(HONG 0.55% 2,208,338 -45,453 2,208,338

corporate

KONG) LIMITED

BBH A/C

VANGUARD

Overseas 1,412,69

EMERGING 0.53% 2,102,217 2,102,217

corporate 6

MARKETS STOCK

INDEX FUND

Domestic

Chen Jingjian nature 0.37% 1,494,800 1,494,800

person

VANGUARD TOTAL

Overseas

INTERNATIONAL 0.37% 1,476,820 1,476,820

corporate

STOCK INDEX

21

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

FUND

Domestic

1,300,00

Yao Ming nature 0.33% 1,300,000 1,300,000

0

person

Overseas 1,225,92

NORGES BANK 0.31% 1,225,924 1,225,924

corporate 4

1. Shandong Aviation Group is the first largest shareholder of the Company, who holds the

shares of the Company on behalf of the State with unlisted shares;

2. Air China Limited is the second largest shareholder of the Company, who holds the

Explanation on related relationship shares of the Company on behalf of the State with unlisted shares;

or concerted action among the 3. Among the above top ten shareholders, Air China Limited is the first largest shareholder

abovementioned shareholders of the SDA, and there exists no associated relationship between SDA and Air China and

the other shareholders, and they don’t belong to the consistent actionist regulated by the

Management Regulation of Information Disclosure on Change of Shareholding for Listed

Companies with the other shareholders.

Shareholding of top 10 circulated common shares held

Type of shares

Shareholders Amount of listed common shares held at period-end

Type Amount

Domestically

WANXIANG INTERNATIONAL

2,490,000 listed foreign 2,490,000

INVESTMENT CORPORATION

shares

DZ S/A QUONIAM FDS SELE Domestically

SICAV-EMERGING MARKETS 2,259,178 listed foreign 2,259,178

EQ MINRISK shares

GUOTAI JUNAN Domestically

SECURITIES(HONGKONG) 2,208,338 listed foreign 2,208,338

LIMITED shares

BBH A/C VANGUARD Domestically

EMERGING MARKETS STOCK 2,102,217 listed foreign 2,102,217

INDEX FUND shares

Domestically

Chen Jingjian 1,494,800 listed foreign 1,494,800

shares

VANGUARD TOTAL Domestically

INTERNATIONAL STOCK 1,476,820 listed foreign 1,476,820

INDEX FUND shares

Domestically

Yao Ming 1,300,000 listed foreign 1,300,000

shares

NORGES BANK 1,225,924 Domestically 1,225,924

22

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

listed foreign

shares

Domestically

Ye Qufa 1,144,569 listed foreign 1,144,569

shares

Domestically

Deng Hongwei 880,000 listed foreign 880,000

shares

Explanation on related relationship

or concerted action among the top

The Company is not aware of their associated relationship among the top ten shareholders

ten shareholders with un-restricted

of circulation share, and is unknown whether other circulation shareholders belong to the

common shares held and between

consistent actionist regulated by the Management Regulation of Information Disclosure on

the top ten shareholders with

Change of Shareholding for Listed Companies.

un-restricted common shares held

and top ten shareholders

The op ten common shareholders and top 10 un-restricted common shareholders of the Company had no buy-back agreement dealing

in reporting period.

III. Changes of controlling shareholder or actual controller

The controlling shareholder of the Company has no changed in reporting period; the actual controller of the Company has no

changed in reporting period

IV. Share holding increasing plan proposed or implemented in reporting period from

shareholder of the Company and its concerted action person

As far as the Company know, there are no share holding increasing plan proposed or implemented in Period from shareholder of the

Company and its concerted action person

23

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section VII. Preferred Stock

The Company has no preferred stock in the Period

24

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section VIII. Directors, Supervisors and Senior Executives

I. Changes of shares held by directors, supervisors and senior executives

Shares held by directors, supervisors and senior executives have no changes in reporting period, more details found in Annual Report

of 2015.

II. Resignation and dismissal of directors, supervisors and senior executives

√Applicable □Not applicable

Name Title Type Date Reason

Sun Xiujiang Chairman Election 2016-01-18 Election

Appointment

Yu Bo Deputy GM 2016-02-04 Work accommodation

& dismissal

Former GM, elected as new Director and GM by

Miao Liubin Director, GM Election 2016-03-24

general election

Jiang Chengda Director Election 2016-03-24 New director by general election

Independent

Lv Hongbin Election 2016-03-24 New independent director by general election

director

Independent

Duan Yalin Election 2016-03-24 New independent director by general election

director

Independent

Wu Chaopeng Election 2016-03-24 New independent director by general election

director

Leave on Former independent director, and he is no longer

Wang Kaiyuan N/A 2016-03-24

office term serves as independent director after general election

Leave on Former independent director, and he is no longer

Ping Xiaofeng N/A 2016-03-24

office term serves as independent director after general election

Leave on Former independent director, and he is no longer

Li Chun N/A 2016-03-24

office term serves as independent director after general election

Leave on Former independent director, and he is no longer

Qu Wenzhou N/A 2016-03-24

office term serves as independent director after general election

Dong Hong Supervisor Election 2016-03-24 New supervisor by general election

Leave on Former supervisor, and he is no longer serves as

Zhang Kai N/A 2016-03-24

office term supervisor after general election

25

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section IX. Financial Report

I. Audit report

The semi-annual financial report has not been audited

II. Financial Statement

Statement in Financial Notes are carried in RMB/CNY

1. Consolidated Balance Sheet

Prepared by Shandong Airlines Co., Ltd

2016-06-30

In RMB

Item Closing balance Opening balance

Current assets:

Monetary funds 592,355,497.98 1,415,399,630.60

Settlement provisions

Capital lent

Financial assets measured by fair

value and with variation reckoned into

current gains/losses

Derivative financial liability

Notes receivable 50,000.00

Accounts receivable 386,655,865.82 255,782,921.88

Accounts paid in advance 178,088,718.99 154,897,777.19

Insurance receivable

Reinsurance receivables

Contract reserve of reinsurance

receivable

Interest receivable

Dividend receivable 4,381,900.00

Other receivables 302,318,701.21 280,489,032.02

Purchase restituted finance asset

Inventories 123,806,231.05 112,307,440.99

Divided into assets held for sale

Non-current asset due within one

year

Other current assets 19,505,500.21 46,425,506.53

26

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Total current assets 1,602,780,515.26 2,269,684,209.21

Non-current assets:

Loans and payments on behalf

Finance asset available for sales 247,796,933.86 221,122,773.92

Held-to-maturity investment

Long-term account receivable

Long-term equity investment

Investment property

Fixed assets 7,352,511,714.03 7,156,258,169.93

Construction in progress 2,269,982,589.58 2,062,310,572.89

Engineering material

Disposal of fixed asset

Productive biological asset

Oil and gas asset

Intangible assets 112,828,438.85 115,405,609.56

Expense on Research and

Development

Goodwill

Long-term expenses to be

464,660,852.34 446,508,148.36

apportioned

Deferred income tax asset 617,666,294.89 453,818,799.19

Other non-current asset 8,892,890.28 23,794,314.90

Total non-current asset 11,074,339,713.83 10,479,218,388.75

Total assets 12,677,120,229.09 12,748,902,597.96

Current liabilities:

Short-term loans

Loan from central bank

Absorbing deposit and interbank

deposit

Capital borrowed

Financial liability measured by fair

value and with variation reckoned into 7,297,084.84 3,370,447.62

current gains/losses

Derivative financial liability

Notes payable 25,299,479.50

Accounts payable 1,389,285,725.83 1,128,629,695.55

Accounts received in advance 358,607,337.77 432,216,409.37

27

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Selling financial asset of

repurchase

Commission charge and

commission payable

Wage payable 375,563,867.20 455,788,600.48

Taxes payable 210,356,564.84 105,147,871.19

Interest payable 3,968,905.21 3,638,536.32

Dividend payable 100,011,940.00 11,940.00

Other accounts payable 395,190,653.97 355,629,762.77

Reinsurance payables

Insurance contract reserve

Security trading of agency

Security sales of agency

Divided into liability held for sale

Non-current liabilities due within 1

1,573,599,717.72 1,487,011,320.66

year

Other current liabilities

Total current liabilities 4,413,881,797.38 3,996,744,063.46

Non-current liabilities:

Long-term loans 1,981,001,979.08 2,887,701,872.70

Bonds payable

Including: preferred stock

Perpetual capital

securities

Long-term account payable 2,576,884,332.00 2,366,241,176.93

Long-term wages payable 81,725,074.95 84,214,087.72

Special accounts payable

Projected liabilities

Deferred income 15,057,524.04 15,795,524.10

Deferred income tax liabilities 39,861,208.47 33,192,668.48

Other non-current liabilities

Total non-current liabilities 4,694,530,118.54 5,387,145,329.93

Total liabilities 9,108,411,915.92 9,383,889,393.39

Owner’s equity:

Share capital 400,000,000.00 400,000,000.00

Other equity instrument

Including: preferred stock

28

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Perpetual capital

securities

Capital public reserve 75,410,363.70 75,410,363.70

Less: Inventory shares

Other comprehensive income 113,560,625.39 93,555,005.44

Reasonable reserve

Surplus public reserve 370,981,095.40 370,981,095.40

Provision of general risk

Retained profit 2,608,756,228.68 2,425,066,740.03

Total owner’s equity attributable to

3,568,708,313.17 3,365,013,204.57

parent company

Minority interests

Total owner’s equity 3,568,708,313.17 3,365,013,204.57

Total liabilities and owner’s equity 12,677,120,229.09 12,748,902,597.96

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

2. Balance Sheet of Parent Company

In RMB

Item Closing balance Opening balance

Current assets:

Monetary funds 574,479,218.70 1,401,853,786.39

Financial assets measured by fair

value and with variation reckoned into

current gains/losses

Derivative financial liability

Notes receivable

Accounts receivable 380,692,511.12 251,589,118.43

Account paid in advance 176,672,285.60 153,733,245.51

Interest receivable

Dividends receivable 4,381,900.00

Other receivables 351,946,789.16 323,753,261.30

Inventories 123,806,231.05 112,307,440.99

Divided into assets held for sale

Non-current assets maturing within

29

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

one year

Other current assets 19,505,500.21 46,425,506.53

Total current assets 1,627,102,535.84 2,294,044,259.15

Non-current assets:

Available-for-sale financial assets 247,796,933.86 221,122,773.92

Held-to-maturity investments

Long-term receivables

Long-term equity investments 106,000,685.43 106,000,685.43

Investment property

Fixed assets 7,255,746,854.15 7,055,065,593.26

Construction in progress 2,269,906,589.58 2,062,234,572.89

Project materials

Disposal of fixed assets

Productive biological assets

Oil and natural gas assets

Intangible assets 98,691,851.56 101,074,925.84

Research and development costs

Goodwill

Long-term deferred expenses 464,660,852.34 446,508,148.36

Deferred income tax assets 616,940,725.29 453,010,410.16

Other non-current assets 8,892,890.28 23,794,314.90

Total non-current assets 11,068,637,382.49 10,468,811,424.76

Total assets 12,695,739,918.33 12,762,855,683.91

Current liabilities:

Short-term borrowings

Financial liability measured by fair

value and with variation reckoned into 7,297,084.84 3,370,447.62

current gains/losses

Derivative financial liability

Notes payable 25,299,479.50

Accounts payable 1,407,509,464.68 1,139,113,395.22

Accounts received in advance 354,605,881.77 425,229,854.14

Wage payable 372,113,752.55 449,749,937.20

Taxes payable 208,968,868.95 103,940,014.68

Interest payable 3,968,905.21 3,638,536.32

30

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Dividend payable 100,011,940.00 11,940.00

Other accounts payable 416,191,873.27 380,180,859.11

Divided into liability held for sale

Non-current liabilities due within 1

1,573,599,717.72 1,487,011,320.66

year

Other current liabilities

Total current liabilities 4,444,267,488.99 4,017,545,784.45

Non-current liabilities:

Long-term loans 1,981,001,979.08 2,887,701,872.70

Bonds payable

Including: preferred stock

Perpetual capital

securities

Long-term account payable 2,576,884,332.00 2,366,241,176.93

Long-term wages payable 81,725,074.95 84,214,087.72

Special accounts payable

Projected liabilities

Deferred income 15,057,524.04 15,795,524.10

Deferred income tax liabilities 39,861,208.47 33,192,668.48

Other non-current liabilities

Total non-current liabilities 4,694,530,118.54 5,387,145,329.93

Total liabilities 9,138,797,607.53 9,404,691,114.38

Owners’ equity:

Share capita 400,000,000.00 400,000,000.00

Other equity instrument

Including: preferred stock

Perpetual capital

securities

Capital public reserve 86,911,168.71 86,911,168.71

Less: Inventory shares

Other comprehensive income 113,560,625.39 93,555,005.44

Reasonable reserve

Surplus reserve 370,320,390.87 370,320,390.87

Retained profit 2,586,150,125.83 2,407,378,004.51

Total owner’s equity 3,556,942,310.80 3,358,164,569.53

31

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Total liabilities and owner’s equity 12,695,739,918.33 12,762,855,683.91

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

3. Consolidated Profit Statement

In RMB

Item Current Period Last Period

I. Total operating income 6,309,749,290.22 5,713,724,522.71

Including: Operating income 6,309,749,290.22 5,713,724,522.71

Interest income

Insurance gained

Commission charge and commission

income

II. Total operating cost 6,040,032,215.28 5,442,451,100.06

Including: Operating cost 5,423,567,853.72 4,846,875,591.65

Interest expense

Commission charge and commission

expense

Cash surrender value

Net amount of expense of

compensation

Net amount of withdrawal of

insurance contract reserve

Bonus expense of guarantee slip

Reinsurance expense

Operating tax and extras 24,266,018.24 23,124,036.37

Sales expenses 329,309,482.29 364,570,137.45

Administration expenses 148,238,372.25 127,612,535.04

Financial expenses 114,208,514.18 77,607,520.78

Losses of devaluation of asset 441,974.60 2,661,278.77

Add: Changing income of fair

-3,926,637.22 -3,117,198.69

value(Loss is listed with “-”)

Investment income (Loss is listed

-850,513.68 -20,182,489.74

with “-”)

32

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Including: Investment income on

-24,215,803.75

affiliated company and joint venture

Exchange income (Loss is listed

with “-”)

III. Operating profit (Loss is listed with

264,939,924.04 247,973,734.22

“-”)

Add: Non-operating income 115,697,616.85 53,152,655.78

Including: Disposal gains of

38,150.95 8,162.52

non-current asset

Less: Non-operating expense 2,579,552.24 1,013,941.37

Including: Disposal loss of

1,994,829.83 933,279.17

non-current asset

IV. Total Profit (Loss is listed with “-”) 378,057,988.65 300,112,448.63

Less: Income tax expense 94,368,500.00 83,305,574.94

V. Net profit (Net loss is listed with “-”) 283,689,488.65 216,806,873.69

Net profit attributable to owner’s of

283,689,488.65 216,806,873.69

parent company

Minority shareholders’ gains and

losses

VI. Net after-tax of other comprehensive

20,005,619.95 23,431,316.08

income

Net after-tax of other comprehensive

income attributable to owners of parent 20,005,619.95 23,431,316.08

company

(I) Other comprehensive income

items which will not be reclassified

subsequently to profit of loss

1. Changes as a result of

re-measurement of net defined benefit

plan liability or asset

2. Share of the other

comprehensive income of the investee

accounted for using equity method which

will not be reclassified subsequently to

profit and loss

(II) Other comprehensive income

items which will be reclassified 20,005,619.95 23,431,316.08

subsequently to profit or loss

1. Share of the other

33

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

comprehensive income of the investee

accounted for using equity method which

will be reclassified subsequently to profit

or loss

2. Gains or losses arising

from changes in fair value of 20,005,619.95 23,431,316.08

available-for-sale financial assets

3. Gains or losses arising

from reclassification of held-to-maturity

investment as available-for-sale financial

assets

4. The effect hedging portion

of gains or losses arising from cash flow

hedging instruments

5. Translation differences

arising on translation of foreign currency

financial statements

6. Other

Net after-tax of other comprehensive

income attributable to minority

shareholders

VII. Total comprehensive income 303,695,108.60 240,238,189.77

Total comprehensive income

303,695,108.60 240,238,189.77

attributable to owners of parent Company

Total comprehensive income

attributable to minority shareholders

VIII. Earnings per share:

(i) Basic earnings per share 0.71 0.54

(ii) Diluted earnings per share 0.71 0.54

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

4. Profit Statement of Parent Company

In RMB

Item Current Period Last Period

I. Operating income 6,293,688,379.45 5,698,248,680.92

Less: Operating cost 5,418,293,516.30 4,838,880,868.28

34

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Operating tax and extras 24,123,637.71 22,994,974.43

Sales expenses 329,309,482.29 364,570,137.45

Administration expenses 143,672,314.98 123,598,513.63

Financial expenses 114,199,663.35 77,632,215.06

Losses of devaluation of asset 773,252.30 2,511,372.36

Add: Changing income of fair

-3,926,637.22 -3,117,198.69

value(Loss is listed with “-”)

Investment income (Loss is

-850,513.68 -20,182,489.74

listed with “-”)

Including: Investment income

-24,215,803.75

on affiliated company and joint venture

II. Operating profit (Loss is listed

258,539,361.62 244,760,911.28

with “-”)

Add: Non-operating income 115,693,629.15 53,152,231.28

Including: Disposal gains of

non-current asset

Less: Non-operating expense 2,575,514.24 1,009,191.08

Including: Disposal loss of

1,990,791.83 932,533.05

non-current asset

III. Total Profit (Loss is listed with

371,657,476.53 296,903,951.48

“-”)

Less: Income tax expense 92,885,355.21 82,672,716.13

IV. Net profit (Net loss is listed with

278,772,121.32 214,231,235.35

“-”)

V. Net after-tax of other comprehensive

20,005,619.95 23,431,316.08

income

(I) Other comprehensive income

items which will not be reclassified

subsequently to profit of loss

1. Changes as a result of

re-measurement of net defined benefit

plan liability or asset

2. Share of the other

comprehensive income of the investee

accounted for using equity method

which will not be reclassified

subsequently to profit and loss

(II) Other comprehensive income

20,005,619.95 23,431,316.08

items which will be reclassified

35

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

subsequently to profit or loss

1. Share of the other

comprehensive income of the investee

accounted for using equity method

which will be reclassified subsequently

to profit or loss

2. Gains or losses arising

from changes in fair value of 20,005,619.95 23,431,316.08

available-for-sale financial assets

3. Gains or losses arising

from reclassification of held-to-maturity

investment as available-for-sale

financial assets

4. The effect hedging

portion of gains or losses arising from

cash flow hedging instruments

5. Translation differences

arising on translation of foreign

currency financial statements

6. Other

VI. Total comprehensive income 298,777,741.27 237,662,551.43

VII. Earnings per share:

(i) Basic earnings per share

(ii) Diluted earnings per share

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

5. Consolidated Cash Flow Statement

In RMB

Item Current Period Last Period

I. Cash flows arising from operating

activities:

Cash received from selling

commodities and providing labor 6,717,200,924.09 6,110,810,441.25

services

Net increase of customer deposit

and interbank deposit

36

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Net increase of loan from central

bank

Net increase of capital borrowed

from other financial institution

Cash received from original

insurance contract fee

Net cash received from reinsurance

business

Net increase of insured savings and

investment

Net increase of amount from

disposal financial assets that measured

by fair value and with variation

reckoned into current gains/losses

Cash received from interest,

commission charge and commission

Net increase of capital borrowed

Net increase of returned business

capital

Write-back of tax received

Other cash received concerning

161,074,121.88 119,263,089.42

operating activities

Subtotal of cash inflow arising from

6,878,275,045.97 6,230,073,530.67

operating activities

Cash paid for purchasing

commodities and receiving labor 4,217,304,381.84 4,150,373,732.90

service

Net increase of customer loans and

advances

Net increase of deposits in central

bank and interbank

Cash paid for original insurance

contract compensation

Cash paid for interest, commission

charge and commission

Cash paid for bonus of guarantee

slip

Cash paid to/for staff and workers 1,215,874,548.17 1,044,124,984.32

Taxes paid 341,409,771.76 169,322,459.34

37

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Other cash paid concerning

79,190,611.98 84,669,698.40

operating activities

Subtotal of cash outflow arising from

5,853,779,313.75 5,448,490,874.96

operating activities

Net cash flows arising from operating

1,024,495,732.22 781,582,655.71

activities

II. Cash flows arising from investing

activities:

Cash received from recovering

investment

Cash received from investment

4,381,903.47 6,111,315.92

income

Net cash received from disposal of

fixed, intangible and other long-term 37,726,458.52

assets

Net cash received from disposal of

subsidiaries and other units

Other cash received concerning

investing activities

Subtotal of cash inflow from investing

4,381,903.47 43,837,774.44

activities

Cash paid for purchasing fixed,

1,030,491,927.70 782,637,435.20

intangible and other long-term assets

Cash paid for investment

Net increase of mortgaged loans

Net cash received from

subsidiaries and other units obtained

Other cash paid concerning

421,533.02 1,390,588.27

investing activities

Subtotal of cash outflow from investing

1,030,913,460.72 784,028,023.47

activities

Net cash flows arising from investing

-1,026,531,557.25 -740,190,249.03

activities

III. Cash flows arising from financing

activities

Cash received from absorbing

investment

Including: Cash received from

absorbing minority shareholders’

38

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

investment by subsidiaries

Cash received from loans 296,000,000.00 516,161,233.20

Cash received from issuing bonds

Other cash received concerning

195,845,614.80 883,986,750.53

financing activities

Subtotal of cash inflow from financing

491,845,614.80 1,400,147,983.73

activities

Cash paid for settling debts 1,183,487,265.46 1,006,376,333.22

Cash paid for dividend and profit

56,263,754.65 111,445,222.20

distributing or interest paying

Including: Dividend and profit of

minority shareholder paid by

subsidiaries

Other cash paid concerning

85,871,334.98 79,014,450.69

financing activities

Subtotal of cash outflow from financing

1,325,622,355.09 1,196,836,006.11

activities

Net cash flows arising from financing

-833,776,740.29 203,311,977.62

activities

IV. Influence on cash and cash

equivalents due to fluctuation in 12,768,432.70 -72,933.89

exchange rate

V. Net increase of cash and cash

-823,044,132.62 244,631,450.41

equivalents

Add: Balance of cash and cash

1,415,399,630.60 460,741,336.35

equivalents at the period -begin

VI. Balance of cash and cash

592,355,497.98 705,372,786.76

equivalents at the period -end

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

6. Cash Flow Statement of Parent Company

In RMB

Item Current Period Last Period

I. Cash flows arising from operating

activities:

39

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Cash received from selling

commodities and providing labor 6,704,250,463.84 6,080,941,093.13

services

Write-back of tax received

Other cash received concerning

161,050,542.56 119,228,556.89

operating activities

Subtotal of cash inflow arising from

6,865,301,006.40 6,200,169,650.02

operating activities

Cash paid for purchasing

commodities and receiving labor 4,216,655,959.09 4,136,326,564.75

service

Cash paid to/for staff and workers 1,204,469,134.52 1,035,799,817.49

Taxes paid 338,480,357.99 167,525,092.40

Other cash paid concerning

85,634,144.49 84,665,572.22

operating activities

Subtotal of cash outflow arising from

5,845,239,596.09 5,424,317,046.86

operating activities

Net cash flows arising from operating

1,020,061,410.31 775,852,603.16

activities

II. Cash flows arising from investing

activities:

Cash received from recovering

investment

Cash received from investment

4,381,903.47 6,111,315.92

income

Net cash received from disposal of

fixed, intangible and other long-term 37,726,034.02

assets

Net cash received from disposal of

subsidiaries and other units

Other cash received concerning

investing activities

Subtotal of cash inflow from investing

4,381,903.47 43,837,349.94

activities

Cash paid for purchasing fixed,

1,030,388,040.86 782,334,406.41

intangible and other long-term assets

Cash paid for investment

Net cash received from

40

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

subsidiaries and other units

Other cash paid concerning

421,533.02 1,390,588.27

investing activities

Subtotal of cash outflow from investing

1,030,809,573.88 783,724,994.68

activities

Net cash flows arising from investing

-1,026,427,670.41 -739,887,644.74

activities

III. Cash flows arising from financing

activities

Cash received from absorbing

investment

Cash received from loans 296,000,000.00 516,161,233.20

Cash received from issuing bonds

Other cash received concerning

195,845,614.80 883,986,750.53

financing activities

Subtotal of cash inflow from financing

491,845,614.80 1,400,147,983.73

activities

Cash paid for settling debts 1,183,487,265.46 1,006,376,333.22

Cash paid for dividend and profit

56,263,754.65 111,445,222.20

distributing or interest paying

Other cash paid concerning

85,871,334.98 79,014,450.69

financing activities

Subtotal of cash outflow from financing

1,325,622,355.09 1,196,836,006.11

activities

Net cash flows arising from financing

-833,776,740.29 203,311,977.62

activities

IV. Influence on cash and cash

equivalents due to fluctuation in 12,768,432.70 -72,933.89

exchange rate

V. Net increase of cash and cash

-827,374,567.69 239,204,002.15

equivalents

Add: Balance of cash and cash

1,401,853,786.39 444,628,245.82

equivalents at the period -begin

VI. Balance of cash and cash

574,479,218.70 683,832,247.97

equivalents at the period -end

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

41

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

7. Statement of Changes in Owners’ Equity (Consolidated)

This Period

In RMB

Current period

Owners’ equity attributable to parent company

Other

equity instrument

Item Less: Other Provisio Minorit Total

Perpet Reason

Share Capital Invento compre Surplus n of Retaine y owners’

ual able

capital Prefer capita reserve ry hensive reserve general d profit interests equity

red Other reserve

l shares income risk

stock

securi

ties

400,00 2,425,0 3,365,0

I. Balance at the 75,410, 93,555, 370,981

0,000. 66,740. 13,204.

end of the last year 363.70 005.44 ,095.40

00 03 57

Add:

Changes of

accounting policy

Error

correction of the

last period

Enterprise

combine under

the same control

Other

II. Balance at the 400,00 75,410, 93,555, 370,981

2,425,0 3,365,0

beginning of this 0,000. 66,740. 13,204.

363.70 005.44 ,095.40

year 00 03 57

III. Increase/

Decrease in this 20,005, 183,689 203,695

year (Decrease is 619.95 ,488.65 ,108.60

listed with “-”)

(i) Total 20,005, 283,689 303,695

comprehensive

619.95 ,488.65 ,108.60

income

(ii) Owners’

devoted and

decreased capital

1.Common shares

invested by

shareholders

2. Capital invested

by holders of other

equity instruments

42

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

3. Amount

reckoned into

owners equity with

share-based

payment

4. Other

-100,00 -100,00

(III) Profit

0,000.0 0,000.0

distribution

0 0

1. Withdrawal of

surplus reserves

2. Withdrawal of

general risk

provisions

3. Distribution for -100,00 -100,00

owners (or 0,000.0 0,000.0

shareholders) 0 0

4. Other

(IV) Carrying

forward internal

owners’ equity

1. Capital reserves

conversed to

capital (share

capital)

2. Surplus reserves

conversed to

capital (share

capital)

3. Remedying loss

with surplus

reserve

4. Other

(V) Reasonable

reserve

1. Withdrawal in

the report period

2. Usage in the

report period

(VI)Others

IV. Balance at the 400,00 75,410, 113,560 370,981

2,608,7 3,568,7

end of the report 0,000. 56,228. 08,313.

363.70 ,625.39 ,095.40

period 00 68 17

43

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Last Period

In RMB

Last Period

Owners’ equity attributable to the parent Company

Other

equity instrument Minorit

Item Less: Other Provisio Total

Perpet Reason y

Share

ual Capital Invento compre Surplus n of Retaine interest owners’

able equity

capital Prefer capita reserve ry hensive reserve general d profit s

red Other reserve

l shares income risk

stock

securi

ties

400,00 2,025,5 2,878,1

I. Balance at the 75,410, 58,923, 318,250

0,000. 35,984. 20,380.

end of the last year 363.70 174.26 ,857.40

00 99 35

Add:

Changes of

accounting policy

Error

correction of the

last period

Enterprise

combine under the

same control

Other

II. Balance at the 400,00 75,410, 58,923, 318,250

2,025,5 2,878,1

beginning of this 0,000. 35,984. 20,380.

363.70 174.26 ,857.40

year 00 99 35

III. Increase/

Decrease in this 34,631, 52,730, 399,530 486,892

year (Decrease is 831.18 238.00 ,755.04 ,824.22

listed with “-”)

(i) Total 34,631, 532,260 566,892

comprehensive

831.18 ,993.04 ,824.22

income

(ii) Owners’

devoted and

decreased capital

1.Common shares

invested by

shareholders

2. Capital invested

by holders of other

equity instruments

3. Amount

reckoned into

owners equity with

44

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

share-based

payment

4 Other

-132,73

(III) Profit 52,730, -80,000,

0,238.0

distribution 238.00 000.00

0

1. Withdrawal of 52,730, -52,730,

surplus reserves 238.00 238.00

2. Withdrawal of

general risk

provisions

3. Distribution for -80,000, -80,000,

owners (or

000.00 000.00

shareholders)

4. Other

(IV) Carrying

forward internal

owners’ equity

1. Capital reserves

conversed to

capital (share

capital)

2. Surplus reserves

conversed to

capital (share

capital)

3. Remedying loss

with surplus

reserve

4. Other

(V) Reasonable

reserve

1. Withdrawal in

the report period

2. Usage in the

report period

(VI)Others

IV. Balance at the 400,00 75,410, 93,555, 370,981

2,425,0 3,365,0

end of the report 0,000. 66,740. 13,204.

363.70 005.44 ,095.40

period 00 03 57

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

45

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

8. Statement of Changes in Owners’ Equity (Parent Company)

This Period

In RMB

Current Period

Other

equity instrument

Other Total

Item Share Perpetu Less: Retaine

Capital comprehe Reasonab Surplus

Inventory owners’

capital Preferre al reserve nsive le reserve reserve d profit

capital Other shares equity

d stock income

securiti

es

2,407,3

I. Balance at the 400,000, 86,911,16 93,555,00 370,320,3 3,358,164

78,004.

end of the last year 000.00 8.71 5.44 90.87 ,569.53

51

Add: Changes

of accounting

policy

Error

correction of the

last period

Other

II. Balance at the 400,000, 2,407,3

86,911,16 93,555,00 370,320,3 3,358,164

beginning of this 78,004.

000.00 8.71 5.44 90.87 ,569.53

year 51

III. Increase/

Decrease in this 20,005,61 178,772 198,777,7

year (Decrease is 9.95 ,121.32 41.27

listed with “-”)

(i) Total 20,005,61 278,772 298,777,7

comprehensive

9.95 ,121.32 41.27

income

(ii) Owners’

devoted and

decreased capital

1.Common shares

invested by

shareholders

2. Capital invested

by holders of other

equity instruments

3. Amount

reckoned into

owners equity with

share-based

payment

4. Other

46

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

-100,00

(III) Profit -100,000,

0,000.0

distribution 000.00

0

1. Withdrawal of

surplus reserves

2. Distribution for -100,00

-100,000,

owners (or 0,000.0

000.00

shareholders) 0

3. Other

(IV) Carrying

forward internal

owners’ equity

1. Capital reserves

conversed to

capital (share

capital)

2. Surplus reserves

conversed to

capital (share

capital)

3. Remedying loss

with surplus

reserve

4. Other

(V) Reasonable

reserve

1. Withdrawal in

the report period

2. Usage in the

report period

(VI)Others

IV. Balance at the 400,000, 2,586,1

86,911,16 113,560,6 370,320,3 3,556,942

end of the report 50,125.

000.00 8.71 25.39 90.87 ,310.80

period 83

Last period

In RMB

Last period

Other

equity instrument

Other Total

Item Share Perpetu Less: Retaine

Capital comprehe Reasonab Surplus

Inventory owners’

capital Preferre al reserve nsive le reserve reserve d profit

capital Other shares equity

d stock income

securiti

es

47

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

2,012,8

I. Balance at the 400,000, 86,911,16 58,923,17 317,590,1 2,876,230

05,862.

end of the last year 000.00 8.71 4.26 52.87 ,358.39

55

Add: Changes

of accounting

policy

Error

correction of the

last period

Other

II. Balance at the 400,000, 2,012,8

86,911,16 58,923,17 317,590,1 2,876,230

beginning of this 05,862.

000.00 8.71 4.26 52.87 ,358.39

year 55

III. Increase/

Decrease in this 34,631,83 52,730,23 394,572 481,934,2

year (Decrease is 1.18 8.00 ,141.96 11.14

listed with “-”)

(i) Total

34,631,83 527,302 561,934,2

comprehensive

1.18 ,379.96 11.14

income

(ii) Owners’

devoted and

decreased capital

1.Common shares

invested by

shareholders

2. Capital invested

by holders of other

equity instruments

3. Amount

reckoned into

owners equity with

share-based

payment

4. Other

-132,73

(III) Profit 52,730,23 -80,000,0

0,238.0

distribution 8.00 00.00

0

1. Withdrawal of 52,730,23 -52,730,

surplus reserves 8.00 238.00

2. Distribution for

-80,000, -80,000,0

owners (or

000.00 00.00

shareholders)

3. Other

48

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

(IV) Carrying

forward internal

owners’ equity

1. Capital reserves

conversed to

capital (share

capital)

2. Surplus reserves

conversed to

capital (share

capital)

3. Remedying loss

with surplus

reserve

4. Other

(V) Reasonable

reserve

1. Withdrawal in

the report period

2. Usage in the

report period

(VI)Others

IV. Balance at the 400,000, 2,407,3

86,911,16 93,555,00 370,320,3 3,358,164

end of the report 78,004.

000.00 8.71 5.44 90.87 ,569.53

period 51

Legal Representative: Sun Xiujiang Person in charge of Accounting Works: Xu Guojian

Person in charge of Accounting Institution: Sun Jingping

49

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Shandong Airlines Co., Ltd.

Notes to the Financial Statements

As at 30th June 2016

(All amounts are expressed in CNY unless otherwise stated)

Note 1 Corporation profile

Shandong Airlines Co., Ltd. (hereafter, the Company) is a foreign-invested limited liability company incorporated in the People’s

Republic of China. The Company was incorporated through the restructuring project jointly initiated by Shandong Airlines Group Co.,

Ltd. (hereafter, SDA Group), Inspur Co., Ltd. (previously known as Inspur Electronic Information Industry Group Company (浪潮电

子信息产业集团公司), Shandong Hualu Group Co., Ltd, Shandong Group Corp. of Fisheries Enterprises and Luyin Investment

Group (鲁银投资集团股份有限公司) following the approval (LuTiGaiQiZi(1999)No.88 (鲁体改企字(1999)第 88 号)) granted

by the Economic Reform Commission of Shandong Province (山东省经济体制改革委员会) on July 29th, 1999.

Shandong Airlines Group Co., Ltd. acquired 259,204,000 state-owned corporate shares (国有法人股), with CNY 1.00 at par, of

the Company by transferring its air transportation operation and the related assets and liabilities to the Company on November 25th,

1999. Inspur Co., Ltd., Shandong Hualu Group Co., Ltd. and Shandong Group Corp. of Fisheries Enterprises each acquired

199,000 state-owned corporate shares, with CNY 1.00 at par, by cash investment of CNY 200,000.00 each on November 26th, 1999.

Luyin Investment Group acquired 199,000 domestic corporate shares (国内法人股), with CNY 1.00 at par, by cash investment of

CNY 200,000.00 on November 26th, 1999.

The Company issued 140,000,000 domestically listed shares denominated in foreign currency (境内上市外资股) (hereafter, B

share(s)), with par value at CNY 1.00 each and issue price at HKD 1.58 each, on August 28th, 2000 upon the approval

(ZhengJianFaXingZi[2000]No.116 (证监发行字[2000]116 号)) granted by the China Securities Regulatory Commission on August

22nd, 2000; and, the Company was listed on the Shenzhen Stock Exchange on September 12 th, 2000. Immediately after the

issuance of the B shares, the capital of the Company increased to CNY 400,000,000.00.

The Agreement of Share Transfer (《股份转让协议》) signed by SDA Group and China National Aviation Holding Company

(hereafter, China Aviation Group) on February 28th, 2004 authorised the transfer of 91,200,000 shares of the Company, equal to

22.8% shareholding, from SDA Group to China Aviation Group. Immediately after the share transfer, SDA Group’s shareholding in

the Company was 42.00%. In November 2004, the Board of Directors of the Company, in accordance with the approval

(GuoZiChanQuan[2004]No.956 (国资产权[2004]956 号: 关于中国航空集团公司将受让山东航空股份有限公司国有股

的合同实施转让有关问题的批复》)) issued by the State-owned Assets Supervision and Administration Commission of the

State Council, authorised China Aviation Group to transfer the state-owned corporate shares received from SDA Group to Air China

Co., Ltd. (hereafter, Air China). As so provided in GuoZiChanQuan[2004]No.956, the rights and obligation attributable to China

Aviation Group as specified in the Agreement of Share Transfer shall be afforded by Air China. The change of share ownership was

registered at the China Securities Depository and Clearing Corporation Limited Shenzhen Office by SDA Group and Air China on

50

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

December 3rd, 2004; And, 91,200,000 shares of the Company then became held by Air China.

Legal representative of the Company: SUN, Xiujiang

Place of registration: Shandong Jinan Yaoqiang International Airport

Address of headquarter: Shandong Airlines Centre, 5746 – East 2nd Ring Road, Jinan, Shandong

The Company is permitted to undertake international and domestic passenger and cargo transportation, hotel and beverage related

operation (limited to operation through branch); provision of aircraft maintenance, training of civil aviation pilots and air crew,

insurance brokerage (limited to air accident insurance, with period of operation valid until September 3 rd, 2018); inter-airline

agenting, and principal operation related ground services; sales of airborne material and equipments, non-food grocery, art work,

souvenir, etc.; retailing of tobacco products (limited to Qingdao Red-Crowned Crane Hotel); lease of airborne material and

equipments; business services; conference services; transportation agency; air cargo storage; and aviation pilot provision (for other

domestic airlines). The operating activities listed herein does not involve operation related to commodity that are subject to State

Administered Trading (国营贸易管理),but involve operation related to commodity that are subject to quotas , licence requirements,

which are restricted to obtain permission before the operation.

No change of scope of consolidation from last year.

The Company operates in the industry of transportation.

Note 2 Basis for preparation of the financial statements

The financial statements of company have been prepared on basis of going concern in conformity with Chinese Accounting

Standards for Business Enterprises and the Accounting Systems for Business Enterprises issued by the Ministry of Finance of

People’s Republic of China (Ministry of Finance issued order No.33, the Ministry of Finance revised order No.76) on15 February

2006, and revised Accounting Standards (order 41 of the Ministry of Finance) and Compilation Rules for Information Disclosure by

Companies Offering Securities to the Public No.15 – General Provisions on Financial Reports (2014 Revision) issued by the China

Securities Regulatory Commission (CSRC).

According to the relevant accounting regulations in Chinese Accounting Standards for Business Enterprises, the company has

adopted the accrual basis of accounting. Held-for-sale non-current assets are measured at the lower of its book value at its

classification date and fair value minus expected disposal costs. Where assets are impaired, provisions for asset impairment are

made in accordance with relevant requirements.

Note 3 Statement of Compliance with Enterprise Accounting Standards

The financial statements of the company are recognized and measured in accordance with the regulations in the Chinese

Accounting Standards for Business Enterprises and they give a true and fair view of the financial position, business result and cash

flow of the Company as at 30 June 2016. In addition, the financial statements of the company comply, in all material respects, with

the revised disclosing requirements for financial statements and the Compilation Rules for Information Disclosure by Companies

51

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Offering Securities to the Public No.15—General Provisions on Financial Reports (2014 Revision) issued by China Securities

Regulatory Commission (CSRC) in 2014.

Note 4 Important Accounting Principles and Accounting Estimates

The Company and subsidiaries are principally engaged in air transportation. The Company and subsidiaries in accordance

with the actual production and management features, according to the relevant provisions of Accounting Standards, to make a

number of specific accounting policies and accounting estimates for other transactions and events of revenue recognition, see Note

4.21 “Revenue” for the description. For description of significant accounting judgments and estimates made by management, see

Note 4.28 “Significant accounting judgments and estimates”.

4.1 Accounting period

The accounting period of the Company is classified as interim period and annual period. Interim period refers to the reporting period

shorter than a complete annual period. The accounting period of the Company is the calendar year from January 1 to December 31.

4.2 Operating cycle

Normal business cycle is realized by the Company in cash or cash equivalents from the purchase of assets for processing until. The

company has a 12 -month operating cycle, and its assets and liabilities as liquidity criteria for the classification.

4.3 Monetary Unit

Yuan (CNY) is the currency of the primary economic environment in which the Company and its domestic subsidiaries operate.

Therefore, the Company and its domestic subsidiaries choose CNY as their functional currency. The Company adopts CNY to

prepare its functional statements.

4.4 Business combination

A business combination is a transaction or event that brings together two or more separate entities into one reporting entity.

Business combinations are classified into business combinations involving enterprises under common control and business

combinations not involving enterprises under common control.

4.4.1 Business combination involving entities under common control

A business combination involving enterprises under common control is a business combination in which all of the combining

enterprises are ultimately controlled by the same party or parties both before and after the combination, and that control is not

transitory.

For a business combination involving enterprises under common control, the party that, on the combination date, obtains control of

another enterprise participating in the combination is the absorbing party, while that other enterprise participating in the combination

is a party being absorbed. Combination date is the date on which the absorbing party effectively obtains control of the party being

absorbed.

The assets and liabilities obtained are measured at the carrying amounts as recorded by the enterprise being combined at the

combination date. The difference between the carrying amount of the net assets obtained and the carrying amount of consideration

52

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

paid for the combination (or the total face value of shares issued) is adjusted to the capital premium (or share premium) in the

capital reserve. If the balance of the capital premium (or share premium) is insufficient, any excess is adjusted to retained earnings.

The cost of a combination incurred by the absorbing party includes any costs directly attributable to the combination shall be

recognized as an expense through profit or loss for the current period when incurred.

4.4.2 Business combination involving entities not under common control

A business combination involving enterprises not under common control is a business combination in which all of the combining

enterprises are not ultimately controlled by the same party or parties both before and after the business combination.

For a business combination not involving enterprises under common control, the party that, on the acquisition date, obtains control

of another enterprise participating in the combination is the acquirer, while that other enterprise participating in the combination is

the acquiree. Acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

For a business combination not involving enterprise under common control, the combination cost including the sum of fair value, at

the acquisition date, of the assets given, liabilities incurred or assumed, and equity securities issued by the acquirer. The

intermediary expenses incurred by the acquirer in respect of auditing, legal services, valuation and consultancy services etc and

other associated administrative expenses attributable to the business combination are recognized in profit or loss when they are

incurred.

The transaction cost arose from issuing of equity securities or liability securities shall be initially recognized as equity securities or

liability securities.

The contingent consideration related to the combination shall be booked as combination cost at the fair value at the acquisition date.

If, within the 12 months after acquisition, additional information can prove the existence of related information at acquisition date

and the contingent consideration need to be adjusted, goodwill can be adjusted.

Combination cost of the acquirer’s interest and identifiable net assets of the acquirer acquired through the business combination

shall be measured by the fair value at the acquisition date. Where the cost of combination exceeds the acquirer’s interest in the fair

value of the acquiree’s identifiable net assets, the difference shall be recognized as goodwill. Where the cost of combination is less

than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference shall be accounted for according

to the following requirements: (i) the acquirer shall reassess the measurement of the fair values of the acquiree’s identifiable assets,

liabilities and contingent liabilities and measurement of the cost of combination; (ii) if after that reassessment, the cost of

combination is still less than the acquirer’s interest in the fair values of the acquiree’s identifiable net assets, the acquirer shall

recognize the remaining difference immediately in profit or loss for the current period.

Where the temporary difference obtained by the acquirer was not recognized due to inconformity with the conditions applied for

recognition of deferred income tax, if, within the 12 months after acquisition, additional information can prove the existence of

related information at acquisition date and the expected economic benefits on the acquisition date arose from deductible temporary

difference by the acquiree can be achieved, relevant income tax assets can be recognized, and goodwill offset. If the goodwill is not

sufficient, the difference shall be recognized as profit of the current period.

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Apart from above, the differences shall be taken into profit or loss of the current period if the recognition of deferred income tax

assets is related to the combination.

For a business combination not involving enterprise under common control, which achieved in stages that involves multiple

exchange transactions, according to “The notice of the Ministry of Finance on the issuance of Accounting Standards Interpretation

No. 5” (CaiKuai [2012] No. 19) and Article55 of “Accounting Standards for Business Enterprises No.33 - Consolidated Financial

Statements” on the “package deal” criterion (see Note 4.5.2), to judge the multiple exchange transations whether they are

the"package deal". If it belong to the “package deal” in reference to the preceding paragraphs of this section and the Notes

described in 4.13 “long-term investment” accounting treatment, if it does not belong to the “package deal” to distinguish the

individual financial statements and the consolidated financial statements related to the accounting treatment:

In the individual financial statements, the total value of the book valueoftheacquiree's equity investment before the acquisition date

and the cost of new investment at the acquisition date, as the initial cost of the investment, the acquiree's equity investment before

the acquisition date involved in other comprehensive income, in the disposal of the investment will be in other comprehensive

income associated with the use of infrastructure and the acquiree directly related to the disposal of assets or liabilities of the same

accounting treatment (that is, except in accordance with the equity method of accounting in the defined benefit plan acquiree is

remeasured net changes in net assets or liabilities other than in the corresponding share of the lead, and the rest into the current

investment income).

In the combination financial statements, the equity interest in the acquiree previously held before the acquisition date re-assessed at

the fair value at the acquisition date, with any difference between its fair value and its carrying amount is recorded as investment

income.The previously-held equity interest in the acquiree involved in other comprehensive income and other comprehensive

income associated with the purchase of the foundation should be used party directly related to the disposal of assets or liabilities of

the same accounting treatment (that is, except in accordance with the equity method of accounting in the acquiree is remeasured

defined benefit plans other than changes in net liabilities or net assets due to a corresponding share of the rest of the acquisition

date into current investment income).

4.5 Preparation of the consolidated financial statements

4.5.1 The scope of consolidation

The scope of consolidation for the consolidated financial statements is determined on the basis of control. Control is the power to

govern the financial and operating policies of an enterprise so as to obtain benefits from its operating activities. The scope of

consolidation includes the Company and all of the subsidiaries. Subsidiary is an enterprise or entity under the control of the

Company.

Once the change in the relevant facts and circumstances leading to the definition of the relevant elements involved in the control of

the change, the company will be re-evaluated.

4.5.2 Preparation of the consolidated financial statements

The subsidiary of the Company is included in the consolidated financial statements from the date when the control over the net

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

assets and business decisions of the subsidiary is effectively obtained, and excluded from the date when the control ceases.

For a subsidiary disposed of by the Company, the operating results and cash flows before the date of disposal (the date when

control is lost) are included in the consolidated income statement and consolidated statement of cash flows, as appropriate. For a

subsidiary disposed during the period, no adjustment is made to the opening balance of the consolidated financial statements.

For a subsidiary acquired through a business combination not under common control, the operating results and cash flows from the

acquisition (the date when the control is obtained) are included in the consolidated income statement and consolidated statement of

cash flows, as appropriated; no adjustment is made to the opening balance and comparative figures in the consolidated financial

statements.

Where a subsidiary and a party being absorbed in a merger by absorption was acquired during the reporting period, through a

business combination involving enterprises under common control, the financial statements of the subsidiary are included in the

consolidated financial statements. The results of operations and cash flow are included in the consolidated balance sheet and the

consolidated income statement, respectively, based on their carrying amounts, from the date that common control was established,

and the opening balances and the comparative figures of the consolidated financial statements are restated.

When the accounting period or accounting policies of a subsidiary are different from those of the Company, the Company makes

necessary adjustments to the financial statements of the subsidiary based on the Company’s own accounting period or accounting

policies. Where a subsidiary was acquired during the reporting period through a business combination not under common control,

the financial statements was reconciliated on the basis of the fair value of identifiable net assets at the date of acquisition.

Intra-Group balances and transactions, and any unrealized profit or loss arising from intra-Group transactions, are eliminated in

preparing the consolidated financial statements.

Minority interest and the portion in the net profit or loss not attributable to the Company are presented separately in the consolidated

balance sheet within shareholders’/ owners’ equity and net profit. Net profit or loss attributable to minority shareholders in the

subsidiaries is presented separately as minority interest in the consolidated income statement below the net profit line item.

When the amount of loss for the current period attributable to the minority shareholders of a subsidiary exceeds the minority

shareholders’ portion of the opening balance of shareholders’/equity of the subsidiary, the excess is allocated against the minority

interests.

When the Company loses control of a subsidiary due to the disposal of a portion of an equity investment or other reasons, the

remaining equity investment is re-measured at its fair value at the date when control is lost. The difference between 1) the total

amount of consideration received from the transaction that resulted in the loss of control and the fair value of the remaining equity

investment and 2) the carrying amounts of the interest in the former subsidiary’s net assets immediately before the loss of the

control is recognized as investment income for the current period when control is lost. Other comprehensive income related to the

former subsidiary's equity investment, using the foundation and the acquiree directly related to the disposal of the same assets or

liabilities are accounted when the control is lost(ie, in addition to the former subsidiary is remeasured at the net defined benefit plan

or changes in net assets and liabilities resulting from, the rest are transferred to the current investment income). The retained

interest is subsequently measured according to the rules stipulated in the - “Chinese Accounting Standards for Business Enterprises

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

No.2 - Long-term equity investment” or “Chinese Accounting Standards for Business Enterprises No.22 - Determination and

measurement of financial instruments”. See Note 4.13 Long-term equity investments and Note 4.9 Financial instruments for details.

The company through multiple transactions step deal with disposal of the subsidiary's equity investment until the loss of control,

need to distinguish between equity until the disposal of a subsidiary's loss of control over whether the transaction is package deal.

Terms of the transaction disposition of equity investment in a subsidiary, subject to the following conditions and the economic impact

of one or more of cases, usually indicates that several transactions should be accounted for as a package deal:①these

transactions are considered simultaneously, or in the case of mutual influence made, ②these transactions as a whole in order to

achieve a complete business results; ③the occurrence of a transaction depends on occurs at least one other transaction; ④a

transaction look alone is not economical, but when considered together with other transaction is economical. If they does not belong

to the package deal, each of them separately, as the case of a transaction in accordance with “without losing control over the

disposal of a subsidiary part of a long-term equity investments“ (see Note 4.10.2, 4)) and “due to the disposal of certain equity

investments or other reasons lost control of a subsidiary of the original” (see previous paragraph) principles applicable accounting

treatment. Until the disposal of the equity investment loss of control of a subsidiary of the transactions belonging to the package

deal, the transaction will be used as a disposal of a subsidiary and the loss of control of the transaction. However, before losing

control of the price of each disposal entitled to share in the net assets of the subsidiary 's investment corresponding to the difference

between the disposal, recognized in the consolidated financial statements as other comprehensive income, loss of control over the

transferred together with the loss of control or loss in the period.

4.6 Joint arrangement

A joint arrangement is an arrangement of which two or more partieshave joint control.A joint arrangement is either a joint operation

or a joint venture, depending of the rights and obligation of the Company in the joint arrangement. A joint operation is a joint

arrangement whereby the Company has rights to the assets, andobligations for the liabilities, relating to the arrangement. A joint

venture is a joint arrangement whereby the Company has rights to the net assets of thearrangement.

The Company accounts for joint ventures using the equity method, see Note 4.13.2.2 for details.

The company, a joint operator, recognises in relation to its interest in a jointoperation:(a)its assets, including its share of any assets

held jointly;(b)its liabilities, including its share of any liabilities incurred jointly;(c)its revenue from the sale of its share of the output

arising from thejoint operation;(d)its share of the revenue from the sale of the output by the jointoperation; and (e)its expenses,

including its share of any expenses incurred jointly.

When the Company enters into a transaction with a joint operation in which it is ajoint operator, such as a sale or contribution of

assets, the Company, prior to disposal of the assets to a third party by the joint operation,recognises gains and losses resulting from

such a transaction onlyto the extent of the other parties's interests in the joint operation.When there is evidence of a reduction in the

net realisablevalue of the assets to be sold or contributed to the joint operation, or of animpairment loss of those assets which is in

line with provision stipulated by CAS 8, those losses arerecognised fully by the Company.When there is evidence of a reduction in

the net realisablevalue of the assets to be purchased or of an impairment loss of those assets, the Company shall recognise its

share of those losses.

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

4.7 Cash equivalent

Cash and cash equivalents of the Company include cash on hand, ready usable deposits and investments having short holding

term (normally will be due within three months from the day of purchase), with strong liquidity and easy to be exchanged into certain

amount of cash that can be measured reliably and have low risks of change.

4.8 Foreign exchange

4.8.1 Translation in foreign exchange transactions

The foreign currency transactions are recorded, on initial recognition in the functional currency, by applying [the

spot exchange rate on the date of the transaction / an exchange rate that approximates the actual spot exchange

rate on the date of transaction]. The exchange of foreign currency and transactions related to the foreign

exchange are translated at the spot exchange rate.

4.8.2 Translation of monetary foreign currency and non-monetary foreign currency

At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the

balance sheet date. All the exchange differences thus resulted are taken to profit or loss, except for ①those

relating to foreign currency borrowings specifically for construction and acquisition of qualifying assets, which are

capitalized in accordance with the principle of capitalization of borrowing costs, ②hedging accounting, the

exchange difference related to hedging instruments for the purpose of net oversea operating investment is

recorded in the comprehensive income till the date of disposal and recognized in profit or loss of the period;

exchange difference from changes of other account balance of foreign currency monetary items, ③

available-for-trade is recorded into profit or loss except for amortized cost.

Non-monetary foreign currency items measured at historical cost shall still be translated at the spot exchange

rate prevailing on the transaction date, and the amount denominated in the functional currency is not changed.

Non-monetary foreign currency items measured at fair value are translated at the spot exchange rate prevailing

at the date when the fair values are determined. The exchange difference thus resulted are recognized in profit

or loss for the current period or as capital reserve.

4.8.3 The translation of financial statement in foreign currency

When the consolidated financial statements include foreign operation(s), if there is a foreign currency monetary

item constituting a net investment in a foreign operation, exchange difference arising from changes in exchange

rates are recognized as “exchange differences arising on translation of financial statements denominated in

foreign currencies” in owner’s equity, and in profit or loss for the period upon disposal of the foreign operation.

The Group translates the financial statements of its foreign operations into CNY by following rules. Assets

and liabilities in the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date;

all equity items except for retained earnings are translated at the spot exchange rates at the dates on which such

items occur; income and expenses in income statement are translated at the spot exchange rates at the date of

transaction; the opening retained earnings is the closing retained earnings of the last period after translation; the

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

closing balance of retained earnings is calculates and presented in the basis of each translated income

statements and profit distribution item; the difference arising between the assets and liabilities and shareholders’

equity shall be booked as translation difference of foreign currency statements, and shall be presented as a

separate component of equity in the balance sheet. On a loss of control over Group’s oversea operation due to

disposal, the Company transfers the accumulated or proportionate share of the accumulated exchange

difference arising on translation of financial statements of this oversea operation attributable to the owners’ equity

of the Company and presented under shareholders’ equity, to profit or loss in the period in which the disposal

occurs.

Foreign currency cash flows and cash flow of oversea subsidiaries are translated at the spot exchange rates on

the date of cash flows.The effect of exchange rate changes on cash is separately presented as an adjustment

item in the cash flow statement.

The opening and actual amount of last year are presented in the financial statement after translation

At the disposal of all of the company's ownership interest in a foreign operation, or due to the disposal of part of

the equity investment or other reasons, the loss of control over a foreign operation, the project owner's equity in

the balance sheet listed under the relevant overseas operations attributable to statements of the parent company

's shareholders' equity of foreign currency translation differences, all transferred to the disposal of the income

statement.

At the disposal of part of the equity investment or other causes lower hold percentage overseas business

interests, but does not lose control over a foreign operation, and disposal of the foreign operation section related

to foreign currency translation differences attributable to minority interests, is not transferred to the income

statement. At the disposal of a foreign operation as part of the equity joint venture or joint ventures, foreign

currency financial statements of the foreign operation and the associated translation difference in proportion to

dispose of the foreign operation into the disposal of the income statement.

4.9 Financial instruments

4.9.1 Determination of financial assets and liabilities’ fair value

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,

willing parties in an arm’s length transaction. For a financial instrument which has an active market, the Company

uses quoted price in the active market to establish its fair value. The quoted price in the active market refers to

the price that can be regularly obtained from exchange market, agencies, industry associations, pricing

authorities; it represents the fair market trading price in the actual transaction.

For a financial instrument which does not have an active market, the Company establishes fair value by using a

valuation technique. Valuation techniques include using recent arm’s length market transactions between

knowledgeable, willing parties, reference to the current fair value of another instrument that is substantially the

same, discounted cash flow analysis and option pricing models.

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

The Company measures initially and subsequently the fair value of an interest rate swap at the value of a

competitor’s interest rate swap quoted by a recognised financial institution as at the Company’s balance sheet

date in accordance with the principle of consistency.

4.9.2 Classification, recognition and measurement of financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

On initial recognition, the Company’s financial assets are classified into one of the four categories, including

financial assets at fair value though profit or loss, held-to maturity investments, loans and receivables and

available-for-trade financial assets. A financial asset is recognized initially at fair value. In the case of financial

assets at fair value through profit or loss, relevant transaction costs are immediately charged to the profit and

loss of the current period; transaction costs relating to financial assets of other categories are included in the

amount initially recognized.

1) Financial assets at fair value through profit or loss:

Including financial assets held-for-trade and financial assets designated at fair value through profit or loss.

Financial asset held-for-trade is the financial asset that meets one of the following conditions:

A. the financial asset is acquired for the purpose of selling it in a short term;

B. the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and

there is objective evidence indicating that the enterprise recently manages this portfolio for the purpose of

short-term profits;

C. the financial asset is a derivative, except for a derivative that is designated and effective hedging instrument,

or a financial guarantee contract, or a derivative that is linked to and must be settled by delivery of an unquoted

equity instrument (without a quoted price from an active market) whose fair value cannot be reliably measured.

For such kind of financial assets, fair values are adopted for subsequent measurement.

Financial asset is designated on initial recognition as at fair value through profit or loss only when it meets one of

the following conditions:

A. the designation eliminates or significantly reduces the inconsistency in the measurement or recognition of

relevant gains or losses that would otherwise arise from measuring the financial instruments on different bases.

B. a Group of financial instruments is managed and its performance is evaluated on a fair value basis, and is

reported to the enterprise’s key management personnels. Formal documentation regarding risk management or

investment strategy has prepared.

Financial assets at fair value through profit or loss are subsequently measured at the fair value. Any gains

or losses arising from changes in the fair value and any dividends or interest income earned on the financial

assets are recognized in the profit or loss.

2) Investment held-to maturity

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

maturity that an entity has the positive intention and ability to hold to maturity. Such kind of financial assets are

subsequently measured at amortized cost using the effective interest method. Gains or losses arising from

derecognition, impairment or amortization are recognized in profit or loss for the current period.

Effective interest rate is the rate that exactly discounted estimated future cash flows through the expected life of

the financial asset or financial liability or, where appropriate, a shorter period to the net carrying amount of the

financial asset or financial liability.

When calculating the effective interest rate, the Company shall estimate future cash flow considering all

contractual terms of the financial asset or financial liability without considering future credit losses, and also

consider all fees paid or received between the parties to the contract giving rise to the financial asset and

financial liability that are an integral part of the effective interest rate, transaction costs, and premiums or

discounts, etc.

3) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed determinable payment that are not quoted in

an active market. Financial assets classified as loans and receivables by the Company include note receivables,

account receivables, interest receivable dividends receivable and other receivables.

Loans and receivables are subsequently measured at amortized cost using the effective interest method. Gain or

loss arising from derecognition, impairment or amortization is recognized in profit or loss.

4) Financial assets available-for-trade

Financial assets available-for-trade include non-derivative financial assets that are designated on initial

recognition as available for trade, and financial assets that are not classified as financial assets at fair value

through profit or loss, loans and receivables or investment held-to-maturity.

Financial assets available-for-trade are subsequently measured at fair value, and gains or losses arising from

changes in the fair value are recognized as other comprehensive income and included in the capital reserve,

except that impairment losses and exchange differences related to amortized cost of monetary financial assets

denominated in foreign currencies are recognized in profit or loss, until the financial assets are derecognized, at

which time the gains or losses are released and recognized in profit or loss.

Interests obtained and dividends declared by the investee during the period in which the financial assets

available-for-trade are held, are recognized in investment gains.

4.9.3 Impairment of financial assets

The Group assesses at the balance sheet date the carrying amount of every financial asset except for the

financial assets that measured by the fair value. If there is objective evidence indicating a financial asset may be

impaired, a provision is provided for the impairment.

1) Impairment on held-to maturity investment, loans and receivables

The financial assets measured by cost or amortized cost write down their carrying value by the estimated present

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

value of future cash flow. The difference is recorded as impairment loss. If there is objective evidence to indicate

the recovery of value of financial assets after impairment, and it is related with subsequent event after recognition

of loss, the impairment loss recorded originally can be reversed. The carrying value of financial assets after

impairment loss reversed shall not exceed the amortized cost of the financial assets without provisions of

impairment loss on the reserving date.

2) Impairment loss on available-for-trade financial assets

Where the fair value of the equity instrument investment drops significantly or not contemporarily according to the

integrated relevant factors, an available-for-trade financial asset is impaired.

When an available-for-trade financial asset is impaired, the cumulative loss arising from declining in fair value

that had been recognized in capital reserve shall be removed and recognized in profit or loss. The amount of the

cumulative loss that is removed shall be difference between the acquisition cost with deduction of recoverable

amount less amortized cost, current fair value and any impairment loss on that financial asset previously

recognized in profit or loss.

If, after an impairment loss has been recognized, there is objective evidence that the value of the financial asset

is recovered, and it is objectively related to an event occurring after the impairment loss was recognized, the

initial impairment loss can be reversed and the reserved impairment loss on available-for-trade equity instrument

is recorded in the profit or loss, the reserved impairment loss on available-for-trade debt instrument is recorded in

the current profit or loss.

The equity instrument where there is no quoted price in an active market, and whose fair value cannot be reliably

measured, or impairment loss on a derivative asset that is linked to and must be settled by delivery of such an

unquoted equity instrument shall not be reversed.

4.9.4 Recognition and measurement of financial assets transfer

The Group derecognizes a financial asset when one of the following conditions is met:

1) the rights to receive cash flows from the asset have expired;

2) the enterprise has transferred its rights to receive cash flows from the asset to a third party under a

pass-through arrangement; or

3) the enterprise has transferred its rights to receive cash flows from the asset and either (a) has transferred

substantially all the risks and rewards of the asset, or (b) has neither transferred norretained substantially all the

risks and rewards of the asset, but has transferred control of the asset.

If the enterprise has neither retained all the risks and rewards from the financial asset nor control over the asset,

the asset is recognized according to the extent it exists as financial asset, and correspondent liability is

recognized. The extent of existence refers the level of risk by the financial asset changes the enterprise is facing.

For a transfer of a financial asset in its entirety that satisfies the derecognition criteria, (a). the carrying amount of

the financial asset transferred; and (b) the sum of the consideration received from the transfer and any

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

cumulative gain or loss that had been recognized in other comprehensive income, is recognized in profit or loss.

If a part of the transferred financial asset qualifies for derecognition, the carrying amount of the transferred

financial asset is allocated between the part that continues to be recognized and the part that is derecognized,

based on the relative fair value of those parts. The difference between (a) the carrying amount allocated to the

part derecognized; and (b) the sum of the consideration received for the part derecognized and any cumulative

gain or loss allocated to the part derecognized which has been previously recognized in other comprehensive

income, is recognized in profit or loss.

4.9.5 Classification and measurement of financial liabilities

The Group’s financial liabilities are, on initial recognition, classified into financial liabilities at fair value through

profit or loss and other financial liabilities. For financial liabilities at fair value through profit or loss, relevant

transaction costs are immediately recognized in profit or loss for the current period, and transaction costs relating

to other financial liabilities are included in the initial recognition amounts.

1) Financial liabilities measured by the fair value and the changes recorded in profit or loss

The classification by which financial liabilities held-for-trade and financial liabilities designed at the initial

recognition to be measured by the fair value follows the same criteria as the classification by which financial

assets held-for-trade and financial assets designed at the initial recognition to be measured by the fair value and

their changes are recorded in the current profit or loss.

For the financial liabilities measured by the fair value and changes recorded in the profit or loss, fair values are

adopted for subsequent measurement. All the gains or losses on the change of fair value and the expenses on

dividends or interests related to these financial liabilities are recognized in profit or loss for the current period.

2) Other financial liabilities

Derivative financial liabilities that linked with equity instruments, which do not have a quoted price in an active

market and their fair value cannot be measured reliably, is subsequently measured by cost Other financial

liabilities are subsequently measured at amortized cost using the effective interest method. Gains or losses

arising from derecognition or amortization is recognized in profit or loss for the current period.

3) Financial guarantee contracts

For financial guarantee contracts that are not designated as at fair value through profit or loss,they are, after

initial recognition, subsequently measured at the higher of: (i) the amount determined according to the principles

of Accounting Standards for Business Enterprises No. 13 - Contingencies, and (ii) the amount initially recognized

less the accumulated amortization determined according to the principles of Accounting Standards for Business

Enterprises No. 14 - Revenue.

4.9.6 Derecognition of financial liabilities

The Group derecognizes a financial liability (or part of it) when the underlying present obligation (or part of it) is

discharged or cancelled or has expired. An agreement between the Company (an existing borrower) and existing

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

lender to replace original financial liability with a new financial liability with substantially different terms is

accounted for as an extinguishment of the original financial liability and the recognition of a new liability.

When the Company derecognizes a financial liability or a part of it, it recognizes the difference between the

carrying amount of the financial liability (or part of the financial liability) derecognized the consideration paid

(including any non-cash assets transferred or new financial liabilities assumed) in profit or loss.

4.9.7 Derivatives and embedded derivatives

Derivative financial instruments include derivatives are initially measured at fair value at the date when the derivative contracts are

entered into and are substantially re-measured at fair value. The resulting gain and loss is recognized in profit or loss.

An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset

or financial liability at fair value though profit or loss, and the treated as a standalone derivative if (a) the economic characteristics

and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; and (b) a

separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Company is

unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it designates

the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss.

4.9.8 Offsetting financial assets and financial liabilities

When the Company has a legal right that is currently enforceable to set off the recognized financial assets and

financial liabilities, and intends either to settle on a net basis, or to realize the financial asset and settle the

financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is

presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall

be presented separately in the balance sheet and shall not be offset.

4.9.9 Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Company after

deducting all of its liabilities. The consideration received from issuing equity instruments, net of transaction costs,

are added to shareholders’ equity. All types of distribution (excluding stock dividends) made by the Company to

holders of equity instruments are deducted from shareholders’ equity. The Group does not recognize any

changes in the fair value of equity instruments.

4.10 Receivables

The receivables by the Company include account receivables, and other receivables.

4.10.1 Criteria for recognition of bad debts:

The Company carries out an inspection on the balance sheet date. Where there is any objective evidence proving that the

receivables have been impaired, an impairment provision shall be made:

1) A serious financial difficulty occurs to the issuer or debtor;

2) The debtor breaches any of the contractual stipulations, for example, fails to pay or delays the payment of interests or the

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

principal, etc.;

3) The debtor will probably become bankrupt or carry out other financial reorganizations;

4) Other objective evidences showing the impairment of the receivables.

4.10.2 Method for bad debts provision

1) Provisions of bad debts in account receivables that is individually significant.

Individual receivables equal to or higher than 5% of total receivables are classified as receivables of individual significance.

For an account receivable that is individually significant, the asset is individually assessed for impairment, the impairment loss is

recognized at the difference between the present value of future cash flow less the carrying amount, and provision is made

accordingly.

2) Provisions of bad debts in account receivables that individually insignificant items with similar credit risk characteristics that have

significant risk:

A.Evidence of credit risk characteristics

Whether the financial asset is individually significant or not individually significant, it is included in a group of financial assets with

similar credit risk characteristics and collectively assessed for impairment. Such credit risk reflects the repayment of all due amount

under the contract, and is related to the estimation of future cash flow expected to be derived from the assets.

Evidence of portfolios:

Item Basis

Receivables not individually assessed for impairment are categorised on the basis

of credit risk. Provision for bad debts for each category of receivables is

Categorisation by nature of receivables recognised at the actual rate of loss for the previous year of the same or similar

category bearing similar credit risk characteristics after adjustment for the current

period circumstances.

B.Provision by credit risk characteristics

During the Company impairment test, the amount of bad debts provisions is determined by the assessed result from the experience

of historical loss and current economic status and the existing loss in the estimated account receivables according to the set of

account receivables and credit risk characteristic.

Provisions for difference portfolios:

Item Provision

Categorisation by nature of receivables Percentage of carrying amount

a. Portfolio 1 by Aging analysis

Percentage of carrying amount for Percentage of carrying amount for

Category recognition of allowance for bad debt recognition of allowance for bad debt

applicable to accounts receivable applicable to other receivables

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Categorisation by nature of receivables 5% 5%

3) Provisions of bad debts that is individually insignificant.

For the account receivables not individually significant, the Company assesses the account receivables individually for impairment

when are of following characteristics: if there is objective evidence indicating the impairment, the impairment loss is recognized at

the difference between the present value of future cash flow less the carrying amount, and provision is made accordingly. For

examples: receivables of individual insignificance bears differing credit risk characteristics to other receivables of individual

insignificance account receivables with related parties; account receivables under litigations or arbitrations, or account receivables

with obvious indication that debtor cannot fulfill the obligation of repayment.

4.10.3 The reversal of bad debts provision

If there is objective evidence of recovery in value of account receivables, and the recovery can be related to an event occurring after

the impairment was recognized, the previously recognized impairment loss is reversed and recognized in profit or loss. However,

the reversal shall not result in a carrying amount that exceeds what the amortized cost would have been had the impairment loss

not been recognized at the date the impairment is reversed.

4.11 Inventories

4.11.1 Classification of inventory

The Company’s inventory mainly include air materials and low-value consumables.。

4.11.2 Valuation method of inventories upon delivery

Inventories are initially carried at the actual cost. The actual cost of inventories transferred out is assigned by using first-in, first out

(FIFO) method.

4.11.3 Basis for determining net realizable value of inventories and provision methods for decline in value of inventories

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the

estimated costs necessary to make the sale and relevant taxes. Net realizable value is determined on the basis of clear evidence

obtained, and takes into consideration the purpose of holding inventories and effect of post balance sheet events.

At the balance sheet date, inventories are measured at the lower of the cost and net realizable value. If the net realizable value is

below the cost of inventories, a provision for decline in value of inventories is made. The provision for inventories decline in value is

determined normally by the difference of the cost of individual item less its realizable value. For large quantity and low value items

of inventories, provision for decline in value is made based on categories of inventories. For items of inventories relating to a

product line that are produced and marketed in the same geographical area, have the same or similar end users or purposes, and

cannot be practicably evaluated separately from other items in that product line provision for decline in value is determined on an

aggregate basis.

After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be written

down below cost no longer exist so that the net realizable value of inventories is higher than their cost, the original provision for

decline in value is reversed and the reversal is included in profit or loss for the period.

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

4.11.4 The perpetual inventory system is maintained for stock system.

4.11.5 Amortization method for low cost and short-lived consumable items and packaging materials.

Low cost and short-lived consumable items are amortized using immediate write-off method; packaging materials are amortized

using immediate write-off method.

4.12 Held-for-sale assets

A non-current asset is classified as held-for-sale if all of the following conditions are satisfied:

a. the asset is immediately sellable at its current condition per usual sales term applicable to the type of assets to which it belongs;

b. the Company's has completed official decision to dispose the asset;

c. the Company has entered into irrevokable sales contract with the purchaser; and

d. the sales will be completed within one year.

Amortization or depreciation of the held-for-sale asset ceases at the time of classification. The asset is measured at the lower of its

book value and its classification date fair value minus disposal costs upon classification. Held-for-sale non-current assets include

individual assets and disposal groups. If a disposal group satisfy the conditions of the asset group defined by CAS 8 - Asset

Impairment and includes goodwill arising from business combination allocated in accordance with CAS 8 or the disposal group is an

operation with an asset group, the disposal group include goodwill arising from business combination.

Individual non-current assets held for sale and assets of disposal groups held for sale are collectively presented on the

(consolidated) statement of financial position as a line item of current assets. Liabilities of disposal groups held for sale are

collectively presented on the (consolidated) statement of financial position as a line item of current liabilities.

A held-for-sale asset or held-for-sale disposal group is reclassified from held-for-sale when the conditions for classification of the

asset (disposal group) as held-for-sale are no longer satisfied and is measured at the lower of its classification date book value

minus cumulative depreciation, amortization and impairment as if it has not been reclassified as held-for-sale and it recoverable

amount as of the date on which the conditions for classification of the asset (disposal group) as held-for-sale are no longer satisfied.

4.13 Long-term equity investments

Long-term equity investments referred to in this section refer to the Company invested entity has control, joint control or significant

influence over the long-term equity investments. The Company invested does not have control, joint control or significant influence

over the long-term equity investments as financial assets available for sale or at fair value and the changes included financial assets

through profit or loss, which refer to the accounting policies in Note 4. 9 “financial Instruments”.

Joint control is the Company control over an arrangement in accordance with the relevant stipulations are common, related activities

and the arrangement must be after sharing control participants agreed to the decision-making. Significant influence is the Company

s financial and operating policies of the entity has the right to participate in decision-making, but can not control or with other parties

joint control over those policies.

4.13.1 Determination of Investment cost

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

The cost of a long-term equity investment acquired through business combination under common control is measured at the

acquirer's share of the combination date book value of the acquiree's net equity in the ultimate controller's consolidated financial

statements. The difference between the cost and book value of cash paid, non-monetary assets transferred and liabilities assumed

is adjusted to capital reserves, and to retained earnings if capital reserves is insufficient. If the consideration is transferred by way of

issuing equity instruments, the face value of the equity instruments issued is recognised in share capital and the difference between

the cost of the face value of the equity instruments issued is adjusted to capital reserves, and to retained earnings if capital reserves

is insufficient.

The cost of a long-term equity investment acquired through business combination not under common control is the fair value of the

assets transferred, liabilities incurred or assumed and equity instruments issued.

All expenses incurred directly associated with the acquisition by the acquirer, including expenditure of audit, legal services, valuation

and consultancy and other administrative expenses, are recognised in profit or loss for the period during which the acquisition

occurs.

Long-term equity investments acquired not through business combination are measured at cost on initial recognition. Depending on

the way of acquisition, the cost of acquisition can be the total cash paid, the fair value of equity instrument issued, the contract price,

the fair value or book value of the assets given away in the case of non-monetary asset exchange, or the fair value of the relevant

long-term equity investments. The cost of acquisition of a long-term equity investment acquired not through business combination

also includes all directly associated expenses, applicable taxes and fees, and other necessary expenses.

4.13.2 Subsequent Measurement

To be invested joint control ( except constitute common operator ) or long-term equity investments significant influence are

accounted for using the equity method. In addition, the Company's financial statements using the cost method of accounting for

long-term equity can exercise control over the investee.

1) Cost method of accounting for long-term equity investments

Under the cost method, a long-term equity investment is measured at initial investment cost. Except for cash dividends or profits

declared but not yet paid that are included in the price or consideration actually paid upon acquisition of the long-term equity

investment, investment income is recognized in the period in accordance with the attributable share of cash dividends or profit

distributions declared by the investee.

2) Equity method of accounting for long-term equity investments

Where the initial investment cost of a long-term equity investment exceeds the investing enterprise’s interest in the fair values of the

investee’s identifiable net assets at the time of acquisition, no adjustment shall be made to the initial investment cost.

The carrying amount of an long-term equity investment measured using the equity method is adjusted by the Company's share of

the investee's net profit and other comprehensive income, which is recognised as investment income and other comprehensive

income respectively. The carrying amount of an long-term equity investment measured using the equity method is reduced by profit

distribution or cash dividends announced by the investee. The carrying amount of an long-term equity investment measured using

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

the equity method is also adjusted by the investee's equity movement other than net profit, other comprehensive income and profit

distribution, which is adjusted to capital reserves. The net profit of the investee is adjusted by the fair value of the investee's

identifiable assets as at acquistion. The financial statements and hence the net profit and other comprehensive income of an

investee which does not adopt accounting policies or accounting period uniform with the Company is adjusted by the Company's

accounting policies and accounting period. The Company's share of unrealised profit or loss arising from related party transactions

between the Company and an associate or joint venture is deducted from investment income. Unrealised loss arising from related

party transactions between the Company and an associate or joint venture which is associated with asset impairment is not

adjusted. Where assets transferred to an associate or joint venture which form part of the Company's investment in the investee but

which does not enable the Company obtain control over the investee, the cost of the additional investment acquired is measured at

the fair value of assets transferred and the difference between the cost of the additional investment and the book value of the assets

transferred is recognised in profit or loss. Where assets transferred to an associate or joint venture form an operation, the difference

between the consideration received and the book value of the assets transferred in recognised in profit or loss. Where assets

transferred from an associate or joint venture form an operation, the transaction is accounted for in accordance with CAS 20 -

Business Combination, any gain or loss is reocgnised in profit or loss.

The Company's share of an investee's net loss is limited by the sum of the book value of the long-term equity investment and other

net long-term investments in the investees. Where the Company has obligation to share additional net loss of the investee, the

estimated share of loss recognised as accrued liabilities and investment loss. Where the Company has unrecognised share of loss

of the investee when the investee generates net profit, the Company's unrecognised share of loss is reduced by the Company's

share of net profit and when the Company's unrecognised share or loss is eliminated in full, the Company's share of net profit, if any,

is recognised as investment income.

For long-term equity investments in associates and joint ventures which had been held by the Company before its first time adoption

of Accounting Standards for Business Enterprises as of Jan 1 2007, where the initial investment cost of a long-term equity

investment exceeds the Company’s interest in the investee’s net assets at the time of acquisition, the excess is amortized and is

recognized in profit or loss on a straight line basis over the original remaining life.

3) Acquisition of minority interest

The difference between newly increased equity investment due to acquisition of minority interests and portion of net asset

cumulatively calculated from the acquisition date is adjusted as capital reserve. If the capital reserve is not sufficient to absorb the

difference, the excess are adjusted against returned earnings.

4) Disposal of long-term equity investment

Where the parent company disposes long-term investment in a subsidiary without a change in control, the difference in the net

asset between the amount of disposed long-term investment and the amount of the consideration paid or received is adjusted to the

owner’s equity. If the disposal of long-term investment in a subsidiary involves loss of control over the subsidiary, the related

accounting policies in Note 4.5.2 applies. For disposal of long-term equity investments in any situation other than the

fore-mentioned situation, the difference between the book value of the investment disposed and the consideration received is

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

recognised in profit or loss.

Where a long-term equity investment is measured by the equity method both before and after part disposal of the investment,

cumulative other comprehensive income relevant to the investment recognised prior to the acquistion is treated in the same manner

that the investee disposes the relevant assets or liabilities proportionate to the disposal. The investee's equity movement other than

net profit, other comprehensive income and profit distribution is reocgnised in profit or loss proportionate to the disposal.

Where a long-term equity investment is measured at cost both before and after part disposal of the investment, cumulative other

comprehensive income relevant to the investment recognised, as a result of accounting by equity method or recognition and

measurement principles applicable to financial instruments, prior to the Company's acquisition of control over the investee is treated

in the same manner that the investee disposes the relevant assets or liabilities and recognised in profit or loss proportionate to the

disposal. The investee's equity movement other than net profit, other comprehensive income and profit distribution, as a result of

accounting by equity method, is reocgnised in profit or loss proportionate to the disposal.

Where the Company's control over an investee is lost due to partial disposal of investment in the investee and the Company

continues to have significant influence over the investee after the partial disposal, the investment in measured by the equity method

in the Company's separate financial statements; where the Company's control over an investee is lost due to partial disposal of

investment in the investee and the Company ceases to have significant influence over the investee after the partial disposal, the

investment in measured in accordance with the recognition and measurement principles applicable to financial instruments in the

Company's separate financial statements and the difference between the fair value and the book value of the remaining investment

at the date of loss of control is recognised in profit or loss. Cumulative other comprehensive income relevant to the investment

recognised, as a result of accounting by equity method or recognition and measurement principles applicable to financial

instruments, prior to the Company's acquisition of control over the investee is treated in the same manner that the investee

disposes the relevant assets or liabilities on the date of loss of control. The investee's equity movement other than net profit, other

comprehensive income and profit distribution, as a result of accounting by equity method, is reocgnised in profit or loss when control

is lost. Where the remaining investment is measured by equity method, the fore-mentioned other comprehensive income and other

equity movement are recognised in profit or loss proportionate to the disposal; Where the remaining investment is measured in

accordance with the recognition and measurement principles applicable to financial instruments, the fore-mentioned other

comprehensive income and other equity movement are recognised in profit or loss in full.

Where the Company's joint control or significant influence over an investee is lost due to partial disposal of investment in the

investee, the remaining investment in the investee is measured in accordance with the recognition and measurement principles

applicable to financial instruments, the difference between the fair value and the book value of the remaining investment at the date

of loss of joint control or significant influence is recognised in profit or loss.Cumulative other comprehensive income relevant to the

investment recognised, as a result of accounting by equity method, prior to the partial disposal is treated in the same manner that

the investee disposes the relevant assets or liabilities on the date of loss of joint control or significant influence. The investee's

equity movement other than net profit, other comprehensive income and profit distribution is reocgnised in profit or loss when joint

control or significant influence is lost.

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Where the Company's control over an investee is lost through multiple disposals and the multiple disposals shall be viewed as one

single transaction, the multiple disposals is accounted for one single transaction which result in the Company's loss of control over

the investee. Each difference between the consideration received and the book value of the investment disposed is recognised in

other comprehensive income and reclassified in full to profit or loss at the time when control over the investee is lost.

4.14 Fixed assets

4.14.1 The conditions of recognition

Fixed assets refers to the tangible assets that are held for the sake of producing commodities, rendering labor service, renting or

business management and their useful life is in excess of one fiscal year.

4.14.2 The method for depreciation

Fixed assets are stated at cost and consider the impact of expected costs of abandoning the initial measurement. From the

following month of state of intended use, depreciation method of the straight-line method is used for different categories of fixed

assets to take depreciation. The recognition of the classification, useful life and estimated residual rate are as follows:

Estimated residual

Category Expected useful life Depreciation(%)

value(%)

Houses and building 27-33 5.00 2.88-3.52

Key components and power supports of

15-20 5.00 4.75-6.33

aircraft engine

Replacement parts of aircraft body 6-8 0.00 12.5-16.67

Replacement parts of engine 3-5 0.00 20-33.33

Equipments, electronic devices and furniture 4-10 0-5.00 9.5-23.75

High value rotables 15-18 0.00 5.56-6.67

Transportation vehicles 5-10 5.00 9.5-19.00

Expected net residual value of fixed assets is the balance of the Company currently obtained from the disposal of the asset less the

estimated costs of disposal amount, assuming the asset is out of useful life and state the expected service life in the end.

4.14.3 Measurement and recognition of fixed assets

Impairment and provisions of fixed assets are disclosed on Note 4.16.

4.14.4 Fixed Assets under finance leases

A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may or may

not eventually be transferred.

Fixed assets that are held under finance leases shall be depreciated by applying the same policy as that for the fixed assets owned

by the Company. If it can be reasonably determined that the ownership of the leased assets can be obtained at the end of the lease

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

period, the leased assets are depreciated over their useful lives; otherwise, the leased assets are depreciated over the shorter of

the lease terms and the useful lives of the leased assets.

4.14.5 Others

A fixed asset is recognized only when the economic benefits associated with the asset will probably flow to the Company and the

cost of the asset can be measured reliably. Subsequent expenditure incurred for a fixed asset that meet the recognition criteria shall

be included in the cost of the fixed asset, and the carrying amount of the component of the fixed asset that is replaced shall be

derecognized. Otherwise, such expenditure shall be recognized in profit or loss in the period in which they are incurred.

The revenue from selling or transferring, or disposing a fixed asset is booked into profit and loss after deduction of carrying value

and related tax.

The Company conducts a review of useful life, expected net realizable value and depreciation methods of the fixed asset at least on

an annual base. Any change is regarded as change in accounting estimates.

4.15 Construction in progress

Construction in progress is measured at its actual cost. The actual costs include various construction expenditures during the

construction period, borrowing costs capitalized before it is ready for intended use and other relevant costs. Construction in

progress is transferred to a fixed asset when it is ready for intended use.

Testing method for provision impairment of construction in progress and accrued method for provision impairment please refer to

Note 4.19.

4.16 Borrowing costs

Borrowing costs include interest, amortization of discounts or premiums related to borrowings, ancillary costs incurred in connection

with the arrangement of borrowings, and exchange differences arising from foreign currency borrowings.

The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized.

The amounts of other borrowing costs incurred are recognized as an expense in the period in which they are incurred. Qualifying

assets are asset (fixed assets, investment property and inventories, etc.) that necessarily take a substantial period of time for

acquisition, construction or production to get ready for their intended use or sale.

Where funds are borrowed for a specific-purpose, the amount of interest to be capitalized is the actual interest expense incurred on

that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used on the asset or

any investment income on the temporary investment of those funds.

Where funds are borrowed for a general-purpose, the amount of interest to be capitalized on such borrowings is determined by

applying a weighted average interest rate to the weighted average of the excess amounts of accumulated expenditure on the asset

over and above the amounts of specific-purpose borrowings

During the capitalization period, exchange differences related to a specific-purpose borrowing denominating in foreign currency are

all capitalized. Exchange differences in connection with general-purpose borrowings are recognized in profit or loss in the period in

which they are incurred.

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Assets qualified for capitalization are the fixed assets, investment properties or inventories which need a long time of construction or

production activities before ready for intended used or sale.

Capitalization of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying

asset is interrupted by activities other than those necessary to prepare the asset for its intended use or sale, when the interruption is

for a continuous period of more than 3 months. Borrowing costs incurred during these periods recognized as an expense for the

current period until the acquisition, construction or production is resumed.

4.17 Intangible assets

4.17.1 Intangible asset

The term “intangible asset” refers to the identifiable non-monetary assets without physical shape, possessed or controlled by

enterprises.

The intangible assets are initially measured by its cost. Expenses related to intangible assets, if the economic benefits related to

intangible assets are likely to flow into the enterprise and the cost of intangible assets can be measured reliably, shall be recorded

as cost of intangible assets. The expenses other than this shall be booked in the profit or loss when they occur.

Land use rights that are purchased by the Company are accounted for as intangible assets. Buildings, such as plants that are

developed and constructed by the Company, and relevant land use rights and buildings, are accounted for as intangible assets and

fixed assets, respectively. Payments for the land and buildings purchased are allocated between the land use rights and the

buildings; if they cannot be reasonably allocated, all of the land use rights and buildings are accounted for as fixed assets.

When an intangible asset with a definite useful life is available for use, its original cost less net residual value and any accumulate

impairment losses is amortized over its estimated useful life using the straight-line method . An intangible asset with an indefinite

useful life is not amortized.

For an intangible asset with a definite useful life, the Company reviews the useful life and amortization method at the end of

the period, and makes adjustment when necessary.. An additional review is also carried out for useful life of the intangible assets

with indefinite useful life. If there is evidence showing the foreseeable limit period of economic benefits generated to the enterprise

by the intangible assets, then estimate its useful life and amortize according to the policy of intangible assets with definite useful life.

4.17.2 the expenditure of research and development

The expenditures for its internal research and development projects of the Company shall be classified

into research expenditures and developmentexpenditures.

The research expenditures shall be recorded into the profits and losses of the current period when they are incurred.

Development expenditures in internal research and development projects shall be recognized as intangible assets where they

satisfy all of the following conditions:

①Technical feasibility of completing the intangible asset so that it will be available for use or sale;

②Intention to complete the intangible asset and use or sell it;

③How the intangible asset will generate economic benefits, including the ability to demonstrate the existence of a market for the

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;

④Availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible

asset;

⑤Ability to measure reliably the expenditure that is attributable to the intangible asset during its development.

The expenses which can not be distinguished between research and development stage,

shall be recorded into the profit or loss for the current period.

4.17.3 Impairment testing methods and recognition of impairment provision of intangible assets

Impairment and provisions of intangible assets are disclosed on Note 4.19.

4.18 Deferred charges

Deferred charges represent expenses incurred that should be borne and amortized over the current and subsequent period

(together of more than one year). Deferred charges are amortized by using straight line method. Such as expenses for pilots’ initial

trainings, those expenses are amortized at 10 years according to their benefit period respectively.

4.19 Impairment of long-term assets

Non-financial assets with non-current nature include fixed assets, construction in progress, intangible assets with definite useful

lives, investment properties measured by cost methods and long-term equity investment on subsidiaries, jointly operations. The

Company assesses whether there are any indicators of impairment for all non-financial assets at the balance sheet date, and

impairment test is carried out and recoverable value is estimated if such an indicator exits. Goodwill and intangible assets with

indefinite useful lives, as well as intangible assets not ready for use, are tested for impairment annually regardless of indicators of

impairment.

Impairment of loss is calculated and provisions taken by the difference if the recoverable value of the assets is lower than the book

value. The recoverable value is the higher of estimated present value of the future expected cash flows from the asset and net fair

value of the asset less disposed cost. The fair value of asset is determined by the sales agreement price within an arm’s length

transaction. In case there is no sales agreement, but there is active market of assets, the fair value can be determined by the selling

price. If there is neither sales agreement nor active market, the fair value of the asset can be estimated based on the best

information obtained.

Disposal expenses include expenses related to the legislation, taxes, transportations and the direct expense for the asset to be

ready for sale. When calculating the present value of expected future cash flows from an asset or asset Group, the management

shall estimate the expected future cash flows from the asset or asset Group and choose a suitable discount rate in order to

calculate the present value of those cash flows.

Provision for asset impairment is calculated and determined on the individual basis. If the recoverable of individual asset is hard to

estimate, the recoverable amount can be determined by the asset Group where subject asset belongs. Asset Group is the smallest

set of assets that can have cash flow in independently.

The Company determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the present value

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

of the future expected cash flows from the asset Groups or sets of asset Groups to which the goodwill is allocated. Estimating the

present value requires the Company to make an estimate of the expected future cash flows from the asset Groups or sets of asset

Groups and also choose a suitable discount rate in order to calculate the present value of those cash flows. Once the loss from

above asset impairment is recognized, the recoverable part cannot be reserved in the subsequent periods.

4.20 Employee Benefits

The employee benefits of the company include short-term employee benefits, post-employment benefits, termination benefits and

other long-term employee benefits:

Short-term employee benefits includes wages, bonuses, allowances and subsidies, welfare, health insurance , maternity insurance,

work injury insurance, housing funds, labor union funds, employee education funds, non-monetary benefits and etc. Short-term

employee benefits are recognised as liabilities and profit or loss account or the costs associated with the asset during the

accounting period when employees actually provide services,. The non -monetary benefits are measured at fair value.

Post-employment benefits include defined contribution plans and defined benefit plans. Defined contribution plan which includes the

basic pension, unemployment insurance and annuities shall be recognised as cost of related assets or profit or loss. Projected unit

credit cost method (“PUC”) was used by independent actuaries engaged by the Company to determine the present value of the

defined benefit obligations with unbiased and consistent actuarial assumptions regarding population variables and financial

variables. Defined benefit obligation was presented with the present value and the related current service cost was accounted

into current profit or loss.

When the Company terminates the labor relationship with employees prior to the employment contracts, or encourages

employees to accept voluntary redundancy compensation proposals in this company, a provision shall be recognised for the

compensation arising from the termination of employment relationship with employees at the time when the Company can not

unilaterally withdraw layoff proposal termination benefits provided due to termination of employment, or the company ensures the

costs related to the payment for termination benefits related to the restructuring, which one is early to confirm employee benefits

liabilities, and recorded as profit or loss. However, if termination benefits can not be fully paid aftert welve months of the reporting

date,, the liability shall be processed in accordance with other long-term employee benefits.

Retirement plan adopts the same principles as the termination benefits . The salaries and insurance to be paid from the date when

employees stop providing services to the date of normal retirementshall be recognised in profit or loss (termination benefits) when

satisfying the requirements of a provision..

Other long-term employee benefits provided by the company to employees that is in line with defined contribution plans shall adopt

the accounting treatment in accordance with defined contribution plans, otherwise the accounting treatment of defined benefit

plans..

4.21 Revenue

4.21.1 Revenue from rendering of service

① The Company recognise revenue from rendering of air service for carriage of passengers when the service is rendered or

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

when an unused ticket expires. The sale of a ticket does not constitute revenue. An unused ticket expires on the annual anniversary

of its sale. Tickets sold but of which the service is not yet rendered are recognised in current liabilities as Advances from customers.

If service is rendered through code sharing, revenue arising from the service provision is apportioned amongst parties to the code

sharing agreement. The revenue arising from code sharing is also recognised when the service is rendered.

② The Company company recognise air cargo revenue from rendering of air service for carriage of cargo when the service is

rendered

③ Revenue arising from other air service rendering is recognised when the service rendering is completed.

4.21.2 Royalty Revenue

According to the contract or agreement, the revenue is recognized on an accrual basis.

4.21.3 Interest Income

The amount of interest revenue should be measured and confirmed in accordance with the length of time for which the enterprise's

cash is used by others and the actual interest rate.

4.22 Government Grants

Government grants are transfer of monetary assets and non-monetary assets from the government to the Company at no

consideration, excluding the capital invested by the government as equity owner. Government grant can be classified as grant

related to the assets and grants related to the income. Government grants obtained by the Company which are relevant to

construction or acquisition of long-term assets are classified as asset-related government grants; all other government grants are

classified as revenue-related government grants. For government grants without speficied beneficiary, the Company performs

classification in accordance with the following criteria.

4.22.1 Where a grant is obtained for a specified project, the grant is spitted into asset-related and revenue related portions

proportionate to the project's investment to expense ratio; the classification is reviewed on each balance sheet date and revised if

necessary.

4.22.2 Where a grant is obtained for general purpose, the grant as a whole is classified as a revenue-related government grant.

If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or receivable. If a

government grant is in the form of a non-monetary asset, it is measured at fair value. If the fair value cannot be reliably determined,

it is measured at a nominal amount. A government grant measured at a nominal amount is recognized immediately in profit or loss

for the period.

A government grant related to an asset is recognized as deferred income, and evenly amortized to profit or loss over the useful life

of the related asset. For a government grant related to income, if the grant is a compensation for related expenses or losses to be

incurred in subsequent period, the grant is recognized as deferred income, and recognized in profit or loss over the periods in which

the related costs are recognized. If the grant is a compensation for related expenses or losses already incurred, the grant is

recognized immediately in profit or loss for the period.

For repayment of a government grant already recognized, if there is a related deferred income, the repayment is offset against the

75

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

carrying amount of the deferred income, and any excess is recognized in profit or loss for the period. If there is no related deferred

income, the repayment is recognized immediately in profit or loss for the period.

4.23 Deferred tax assets and deferred tax liabilities

4.23.1 Income tax for the current period

At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period

when the asset is realized or the liability is settled, according to the requirements of tax laws. The measurement of deferred tax

assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which the Company expects at

the balance sheet date, to recover the assets or settle the liabilities.

At the balance sheet date, current income tax liabilities or assets for the current and prior periods, are measured at the amount

expected to be paid (or recovered) according to the requirements of tax laws. The calculation for income tax expenses in the current

period is based on the taxable income according to the related tax laws after adjustment to the accounting profit of the reporting

period.

4.23.2 Deferred income tax assets and liabilities

For temporary differences between the carrying amount of certain assets or liabilities and their tax base, or between the nil carrying

amount of those items that are not recognized as assets or liabilities and their tax base that can be determined according to tax

laws, deferred tax assets and liabilities are recognized using the balance sheet liability method.

For temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset or liability arising

from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at

the time of transaction, no deferred tax asset or liability is recognized.

For taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, no

deferred income tax liability related is recognized except where the Company is able to control the timing of reversal of the

temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

All deferred income tax liabilities arising from taxable temporary differences except the ones mentioned above are recognized.

For temporary deductible differences associated with the initial recognition of an asset or liability arising from a transaction (not a

business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction,

no deferred tax asset is recognized.

For taxable temporary deductible differences associated with investments in subsidiaries and associates, and interests in joint

ventures, no deferred income tax asset related is recognized if it is impossible to reversal the temporary difference in the

foreseeable future, or it is not probable to obtain taxable income which can be used for the deduction of the temporary difference in

the future.

Except mentioned above, the Company recognizes other deferred income tax assets that can deduct temporary differences to the

extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized.

For the deductible losses and tax credit that can be carried forward, deferred tax assets for deductible temporary differences are

76

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences

can be utilized.

At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates according to tax laws, that are expected

to apply in the period in which the asset is realized or the liability is settled.

At the balance sheet date, the Company reviews the carrying amount of deferred tax assets. If it is no longer probable that sufficient

taxable profit will be available in future periods to allow the benefits of the deferred tax assets to be used, the Company reduces the

carrying amount of deferred tax assets. The amount of such reduction is reversed when it becomes probable that sufficient taxable

profit will be available

4.23.3 Income tax expenses

Income tax expenses consist of current income tax and deferred income tax.

The expenses from income tax and deferred income tax, as well as the revenue, shall be recorded into profit or loss in current

accounting period, except expense for income tax of the current period and deferred income tax that booked into other income or

equity and adjusted carrying value of deferred income tax goodwill arose from business combination.

4.23.4 Income tax offset

When we have the legal right, and have intended to, to make settlement with net amount, or through the asset acquisition and

liability fulfillment simultaneously, the Company shall present the net value from the offset between current income tax asset and

current income tax liability in the financial statement.

When the Company has the legal right to make a settlement with the current income tax asset and current income tax liability, and

the deferred income tax asset and deferred income tax liability are related to the same taxable subject under the same tax payer, or

related to different taxable subject, but the intension of net value settlement in regard of the current income tax asset and current

income tax liability, the Company shall present net value after the offset of deferred income tax asset and deferred income tax

liability.

4.24 Leases

A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. Title may or may

not eventually be transferred. An operating lease is a lease other than a finance lease.

4.24.1 The Company as Lessee under operating Lease

Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either

included in the cost of the related asset or charged to profit or loss for the current period. The contingent rents shall be recorded in

the profit or loss of the period in which they actually arise.

4.24.2 The Company as Leasor under operating Lease

Lease income from operating leases shall be recognized by the leasor in profit or loss on a straight-line basis over the lease term.

Initial direct cost of significance in amount shall be capitalized when incurred. If another basis is more systematic and rational, that

basis may be used. Contingent rents are credited to profit or loss in the period in which they actually arise.

77

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

4.24.3 The Company as Lessee under financing Lease

For an asset that is held under a finance lease, at the lease commencement, the leased asset is recorded at the lower of its fair

value at the lease commencement and the present value of the minimum lease payments, and the minimum lease payment is

recorded as the carrying amount of the long-term payables; the difference between the recorded amount of the leased asset and

the recorded amount of the payable is accounted for as unrecognized finance charge, Initial direct costs incurred by the lessee

during the process of negotiating and securing the lease agreement shall be added to the amount recognized for the leased asset.

The net amount of minimum lease payment deducted by the unrecognized finance shall be separated into long-term liabilities and

long-term liability within one year for presentation.

Unrecognized finance charge shall be computed by the effective interest method during the lease term. Contingent rent shall be

booked into profit or loss when actually incurred.

4.24.4 In the case of the leasor of a financing lease

For an asset that is leased out under a finance lease, the aggregate of the minimum lease receipts at the inception of the lease and

the initial direct costs is recorded as a finance lease receivable, and unguaranteed residual value is recorded at the same time; the

difference between the aggregate of the minimum lease receipt, initial direct costs, and unguaranteed residual value, and the

aggregate of their present values, is recognized as unearned finance income, which is amortized using the effective interest rate

method over each period during the lease term.

Finance lease receivable less unearned finance income shall be separated into long-term liabilities and long-term liability within one

year for presentation.

Unearned finance income shall be computed by the effective interest method during the lease term. Contingent rent shall be

credited into profit or loss in which actually incurred.

4.25 Regular repair and substantial repair

Regular repair expenditure of own aircrafts and aircrafts acquired under a financial lease is accounted for through profit or loss for

the period in which it is incurred. Substantial repair expenditure eligible for capitalisation is capitalised when incurred and

recognised as replacement cost of non-current assets and depreciated over a reasonable length of time. Substantial repair

expenditure of aircrafts under an operating lease incurred before the lease expiry date is amortised on the basis of air hours over

the lease period.

4.26 Changes in major accounting policies and accounting estimates

4.26.1 change of accounting policies

There is no significant change of accounting policies for the company during the reporting period.

4.26.2 change of accounting estimates

There is no significant change of accountingestimates for the company during the reporting period.

4.27 Correction of prior period errors

There is no significant change of previous accounting errors for the Company during the reporting period.

78

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

4.28 Significant account judgment and estimates

The Company is required to make judgments, estimates and assumptions about the carrying amounts of items in the financial

statements that cannot be measured accurately, due to the internal uncertainties of operation activities. These judgments, estimates

and assumptions are based on historical experiences of the Company’s management as well as other factors that are considered to

be relevant. These judgments, estimates and assumptions may affect value of the financial statements in revenue, expenses,

assets and liabilities and the disclosure of contingency at the balance sheet date. However, the result derived from those

uncertainties in estimates may lead significant adjustments to the carrying amounts of the assets or liabilities affected in the future.

The Company has reviewed the judgments, estimates and assumptions regularly on the basis of going concern. Where the changes

in accounting estimates only affect the period when changes occurred, and they are recognized within the same period. Where the

changes in accounting estimates affect both current period and future period, the changes are recognized within the period of

change and future period.

At balance sheet date, the followings are the significant areas where the Company needs to make judgment, estimates and

assumptions over the value of items in the financial statements:

4.28.1 Classification of lease

The Company classifies leases as operating lease and financing lease according to the rule stipulated in the Accounting Standard

for Business Enterprises No. 21--Leasing-. The management shall make analysis and judgment on whether the risks and rewards

related to the title of leased assets has been transferred to the leaser, or whether the Company has substantially held the risks and

rewards related to the ownership of leased assets.

4.28.2 Allowance for bad debt

According to the relevant accounting policies of the Company in receivables, allowance method is used for bad debt’s calculation.

The impairment of receivables is calculated based on the assessment of recoverable of receivables. Assurance of receivable

impairment needs judgments and estimations from the management. The difference between actual results and original estimates

shall have impact on the carrying amount of receivables and receivable bad debt provisions or the reverse during the change of

estimation.

4.28.3 Impairment of inventories

The Company measures inventories by the lower of cost and realizable net value according to the accounting policies in regard of

inventories and provisions for decline in value of inventories is made if the cost is higher than their net realizable value, and

obsolete and slow-movement inventories. Inventories decline in value to net realizable value is the estimated selling price in the

ordinary course of business. Net realizable value is determined on the basis of clear evidence obtained, and takes into

consideration the purposes of holding inventories and effect of post balance sheet events. The difference between the actual result

and the original estimates shall have impact on reverse of the carrying amount of the inventories and their decline in value or

provisions during the period of change.

4.28.4 The fair value of financial instruments

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Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

For a financial instrument which has no active market, the Company establishes fair value by using various valuation methods,

including of discounted cash flow analysis model. The Company needs to estimate future cash flow, credit risk, volatility and

relationship during the valuation and choose appropriate discount rate. Such assumptions have uncertainties and their changes

shall have impact on the fair value of financial instruments.

4.28.5 Impairment of non-financial, non-current assets

The Company assesses whether there are any indicators of impairment for all non-current assets other than financial assets at the

balance sheet date. For an intangible asset that has indefinite useful life, impairment test is made in addition to the annual

impairment test if there is any indication of impairment. For non-current assets other than financial assets, impairment test is made

when there is any indication that its account balance cannot be recovered.

Impairment exists when the recoverable amount of an asset is the higher of its fair value less cost of disposal and present value of

the future cash flows expected to be derived from the asset.

Net value between the difference of fair value and disposal cost is determined by reference of the price of similar product in a sale

agreement in an arm’s length transaction or an observable market price less the additional cost directly attributable to the disposal

of the asset.

When estimating the present value of future cash flow, significant judgments are made over the asset’s production, selling price and

relevant operating expenses, and discount rate used to calculate present value. All available materials that are considered to be

relevant shall be used in the estimation of recoverable value. These materials include estimations of production, selling price and

operating expenses based on reasonable and supportable assumptions.

The Company makes an impairment test for goodwill at least at each year end. This requires an estimation of present value of

future cash flow of the assets or assets group where goodwill has been allocated. The Company shall makes estimation on the

future cash flow derived from assets or assets group and determine an appropriate discount rate for the present value of future cash

flow when the estimation of present value of future cash flow is made.

4.28.6 Depreciation and amortization

Investment property, fixed assets and intangible assets are depreciated and amortized using the straight-line method over their

useful lives after taking into account residual value. The useful lives are regularly reviewed to determine the depreciation and

amortization costs charged in each reporting period. The useful lives are determined based on historical experience of similar

assets and the estimated technical changes. If there is an indication that there has been a change in the factor used to determine

the depreciation or amortization, the rate of depreciation or amortization is revised.

4.28.7 Deferred tax assets

The Company shall recognize all unused tax losses as deferred tax assets to the extent that it is probable that future taxable profit

will be available against which the unused tax losses and unused tax credits can be utilized. This requires the management of the

Company make a lot of judgments over the estimation of time period, value and tax planning strategies when future taxable profit

incurs so that the value of deferred tax assets can be determined.

80

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

4.28.8 Income tax

There are some transactions where ultimate tax treatments and calculations have uncertainties in the Company’s everyday

operation. Whether it is possible for some items to make expenditure before tax needs approval from competent tax authorities. If

there is any difference between finalized determination value and their initial estimations value, the difference shall have the impact

on the income tax and deferred income tax of the current period during the final determination.

4.28.9 Aircraft operating lease and engine overhaul expenses

Aircraft operating lease and engine overhaul expenses are accrued and charged to profit or loss in accordance with the expected

maintenance cycle, based on flight hours, flight cycles overhaul period and the amount of the cost of repairs which may occur.

These estimates are largely based on past historical data about the same or similar types of aircraft and engines repairance. The

withholding amount and overhaul costs may be affected by different judgments and estimates and affect current profit or loss.

4.28.10 Defined benefit plan

The defined benefit plan implemented and maintained by the Company includes post-employment benefits plan. The provided

welfare costs under the above defined benefit plan was calculated by expected cumulative unit credit method according to various

actuarial assumptions, and were recognized during the employee service providing period. Actuarial Assumptions include but not

limited to discount rate, mortality rate, and etc.. The discount rate is on the basis of management's review of national debt, and

mortality rate depends on the mortality rate adopted by the China life insurance industry. Supplemental information of defined

benefit plan see

Note 6.28.

Note 5 Taxation

5.1 Major taxes and tax rate

Tax Tax rate (%)

The VAT is calculated as the difference between output tax (11% of the taxable

Value Added Tax

revenue) and deductible input tax for the period.

Business Tax Business tax is calculated as 3%-5% of taxable turnover.

Enterprise income tax Income tax is calculated as 25% of taxable profits.

Civil aviation development fund shall be calculated using the rates set out within

Civil Aviation Development Fund applicable to the relevant category of flight routes, maximum departure weight and flight

distance adopted by the civil aviation industry.

Prior to 1 August 2013, revenue arising from air transportation was taxable for business tax at the rate of 3%. As

from 1 August 2013, f revenue arising from air transportation become VAT taxable per the Notice of Pilot

Conversion of Sales-tax-to-VAT for the Transportation Sector and Certain Contemporary Service Sectors by the

Ministry of Finance and State Administration of Taxation (Caishui[2013]37Hao).

81

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

5.2 Tax incentives

5.2.1. Zero VAT rate applies to entities and individuals within the Chinese territory that provide international transportation services,

research and development services and designing services provided to foreign entities, roundtrip transportation services between

Hongkong, Marcau,and Taiwan, as well as transportion services provided in Hongkong, Marcau, and Taiwan per the Notice of Pilot

Conversion of Sales-tax-to-VAT for the Transportation Sector and Certain Contemporary Service Sectors by the Ministry of Finance

and State Administration of Taxation (Caishui[2013]No.37)(财税[2013]37号《财政部、国家税务总局关于在全国开展交通

运输业和部分现代服务业营业税改征增值税试点税收政策的通知》)..

5.2.2. Per the Notice of Continuous Implementation of Transitional Business Tax Exemption Policy for Cross-boarder Lease

Contracts of Equipment and Machinery(CaiShui[2011]No.48) (财税[2011]48号《关于跨境设备租赁合同继续实行过渡性营

业税免税政策的通知》) jointly issued by the Ministry of Finance and the State Adnimistration of Taxation on June 30, 2011 and

approved by the State Council, the transitional operating tax exemption applicable to revenue received by overseas leasor(s) to

lease contracts (applicable to both financing lease and operating lease) of machinery and equipment import leasing involving

domestic leasee(s) and overseas leasor(s) entered into prior to and remaining in force as at December 31, 2008 continues to apply

from January 1, 2010 to the expiry date of the relevant contract.

5.2.3.According to National Development and Reform Commission Order, banch of the company belonging to the West Region,

shall be taxed at 15% reduced rate, whose international and domestic air passenger and cargo transport projects were in accord

with《Catalogue of Encouraged Industries in the Western Region》.

Note 6 Notes to significant elements of the consolidated financial statements

Unless otherwise stated, the meaning of "B/f", "C/f", "Current period", "Prior period" in the following notes (incl. Notes to elements of

the separate financial statements) is "1st January 2016", "30th June 2016", " the date ended June 30th 2016", and " the date ended

June 30th 2015" respectively.

6.1 Monetary funds

Item C/f B/f

Cash at hand: 285,721.96 178,959.16

Bank deposit: 592,069,776.02 1,415,220,671.44

Other monetary funds:

Total 592,355,497.98 1,415,399,630.60

Including: the total amount of deposit abroad 1,756,177.14 2,232,804.96

6.2 Accounts receivables

6.2.1 Disclosure by category

Category C/f

82

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Accounts receivable of individual significance and subject

to individual impairment assessment 265,220,904.89 67.08 265,220,904.89

Accounts receivable subject to impairment assessment by

credit risk characteristics of a portfolio 119,743,068.20 30.28 5,987,153.40 5.00 113,755,914.80

Accounts receivable of individual insignificance but subject

to individual impairment assessment 10,444,954.18 2.64 2,765,908.05 26.48 7,679,046.13

Total 395,408,927.27 100.00 8,753,061.45 2.21 386,655,865.82

(Continued)

C/f

Category Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Accounts receivable of individual significance and subject

to individual impairment assessment 156,501,058.00 59.44 156,501,058.00

Accounts receivable subject to impairment assessment

by credit risk characteristics of a portfolio 94,755,329.85 35.99 4,737,766.49 5.00 90,017,563.36

Accounts receivable of individual insignificance but

subject to individual impairment assessment 12,030,208.57 4.57 2,765,908.05 22.99 9,264,300.52

Total 263,286,596.42 100.00 7,503,674.54 2.85 255,782,921.88

① Accounts receivable of individual significance and subject to individual impairment assessment

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

No indication of impairment upon

BSP-CHINA

46,851,707.33 individual assessment

No indication of impairment upon

Air China

146,810,526.00 individual assessment

83

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

No indication of impairment upon

Accounting Center of China Aviation

71,558,671.56 individual assessment

Total 265,220,904.89

② Accounts receivable subject to impairment assessment by portfolio

C/f

Portfolio

Carrying amount Allowance for bad debt Rate of allowance

Portfolio by nature 119,743,068.20 5,987,153.40 5.00

Total 119,743,068.20 5,987,153.40 5.00

③ Accounts receivable of individual insignificance but subject to individual impairment assessment

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

China Cargo Airlines LTD. 289,194.94 Related party

No indication of impairment

BSP-TAIWAN

3,213,567.72 upon individual assessment

No indication of impairment

UATP

2,845,120.24 upon individual assessment

Non recoverable upon

Kun Peng Airlines Co., Ltd.

1,849,400.00 1,849,400.00 100.00 individual assessment

Non recoverable upon

CRAirways

916,508.05 916,508.05 100.00 individual assessment

No indication of impairment

BSP-JAPAN

1,124,197.23 upon individual assessment

Taikoo(Shandong)Aircraft Engineering

Related party

Company Limited 8,400.00

No indication of impairment

BSP-THAILAND

10,887.01 upon individual assessment

No indication of impairment

BSP-CAMBODIA

187,678.99 upon individual assessment

84

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

Total 10,444,954.18 2,765,908.05 26.48

6.2.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recognised during the year is CNY1,249,386.91.

6.2.3 Top five accounts receivables by debtors

The total amount of top five accounts receivables summarised by debtors as at the end of current period is CNY 307,423,979.30,

accounting for 77.75% of the total accounts receivable as at the end of current period, the total corresponding allowance for bad

debts is CNY 2,110,153.72.

6.3 Prepayments

6.3.1 Disclosure by age

C/f B/f

Age

Amount % Amount %

Within 1 year 177,357,271.50 99.59 154,068,748.52 99.46

1 to 2 years 323,954.09 0.18 337,815.97 0.22

2 to 3 years

Over 3 years 407,493.40 0.23 491,212.70 0.32

Total 178,088,718.99 100.00 154,897,777.19 100.00

6.3.2 Details of top five prepayments

The total amount of top five prepayments as at the end of current period is CNY71,780,729.37, accounting for 40.31% of the

total advance to suppliers.

6.4 Dividends receivable

6.4.1 Disclosure by item

Item C/f B/f

Sichuan Airlines 4,381,900.00

Total 4,381,900.00

6.5 Other receivables

6.5.1 Disclosure by category

85

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

C/f

Category Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Other receivables of individual

significance and subject to individual

impairment assessment 302,148,165.44 73.36 106,146,149.60 35.13 196,002,015.84

Other receivables subject to

impairment assessment by credit risk

characteristics of a portfolio 67,616,308.77 16.42 3,380,815.43 5.00 64,235,493.34

Other receivables of individual

insignificance but subject to individual

impairment assessment 42,081,192.03 10.22 42,081,192.03

Total 411,845,666.24 100.00 109,526,965.03 26.59 302,318,701.21

(Continued)

B/f

Category Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Other receivables of individual

significance and subject to individual

impairment assessment 267,542,239.69 68.46 106,461,110.62 39.79 161,081,129.07

Other receivables subject to

impairment assessment by credit risk

characteristics of a portfolio 77,465,334.20 19.82 3,873,266.72 5.00 73,592,067.48

Other receivables of individual

insignificance but subject to individual

impairment assessment 45,815,835.47 11.72 45,815,835.47

Total 390,823,409.36 100.00 110,334,377.34 28.23 280,489,032.02

① Other receivables of individual significance and subject to individual impairment assessment

C/f

Debtor Allowance for bad Rate of

Carrying amount Reason for allowance

debt allowance (%)

86

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

C/f

Debtor Allowance for bad Rate of

Carrying amount Reason for allowance

debt allowance (%)

Impaired collectibility

Shandong Rainbow Commercial Jet Co.,

identified upon individual

Ltd.

101,551,717.65 101,551,717.65 100.00 assessment

No indication of impairment

Debtor #1

67,353,245.60 upon individual assessment

impairment assessment by

Debtor #2

49,123,470.40 2,456,173.52 5.00 portfolio

impairment assessment by

Debtor #3

42,765,168.51 2,138,258.43 5.00 portfolio

No indication of impairment

CBD-leasing Co., Ltd.

41,354,563.28 upon individual assessment

Total 302,148,165.44 106,146,149.60 35.13

② Other receivables subject to impairment assessment by portfolio

C/f

Portfolio

Carrying amount Allowance for bad debt Rate of allowance(%)

Portfolio by nature 67,616,308.77 3,380,815.43 5.00

Total 67,616,308.77 3,380,815.43 5.00

③ Other receivables of individual insignificance but subject to individual impairment assessment

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

No indication of impairment

Debtor #1

17,300,360.00 upon individual assessment

No indication of impairment

Debtor #2

7,944,588.20 upon individual assessment

No indication of impairment

Debtor #3

1,311,700.00 upon individual assessment

87

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

No indication of impairment

Debtor #4

3,900,000.00 upon individual assessment

No indication of impairment

Debtor #5

291,291.81 upon individual assessment

No indication of impairment

Debtor #6

102,103.68 upon individual assessment

No indication of impairment

Debtor #7

4,041,653.01 upon individual assessment

No indication of impairment

Air China

6,226,204.16 upon individual assessment

Taikoo (Shandong) Aircraft Engineering No indication of impairment

Company Limited 934,254.49 upon individual assessment

No indication of impairment

Shandong XiangYu Air Technology Co., Ltd.

28,536.68 upon individual assessment

No indication of impairment

Shenzhen Airlines Co., Ltd.

500.00 upon individual assessment

Total 42,081,192.03

6.5.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recovered or reversed during the current period is CNY 807,412.31.

6.5.3 Disclosure by nature

Category C/f B/f

Deposits 143,603,555.58 107,918,479.76

Others 268,242,110.66 282,904,929.60

Total 411,845,666.24 390,823,409.36

6.5.4 Top five other receivables

Allowance for bad

Debtor Nature C/f Aging %

debt

88

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Allowance for bad

Debtor Nature C/f Aging %

debt

Shandong Rainbow Commercial Jet Co.,

Others Over 3 years

Ltd. 101,551,717.65 24.66 101,551,717.65

Debtor #1 Deposits 67,353,245.60 Within 1 year 16.35

Debtor #2 Others 49,123,470.40 Within 2 years 11.93 2,456,173.52

Debtor #3 Others 42,765,168.51 Within 2 years 10.38 2,138,258.43

CBD-leasing Co., Ltd. Deposits 41,354,563.28 Over 3 years 10.04

Total 302,148,165.44 73.36 106,146,149.60

6.6 Inventories

C/f

Type

Gross carrying amount Impairment allowance Net carrying amount

Consumable air equipments 120,041,137.39 120,041,137.39

Low-value consumables 2,624,798.47 2,624,798.47

Materials 1,140,295.19 1,140,295.19

Total 123,806,231.05 123,806,231.05

(Continued)

B/f

Type

Gross carrying amount Impairment allowance Net carrying amount

Consumable air equipments 108,152,915.54 108,152,915.54

Low-value consumables 3,141,642.16 3,141,642.16

Materials 1,012,883.29 1,012,883.29

Total 112,307,440.99 112,307,440.99

6.7 Other current assets

Type C/f B/f

VAT deductible 19,505,500.21 39,291,476.46

Income tax overpaid 7,134,030.07

Total 19,505,500.21 46,425,506.53

89

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

6.8 Financial assets available for sale

6.8.1 General information

C/f B/f

Category Net carrying Net carrying

Carrying amount Impairment Carrying amount Impairment

amount amount

Available for sale equity instruments

Including: measured by fair value 166,134,833.86 166,134,833.86 139,460,673.92 139,460,673.92

measured by cost 81,662,100.00 81,662,100.00 81,662,100.00 81,662,100.00

Total 247,796,933.86 247,796,933.86 221,122,773.92 221,122,773.92

6.8.2 Financial assets available for sale measured by fair value at the end of current period

Available for sale equity

Category Total

instruments

Cost of equity instruments 6,690,000.00 6,690,000.00

Fair value 166,134,833.86 166,134,833.86

Accumulated changes in the fair value recognised

into other comprehensive income 159,444,833.86 159,444,833.86

Impairment amount

6.8.3 Financial assets available for sale measured by cost at the end of current period

Carrying amounts as at 30/06/2016 Impairment Cash

Increas Decrea Increas Decrea Shareholding Dividend

Investee e in se in B/ e in se in C/ in for

B/f C/f

current current f current current f investee(%) current

period period period period period

Sichuan 35,000,000. 35,000,000.

Airlines 00 00 10.00

Jinan

Yaoqiang

International 46,662,100. 46,662,100.

Airport 00 00 2.53

81,662,100. 81,662,100.

Total

00 00

90

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

6.9 Long-term equity investments

Currency period movement (+, -)

Investment gains

and losses Other comprehensive Other

Category B/f Allowance b/f Additional Investment

recognised under income changes

investment reduction

the equity adjustment in equity

method

Associates

Shandong

Rainbow

Commercial

Jet Co., Ltd. 22,500,000.00 22,500,000.00

Total 22,500,000.00 22,500,000.00

(Continued)

Currency period movement (+, -)

Category Declared cash dividends Allowance C/f Allowance c/f

Others

or profits recognised

Investment in associates

Shandong Rainbow

Commercial Jet Co., Ltd. 22,500,000.00 22,500,000.00

Total 22,500,000.00 22,500,000.00

6.10 Fixed assets

6.10.1 General information

Houses and Aircrafts and High-value Transportation

Items Others Total

buildings engines rotables vehicles

1. Cost:

1.1 Balance as at 31/12/2015 358,411,470.20 10,041,861,037.02 667,498,748.25 68,916,652.12 176,777,010.04 11,313,464,917.63

1.2 Increased in current period 3,568,412.26 526,206,495.90 51,591,917.44 395,870.43 12,784,053.89 594,546,749.92

(1) Purchase 3,534,450.00 221,320,612.25 51,591,917.44 395,870.43 12,784,053.89 289,626,904.01

91

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Houses and Aircrafts and High-value Transportation

Items Others Total

buildings engines rotables vehicles

(2) Transferred from

construction in-progress 33,962.26 304,885,883.65 304,919,845.91

(3) Transferred from merger

and acquisitions

(4) Others

1.3 Decreased in

current period 2,675,743.34 117,878,620.81 8,479,841.67 1,665,419.32 3,089,672.29 133,789,297.43

(1) Disposal or scrap 2,675,743.34 117,878,620.81 6,503,157.62 1,665,419.32 3,089,672.29 131,812,613.38

(2) Others 1,976,684.05 1,976,684.05

1.4 Balance as at 30/06/2016 359,304,139.12 10,450,188,912.11 710,610,824.02 67,647,103.23 186,471,391.64 11,774,222,370.12

2. Accumulated Depreciation

2.1 Balance as at 31/12/2015 71,319,328.50 3,698,527,093.34 249,163,286.61 35,214,239.86 89,410,704.17 4,143,634,652.48

2.2 Increased in current period 5,839,178.73 354,852,510.40 18,518,623.44 2,616,540.03 8,896,753.62 390,723,606.22

(1) Accrual 5,839,178.73 354,852,510.40 18,518,623.44 2,616,540.03 8,896,753.62 390,723,606.22

2.3 Decreased in current period 1,088,989.54 117,878,620.81 2,692,423.66 1,560,631.50 2,251,810.62 125,472,476.13

(1) Disposal or scrap 1,088,989.54 117,878,620.81 1,494,426.28 1,560,631.50 2,251,810.62 124,274,478.75

(2) Others 1,197,997.38 1,197,997.38

2.4. Balance as at 30/06/2016 76,069,517.69 3,935,500,982.93 264,989,486.39 36,270,148.39 96,055,647.17 4,408,885,782.57

3. Impairment allowance

3.1 Balance as at 31/12/2015 13,572,095.22 13,572,095.22

3.2 Increased in current period

(1) Accrual

3.3 Decreased in current period 747,221.70 747,221.70

(1) Disposal or scrap 747,221.70 747,221.70

(2) Others

3.4 Balance as at 30/06/2016 12,824,873.52 12,824,873.52

92

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Houses and Aircrafts and High-value Transportation

Items Others Total

buildings engines rotables vehicles

4. Carrying amount

4.1 Carrying amount as at 30/06/2016 283,234,621.43 6,514,687,929.18 432,796,464.11 31,376,954.84 90,415,744.47 7,352,511,714.03

4.2 Carrying amount as at 31/12/2015 287,092,141.70 6,343,333,943.68 404,763,366.42 33,702,412.26 87,366,305.87 7,156,258,169.93

6.10.2 Fixed assets acquired under financial leases

Accumulated

Category Cost Impairment allowance Carrying amount

Depreciation

Aircrafts and engines 2,084,039,547.89 950,523,570.85 1,133,515,977.04

Total 2,084,039,547.89 950,523,570.85 1,133,515,977.04

6.10.3 Fixed assets pending ownership registration

Item Carrying amount Reason for pending

Land rented from Jinan Air Control, not eligible for

Jinan cargo arrival and departure warehouses 12,622,668.74

ownership registration

Impairment allowance of fixed assets is CNY 12,824,873.52 as at 30/06/2016, with no additional amount of allowance for fixed

assets impairment recognised during the period.

6.11 Construction in progress

6.11.1 General information

C/f B/f

Items Impairment Impairment

Carrying amount Net carrying amount Carrying amount Net carrying amount

allowance allowance

Factory building

project 141,711,704.23 141,711,704.23 126,277,951.14 126,277,951.14

Prepayment

for aircrafts 2,124,532,949.90 2,124,532,949.90 1,933,285,252.31 1,933,285,252.31

Construction of

information system 3,737,935.45 3,737,935.45 2,747,369.44 2,747,369.44

Total 2,269,982,589.58 2,269,982,589.58 2,062,310,572.89 2,062,310,572.89

6.11.2 Significant projects

93

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Transferred to

Current period

Project Budget B/f fixed assets in Other decrease C/f

increase

current period

Administrative

office of Xiamen

branch 195,000,000.00 121,804,542.80 16,838,947.73 138,643,490.53

Prepayment for

aircrafts 15,004,922,602.00 1,933,285,252.31 681,573,672.06 304,885,883.65 185,440,090.82 2,124,532,949.90

Total 15,199,922,602.00 2,055,089,795.11 698,412,619.79 304,885,883.65 185,440,090.82 2,263,176,440.43

(Continued)

Weight Including: Capitalisation

Including:Transferred Including:Transferred

of cost to Stage of Cumulative interests rate

into leaseback into fixed assets Source of

Items date in completion interests capitalized applicable to

assets during the during the current finance

budgeted (%) capitalised during the the current

current period period

cost (%) current period period (%)

Administrative

office of

71.10 In progress Liquidity

Xiamen

branch

Loans

Prepayment Not from

14.16 2.4436-3.695

for aircrafts applicable financial

96,985,574.64 10,474,974.29 7,960,619.85 33,848,248.42 institutions

Total 96,985,574.64 10,474,974.29 7,960,619.85 33,848,248.42

Note: The cumulative amount of interests capitalized as at 31/12/2015 is 81,572,920.36, the amount of current period is

33,848,248.42, including 7,960,619.85 transferred into fixed assets and 10,474,974.29 transferred into leaseback assets during the

current period, the cumulative amount of interests capitalized as at 30/06/2016 is 96,985,574.64.

6.11.3 Recognization of impairment allowance for construction in progress

No sign of construction in progress impairment occurred as at 30/06/2016, no impairment provision shall be recognised.

6.12 Intangible assets

6.12.1 General information

94

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Items Land rights Software Total

1. Cost:

1.1 Balance as at 31/12/2015 108,342,463.13 24,196,624.41 132,539,087.54

1.2 Increased in current period

(1) Purchase

(2) Internal R & D

(3) Increased from business combination

1.3 Decreased in current period

(1) Disposal

1.4 Balance as at 30/06/2016 108,347,341.13 24,196,624.41 132,543,965.54

2. Accumulated amortization

2.1 Balance as at 31/12/2015 11,181,225.30 5,957,130.68 17,138,355.98

2.2 Increased in current period 1,201,792.85 1,375,377.86 2,577,170.71

(1) Accrual 1,201,792.85 1,375,377.86 2,577,170.71

2.3 Decreased in current period

(1) Disposal

2.4 Balance as at 30/06/2016 12,383,018.15 7,332,508.54 19,715,526.69

3. Impairment allowance

3.1 Balance as at 31/12/2015

3.2 Increased in current period

(1) Accrual

3.3 Decreased in current period

(1) Disposal

3.4 Balance as at 30/06/2016

4. Carrying amount

4.1 Carrying amount as at 30/06/2016 95,964,322.98 16,864,115.87 112,828,438.85

4.2 Carrying amount as at 31/12/2015 97,166,115.83 18,239,493.73 115,405,609.56

6.12.2 Land rights with pending ownership registration

95

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

No case of land rights with pending ownership registration was identified as of 30/06/2016.

6.13 Goodwill

6.13.1 General information

Current period Current period

increase decrease

Investee B/f C/f

From business

…… Disposal ……

combination

Qingdao Feisheng 10,220,816.22 10,220,816.22

Total 10,220,816.22 10,220,816.22

6.13.2 Impairment allowance

Current period Current period

Investee B/f increase decrease C/f

Accrual …… Disposal ……

Qingdao Feisheng 10,220,816.22 10,220,816.22

Total 10,220,816.22 10,220,816.22

6.14 Deferred charges

Current period Current period

Item B/f Other decrease C/f

increase amortization

Pilot training 423,768,628.75 59,011,208.36 37,245,075.37 445,534,761.74

Decoration expenditure 18,887,498.03 109,074.37 3,518,927.42 15,477,644.98

Modification costs for aircraft

leasing 3,852,021.58 203,575.96 3,648,445.62

Total 446,508,148.36 59,120,282.73 40,967,578.75 464,660,852.34

6.15 Deferred tax assets and deferred tax liabilities

6.15.1 Deferred tax assets

C/f B/f

Item Deductible temporary Deductible temporary

Deferred tax assets Deferred tax assets

difference difference

96

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Allowance for bad debt 118,280,026.48 29,570,006.62 117,838,051.88 29,459,512.97

Impairment allowance for

fixed assets 12,824,873.52 3,206,218.38 13,572,095.22 3,393,023.81

Fair value movement of

financial liabilities held for

trading 7,297,084.84 1,824,271.21 3,370,447.62 842,611.91

Provisions 2,284,660,484.37 571,165,121.09 1,644,962,585.43 411,240,646.36

Employment benefits

payable 32,545,186.31 8,136,296.58 19,736,492.42 4,934,123.11

Deferred income 15,057,524.04 3,764,381.01 15,795,524.10 3,948,881.03

Total 2,470,665,179.56 617,666,294.89 1,815,275,196.67 453,818,799.19

6.15.2 Deferred tax liabilities

C/f B/f

Item Deductible temporary Deferred tax Deductible temporary Deferred tax

difference liabilities difference liabilities

Changes in fair value of

financial assets available for

sale 159,444,833.88 39,861,208.47 132,770,673.92 33,192,668.48

Total 159,444,833.88 39,861,208.47 132,770,673.92 33,192,668.48

6.16 Other non-current assets

Item C/f B/f

Unrealized gains and losses of operating lease from

aircraft leaseback 8,892,890.28 23,794,314.90

Total 8,892,890.28 23,794,314.90

6.17 Financial liabilities measured by fair value with changes in fair value recognised in profit or loss

Item Fair value c/f Fair value b/f

Interest rate swaps 7,297,084.84 3,370,447.62

Total 7,297,084.84 3,370,447.62

97

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

The immature interest rate swaps held by the Company had a principal amount of USD 69,283,031.60 as at the reporting date;

bankers confirmed that the reporting date fair value of these interest rate swaps is CNY-7,297,084.84.

6.18 Notes payable

Type C/f B/f

Commercial acceptance 25,299,479.50

Total 25,299,479.50

6.19 Accounts payable

6.19.1 General information

Item C/f B/f

Aircraft maintenance costs 222,944,188.08 169,842,647.39

Fuel cost 219,118,867.57 157,915,325.68

Landing fee 265,870,451.71 312,636,408.52

Aircraft service cost 225,215,504.35 185,358,946.55

Flight catering 76,205,085.03 74,222,899.49

Computer booking fee 133,196,188.69 87,277,689.83

Lease rental 4,928,905.87 6,906,064.64

Others 241,806,534.53 134,469,713.45

Total 1,389,285,725.83 1,128,629,695.55

6.19.2 No significant account payable due for more than 1 year as at the reporting date.

6.20 Advance from customers

Item C/f B/f

345,910,524.15 418,599,325.09

Ticket clearing

5,118,388.86 5,221,967.36

Advanced payment for tickets

7,578,424.76 8,395,116.92

Others

358,607,337.77 432,216,409.37

Total

6.21 Employee benefits payable

6.21.1 Disclosure by classification

Current period Current period

Item B/f C/f

increase decrease

98

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Current period Current period

Item B/f C/f

increase decrease

1. Short-term employee benefits 455,788,600.48 1,055,887,152.19 1,136,111,885.47 375,563,867.20

2. Post-employment benefits 78,895,513.65 78,895,513.65

3. Termination benefits 135,451.20 135,451.20

4. Other long-term employee benefits

within one year

Total 455,788,600.48 1,134,918,117.04 1,215,142,850.32 375,563,867.20

6.21.2 Disclosure by classification of short-term employee benefits

Current period Current period

Item B/f C/f

increase decrease

1. Wages, salaries and subsidies 411,749,614.06 947,246,236.61 1,027,816,002.30 331,179,848.37

2. Employee welfare 19,444,314.02 19,444,314.02

3. Social insurance: 31,244,027.57 31,244,027.57

Including: Medical insurance 26,619,464.24 26,619,464.24

Employment injury insurance 1,944,206.78 1,944,206.78

Maternity insurance 2,680,356.55 2,680,356.55

Disabled security payments

4.Housing provident fund 22,494.00 30,530,011.52 30,532,209.52 20,296.00

5.Labour union fee and employee

education fee 19,736,492.42 13,592,562.47 2,795,332.06 30,533,722.83

6. Short-term paid absences 24,280,000.00 13,830,000.00 24,280,000.00 13,830,000.00

7. Short-term profit-sharing plan

Total 455,788,600.48 1,055,887,152.19 1,136,111,885.47 375,563,867.20

6.21.3 Disclosure by defined contribution plan

Item B/f Current period increase Current period decrease C/f

1. Basic pension 49,923,102.34 49,923,102.34

2.Unemployment insurance 2,832,678.99 2,832,678.99

99

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Item B/f Current period increase Current period decrease C/f

3. Annuity payment 26,139,732.32 26,139,732.32

Total 78,895,513.65 78,895,513.65

The company participated in basic pension and unemployment insurance in accordance with the regulations. Based on the

insurance program, a percentage of total wages of employees were paid to the account separately. Except for the fee paid,

enterprise annuity was deposited to annuity management institution by a percentage of monthly payment base, which was

determined by seniority pay and post salary.

6.22 Taxes and fees payable

Tax (Fee) C/f B/f

VAT 567,880.63 184,449.99

Business tax 1,315,631.25

Urban construction and maintenance tax 3,325,434.98 661,316.27

Education surcharge 1,425,889.03 473,042.24

Enterprise income tax 97,043,698.39 545,653.46

Property tax 170,078.07 170,078.07

Land tax 224,139.00 224,139.00

Personal income tax 8,343,312.36 8,767,613.18

Stamp tax 2,549,539.30 1,805,107.26

Civil aviation development fund 95,286,772.77 90,906,945.13

Others 1,419,820.31 93,895.34

Total 210,356,564.84 105,147,871.19

6.23 Interests payable

Item C/f B/f

Interest on long-term borrowings with repayment by installments 3,968,905.21 3,638,536.32

Total 3,968,905.21 3,638,536.32

6.24 Other payables

6.24.1 Disclosure by nature

Item C/f B/f

100

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Item C/f B/f

Payable for construction projects 25,534,888.94 36,254,846.11

Payable for down payments 118,515,870.76 77,019,458.72

Payables associated with aircraft purchase 11,545,299.79 9,475,078.50

Taxes deducted at source 49,898,003.00 50,487,172.46

Others 189,696,591.48 182,393,206.98

Total 395,190,653.97 355,629,762.77

6.24.2 Significant other payables due for more than 1 year

Creditor Amount Reason for pending settlement

Air China 20,000,000.00 Margin deposit to be settled upon expiry of immature wet lease

Total 20,000,000.00

6.25 Non-current liabilities due within one year

Category C/f B/f

Long-term borrowings due within one year (Note 6.26) 1,430,807,055.50 1,342,283,640.89

Long-term payables due within one year (Note 6.27) 136,479,853.54 138,796,767.49

Long-term employee benefits payable due within one

year (Note 6.28) 6,312,808.68 5,930,912.28

Total 1,573,599,717.72 1,487,011,320.66

6.26 Long-term borrowings

Category C/f B/f

Mortgage loan

Secured loans 2,068,089,191.38 2,589,468,383.99

Guaranteed loans

Credit loans 1,343,719,843.20 1,640,517,129.60

Less: Long-term borrowings due within one year (Note 6.25) 1,430,807,055.50 1,342,283,640.89

Total 1,981,001,979.08 2,887,701,872.70

Note: ① Class and amount of mortgage assets see Note 6.49 assets with imposed restriction on ownership.

② Interest rates of the above-mentioned long-term borrowings range from 1.1746%-7.6275%.

101

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

6.27 Long-term payables

Category C/f B/f

Financial lease rental payables 969,857,500.10 1,024,970,371.19

Maintenance payables for aircrafts and engines held under operating lease 1,962,685,681.04 1,644,962,585.43

Less: Financial lease rental payables due within one year (Note 6.25) 136,479,853.54 138,796,767.49

Less: Maintenance payables for aircrafts and engines held under operating lease due within one

year (Note 1) 219,178,995.60 164,895,012.20

Total 2,576,884,332.00 2,366,241,176.93

Note : Maintenance payables for aircrafts and engines held under operating lease due within one year had been included in

accounts payable.

6.28 Long-term employee benefits payable

6.28.1 General information

Item C/f B/f

Post-employment benefits-net defined benefit liability 88,037,883.63 90,145,000.00

Less: long-term staff remuneration payable due within one year (Note 6.25) 6,312,808.68 5,930,912.28

Total 81,725,074.95 84,214,087.72

6.28.2 Movements

① Defined benefit obligation

Item C/f B/f

(1) Net Defined Benefit Asset/(Liability) at End of Prior Period 90,145,000.00 75,838,000.00

(2) Defined benefit costs recognised

into current profit or loss 1,308,000.00 1,697,045.15

1. Current Service Cost

2. Past Service Cost

3. Settlement (Gain)/Loss

4. Net Interest/(Income) on Net Defined Benefit Liability/(Asset) 1,308,000.00 1,697,045.15

(3) Defined benefit costs recognised

into other comprehensive income

1. Actuarial gains/(losses)

102

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Item C/f B/f

(4) Other movements 3,415,116.37 2,954,740.30

1. Settlement payment

2. Benefits Paid Directly by Employer 3,415,116.37 2,954,740.30

(5) Net defined benefit asset/(liability) at end of current period 88,037,883.63 74,580,304.85

② Actuarial Assumptions

Item 31st December, 2015 30th June, 2016

Discount Rate 3.00% 3.00%

China Life Insurance Mortality Rate 2000-2003

Mortality Rate

(Annuity)

Cost of Living Adjustments for Retired Cadres and

0.00%

Retirees

Cost of Living Adjustments for Internal Retirees 0.00%

Cost of Living Adjustments for Dependants 0.00%

6.29 Deferred income

Current period Current period

Item B/f C/f

increase decrease

Designated subsidy for snow disaster 1,989,958.34 249,750.00 1,740,208.34

Designated subsidy for civil aviation

energy-saving program 13,805,565.76 488,250.06 13,317,315.70

Total 15,795,524.10 738,000.06 15,057,524.04

Details of government grants:

the amount included in

Current period

Item B/f non-operating income for Other changes C/f

increase

current period

Designated subsidy for

snow disaster 1,989,958.34 249,750.00 1,740,208.34

Designated subsidy for civil

aviation energy-saving

program 13,805,565.76 488,250.06 13,317,315.70

103

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Total 15,795,524.10 738,000.06 15,057,524.04

6.30 Share capital

B/f Currency period movement (+, -) C/f

Coversion

Category Share Bonus

Amount % from Others Subtotal Amount %

issue issue

reserves

1. Shares with

restriction on

disposal

1.1 State-held shares

1.2 Shares held by

259,801,000.00 64.95 259,801,000.00 64.95

state-owned entities

1.3 Shares held by

199,000.00 0.05 199,000.00 0.05

other domestic investors

Including: Held by

199,000.00 0.05 199,000.00 0.05

institutional investors

Held by

non-institutional investors

1.4 Shares held by

foreign investors

Including: Held by

institutional investors

Held by

non-institutional investors

Subtotal of shares with

260,000,000.00 65.00 260,000,000.00 65.00

restriction on disposal

2. Floating shares

2.1 Ordianry shares

issued in CNY

2.2 Shares issued in 140,000,000.00 35.00 140,000,000.00 35.00

104

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

B/f Currency period movement (+, -) C/f

Coversion

Category Share Bonus

Amount % from Others Subtotal Amount %

issue issue

reserves

domestic stock market in

foreign currency

2.3 Shares issued in

foreign market in foreign

currency

2.4 Others

Subtotal of floating shares 140,000,000.00 35.00 140,000,000.00 35.00

Total 400,000,000.00 100.00 400,000,000.00 100.00

6.31 Capital reserves

Current period Current period

Category B/f C/f

increase decrease

Share premium 67,618,282.54 67,618,282.54

Other capital reserves 7,792,081.16 7,792,081.16

Total 75,410,363.70 75,410,363.70

6.32 Other comprehensive income

Total amount in current period

Less:

previously

recognised in After tax After tax

Amount for Less:

Item B/f other attributable to attributable C/f

the period Income tax

comprehensive the parent to minority

before tax expense

income company shareholders

transferred into

profit or loss

1.Other -6,023,000.00 -6,023,000.00

105

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Total amount in current period

Less:

previously

recognised in After tax After tax

Amount for Less:

Item B/f other attributable to attributable C/f

the period Income tax

comprehensive the parent to minority

before tax expense

income company shareholders

transferred into

profit or loss

comprehensive

income will be

reclassified into

income or loss

in the future

Including:

remeasurement

of net assets or

net liabilities of

defined benefit

plans -6,023,000.00 -6,023,000.00

2.Other

comprehensive

income

reclassifiable to

profit or loss in

subsequent

periods 99,578,005.44 26,674,159.94 6,668,539.99 20,005,619.95 119,583,625.39

Gains and

losses from

changes in fair

value of

financial assets

available for

sale 99,578,005.44 26,674,159.94 6,668,539.99 20,005,619.95 119,583,625.39

106

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Total amount in current period

Less:

previously

recognised in After tax After tax

Amount for Less:

Item B/f other attributable to attributable C/f

the period Income tax

comprehensive the parent to minority

before tax expense

income company shareholders

transferred into

profit or loss

Total of other

comprehensive

income 93,555,005.44 26,674,159.94 6,668,539.99 20,005,619.95 113,560,625.39

6.33 Surplus reserves

Current period Current period

Category B/f C/f

increase decrease

Statutory surplus reserve 370,981,095.40 370,981,095.40

Total 370,981,095.40 370,981,095.40

Notes: according to the Company Law and the Articles of Association, 10% of net profit was transferred to statutory surplus reserve.

The company may make allocations to the discretionary surplus reserve from the after-tax profits after making allocations to the

statutory surplus reserve from the after-tax profits. Approved surplus reserves can be released to recover losses or for conversion

into share capital.

6.34 Retained earnings

Items Current period Prior period

Pre-adjustment balance brought forward 2,425,066,740.03 2,025,535,984.99

Total adjustment to retained earnings b/f (+, -)

Retained earnings b/f after adjustment 2,425,066,740.03 2,025,535,984.99

Add: Net profit attributable to shareholders of the parent 283,689,488.65 532,260,993.04

Other transfer

Less: Appropriation to statutory surplus reserve 52,730,238.00

Appropriation to discretionary surplus reserve

107

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Items Current period Prior period

Pre-adjustment balance brought forward 2,425,066,740.03 2,025,535,984.99

General reserve

Ordinary dividends declared 100,000,000.00 80,000,000.00

Bonus issue

Balance carrying forward 2,608,756,228.68 2,425,066,740.03

6.35 Operating revenues and costs

Current period Prior period

Category

Operating revenues Operating costs Operating revenues Operating costs

Principal business 6,174,403,762.33 5,422,888,318.50 5,633,948,135.01 4,841,814,446.76

Other business 135,345,527.89 679,535.22 79,776,387.70 5,061,144.89

Total 6,309,749,290.22 5,423,567,853.72 5,713,724,522.71 4,846,875,591.65

6.36 Business tax and surcharges

Item Current period Prior period

Business tax 4,626,340.00 3,594,770.86

Urban maintenance and construction tax 10,620,945.66 10,559,393.48

Education surcharge and others 9,018,732.58 8,969,872.03

Total 24,266,018.24 23,124,036.37

Notes: Applicable rates for business tax and surcharges see Note 5 Taxation.

6.37 Sales expenses

Category Current period Prior period

Agency fees 142,524,924.99 211,554,821.68

Employment benefits 87,674,449.74 74,660,087.43

Computer booking 48,542,318.85 41,512,226.48

Online payment 18,243,015.91 9,735,737.29

Sales expense of annual tickets 569,258.24 973,879.91

Lease rental 5,386,640.36 4,053,634.70

Advertisement fees 5,933,117.54 4,317,594.27

108

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Category Current period Prior period

Administrative office expenses 2,328,914.03 1,912,421.44

Travel expenses 2,768,481.58 2,338,180.16

System and network 1,315,330.83 1,693,216.38

BSP data processing 1,509,044.75 918,333.37

Depreiciation 804,033.70 808,685.23

Others 11,709,951.77 10,091,319.11

Total 329,309,482.29 364,570,137.45

6.38 General and administrative expenses

Category Current period Prior period

75,981,194.22 59,217,883.58

Employment benefits

10,303,991.66 6,493,395.08

Lease rental

2,073,800.42 2,521,704.40

Business entertainment costs

7,473,243.21 6,255,001.34

Depreiciation

5,486,165.66 4,297,424.30

Taxes and fees

1,722,759.24 4,536,697.24

Technology development costs

2,577,170.71 2,577,169.30

Amortisation of intangibles

5,911,247.24 5,085,027.90

Water, electricity charges

8,035,371.48 5,289,556.32

Outsourcing fee

28,673,428.41 31,338,675.58

Others

148,238,372.25 127,612,535.04

Total

6.39 Financial costs

Category Current period Prior period

Interest expenses 67,649,152.92 87,989,823.85

Less: Interest income 7,344,162.51 10,059,966.07

Exchange difference 50,594,145.29 -974,429.22

Bank charges and others 3,309,378.48 652,092.22

Total 114,208,514.18 77,607,520.78

6.40 Loss on asset impairment

109

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Category Current period Prior period

Allowance for bad debt 441,974.60 2,661,278.77

Total 441,974.60 2,661,278.77

6.41 Gain from changes in fair value

Source Current period Prior period

Interest rate swaps -3,926,637.22 -3,117,198.69

Total -3,926,637.22 -3,117,198.69

6.42 Investment income

Category Current period Prior period

Income from holding of financial assets available for sale 3.47 6,019,997.42

Income from long-term equity investment income of equity method -24,215,803.75

Income from financial assets measured by fair value with changes in

fair value recognised in profit or loss -850,517.15 -1,986,683.41

Total -850,513.68 -20,182,489.74

6.43 Non-operating income

Included in current

Category Current period Prior period period non-recurring

profit and loss

Gain on non-current asset disposals 38,150.95 8,162.52 38,150.95

Including: Gain on fixed asset disposals 38,150.95 8,162.52 38,150.95

Government grants (See details of government

grants below) 108,958,388.62 29,365,000.06 108,958,388.62

Others 6,701,077.28 23,779,493.20 6,701,077.28

Total 115,697,616.85 53,152,655.78 115,697,616.85

Details of government grants:

related to the assets/

Government assitance Current period Prior period

related to the income

Airline subsidies 86,623,850.00 15,007,000.00 related to the income

110

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

related to the assets/

Government assitance Current period Prior period

related to the income

Energy-saving reward from ministry of

related to the income

finance 19,420,000.00 12,650,000.00

Designated subsidy for snow disaster 249,750.00 249,750.00 related to the assets

Designated subsidy for civil aviation

related to the assets

energy-saving program 488,250.06 488,250.06

Others 2,176,538.56 970,000.00 related to the income

Total 108,958,388.62 29,365,000.06

Note: Government grants are mainly referred to subsidy income received from government departments, which was used to support

the development of aviation business.

6.44 Non-operating expenses

Included in current period

Category Current period Prior period non-recurring profit and

loss

Loss on non-current asset disposals 1,994,829.83 933,279.17 1,994,829.83

Including: Loss on fixed asset disposals 1,994,829.83 933,279.17 1,994,829.83

Others 584,722.41 80,662.20 584,722.41

Total 2,579,552.24 1,013,941.37 2,579,552.24

6.45 Income tax expenses

6.45.1 Income tax expenses

Items Current period Prior period

Current income tax expense 258,215,995.70 148,635,855.24

Deferred tax -163,847,495.70 -65,330,280.30

Total 94,368,500.00 83,305,574.94

6.45.2 Reconciliation of account profit and income tax expenses

Items Current period

Profit before tax 378,057,988.65

Income tax computed in accordance with the applicable tax rate 94,514,497.16

111

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Income tax computed in accordance with the applicable tax rate -1,477,246.73

Impact of non-taxable income

Impact of non-deductible costs, expenses and losses 1,331,249.57

Income tax expenses 94,368,500.00

6.46 Other comprehensive income

Please see Note 6. 32 for detail.

6.47 Notes to the consolidated statement of cash flows

6.47.1 Other cash receipts relating to operating activities

Category Current period Prior period

Government grants 108,220,388.56 28,627,000.00

Interest income on bank deposit 7,344,162.51 10,059,966.07

Cash receiptes from non-operating income 6,701,077.28 23,779,493.20

Cash receiptes from operating balance 38,808,493.53 56,796,630.15

Total 161,074,121.88 119,263,089.42

6.47.2 Other cash payments relating to operating activities

Category Current period Prior period

Bank charges 3,310,024.48 652,092.22

Cash payments for non-operating expenses 584,722.41 80,662.20

Cash payments for operating balance

52,354,485.57 61,341,787.62

Cash payments for sales and general and administrative expenses 22,941,379.52 22,595,156.36

Total 79,190,611.98 84,669,698.40

6.47.3 Other cash payments relating to investing activities

Category Current period Prior period

Cash payments of settlement of interest rate swaps 421,533.02 1,390,588.27

Total 421,533.02 1,390,588.27

6.47.4 Other cash receipts relating to financing activities

Category Current period Prior period

112

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Category Current period Prior period

Cash receipts for disposal of purchase rights on aircrafts

(which became acquired under operating lease instead of purchase) 195,845,614.80 883,986,750.53

Total 195,845,614.80 883,986,750.53

6.47.5 Other cash payments relating to financing activities

Category Current period Prior period

Cash payments for aircraft financial lease rental 85,871,334.98 79,014,450.69

Total 85,871,334.98 79,014,450.69

6.48 Supplementary information to the consolidated statement of cash flows

6.48.1 Supplementary information to the statement of cash flows

Items Current period Prior period

① Reconciliation of cash flows from operating activities to net profit:

Net profit 283,689,488.65 216,806,873.69

Add: Loss on asset impairment 441,974.60 2,661,278.77

Depreciation of fixed assets, oil and gas assets, biological assets held for

production 390,723,606.22 329,193,743.58

Amortisation of intangible assets 2,577,170.71 2,400,402.20

Amortisation of Long-term deferred expenditure 40,967,578.75 35,050,253.55

Loss on non-current assets disposal (gain presented by "-" prefix)

1,956,678.88 925,116.65

Loss on scrap of fixed assets (gain presented by "-" prefix)

Loss on fair value changes (gain presented by "-" prefix) 3,926,637.22 3,117,198.69

Financial costs (gain presented by "-" prefix) 131,315,878.01 91,981,542.61

Investment loss (gain presented by "-" prefix) 850,513.68 20,182,489.74

Decrease of deferred tax assets (increase presented by "-" prefix) -163,847,495.70 65,330,280.30

Increase of deferred tax liabilities (increase presented by "-" prefix)

Decrease of inventories (increase presented by "-" prefix) -11,498,790.06 5,940,983.26

Decrease of operating receivables (increase presented by "-" prefix) -176,385,529.52 -237,788,504.71

Increase of operating payables (decrease presented by "-" prefix) 523,193,137.15 248,735,737.68

113

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Items Current period Prior period

Others

-3,415,116.37 -2,954,740.30

Net cash flows generated from operating activities 1,024,495,732.22 781,582,655.71

②Significant investing and financing activities involve no cash:

Debt-to-capital conversion

Convertible loan due within one year

Fixed assets acquired under financial lease

③ Movement of cash and cash equivalents:

Cash as at 30/06/2016

592,355,497.98 705,372,786.76

Less: Cash as at 31/12/2015

1,415,399,630.60 460,741,336.35

Add: Cash equivalents as at 30/06/2016

Less: Cash equivalents as at 31/12/2015

Net increase of cash and cash equivalents -823,044,132.62 244,631,450.41

6.48.2 Composition of cash and cash equivalents

Items Current period Prior period

①Cash 592,355,497.98 705,372,786.76

Including: Cash at hand 285,721.96 255,700.14

Demand bank deposit 592,069,776.02 705,117,086.62

Demand other monetary funds

Demand deposit in the Central Bank

Deposit in peer firms

Loan to peer firms

②Cash equivalents

Including: Debt instrument matured within three months

……

④ Cash and cash equivalents as at 30/06/2016 592,355,497.98 705,372,786.76

114

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Items Current period Prior period

Including: restricted cash and cash equivalents in parent company or subsidiary

Note: Cash and cash equivalents excluding restricted cash and cash equivalents in parent company or subsidiary.

6.49 Assets with imposed restriction on ownership

Category C/f Reason of restriction

Assets pledged as security 3,726,014,732.73

Aircrafts and engines 3,726,014,732.73 Pledge as security for borrowings

Other form of restriction: 1,133,515,977.04

Aircrafts and engines 1,133,515,977.04 Assets acquired under financial lease

Total 4,859,530,709.77

6.50 Foreign currency monetary items

Original amount as at Translated amount as at

Item Foreign exchange rate

30/06/2016 30/06/2016

Monetary funds

Including: -USD

45,599,877.52 6.6312 302,381,907.81

-EUR

25.00 7.3750 184.38

-GBP

16.55 8.9212 147.65

-CAD

10.00 5.1222 51.22

-JPY

100,000.00 0.0645 6,450.00

-KRW

43,397,507.00 0.0057 247,365.79

-TWD

7,335,009.00 0.2057 1,508,811.35

Prepayments

Including: -USD 24,406,506.26 6.6312 161,844,424.31

115

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Original amount as at Translated amount as at

Item Foreign exchange rate

30/06/2016 30/06/2016

Other receivables

Including: -USD 20,759,145.12 6.6312 137,658,043.12

-EUR 95,924.69 7.3750 707,444.59

Accounts payable

Including: -USD 6,571,875.07 6.6312 43,579,417.96

-EUR 1,098.36 7.3750 8,100.41

-GBP 25,147.00 8.9212 224,341.42

Other payables

Including: -USD 20,480,083.27 6.6312 135,807,528.18

Non-current liabilities due within one year

Including: -USD 218,617,970.93 6.6312 1,449,699,488.83

Long-term borrowings

Including: -USD 396,715,925.46 6.6312 2,630,702,644.91

Long-term payables

Including: -USD 70,576,071.44 6.6312 468,004,044.93

Note 7: Change of scope of consolidation

No change of scope of consolidation from last year.

Note 8: The equity in other main entities

8.1 The equity in subsidiaries

8.1.1 The construction of the group

116

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Place Holding proportion %

Place of Nature

Subsidiaries of Acquired method

operation of business Directly Indirectly

registration

Qingdao International Air

Logistics Centre Co., Ltd Qingdao, Qingdao, Logistics and

100.00 Acquired through investment

(hereafter, Qingdao Shandong Shandong storage

Logistics)

Qingdao Feisheng

International Aviation

Acquired through business

Training Technology Qingdao, Qingdao,

Pilot training 100.00 combination not under common

Development Co., Ltd Shandong Shandong

control

(hereafter, Qingdao

Feisheng)

8.2 The equity in associates

8.2.1 Significant associates

Holding proportion % The accounting

Place

Place of Nature treatment of

Associates of

operation of business Directly Indirectly investments in

registration

associates

Shandong Rainbow Commercial Jinan, Jinan, Aero

45.00 Equity method

Jet Co., Ltd. Shandong Shandong transportation

8.2.2 Key financial information of significant associate- Shandong Rainbow Commercial Jet Co., Ltd.

Item Jun 30th, 2016/Current period Dec 31th, 2015/ Last period

Current assets 1,831,976.16 1,832,244.32

Non-current assets 26,540.12 27,224.00

Total assets 1,858,516.28 1,859,468.32

Current liabilities 167,765,813.33 167,765,813.33

117

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Item Jun 30th, 2016/Current period Dec 31th, 2015/ Last period

Non-current liabilities

Total liabilities 167,765,813.33 167,765,813.33

Minority interests

Equity attributable to shareholders of the parent -165,907,297.05 -165,906,345.01

Pro rata share of the net assets calculated

Adjusting events

- Goodwill

-Unrealized profits from internal transaction

-Others

Book value of equity investments in associates

Fair value of publicly quoted equity investments in associates

Operating income

Net profit

-952.04 -25,265.05

Net profit from discontinued operations

Other comprehensive income

Total comprehensive income

Dividends received from associates during the year

8.2.3 Excess loss occurred by associates

Unrecognized losses of

Cumulative unrecognized Cumulative unrecognized

Associates current period (Share of net

losses of prior period losses of current period

profit of current period)

Shandong Rainbow Commercial Jet Co., Ltd. -74,657,835.01 -428.42 -74,658,263.43

118

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Note 9 The risk associated with financial instruments

The main financial instruments of the Company including equity investments, loans, accounts receivable, accounts payable etc.,

please see Note 6 for detail of related items. The risk associated with financial instruments, and risk management policies which the

company use to reduce these risks are described below. The management of the Company manages and supervises the risks to

ensure that the risks can be controlled within a limited range.

Sensitivity analysis techniques are adopted by the Company to analyse the impact of reaonsable and possible changes of risk

variables on the profit and loss or shareholders' equity for the current period. While risk variables seldomly change in isolation, and

the correlation among variables will have a significant effect on the ultimate impact of the change of one risk variable. Therefore, the

following content is based on the assumption that changes in each variable is independent.

9.1 The targets and policies of risks management

The target of risks management is to obtain the proper balance between the risks and benefits, to reduce the negative impact that

caused by the risk of the Company to the lowest level, and to maximize the benefits of shareholders and other equity investors.

Based on the targets of risk management, the basic strategy of the Company’s risk management is to identify and analyse the risks

which are faced by the Company, establish suitable risk tolerance baseline and proceed the risk management, and supervise a

variety of risks timely and reliably, and control the risk within a limited range.

9.1.1 Market Risk

(1) Foreign exchange risk

Foreign exchange risk refers to the risk of loss due to exchange rate fluctuations generally. The company bears the foreign

exchange risk primarily concerned with USD, and uses USD for pricing or settlement in the field of main financing business,

operating leases, financing leasing. On 30 June 2016, except the following assets or liabilities in Note 6.50 are recorded in foreign

currency, the others are recorded in CNY. Foreign exchange risk of the assets and liabilities in foreign currencies may have an

impact on the Company's performance of operation.

(2) Interest rate risk - the risk of changes in cash flow

The risk of changes in cash flows of a financial instrument due to interest rate is mainly concerned with the floating rate of bank

borrowings (see Note 6.26,6.27). The company's policy is to maintain a floating interest rate on the borrowings.

(3) Other price risk

Financial assets available for sale and financial assets held-for-trade held by the company should be measured at fair value on the

balance sheet date. For the reason that, the company bears the risk of changes in the stock market.

9.1.2. Credit Risk

As at the statement date, the maximum risk that could cause the Company’s financial losses mainly comes from default of the other

party of the contract, which includes:

The carrying amount of financial assets recognised in the Consolidated statement of financial position; for financial instruments

119

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

measured by fair value, the book value reflects its risk exposure but not the maximum risk exposure, which will vary with changes in

the fair value in the future.

In order to reduce credit risk, the Company set up a team responsible for determination of credit limits, credit approvals and other

monitoring procedures to ensure that the necessary measures be taken to recover overdue debts. In addition, the Company reviews

the recoverable amount of each individual trade debt at each balance sheet date to ensure fully provision for bad debts recognised

for the money that cannot be recovered. Therefore the Company's management believes the Company’s credit risk has been

greatly reduced.

The Company's circulating funds were deposited in banks with high credit ratings, so that the credit risk of circulating funds was low.

9.1.3 Liquidity risk

When managing liquidity risk,the Company’s management believes maintaining adequate cash and cash equivalents, and

monitoring that at same time, in order to meet the needs of operation of the Company, and to reduce the impact of fluctuations in

cash flows.The management of the Company monitors the use of bank borrowings and ensure to abide by loan agreements.

Note 10 Disclosure of the fair value

10.1 The fair value at the end of current period of assets and liabilities which are measured by fair value

The fair value at the end of current period

The first level The second level The third level

Item

measured by fair measured by fair measured by Total

value value fair value

1. Continuous measurement by fair value

1.1 financial assets available for sale 166,134,833.86 166,134,833.86

(1) Equity instruments investment 166,134,833.86 166,134,833.86

Total amount of assets continuous

measurement by fair value 166,134,833.86 166,134,833.86

2. Financial liabilities measured at fair value

with changes in fair value recognised in profit

or loss 7,297,084.84 7,297,084.84

Interest rate swaps 7,297,084.84 7,297,084.84

Total amount of liabilities continuous

measurement by fair value 7,297,084.84 7,297,084.84

10.2 Determined on the basis of continuous and noncontinuous first level for fair value measurement of the market of

project

120

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Financial assets available for sale of continuous measurement by fair value is the investment in TravelSky Technology Limited,

whose fair value was determined based on the closing price for the stock market in Hong Kong Stock Exchange on balance sheet

date.

10.3 Determined on the basis of continuous and noncontinuous second level for fair value measurement of the market of

project

Fair value measurement basis of interest rate swaps which was continuously measured by fair value is quotes from counterparty

banks on the fair value of interest rate swaps.

Note 11 Related parties and related party transaction

11.1 Major investors

Shareholding in Voting right in the

Place of

Investor Nature of operation Registered capital the Company Company

registration

(%) (%)

Investment and

SDA Group Jinan management of aero 580,000,000.00 42.00 42.00

transportation

Air China Beijing Aero transportation 13,084,751,004.00 22.80 22.80

Note: SDA Group and Air China is the first and second largest shareholder of the Company respectively. Air China is the largest

shareholder of SDA Group; Air China’s shareholding and voting right in SDA Group is 49.406% and 49.406% respectively.

11.2 Subsidiaries

See Note 8.1 for subsidiaries.

11.3 Associates

See Note 8.2 for associates.

11.4 Other related parties

Other related party Relationship to the Company

Taikoo (Shandong) Aircraft Engineering Company Limited Controlled by major investors

Shandong XiangYu Air Technology Co., Ltd. Controlled by major investors

Shenzhen Airlines Co., Ltd. Controlled by major investors

Air China Cargo Co., Ltd. Controlled by major investors

China National Aviation Finance Co., Ltd. Controlled by major investors

121

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Other related party Relationship to the Company

Sichuan International Aero Engine Maintenance Co., Ltd. Controlled by major investors

Aircraft Maintenance and Engineering Corporation (Ameco Beijing) Controlled by major investors

Chengfu FuKai Aircraft Engineering Co., Ltd. Controlled by major investors

11.5 Related party transactions

11.5.1 Purchase of goods and services

Related party Transaction Current period Prior period

SDA Group Office lease rental and catering 15,513,331.65 14,718,616.46

Taikoo (Shandong) Aircraft Engineering

Aircraft maintenance

Company Limited 28,803,053.19 37,534,222.05

Shandong XiangYu Air Technology Co.,

Repairment

Ltd. 29,668,696.78 23,873,013.31

Air China Ground service 6,169,564.28 20,074,993.93

Air China Repairment 724,929.11 17,050,668.15

Air China Agency service 6,168,028.80 4,109,350.51

Air China Irregular flight expenditure 7,283,337.46 5,326,034.85

Shenzhen Airlines Co., Ltd. Training service 193,584.91

Shenzhen Airlines Co., Ltd. Agency service 382,425.92 86,603.44

Air China Cargo Co., Ltd. Ground service 1,551,773.69 1,458,186.75

Beijing Aircraft Maintenance and

Repairment

Engineering Corporation 22,363,336.17 1,088,798.04

Beijing Aircraft Maintenance and

Ground service

Engineering Corporation 15,553,050.00 7,165,863.42

Sichuan International Aero Engine

Repairment

Maintenance Co., Ltd. 202,356,167.14 8,347,511.42

Chengfu FuKai Aircraft Engineering

Repairment

Co., Ltd. 2,636,992.53 3,714,634.73

Total 339,174,686.72 144,742,081.97

11.5.2 Sales of goods and vendering of services

122

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Related party Transaction Current period Prior period

Air China Ground service 2,323,611.71 680,388.70

Air China Agency service 1,657,266.61 1,195,129.84

Shenzhen Airlines Co., Ltd. Agency service 162,976.46 132,937.60

Shenzhen Airlines Co., Ltd. Ground service 172,600.00 102,600.00

Total 4,316,454.78 2,111,056.14

11.5.3 Lease between related parties

The Company as leasee

Leasor Leased asset Current period Prior period

Air China Engines 197,679.64

Air China Simulators 464,500.00

Total 662,179.64

11.5.4 Remuneration to key management personel

Item Current period Prior period

Remuneration to key management personel CNY 4.5343 million CNY 4.2792 million

11.5.5 Inter-related-party borrowings

Related party Amount Start date Expiry date

China National Aviation Finance Co.,

296,000,000.00

Ltd. 2016-6-20 2026-6-20

Total 296,000,000.00

11.5.6 Other related party transactions

Related party Transaction Current period Prior period

Air China Wet lease 183,404,273.00 240,049,478.38

Air China Code sharing -247,032.01 -349,966.55

Air China Frequent flyer cooperation 36,000,000.00 18,000,000.00

Air China Cargo Co., Ltd. Code sharing for cargo -2,479,852.47 -5,562,549.38

123

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Total 216,677,388.52 252,136,962.45

11.6 Related party balances

11.6.1 Receivables

C/f B/f

Related party Allowance for bad Allowance for bad

Carrying amount Carrying amount

debt debt

Accounts receivable

Air China 146,810,526.00 64,912,116.42

Air China Cargo Co., Ltd. 289,194.94 2,994,845.77

Taikoo (Shandong) Aircraft Engineering

Company Limited 8,400.00 186,120.00

Total 147,108,120.94 68,093,082.19

Other receivables

Air China

6,226,204.16 5,067,826.76

Shenzhen Airlines Co., Ltd.

500.00 740.00

Shandong Rainbow Commercial Jet Co., Ltd.

101,551,717.65 101,551,717.65 101,551,717.65 101,551,717.65

Shandong XiangYu Air Technology Co., Ltd.

28,536.68 19,858.85

Taikoo (Shandong) Aircraft Engineering

Company Limited 934,254.49 854,742.74

Total 108,741,212.98 101,551,717.65 107,494,886.00 101,551,717.65

11.6.2 Payables

Related party C/f B/f

Accounts payable

Shandong XiangYu Air Technology Co., Ltd. 6,321,089.85

Taikoo (Shandong) Aircraft Engineering Company Limited 2,394,007.12 6,848,765.73

Air China 134,977,457.56 99,480,295.38

124

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Related party C/f B/f

Air China Cargo Co., Ltd. 252,668.96 259,754.60

Aircraft Maintenance and Engineering Corporation (Ameco Beijing) 6,026,083.14 7,760,074.07

Sichuan International Aero Engine Maintenance Co., Ltd. 31,226,775.59

Chengfu FuKai Aircraft Engineering Co., Ltd. 2,108,297.83 1,414,020.82

Total 152,079,604.46 146,989,686.19

Other payables

SDA Group 8,155,998.71 3,565,944.65

Air China 20,000,000.00 20,000,000.00

Shenzhen Airlines Co., Ltd. 1,850,144.00 1,850,144.00

Taikoo (Shandong) Aircraft Engineering Company Limited 245,400.00 245,400.00

Total 30,251,542.71 25,661,488.65

Note 12 Commitments

12.1 Signifcant commitments

12.1.1 Capital commitment

Item C/f B/f

Firm contracts not recognized in the financial statements

- Commitment to acquire non-current assets 17,812,944,524.44 18,228,453,171.55

-large outsourcing contract

-External investment commitments

Total 17,812,944,524.44 18,228,453,171.55

12.1.2 Operating lease

Information of irrevocable operating lease contracts as at the reporting date:

Item C/f B/f

Minimum lease rental for irrevocable operating lease contracts

Within one year from the reporting date 2,127,917,020.18 1,868,704,859.20

Within two years from the reporting date 1,969,528,168.96 1,790,568,747.56

Within three years from the reporting date 1,902,434,866.66 1,667,161,566.37

125

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Subsequent years 10,898,163,516.64 9,900,119,169.07

Total 16,898,043,572.44 15,226,554,342.19

12.1.3 Other commitment

No other significant commitments of the Company need to be disclosed as at 30/06/2016.

Note 13 Post balance sheet date events

No Post reporting date events is subject to disclosure as at the reporting date.

Note 14 Other significant events

14.1 Pension Plan

No significant change of the annuity program occurred for current period, see note 6.21, 6.28.

Note 15 Notes to elements of the separate financial statements

15.1 Accounts receivable

15.1.1 Disclosure by category

C/f

Category Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Accounts receivable of individual

significance and subject to individual

impairment assessment 265,220,904.89 68.66 265,220,904.89

Accounts receivable subject to

impairment assessment by credit risk

characteristics of a portfolio 112,332,309.67 29.08 5,616,615.48 5.00 106,715,694.19

Accounts receivable of individual

insignificance but subject to individual

impairment assessment 8,755,912.04 2.26 8,755,912.04

Total 386,309,126.60 100.00 5,616,615.48 1.45 380,692,511.12

(Continued)

126

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

B/f

Category Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Accounts receivable of individual significance and

subject to individual

impairment assessment 155,464,398.00 60.75 155,464,398.00

Accounts receivable subject to

impairment assessment by credit risk

characteristics of a portfolio 86,102,003.17 33.65 4,305,100.16 5.00 81,796,903.01

Accounts receivable of individual

insignificance but subject to individual

impairment assessment 14,327,817.42 5.60 14,327,817.42

Total 255,894,218.59 100.00 4,305,100.16 1.68 251,589,118.43

① Accounts receivable of individual significance and subject to individual impairment assessment

C/f

Debtor Allowance for bad Rate of

Carrying amount Reason for allowance

debt allowance (%)

No indication of impairment

BSP-CHINA 46,851,707.33 upon individual assessment

No indication of impairment

Air China 146,810,526.00 upon individual assessment

No indication of impairment

Accounting Center of China Aviation 71,558,671.56 upon individual assessment

Total 265,220,904.89

② Accounts receivable subject to impairment assessment by portfolio

C/f

Portfolio

Carrying amount Rate of allowance (%) Allowance for bad debt

Portfolio by nature 112,332,309.67 5,616,615.48 5.00

Total 112,332,309.67 5,616,615.48 5.00

127

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

③ Accounts receivable of individual insignificance but subject to individual impairment assessment

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

China Cargo Airlines LTD. 289,194.94 Related party

No indication of impairment

BSP-TAIWAN

3,213,567.72 upon individual assessment

No indication of impairment

UATP

2,845,120.24 upon individual assessment

No indication of impairment

BSP-JAPAN

1,124,197.23 upon individual assessment

Taikoo Shandong Aircraft Engineering

Related party

Company Limited 8,400.00

No indication of impairment

BSP-THAILAND

10,887.01 upon individual assessment

No indication of impairment

BSP-CAMBODIA

187,678.99 upon individual assessment

Qingdao International Air Logistics Centre Co., Related party

Ltd 1,076,865.91

Total 8,755,912.04

15.1.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recognised during the year is CNY1,311,515.32.

15.1.3 Top five accounts receivables by debtors

The total amount of top five accounts receivables summarized by debtors as at the end of current period is CNY 307,423,979.30,

accounting for 79.58% of the total accounts receivable as at the end of current period, the total corresponding allowance for bad

debts is CNY2,110,153.72.

15.2 Other receivables

15.2.1 Disclosure by category

C/f

Category

Carrying amount Allowance for bad debt Book value

128

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Amount % Amount %

Other receivables of individual

significance and subject to individual

impairment assessment 347,327,070.16 75.23 106,146,149.60 30.56 241,180,920.56

Other receivables subject to subject to

impairment assessment by credit risk

characteristics of a portfolio 72,299,659.54 15.66 3,614,982.97 5.00 68,684,676.57

Other receivables of individual

insignificance but subject to individual

impairment assessment 42,081,192.03 9.11 42,081,192.03

Total 461,707,921.73 100.00 109,761,132.57 23.77 351,946,789.16

(Continued)

B/f

Category Carrying amount Allowance for bad debt

Book value

Amount % Amount %

Other receivables of individual

significance and subject to individual

impairment assessment 311,471,122.15 71.76 106,461,110.62 34.18 205,010,011.53

Other receivables subject to subject to

impairment assessment by credit risk

characteristics of a portfolio 76,765,699.27 17.69 3,838,284.97 5.00 72,927,414.30

Other receivables of individual

insignificance but subject to individual

impairment assessment 45,815,835.47 10.55 45,815,835.47

Total 434,052,656.89 100.00 110,299,395.59 25.41 323,753,261.30

① Other receivables of individual significance and subject to individual impairment assessment

C/f

Rate of

Debtor Carrying Allowance for bad

allowance Reason for allowance

amount debt

(%)

129

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

C/f

Rate of

Debtor Carrying Allowance for bad

allowance Reason for allowance

amount debt

(%)

Shandong Rainbow Commercial Jet Co., Impaired collectibility identified

101,551,717.65 101,551,717.65 100.00

Ltd. upon individual assessment

No indication of impairment

Debtor #1 67,353,245.60

upon individual assessment

impairment assessment by

Debtor #2 49,123,470.40 2,456,173.52 5.00

portfolio

Qingdao International Air Logistics Centre No indication of impairment

45,178,904.72

Co., Ltd upon individual assessment

impairment assessment by

Debtor #3 42,765,168.51 2,138,258.43 5.00

portfolio

No indication of impairment

CBD-leasing Co., Ltd. 41,354,563.28

upon individual assessment

Total 347,327,070.16 106,146,149.60 30.56

② Other receivables subject to impairment assessment by portfolio

C/f

Portfolio

Carrying amount Rate of allowance (%) Allowance for bad debt

Portfolio by nature 72,299,659.54 3,614,982.97 5.00

Total 72,299,659.54 3,614,982.97 5.00

③ Other receivables of individual insignificance but subject to individual impairment assessment

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

No indication of impairment

Debtor #1 17,300,360.00

upon individual assessment

No indication of impairment

Debtor #2 7,944,588.20

upon individual assessment

No indication of impairment

Debtor #3 1,311,700.00

upon individual assessment

Debtor #4 3,900,000.00 No indication of impairment

130

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

C/f

Debtor Allowance for Rate of

Carrying amount Reason for allowance

bad debt allowance (%)

upon individual assessment

No indication of impairment

Debtor #5 291,291.81

upon individual assessment

No indication of impairment

Debtor #6 102,103.68

upon individual assessment

No indication of impairment

Debtor #7 4,041,653.01

upon individual assessment

No indication of impairment

Air China 6,226,204.16

upon individual assessment

Taikoo (Shandong) Aircraft Engineering No indication of impairment

934,254.49

Company Limited upon individual assessment

No indication of impairment

Shandong XiangYu Air Technology Co., Ltd. 28,536.68

upon individual assessment

No indication of impairment

Shenzhen Airlines Co., Ltd. 500.00

upon individual assessment

Total 42,081,192.03

15.2.2 Recognisation, recovery or reversal of allowance for bad debt

The amount of allowance for bad debts recovered or reversed during the current period is CNY 538,263.02.

15.2.3 Disclosure by nature

Category C/f B/f

Deposits 143,599,505.58 107,675,329.76

Others 318,108,416.15 326,377,327.13

Total 461,707,921.73 434,052,656.89

15.2.4 Top five other receivables

Allowance for bad

Debtor Nature C/f Aging %

debt

Shandong Rainbow Commercial Jet

Others Over 3 years

Co., Ltd. 101,551,717.65 21.99 101,551,717.65

131

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Allowance for bad

Debtor Nature C/f Aging %

debt

Debtor #1 Deposits 67,353,245.60 Within 1 year 14.59

Debtor #2 Others 49,123,470.40 Within 2 years 10.64 2,456,173.52

Qingdao International Air Logistics

Others Within 5 years

Centre Co., Ltd 45,178,904.72 9.79

Debtor #3 Others 42,765,168.51 Within 2 years 9.26 2,138,258.43

Total 305,972,506.88 66.27 106,146,149.60

15.3 Long-term equity investments

15.3.1 Disclosure by category

C/f B/f

Item Impairment Net carrying Impairment

Carrying amount Carrying amount Net carrying amount

allowance amount allowance

Investments in

subsidiaries 106,000,685.43 106,000,685.43 106,000,685.43 106,000,685.43

Investments in

associates 22,500,000.00 22,500,000.00 22,500,000.00 22,500,000.00

Total 128,500,685.43 22,500,000.00 106,000,685.43 128,500,685.43 22,500,000.00 106,000,685.43

15.3.2 Investments in subsidiaries

Current Current

Allowance Period-end

Investee B/f period period C/f

recognized allowance

increase decrease

Qingdao International

Air Logistics Centre

Co., Ltd 48,323,205.97 48,323,205.97

Qingdao Feisheng

International Aviation

Training Technology

Development Co., Ltd 57,677,479.46 57,677,479.46

132

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Current Current

Allowance Period-end

Investee B/f period period C/f

recognized allowance

increase decrease

Total 106,000,685.43 106,000,685.43

15.3.3 Investments in associates

Currency period movement (+, -)

Investment gains

Impairment

Investee B/f Additional Investment and losses Other comprehensive Other changes

allowance

investment reduction recognized under income adjustment in equity

the equity method

Associates

Shandong

Rainbow

Commercial

Jet Co.,

Ltd. 22,500,000.00 22,500,000.00

Total 22,500,000.00 22,500,000.00

(Continued)

Currency period movement (+, -)

Period-end

Investee Declared cash C/f

Allowance recognized Others allowance

dividends or profits

Associates

Shandong Rainbow

Commercial Jet Co., Ltd. 22,500,000.00 22,500,000.00

Total 22,500,000.00 22,500,000.00

133

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

15.4 Operating revenues and costs

Current period Prior period

Category

Operating revenues Operating costs Operating revenues Operating costs

Principal business 6,158,342,851.56 5,417,613,981.08 5,618,472,293.22 4,833,819,723.39

Other business 135,345,527.89 679,535.22 79,776,387.70 5,061,144.89

Total 6,293,688,379.45 5,418,293,516.30 5,698,248,680.92 4,838,880,868.28

15.5 Investment income

Category Current period Prior period

Income from long-term equity investments measured at cost 3.47 6,019,997.42

Income from long-term equity investment income of equity method -24,215,803.75

Income from financial assets measured by fair value with changes in

fair value recognised in profit or loss -850,517.15 -1,986,683.41

Total -850,513.68 -20,182,489.74

Note 16 Supplementary information

16.1 Non-recurring profit and loss

Category Current period Description

Gains from disposals of non-current assets after expending impairment provisions -1,956,678.88

Exceeded-authority approved, non-official approved or accidental tax repayment and relief

Government grants recognised through profit or loss for the current reporting period,

excluding grants which are closely related to the Company’s operating activities and of which the

quota or approval is eligible for automatic renewal in accordance with relevant regulations 108,958,388.62

Financial resource usage fees charged on non-financial institution recognised through profit

or loss for the current reporting period

Gains arising from bargain purchase in business combination and investments in associates

and joint ventures

Non-monetary asset exchange

Consigned investment and asset management

134

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

Category Current period Description

Impairment provision resulting from force majeure, eg. natural desasters

Reorganisation

Reorganisation expenditure

Unfair transactions

Net profits or losses achieved by an acquired under-common-control entity during the period

from the start of the period to the acquisition date

Gains or losses arising from contingent events unconnected with the Company’s daily

operating activities

Fair value changes of tradable financial assets and tradable financial liabilities held and

gains or losses arising from disposals of tradable financial assets, tradable financial liabilities and -4,777,154.37

available-for-sale financial assets, excluding hedging contracts relevant to the Company’s daily

operating activities

Reversal of impairment provision for accounts receivables eligible for individual impairment

assessment

Gains or losses arising from consigned borrowings

Fair value changes of property investments subsequently measured at fair value

One-off adjustment of profit or loss for the current reporting period in accordance with tax

and accounting laws and regulations

Consignment income arising from consigned operations

Income and expenses other than items listed above 6,116,354.87

Other gains or losses satisfying the definition of extraordinary gains or losses

Subtotal 108,340,910.24

Less: Impact of income tax 27,114,590.51

Less: Impact on non-controlling interest

Total 81,226,319.73

Note: Positive amounts and negative amounts in non-recurring categories mean income and expense or loss respectively.

The Company recognised non-recurring categories of activities in accodance with the Explanatory Announcement regarding

Information Disclosure by Publicly Listed Company No. 1 - Non-recurring Profit and Loss (Zhengjianhui Gonggao [2008] No.43).

135

Shandong Airlines Co., Ltd. Notes to the Financial Statements as at 30 June 2016

16.2 Rate of return on net assets and earnings per share

Earnings per share (CNY/share)

Profit catetory Weighted average rate of RONA

Basic EPS Diluted EPS

Net profit attributable to ordinary shareholders 8.09 0.71 0.71

Recurring profit or loss attributable to ordinary

shareholders 5.77 0.51 0.51

136

Shandong Airlines Co., Ltd. Semi-Annual Report 2016

Section X. Documents available for Reference

1. Financial statements carrying the personal signatures and seals of Chairman of the Board, Chief Accountant and

Person in Charge of Accounting Department;

2. Originals of all documents and notices publicly disclosed on newspapers and websites designated by CSRC in

the reporting period

3. The Company will offer above documents for reference timely while CSRC or Stock Exchange demands or

shareholders requires according to the regulations and Articles of Association.

137

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