Company Announcements

RNS Number : 1343K
China Petroleum & Chemical Corp
25 August 2019
 

CONTENTS

 

2

Company Profile

4

Principal Financial Data and Indicators

6

Changes in Share Capital and Shareholdings

 of Principal Shareholders

7

Business Review and Prospects

12

Management's Discussion and Analysis

24

Significant Events

35

Directors, Supervisors and Senior

 Management

36

Financial Statements

136

Documents for Inspection

 

 

 

 

This interim report contains forward-looking statements. All statements, other than statements of historical facts, that address business activities, events or developments that the Company expects or anticipates will or may occur in the future (including, but not limited to projections, targets, reserves and other estimates and business plans) are forward-looking statements. The actual results or developments of the Company may differ materially from those forward-looking statements as a result of various factors and uncertainties. The Company makes the forward-looking statements referred to herein as at 23 August 2019 and, unless otherwise required by the relevant regulatory authorities, undertakes no obligation to update these statements.

COMPANY PROFILE

 

IMPORTANT NOTICE: THE BOARD OF DIRECTORS (BOARD) AND THE BOARD OF SUPERVISORS OF CHINA PETROLEUM & CHEMICAL CORPORATION (SINOPEC CORP.) AND ITS DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS CONTAINED IN THIS INTERIM REPORT, AND SEVERALLY AND JOINTLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS INTERIM REPORT. MR. DAI HOULIANG, CHAIRMAN OF THE BOARD, MR. MA YONGSHENG, PRESIDENT, AND MR. WANG DEHUA, CHIEF FINANCIAL OFFICER AND HEAD OF CORPORATE ACCOUNTING DEPARTMENT WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE INTERIM FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE INTERIM REPORT OF SINOPEC CORP. FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2019.

 

THE INTERIM FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2019 OF SINOPEC CORP. AND ITS SUBSIDIARIES, PREPARED IN ACCORDANCE WITH THE ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (CASs) OF THE PEOPLES REPUBLIC OF CHINA (PRC), AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS), HAVE NOT BEEN AUDITED.

 

COMPANY PROFILE

Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include exploration and production, pipeline transportation, and sale of petroleum and natural gas; production, sale, storage and transportation of refining products, petrochemical products, coalchemical products, synthetic fibre, and other chemical products; import and export, including import and export agency business of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information.

 

 

 

 

 

 

 

DEFINITIONS

In this interim report, unless the context otherwise requires, the following terms shall have the meaning set out below:

Sinopec Corp.: China Petroleum & Chemical Corporation;

Company: Sinopec Corp. and its subsidiaries;

China Petrochemical Corporation: The controlling shareholder of Sinopec Corp., China Petrochemical Corporation;

Sinopec Group: China Petrochemical Corporation and its subsidiaries;

CSRC: China Securities Regulatory Commission;

Hong Kong Stock Exchange: The Stock Exchange of Hong Kong Limited;

Hong Kong Listing Rules: Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

New Lease Standard: IFRS 16, 'Leases'; No. 21 Accounting Standards for Business Enterprises- Leases which was revised and released by the Ministry of Finance in 2018.

 

CONVERSIONS

For domestic production of crude oil: 1 tonne = 7.1 barrels;

For overseas production of crude oil: 1 tonne = 7.21 barrels

For production of natural gas: 1 cubic meter = 35.31 cubic feet;

Refinery throughput: 1 tonne = 7.35 barrels.

 

BASIC INFORMATION

 

LEGAL NAME

中国石油化工股份有限公司

 

CHINESE ABBREVIATION

中国石化

 

ENGLISH NAME

China Petroleum & Chemical Corporation

 

ENGLISH ABBREVIATION

Sinopec Corp.

 

LEGAL REPRESENTATIVE

Mr. Dai Houliang

 

AUTHORISED REPRESENTATIVES UNDER THE HONG KONG LISTING RULES

Mr. Ma Yongsheng

Mr. Huang Wensheng

 

SECRETARY TO THE BOARD

Mr. Huang Wensheng

 

REPRESENTATIVE ON SECURITIES MATTERS

Mr. Zheng Baomin

 

REGISTERED ADDRESS, PLACE OF BUSINESS AND CORRESPONDENCE ADDRESS

22 Chaoyangmen North Street,

Chaoyang District, Beijing, China

Postcode: 100728

Tel: 86-10-59960028

Fax: 86-10-59960386

Website: http://www.sinopec.com

E-mail:ir@sinopec.com

 

CHANGE OF INFORMATION DISCLOSURE MEDIA AND ACCESS PLACES

There was no change to Sinopec Corp's information disclosure media and access place during the reporting period.

 

PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES

A Shares:    Shanghai Stock Exchange

                   Stock name: 中国石化

                   Stock code: 600028

 

H Shares:    Hong Kong Stock Exchange

                   Stock code: 00386

 

ADRs:         New York Stock Exchange

                   Stock code: SNP

                   London Stock Exchange

                   Stock code: SNP

 

THERE IS NO CHANGE TO SINOPEC CORP'S REGISTRATION DURING THE REPORTING PERIOD.

 

PRINCIPAL FINANCIAL DATA AND INDICATORS

 

1    FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs

 

(1)       Principal accounting data

 

Changes

over the same

Six-month period ended 30 June

period of the

2019

2018

preceding year

Items

RMB million

RMB million

(%)

Operating income

1,498,996

1,300,252

15.3

Net profit attributable to equity shareholders of the Company

31,338

41,600

(24.7)

Net profit attributable to equity shareholders of the Company

 excluding extraordinary gains and losses

30,451

39,791

(23.5)

Net cash flows from operating activities

32,918

71,620

(54.0)

 

Changes

At 30 June

At 31 December

from the end

2019

2018

of last year

RMB million

RMB million

(%)

Total equity attributable to equity shareholders of the Company

724,495

718,355

0.9

Total assets

1,824,845

1,592,308

14.6

 

(2)  Principal financial indicators

 

Changes

over the same

Six-month period ended 30 June

period of the

2019

2018

preceding year

RMB

RMB

(%)

Basic earnings per share

0.259

0.344

(24.7)

Diluted earnings per share

0.259

0.344

(24.7)

Basic earnings per share (excluding extraordinary gains and losses)

0.252

0.329

(23.4)

Weighted average return on net assets (%)

4.28

5.74

(1.46)

 

 

 

percentage points

Weighted average return (excluding extraordinary gains and losses)

4.16

5.49

(1.33)

 on net assets (%)

 

 

percentage points

 

(3)  Extraordinary items and corresponding amounts:

 

Six-month period

ended 30 June 2019

(gain)/loss

Items

RMB million

Net gain on disposal of non-current assets

174

Donations

16

Government grants

(1,908)

Gain on holding and disposal of various investments

(25)

Other extraordinary income and expenses, net

387

Subtotal

(1,356)

Tax effect

417

Total

(939)

Attributable to:

 

 Equity shareholders of the Company

(887)

 Minority interests

(52)

 

2    FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH IFRS

 

(1)  Principal accounting data

 

Changes

over the same

Six-month period ended 30 June

period of the

2019

2018

preceding year

RMB million

RMB million

(%)

Operating profit

49,138

61,576

(20.2)

Profit attributable to owners of the Company

32,206

42,386

(24.0)

Net cash generated from operating activities

32,918

71,620

(54.0)

 

As of

As of

Changes

30 June

31 December

from the end

2019

2018

of last year

RMB million

RMB million

(%)

Total equity attributable to owners of the Company

723,452

717,284

0.9

Total assets

1,824,845

1,592,308

14.6

 

(2)  Principal financial indicators

 

Changes

over the same

Six-month period ended 30 June

period of the

2019

2018

preceding year

RMB

RMB

(%)

Basic earnings per share

0.266

0.350

(24.0)

Diluted earnings per share

0.266

0.350

(24.0)

Return on capital employed (%)

4.92

6.48

(1.56)

 

 

 

percentage points

 

 

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS

 

1    CHANGES IN THE SHARE CAPITAL OF SINOPEC CORP.

During the reporting period, there was no change in the nature and number of issued shares of Sinopec Corp.

 

2    NUMBER OF SHAREHOLDERS AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS

As at 30 June 2019, there were a total of 489,391 shareholders of Sinopec Corp., of which 483,587 were holders of A shares and 5,804 were holders of H shares. Sinopec Corp. has complied with requirement for minimum public float under the Hong Kong Listing Rules.

 

(1)  Top ten shareholders as of 30 June 2019  Unit: share

 

Name of Shareholders

Nature of shareholders

Percentage of shareholdings %

Total number of shares held

Changes of shareholdings1

Number of shares subject to pledge or lock up

China Petrochemical Corporation

State-owned share

68.31

82,709,227,393

0

0

HKSCC (Nominees) Limited2

H share

20.97

25,388,042,747

(2,617,691)

Unknown

中國證券金融股份有限公司

A share

2.16

2,609,312,057

0

0

China National Holdings Limited

A share

1.03

1,252,427,354

(750,400)

0

北京誠通金控投資有限公司

A share

0.86

1,038,657,802

91,053,548

0

Hong Kong Securities Clearing Company Ltd

A share

0.59

716,173,774

(305,608,386)

0

中央匯金資產管理有限責任公司

A share

0.27

322,037,900

0

0

中國人壽保險股份有限公司-分紅-個人分紅-005LFH002

A share

0.25

297,950,260

115,992,600

0

中國人壽保險股份有限公司-傳統-普通保險產品-005LCT001

A share

0.22

261,330,179

111,594,040

0

Guotai Junan Securities Co., Ltd.

A share

0.12

145,591,313

66,960,753

0

 

Notes:

 

1.   As compared with the number of shares as at 31 December 2018.

 

2.   Sinopec Century Bright Capital Investment Limited, a wholly-owned overseas subsidiary of China Petrochemical Corporation, holds 553,150,000 H shares, accounting for 0.46% of the total share capital of Sinopec Corp. Such shareholdings are included in the total number of shares held by HKSCC Nominees Limited.

 

Statement on the connected relationship or acting in concert among the aforementioned shareholders:

 

      Apart from 中國人壽保險股份有限公司-分紅-個人分紅-005L-FH002 and 中國人壽保險股份有限公司-傳統-普通保險產品-005L-CT001 which were both administrated by 中國人壽保險股份有限公司, Sinopec Corp. is not aware of any connected relationship or acting in concert among or between the above-mentioned shareholders.

 

(2)  Information disclosed by H share shareholders in accordance with the Securities and Futures Ordinance (SFO) as of 30 June 2019

 

Approximate

Number of

percentage

shares

of Sinopec Corp.'s

interests held

issued share

or regarded as

capital

Status of shareholders

held

(H share) (%)

BlackRock, Inc.

Interests of corporation controlled

2,276,472,135(L)

8.92(L)

 

by the substantial shareholder

 

 

Citigroup Inc.

Person having a security interest in shares

324,400(L)

0.00(L)

Interests of corporation controlled

114,751,966(L)

0.45(L)

by the substantial shareholder

86,744,415(S)

0.34(S)

 

Approved lending agent

1,951,640,484(L)

7.65(L)

Schroders Plc

Investment manager

1,530,314,895(L)

6.00(L)

JPMorgan Chase & Co.

Beneficial owner

321,650,960(L)

1.26(L)

242,975,089(S)

0.95(S)

Investment manager

296,492,462(L)

1.16(L)

30,000(S)

0.00(S)

Person having a security interest in shares

22,202,422(L)

0.09(L)

Trustee (exclusive of passive trustee)

1,418,000(L)

0.01(L)

 

Approved lending agent

685,993,518(L)

2.69(L)

 

Note: (L) Long position, (S): Short position

 

3    CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER

There was no change in the controlling shareholder or the de facto controller of Sinopec Corp. during the reporting period.

 

 

Business Review and Prospects

 

BUSINESS REVIEW

In the first half of 2019, recovery of the global economy slowed down, while China's economy maintained an overall stable growth securing progress in its economic development with gross domestic product (GDP) up by 6.3%. The domestic demand for natural gas kept a high growth rate, up by 10.8% year on year. While the domestic demand for refined oil products maintained steady growth, the market witnessed strong competition with abundant supply. The domestic demand for major chemicals increased rapidly.

 

In the first half of 2019, international crude oil prices fluctuated with an upward trend first, and then slided rapidly. The average spot price of Platts Brent for the first half of 2019 was USD 65.95 per barrel, down by 6.6% year on year.

 

 

1    OPERATIONS REVIEW

 

(1)  Exploration and production

 

In the first half of 2019, the Company fully implemented the action plan of redoubling efforts in oil and gas exploration and production. Good results were obtained through efforts in maintaining oil production, increasing gas output and reducing cost while promoting an integrated value chain of natural gas business including production, supply, storage and marketing. In exploration, we continued to push forward high-quality exploration and reinforced preliminary exploration in new areas as well as integrating evaluation for key exploration and production projects to increase reserves, which led to new oil and gas discoveries in Jiyang Depression, Sichuan Basin and Ordos Basin, etc. In development, we strengthened the capacity building of profitable oil production and continuously promoted effective and rapid growth of natural gas. Capacity buildings in Fuling, Weirong, West Sichuan Depression and Dongsheng gas fields were accelerated with production and distribution optimised to promote a coordinated growth along the value chain. Production of oil and gas in the first half of 2019 was 226.63 million barrels of oil equivalent, up by 0.9% year on year, of which domestic crude production increased slightly to 124.05 million barrels, overseas crude production was 17.63 million barrels, and total gas production was 509.5 billion cubic feet, up by 7.0% compared to the same period of last year.

 

    Exploration and Production: Summary of Operations

 

 

Six-month period ended 30 June

Changes

 

2019

2018

(%)

Oil and gas production (mmboe)

226.63

224.59

0.9

Crude oil production (mmbbls)

141.68

143.63

(1.4)

China

124.05

123.68

0.3

Overseas

17.63

19.95

(11.6)

Natural gas production (bcf)

509.50

476.20

7.0

 

(2)  Refining

 

In the first half of 2019, with a market-oriented approach, we brought the advantage of integrated operations into full play, and continued to optimise product mix to produce more gasoline, jet fuel and chemical feedstock. Production of high-value-added products further increased, and diesel-to-gasoline ratio declined to 1.03. New projects and structural adjustment projects were implemented in an orderly manner. We moderately increased the export of refined oil products and expanded the market of kerosene to keep a relatively high utilisation rate. We implemented and constantly optimised the quality upgrading plan for new spec bunker fuel. In the first half of 2019, we processed 124 million tonnes of crude oil, up by 2.7% year on year, and produced 78.94 million tonnes of refined oil products, up by 3.4% year on year, with production of gasoline and kerosene up by 4.3% and 7.9%, respectively.

 

    Refining: Summary of Operations                                                                                                                                      Unit: million tonnes

 

 

Six-month period ended 30 June

Changes

 

2019

2018

(%)

Refinery throughput

123.92

120.72

2.7

Gasoline, diesel and kerosene production

78.94

76.37

3.4

Gasoline

31.33

30.04

4.3

Diesel

32.24

32.09

0.5

Kerosene

15.37

14.25

7.9

Light chemical feedstock production

20.04

19.34

3.6

 

Note: Includes 100% of production of domestic joint ventures.

 

(3)  Marketing and distribution

 

In the first half of 2019, confronted with strong competition, the Company aimed to achieve a balance between sales volume and profit. We brought our advantages of integrated business and distribution network into full play, coordinated internal and external resources, intensified efforts to explore more markets, thus, achieved sustained growth in both total domestic sales volume and retail scale. We adopted a flexible and targeted marketing strategy and upgraded our distribution network to reinforce existing advantages. We continuously explored overseas market in refined oil products, and expanded the scale of international trade. Total sales volume of refined oil products in the first half of 2019 was 126.91 million tonnes, up by 9.6% year on year, of which domestic sales volume was 91.77 million tonnes, up by 3.8% year on year. We strengthened the cultivation of self-owned brands and supply chain management, to enhance the profitability of non-fuel business.

 

    Marketing and Distribution: Summary of Operations

 

 

Six-month period ended 30 June

Change

 

2019

2018

(%)

Total sales volume of refined oil products (million tonnes)

126.91

115.75

9.6

Total domestic sales volume of refined oil products (million tonnes)

91.77

88.45

3.8

Retail (million tonnes)

60.06

59.28

1.3

Direct sales and Distribution (million tonnes)

31.72

29.16

8.8

Annualised average throughput per station (tonne/station)

3,916

3,870

1.2

 

Note: The total sales volume of refined oil products includes the amount of refined oil marketing and trading sales volume.

 

 

 

 

Change

 

As of

As of

from the end

 

30 June

31 December

of last year

 

2019

2018

(%)

Total number of Sinopec-branded service stations

30,674

30,661

0.04

Number of company-operated stations

30,668

30,655

0.04

Number of convenience stores

27,362

27,259

0.38

 

(4)  Chemicals

 

In the first half of 2019, the Company adhered to the de-velopment philosophy of "basic plus high-end" and sharpened market competitiveness through effective supply. We constantly fine-tuned chemical feedstock mix to further lower costs. We optimised product slate and increased high-end products output. The ratio of new and specialty products of synthetic resin reached 64.6%, the ratio of high-value-added products of synthetic rubber reaching 28.2%, and differential ratio of synthetic fibre reaching 90.2%. By enhancing the dynamic optimisation of facilities and product chain, and improving the utilisation and production scheduling based on market demand, we actively promoted a number of key projects and accelerated the construction of advanced production capacity. Ethylene production for the first half of 2019 was 6.16 million tonnes, up by 6.5% year on year. We enhanced the integration among production, marketing, R&D and application, promoted targeted marketing and service, and further expanded the market to enhance profitability along the value chain. Total chemical sales volume for the first half amounted to 48.69 million tonnes, up by 14.4% from the corresponding period in 2018.

 

Major Chemical Products: Summary of Operations                                                                                                         Unit: 1,000 tonnes

 

 

Six-month period ended 30 June

Changes

 

2019

2018

(%)

Ethylene

6,160

5,786

6.5

Synthetic resin

8,429

8,068

4.5

Synthetic fiber monomer and polymer

5,030

4,601

9.3

Synthetic fiber

633

603

5.0

Synthetic rubber

529

405

30.6

 

Note: Includes 100% of production of domestic joint ventures.

 

2.   HEALTH, SAFETY, SECURITY AND ENVIRONMENT

The Company constantly promoted the HSSE system in the first half of 2019 and implemented the concept of "Comprehensive Health" by integrating the management of occupational, physical and mental health of our employees. Stringent rules were set to control risks and supervise the safety and operations of contractors and strict measures were taken to manage and control major safety risks and eliminate significant safety hazards, all contributing to the stable and safe production performance. We upgraded our capabilities in all-dimension risk prevention and control as well as emergency response, further enhancing public security management. We actively practiced green and low-carbon growth strategy, enhanced coordinated management of energy and environment, and further promoted the Green Enterprise Campaign and the Energy Efficiency Upgrading Plan. We reinforced carbon asset management and pollution prevention and treatment. Energy management and environmental protection continued to yield good results on all fronts. In the first half of the year, the comprehensive energy consumption of the Company was flat with the same period of last year. Industrial fresh water usage was down by 1.1% year on year. COD of discharged waste water went down by 2.2% year on year and SO2 emissions down by 4.0% year on year. All solid waste was properly treated.

 

3.   CAPITAL EXPENDITURES

Focusing on quality and return on investment, the Company continuously optimised its investment projects. In the first half of 2019, total capital expenditures were RMB 42.878 billion. Capital expenditures for the exploration and production segment were RMB 20.064 billion, mainly for crude capacity building in Shengli and Northwest oilfields, shale gas capacity building in Fuling and Weirong, natural gas pipeline and storage as well as overseas projects. Capital expenditures for the refining segment were RMB 8.779 billion, mainly for the Zhongke integrated refining and chemical project, product mix optimisation of Tianjin, Zhenhai, Luoyang and Maoming. Capital expenditures for the marketing and distribution segment were RMB 8.071 billion, mainly for constructing refined oil products depots, pipelines and service stations. Capital expenditures for the chemicals segment were RMB 5.674 billion, mainly for integrated refining and chemical projects of Zhongke, Zhenhai and Wuhan. Capital expenditures for corporate and others were RMB 290 million, mainly for R&D facilities and information technology projects.

 

BUSINESS PROSPECTS

Looking ahead to the second half of 2019, the international economy is expected to show a slower growth rate in the midst of a complex and uncertain global political and economic environment. As China will keep prioritising supply-side structural reform and advancing high quality development, continued growth of China's economy will further drive up the domestic demand for refined oil products and petrochemicals with a trend of demand for high end products. Along with the adjustment of China's energy structure, the domestic demand for natural gas will maintain strong growth.

 

Confronted with the present situation, the Company will stay committed to the overall guidelines of seeking steady progress, and pursue new concepts of development to fully optimise operations, expand markets, reduce costs, control risks and realize growth. Our focuses are on the following aspects:

 

For Exploration and Production, we will fully implement the action plan of redoubling efforts in oil and gas exploration and development, promote efficient exploration and profit-oriented production, and increase proved reserves to enhance sustainable development. In crude oil development, efforts will be made in promoting the capacity building of Shunbei and Shengli offshore blocks, improving refined reservoir characterisation and development of mature fields, and increasing reserve development rate and recovery rate through technology optimisation and scaled application. In natural gas development, we will accelerate the capacity construction of key areas as Western Sichuan and Hangjinqi, optimise the integrated system of natural gas production, supply, storage and marketing so as to achieve rapid and efficient development of the gas business. In the second half of 2019, we plan to produce 142 million barrels of crude oil, among which, domestic and overseas production will be 125 million barrels and 17 million barrels respectively, and 507 billion cubic feet of natural gas.

 

For Refining, we will strengthen crude oil procurement and inventory and transportation management to improve the high-efficiency operation of the value chain and synergised profit-making ability, and promote the refining value chain based on the integrated advantage. We will accelerate the advanced capacity building, facilitate differentiated development for refineries to improve competitiveness in the market. We will further promote the application of technology for optimising refinery process, and adjust product mix based on the market. The quality upgrading plan for new spec bunker fuel will be improved to reduce production costs. In the second half of 2019, we plan to process 124 million tonnes of crude oil.

 

For Marketing and Distribution, we will stick to our strategy of balancing volume and profit, continue to optimise resources allocation, expand market, and increase operational profits. We will make efforts to expand total sales volume and retail scale through implementing targeted marketing. We will further improve our marketing network to reinforce existing advantages. We will accelerate exploring the e-vehicle charging and battery swapping business, and push forward the construction of hydrogen refueling stations. We will accelerate the development and marketing of self-owned brand products, improve the new business model of "Internet + service stations + convenience stores + comprehensive services" to advance the growth of non-fuel business. In the second half of 2019, we plan to sell 91.12 million tonnes of refined oil products in the domestic market.

 

For Chemicals, we will focus on the "basic plus high-end" development concept, speed up advantageous and advanced capacity building, strengthen transformation and upgrading, and upgrade our competitiveness and profit-making ability. We will fine-tune our feedstock slate, aim to maximise profit, diversify feedstock procurement channels, and reduce cost. We will further adjust product slate, and coordinate production, marketing, research, and application to raise the proportion of high-end products. We will make further adjustments to the structure of plants, enhance the dynamic optimisation of plants and product chains, and improve the utilisation and production plan. Meanwhile, we will carry out more thorough research on the market, promote precision marketing, integrate online and offline marketing, proactively develop market and expand sales, and keep increasing our market share. We plan to produce 6.04 million tonnes of ethylene in the second half of 2019.

 

In the second half of the year, the Company will continue to follow specialised development, market-oriented operation, internationalisation and overall coordination to promote high-quality development and deliver good operating results.

 

 

 

MANAGEMENT'S DISCUSSION AND ANALYSIS

 

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S INTERIM FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PARTS OF THE FOLLOWING FINANCIAL DATA, UNLESS OTHERWISE STATED, WERE CONSISTENT WITH THE COMPANY'S INTERIM FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO IFRS. THE PRICES IN THE FOLLOWING DISCUSSION DO NOT INCLUDE VALUE-ADDED TAX.

 

1    CONSOLIDATED RESULTS OF OPERATIONS

In the first half of 2019, the Company's turnover and other operating revenues were RMB 1,499.0 billion, representing an increase of 15.3% year on year, and operating profit was RMB 49.1 billion, representing a decrease of 20.2% year on year.

 

The following table sets forth the principal revenue and expense items from the Company's consolidated financial statements for the first half of 2019 and the corresponding period in 2018:

 

Six-month period ended 30 June

2019

2018

Change

RMB million

RMB million

(%)

Turnover and other operating revenues

1,498,996

1,300,252

15.3

Turnover

1,466,833

1,268,803

15.6

Other operating revenues

32,163

31,449

2.3

Operating expenses

(1,449,858)

(1,238,676)

17.0

Purchased crude oil, products, and operating supplies and expenses

(1,207,182)

(994,797)

21.3

Selling, general and administrative expenses

(24,765)

(31,332)

(21.0)

Depreciation, depletion and amortisation

(52,684)

(51,902)

1.5

Exploration expenses, including dry holes

(4,347)

(4,362)

(0.3)

Personnel expenses

(38,221)

(37,340)

2.4

Taxes other than income tax

(120,246)

(118,721)

1.3

Other operating expense, net

(2,413)

(222)

986.9

Operating profit

49,138

61,576

(20.2)

Net finance costs

(5,163)

(263)

1,863.1

Investment income and share of profit less losses

from associates and joint ventures

6,106

7,458

(18.1)

Profit before taxation

50,081

68,771

(27.2)

Tax expense

(10,140)

(14,586)

(30.5)

Profit for the period

39,941

54,185

(26.3)

Attributable to:

 

 

 

Owners of the Company

32,206

42,386

(24.0)

Non-controlling interests

7,735

11,799

(34.4)

 

(1)  Turnover and other operating revenues

In the first half of 2019, the Company's turnover was RMB 1,466.8 billion, representing an increase of 15.6% year on year. The change was mainly attributable to the expansion of production volume and trading scale.

 

The following table sets forth the external sales volume, average realised prices and respective change rates of the Company's major products in the first half of 2019 as compared with the first half of 2018.

 

Sales Volume (thousand tonnes)

Average realised price

(VAT excluded)

(RMB/tonne, RMB/thousand cubic meters)

Six-month period ended 30 June

Change

Six-month period ended 30 June

Change

2019

2018

(%)

2019

2018

(%)

Crude oil

2,997

3,580

(16.3)

3,010

2,880

4.5

Natural gas (million cubic meters)

13,133

11,799

11.3

1,416

1,362

4.0

Gasoline

45,093

43,623

3.4

7,484

7,635

(2.0)

Diesel

41,480

39,749

4.4

5,686

5,701

(0.3)

Kerosene

13,010

12,071

7.8

4,261

4,220

1.0

Basic chemical feedstock

21,320

20,005

6.6

4,664

5,287

(11.8)

Synthetic fibre monomer and polymer

8,291

5,495

50.9

5,831

6,729

(13.3)

Synthetic resin

7,670

7,190

6.7

7,928

8,495

(6.7)

Synthetic fibre

661

639

3.4

9,063

9,405

(3.6)

Synthetic rubber

629

533

18.0

9,674

10,612

(8.8)

 

Most of the crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production with the remaining sold to other customers. In the first half of 2019, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 54.5 billion, up by 32.4% year on year, accounting for 3.6% of the Company's turnover and other operating revenues. The change was mainly attributable to increases in natural gas sales volume and prices as the result of promoting the building of natural gas production-supply-storage-sale system and actively expanding market and promoting sales.

 

Petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold externally by the Refining Segment and the Marketing and Distribution Segment achieved external sales revenues of RMB 742.6 billion, representing an increase of 3.3% year on year and accounting for 49.5% of the Company's turnover and other operating revenues. Those changes were mainly due to fully exerting the advantages of the integrated value chain, moderately increasing the export of refined oil products, maintaining high utilisation rates, and intensifying efforts to explore more market shares, which increased gasoline, diesel and kerosene sales volume. The sales revenue of gasoline, diesel and kerosene was RMB 628.8 billion, representing an increase of 3.0% year on year, accounting for 84.7% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB 113.9 billion, representing an increase of 5.4% year on year, accounting for 15.3% of the sales revenue of petroleum products.

 

The Company's external sales revenue of chemical products was RMB 225.4 billion, representing an increase of 3.0% year on year, accounting for 15.0% of its turnover and other operating revenues. The change was mainly due to the increases in chemical product sales volume as a result of actively expanding markets and enhancing market engagement through chemical products trade.

 

(2)  Operating expenses

      In the first half of 2019, the Company's operating expenses were RMB 1,449.9 billion, representing an increase of 17.0% year on year. The change was mainly due to the expansion of the Company's crude oil and refined oil products trading volume and the increase in procurement cost of crude oil affected by exchange rate. The operating expenses mainly consisted of the following:

 

      Purchased crude oil, products and operating supplies and expenses were RMB 1,207.2 billion, representing an increase of 21.3% year on year, accounting for 83.3% of total operating expenses, of which:

 

   Crude oil purchasing expenses were RMB 337.6 billion, representing an increase of 7.3% year on year. Throughput of crude oil purchased externally in the first half of 2019 was 100.34 million tonnes (excluding the volume processed for third parties), up by 2.1% year on year. The average cost of crude oil purchased externally was RMB 3,364 per tonne, up by 5.1% year on year.

 

   The Company's purchasing expenses of refined oil products were RMB177.2 billion, representing an increase of 10.2% over the same period of 2018. The change was mainly due to the increase in diesel volume purchased externally.

 

   The Company's purchasing expense related to trading activities were RMB 396.8 billion, representing an increase of 50.5% over the same period of 2018. This was mainly due to expansion of the crude oil and refined oil trade.

 

   Other purchasing expenses were RMB 295.7 billion, an increase of 15.5% year on year.

 

      Selling, general and administrative expenses of the Company totalled RMB 24.8 billion, representing a decrease of 21.0% year on year. This was mainly because the company significantly reduced costs and expenses, and adjusted accounting of some of the gas stations, land and other rental expenses as required by the New Lease Standard.

 

      Depreciation, depletion and amortisation expenses of the Company were RMB 52.7 billion, representing an increase of 1.5% year on year. This was mainly due to the increasing of right-of-use assets resulted from implementation of the New Lease Standard.

 

      Exploration expenses in the first half of 2019 were RMB 4.3 billion, representing a decrease of 0.3% year on year.

 

      Personnel expenses were RMB 38.2 billion, representing an increase of 2.4% year on year.

 

      Taxes other than income tax were RMB 120.2 billion, representing an increase of 1.3% year on year.

 

      Other operating expenses, net were RMB 2.4 billion, up by RMB 2.2 billion.

 

(3)  Operating profit

      In the first half of 2019, the Company's operating profit was RMB 49.1 billion, representing a decrease of 20.2% year on year. This was mainly due to the impact of narrowing gross margin of major products in refining and chemical segments.

 

(4)  Net finance costs

      In the first half of 2019, the Company's net finance costs were RMB 5.2 billion, up by RMB 4.9 billion, mainly affected by implementation of the New Lease Standard.

 

(5)  Profit before taxation

      In the first half of 2019, the Company's profit before taxation amounted to RMB 50.1 billion, representing a decrease of 27.2% year on year.

 

(6)  Tax expense

      In the first half of 2019, the Company's tax expense totalled RMB 10.1 billion, representing a decrease of 30.5% year on year.

 

(7)  Profit attributable to non-controlling interests of the Company

      In the first half of 2019, profit attributable to non-controlling interests was RMB 7.7 billion, a decrease of RMB 4.1 billion year on year.

 

(8)  Profit attributable to owners of the Company

      In the first half of 2019, profit attributable to owners of the Company was RMB 32.2 billion, representing a decrease of 24.0% year on year.

 

2    RESULTS OF SEGMENT OPERATIONS

The Company manages its operations by four business segments, namely exploration and production segment, refining segment, marketing and distribution segment and chemicals segment, as well as corporate and others. Unless otherwise specified, the inter-segment transactions have not been eliminated from financial data discussed in this section. In addition, the operating revenue data of each segment includes other operating revenues.

 

The following table shows the operating revenues by each segment, the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales, and the contribution of external sales as a percentage of consolidated operating revenues (i.e. after elimination of inter-segment sales) for the periods indicated.

 

Operating revenues

As a percentage of

consolidated operating

revenues before elimination

of inter-segment sales

As a percentage of

consolidated operating

revenues after elimination

of inter-segment sales

Six-month period

ended 30 June

Six-month period

ended 30 June

Six-month period

ended 30 June

2019

2018

2019

2018

2019

2018

RMB million

(%)

(%)

Exploration and Production Segment

 

 

 

 

 

External sales*

58,811

45,317

2.4

2.1

3.9

3.5

Inter-segment sales

44,993

42,607

1.9

1.9

 

 

Operating revenues

103,804

87,924

4.3

4.0

 

 

Refining Segment

 

 

 

 

 

 

External sales*

72,429

72,134

3.0

3.3

4.8

5.5

Inter-segment sales

525,368

521,193

21.6

23.8

 

 

Operating revenues

597,797

593,327

24.6

27.1

 

 

Marketing and Distribution Segment

 

 

 

 

 

External sales*

689,936

665,702

28.5

30.4

46.0

51.2

Inter-segment sales

1,906

2,623

0.1

0.1

 

 

Operating revenues

691,842

668,325

28.6

30.5

 

 

Chemicals Segment

 

 

 

 

 

 

External sales*

232,645

226,211

9.6

10.3

15.6

17.4

Inter-segment sales

27,843

30,057

1.1

1.4

 

 

Operating revenues

260,488

256,268

10.7

11.7

 

 

Corporate and Others

 

 

 

 

 

 

External sales*

445,175

290,888

18.4

13.3

29.7

22.4

Inter-segment sales

324,986

294,555

13.4

13.4

 

 

Operating revenues

770,161

585,443

31.8

26.7

 

 

Operating revenue before elimination

 of inter-segment sales

2,424,092

2,191,287

100.0

100.0

 

 

Elimination of inter-segment sales

(925,096)

(891,035)

 

 

 

 

Consolidated operating revenues

1,498,996

1,300,252

 

 

100.0

100.0

 

*    Other operating revenues are included.

 

The following table sets forth the operating revenues, operating expenses and operating profit/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the percentage change between the first half of 2019 and the first half of 2018.

 

Six-month period ended 30 June

2019

2018

Change

RMB million

(%)

Exploration and Production Segment

 

 

 

Operating revenues

103,804

87,924

18.1

Operating expenses

97,561

88,336

10.4

Operating profit/(loss)

6,243

(412)

-

Refining Segment

 

 

 

Operating revenues

597,797

593,327

0.8

Operating expenses

578,707

554,395

4.4

Operating profit

19,090

38,932

(51.0)

Marketing and Distribution Segment

 

 

 

Operating revenues

691,842

668,325

3.5

Operating expenses

677,133

651,139

4.0

Operating profit

14,709

17,186

(14.4)

Chemicals Segment

 

 

 

Operating revenues

260,488

256,268

1.6

Operating expenses

248,593

240,504

3.4

Operating profit

11,895

15,764

(24.5)

Corporate and Others

 

 

 

Operating revenues

770,161

585,443

31.6

Operating expenses

772,716

589,897

31.0

Operating loss

(2,555)

(4,454)

-

Elimination of inter-segment loss

(244)

(5,440)

-

 

(1)  Exploration and Production Segment

Most of the crude oil and a small portion of the natural gas produced by the exploration and production segment were used for the Company's refining and chemical operations. Most of the natural gas and a small portion of the crude oil produced by the Company were sold to external customers.

 

In the first half of 2019, operating revenues of the segment were RMB 103.8 billion, representing an increase of 18.1% year on year. This was mainly due to the increase in sales prices and sales volume of natural gas and LNG.

 

In the first half of 2019, the segment sold 17.17 million tonnes of crude oil, representing a decrease of 0.7 % over the same period of 2018. Natural gas sales volume was 14.0 bcm, representing an increase of 9.3% over the same period of 2018. LNG regas sales volume was 7.25 bcm, representing an increase of 104.5% over the same period of 2018. LNG liquid sales volume was 1.97 million tonnes, representing an increase of 75.6% over the same period of 2018. Average realised prices of crude oil, natural gas, LNG regas, and LNG liquid were RMB 2,895 per tonne, RMB 1,431 per thousand cubic meters, RMB 2,354 per thousand cubic meters, and RMB 3,637 per tonne, representing increase of 1.0%, 4.1%, 29.2% and decrease of 0.1% respectively over the same period of 2018.

 

In the first half of 2019, the operating expenses of the segment were RMB 97.6 billion, representing an increase of 10.4% year on year. This was mainly due to depreciation, depletion and amortisation decreased by RMB 2.9 billion year on year; payment of land use right and community services expenses decreased by RMB 2.9 billion year on year; procurement cost increased by RMB 15.2 billion year on year, as a result of expansion of LNG business and increase in LNG price.

 

In the first half of 2019, the oil and gas lifting cost was RMB 795 per tonne, representing an increase of 3.6% year on year.

 

In the first half of 2019, the operating profit of the segment was RMB 6.2 billion, realising a turnaround, representing an increase of RMB 6.7 billion compared with the same period of last year. This was mainly because the segment enhanced fine development of oilfield, made efforts to increase production of natural gas, strengthened cost control, and effectively improved profitability.

 

(2)  Refining Segment

Business activities of the refining segment include purchasing crude oil from third parties and the exploration and production segment of the Company as well as processing crude oil into refined petroleum products. Gasoline, diesel and kerosene are sold internally to the marketing and distribution segment of the Company; part of the chemical feedstock is sold to the chemicals segment of the Company; and other refined petroleum products are sold to both domestic and overseas customers through the refining segment.

 

In the first half of 2019, operating revenues of the segment were RMB 597.8 billion, representing an increase of 0.8% year on year. This was mainly because facing strong market competition, the company brought the advantage of integrated operations into full play, maintained high utilisation rate, and increased sales volume.

 

The following table sets forth the sales volumes, average realised prices and the respective changes of the Company's major refined oil products of the segment in the first half of 2019 and that of the same period of 2018.

 

Sales Volume (thousand tonnes)

Average realised price

(VAT excluded, RMB/tonne)

Six-month period

ended 30 June

Change

Six-month period

ended 30 June

Change

2019

2018

(%)

2019

2018

(%)

Gasoline

30,371

29,203

4.0

7,070

7,174

(1.4)

Diesel

30,748

30,731

0.1

5,479

5,567

(1.6)

Kerosene

11,714

10,706

9.4

4,220

4,167

1.3

Chemical feedstock

19,729

18,980

3.9

3,501

3,728

(6.1)

Other refined petroleum products

30,699

29,751

3.2

3,049

3,190

(4.4)

 

In the first half of 2019, the sales revenues of gasoline were RMB 214.7 billion, representing an increase of 2.5% year on year, accounting for 35.9% of the segment's operating revenue.

 

In the first half of 2019, the sales revenues of diesel were RMB 168.5 billion, representing a decrease of 1.5% year on year, accounting for 28.2% of the segment's operating revenue.

 

In the first half of 2019, the sales revenues of kerosene were RMB 49.4 billion, representing an increase of 10.8% year on year, accounting for 8.3% of the segment's operating revenue.

 

In the first half of 2019, the sales revenues of chemical feedstock were RMB 69.1 billion, representing a decrease 2.4% year on year, accounting for 11.6% of the segment's operating revenue.

 

In the first half of 2019, the sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock were RMB 93.6 billion, representing a decrease of 1.4% year on year, accounting for 15.7% of the segment's operating revenue.

 

In the first half of 2019, the segment's operating expenses were RMB 578.7 billion, representing an increase of 4.4% year on year, which was mainly attributable to increased crude purchasing volume and costs.

 

In the first half of 2019, the average processing cost of crude oil was RMB 3,389 per tonne, representing an increase of 3.5% year on year. Total crude oil throughput was 125.50 million tonnes (excluding volume processed for third parties), representing an increase of 3.3% year on year. In the first half of 2019, the total processing cost for crude oil was RMB 425.3 billion, representing an increase of 6.9% year on year, accounting for 73.5% of the segment's operating expenses, an increase of 1.7 percentage points year on year.

 

In the first half of 2019, the refining margin was RMB 383 per tonne, down by RMB 161 per tonne, representing a decrease of 29.6% year on year, which was mainly due to the increase of crude oil procurement costs resulting from rising premium on crude oil prices, rising overseas shipping insurance premiums and depreciation of the RMB exchange rate, as well as the significant weaker margin of naphtha, liquefied petroleum gas and other petroleum refining products compared with a year ago.

 

In the first half of 2019, the unit refining cash operating cost (defined as operating expenses less cost of crude oil and refining feedstock, depreciation and amortisation, taxes other than income tax and other operating expenses, divided by the throughput of crude oil and refining feedstock) was RMB 165 per tonne, representing a decrease of 1.5% year on year, which was mainly because the segment maintained a high utilisation rate and lowered energy and material consumption to further reduce costs.

 

The segment realised an operating profit of RMB 19.1 billion, representing a decrease of 51.0% year on year.

 

(3)  Marketing and Distribution Segment

The business activities of the marketing and distribution segment include purchasing refined oil products from the refining segment and the third parties, conducting direct sales and wholesale to domestic customers and retailing, distributing oil products through the segment's retail and distribution network, as well as providing related services.

 

In the first half of 2019, the operating revenues of the segment were RMB 691.8 billion, up by 3.5% year on year. This was mainly due to refined oil products sales volume growth. The sales revenues of gasoline were RMB 337.6 billion, representing an increase of 1.3% year on year; the sales revenue of diesel was RMB 236.6 billion, up by 4.1% year on year, and the sales revenue of kerosene was RMB 55.4 billion, up by 8.8% year on year.

 

The following table sets forth the sales volumes, average realised prices and respective percentage changes of the segment's four major refined oil products in the first half of 2019 and that of the same period of 2018, including detailed information about retail, direct sales and distribution of gasoline and diesel:

 

Sales Volume

(thousand tonnes)

Average realised price

(VAT excluded, RMB/tonne)

Six-month period

ended 30 June

Change

Six-month period

ended 30 June

Change

2019

2018

(%)

2019

2018

(%)

Gasoline

45,107

43,633

3.4

7,483

7,634

(2.0)

Retail

33,607

33,625

(0.1)

7,976

8,050

(0.9)

Direct sales and Distribution

11,499

10,008

14.9

6,044

6,236

(3.1)

Diesel

41,594

39,858

4.4

5,687

5,702

(0.3)

Retail

20,371

20,037

1.7

6,131

6,212

(1.3)

Direct sales and Distribution

21,223

19,821

7.1

5,261

5,186

1.4

Kerosene

13,010

12,071

7.8

4,261

4,220

1.0

Fuel oil

11,113

10,528

5.6

2,925

2,653

10.2

 

In the first half of 2019, the operating expenses of the segment were RMB 677.1 billion, representing an increase of 4.0% year on year. This was mainly due to the expansion of business scale and increased procurement costs.

 

In the first half of 2019, the segment's marketing cash operating cost (defined as the operating expenses less the purchase costs, taxes other than income tax, depreciation and amortisation, divided by the sales volume) was RMB 172 per tonne, representing a decrease of 13.1% year on year. This was mainly due to the adjustment of accounting of related leased assets, such as land and gas stations, in accordance with the New Lease Standard.

 

In the first half of 2019, the operating revenues of non-fuel business was RMB 16.7 billion, and the profit of non-fuel business was RMB 1.9 billion representing an increase of 11.8% compared with the same period of 2018.

 

In the first half of 2019, the segment's operating profit was RMB 14.7 billion, representing a decrease of 14.4% year on year, which was mainly attributed to the strong competition in the domestic refined oil market and the narrowing of retail spread.

 

(4)  Chemicals Segment

Business activities of the chemicals segment include purchasing chemical feedstock from the refining segment and the third parties and producing, marketing and distributing petrochemical and inorganic chemical products.

 

In the first half of 2019, operating revenues of the chemicals segment were RMB 260.5 billion, representing an increase of 1.6% year on year, which was mainly due to the expansion of chemical business scale.

 

The sales revenue generated by the segment's six major categories of chemical products (namely basic organic chemicals, synthetic fibre monomer and polymer, synthetic resin, synthetic fibre, synthetic rubber, and chemical fertiliser) totalled RMB 246.3 billion, representing an increase of 1.6% year on year, accounting for 94.6% of the operating revenues of the segment.

 

The following table sets forth the sales volume, average realised price and respective changes of each of the segment's six categories of chemical products for the first half of 2019 and that of the same period of 2018.

 

Sales Volume

(thousand tonnes)

Average realised price

(VAT excluded, RMB/tonne)

Six-month period

ended 30 June

Change

Six-month period

ended 30 June

Change

2019

2018

(%)

2019

2018

(%)

Basic organic chemicals

27,312

25,824

5.8

4,526

5,091

(11.1)

Synthetic fibre monomer and polymer

8,328

5,541

50.3

5,839

6,740

(13.4)

Synthetic resin

7,686

7,194

6.8

7,928

8,495

(6.7)

Synthetic fibre

661

639

3.4

9,063

9,405

(3.6)

Synthetic rubber

631

540

16.9

9,687

10,686

(9.3)

Chemical fertiliser

473

409

15.6

2,212

2,024

9.3

 

In the first half of 2019, the operating expenses of the segment were RMB 248.6 billion, representing an increase of 3.4% year on year, which was mainly due to the increase of total production volume and prices of individual chemical feedstock.

 

The segment's operating profit in the first half of 2019 was RMB 11.9 billion, representing a decrease of 24.5% year on year, which was mainly due to the strong competition of chemical market because of oversupply, and the decrease of gross margin.

 

(5)  Corporate and Others

The business activities of corporate and others mainly consist of import and export business activities of Sinopec Corp.'s subsidiaries, research and development activities of the Company, and managerial activities of the headquarters.

 

In the first half of 2019, the operating revenues generated from corporate and others were RMB 770.2 billion, representing an increase of 31.6% year on year. This was mainly due to increased trading volume of international crude oil and refined oil products, and the rapid growth of the business scale for chemical products and equipment on Sinopec E-commerce platform.

 

In the first half of 2019, the operating expenses for corporate and others were RMB 772.7 billion, representing an increase of 31.0% year on year.

 

In the first half of 2019, the segment's operating loss amounted to RMB 2.6 billion, down by RMB 1.9 billion.

 

 

3    ASSETS, LIABILITIES, EQUITY AND CASH FLOWS

The major funding sources of the Company are its operating activities and short-term and long-term loans. The major use of funds includes operating expenses, capital expenditures, and repayment of the short-term and long-term debts.

 

(1)  Assets, liabilities and equity       Unit: RMB million

 

As of

30 June

As of

31 December

2019

2018

Change

Total assets

1,824,845

1,592,308

232,537

Current assets

544,858

504,120

40,738

Non-current assets

1,279,987

1,088,188

191,799

Total liabilities

957,629

735,773

221,856

Current liabilities

605,435

565,098

40,337

Non-current liabilities

352,194

170,675

181,519

Total equity attributable to owners of the Company

723,452

717,284

6,168

Share capital

121,071

121,071

-

Reserves

602,381

596,213

6,168

Non-controlling Interests

143,764

139,251

4,513

Total equity

867,216

856,535

10,681

 

As of 30 June 2019, the Company's total assets were RMB 1,824.8 billion, representing an increase of RMB 232.5 billion compared with the end of 2018, of which:

 

   Current assets were RMB 544.9 billion, representing an increase of RMB 40.7 billion compared with that as of the end of 2018. This was mainly attributable to an increasing of RMB 38.3 billion in inventories. Account receivable increased by RMB 15.5 billion, time deposits with financial institution increased by RMB 15.3 billion, cash and cash equivalents decreased by RMB 19.1 billion, financial assets at fair value through profit and loss decreased by RMB 6.2 billion, and derivatives financial assets decreased by 4.2 billion.

 

   Non-current assets were RMB 1,280.0 billion, representing an increase of RMB 191.8 billion compared with that as of the end of 2018. The change was mainly due to the net increase of the right-of-use assets and lease prepayments of RMB 204.9 billion, the construction in progress increased by RMB 11.2 billions. The net value of property, plant and equipment decreased by RMB 16.5 billion.

 

As of 30 June 2019, the Company's total liabilities were RMB 957.6 billion, representing an increase of RMB 221.9 billion compared with that as of the end of 2018, of which:

 

   Current liabilities were RMB 605.4 billion, representing an increase of RMB 40.3 billion compared with that as of the end of 2018. This was mainly attributable to an increase of RMB 38.0 billion in short-term debts, an increase of RMB 15.5 billion of lease liabilities due within one year and an increase of RMB 38.7 billion in accounts payable, and a decrease of RMB 44.0 billion in other payables, as well as a fall of RMB 11.6 billion derivative financial liabilities.

 

   Non-current liabilities were RMB 352.2 billion, representing an increase of RMB 181.5 billion compared with that as of the end of 2018, mainly due to the increase in lease liabilities of RMB 182.3 billion,

 

As of 30 June 2019, total equity attributable to owners of the Company was RMB 723.5 billion, representing an increase of RMB 6.2 billion compared with that as of the end of 2018, which was mainly due to the increase in reserves of RMB 6.2 billion.

 

(2)  Cash Flow

The following table sets forth the major items in the consolidated cash flow statements for the first half of 2019 and of 2018.

 

Unit: RMB million

 

Six-month period ended 30 June

Changes

2019

2018

in amount

Net cash generated from operating activities

32,918

71,620

(38,702)

Net cash generated from/(used in) investing activities

(49,073)

19,258

(68,331)

Net cash used in financing activities

(2,945)

(49,308)

46,363

Net (decrease)/increase in cash and cash equivalents

(19,100)

41,570

(60,670)

 

In the first half of 2019, net cash generated from operating activities was RMB 32.9 billion, representing a decrease of RMB 38.7 billion year on year. This was mainly due to a decrease of RMB 18.7 billion in profit before taxation, and accounts receivable and net change for other current assets increased by RMB 21.2 billion.

 

In the first half of 2019, net cash used in investing activities was RMB 49.1 billion, representing an increase of RMB 68.3 billion year on year. This was mainly due to: decrease of RMB 31.7 billion proceeds from sales of financial assets which are measured at fair value through profit or loss; increase of RMB 15.2 billion outflow for time deposits with maturities of over three months, and the capital expenditure increased by RMB 9.4 billion. The purchases of financial assets at fair value through profit or loss increased by RMB 6.2 billion, and the proceeds from the sale of property, plant, equipment and other long term assets decreased by RMB 7.4 billion.

 

In the first half of 2019, net cash used in financing activities was RMB 2.9 billion, representing a decrease of RMB 46.4 billion year on year, which was mainly attributable to the proceeds from bank and other loans increased by RMB 13.7 billion year on year, repayment of bank and other loans decreased by RMB 15.0 billion, dividends paid by Company decreased by RMB 16.9 billion, and dividends paid by subsidiaries to non-controlling interests decreased by RMB 6.6 billion.

 

As of 30 June 2019, the cash and cash equivalents were RMB 92.8 billion.

 

(3)  Contingent Liabilities

Please refer to "Material Guarantee Contracts and Their Performances" in the "Significant Events" section of this report.

 

(4)  Capital Expenditures

Please refer to "Capital Expenditures" in the "Business Review and Prospects" section of this report.

 

(5)  Research & Development and environmental expenditure

Research and Development expenditure occurred in the period including R&D expenses. In the first half of 2019, the Company's research and development expenditure amounted to RMB 5.656 billion, of which expensed was RMB 3.989 billion and capital expenditure was RMB 1.667 billion.

 

Environmental expenditures refer to the normal routine pollutant cleaning fees paid by the Company, excluding capitalised cost of pollutant treatment facilities. In the first half of 2019, the environmental expenditures amounted to RMB 3.593 billion.

 

(6)  Measurement of fair values of derivatives and relevant system

The Company has established sound decision-making mechanism, business process and internal control systems relevant to financial instrument accounting and information disclosure.

 

Items relevant to measurement of fair values

 

Unit: RMB million

 

Profits and

losses from variation of fair

Accumulated variation

Impairment

loss provision

Beginning of

End of the

values in the

of fair values

of the current

the reporting

period

reporting

period

current reporting period

recorded as equity

reporting

period

Funding

source

Financial assets at fair value through profit or loss of the reporting period

25,732

19,539

102

-

-

Self-owned fund

Structured deposit

25,550

19,413

145

-

-

 

Stock

182

126

(43)

-

-

 

Derivative financial instruments

1,584

283

(3,523)

-

-

Self-owned fund

Cash flow hedges

(7,268)

1,421

(71)

4,696

-

Self-owned fund

Other equity instruments

1,450

1,426

-

(24)

-

Self-owned fund

Total

21,498

22,669

(3,492)

4,672

-

 

 

4    ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER CASs

The major differences between the Company's financial statements prepared under CASs and IFRS are set out in Section C of the financial statements of the Company from page 135 in this report.

 

(1)  Under CASs, the operating income and operating profit or loss by reportable segments were as follows:

 

Six-month period ended 30 June

2019

2018

RMB million

RMB million

Operating income

 

 

Exploration and Production Segment

103,804

87,924

Refining Segment

597,797

593,327

Marketing and Distribution Segment

691,842

668,325

Chemicals Segment

260,488

256,268

Corporate and Others

770,161

585,443

Elimination of inter-segment sales

(925,096)

(891,035)

Consolidated operating income

1,498,996

1,300,252

Operating profit/(loss)

 

 

Exploration and Production Segment

5,449

(1,249)

Refining Segment

18,171

37,981

Marketing and Distribution Segment

14,561

17,411

Chemicals Segment

11,663

15,210

Corporate and Others

847

(3,211)

Elimination of inter-segment sales

(244)

(5,440)

Financial expenses, losses/gains from changes in fair value, investment income and
 disposal income/expenses

(2,869)

5,389

Other income

1,600

1,849

Consolidated operating profit

49,178

67,940

Net profit attributable to equity shareholders of the Company

31,338

41,600

 

Operating profit: In the first half of 2019, the operating profit of the Company was RMB 49.2 billion, representing a decrease of 27.6% year on year. This was mainly attributable to the impact by weaker gross margin of major products in refining and chemical segments.

 

Net profit: In the first half of 2019, net profit attributable to the equity shareholders of the Company was RMB 31.3 billion, representing a decrease of 24.7% year on year.

 

(2)  Financial data prepared under CASs:

 

At 30 June

At 31 December

2019

2018

Changes

RMB million

RMB million

RMB million

Total assets

1,824,845

1,592,308

232,537

Non-current liabilities

351,098

169,551

181,547

Shareholders' equity

868,312

857,659

10,653

 

Total assets: As of 30 June 2019, the Company's total assets were RMB 1,824.8 billion, representing an increase of RMB 232.5 billion compared with the end of 2018. This was mainly due to the increase in the right-of-use assets of RMB 204.6 billion, inventories increased by RMB 38.3 billion, accounts receivable increased by RMB 15.5 billion, cash at bank and on hand and financial assets held for trading decreased by RMB 10.1 billion, and fixed assets decreased by RMB 16.5 billion.

 

Non-current liabilities: As of 30 June 2019, the Company's non-current liabilities were RMB 351.1 billion, representing an increase of RMB 181.5 billion compared with the end of 2018. This was mainly due to the increase in lease liabilities of RMB 182.3 billion.

 

Shareholders' equity: As of 30 June 2019, total shareholders' equity of the Company was RMB 868.3 billion, representing an increase of RMB 10.7 billion compared with the end of 2018.

 

(3)  The results of the principal operations by segments

 

Increase/

(decrease) of

(Decrease)/

gross profit

Increase of

increase of

margin on

operating

operating

a year-on-year

Operating

Gross profit

income on

cost on

basis

income

Operating cost

margin*

a year-on-year

a year-on-year

(percentage

(RMB million)

(RMB million)

(%)

basis (%)

basis (%)

point)

Exploration and Production

103,804

82,831

15.4

18.1

16.3

2.5

Refining

597,797

455,993

4.8

0.8

5.1

(3.4)

Marketing and Distribution

691,842

645,780

6.5

3.5

4.2

(0.6)

Chemicals

260,488

236,932

8.7

1.6

3.4

(1.5)

Corporate and Others

770,161

766,409

0.5

31.6

31.6

(0.0)

Elimination of inter-segment sales

(925,096)

(924,852)

N/A

N/A

N/A

N/A

Total

1,498,996

1,263,093

7.7

15.3

20.2

(2.3)

 

*    Gross profit margin = (Operating income - Operating cost, tax and surcharges)/Operating income

 

5    THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANY'S ACCOUNTING POLICY, ESTIMATES AND METHODS

 

Please refer to Note 3 in the interim financial statement prepared in accordance with the Accounting Standards for Business Enterprises (CASs) and Note 22 in the interim financial statement prepared in accordance with International Accounting Standard.

 

 

SIGNIFICANT EVENTS

 

1    CORPORATE GOVERNANCE

(1)  During the reporting period, Sinopec Corp. complied with its Articles of Association and domestic and overseas regulations, and committed itself to continuously improving its corporate governance. It timely amended the Articles of Association and the internal control procedures, actively implemented "the campaign of promoting the execution effectiveness of internal control" to strengthen the internal control and risk management, and optimised relevant procedures for Party organisation to participate in corporate governance. The audit committee of the Board strengthened the communication and coordination with external auditors. It also completed the information disclosure with high quality and further strengthened investor relations work to promote enterprise value. Its sustainable development achieved positive results and earned social recognition.

 

      During the reporting period, on 9 May 2019, Sinopec Corp. convened 2018 Annual General Meeting in Beijing, China, in compliance with relevant laws, regulations and the notice, and convening and holding procedures under the Articles of Association. For the details of the meeting, please refer to the poll results announcement published in China Securities Journal, Shanghai Securities News, and Securities Times and on the website of Shanghai Stock Exchange on 10 May 2019 and the website of Hong Kong Stock Exchange on 9 May 2019.

 

(2)  During the reporting period, none of Sinopec Corp., the Board, directors, supervisors, senior management, controlling shareholders, or de facto controller of Sinopec Corp. was investigated by the CSRC, administratively punished or publicly reprimanded by the CSRC, the Hong Kong Securities and Futures Commission, and the Securities and Exchange Commission of the United States, or publicly censured by the Shanghai Stock Exchange, the Hong Kong Stock Exchange, the New York Stock Exchange, or the London Stock Exchange.

 

(3)  Equity interests of directors, supervisors, and other senior management

 

      As at 30 June 2019, apart from 13,000 A shares of Sinopec Corp. held by Director and Senior Vice President Mr. Ling Yiqun, none of the directors, supervisors, or other senior management of Sinopec Corp. held any shares of Sinopec Corp.

 

      Save as disclosed above, the directors, supervisors and other senior management of Sinopec Corp. confirmed that none of them or any of their associates had any interest or short positions in any shares, underlying shares or debentures of Sinopec Corp. or any of its associated corporations (within the meaning of Part XV of the SFO), as recorded in the registry pursuant to Section 352 of the SFO or as otherwise notified to Sinopec Corp. and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (Model Code) contained in Appendix 10 based on the Hong Kong Listing Rules.

 

      As required under the Hong Kong Listing Rules, Sinopec Corp. has formulated the Rules Governing Shares and Changes in Shares Held by Company Directors, Supervisors and Senior Management and the Model Code of Securities Transactions by Company Employees (the Rules and the Code) to stipulate securities transactions by relevant employees. The standards of the Rules and the Code are no less strict than those set out in the Model Code. Upon the specific inquiries made by Sinopec Corp., all the directors confirmed that they had complied with the required standards of the Model Code as well as those set out in the Rules and the Code during the reporting period.

 

(4)  Compliance with the Corporate Governance Code

      During the reporting period, Sinopec Corp. has complied with all the code provisions of the Corporate Governance Code set out in Appendix 14 of the Hong Kong Listing Rules.

 

(5)  Review of the Interim Report

      The Audit Committee of Sinopec Corp. has reviewed and confirmed the Interim Report.

 

2    DIVIDEND

(1)  Dividend distribution for the year ended 31 December 2018

      Upon its approval at its 2018 Annual General Meeting, Sinopec Corp. distributed the final cash dividend of RMB 0.26 per share (tax inclusive). The final dividend for 2018 has been distributed to shareholders on or before 21 June 2019 who were registered as existing shareholders as at 10 June 2019. Combined with the 2018 interim cash dividend of RMB 0.16 per share (tax inclusive), the total cash dividend for the whole year 2018 amounted to RMB 0.42 per share (tax inclusive).

 

(2)  Interim dividend distribution plan for the six months ended 30 June 2019

      As approved at the seventh meeting of the seventh session of the Board, the interim dividend for the six months ended 30 June 2019 of RMB 0.12 per share (tax inclusive) will be distributed based on the total number of shares as of 16 September 2019 (record date) in cash.

 

      The 2019 interim dividend distribution plan of Sinopec Corp., with the consideration of interest of shareholders and development of the Company, is in compliance with the Articles of Association and relevant procedures. The independent non-executive directors have issued independent opinions on it.

 

      The interim cash dividend will be distributed on or before 26 September 2019 (Thursday) to all shareholders whose names appear on the register of members of Sinopec Corp. on 16 September 2019 (Monday). To be entitled to the interim dividend, holders of H shares shall lodge their share certificates and transfer documents with Hong Kong Registrars Limited at 1712-1716, 17th floor, Hopewell Centre, No. 183 Queen's Road East, Wanchai, Hong Kong, for registration of transfer, no later than 4:30 p.m. on 9 September 2019 (Monday). The register of members of H shares of Sinopec Corp. will be closed from 10 September 2019 (Tuesday) to 16 September 2019 (Monday) (both days inclusive).

 

      The dividend will be denominated and declared in RMB and distributed to domestic shareholders and Shanghai-Hong Kong Stock Connect shareholders in RMB and to foreign shareholders in Hong Kong Dollars. The exchange rate for dividend to be paid in Hong Kong dollars is based on the average benchmark exchange rate of RMB against Hong Kong Dollar as published by the People's Bank of China one week ahead of the date of declaration of the interim dividend, i.e. 23 August 2019 (Friday).

 

      In accordance with the Enterprise Income Tax Law of the People's Republic of China and its implementation regulations which came into effect on 1 January 2008, Sinopec Corp. is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise shareholders whose names appear on the register of members for H Shares of Sinopec Corp. when distributing the cash dividends or issuing bonus shares by way of capitalisation from retained earnings. Any H Shares of the Sinopec Corp. which is not registered under the name of an individual shareholder, including those registered under HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non-resident enterprise shareholders. Therefore, on this basis, enterprise income tax shall be withheld from dividends payable to such shareholders. If holders of H Shares intend to change their shareholder status, please enquire about the relevant procedures with your agents or trustees. Sinopec Corp. will strictly comply with the law or the requirements of the relevant government authority to withhold and pay enterprise income tax on behalf of the relevant shareholders based on the registration of members for H shares of Sinopec Corp. as at the record date.

 

      If the individual holders of H shares are residents of Hong Kong, Macau or countries which had an agreed tax rate of 10% for cash dividends or bonus shares by way of capitalisation form retained earnings with China under the relevant tax agreement, Sinopec Corp. should withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. Should the individual holders of H Shares are residents of countries which had an agreed tax rate of less than 10% with China under relevant tax agreement, Sinopec Corp. shall withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. In that case, if the relevant individual holders of H Shares wish to reclaim the extra amount withheld (Extra Amount) due to the application of 10% tax rate, Sinopec Corp. would apply for the relevant agreed preferential tax treatment provided that the relevant shareholders submit the evidence required by the notice of the tax agreement to the share register of Sinopec Corp. in a timely manner. Sinopec Corp. will assist with the tax refund after the approval of the competent tax authority. Should the individual holders of H Shares are residents of countries which had an agreed tax rate of over 10% but less than 20% with China under the tax agreement, Sinopec Corp. shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreements. In the case that the individual holders of H Shares are residents of countries which had an agreed tax rate of 20% with China, or which had not entered into any tax agreement with China, or otherwise, Sinopec Corp. shall withhold and pay the individual income tax at a rate of 20%.

 

      Pursuant to the Notice on the Tax Policies Related to the Pilot Program of the Shanghai-Hong Kong Stock Connect (關於滬港股票市場交易互聯互通機制試點有關稅收政策的通知) (Caishui [2014] No. 81):

 

      For domestic investors of H Shares of Sinopec Corp. through Shanghai-Hong Kong Stock Connect, Sinopec Corp. shall withhold and pay income tax at the rate of 20% on behalf of individual investors and securities investment funds. Sinopec Corp. will not withhold or pay the income tax of dividends for domestic enterprise investors and those domestic en-terprise investors shall report and pay the relevant tax themselves.

 

      For investors in the Hong Kong Stock Exchange (including enterprises and individuals) investing in the A Shares of Sinopec Corp. through Shanghai-Hong Kong Stock Connect Program, the Company will withhold and pay income taxes at the rate of 10% on behalf of those investors and will report to the tax authorities for the withholding. For investors who are tax residents of other countries, whose country of domicile is a country having entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, the enterprises and individuals may, or may entrust a withholding agent to, apply to the tax authorities for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the amount paid in excess of the tax payable based on the tax rate under such tax treaty will be refunded.

 

3    MAJOR PROJECTS

 

(1)  Hainan refining and chemical expansion project

      Hainan Refining and Chemical expansion project consists of 5,000,000 tpa refinery project and 1,000,000 tpa ethylene project, among which, the second set of high-efficiency and environment-friendly aromatics project started in August 2017 is expected to be put into operation in September 2019. The Company's self-owned fund accounts for approximately 30% of the project, and investment and bank loan is the main source of the remaining 70%. As of 30 June 2019, the aggregate investment was RMB 2.7 billion.

 

(2)  Zhongke integrated refining and chemical project

      Zhongke integrated refining and petrochemical project consists mainly of a 10,000,000 tpa refinery, 800,000 tpa ethylene unit, 300,000 tonne jetty and relevant utilities. The mechanical completion is expected to be achieved in December 2019. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining 70%. As of 30 June 2019, the aggregate investment was RMB 21.7 billion.

 

(3)  Zhenhai Refining & Chemical expansion project

      Zhenhai Refining & Chemical expansion project consists of 15,000,000 tpa refinery project and 1,200,000 tpa ethylene project. The project was approved in June 2018, ethylene and relevant projects started at the end of October 2018 and the mechanical completion is expected to be achieved in December 2021. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining 70%. As of 30 June 2019, the aggregate investment was RMB 1.6 billion.

 

(4)  Erdos-Anping-Cangzhou pipeline project

      The first phase of Erdos-Anping-Cangzhou pipeline project mainly consists of the main pipeline from Luquan to Cangzhou and two branch pipelines named Puyang and Baoding respectively. Total length of the pipeline is 736 kilometers and designed transmission capacity is 9 billion cubic meters per year. It is expected to be completed and put into operation in December 2019. The Company's self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2019, the aggregate investment was RMB 5.5 billion.

 

(5)  Wen 23 gas storage project

      The first phase of Wen 23 gas storage project mainly consists of construction of injection and production wells and surface facilities with storage capacity of 8.431 billion cubic meters. The gas storage is expected to be officially put into operation in July 2020. The Company's self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2019, the aggregate investment was RMB 7.0 billion.

 

(6)  Xinqi pipeline project

      The first phase of Xinqi gas pipeline project mainly consists of pipeline from Qianjiang to Shaoguan with total length of 839.5 kilometres and designed transmission capacity of 6 billion cubic meters per year. It is expected to be completed and put into operation in July 2020. The Company's self-owned fund accounts for 38% of the project investment and bank loan is the main source of the remaining 62%. As of 30 June 2019, the aggregate investment was RMB 6.3 billion.

 

(7)  Weirong shale gas project

      Under the guidance of "overall deployment, stage-wise implementation and fully consideration", the building of first phase of production capacity, which is 1 billion cubic meters per year, was promoted comprehensively since August 2018. It is expected to be completed and put into operation in December 2020. The Company's self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2019, the aggregate investment was RMB 1.6 billion.

 

4    CORPORATE BONDS ISSUED AND INTEREST PAYMENTS

 

      Basic information of corporate bonds

 

Bond name

Sinopec Corp 2010 Corporate bond

Sinopec Corp. 2012 Corporate bond

Sinopec Corp. 2015 Corporate bond (first issue)

Abbreviation

10石化02

12石化02

15石化02

Code

122052

122150

136040

Issuance date

21 May 2010

1 June 2012

19 November 2015

Maturity date

21 May 2020

1 June 2022

19 November 2020

Amount issued (RMB billion)

9

7

4

Outstanding balance (RMB billion)

9

7

4

Interest rate (%)

4.05

4.90

3.70

Principal and interest repayment

Simple interest is calculated and paid on an annual basis without compounding interests. The principal will be paid at maturity with last installment of interest.

Payment of interests

Sinopec Corp. had paid in full the interest accrued of "10石化02" and "12石化02" during the reporting period

Investor Qualification Arrangement

15石化02 was publicly offered to qualified investors in accordance with Administration of the Issuance and Trading of Corporate Bonds

Listing place

Shanghai Stock Exchange

Corporate bonds trustee

China International Capital Corporation Limited

27th-28th Floor, China World Office 2, 1 Jianguomenwai Avenue, Chaoyang District, Beijing

Huang Xu, Zhai Ying

(010) 6505 1166

Credit rating agency

United Credit Ratings Co., Ltd.

12th Floor, PICC building, No.2 Jianguomenwai Avenue, Chaoyang District, Beijing

Use of proceeds

Proceeds from the above-mentioned corporate bonds have been used for their designated purpose as disclosed. All the proceeds have been completely used.

Credit rating

During the reporting period, United Credit Ratings Co., Ltd. provided credit rating for 10石化02, 12石化02 and 15石化02 and reaffirmed AAA credit rating in the continuing credit rating report. The long term credit rating of Sinopec Corp. remained AAA with its outlook being stable. Pursuant to relevant regulations, Sinopec Corp. has published latest credit rating results through media designated by regulators within two months commencing from the announcement date of annual report.

Credit addition mechanism, repayment scheme and other relative events for corporate bonds during the reporting period

During the reporting period, there is no credit addition mechanism and change of the repayment arrangement for the above-mentioned corporate bonds. Sinopec Corp. strictly followed the provisions in the corporate bond prospectus to repay interests of the corporate bonds.

The guarantee of 10石化02 and 12石化02 is China Petrochemical Corporation. For more information of the guarantee, please refer to the interim report of corporate bonds which will be published on website of Shanghai  Stock Exchange by China Petrochemical Corporation

Convening of corporate bond holders' meeting

During the reporting period, the bondholders' meeting was not convened.

Performance of corporate bonds trustee

During the durations of the above-mentioned bonds, the bond trustee, China International Capital Corporation Limited, has strictly followed the Bond Trustee Management Agreement and continuously tracked the Company's credit status, utilisation of bond proceeds and repayment of principals and interests of the bond. The bond trustee has also advised the Company to fulfil obligations as described in the corporate bond prospectus and exercised its duty to protect the bondholders' legitimate rights and interests. The bond trustee has disclosed the Trustee Management Affairs Report. The full disclosure is available on the website of Shanghai Stock Exchange (http://www.sse.com.cn)

 

 

      Principal accounting data and financial indicators as of 30 June 2019

 

As of 30 June

As of 31 December

 

Principal data

2019

2018

Change

   Reasons for change

Current ratio

0.90

0.89

0.01

   Due to the increase of current asset

Quick ratio

0.53

0.57

(0.04)

   Due to the increase of inventories

Liability-to-asset ratio
 

52.42%
 

46.14%
 

6.28

percentage points

   Due to impact of New Lease Standard

 

Loan repayment rate

100%

100%

-

-

 

Six-month period ended 30 June

2019

2018

Change

   Reasons for change

EBITDA-to-interest coverage ratio

 

12.20

 

35.40

 

(23.20)

 

   Due to the increase of interest expense resulting from New Lease Standard

Interest payment rate

100%

100%

-

-

 

During the reporting period, the Company paid in full the interest accrued for the other bonds and debt financing instruments. As at 30 June 2019, the standby credit line provided by several domestic financial institutions to the Company was RMB 388.388 billion in total, facilitating the Company to get such amount of unsecured loans. During the reporting period, Sinopec Corp. fulfilled relevant undertakings in the prospectus of corporate bonds. During the reporting period, Sinopec Corp. had no significant matters which could influence the Company's operation and debt paying ability.

 

On 18 April 2013, Sinopec Capital (2013) Limited, a wholly-owned overseas subsidiary of Sinopec Corp., issued senior notes guaranteed by Sinopec Corp. with four different maturities of 3 years, 5 years, 10 years and 30 years. The 3-year notes principal totaled USD 750 million, with an annual interest rate of 1.250% and was repaid in full; the 5-year notes principal totaled USD 1 billion, with an annual interest rate of 1.875% and was repaid in full; the 10-year notes principal totaled USD 1.25 billion, with an annual interest rate of 3.125%; and the 30-year notes principal totaled USD 500 million, with an annual interest rate of 4.250%. These notes were listed on the Hong Kong Stock Exchange on 25 April 2013, with interest payable semi-annually. The first payment of interest was made on 24 October 2013. During the reporting period, the Company has paid in full the current-period interests of the notes with maturities of 10 years and 30 years.

 

5    CAPITAL INCREASE AND ASSETS TRANSFER TO SINOPEC-SK (WUHAN) PETROCHEMICAL CO., LTD., (SINOPEC-SK)

On 29 April 2019, Sinopec Corp. entered into the Sinopec-SK Capital Increase Agreement with Sinopec Group Asset Management Co., Ltd. (Sinopec Asset), SK GLOBAL CHEMICAL CO., LTD. (SKGC) and Sinopec-SK, jointly, to agree upon the Capital Increase in Sinopec-SK. Upon completion of the Capital Increase, Sinopec Corp.'s shareholding in Sinopec-SK reduced from 65% to 59%, Sinopec Asset's shareholding increased from 0% to 6% and SKGC's shareholding remained unchanged at 35%. On the same date, Sinopec Corp. entered into the Asset Transfer Agreement with Sinopec-SK. The Sinopec-SK Capital Increase and the Asset Transfer were completed on 8 July 2019. For the details, please refer to the announcements published by Sinopec Corp. in China Securities Journal, Shanghai Securities News and Securities Times, and on the website of Shanghai Stock Exchange on 30 April 2019 and 9 July 2019 and on the website of Hong Kong Stock Exchange on 29 April 2019 and on 8 July 2019.

 

6    CORE COMPETITIVENESS ANALYSIS

The Company is a large scale integrated energy and petro-chemical company with upstream, mid-stream and downstream operations. The Company is a large scaled oil and gas producer in China; in respect of refining capacity, it ranks first in China; equipped with a well-developed refined oil products sales network, the Company is the largest supplier of refined oil products in China; and in terms of ethylene production capacity, the Company takes the first position in China, and has a well-established marketing network for chemical products.

 

The integrated business structure of the Company carries strong advantages in synergy among its various business segments, enabling the Company to continuously tap onto potentials in attaining an efficient and comprehensive utilisation of its resources, and endows the Company with strong resistance against risks, as well as remarkable capabilities in sustaining profitability.

 

The Company owns a favourable positioning with its operations located close to the consumer markets. Along with the steady growth in the Chinese economy, sales volume of both oil products and chemical products of the Company has been increasing steadily over the years; through continuous and specialised marketing efforts, the Company's capability in international operations and market expansion has been further enhanced.

 

The Company owns a team of professionals and expertise engaged in the production of oil and gas, operation of refineries and chemical plants, as well as marketing activities. The Company applies outstanding fine management measures with its remarkable capabilities in management of operations, and owns a favourable operational cost advantage in its downstream businesses.

 

The Company has formulated a well-established technology system and mechanism, and owns competent teams specialised in R&D covering a wide range of subjects; the four platforms for technology advancement are taking shape, which include exploration and development of oil and gas, refining, petrochemicals and strategic emerging technologies. With its overall technologies reaching state of the art level in the global arena, and some of them taking the lead globally, the Company owns a strong technical strength.

 

The Company always attaches great importance to fulfilling social responsibilities, and carries out the green and low carbon development strategy to pursue a sustainable de-velopment. Moreover, the Company owns an outstanding "Sinopec" brand name, plays an important role in the national economy and is a renowned and reputable company in China.

 

7    CONTINUING CONNECTED TRANSACTIONS DURING THE REPORTING PERIOD

Sinopec Corp. and China Petrochemical Corporation entered into a number of agreements with respect to continuing connected transactions, including the mutual supply agreement, the cultural, educational, hygiene and auxiliary agreement, the land use rights leasing agreement, the properties leasing agreement, the intellectual property licensing agreement and safety production insurance fund document.

 

Pursuant to the above-mentioned agreements on continuing connected transactions (as amended from time to time), the aggregate amount of the connected transactions of the Company during the reporting period was RMB 207.453 billion. Among which, purchases expenses amounted to RMB 131.922 billion, representing 8.63% of the total amount of this type of transaction for the reporting period, including purchases of products and services (procurement, storage, exploration and development services, and production-related services) of RMB 123.958 billion, purchases of cultural, educational, hygiene and auxiliary services of RMB1.544 billion, payment of property rent of RMB 252 million, payment of land use rights of RMB 5.386 billion, and interest expenses of RMB 782 million. The sales income amounted to RMB 75.531 billion, representing 4.8% of the total amount of this type of transaction for the reporting period, including sales of products and services of RMB 74.988 billion, agency commission income of RMB 46 million, and interest income of RMB 497 million.

 

The amounts of the above continuing connected transactions between the Company and Sinopec Group did not exceed the relevant caps for the continuing connected transactions as approved by the general meeting of shareholders and the Board.

 

8    FUNDS PROVIDED BETWEEN RELATED PARTIES

Unit: RMB million

 

Funds to related parties

Funds from related parties

Relations

Balance

at the beginning

of the period

Amount incurred

Balance

at the end

of the period

Balance

at the beginning

of the period

Amount incurred

Balance

at the end

of the period

Sinopec Group

 

Parent company and its subordinate companies*

29,415

 

4,122

 

33,537

 

30,232

 

380

 

30,612

 

Other related parties

Associates and joint ventures

1,431

(418)

1,013

333

(63)

270

Total

 

30,846

3,704

34,550

30,565

317

30,882

Reason for provision of funds between related parties

             Loans and other accounts receivable and accounts payable

Impacts on the Company

             No material negative influence

 

*: Subordinate companies include subsidiaries, joint ventures and associates.

 

9    SIGNIFICANT LITIGATION AND ARBITRATION RELATING TO THE COMPANY

      No significant litigation, arbitration relating to the Company occurred during the reporting period.

 

10  CREDIBILITY FOR THE COMPANY, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER

      During the reporting period, the Company and its controlling shareholder did not have any court's effective judgments which should be executed or any large amount of debt which should be repaid.

 

11  OTHER MATERIAL CONTRACTS

      Saved as disclosed by Sinopec Corp., the Company did not enter into any significant contracts subject to disclosure obligations during the reporting period.

 

12  SIGNIFICANT EQUITY INVESTMENTS

      During the reporting period, the Company did not have significant equity investment.

 

13  SIGNIFICANT ASSETS AND EQUITY SALE

During the reporting period, there was no significant assets or equity sale of the Company

 

14  DEPOSITS AT SINOPEC FINANCE CO., LTD AND SINOPEC CENTURY BRIGHT CAPITAL INVESTMENT LTD.

      During the reporting period, the deposit placed by the Company in Sinopec Finance Co., Ltd. (Finance Company) and Sinopec Century Bright Capital Investment Ltd. (Century Bright Company) was strictly in compliance with the cap as approved at the general meeting of shareholders. During daily operations, the deposits placed by the Company in the Finance Company and Century Bright Company can be fully withdrawn for the Company's use.

 

15  MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE

Unit: RMB Million

Major external guarantees (excluding guarantees for controlled subsidiaries)

Guarantor

Relationship with the Company

Name of guaranteed companies

Amount

Transaction date (date of signing)

Period of guarantee

Type

Whether completed or not

Whether overdue or not

Amounts of overdue guarantee

Counter-guarantee

Whether guaranteed for connected parties1

 

Sinopec Corp.

The listed company itself

Zhongtian Hechuang

Energy Co., Ltd

11,492

5 May 2016

25 May 2016 -31 December 2023 (the mature date is estimated)

Joint liability guarantee

No

No

-

No

Yes

 

Sinopec Corp.

The listed company itself

Zhong An United Coal Chemical Co., Ltd.

6,147

18 April 2018

18 April 2018 -31 December 2031

Joint liability guarantee

No

No

-

No

No

 

Sinopec Corp.

The listed company itself

Yanbu Aramco Sinopec Refining Company (YASREF) Limited

no specific amount agreed, guarantee on contract performance

31 December 2014

30 years from the date YASRFE requires supply of hydrogen from Air Liquedie Arabia LLC.

Joint liability guarantee

Yes

No

-

No

No

 

SSI

Controlled subsidiary

New Bright International Development Ltd./ Sonangol E.P./SSI15

7,434

 

 

Joint liability guarantee

No

No

-

Yes

No

 

Total amount of guarantees provided during the reporting period2

0

Total amount of guarantee balance at the end of reporting period2 (A)

21,755

Guarantees by the Company to the controlled subsidiaries

 

Total amount of guarantee provided to controlled subsidiaries during the reporting period

0

Total amount of guarantee for controlled subsidiaries balance at the end of the reporting period (B)

11,975

Total amount of guarantees provided by the Company (including those provided for controlled subsidiaries)

 

Total amount of guarantees (A+B)

33,730

The proportion of the total amount of guarantees attribute to the Sinopec Corp.'s net assets (%)

4.66

Among which:

 

Guarantees provided for shareholders, de facto controller and connected parties (C)

0

Amount of debt guarantees provided directly or indirectly for the companies with liabilities to assets ratio over 70% (D)

2,862

The amount of guarantees in excess of 50% of the net assets (E)

0

Total amount of the above three guarantee items (C+D+E)

2,862

Explanation of guarantee undue that might involve joint and several liabilities

None

Explanation of guarantee status

None

 

 

1:   As defined in the Rules Governing the Listing of Stocks on Shanghai Stock Exchange.

 

2:   The amount of guarantees provided during the reporting period and the outstanding balance of guarantees amount at the end of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of the guarantees provided by these subsidiaries is derived from multiplying the guarantees provided by Sinopec Corp.'s subsidiaries by the percentage of shareholding of Sinopec Corp. in such subsidiaries.

 

16 PERFORMANCE OF THE UNDERTAKINGS

 

Whether

Whether

Type of Undertaking

Party

Contents

  Term for performance

bears deadline

or not

strictly

performed

or not

Undertakings

IPO

China

1    Compliance with the connected transaction agreements;

  From 22 June 2001

No

Yes

related to Initial Public Offerings (IPOs)

Petrochemical Corporation

2    Solving the issues regarding the legality of land-use rights certificates and property ownership rights certificates within a specified period of time;

3    Implementation of the Reorganisation Agreement (please refer to the definition of Reorganisation Agreement in the H share prospectus of Sinopec Corp.);

4    Granting licenses for intellectual property rights;

5    Avoiding competition within the same industry;

 

 

 

6    Abandonment of business competition and conflicts of interest with Sinopec Corp.

 

 

 

Other undertakings

 

Other

 

China Petrochemical Corporation

 

Given that China Petrochemical Corporation engages in the same or similar businesses as Sinopec Corp. with regard to the exploration and production of overseas petroleum and natural gas, China Petrochemical Corporation hereby grants a 10-year option to Sinopec Corp. with the following provisions: (i) after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell its overseas oil and gas assets owned as of the date of the undertaking and still in its possession upon Sinopec Corp.'s exercise of the option to Sinopec Corp.; (ii) in relation to the overseas oil and gas assets acquired by China Petrochemical Corporation after the issuance of the undertaking, within 10 years of the completion of such acquisition, after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell these assets to Sinopec Corp. China Petrochemical Corporation undertakes to transfer the assets as required by Sinopec Corp. under aforesaid items (i) and (ii) to Sinopec Corp., provided that the exercise of such option complies with applicable laws and regulations, contractual obligations and other procedural requirements.

Within 10 years after 29   April 2014 or the date   when China   Petrochemical   Corporation acquires the   assets

 

Yes

 

Yes

 

 

As of the date of this report, Sinopec Corp. had no undertakings in respect of profits, asset injections or asset restructuring that had not been fulfilled, nor did Sinopec Corp. make any profit forecast in relation to any asset or project.

 

17  STRUCTURED ENTITY CONTROLLED BY THE COMPANY

None

 

18  DETAILED IMPLEMENTATION OF THE SHARE INCENTIVE SCHEME DURING THE REPORTING PERIOD

Sinopec Corp. and its subsidiaries did not implement any share incentive scheme during the reporting period.

 

19  REPURCHASE, SALES AND REDEMPTION OF SHARES

During this reporting period, neither Sinopec Corp. nor any of its subsidiaries repurchased, sold or redeemed any listed shares of Sinopec Corp.

 

20  INFORMATION ON MAJOR SUBSIDIARIES

The subsidiary whose net profit or investment income accounts for more than 10% of the Company's net profit:

 

Unit: RMB million

 

Percentage of

share held by

Revenue of

Profit of

Registered

capital

Sinopec Corp.

(%)

Total asset

Net Assets

Net Profit/

(Net Loss)

principal

business

principal

business

Principal Activities

Sinopec Marketing

28,403

70.42

481,752

214,145

11,756

673,011

41,285

Sales of refined

 Co., Ltd.

 

 

 

 

 

 

 

oil products

 

21  ENVIRONMENTAL PROTECTION BY SINOPEC CORP. AND ITS SUBSIDIARIES

During the reporting period, some subsidiaries of Sinopec Corp. which are listed as major pollutant discharge units have disclosed environmental information as required by the relevant authorities and local government. The details of such information were published on the local government website. Sinopec Corp. strictly implemented the new standards in refining and petrochemical industry, completed the treatment of sewage and flue gas, and actively conducted the com-prehensive treatment of VOCs, pollution prevention and control facilities remained in effective and stable operation. The Company further regulated environmental management of construction projects, enhanced assessment, and implemented "three-simultaneity" management (environmental facilities shall be designed, constructed and put into operation simultaneously with the main construction). All of the newly-built projects have obtained approvals from the environment authorities. Sinopec Corp. strictly complies with relevant national requirements on environment emergency plan management and continuously improves the emergency plans for environmental emergencies and heavy pollution weather. According to the national pollution permit and self-monitoring technology guidelines in relevant industries, we got pollutant discharge permit, modified the self-monitoring plan, and implemented new national requirements of sewage, waste gas and noise monitory, and disclosed the environmental monitoring results.

 

22  OTHER EVENTS

Sinopec Corp. published voluntary announcement and progress update announcements in relation to China International United Petroleum and Chemical Company Limited. For details, please refer to the announcements published in China Securities Journal, Shanghai Securities News, Securities Times and the website of the Shanghai Stock Exchange on 28 December 2018, 5 January 2019 and 26 January 2019 and on the website of Hong Kong Stock Exchange on 27 December 2018, 4 January 2019 and 25 January 2019.

 

23  RISK FACTORS

In the course of its production and operations, the Company will actively take various measures to circumvent operational risks. However, in practice, it may not be possible to prevent the occurrence of all risks and uncertainties described below.

 

Risks with regard to the variations from macroeconomic situation: The business results of the Company are closely related to China's and global economic situation. The development of Chinese economy has entered new normal. Although various countries have adopted different kinds of macroeconomic policies to eliminate negative effects caused by lower growth of global economy, the turnaround of economic recovery still remains uncertain. Trade protectionism could slow global trade growth, especially in emerging economies. The Company's business could also be adversely affected by such factors as the impact on export due to trade protectionism from some countries, impact on China-US trade friction, impact on import which is likely caused by regional trade agreements, impact on oversea oil and gas exploration and development, as well as on investment on refining and petrochemical and storage projects, due to the uncertainty of international oil price.

 

Risks with regard to the cyclical effects from the industry: The majority of the Company's operating income comes from the sales of refined oil products, and petrochemical products, and part of those businesses and their related products are cyclic and are sensitive to macro-economy, cyclic changes of regional and global economy, the changes of the production capacity and output, demand of consumers, prices and supply of the raw materials, as well as prices and supply of the alternative products etc. Although the Company is an integrated company with upstream, midstream and downstream operations, it can only alleviate the adverse influences of industry cycle to certain extent.

 

Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalising the market entry regulations on petroleum and petrochemicals sector, the petroleum and petrochemical industries in China are still subject to entry regulations to a certain degree, which include: issuing licenses in relation to exploration and development of crude oil and natural gas, issuing business licenses for trading crude oil and refined oil, setting caps for retail prices of gasoline, diesel and other refined oil products, the imposing of the special oil income levy, formulation of import and export quotas and procedures, formulation of safety, quality and environmental protection standards and formulation of energy conservation policies. In addition, the changes which have occurred or might occur in macroeconomic and industry policies such as the opening up of crude oil import licenses, and further improvement in pricing mechanism of refined oil products, service stations open to foreign investment on full scale, reforming and improvement in pricing mechanism of natural gas, cost supervision of gas pipeline and access to third party, and reforming in resource tax, environmental tax and oil & gas industrial system, will cause effects on our business operations. Such changes might further intensify market competition and have certain effect on the operations and profitability of the Company.

 

Risks with regard to the changes from environmental legislation requirements: Our production activities generate waste liquids, exhaust gases and solid wastes. The Company has built up the supporting waste treatment systems or entrust certain qualified companies to handle, so as to prevent and reduce the pollution to the environment. However, the relevant government authorities may issue and implement much stricter environmental protection laws and regulations, and adopt much more rigorous environment protection standards. Under such situations, the Company may increase expenses in relation to the environment protection accordingly.

 

Risks from the uncertainties of obtaining additional oil and gas resources: The sustainable development of the Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring additional oil and natural gas resources. To obtain additional oil and natural gas resources, the Company faces some inherent risks associated with exploration and development and/or with acquisition activities, and the Company has to invest a large amount of capital with no guarantee of certainty. If the Company fails to acquire additional resources through further exploration, development and acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the Company may decline overtime which may adversely affect the Company's financial situation and operation performance.

 

Risks with regard to the external purchase of crude oil: A significant amount of crude oil as needed by the Company is satisfied through external purchases. In recent years, especially influenced by the mismatch between supply and demand of crude oil, geopolitics, global economic growth and other factors, the prices of crude oil fluctuated sharply. Additionally, the supply of crude oil may even be interrupted due to some extreme major incidents in certain regions. Although the Company has taken flexible counter measures, it may not fully avoid risks associated with any significant fluctuation of international crude oil prices and sudden disruption of supply of crude oil from certain regions.

 

Risks with regard to the operation and natural disasters: The process of petroleum chemical production is exposed to the high risks of inflammation, explosion and environmental pollution and is vulnerable to extreme natural disasters. Such contingencies may cause serious impacts to the society, major financial losses to the Company and grievous injuries to people. The Company has always been paying great emphasis on the safety production, and has implemented a strict HSSE management system as an effort to avoid such risks as far as possible. Meanwhile, the main assets and inventories of the Company as well as the possibility of damage to a third party have been insured. However, such measures may not shield the Company from financial losses or adverse impact resulting from such contingencies.

 

Investment risks: Petroleum and chemical sector is a capital intensive industry. Although the Company adopted a prudent investment strategy, and as required by the new procedure and management of investment decision-making issued in 2017, conducted rigorous feasibility study on each investment project, which consists of special verifications in raw material market, technical scheme, profitability, safety and environmental protection, legal compliance, etc., certain investment risks will still exist because of expected investment not being enough due to increased prices of equipment and raw materials, expected progress not being on schedule due to difficulty of application for Environmental Impact Assessment Permit and Safety Impact Assessment Permit, and expected return not being achieved due to price change of commodities, during the implementation of the projects.

 

Risks with regard to overseas business development and management: The Company engages in oil and gas exploration, refining and chemical, warehouse logistics and international trading businesses in some regions outside China. The Company's overseas businesses and assets are subject to the jurisdiction of the host country's laws and regulations. In light of the complicated factors such as imbalance of global economy, competitiveness of industry policies and trade structure, exclusiveness of regional trading blocs, polarisation of benefits distribution, and politicisation of investment and economic and trade issues, including in-stability of society and political situation in resource countries, trade friction, sanctions, barriers to entry, instability in the financial and taxation policies, public safety, contract defaults, tax dispute, severe environmental protection policies, etc., the Company's risks with regard to overseas business development and management could be increased.

 

Currency risks: At present, China implements an administered floating exchange rate regime based on market supply and demand which is regulated with reference to a basket of currencies in terms of the exchange rate of Renminbi. As the Company purchases a significant portion of crude oil in foreign currency which is based on US dollar-denominated prices, the realized price of crude oil is based on international oil price. Despite the fact that, the price of the domestic refined oil products will change as the exchange rate of the Renminbi changes according to the pricing mechanism for the domestic refined oil products, and the price of other domestic petrochemical products will also be influenced by the price of the imported products, which to a large extent, smooths the impact of the Renminbi exchange rate on the processing and sales of the Company's crude oil refined products. However, the fluctuation of the Renminbi exchange rate will still have an effect on the income of the upstream sector.

 

Cyber-security risks: Informatisation has penetrated to every field of the Company's operation business. The Company devotes significant resources to protecting our digital infrastructure and data against cyber-attacks, if our systems for protecting against cyber-security risk prove to be ineffective, we could be adversely affected by, among other things, disruptions to our business operations, loss of proprietary information, including loss of significant data, intellectual property, financial information and employer and customer data, as well as damage to people, property, environment and reputation. As cyber-security attacks continue to evolve, we may be required to expend additional resources to enhance our protective measures against cyber-security breaches.

 

 

 

DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

 

1    INFORMATION ON APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT

None

 

2    NO CHANGES IN SHAREHOLDINGS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT DURING THE REPORTING PERIOD

 

Report of the prc Auditor

 

 

PwC ZT Yue Zi (2019) No.0041

 

To the Shareholders of China Petroleum & Chemical Corporation,

 

We have reviewed the accompanying interim financial statements of China Petroleum & Chemical Corporation (hereinafter "Sinopec Corp."), which comprise the consolidated and company balance sheets as at 30 June 2019, and the consolidated and company income statements, the consolidated and company statements of changes in shareholders' equity and the consolidated and company cash flow statements for the six months period then ended, and the notes to the financial statements. Management of Sinopec Corp. is responsible for the preparation of these financial statements in accordance with the requirements of Accounting Standards for Business Enterprises ("CASs"). Our responsibility is to issue a report on these financial statements based on our review.

 

We conducted our review in accordance with China Standard on Review No. 2101-Engagements to Review Financial Statements. This Standard requires that we plan and perform the review to obtain limited assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared in accordance with the requirements of CASs, and cannot present fairly, in all material respects, the consolidated and the company's financial position of Sinopec Corp. as at 30 June 2019, and their financial performance and cash flows for the six months period then ended in accordance with the requirements of CASs.

 

 

 

 

 

 

 

PricewaterhouseCoopers Zhong Tian LLP

Signing CPA

Zhao Jianrong

Shanghai, the People's Republic of China

23 August 2019

Signing CPA

Gao Peng

 

 

        UNAUDITED CONSOLIDATED BALANCE SHEET

          As at 30 June 2019

 

Note

At 30 June

At 31 December

2019

2018

RMB million

RMB million

Assets

 

 

 

Current assets

 

 

 

Cash at bank and on hand

5

163,147

167,015

Financial assets held for trading

6

19,539

25,732

Derivative financial assets

7

3,690

7,887

Bills receivable

8

6,986

7,886

Accounts receivable

9

72,455

56,993

Prepayments

10

9,064

5,937

Other receivables

11

24,924

25,312

Inventories

12

222,891

184,584

Other current assets

 

22,162

22,774

Total current assets

 

544,858

504,120

Non-current assets

 

 

 

Long-term equity investments

13

148,016

145,721

Other equity instrument investments

 

1,426

1,450

Fixed assets

14

601,321

617,812

Construction in progress

15

148,116

136,963

Right-of-use assets

16

204,615

-

Intangible assets

17

103,141

103,855

Goodwill

18

8,680

8,676

Long-term deferred expenses

19

7,944

15,659

Deferred tax assets

20

18,526

21,694

Other non-current assets

21

38,202

36,358

Total non-current assets

 

1,279,987

1,088,188

 

 

 

 

Total assets

 

1,824,845

1,592,308

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Short-term loans

23

76,742

44,692

Derivative financial liabilities

7

1,986

13,571

Bills payable

24

6,749

6,416

Accounts payable

25

225,017

186,341

Contract liabilities

26

130,002

124,793

Employee benefits payable

27

13,000

7,312

Taxes payable

28

29,643

87,060

Other payables

29

80,199

77,463

Non-current liabilities due within one year

30

42,097

17,450

Total current liabilities

 

605,435

565,098

Non-current liabilities

 

 

 

Long-term loans

31

67,359

61,576

Debentures payable

32

22,975

31,951

Lease liabilities

33

182,309

-

Provisions

34

44,089

42,800

Deferred tax liabilities

20

5,843

5,948

Other non-current liabilities

35

28,523

27,276

Total non-current liabilities

 

351,098

169,551

 

 

 

 

Total liabilities

 

956,533

734,649

Shareholders' equity

 

 

 

Share capital

36

121,071

121,071

Capital reserve

37

119,247

119,192

Other comprehensive income

38

(1,388)

(6,774)

Specific reserve

 

2,678

1,706

Surplus reserves

39

203,678

203,678

Retained earnings

 

279,209

279,482

Total equity attributable to shareholders of the Company

 

724,495

718,355

Minority interests

 

143,817

139,304

Total shareholders' equity

 

868,312

857,659

 

 

 

 

Total liabilities and shareholders' equity

 

1,824,845

1,592,308

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED BALANCE SHEET

As at 30 June 2019

 

Note

At 30 June

At 31 December

2019

2018

RMB million

RMB million

Assets

 

 

 

Current assets

 

 

 

Cash at bank and on hand

 

71,662

82,879

Financial assets held for trading

 

10,500

22,500

Derivative financial assets

 

288

-

Bills receivable

 

340

156

Accounts receivable

9

28,650

29,989

Prepayments

10

3,778

2,488

Other receivables

11

61,078

57,432

Inventories

 

57,302

45,825

Other current assets

 

20,491

15,835

Total current assets

 

254,089

257,104

Non-current assets

 

 

 

Long-term equity investments

13

293,255

289,207

Other equity instrument investments

 

395

395

Fixed assets

14

291,289

302,082

Construction in progress

15

52,440

51,598

Right-of-use assets

16

116,645

-

Intangible assets

 

8,635

8,571

Long-term deferred expenses

 

2,463

2,480

Deferred tax assets

 

10,073

11,021

Other non-current assets

 

4,245

9,145

Total non-current assets

 

779,440

674,499

 

 

 

 

Total assets

 

1,033,529

931,603

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Short-term loans

 

31,119

3,961

Derivative financial liabilities

 

1

967

Bills payable

 

2,464

2,075

Accounts payable

 

90,942

82,343

Contract liabilities

 

4,273

4,230

Employee benefits payable

 

8,103

4,294

Taxes payable

 

20,019

54,764

Other payables

 

116,719

119,514

Non-current liabilities due within one year

 

32,841

16,729

Total current liabilities

 

306,481

288,877

Non-current liabilities

 

 

 

Long-term loans

 

47,643

48,104

Debentures payable

 

11,000

20,000

Lease liabilities

 

110,435

-

Provisions

 

33,936

33,094

Other non-current liabilities

 

4,668

4,332

Total non-current liabilities

 

207,682

105,530

 

 

 

 

Total liabilities

 

514,163

394,407

Shareholders' equity

 

 

 

Share capital

 

121,071

121,071

Capital reserve

 

68,802

68,795

Other comprehensive income

 

339

(485)

Specific reserve

 

1,427

989

Surplus reserves

 

203,678

203,678

Retained earnings

 

124,049

143,148

Total shareholders' equity

 

519,366

537,196

 

 

 

 

Total liabilities and shareholders' equity

 

1,033,529

931,603

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the six-month period ended 30 June 2019

 

Note

Six-month period ended 30 June

2019

2018

RMB million

RMB million

Operating income

40

1,498,996

1,300,252

Less:  Operating costs

40/43

1,263,093

1,050,719

Taxes and surcharges

41

120,246

118,721

Selling and distribution expenses

43

29,740

27,661

General and administrative expenses

43

27,039

33,908

Research and development expenses

43/44

3,989

4,080

Financial expenses

42

5,163

263

Exploration expenses, including dry holes

43/45

4,347

4,362

Add:   Other income

46

1,600

1,849

Investment income

47

2,774

5,884

Losses from changes in fair value

48

(306)

(450)

Credit impairment losses

 

(13)

38

Impairment losses

49

(82)

(137)

Asset disposal (losses)/gains

 

(174)

218

Operating profit

 

49,178

67,940

Add:   Non-operating income

50

685

630

Less:  Non-operating expenses

51

767

703

Profit before taxation

 

49,096

67,867

Less:  Income tax expense

52

10,140

14,586

Net profit

 

38,956

53,281

Classification by going concern:

 

 

 

Continuous operating net profit

 

38,956

53,281

Termination of net profit

 

-

-

Classification by ownership:

 

 

 

Equity shareholders of the Company

 

31,338

41,600

Minority interests

 

7,618

11,681

Basic earnings per share

62

0.259

0.344

Diluted earnings per share

62

0.259

0.344

Other comprehensive income

38

 

 

Items that may not be reclassified subsequently to profit or loss

 

 

 

Changes in fair value of other equity instrument investments

 

(20)

(17)

Items that may be reclassified subsequently to profit or loss

 

 

 

Other comprehensive income that can be converted into profit or loss

 under the equity method

 

(509)

(113)

Cash flow hedges

 

4,791

(508)

Foreign currency translation differences

 

306

896

Total other comprehensive income

 

4,568

258

 

 

 

 

Total comprehensive income

 

43,524

53,539

Attributable to:

 

 

 

Equity shareholders of the Company

 

35,916

41,603

Minority interests

 

7,608

11,936

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED INCOME STATEMENT

For the six-month period ended 30 June 2019

 

Note

Six-month period ended 30 June

2019

2018

RMB million

RMB million

Operating income

40

512,335

494,612

Less: Operating costs

40

404,570

369,561

Taxes and surcharges

 

81,950

83,045

Selling and distribution expenses

 

1,550

1,405

General and administrative expenses

 

11,167

16,810

Research and development expenses

 

3,727

3,888

Financial expenses

 

3,913

1,389

Exploration expenses, including dry holes

 

4,021

4,173

Add:  Other income

 

891

593

Investment income

47

10,805

9,861

Gains/(losses) from changes in fair value

 

20

(171)

Credit impairment losses

 

8

14

Impairment losses

 

1

(49)

Asset disposal gains

 

21

252

Operating profit

 

13,183

24,841

Add:  Non-operating income

 

111

145

Less: Non-operating expenses

 

277

289

Profit before taxation

 

13,017

24,697

Less: Income tax expense

 

510

4,082

Net profit

 

12,507

20,615

Classification by going concern:

 

 

 

Continuous operating net profit

 

12,507

20,615

Termination of net profit

 

-

-

Other comprehensive income

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

Other comprehensive income that can be converted
 into profit or loss under the equity method

 

27

-

Cash flow hedges

 

759

-

Total other comprehensive income

 

786

-

 

 

 

 

Total comprehensive income

 

13,293

20,615

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

For the six-month period ended 30 June 2019

 

Note

Six-month period ended 30 June

2019

2018

RMB million

RMB million

Cash flows from operating activities:

 

 

 

Cash received from sale of goods and rendering of services

 

1,585,959

1,464,593

Refund of taxes and levies

 

736

905

Other cash received relating to operating activities

 

69,270

33,582

Sub-total of cash inflows

 

1,655,965

1,499,080

Cash paid for goods and services

 

(1,297,454)

(1,145,090)

Cash paid to and for employees

 

(32,849)

(32,167)

Payments of taxes and levies

 

(206,645)

(204,541)

Other cash paid relating to operating activities

 

(86,099)

(45,662)

Sub-total of cash outflows

 

(1,623,047)

(1,427,460)

 

 

 

 

Net cash flow from operating activities

54(a)

32,918

71,620

Cash flows from investing activities:

 

 

 

Cash received from disposal of investments

 

17,019

49,244

Cash received from returns on investments

 

4,038

3,609

Net cash received from disposal of fixed assets, intangible assets
 and other long-term assets

 

107

7,480

Other cash received relating to investing activities

 

41,787

42,408

Sub-total of cash inflows

 

62,951

102,741

Cash paid for acquisition of fixed assets, intangible assets
 and other long-term assets

 

(46,253)

(35,084)

Cash paid for acquisition of investments

 

(11,958)

(6,840)

Other cash paid relating to investing activities

 

(53,813)

(38,371)

Net cash paid for the acquisition of subsidiaries and other business entities

 

-

(3,188)

Sub-total of cash outflows

 

(112,024)

(83,483)

 

 

 

 

Net cash flow from investing activities

 

(49,073)

19,258

Cash flows from financing activities:

 

 

 

Cash received from capital contributions

 

1,570

502

Including: Cash received from minority shareholders' capital
 contributions to subsidiaries

 

1,570

502

Cash received from borrowings

 

331,459

317,798

Other cash received relating to financing activities

 

300

-

Sub-total of cash inflows

 

333,329

318,300

Cash repayments of borrowings

 

(293,992)

(308,961)

Cash paid for dividends, profits distribution or interest

 

(35,341)

(58,634)

Including: Subsidiaries' cash payments for distribution
 of dividends or profits to minority shareholders

 

(648)

(7,250)

Other cash paid relating to financing activities

54(d)

(6,941)

(13)

Sub-total of cash outflows

 

(336,274)

(367,608)

 

 

 

 

Net cash flow from financing activities

 

(2,945)

(49,308)

Effects of changes in foreign exchange rate

 

(40)

(34)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

54(b)

(19,140)

41,536

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED CASH FLOW STATEMENT

For the six-month period ended 30 June 2019

 

Note

Six-month period ended 30 June

2019

2018

RMB million

RMB million

Cash flows from operating activities:

 

 

 

Cash received from sale of goods and rendering of services

 

591,443

575,001

Refund of taxes and levies

 

573

521

Other cash received relating to operating activities

 

1,080

2,267

Sub-total of cash inflows

 

593,096

577,789

Cash paid for goods and services

 

(431,378)

(388,198)

Cash paid to and for employees

 

(17,414)

(17,980)

Payments of taxes and levies

 

(137,807)

(133,955)

Other cash paid relating to operating activities

 

(3,625)

(7,019)

Sub-total of cash outflows

 

(590,224)

(547,152)

 

 

 

 

Net cash flow from operating activities

 

2,872

30,637

Cash flows from investing activities:

 

 

 

Cash received from disposal of investments

 

14,138

57,751

Cash received from returns on investments

 

8,453

23,497

Net cash received from disposal of fixed assets, intangible assets and other long-term assets

 

17

469

Other cash received relating to investing activities

 

15,504

21,526

Sub-total of cash inflows

 

38,112

103,243

Cash paid for acquisition of fixed assets, intangible assets and other long-term assets

 

(22,231)

(17,135)

Cash paid for acquisition of investments

 

(5,783)

(2,864)

Other cash paid relating to investing activities

 

(25,900)

(5,010)

Sub-total of cash outflows

 

(53,914)

(25,009)

 

 

 

 

Net cash flow from investing activities

 

(15,802)

78,234

Cash flows from financing activities:

 

 

 

Cash received from borrowings

 

73,981

56,132

Other cash received relating to financing activities

 

35,924

-

Sub-total of cash inflows

 

109,905

56,132

Cash repayments of borrowings

 

(47,206)

(95,449)

Cash paid for dividends or interest

 

(32,501)

(51,028)

Other cash paid relating to financing activities

 

(40,385)

-

Sub-total of cash outflows

 

(120,092)

(146,477)

 

 

 

 

Net cash flow from financing activities

 

(10,187)

(90,345)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(23,117)

18,526

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six-month period ended 30 June 2019

 

Total

Share

capital

Capital

reserve

Other

comprehensive

income

Specific

reserve

Surplus

reserves

Retained

earnings

shareholders'

equity

attributable

to equity

shareholders of

the Company

Minority

interests

Total

shareholders'

equity

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Balance at 31 December 2017

121,071

119,557

(4,413)

888

199,682

290,459

727,244

126,826

854,070

Change in accounting policy

-

-

(12)

-

-

12

-

-

-

Balance at 1 January 2018

121,071

119,557

(4,425)

888

199,682

290,471

727,244

126,826

854,070

Change for the period

 

 

 

 

 

 

 

 

 

1.    Net profit

-

-

-

-

-

41,600

41,600

11,681

53,281

2.    Other comprehensive income (Note 38)

-

-

3

-

-

-

3

255

258

Total comprehensive income

-

-

3

-

-

41,600

41,603

11,936

53,539

Transactions with owners, recorded directly
 in shareholders' equity:

 

 

 

 

 

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

 

 

 

 

 

- Distributions to shareholders (Note 53)

-

-

-

-

-

(48,428)

(48,428)

-

(48,428)

4.    Contributions to subsidiaries
 from minority interests

-

-

-

-

-

-

-

448

448

5.    Transaction with minority interests

-

32

-

-

-

-

32

(119)

(87)

6.    Distributions to minority interests

-

-

-

-

-

-

-

(3,092)

(3,092)

Total transactions with owners, recorded directly
 in shareholders' equity

-

32

-

-

-

(48,428)

(48,396)

(2,763)

(51,159)

7.    Net increase in specific reserve for the period

-

-

-

864

-

-

864

118

982

8.    Others

-

(12)

-

-

-

(110)

(122)

1

(121)

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2018

121,071

119,577

(4,422)

1,752

199,682

283,533

721,193

136,118

857,311

Balance at 1 January 2019

121,071

119,192

(6,774)

1,706

203,678

279,482

718,355

139,304

857,659

Change for the period

 

 

 

 

 

 

 

 

 

1.    Net profit

-

-

-

-

-

31,338

31,338

7,618

38,956

2.    Other comprehensive income (Note 38)

-

-

4,578

-

-

-

4,578

(10)

4,568

Total comprehensive income

-

-

4,578

-

-

31,338

35,916

7,608

43,524

Amounts transferred to initial carrying
 amount of hedged items

-

-

808

-

-

-

808

55

863

Transactions with owners, recorded
 directly in shareholders' equity:

 

 

 

 

 

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

 

 

 

 

 

- Distributions to shareholders (Note 53)

-

-

-

-

-

(31,479)

(31,479)

-

(31,479)

4.    Contributions to subsidiaries
 from minority interests

-

-

-

-

-

-

-

437

437

5.    Distributions to minority interests

-

-

-

-

-

-

-

(3,705)

(3,705)

Total transactions with owners, recorded
 directly in shareholders' equity

-

-

-

-

-

(31,479)

(31,479)

(3,268)

(34,747)

6.    Net increase in specific reserve for the period

-

-

-

972

-

-

972

117

1,089

7.    Others

-

55

-

-

-

(132)

(77)

1

(76)

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2019

121,071

119,247

(1,388)

2,678

203,678

279,209

724,495

143,817

868,312

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

UNAUDITED STATEMENT OF CHANGES IN EQUITY

For the six-month period ended 30 June 2019

 

Other

Total

Share

capital

Capital

reserve

comprehensive

income

Specific

reserve

Surplus

reserves

Retained

earnings

shareholders'

equity

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Balance at 31 December 2017

121,071

68,789

196

482

199,682

177,049

567,269

Change in accounting policy

-

-

-

-

-

-

-

Balance at 1 January 2018

121,071

68,789

196

482

199,682

177,049

567,269

Change for the period

 

 

 

 

 

 

 

1.    Net profit

-

-

-

-

-

20,615

20,615

2.    Other comprehensive income

-

-

-

-

-

-

-

Total comprehensive income

-

-

-

-

-

20,615

20,615

Transactions with owners, recorded directly
 in shareholders' equity:

 

 

 

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

 

 

 

- Distributions to shareholders (Note 53)

-

-

-

-

-

(48,428)

(48,428)

Total transactions with owners, recorded
 directly in shareholders' equity

-

-

-

-

-

(48,428)

(48,428)

4.    Net increase in specific reserve for the period

-

-

-

451

-

-

451

5.    Others

-

-

-

-

-

(86)

(86)

 

 

 

 

 

 

 

 

Balance at 30 June 2018

121,071

68,789

196

933

199,682

149,150

539,821

Balance at 1 January 2019

121,071

68,795

(485)

989

203,678

143,148

537,196

Change for the period

 

 

 

 

 

 

 

1.    Net profit

-

-

-

-

-

12,507

12,507

2.    Other comprehensive income

-

-

786

-

-

-

786

Total comprehensive income

-

-

786

-

-

12,507

13,293

Amounts transferred to initial carrying
 amount of hedged items

-

-

38

-

-

-

38

Transactions with owners, recorded directly
 in shareholders' equity:

 

 

 

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

 

 

 

- Distributions to shareholders (Note 53)

-

-

-

-

-

(31,479)

(31,479)

Total transactions with owners, recorded
 directly in shareholders' equity

-

-

-

-

-

(31,479)

(31,479)

4.    Net increase in specific reserve for the period

-

-

-

438

-

-

438

5.    Others

-

7

-

-

-

(127)

(120)

 

 

 

 

 

 

 

 

Balance at 30 June 2019

121,071

68,802

339

1,427

203,678

124,049

519,366

 

These financial statements have been approved and authorised for issue by the board of directors on 23 August 2019.

 

 

 

 

 

Dai Houliang

Ma Yongsheng

Wang Dehua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

noteS to the unaudited interim financial statements

For the six-month period ended 30 June 2019

 

1    STATUS OF THE COMPANY

 

China Petroleum & Chemical Corporation (the "Company") was established on 25 February 2000 as a joint stock limited company. The company is registered in Beijing, the People's Republic of China, and the headquarter is located in Beijing, the People's Republic of China. The approval date of the financial report is 23 Aug 2019.

 

According to the State Council's approval to the "Preliminary Plan for the Reorganisation of China Petrochemical Corporation" (the "Reorganisation"), the Company was established by China Petrochemical Corporation ("Sinopec Group Company"), which transferred its core businesses together with the related assets and liabilities at 30 September 1999 to the Company. Such assets and liabilities had been valued jointly by China United Assets Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal Corporation and Zhong Fa International Properties Valuation Corporation. The net asset value was determined at RMB 98,249,084,000. The valuation was reviewed and approved by the Ministry of Finance (the "MOF") (Cai Ping Zi [2000] No. 20 "Comments on the Review of the Valuation Regarding the Formation of a Joint Stock Limited Company by China Petrochemical Corporation").

 

In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 "Reply to the Issue Regarding Management of State-Owned Equity by China Petroleum and Chemical Corporation" issued by the MOF, 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each were issued to Sinopec Group Company, the amount of which is equivalent to 70% of the above net asset value transferred from Sinopec Group Company to the Company in connection with the Reorganisation.

 

Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 "Reply on the Formation of China Petroleum and Chemical Corporation", the Company obtained the approval from the State Economic and Trade Commission on 21 February 2000 for the formation of a joint stock limited company.

 

The Company took over the exploration, development and production of crude oil and natural gas, refining, chemicals and related sales and marketing business of Sinopec Group Company after the establishment of the Company.

 

The Company and its subsidiaries (the "Group") engage in the oil and gas and chemical operations and businesses, including:

 

(1)  the exploration, development and production of crude oil and natural gas;

 

(2)  the refining, transportation, storage and marketing of crude oil and petroleum product; and

 

(3)  the production and sale of chemical.

 

Details of the Company's principal subsidiaries are set out in Note 57, and there are no significant changes related to the consolidation scope during current period.

 

2    BASIS OF PREPARATION

 

(1)  Statement of compliance of China Accounting Standards for Business Enterprises ("CASs")

The financial statements have been prepared in accordance with the requirements of Accounting Standards for Business Enterprises - Basic Standards, specific standards and relevant regulations (hereafter referred as CASs collectively) issued by the MOF on or after 15 February 2006. These financial statements also comply with the disclosure requirements of "Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports" issued by the China Securities Regulatory Commission ("CSRC"). These financial statements present truly and completely the consolidated and company financial position as at 30 June 2019, and the consolidated and company financial performance and the consolidated and company cash flows for the six-month period ended 30 June 2019.

 

These financial statements are prepared on a basis of going concern.

 

(2)  Accounting period

The accounting year of the Group is from 1 January to 31 December.

 

(3)  Measurement basis

The financial statements of the Group have been prepared under the historical cost convention, except for the assets and liabilities set out below:

 

-  Financial assets held for trading (see Note 3(11))

 

-  Other equity instrument investments (see Note 3(11))

 

-  Derivative financial instruments (see Note 3(11))

 

(4)  Functional currency and presentation currency

The functional currency of the Company's and most of its subsidiaries are Renminbi. The Company and its subsidiaries determine their functional currency according to the main economic environment in where they operate. The Group's consolidated financial statements are presented in Renminbi. Some of subsidiaries use other currency as the functional currency. The Company translates the financial statements of subsidiaries from their respective functional currencies into Renminbi (see Note 3(2)) if the subsidiaries' functional currencies are not Renminbi.

 

3    SIGNIFICANT ACCOUNTING POLICIES

 

The Group determines specific accounting policies and accounting estimates based on the characteristics of production and operational activities, mainly reflected in the accounting for allowance for financial assets (Note 3(11)), valuation of inventories (Note 3(4)), depreciation of fixed assets and depletion of oil and gas properties (Note 3(7), (8)), measurement of provisions (Note 3(16)), etc.

 

Principal accounting estimates and judgements of the Group are set out in Note 56.

 

(1)  Accounting treatment of business combination involving entities under common control and not under common control

 

(a)  Business combination involving entities under common control

A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities that the acquirer receives in the acquisition are accounted for at the acquiree's carrying amount on the acquisition date. The difference between the carrying amount of the acquired net assets and the carrying amount of the consideration paid for the acquisition (or the total nominal value of shares issued) is recognised in the share premium of capital reserve, or the retained earnings in case of any shortfall in the share premium of capital reserve. Any costs directly attributable to the combination shall be recognised in profit or loss for the current period when occurred. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. The combination date is the date on which the acquirer effectively obtains control of the acquiree.

 

(b)  Business combination involving entities not under common control

A business combination involving entities or businesses not under common control is a business combination in which all of the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the business combination. Difference between the consideration paid by the Group as the acquirer, comprises of the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree, and the Group's interest in the fair value of the identifiable net assets of the acquiree, is recognised as goodwill (Note 3(10)) if it is an excess, otherwise in the profit or loss. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. Any other expense directly attributable to the business combination is recognised in the profit or loss for the year. The difference between the fair value and the book value of the assets given is recognised in profit or loss. The acquiree's identifiable assets, liabilities and contingent liabilities, if satisfying the recognition criteria, are recognised by the Group at their fair value at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

 

(c)  Method for preparation of consolidated financial statements

The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the Company and its subsidiaries. Control means an entity is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 

Where the Company combines a subsidiary during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary's assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts in the subsidiary's financial statements, from the date that common control was established.

 

Where the Company acquires a subsidiary during the reporting year through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, based on the fair value of those identifiable assets and liabilities at the acquisition date.

 

Where the Company acquired a minority interest from a subsidiary's minority shareholders, the difference between the investment cost and the newly acquired interest into the subsidiary's identifiable net assets at the acquisition date is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. Where the Company partially disposed an investment of a subsidiary that do not result in a loss of control, the difference between the proceeds and the corresponding share of the interest into the subsidiary is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. If the credit balance of capital reserve (capital surplus) is insufficient, any excess is adjusted to retained profits.

 

In a business combination involving entities not under common control achieved in stages, the Group remeasures its previously held equity interest in the acquiree on the acquisition date. The difference between the fair value and the net book value is recognised as investment income for the year. If other comprehensive income was recognised regarding the equity interest previously held in the acquiree before the acquisition date, the relevant other comprehensive income is transferred to investment income in the period in which the acquisition occurs.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(1)  Accounting treatment of business combination involving entities under common control and not under common control (Continued)

 

(c)  Method for preparation of consolidated financial statements (Continued)

Where control of a subsidiary is lost due to partial disposal of the equity investment held in a subsidiary, or any other reasons, the Group derecognises assets, liabilities, minority interests and other equity items related to the subsidiary. The remaining equity investment is remeasured to fair value at the date in which control is lost. The sum of consideration received from disposal of equity investment and the fair value of the remaining equity investment, net of the fair value of the Group's previous share of the subsidiary's identifiable net assets recorded from the acquisition date, is recognised in investment income in the period in which control is lost. Other comprehensive income related to the equity investment of the original subsidiary shall be converted into the current investment income in the event of loss of control.

 

Minority interest is presented separately in the consolidated balance sheet within shareholders' equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item.

 

The excess of the loss attributable to the minority interests during the period over the minority interests' share of the equity at the beginning of the reporting period is deducted from minority interests.

 

Where the accounting policies and accounting period adopted by the subsidiaries are different from those adopted by the Company, adjustments are made to the subsidiaries' financial statements according to the Company's accounting policies and accounting period. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

 

The unrealised profit or loss arising from the sale of assets by the Company to its subsidiaries is eliminated in full against the net profit attributed to shareholders; the unrealised profit or loss from the sale of assets by subsidiaries to the Company is eliminated according to the distribution ratio between shareholders of the parent company and minority interests. For sale of assets that occurred between subsidiaries, the unrealised gains and losses is eliminated according to the distribution ratio for its subsidiaries seller between net profit attributable to shareholders of the parent company and minority interests.

 

(2)  Transactions in foreign currencies and translation of financial statements in foreign currencies

Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates at the transaction dates.

 

Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except for those directly related to the acquisition, construction or production of qualified assets, are recognised as income or expenses in the income statement. Non-monetary items denominated in foreign currency measured at historical cost are not translated. Non-monetary items denominated in foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. The difference between the translated amount and the original currency amount is recognised as other comprehensive income, if it is classified as other equity instrument investments; or charged to the income statement if it is measured at fair value through profit or loss.

 

The assets and liabilities of foreign operation are translated into Renminbi at the spot exchange rates at the balance sheet date. The equity items, excluding "Retained earnings", are translated into Renminbi at the spot exchange rates at the transaction dates. The income and expenses of foreign operation are translated into Renminbi at the spot exchange rates or an exchange rate that approximates the spot exchange rates on the transaction dates. The resulting exchange differences are separately presented as other comprehensive income in the balance sheet within equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised in which relate to that foreign operation is transferred to profit or loss in the year in which the disposal occurs.

 

(3)  Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(4)  Inventories

Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures incurred in bringing the inventories to their present location and condition. The cost of inventories is calculated using the weighted average method. In addition to the cost of purchase of raw material, work in progress and finished goods include direct labour and an appropriate allocation of manufacturing overhead costs.

 

At the balance sheet date, inventories are stated at the lower of cost and net realisable value.

 

Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The net realisable value of materials held for use in the production is measured based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general selling prices.

 

Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss.

 

Inventories are recorded by perpetual method.

 

(5)  Long-term equity investments

 

(a)  Investment in subsidiaries

In the Company's separate financial statements, long-term equity investments in subsidiaries are accounted for using the cost method. Except for cash dividends or profits distributions declared but not yet distributed that have been included in the price or consideration paid in obtaining the investments, the Company recognises its share of the cash dividends or profit distributions declared by the investee as investment income irrespective of whether these represent the net profit realised by the investee before or after the investment. Investments in subsidiaries are stated at cost less impairment losses (see Note 3(12)) in the balance sheet. At initial recognition, such investments are measured as follows:

 

The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the Company's share of the carrying amount of the subsidiary's equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings.

 

For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost comprises the aggregate of the fair values of assets transferred, liabilities incurred or assumed, and equity securities issued by the Company, in exchange for control of the acquiree. For a long-term equity investment obtained through a business combination not involving enterprises under common control, if it is achieved in stages, the initial cost comprises the carrying value of previously-held equity investment in the acquiree immediately before the acquisition date, and the additional investment cost at the acquisition date.

 

An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual purchase cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by investors.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(5)  Long-term equity investments (Continued)

 

(b)  Investment in joint ventures and associates

A joint venture is an incorporated entity over which the Group, based on legal form, contractual terms and other facts and circumstances, has joint control with the other parties to the joint venture and rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the Group and the parties sharing control.

 

An associate is the investee that the Group has significant influence on their financial and operating policies. Significant influence represents the right to participate in the financial and operating policy decisions of the investee but is not control or joint control over the establishment of these policies. The Group generally considers the following circumstances in determining whether it can exercise significant influence over the investee: whether there is representative appointed to the board of directors or equivalent governing body of the investee; whether to participate in the investee's policy-making process; whether there are significant transactions with the investees; whether there is management personnel sent to the investee; whether to provide critical technical information to the investee.

 

An investment in a joint ventures or an associate is accounted for using the equity method, unless the investment is classified as held for sale.

 

The initial cost of investment in joint ventures and associates is stated at the consideration paid except for cash dividends or profits distributions declared but unpaid at the time of acquisition and therefore included in the consideration paid should be deducted if the investment is made in cash. Under the circumstances that the long-term investment is obtained through non-monetary asset exchange, the initial cost of the investment is stated at the fair value of the assets exchanged if the transaction has commercial substance, the difference between the fair value of the assets exchanged and its carrying amount is charged to profit or loss; or stated at the carrying amount of the assets exchanged if the transaction lacks commercial substance.

 

The Group's accounting treatments when adopting the equity method include:

 

Where the initial investment cost of a long-term equity investment exceeds the Group's interest in the fair value of the investee's identifiable net assets at the date of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group's interest in the fair value of the investee's identifiable net assets at the time of acquisition, the investment is initially recognised at the investor's share of the fair value of the investee's identifiable net assets, and the difference is charged to profit or loss.

 

After the acquisition of the investment, the Group recognises its share of the investee's net profits or losses and other comprehensive income as investment income or losses and other comprehensive income, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group.

 

The Group recognises its share of the investee's net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee's net identifiable assets at the time of acquisition. Under the equity accounting method, unrealised profits and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group's interest in the associates or joint ventures. Unrealised losses resulting from transactions between the Group and its associates or joint ventures are fully recognised in the event that there is an evidence of impairment.

 

The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that is in substance forms part of the Group's net investment in the associate or the joint venture is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment losses and the provision. Where net profits are subsequently made by the associate or joint venture, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised.

 

The Group adjusts the carrying amount of the long-term equity investment for changes in owners' equity of the investee other than those arising from net profits or losses and other comprehensive income, and recognises the corresponding adjustment in capital reserve.

 

(c)  The impairment assessment method and provision accrual on investment

The impairment assessment and provision accrual on investments in subsidiaries, associates and joint ventures are stated in Note 3(12).

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(6)  Lease

A lease is a contract if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

(a)  As Lessee

The Group recognises a right-of-use asset at the commencement date, and recognises the lease liability at the present value of the lease payments that are not paid at that date. The lease payments include fixed payments, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the lessee exercising an option to terminate the lease. Variable payments that are a percentage of sales is not included in lease payments, and should be recognised in profit or loss when incurred. Lease liabilities to be paid within one year (including one year) after balance sheet date is presented in non-current liabilities due within one year.

 

Right-of-use assets of the Group mainly comprise land. Right-of-use assets are measured at cost, the cost of the right-of-use assets comprise the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee, less any lease incentives received. The Group depreciates the right-of-use assets on straight-line basis from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. When the recoverable amount of a right-of-use asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount.

 

For short-term leases with lease term of 12 months or less, or leases for which the underlying assets are individually of low value when it is new, the Group recognises the lease payments associated with those leases as an expense on straight-line basis over the lease term or as cost of relevant assets, instead of recognising as right-of-use assets and lease liabilities.

 

(b)  As Lessor

The Group classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Other leases are classified as operating lease.

 

When the Group leases self-owned plants and buildings, equipment and machinery, lease income from an operating lease is recognised on a straight-line basis over the period of the lease. The Group recognises variable lease payment which is based on a certain percentage of sales as lease income when it actually occurs.

 

(7)  Fixed assets and construction in progress

Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and for operation and administrative purposes with useful life over one year.

 

Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(12)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(12)).

 

The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(19)), and any other costs directly attributable to bringing the asset to working condition for its intended use. According to legal or contractual obligations, costs of dismantling and removing the items and restoring the site on which the related assets located are included in the initial cost.

 

Construction in progress is transferred to fixed assets when the asset is ready for its intended use. No depreciation is provided against construction in progress.

 

Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a separate fixed asset.

 

The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred.

 

The Group terminates the recognition of an item of fixed asset when it is in a state of disposal or it is estimated that it is unable to generate any economic benefits through use or disposal. Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(7)  Fixed assets and construction in progress (Continued)

Other than oil and gas properties, the cost of fixed assets less residual value and accumulated impairment losses is depreciated using the straight-line method over their estimated useful lives, unless the fixed asset is classified as held for sale. The estimated useful lives and the estimated rate of residual values adopted for respective classes of fixed assets are as follows:

 

Estimated

Estimated rate

useful life

of residual value

Plants and buildings

12-50 years

3%

Equipment, machinery and others

4-30 years

3%

 

Useful lives, residual values and depreciation methods are reviewed at least each year end.

 

(8)  Oil and gas properties

Oil and gas properties include the mineral interests in properties, wells and related support equipment arising from oil and gas exploration and production activities.

 

The acquisition cost of mineral interest is capitalised as oil and gas properties. Costs of development wells and related support equipment are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. Exploratory well costs are charged to expenses upon the determination that the well has not found proved reserves. However, in the absence of a determination of the discovery of proved reserves, exploratory well costs are not carried as an asset for more than one year following completion of drilling. If, after one year has passed, a determination of the discovery of proved reserves cannot be made, the exploratory well costs are impaired and charged to expense. All other exploration costs, including geological and geophysical costs, are charged to profit or loss in the year as incurred.

 

The Group estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices. These estimated future dismantlement costs are discounted at credit-adjusted risk-free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties.

 

Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

 

(9)  Intangible assets

Intangible assets, where the estimated useful life is finite, are stated in the balance sheet at cost less accumulated amortisation and provision for impairment losses (see Note 3(12)). For an intangible asset with finite useful life, its cost less estimated residual value and accumulated impairment losses is amortised on a straight-line basis over the expected useful lives, unless the intangible assets are classified as held for sale.

 

An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the year over which the asset is expected to generate economic benefits for the Group.

 

Useful lives and amortisation methods are reviewed at least each year end.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(10) Goodwill

The initial cost of goodwill represents the excess of cost of acquisition over the acquirer's interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control.

 

Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(12)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the calculation of the profit or loss on disposal.

 

(11) Financial Instruments

Financial instruments, refer to the contracts that form one party's financial assets and form the financial liabilities or equity instruments of the other party. The Group recognises a financial asset or a financial liability when the Group enters into and becomes a party to the underlining contract of the financial instrument.

 

(a)  Financial assets

 

(i)  Classification and measurement

The Group classifies financial assets into different categories depending on the business model for managing the financial assets and the contractual terms of cash flows of the financial assets: (1) financial assets measured at amortised cost, (2) financial assets measured at fair value through other comprehensive income, (3) financial assets measured at fair value through profit or loss. A contractual cash flow characteristic which could have only a de minimis effect, or could have an effect that is more than de minimis but is not genuine, does not affect the classification of the financial asset.

 

Financial assets are initially recognised at fair value. For financial assets measured at fair value through profit or loss, the relevant transaction costs are recognised in profit or loss. The transaction costs for other financial assets are included in the initially recognised amount. Accounts receivable or bills receivable arising from sales of goods or rendering services, without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Group.

 

Debt instruments

 

Debt instruments held by the Group mainly include cash at bank and on hand, and receivables, etc. These financial assets are measured at amortised cost.

 

The business model for managing such financial assets by the Group are held for collection of contractual cash flows. The contractual cash flow characteristics are to give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income from these financial assets is recognised using the effective interest rate method.

 

Equity instruments

 

Equity instruments that the Group has no power to control, jointly control or exercise significant influence over, are measured at fair value through profit or loss and presented as financial assets held for trading.

 

In addition, the Group designates some equity instruments that are not held for trading as financial assets at fair value through other comprehensive income, and presented in other equity instrument investments. The relevant dividends of these financial assets are recognised in profit or loss. When derecognised, the cumulative gain or loss previously recognised in other comprehensive income transfer to retained earnings.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(11) Financial Instruments (Continued)

 

(a)  Financial assets (Continued)

 

(ii) Impairment

The Group recognises a loss allowance for expected credit losses on a financial asset that is measured at amortised cost.

 

The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions.

 

The Group measures the expected credit losses of financial instruments on different stages at each balance sheet date. For financial instruments that have no significant increase in credit risk since the initial recognition, on first stage, the Group measures the loss allowance at an amount equal to 12-month expected credit losses. If there has been a significant increase in credit risk since the initial recognition of a financial instrument but credit impairment has not occurred, on second stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. If credit impairment has occurred since the initial recognition of a financial instrument, on third stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses.

 

For financial instruments that have low credit risk at the balance sheet date, the Group assumes that there is no significant increase in credit risk since the initial recognition, and measures the loss allowance at an amount equal to 12-month expected credit losses.

 

For financial instruments on the first stage and the second stage, and that have low credit risk, the Group calculates interest income according to carrying amount without deducting the impairment allowance and effective interest rate. For financial instruments on the third stage, interest income is calculated according to the carrying amount minus amortised cost after the provision of impairment allowance and effective interest rate.

 

For accounts receivable related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit losses.

 

The Group recognises the loss allowance accrued or written back in profit or loss.

 

(iii)  Derecognition

The Group derecognises a financial asset when a) the contractual right to receive cash flows from the financial asset expires; b) the Group transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset; c) the financial assets have been transferred and the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, but the Group has not retained control.

 

On derecognition of other equity instrument investments, the difference between the carrying amounts and the sum of the consideration received and any cumulative gain or loss previously recognised in other comprehensive income, is recognised in retained earnings. While on derecognition of other financial assets, this difference is recognised in profit or loss.

 

(b)  Financial liabilities

The Group, at initial recognition, classifies financial liabilities as either financial liabilities subsequently measured at amortised cost or financial liabilities at fair value through profit or loss.

 

The Group's financial liabilities are mainly financial liabilities measured at amortised cost, including bills payable, accounts payable, other payables, loans and debentures payable, etc. These financial liabilities are initially measured at the amount of their fair value after deducting transaction costs and use the effective interest rate method for subsequent measurement.

 

Where the present obligations of financial liabilities are completely or partially discharged, the Group derecognises these financial liabilities or discharged parts of obligations. The differences between the carrying amounts and the consideration received are recognised in profit or loss.

 

(c)  Determination of fair value

If there is an active market for financial instruments, the quoted price in the active market is used to measure fair values of the financial instruments. If no active market exists for financial instruments, valuation techniques are used to measure fair values. In valuation, the Group adopts valuation techniques that are applicable in the current situation and have sufficient available data and other information to support it, and selects input values that are consistent with the asset or liability characteristics considered by market participants in the transaction of relevant assets or liabilities, and gives priority to relevant observable input values. Use of unobservable input values where relevant observable input values cannot be obtained or are not practicable.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(11) Financial Instruments (Continued)

 

(d)  Derivative financial instruments and hedge accounting

Derivative financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivatives qualify for hedge accounting.

 

Hedge accounting is a method which recognises the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item in the same accounting period, to represent the effect of risk management activities.

 

Hedged items are the items that expose the Group to risks of changes in future cash flows and that are designated as being hedged and that must be reliably measurable. The Group's hedged items include a forecast transaction that is settled with an undetermined future market price and exposes the Group to risk of variability in cash flows, etc.

 

A hedging instrument is a designated derivative whose changes in cash flows are expected to offset changes in the cash flows of the hedged item.

 

The hedging relationship meets all of the following hedge effectiveness requirements:

 

(1)  There is an economic relationship between the hedged item and the hedging instrument, which share a risk and that gives rise to opposite changes in fair value that tend to offset each other.

 

(2)  The effect of credit risk does not dominate the value changes that result from that economic relationship.

 

(3)  The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation shall not reflect an imbalance between the weightings of the hedged item and the hedging instrument.

 

-  Cash flow hedges

 

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. As long as a cash flow hedge meets the qualifying criteria for hedge accounting, the hedging relationship shall be accounted for as follows:

 

-  The cumulative gain or loss on the hedging instrument from inception of the hedge;

 

-  The cumulative change in present value of the expected future cash flows on the hedged item from inception of the hedge.

 

The gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income.

 

The portion of the gain or loss on the hedging instrument that is determined to be an ineffective hedge is recognised in profit or loss.

 

If a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a non-financial asset or a non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity shall remove that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment and hence it does not affect other comprehensive income.

 

For cash flow hedges, other than those covered by the preceding two policy statements, that amount shall be reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss.

 

If the amount that has been accumulated in the cash flow hedge reserve is a loss and the Group expects that all or a portion of that loss will not be recovered in one or more future periods, the Group immediately reclassify the amount that is not expected to be recovered into profit or loss.

 

When the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity no longer pursues that risk management objective), or when a hedging instrument expires or is sold, terminated, exercised, or there is no longer an economic relationship between the hedged item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve and shall be accounted for as cash flow hedges. If the hedged future cash flows are no longer expected to occur, that amount shall be immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment. A hedged future cash flow that is no longer highly probable to occur may still be expected to occur, if the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve and shall be accounted for as cash flow hedges.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(12) Impairment of other non-financial long-term assets

Internal and external sources of information are reviewed at each balance sheet date for indications that the following assets, including fixed assets, construction in progress, right-of-use assets, goodwill, intangible assets and investments in subsidiaries, associates and joint ventures may be impaired.

 

Assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The recoverable amounts of goodwill and intangible assets with uncertain useful lives are estimated annually no matter there are any indications of impairment. Goodwill is tested for impairment together with related asset units or groups of asset units.

 

An asset unit is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. An asset unit comprises related assets that generate associated cash inflows. In identifying an asset unit, the Group primarily considers whether the asset unit is able to generate cash inflows independently as well as the management style of production and operational activities, and the decision for the use or disposal of asset.

 

The recoverable amount is the greater of the fair value less costs to sell and the present value of expected future cash flows generated by the asset (or asset unit, set of asset units).

 

Fair value less costs to sell of an asset is based on its selling price in an arm's length transaction less any direct costs attributable to the disposal. Present value of expected future cash flows is the estimation of future cash flows to be generated from the use of and upon disposal of the asset, discounted at an appropriate pre-tax discount rate over the asset's remaining useful life.

 

If the recoverable amount of an asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The amount by which the carrying amount is reduced is recognised as an impairment loss in profit or loss. A provision for impairment loss of the asset is recognised accordingly. Impairment losses related to an asset unit or a set of asset units first reduce the carrying amount of any goodwill allocated to the asset unit or set of asset units, and then reduce the carrying amount of the other assets in the asset unit or set of asset units on a pro rata basis. However, the carrying amount of an impaired asset will not be reduced below the highest of its individual fair value less costs to sell (if determinable), the present value of expected future cash flows (if determinable) and zero.

 

Impairment losses for assets are not reversed.

 

(13) Long-term deferred expenses

Long-term deferred expenses are amortised on a straight-line basis over their beneficial periods.

 

(14) Employee benefits

Employee benefits are all forms of considerations and compensation given in exchange for services rendered by employees, including short term compensation, post-employment benefits, termination benefits and other long term employee benefits.

 

(a)  Short term compensation

Short term compensation includes salaries, bonuses, allowances and subsidies, employee benefits, medical insurance premiums, work-related injury insurance premium, maternity insurance premium, contributions to housing fund, unions and education fund and short-term absence with payment etc. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the short term compensation actually incurred as a liability and charge to the cost of an asset or to profit or loss in the same period, and non-monetary benefits are valued with the fair value.

 

(b)  Post-employment benefits

The Group classifies post-employment benefits into either Defined Contribution Plan (DC plan) or Defined Benefit Plan (DB plan). DC plan means the Group only contributes a fixed amount to an independent fund and no longer bears other payment obligation; DB plan is post-employment benefits other than DC plan. In this reporting period, the post-employment benefits of the Group primarily comprise basic pension insurance and unemployment insurance and both of them are DC plans.

 

Basic pension insurance

 

Employees of the Group participate in the social insurance system established and managed by local labor and social security department. The Group makes basic pension insurance to the local social insurance agencies every month, at the applicable benchmarks and rates stipulated by the government for the benefits of its employees. After the employees retire, the local labor and social security department has obligations to pay them the basic pension. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the accrued amount according to the above social security provisions as a liability and charge to the cost of an asset or to profit or loss in the same period.

 

(c)  Termination benefits

When the Group terminates the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognised in profit or loss under the conditions of both the Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly; and the Group is not allowed to withdraw from termination plan or redundancy offer unilaterally.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(15) Income tax

Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to business combinations and items recognised directly in equity (including other comprehensive income).

 

Current tax is the expected tax payable calculated at the applicable tax rate on taxable income for the year, plus any adjustment to tax payable in respect of previous years.

 

At the balance sheet date, current tax assets and liabilities are offset if the Group has a legally enforceable right to set them off and also intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

 

Deferred tax assets and liabilities are recognised based on deductible temporary differences and taxable temporary differences respectively. Temporary difference is the difference between the carrying amounts of assets and liabilities and their tax bases. Unused tax losses and unused tax credits able to be utilised in subsequent years are treated as temporary differences. Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available to offset the deductible temporary differences.

 

Temporary differences arise in a transaction, which is not a business combination, and at the time of transaction, does not affect accounting profit or taxable profit (or unused tax losses), will not result in deferred tax. Temporary differences arising from the initial recognition of goodwill will not result in deferred tax.

 

At the balance sheet date, the amounts of deferred tax recognised is measured based on the expected manner of recovery or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is recovered or the liability is settled in accordance with tax laws.

 

The carrying amount of deferred tax assets is reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of deferred tax asset, the carrying amount of the deferred tax assets is written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available.

 

At the balance sheet date, deferred tax assets and liabilities are offset if all the following conditions are met:

 

-   the taxable entity has a legally enforceable right to offset current tax assets and current tax liabilities; and

 

-   they relate to income taxes levied by the same tax authority on either:

 

-   the same taxable entity; or

 

-   different taxable entities which either to intend to settle the current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

 

(16) Provisions

Provisions are recognised when the Group has a present obligation as a result of a contingent event, it is probable that an outflow of economic benefits will be required to settle the obligations and a reliable estimate can be made. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows.

 

Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group's expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest costs, is reflected as an adjustment to the provision of oil and gas properties.

 

(17) Revenue recognition

Revenue arises in the course of the Group's ordinary activities, and increases in economic benefits in the form of inflows that result in an increase in equity, other than those relating to contributions from equity participants.

 

The Group sells crude oil, natural gas, petroleum and chemical products, etc. Revenue is recognised according to the expected consideration amount, when a customer obtains control over the relevant goods or services. To determine whether a customer obtains control of a promised asset, the Group shall consider indicators of the transfer of control, which include, but are not limited to, the Group has a present right to payment for the asset; the Group has transferred physical possession of the asset to the customer; the customer has the significant risks and rewards of ownership of the asset; the customer has accepted the asset.

 

Sales of goods

Sales are recognised when control of the goods have transferred, being when the products are delivered to the customer. Advance from customers but goods not yet delivered is recorded as contract liabilities and is recognised as revenues when a customer obtains control over the relevant goods.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(18) Government grants

Government grants are the gratuitous monetary assets or non-monetary assets that the Group receives from the government, excluding capital injection by the government as an investor. Special funds such as investment grants allocated by the government, if clearly defined in official documents as part of "capital reserve" are dealt with as capital contributions, and not regarded as government grants.

 

Government grants are recognised when there is reasonable assurance that the grants will be received and the Group is able to comply with the conditions attaching to them. Government grants in the form of monetary assets are recorded based on the amount received or receivable, whereas non-monetary assets are measured at fair value.

 

Government grants received in relation to assets are recorded as deferred income, and recognised evenly in profit or loss over the assets' useful lives. Government grants received in relation to revenue are recorded as deferred income, and recognised as income in future periods as compensation when the associated future expenses or losses arise; or directly recognised as income in the current period as compensation for past expenses or losses.

 

(19) Borrowing costs

Borrowing costs incurred on borrowings for the acquisition, construction or production of qualified assets are capitalised into the cost of the related assets in the capitalisable period.

 

Except for the above, other borrowing costs are recognised as financial expenses in the income statement when incurred.

 

(20) Repairs and maintenance expenses

Repairs and maintenance (including overhauling expenses) expenses are recognised in profit or loss when incurred.

 

(21) Environmental expenditures

Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations is expensed as incurred. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reliably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures.

 

(22) Research and development costs

Research costs and development costs that cannot meet the capitalisation criteria are recognised in profit or loss when incurred.

 

(23) Dividends

Dividends and distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements. Dividends are recognised as a liability in the period in which they are declared.

 

(24) Related parties

If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control, joint control from another party, they are considered to be related parties, except for the two parties significantly influenced by a party. Related parties may be individuals or enterprises. Where enterprises are subject to state control but are otherwise unrelated, they are not related parties. Related parties of the Group and the Company include, but not limited to:

 

(a)  the holding company of the Company;

 

(b)  the subsidiaries of the Company;

 

(c)  the parties that are subject to common control with the Company;

 

(d)  investors that have joint control or exercise significant influence over the Group;

 

(e)  enterprises or individuals if a party has control, joint control over both the enterprises or individuals and the Group;

 

(f)   joint ventures of the Group, including subsidiaries of the joint ventures;

 

(g)  associates of the Group, including subsidiaries of the associates;

 

(h)  principle individual investors of the Group and close family members of such individuals;

 

(i)   key management personnel of the Group, and close family members of such individuals;

 

(j)   key management personnel of the Company's holding company;

 

(k)  close family members of key management personnel of the Company's holding company; and

 

(l)   an entity which is under control, joint control of principle individual investor, key management personnel or close family members of such individuals.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(25) Segment reporting

Reportable segments are identified based on operating segments which are determined based on the structure of the Group's internal organisation, management requirements and internal reporting system. An operating segment is a component of the Group that meets the following respective conditions:

 

   engage in business activities from which it may earn revenues and incur expenses;

 

   whose operating results are regularly reviewed by the Group's management to make decisions about resource to be allocated to the segment and assess its performance; and

 

   for which financial information regarding financial position, results of operations and cash flows are available.

 

Inter-segment revenues are measured on the basis of actual transaction price for such transactions for segment reporting, and segment accounting policies are consistent with those for the consolidated financial statements.

 

(26) Changes in significant accounting policies

Ministry of Finance (MOF) issued revised "No.21 Accounting Standards for Business Enterprises - Lease" ("New Lease Standard") in 2018, and also issued Cai Kuai [2019] No. 6 "Announcement of the revision of general enterprise financial statements format for 2019". The Group has adopted the above standard and guidelines to prepare the financial statements for the six-month period ended 30 June 2019. The impact to the Group and the Company's financial statements is as follows:

 

(a)  The revision of general enterprise financial statements format

(i)   The impact to the Group's financial statements is as follows:

 

Contents and reasons of the changes

Item

31 December 2018

RMB million

1 January 2018

RMB million

The Group separately presents bills and 

Accounts receivable

56,993

68,494

 accounts receivable into bills receivable

Bills receivable

7,886

16,207

 and accounts receivable

Bills receivable and accounts receivable

(64,879)

(84,701)

The Group separately presents bills and 

Accounts payable

186,341

200,073

 accounts payable into bills payable and

Bills payable

6,416

6,462

 accounts payable

Bills payable and accounts payable

(192,757)

(206,535)

 

(ii)  The impact to the Company's financial statements is as follows:

 

Contents and reasons of the changes

Item

31 December 2018

RMB million

1 January 2018

RMB million

The Company separately presents bills and 

Accounts receivable

29,989

37,609

 accounts receivable into bills receivable

Bills receivable

156

157

 and accounts receivable

Bills receivable and accounts receivable

(30,145)

(37,766)

The Company separately presents bills 

Accounts payable

82,343

83,449

 and accounts payable into bills payable

Bills payable

2,075

3,155

 and accounts payable

Bills payable and accounts payable

(84,418)

(86,604)

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(26) Changes in significant accounting policies (Continued)

 

(b)  Lease

According to the provisions of new lease standard, the Group and the Company adjust the cumulative impact of first implementation of the standards into relevant items in the financial statements of 2019, and the comparative financial statements of 2018 have not been restated.

 

(i)   For operating lease contracts that already exist before the first implementation of the new lease standard, the Group and the Company apply different methods based on the remaining lease period:

 

If the remaining lease term is more than one year, the Group and the Company recognise the lease liabilities based on the remaining lease payment and the incremental borrowing interest rate on 1 January 2019, and assume that the new lease standard was adopted on the commencement date of the lease, and recognise the right-of-use assets based on the incremental borrowing interest rate on 1 January 2019.

 

If the remaining lease period is 12 months or less, or leases for which the underlying assets are individually of low value when it is new, the Group and the Company adopt the simplified method that do not recognise the right-of-use assets and lease liabilities, which has no significant impact on the financial statements.

 

Affected amount on January 1 2019

(RMB Million)

The affected financial statement line item

The Group

The Company

Right-of-use assets

207,455

119,776

Lease liabilities

184,670

112,322

Current portion of non-current liabilities

13,894

7,454

Long-term deferred expenses

(8,125)

-

Prepayments

(766)

-

 

On 1 January 2019, the Group and the Company use the same discount rate for lease contracts with similar characteristics when measuring lease liabilities. The incremental borrowing interest rates range from 4.35% to 4.90%.

 

(ii)  On 1 January 2019, the Group reconciled the unpaid minimum operating lease payment that disclosed under the original lease standard to the lease liabilities recognised under the new lease standard as follows:

 

The Group

(RMB Million)

The minimum future operating lease payments disclosed on 31 December 2018

352,794

The present value of the above-mentioned minimum operating lease payments discounted at the

 incremental borrowing rate

200,867

Deduct: Present value of payments with terms of 12 months or less and leases for which the underlying

    assets are individually of low value when it is new

(2,303)

Lease liabilities recognised on 1 January 2019 (including

Non-current liabilities due within one year) (Note 33)

198,564

 

4    TAXATION

 

Major types of tax applicable to the Group are income tax, consumption tax, resources tax, value-added tax, city construction tax, education surcharge and local education surcharge.

 

Consumption tax was levied based on sales quantities of taxable products, tax rate of products is presented as below:

 

Effective from

13 January 2015

Products

(RMB/Ton)

Gasoline

2,109.76

Diesel

1,411.20

Naphtha

2,105.20

Solvent oil

1,948.64

Lubricant oil

1,711.52

Fuel oil

1,218.00

Jet fuel oil

1,495.20

 

5    CASH AT BANK AND ON HAND

 

The Group

 

At 30 June 2019

At 31 December 2018

Original

Original

currency

Exchange

RMB

currency

Exchange

RMB

million

rates

million

million

rates

million

Cash on hand

 

 

 

 

 

 

Renminbi

 

 

8

 

 

82

Cash at bank

 

 

 

 

 

 

Renminbi

 

 

90,026

 

 

102,572

US Dollar

3,407

6.8747

23,419

3,377

6.8632

23,179

Hong Kong Dollar

125

0.8797

110

39

0.8762

35

EUR

2

7.8170

18

1

7.8473

11

Others

 

 

95

 

 

79

 

 

 

113,676

 

 

125,958

Deposits at related parities

 

 

 

 

 

 

Renminbi

 

 

27,533

 

 

24,625

US Dollar

3,145

6.8747

21,608

2,389

6.8632

16,374

EUR

39

7.8170

300

4

7.8473

33

Others

 

 

30

 

 

25

 

 

 

49,471

 

 

41,057

Total

 

 

163,147

 

 

167,015

 

Deposits at related parties represent deposits placed at Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited. Deposits interest is calculated based on market rate.

 

At 30 June 2019, time deposits with financial institutions of the Group amounted to RMB 70,365 million (2018: RMB 55,093 million).

 

At 30 June 2019, structured deposits included in cash at bank and on hand with financial institutions of the Group amounted to RMB 35,610 million (2018: RMB 77,909 million).

 

6    FINANCIAL ASSETS HELD FOR TRADING

 

At 30 June

At 31 December

2019

2018

RMB million

RMB million

Structured deposits

19,413

25,550

Equity investments, listed and at quoted market price

126

182

Total

19,539

25,732

 

The financial assets are primarily the structured deposits with financial institutions, which are presented as current assets since they are expected to be expired within 12 months from the end of the reporting period.

 

7    DERIVATIVE FINANCIAL ASSETS AND DERIVATIVE FINANCIAL LIABILITIES

 

Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps. See Note 61.

 

8    BILLS RECEIVABLE

 

Bills receivable represents mainly the bills of acceptance issued by banks for sales of goods and products.

 

At 30 June 2019, the Group's derecognised but outstanding bills due to endorsement or discount amounted to RMB 23,842 million (2018: RMB 4,385 million).

 

At 30 June 2019, the Group considers that its bills of acceptance issued by banks do not pose a significant credit risk and will not cause any significant loss due to the default of drawers.

 

9    ACCOUNTS RECEIVABLE

 

The Group

The Company

At 30 June

At 31 December

At 30 June

At 31 December

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

Accounts receivable

73,055

57,599

28,781

30,120

Less: Allowance for doubtful accounts

600

606

131

131

Total

72,455

56,993

28,650

29,989

 

Ageing analysis on accounts receivable is as follows:

 

The Group

At 30 June 2019

At 31 December 2018

Percentage

Percentage

Percentage

of allowance

Percentage

of allowance

to total

to accounts

to total

to accounts

Amount

accounts

Allowance

receivable

Amount

accounts

Allowance

receivable

RMB

receivable

RMB

balance

RMB

receivable

RMB

balance

million

%

million

%

million

%

million

%

Within one year

72,114

98.7

-

-

56,431

97.9

-

-

Between one and two years

289

0.4

64

22.1

436

0.8

83

19.0

Between two and three years

104

0.1

16

15.4

289

0.5

165

57.1

Over three years

548

0.8

520

94.9

443

0.8

358

80.8

Total

73,055

100.0

600

 

57,599

100.0

606

 

 

The Company

At 30 June 2019

At 31 December 2018

Percentage

Percentage

Percentage

of allowance

Percentage

of allowance

to total

to accounts

to total

to accounts

Amount

accounts

Allowance

receivable

Amount

accounts

Allowance

receivable

RMB

receivable

RMB

balance

RMB

receivable

RMB

balance

million

%

million

%

million

%

million

%

Within one year

28,465

98.8

-

-

29,797

98.9

-

-

Between one and two years

104

0.4

20

19.2

125

0.4

15

12.0

Between two and three years

78

0.3

6

7.7

54

0.2

10

18.5

Over three years

134

0.5

105

78.4

144

0.5

106

73.6

Total

28,781

100.0

131

 

30,120

100.0

131

 

 

At 30 June 2019 and 31 December 2018, the total amounts of the top five accounts receivable of the Group are set out below:

 

At 30 June

At 31 December

2019

2018

Total amount (RMB million)

15,126

15,699

Percentage to the total balance of accounts receivable

20.7%

27.3%

Allowance for doubtful accounts

-

-

 

Sales are generally on a cash term. Credit is generally only available for major customers with well-established trading records. Amounts due from Sinopec Group Company and fellow subsidiaries are repayable under the same terms.

 

Accounts receivable (net of impairment losses for bad and doubtful debts) primarily represent receivables that are neither past due nor impaired. These receivables relate to a wide range of customers for whom there is no recent history of default. Information about the impairment of accounts receivable and the Group exposure to credit risk can be found in Note 61.

 

During for the six-month periods ended 30 June 2019 and 2018, the Group and the Company had no individually significant accounts receivable been fully or substantially provided allowance for doubtful accounts.

 

During for the six-month periods ended 30 June 2019 and 2018, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years.

 

10  PREPAYMENTS

 

The Group

The Company

At 30 June

At 31 December

At 30 June

At 31 December

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

Prepayments

9,121

5,990

3,783

2,493

Less: Allowance for doubtful accounts

57

53

5

5

Total

9,064

5,937

3,778

2,488

 

Ageing analysis of prepayments is as follows:

 

The Group

At 30 June 2019

At 31 December 2018

Percentage of

Percentage of

Percentage

allowance to

Percentage

allowance to

Amount

to total

Allowance

prepayments

Amount

to total

Allowance

prepayments

RMB

prepayments

RMB

balance

RMB

prepayments

RMB

balance

million

%

million

%

million

%

million

%

Within one year

8,867

97.2

1

-

5,683

94.9

-

-

Between one and two years

111

1.2

4

3.6

169

2.8

38

22.5

Between two and three years

36

0.4

19

52.8

60

1.0

5

8.3

Over three years

107

1.2

33

30.8

78

1.3

10

12.8

Total

9,121

100.0

57

 

5,990

100.0

53

 

 

The Company

At 30 June 2019

At 31 December 2018

Percentage of

Percentage of

Percentage

allowance to

Percentage

allowance to

Amount

to total

Allowance

prepayments

Amount

to total

Allowance

prepayments

RMB

prepayments

RMB

balance

RMB

prepayments

RMB

balance

million

%

million

%

million

%

million

%

Within one year

3,598

95.1

-

-

2,306

92.6

-

-

Between one and two years

72

1.9

-

-

70

2.8

1

1.4

Between two and three years

34

0.9

3

8.8

36

1.4

1

2.8

Over three years

79

2.1

2

2.5

81

3.2

3

3.7

Total

3,783

100.0

5

 

2,493

100.0

5

 

 

At 30 June 2019 and 31 December 2018, the total amounts of the top five prepayments of the Group are set out below:

 

At 30 June

At 31 December

2019

2018

Total amount (RMB million)

2,801

2,009

Percentage to the total balance of prepayments

30.7%

33.5%

 

11  OTHER RECEIVABLES

 

The Group

The Company

At 30 June

At 31 December

At 30 June

At 31 December

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

Other receivables

26,399

26,793

62,176

58,549

Less: Allowance for doubtful accounts

1,475

1,481

1,098

1,117

Total

24,924

25,312

61,078

57,432

 

Ageing analysis of other receivables is as follows:

 

The Group

At 30 June 2019

At 31 December 2018

Percentage

Percentage

Percentage

of allowance

Percentage

of allowance

to total

to other

to total

to other

Amount

other

Allowance

receivables

Amount

other

Allowance

receivables

RMB

receivables

RMB

balance

RMB

receivables

RMB

balance

million

%

million

%

million

%

million

%

Within one year

23,854

90.4

-

-

24,301

90.7

-

-

Between one and two years

599

2.3

73

12.2

329

1.2

53

16.1

Between two and three years

112

0.4

28

25.0

320

1.2

21

6.6

Over three years

1,834

6.9

1,374

74.9

1,843

6.9

1,407

76.3

Total

26,399

100.0

1,475

 

26,793

100.0

1,481

 

 

The Company

At 30 June 2019

At 31 December 2018

Percentage

Percentage

Percentage

of allowance

Percentage

of allowance

to total

to other

to total

to other

Amount

other

Allowance

receivables

Amount

other

Allowance

receivables

RMB

receivables

RMB

balance

RMB

receivables

RMB

balance

million

%

million

%

million

%

million

%

Within one year

35,440

56.9

-

-

27,088

46.3

-

-

Between one and two years

6,692

10.8

4

0.1

13,233

22.6

1

-

Between two and three years

9,986

16.1

-

-

9,747

16.6

-

-

Over three years

10,058

16.2

1,094

10.9

8,481

14.5

1,116

13.2

Total

62,176

100.0

1,098

 

58,549

100.0

1,117

 

 

At 30 June 2019 and at 31 December 2018, the total amounts of the top five other receivables of the Group are set out below:

 

At 30 June

At 31 December

2019

2018

Total amount (RMB million)

9,838

6,837

Ageing

Within one year

Within one year

Percentage to the total balance of other receivables

37.3%

25.5%

Allowance for doubtful accounts

-

-

 

During the six-month periods ended 30 June 2019 and 2018, the Group and the Company had no individually significant other receivables been fully or substantially provided allowance for doubtful accounts.

 

During the six-month periods ended 30 June 2019 and 2018, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years.

 

12  INVENTORIES

 

The Group

 

At 30 June

At 31 December

2019

2018

RMB million

RMB million

Raw materials

102,542

85,469

Work in progress

13,938

13,690

Finished goods

104,737

88,929

Spare parts and consumables

3,099

2,872

 

224,316

190,960

Less: Provision for diminution in value of inventories

1,425

6,376

Total

222,891

184,584

 

During the six-month periods ended 30 June 2019, the provision for diminution in value of inventories of the Group was primarily due to the costs of finished goods were higher than net realisable value.

 

 

13  LONG-TERM EQUITY INVESTMENTS

 

The Group

 

Provision for

Investments in

Investments in

impairment

joint ventures

associates

losses

Total

RMB million

RMB million

RMB million

RMB million

Balance at 1 January 2019

57,134

90,273

(1,686)

145,721

Additions for the period

1,918

436

-

2,354

Share of profits less losses under the equity method

2,500

3,375

-

5,875

Change of other comprehensive income

 under the equity method

(83)

(426)

-

(509)

Other equity movements under the equity method

56

(2)

-

54

Dividends declared

(4,638)

(887)

-

(5,525)

Disposals for the period

-

(39)

-

(39)

Foreign currency translation differences

52

36

(3)

85

Balance at 30 June 2019

56,939

92,766

(1,689)

148,016

 

The Company

 

Provision for

Investments in

subsidiaries

Investments in 

joint ventures

Investments in

associates

impairment

losses

Total

RMB million

RMB million

RMB million

RMB million

RMB million

Balance at 1 January 2019

259,934

16,093

21,163

(7,983)

289,207

Additions for the period

4,639

77

39

-

4,755

Share of profits less losses under

 the equity method

-

1,055

687

-

1,742

Change of other comprehensive income

 under the equity method

-

-

26

-

26

Dividends declared

-

(2,446)

(7)

-

(2,453)

Disposals for the period

-

-

(22)

-

(22)

Balance at 30 June 2019

264,573

14,779

21,886

(7,983)

293,255

 

For the six-month period ended 30 June 2019, the Group and the Company had no individually significant long-term investment impairment.

 

Details of the Company's principal subsidiaries are set out in Note 57.

 

Principal joint ventures and associates of the Group are as follows:

 

(a)  Principal joint ventures and associates

 

Percentage

Name of investees

Principal place

of business

Register location

Legal

representative

Principal activities

Registered

Capital

RMB million

of equity/voting

right directly or

indirectly held

by the Company

1. Joint ventures

 

 

 

 

 

 

Fujian Refining & Petrochemical

PRC

PRC

Gu Yuefeng

Manufacturing refining oil products

14,758

50.00%

 Company Limited ("FREP")

 

 

 

 

 

 

BASF-YPC Company Limited ("BASF-YPC")

PRC

PRC

Wang Jingyi

Manufacturing and distribution of

12,547

40.00%

 

 

 

 

 petrochemical products

 

 

Taihu Limited ("Taihu")

Russia

Cyprus

NA

Crude oil and natural gas extraction

25,000 USD

49.00%

Yanbu Aramco Sinopec Refining

Saudi Arabia

Saudi Arabia

NA

Petroleum refining and processing

1,560 million

37.50%

 Company Ltd. ("YASREF")

 

 

 

 

USD

 

Sinopec SABIC Tianjin Petrochemical

PRC

PRC

UWAIDH

Manufacturing and distribution of

9,796

50.00%

 Company Limited ("Sinopec SABIC Tianjin")

 

 

AL-HARETHI

 petrochemical products

 

 

2. Associates

 

 

 

 

 

 

Sinopec Sichuan to East China Gas

PRC

PRC

Quan Kai

Operation of natural gas pipelines

200

50.00%

 Pipeline Co., Ltd. ("Pipeline Ltd")

 

 

 

 and auxiliary facilities

 

 

Sinopec Finance Company Limited

PRC

PRC

Zhao Dong

Provision of non-banking financial

18,000

49.00%

 ("Sinopec Finance")

 

 

 

 services

 

 

PAO SIBUR Holding ("SIBUR")

Russia

Russia

NA

Processing natural gas and

21,784 million

10.00%

 manufacturing petrochemical

RUB

 

 

 

 

 products

 

 

Zhongtian Synergetic Energy Company Limited

PRC

PRC

Peng Yi

Mining coal and manufacturing of

17,516

38.75%

 ("Zhongtian Synergetic Energy")

 

 

 

 coal-chemical products

 

 

Caspian Investments Resources Ltd. ("CIR")

The Republic of

British Virgin Islands

NA

Crude oil and natural gas extraction

10,000 USD

50.00%

 

Kazakhstan

 

 

 

 

 

 

Except that SIBUR is a public joint stock company, other joint ventures and associates above are limited companies.

 

13  LONG-TERM EQUITY INVESTMENTS (Continued)

 

(b)  Major financial information of principal joint ventures

Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group's principal joint ventures:

 

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

At 30

At 31

At 30

At 31

At 30

At 31

At 30

At 31

At 30

At 31

June

December

June

December

June

December

June

December

June

December

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

5,711

7,388

933

1,582

3,668

3,406

812

930

3,775

5,110

Other current assets

12,359

9,248

5,024

5,795

4,191

3,689

11,166

10,267

2,879

4,007

Total current assets

18,070

16,636

5,957

7,377

7,859

7,095

11,978

11,197

6,654