Company Announcements

RNS Number : 5300X
China Petroleum & Chemical Corp
30 August 2020
 

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibilities for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

 

 CHINA PETROLEUM & CHEMICAL CORPORATION

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 00386)

 

Interim Results Announcement for the Six Months Ended 30 June 2020

 

The board of directors (the "Board") of China Petroleum & Chemical Corporation ("Sinopec Corp." or the "Company") hereby announces the unaudited results of Sinopec Corp. and its subsidiaries for the six months ended 30 June 2020. This announcement, containing the full text of the 2020 Interim Report of Sinopec Corp., complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in relation to information to accompany preliminary announcement of interim results. The full text of the 2020 Interim Report of Sinopec Corp. is published on the websites of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk) and of Sinopec Corp. (www.sinopec.com/listco/). Printed version of the 2020 Interim Report of Sinopec Corp. will be delivered to the shareholders of H shares of Sinopec Corp. in September 2020.

 

Publication of Results Announcement

 

Both the Chinese and English versions of this results announcement are available on the websites of Sinopec Corp. (www.sinopec.com/listco/) and The Stock Exchange of Hong Kong Limited (www.hkex.com.hk). In the event of any discrepancies in interpretations between the English version and Chinese version, the Chinese version shall prevail.

 

By Order of the Board

China Petroleum & Chemical Corporation

Huang Wensheng

Vice President and Secretary to the Board of Directors

 

Beijing, the PRC,

28 August 2020

 

As of the date of this announcement, directors of the Company are: Zhang Yuzhuo*, Ma Yongsheng#, Yu Baocai*,
Liu Hongbin#, Ling Yiqun#, Li Yong*, Tang Min+, Cai Hongbin+, Ng, Kar Ling Johnny+

 

#              Executive Director

*              Non-executive Director

+              Independent Non-executive Director

                                                                

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

36

Directors, Supervisors and

 Senior Management

37

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 28 August 2020 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. THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDERS OF SINOPEC CORP. MR. ZHANG YUZHUO, CHAIRMAN OF THE BOARD, MR. MA YONGSHENG, PRESIDENT, AND MS. SHOU DONGHUA, 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 2020.

 

THE INTERIM FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2020 OF THE COMPANY, 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, coal chemical 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.

 

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. Zhang Yuzhuo

 

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. Zhang Zheng

 

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

 

CHANGE OF REGISTRATION IN THE REPORTING PERIOD

Sinopec Corp. renewed its business license on 1 April 2020, in which the legal representative was changed to Mr. Zhang Yuzhuo.

 

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

2020

2019

preceding year

Items

RMB million

RMB million

(%)

Operating income

1,034,246

1,498,996

(31.0)

Net (loss)/profit attributable to equity shareholders of the Company

(22,882)

31,338

-

Net (loss)/profit attributable to equity shareholders of the Company

 excluding extraordinary gains and losses

(24,404)

30,451

-

Net cash flow from operating activities

39,794

32,918

20.9

 

As of

As of

Changes

30 June

31 December

from the end

2020

2019

of last year

RMB million

RMB million

(%)

Total equity attributable to shareholders of the Company

692,356

739,169

(6.3)

Total assets

1,821,639

1,755,071

3.8

 

(2)  Principal financial indicators

 

Changes

over the same

Six-month period ended 30 June

period of the

2020

2019

preceding year

Items

RMB

RMB

(%)

Basic (losses)/earnings per share

(0.189)

0.259

-

Diluted (losses)/earnings per share

(0.189)

0.259

-

Basic (losses)/earnings per share (excluding extraordinary gains and losses)

(0.202)

0.252

-

Weighted average return on net assets (%)

(3.21)

4.28

(7.49)

 

 

 

percentage points

Weighted average return (excluding extraordinary gains and losses)

(3.42)

4.16

(7.58)

 on net assets (%)

 

 

percentage points

 

(3)  Extraordinary items and corresponding amounts:

 

Six-month period

ended 30 June 2020

(gain)/loss

Items

RMB million

Net gain on disposal of non-current assets

(89)

Donations

99

Government grants

(2,694)

Gain on holding and disposal of various investments

(42)

Other extraordinary expenses, net

434

Subtotal

(2,292)

Tax effect

666

Total

(1,626)

Attributable to:

 

 Equity shareholders of the Company

(1,522)

 Minority interests

(104)

 

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

2020

2019

preceding year

Items

RMB million

RMB million

(%)

Operating (loss)/profit

(21,501)

49,138

-

(Loss)/profit attributable to shareholders of the Company

(21,725)

32,206

-

Net cash generated from operating activities

39,794

32,918

20.9

 

As of

As of

Changes

30 June

31 December

from the end

2020

2019

of last year

RMB million

RMB million

(%)

Total equity attributable to shareholders of the Company

691,363

738,150

(6.3)

Total assets

1,821,639

1,755,071

3.8

 

(2)  Principal financial indicators

 

Changes

over the same

Six-month period ended 30 June

period of the

2020

2019

preceding year

Items

RMB

RMB

(%)

Basic (losses)/earnings per share

(0.179)

0.266

-

Diluted (losses)/earnings per share

(0.179)

0.266

-

Return on capital employed (%)

(1.89)

4.92

(6.81)

 

 

 

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 number and nature of issued shares of Sinopec Corp.

 

2    NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS

As at 30 June 2020, there were a total of 563,689 shareholders of Sinopec Corp., of which 557,883 were holders of A shares and 5,806 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 2020                                                                                                                                             Unit: share

Percentage

Number

Nature of

of shareholdings

Total number of

Changes of

of shares subject

Name of Shareholders

shareholders

%

shares held

shareholding1

to pledges or lock up

 

China Petrochemical Corporation

State-owned share

68.31

82,709,227,393

0

0

HKSCC (Nominees) Limited2

H share

20.97

25,386,341,835

(1,067,170)

Unknown

 

中國證券金融股份有限公司

A share

2.16

2,609,312,057

0

0

中國人壽保險股份有限公司-分紅-個人分紅-

 005LFH002

A share

0.60

726,989,268

517,211,788

0

中國人壽保險股份有限公司-傳統-普通保險產品-

 005LCT001

A share

0.60

724,000,421

552,667,328

0

 

北京誠通金控投資有限公司

A share

0.53

645,822,451

(393,036,651)

0

 

香港中央結算有限公司

A share

0.41

500,621,992

(71,222,328)

0

 

國新投資有限公司

A share

0.33

405,322,544

(847,104,810)

0

 

中央匯金資產管理有限責任公司

A share

0.27

322,037,900

0

0

中國工商銀行-上證50交易型開放式指數證券投資基金

A share

0.07

90,742,158

(12,339,611)

0

 

Notes:

 

1.     As compared with the number of shares as at 31 December 2019.

 

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-CT001which are both managed 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 the holders of H shares in accordance with the Securities and Futures Ordinance (SFO) as of 30 June 2020

Approximate

Number of

percentage

shares

of Sinopec Corp.'s

interests held

issued share

or regarded as

capital

Name of shareholders

Status of shareholders

held

(H share) (%)

Citigroup Inc.

Interests of corporation controlled

85,390,095(L)

0.33(L)

by the substantial shareholder

33,804,832(S)

0.13(S)

 

Approved lending agent

2,762,083,581(L)

10.83(L)

GIC Private Limited

Investment manager

1,769,346,422(L)

6.93(L)

BlackRock, Inc.

Interests of corporation controlled

1,496,619,496(L)

5.87(L)

 

by the substantial shareholder

7,194,800(S)

0.03(S)

 

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 2020, due to the worldwide spread of COVID-19, global economy was depressed and the global market was shrinking. China's gross domestic product (GDP) fell by 1.6% year on year. In the first quarter, GDP fell by 6.8% year on year, with the domestic economy recovering steadily, GDP up by 3.2% in the second quarter. In the first half of 2020, the average spot price of Platts Brent was USD 40.07 per barrel, down by 39.2% year on year, combined with the sharp drop in demand for petroleum products and slowdown in demand growth for petrochemical products, thus the petroleum and petrochemical industry suffered unprecedented difficulties.

 

Confronted with the extremely severe market situation, the Company launched a "100-day campaign to tide over difficulties and improve performance" guided by focusing on main challenges, system optimisation, bottom-line risks prevention and control, and seizing opportunities out of crises. We coordinated COVID-19 prevention and control with maintaining production and operation, vigorously adjusted the structure, expanded the market, reduced the inventory and tapped the potential. The Company's operation and profitability improved month by month from the second quarter and the performance recovered steadily. In particular, facing the COVID-19 outbreak, the Company actively made the best use of its advantages in resources and technology, promptly switched to increase the production of medical and health-care materials. To meet the market demand of melt blown fabric, we built the world's largest manufacturing base in a short time. In addition, the Company ensured the supply of oil and gas with all efforts, provided innovative services model, led enterprises in the industry chain to resume production and work, and proactively promoted the normalisation of economic and social orders.

 

 

 

1    OPERATIONS REVIEW

 

(1)  Exploration and production

 

In the first half of 2020, under low crude oil price environment, the Company maintained high-quality exploration efforts, focused on profit-driven development, and deepened and consolidated the maintaining oil production, increasing gas output and reducing cost. We accelerated the whole industry chain integration of natural gas business, and saw a continued growth in the market share of natural gas. In exploration, we reinforced risk exploration and pre-exploration in new areas, which led to new discoveries in Tarim Basin, Jiyang Depression and Sichuan Basin, etc. In oil development, we increased the application of technologies to lower cost and optimised projects implementation plan according to the change of oil prices, which helped to further decrease our cost. In natural gas development, we accelerated capacity building in West Sichuan, Dongsheng and Weirong gas fields, and continuously progressed with the all-dimension development of Fuling shale gas field and fine development of Puguang and Yuanba gas fields. Production of oil and gas in the first half of 2020 amounted to 225.71 million barrels of oil equivalent, of which domestic crude production was 124.05 million barrels, and gas output was 512.41 billion cubic feet.

 

Exploration and Production: Summary of Operations

 

Six-month period ended 30 June

Changes

2020

2019

(%)

Oil and gas production (mmboe)

225.71

226.63

(0.4)

Crude oil production (mmbbls)

140.27

141.68

(1.0)

China

124.05

124.05

0.0

Overseas

16.22

17.63

(8.0)

Natural gas production (bcf)

512.41

509.50

0.6

 

(2)  Refining

 

In the first half of 2020, with a market-oriented approach, the Company further integrated production and marketing, optimised resources allocation, dynamically adjusted the product mix and diesel-to-gasoline ratio, and maximised the value of the business chain. Domestic and overseas markets were coordinated to maintain high utilisation rates of facilities. We actively responded to international oil price movements and adjusted crude oil procurement in a timely manner. We also sped up the advanced capacity building and pushed forward structural adjustment projects. The marketing mechanism was further optimised, and the profitability of asphalt, lubricant, LPG and other products was further enhanced. In the first half of 2020, 111 million tonnes of crude oil were processed, representing a year-on-year decrease of 10.5%, and 67.19 million tonnes of refined oil products were produced, including 30.47 million tonnes of diesel, 26.82 million tonnes of gasoline and 9.90 million tonnes of kerosene.

 

Refining: Summary of Operations                                                                                   Unit: million tonnes

 

Six-month period ended 30 June

Changes

2020

2019

(%)

Refinery throughput

110.95

123.92

(10.5)

Gasoline, diesel and kerosene production

67.19

78.94

(14.9)

Gasoline

26.82

31.33

(14.4)

Diesel

30.47

32.24

(5.5)

Kerosene

9.90

15.37

(35.6)

Light chemical feedstock production

19.00

20.04

(5.2)

 

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

 

(3)  Marketing and distribution

 

In the first half of 2020, facing the severe challenge brought by the sharp decline in market demand, the Company brought the advantage of our marketing network into full play. Since the second quarter, the Company has seized the favourable opportunity of market recovery, optimised resources allocation, made full efforts to expand the market and sales, achieving a rapid rise in sales volume and substantial growth in performance year on year. We adhered to customer-oriented and continuously improved our services quality. We further optimised marketing network layout, consolidated and enhanced network advantages, innovated marketing models by introducing the "one click refuelling", etc., promoted the integration of online and offline business, and created a new service model of reducing physical contact while refuelling and shopping in an efficient and convenient way during the COVID-19 outbreak. In the first half of 2020, total sales volume of refined oil products was 107.03 million tonnes, of which domestic sales was 77.75 million tonnes, and domestic retail sales volume was 52.50 million tonnes. The retail volume in the second quarter increased by 40.5% over the first quarter and up by 2.7% year on year.

 

Marketing and Distribution: Summary of Operations

 

Six-month period ended 30 June

Change

2020

2019

(%)

Total sales volume of refined oil products (million tonnes)

107.03

126.91

(15.7)

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

77.75

91.77

(15.3)

Retail (million tonnes)

52.50

60.06

(12.6)

Direct sales and Distribution (million tonnes)

25.24

31.72

(20.4)

Annualised average throughput per station (tonne/station)

3,419

3,916

(12.7)

 

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

2020

2019

(%)

Number of company-operated stations

30,712

30,696

0.05

Number of convenience stores

27,721

27,606

0.42

 

(4)  Chemicals

 

In the first half of 2020, the Company fine-tuned chemical feedstock mix to further lower costs. Leveraging our industrial advantages, we extended industry chain and produce more raw materials for medical and health-care use. We optimised the product slate, scheduling utilisation and production based on market demand to further increase the ratio of high value-added products. The ratio of new and specialty synthetic resin reached 67.9% and that of high value-added synthetic rubber reached 31.2%. Construction of advanced capacity was accelerated and a number of key projects were pushed forward. In the first half of 2020, ethylene output was 5.78 million tonnes. We actively expanded the market, improved targeted marketing and service quality, actively promoted the application of e-commerce platform and construction of intelligent logistics, which enhanced the profitability of the business chain. In the first half, the total chemical sales volume was 40.09 million tonnes.

 

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

 

Six-month period ended 30 June

Changes

2020

2019

(%)

Ethylene

5,776

6,160

(6.2)

Synthetic resin

8,376

8,429

(0.6)

Synthetic fiber monomer and polymer

4,421

5,030

(12.1)

Synthetic fiber

573

633

(9.5)

Synthetic rubber

526

529

(0.6)

 

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

 

2    HEALTH, SAFETY, SECURITY AND ENVIRONMENT

In the first half of 2020, the Company promoted the health management of all staff, especially continuously strengthened the COVID-19 prevention and control measures with a focus on personal care and psychological counselling and safeguarded the occupational, physical and psychological health of employees. The three-year programme of special rectification of work safety was launched, and safety risk identification and control were strictly implemented. We improved prevention and control system and emergency response capacity in all dimensions, and further improved the safety management level of the Company. We actively implemented the green and low-carbon strategy, promoted the Green Enterprise Campaign with high quality, enhanced energy efficiency improvement and water conservation, continuously strengthened the management of greenhouse gas emission. In the first half of the year, the Company maintained safe and clean production. The comprehensive energy consumption per 10,000 yuan of output decreased by 5.4% year on year, industrial fresh water intake was down by 1.1% year on year, the COD of discharged wastewater decreased by 2.1% year on year, the sulfur dioxide emission dropped by 4.1% year on year, and the proper disposal rate of solid waste reached 100%.

 

3    CAPITAL EXPENDITURES

Focusing on quality and profitability of investment, the Company continuously optimised our investment projects. The total capital expenditures amounted to RMB 44.990 billion in the first half of 2020. Capital expenditure for the exploration and production segment was RMB 20.470 billion, mainly for capacity building in Shengli and Northwest crude oil projects and Fuling and Weirong shale gas projects. Capital expenditure for the refining segment was RMB 9.536 billion, mainly for Zhongke project, Zhenhai, Tianjin, Maoming and Luoyang refining upgrading projects. Capital expenditure for the marketing and distribution segment was RMB 8.646 billion, mainly for construction of service stations, oil products depots and non-fuel business development. Capital expenditure for the chemicals segment was RMB 6.117 billion, mainly for Zhongke, Zhenhai, and Gulei projects, ethylene revamping for Sinopec-SK and Jiujiang aromatics projects, and melt blown fabrics projects. Capital expenditure for corporate and others was RMB 221 million, mainly for research and development facilities and information technology projects. In the second half, the Company will dynamically optimise investment projects based on future market trends. Capital expenditures for the full year are expected to decrease by around 10% compared with the plan proposed in the beginning of 2020.

 

BUSINESS PROSPECTS

Looking ahead to the second half of 2020, the international economic situation is expected to be severe and complex with increased instability and uncertainty. China has made significant achievements in control and prevention of COVID-19 outbreak, and its economy has shown a stable and positive momentum. As a result, it is expected that domestic demand for petroleum and petrochemical products will witness a fast recovery. However, affected by various factors such as COVID-19 outbreak and the international economic situation, the international oil prices are expected to fluctuate at a low level.

 

Confronted with the present situation, the Company will focus on the vision of building a world leading clean energy and chemical company, actively promote transformation and development, and continue the campaign of tiding over difficulties and improving performance. We will coordinate efforts of improving performance, adjusting structure, promoting reform and preventing risks to achieve better performance. Our focuses are on the following aspects:

 

For exploration and production, the Company will increase efforts to maintain oil production, boost gas output and reduce cost, continue to strengthen high-quality exploration, promote profit-driven development, and improve the ability to cope with low oil prices. In crude oil development, we will promote the capacity building in Shunbei and west rim of Jungar Basin, continuously strengthen the fine management of mature oilfields, enhance oil recovery through scientific and technological innovation, and consolidate the foundation for stable production. In natural gas development, construction of key projects will be accelerated. At the same time, seizing the opportunities of pipeline reform and natural gas demand growth, the Company will vigorously expand the market and sales, and increase market share and profitability of natural gas. In the second half of 2020, we plan to produce 138 million barrels of crude oil, including 124 million barrels domestic production and 14 million barrels abroad, and 580.5 billion cubic feet of natural gas.

 

For refining, the Company will insist on the integration of production and marketing and coordination of domestic and overseas markets, to optimise the utilisation and production. We will speed up the advanced capacity building to enhance market competitiveness. We will strengthen market research and analysis and coordination of the whole process management of crude oil procurement to reduce procurement costs. Meanwhile, we will deepen product mix adjustment based on market needs. In the second half of 2020, we plan to process 130 million tonnes of crude oil.

 

For marketing and distribution, the Company will improve the internal market-oriented mechanism, optimise resource flow and regional production and marketing, fully unleash the integration advantages and actively deal with market competition. We will seize the opportunity of market recovery, further expand the market and sales, and strive to expand the total business volume and retail scale. We will also provide differentiated services based on customer categories. The comprehensive service station model of "oil, gas, electricity, hydrogen and non-fuel business" will be promoted, and we will make best effort to build an ecological circle of "people, vehicles and life", so as to enhance the competitiveness of our comprehensive services. In the second half of 2020, we plan to sell 92 million tonnes of refined oil products in the domestic market.

 

For chemicals, the Company will continue to focus on the "basic plus high-end" development concept, accelerate the structural adjustment, quality improvement and upgrading, and foster new growth engines. We will deepen the adjustment of feedstock slate and continuously reduce the cost, deepen the adjustment of product mix, speed up the cultivation of new material business, and continuously increase the proportion of high value-added products. We will dynamically optimise the utilisation and production along the industry chain to generate more profits, and the production and supply of medical and health-care materials in accordance with the COVID-19 outbreak. Meanwhile, we will strengthen strategic cooperation along the industrial chain, strengthen the expansion of expand high-quality customer base, and constantly enhance our leading position in the market. We plan to produce 6.10 million tonnes of ethylene in the second half of 2020.

 

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 THE IFRS. THE PRICES IN THE FOLLOWING DISCUSSION DO NOT INCLUDE VALUE-ADDED TAX.

 

1    CONSOLIDATED RESULTS OF OPERATIONS

In the first half of 2020, the Company's turnover and other operating revenues were RMB 1,034.2 billion, representing a decrease of 31.0% year on year, and operating loss was RMB 21.5 billion, representing a decrease of RMB 70.6 billion 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 2020 and the corresponding period in 2019:

 

Six-month period ended 30 June

2020

2019

Change

RMB million

RMB million

(%)

Turnover and other operating revenues

1,034,246

1,498,996

(31.0)

Turnover

1,007,999

1,466,833

(31.3)

Other operating revenues

26,247

32,163

(18.4)

Operating expenses

(1,055,747)

(1,449,858)

(27.2)

Purchased crude oil, products and operating supplies and expenses

(837,710)

(1,207,182)

(30.6)

Selling, general and administrative expenses

(24,418)

(24,765)

(1.4)

Depreciation, depletion and amortisation

(51,294)

(52,684)

(2.6)

Exploration expenses, including dry holes

(4,465)

(4,347)

2.7

Personnel expenses

(37,890)

(38,221)

(0.9)

Taxes other than income tax

(107,843)

(120,246)

(10.3)

Other operating income/(expenses), net

7,873

(2,413)

-

Operating (loss)/profit

(21,501)

49,138

-

Net finance costs

(5,215)

(5,163)

1.0

Investment income and share of profits less losses

from associates and joint ventures

73

6,106

(98.8)

(Loss)/profit before taxation

(26,643)

50,081

-

Income tax credit/(expense)

5,802

(10,140)

-

(Loss)/profit for the period

(20,841)

39,941

-

Attributable to:

 

 

 

Shareholders of the Company

(21,725)

32,206

-

Non-controlling interests

884

7,735

(88.6)

 

(1)  Turnover and other operating revenues

In the first half of 2020, the Company's turnover was RMB 1,008.0 billion, representing a decrease of 31.3% year on year. The change was mainly due to the decrease of total business volume and realised price resulting from the impact of COVID-19 and slump of international crude oil price.

 

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 2020 as compared with the first half of 2019.

 

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

2020

2019

(%)

2020

2019

(%)

Crude oil

3,488

2,997

16.4

2,006

3,010

(33.4)

Natural gas (million cubic meters)

12,475

13,133

(5.0)

1,360

1,416

(4.0)

Gasoline

39,799

45,093

(11.7)

6,372

7,484

(14.9)

Diesel

35,980

41,480

(13.3)

4,862

5,686

(14.5)

Kerosene

9,519

13,010

(26.8)

2,892

4,261

(32.1)

Basic chemical feedstock

17,109

21,320

(19.8)

3,578

4,664

(23.3)

Synthetic fibre monomer and polymer

4,542

8,291

(45.2)

4,347

5,831

(25.5)

Synthetic resin

8,304

7,670

8.3

6,658

7,928

(16.0)

Synthetic fibre

602

661

(8.9)

6,723

9,063

(25.8)

Synthetic rubber

647

629

2.9

7,742

9,674

(20.0)

 

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 2020, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB 48.0 billion, down by 11.9% year on year, accounting for 4.6% of the Company's turnover and other operating revenues. The change was mainly due to the decrease of crude oil and natural gas prices.

 

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 549.0 billion (excluding risk reserves for oil price adjustment), representing a decrease of 26.1% year on year and accounting for 53.1% of the Company's turnover and other operating revenues. Those changes were mainly due to the decreased price and sales volume of refined oil products and other refined petroleum products. The sales revenue of gasoline, diesel and kerosene was RMB 456.0 billion, representing a decrease of 27.5% year on year, accounting for 83.1% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB 92.9 billion, down by 18.4% year on year, accounting for 16.9% of the sales revenue of petroleum products.

 

The Company's external sales revenue of chemical products was RMB 149.1 billion, down by 33.8% year on year, accounting for 14.4% of its turnover and other operating revenues. The change was mainly due to the decreased price of chemical products and sales volume of basic organic chemicals and synthetic fibre monomer and polymer.

 

(2)  Operating expenses

In the first half of 2020, the Company's operating expenses were RMB 1,055.7 billion, down by 27.2% year on year. The change was mainly due to the decrease of throughput, trading volume and feedstock price. The operating expenses mainly consisted of the following:

 

Purchased crude oil, products and operating supplies and expenses were RMB 837.7 billion, representing a decrease of 30.6% year on year, accounting for 79.3% of total operating expenses, of which:

 

‧   Crude oil purchasing expenses were RMB 250.0 billion, representing a decrease of 25.9% year on year. Throughput of crude oil purchased externally in the first half of 2020 was 90.53 million tonnes (excluding the volume processed for third parties), down by 9.8% year on year. The average processing cost of crude oil purchased externally was RMB 2,762 per tonne, down by 17.9% year on year.

 

‧   The Company's purchasing expenses of refined oil products were RMB 134.7 billion, down by 24.0% over the same period of 2019. The change was mainly due to the decrease in gasoline and diesel external procurement cost and volume impacted by the weak demand of domestic refined oil products.

 

‧   The Company's purchasing expenses related to trading activities were RMB 242.3 billion, down by 38.9% over the same period of 2019. This was mainly due to the decreased volume and price of the crude oil and refined oil international trade.

 

‧   Other purchasing expenses were RMB 210.6 billion, down by 28.8% year on year.

 

Selling, general and administrative expenses of the Company totalled RMB 24.4 billion, representing a decrease of 1.4% year on year.

 

Depreciation, depletion and amortisation of the Company were RMB 51.3 billion, representing a decrease of 2.6% year on year.

 

Exploration expenses were RMB 4.5 billion, representing an increase of 2.7% year on year.

 

Personnel expenses were RMB 37.9 billion, representing a decrease of 0.9% year on year.

 

Taxes other than income tax were RMB 107.8 billion, representing a decrease of 10.3% year on year, mainly because of consumption tax decreased by RMB 10.1 billion resulting from the decreased production of gasoline and diesel.

 

Other operating income, net were RMB 7.9 billion, up by RMB 10.3 billion year on year.

 

(3)  Operating profit

In the first half of 2020, the Company's operating loss was RMB 21.5 billion, representing a decrease of RMB 70.6 billion year on year. This was mainly due to the decrease of refinery throughput, chemical and refined oil products sales volume, realised prices, huge loss in inventory and narrowed gross margin of major products resulting from COVID-19 outbreak and slump of crude oil price.

 

(4)  Net finance costs

In the first half of 2020, the Company's net finance costs were RMB 5.2 billion, up by RMB 0.05 billion and 1.0% year on year.

 

(5)  Profit before taxation

In the first half of 2020, the Company's loss before taxation amounted to RMB 26.6 billion, representing a decrease of RMB 76.7 billion year on year.

 

(6)  Tax expense

In the first half of 2020, the Company's tax expense totalled RMB  -5.8 billion, representing a decrease of RMB 15.9 billion year on year.

 

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

In the first half of 2020, profit attributable to non-controlling interests was RMB 0.9 billion, representing a decrease of RMB 6.9 billion and 88.6% year on year.

 

(8)  Profit attributable to shareholders of the Company

In the first half of 2020, loss attributable to shareholders of the Company was RMB 21.7 billion, representing a decrease of RMB 53.9 billion 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

2020

2019

2020

2019

2020

2019

RMB million

(%)

(%)

Exploration and Production Segment

 

 

 

 

 

External sales*

50,177

58,811

2.9

2.4

4.9

3.9

Inter-segment sales

28,752

44,993

1.7

1.9

 

 

Operating revenues

78,929

103,804

4.6

4.3

 

 

Refining Segment

 

 

 

 

 

 

External sales*

52,243

72,429

3.1

3.0

5.1

4.8

Inter-segment sales

386,115

525,368

22.7

21.6

 

 

Operating revenues

438,358

597,797

25.8

24.6

 

 

Marketing and Distribution Segment

 

 

 

 

 

External sales*

527,519

689,936

31.0

28.5

49.8

46.0

Inter-segment sales

2,282

1,906

0.1

0.1

 

 

Operating revenues

529,801

691,842

31.1

28.6

 

 

Chemicals Segment

 

 

 

 

 

 

External sales*

153,161

232,645

9.0

9.6

14.8

15.6

Inter-segment sales

19,038

27,843

1.1

1.1

 

 

Operating revenues

172,199

260,488

10.1

10.7

 

 

Corporate and Others

 

 

 

 

 

 

External sales*

262,833

445,175

15.4

18.4

25.4

29.7

Inter-segment sales

221,792

324,986

13.0

13.4

 

 

Operating revenues

484,625

770,161

28.4

31.8

 

 

Operating revenue before elimination

 of inter-segment sales

1,703,912

2,424,092

100.0

100.0

 

 

Elimination of inter-segment sales

(669,666)

(925,096)

 

 

 

 

Consolidated operating revenues

1,034,246

1,498,996

 

 

100.0

100.0

 

*      Other operating revenues are included.

 

The following table sets forth the operating revenues, operating expenses and operating (loss)/profit by each segment before elimination of the inter-segment transactions for the periods indicated, and the percentage change between the first half of 2020 and the first half of 2019.

 

Six-month period ended 30 June

2020

2019

Change

RMB million

(%)

Exploration and Production Segment

 

 

 

Operating revenues

78,929

103,804

(24.0)

Operating expenses

84,931

97,561

(12.9)

Operating (loss)/profit

(6,002)

6,243

-

Refining Segment

 

 

 

Operating revenues

438,358

597,797

(26.7)

Operating expenses

470,047

578,707

(18.8)

Operating (loss)/profit

(31,689)

19,090

-

Marketing and Distribution Segment

 

 

 

Operating revenues

529,801

691,842

(23.4)

Operating expenses

521,137

677,133

(23.0)

Operating profit

8,664

14,709

(41.1)

Chemicals Segment

 

 

 

Operating revenues

172,199

260,488

(33.9)

Operating expenses

169,005

248,593

(32.0)

Operating profit

3,194

11,895

(73.1)

Corporate and Others

 

 

 

Operating revenues

484,625

770,161

(37.1)

Operating expenses

484,793

772,716

(37.3)

Operating loss

(168)

(2,555)

-

Elimination of inter-segment profit/(loss)

4,500

(244)

-

 

(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 2020, operating revenues of the segment were RMB 78.9 billion, representing a decrease of 24.0% year on year. This was mainly due to the decrease in sales prices of crude oil, natural gas and LNG.

 

In the first half of 2020, the segment sold 17.12 million tonnes of crude oil, representing a decrease of
0.3% over the same period of 2019. Natural gas sales volume was 13.29 bcm, representing a decrease of 5.0% over the same period of 2019. LNG regas sales volume was 7.12 bcm, representing an increase of 15.9% over the same period of 2019. LNG liquid sales volume was 2.44 million tonnes, representing an increase of 23.5% over the same period of 2019. Average realised prices of crude oil, natural gas, LNG regas, and LNG liquid were RMB 1,875 per tonne, RMB 1,370 per thousand cubic meters, RMB 1,874 per thousand cubic meters, and RMB 2,556 per tonne, representing decrease of 35.3%, 4.3%, 20.4% and 29.7% respectively over the same period of 2019.

 

In the first half of 2020, the operating expenses of the segment were RMB 84.9 billion, representing a decrease of 12.9% year on year. This was mainly due to LNG procurement cost decreased by RMB 6.6 billion year on year, depreciation, depletion and amortisation decreased by RMB 3.1 billion year on year.

 

In the first half of 2020, the oil and gas lifting cost was RMB 749 per tonne, representing a decrease of 5.8% year on year. This was mainly due to the operating expenses decreased effectively as a result of the segment continuously reinforced the cost management and control.

 

In the first half of 2020, the operating loss of the segment was RMB 6.0 billion, representing a decrease of RMB 12.2 billion compared with the same period of last year. This was mainly because the operating loss of the segment in the second quarter was RMB 7.5 billion due to the sharp decrease of realised crude price.

 

(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 2020, operating revenues of the segment were RMB 438.4 billion, representing a decrease of 26.7% year on year.

 

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 2020 and that of the same period of 2019.

 

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

2020

2019

(%)

2020

2019

(%)

Gasoline

25,773

30,371

(15.1)

5,929

7,070

(16.1)

Diesel

29,063

30,748

(5.5)

4,390

5,479

(19.9)

Kerosene

8,208

11,714

(29.9)

2,969

4,220

(29.6)

Chemical feedstock

18,334

19,729

(7.1)

2,561

3,501

(26.8)

Other refined petroleum products

30,677

30,699

(0.1)

2,757

3,049

(9.6)

 

In the first half of 2020, the sales revenues of gasoline were RMB 152.8 billion, representing a decrease of 28.8% year on year, accounting for 34.9% of the segment's operating revenues.

 

In the first half of 2020, the sales revenues of diesel were RMB 127.6 billion, representing a decrease of 24.3% year on year, accounting for 29.1% of the segment's operating revenues.

 

In the first half of 2020, the sales revenues of kerosene were RMB 24.4 billion, representing a decrease of 50.7% year on year, accounting for 5.6% of the segment's operating revenues. This was mainly due to the slump of kerosene demand impacted by COVID-19 outbreak.

 

In the first half of 2020, the sales revenues of chemical feedstock were RMB 47.0 billion, representing a decrease of 32.0% year on year, accounting for 10.7% of the segment's operating revenues.

 

In the first half of 2020, the sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock were RMB 84.6 billion, representing a decrease of 9.6% year on year, accounting for 19.3% of the segment's operating revenues.

 

In the first half of 2020, the segment's operating expenses were RMB 470.0 billion, representing a decrease of 18.8% year on year, which was mainly attributable to the decrease of crude procurement costs as a result of international crude oil price slump.

 

In the first half of 2020, the average processing cost of crude oil was RMB 2,730 per tonne, representing a decrease of 19.4% year on year. Total crude oil throughput was 114.55 million tonnes (excluding volume processed for third parties), representing a decrease of 8.7% year on year. In the first half of 2020, the total processing cost for crude oil was RMB 312.8 billion, representing a decrease of 26.5% year on year, accounting for 66.6% of the segment's operating expenses, a decrease of 6.9 percentage points year on year.

 

In the first half of 2020, the refining margin was RMB -13 per tonne, down by RMB 395 per tonne year on year, which was mainly due to the significant shrink of margin resulting from plunged demand of petroleum refining products impacted by the COVID-19, as well as the significant inventory losses of crude oil and refined products because of crude oil price slump.

 

In the first half of 2020, 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 177 per tonne, representing an increase of 6.9% year on year, which was mainly because the unit cost increased as a result of the throughput decreased compared with the same period of last year.

 

In the first half of 2020, the operating loss of the segment was RMB 31.7 billion, representing a decrease of RMB 50.8 billion 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 2020, the operating revenues of the segment were RMB 529.8 billion, down by 23.4% year on year. This was mainly due to refined oil products sales volume and price decreased because of domestic market demand plunged.

 

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 2020 and that of the same period of 2019, 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

2020

2019

(%)

2020

2019

(%)

Gasoline

39,807

45,107

(11.7)

6,523

7,483

(12.8)

Retail

28,322

33,607

(15.7)

7,128

7,976

(10.6)

Direct sales and Distribution

11,485

11,499

(0.1)

5,031

6,044

(16.8)

Diesel

36,098

41,594

(13.2)

5,019

5,687

(11.7)

Retail

17,137

20,371

(15.9)

5,500

6,131

(10.3)

Direct sales and Distribution

18,961

21,223

(10.7)

4,584

5,261

(12.9)

Kerosene

9,519

13,010

(26.8)

2,891

4,261

(32.2)

Fuel oil

11,548

11,113

3.9

2,736

2,925

(6.5)

 

In the first half of 2020, the operating expenses of the segment were RMB 521.1 billion, representing a decrease of RMB 156.0 billion year on year, down by 23.0%. This was mainly due to the decrease of sales volume and procurement costs.

 

In the first half of 2020, 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 176 per tonne, representing an increase of 2.3% year on year. This was mainly due to the sales volume decreased year on year.

 

In the first half of 2020, the operating revenues of non-fuel business was RMB 16.6 billion, representing a decrease of RMB 0.1 billion year on year and the profit of non-fuel business was RMB 2.0 billion representing an increase of RMB 0.1 billion compared with the same period of 2019.

 

In the first half of 2020, the segment's operating profit was RMB 8.7 billion, representing a decrease of RMB 6.0 billion year on year, down by 41.1%, mainly due to the decreased sales volume of gasoline and diesel impacted by COVID-19 outbreak. Of which, the operating profit in the second quarter was RMB 10.2 billion, up by 49.1% compared with the same period of last year.

 

(4)  Chemicals Segment

The 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 2020, operating revenues of the chemicals segment were RMB 172.2 billion, representing a decrease of 33.9% year on year, which was mainly due to the decrease in chemical sales volume and products prices.

 

The sales revenue generated by the segment's six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fibre monomer and polymer, synthetic fibre, synthetic rubber, and chemical fertiliser) totalled RMB 163.2 billion, representing a decrease of 33.8% year on year, accounting for 94.8% 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 2020 and that of the same period of 2019.

 

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

2020

2019

(%)

2020

2019

(%)

Basic organic chemicals

21,928

27,312

(19.7)

3,541

4,526

(21.8)

Synthetic fibre monomer and polymer

4,572

8,328

(45.1)

4,354

5,839

(25.4)

Synthetic resin

8,312

7,686

8.1

6,661

7,928

(16.0)

Synthetic fibre

602

661

(8.9)

6,771

9,063

(25.3)

Synthetic rubber

649

631

2.9

7,747

9,687

(20.0)

Chemical fertiliser

592

473

25.2

1,928

2,212

(12.8)

 

In the first half of 2020, the operating expenses of the segment were RMB 169.0 billion, representing a decrease of 32.0% year on year.

 

The segment's operating profit in the first half of 2020 was RMB 3.2 billion, representing a decrease of RMB 8.7 billion or 73.1% as compared with that of 2019, which was mainly due to the decrease in chemical demand, products prices and chemical margin as a result of COVID-19 outbreak.

 

(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 2020, the operating revenues generated from corporate and others were RMB 484.6 billion, representing a decrease of 37.1% year on year. This was mainly due to the decreased trading scale and prices of crude oil and refined oil products.

 

In the first half of 2020, the operating expenses for corporate and others were RMB 484.8 billion, representing a decrease of 37.3% year on year.

 

In the first half of 2020, the segment's operating loss amounted to RMB 200 million, improved by RMB 2.4 billion year on year.

 

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

2020

2019

Change

Total assets

1,821,639

1,755,071

66,568

Current assets

507,980

445,856

62,124

Non-current assets

1,313,659

1,309,215

4,444

Total liabilities

991,453

879,236

112,217

Current liabilities

628,622

576,374

52,248

Non-current liabilities

362,831

302,862

59,969

Total equity attributable to shareholders of the Company

691,363

738,150

(46,787)

Share capital

121,071

121,071

Reserves

570,292

617,079

(46,787)

Non-controlling Interests

138,823

137,685

1,138

Total equity

830,186

875,835

(45,649)

 

As of 30 June 2020, the Company's total assets were RMB 1,821.6 billion, representing an increase of RMB 66.6 billion compared with the end of 2019, of which:

 

‧   Current assets were RMB 508.0 billion, representing an increase of RMB 62.1 billion compared with that as of the end of 2019, mainly because the cash and cash equivalents increased by RMB 26.1 billion, the time deposits with financial institutions increased by RMB 24.6 billion, the prepaid expenses and other current assets increased by RMB 25.6 billion, inventories decreased by RMB 11.9 billion.

 

‧   Non-current assets were RMB 1,313.7 billion, representing an increase of RMB 4.4 billion compared with that as of the end of 2019. The change was mainly due to deferred tax assets increased by RMB 11.0 billion, construction in progress increased by RMB 8.0 billion and net value of property, plant and equipment decreased by RMB 10.1 billion, and the interest in joint ventures decreased by RMB 2.7 billion.

 

As of 30 June 2020, the Company's total liabilities were RMB 991.5 billion, representing an increase of RMB 112.2 billion compared with that as of the end of 2019, of which:

 

‧   Current liabilities were RMB 628.6 billion, representing an increase of RMB 52.2 billion compared with that as of the end of 2019. This was mainly due to the short-term debts increased by RMB 12.7 billion, loans from Sinopec Group Company and fellow subsidiaries increased by RMB 24.5 billion and derivative financial liabilities increased by RMB 15.7 billion.

 

‧   Non-current liabilities were RMB 362.8 billion, representing an increase of RMB 60.0 billion compared with that as of the end of 2019, mainly due to long-term debts increased by RMB 46.4 billion and loans from Sinopec Group Company and fellow subsidiaries increased by RMB 8.9 billion.

 

As of 30 June 2020, total equity attributable to shareholders of the Company was RMB 691.4 billion, representing a decrease of RMB 46.8 billion compared with that as of the end of 2019.

 

(2)  Cash Flow

The following table sets forth the major items in the consolidated cash flow statements for the first half of 2020 and of 2019.

 

Unit: RMB million

 

Six-month period ended 30 June

Changes

Major items of cash flows

2020

2019

in amount

Net cash generated from operating activities

39,794

32,918

6,876

Net cash used in investing activities

(75,541)

(49,073)

(26,468)

Net cash generated from/(used in) financing activities

61,376

(2,945)

64,321

Net increase/(decrease) in cash and cash equivalents

25,629

(19,100)

44,729

 

In the first half of 2020, net cash generated from operating activities was RMB 39.8 billion, representing an increased cash in of RMB 6.9 billion year on year. This was mainly due to profit before taxation decreased by RMB 76.7 billion, impairment losses on assets increased cash in by RMB 11.6 billion, change of accounts receivable and other current assets increased cash in by RMB 15.9 billion, change of inventories increased cash in by RMB 38.7 billion and income tax paid decreased by RMB 8.8 billion year on year.

 

In the first half of 2020, net cash used in investing activities was RMB 75.5 billion, representing an increased cash out of RMB 26.5 billion year on year. This was mainly due to capital expenditure increased cash out by RMB 6.0 billion, decrease in time deposits with maturities over three months decreased cash in by RMB 12.1 billion and interest received decreased cash in by RMB 2.2 billion.

 

In the first half of 2020, net cash generated from financing activities was RMB 61.4 billion, representing an increased cash in of RMB 64.3 billion year on year, which was mainly due to an increase of RMB 69.5 billion of proceeds from bank and other loans.

 

As of 30 June 2020, the cash and cash equivalents were RMB 86.4 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

In the first half of 2020, the Company's research and development expenditure amounted to RMB 8.036 billion, of which expensed was RMB 4.301 billion and capital expenditure was RMB 3.735 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 2020, the environmental expenditures amounted to RMB 3.605 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

 

Items

Beginning of

the reporting period

End of the

reporting

period

Profits and

losses from variation of fair

values in the

current reporting period

Accumulated variation

of fair values

recorded as equity

Impairment

loss provision

of the current

reporting

period

Funding

source

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

3,319

3,733

86

Self-owned fund

Structured deposits

3,318

3,732

73

 

Stock

1

1

13

 

Derivative financial instruments

48

51

1,015

Self-owned fund

Cash flow hedges

(1,940)

(10,452)

4,640

(2,460)

Self-owned fund

Other equity instruments

1,521

1,494

(31)

Self-owned fund

Total

2,948

(5,174)

5,741

(2,491)

 

 

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

2020

2019

RMB million

RMB million

Operating income

 

 

Exploration and Production Segment

78,929

103,804

Refining Segment

438,358

597,797

Marketing and Distribution Segment

529,801

691,842

Chemicals Segment

172,199

260,488

Corporate and Others

484,625

770,161

Elimination of inter-segment sales

(669,666)

(925,096)

Consolidated operating income

1,034,246

1,498,996

Operating (loss)/profit

 

 

Exploration and Production Segment

(8,044)

5,449

Refining Segment

(32,548)

18,171

Marketing and Distribution Segment

6,807

14,561

Chemicals Segment

2,873

11,663

Corporate and Others

(4,388)

847

Elimination of inter-segment sales

4,500

(244)

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

 asset disposal gains/(losses)

615

(2,869)

Other income

2,462

1,600

Consolidated operating (loss)/profit

(27,723)

49,178

Net (loss)/profit attributable to equity shareholders of the Company

(22,882)

31,338

 

Operating profit: In the first half of 2020, the operating loss of the Company was RMB 27.7 billion, representing a decrease of RMB 76.9 billion year on year. This was mainly due to the decrease of refinery throughput, chemical and refined oil products sales volume, realised prices, huge loss in inventory and narrowed gross margin of major products resulting from COVID-19 outbreak and slump of crude oil price.

 

Net profit: In the first half of 2020, net loss attributable to equity shareholders of the Company was RMB 22.9 billion, representing a decrease of RMB 54.2 billion year on year.

 

(2)  Financial data prepared under CASs:

 

As of 30 June

As of 31 December

2020

2019

Changes

RMB million

RMB million

RMB million

Total assets

1,821,639

1,755,071

66,568

Non-current liabilities

361,789

301,792

59,997

Shareholders' equity

831,228

876,905

(45,677)

 

As of 30 June 2020, the Company's total assets were RMB 1,821.6 billion, representing an increase of RMB 66.6 billion compared with the end of 2019. This was mainly due to the increase in the cash at bank and on hand of RMB 50.8 billion, receivables increased by RMB 18.5 billion.

 

As of 30 June 2020, the Company's non-current liabilities were RMB 361.8 billion, representing an increase of RMB 60.0 billion compared with the end of 2019. This was mainly due to the increase in the long-term loans of RMB 35.2 billion and the increase in the debentures payable of RMB 20.2 billion.

 

As of 30 June 2020, total shareholders' equity of the Company was RMB 831.2 billion, representing a decrease of RMB 45.7 billion compared with the end of 2019. This was mainly due to the decrease in retained earnings of RMB 45.9 billion.

 

(3)  The results of the principal operations by segments

 

(Decrease)/

increase of

gross profit

Decrease of

Decrease 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

Segments

(RMB million)

(RMB million)

(%)

basis (%)

basis (%)

point)

Exploration and Production

78,929

72,309

3.7

(24.0)

(12.7)

(11.7)

Refining

438,358

350,439

(3.2)

(26.7)

(23.1)

(8.0)

Marketing and Distribution

529,801

492,098

6.9

(23.4)

(23.8)

0.4

Chemicals

172,199

156,149

8.9

(33.9)

(34.1)

0.2

Corporate and Others

484,625

479,336

1.1

(37.1)

(37.5)

0.6

Elimination of inter-segment sales

(669,666)

(674,166)

N/A

N/A

N/A

N/A

Total

1,034,246

876,165

4.9

(31.0)

(30.6)

(2.9)

 

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

 

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

None

 

SIGNIFICANT EVENTS

 

1    CORPORATE GOVERNANCE

(1)  During the reporting period, Sinopec Corp. was in full compliance with the articles of association of Sinopec Corp. (Articles of Association) as well as domestic and overseas laws and regulations, adhered to the standard operation, and improved the corporate governance capabilities and governance levels. The Company elected directors, chairman and employee's representative supervisors, appointed senior management, and adjusted the composition of relevant special committees, all of which further improved the corporate governance structure. The Company continued to deepen "the campaign of promoting the execution effectiveness of internal control" to strengthen the internal control and risk management. The Party organisation participated in corporate governance to promote scientific decision-making. Special committees of the Board fulfilled their duties with diligence and due care, and carefully reviewed relevant matters. The information disclosure and investor relations work were further strengthened. The Company actively fulfilled its social responsibilities, especially contributed to the prevention and control of the COVID-19 by ways of maintaining a stable supply of oil and gas, increasing production and supply of medical-use materials, and helped work resumption of related industries.

 

During the reporting period, on 25 March 2020 and 19 May 2020 respectively, Sinopec Corp. convened the first extraordinary general meeting in 2020 and 2019 annual general meeting in Beijing, China, strictly in compliance with the relevant laws, regulations and the required notice, convening and holding procedures under the Articles of Association. For details of the meetings, please refer to the poll results announcements published in China Securities Journal, Shanghai Securities News, and Securities Times and on the websites of Shanghai Stock Exchange and Hong Kong Stock Exchange after the meetings.

 

(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, or 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 2020, Mr. Ling Yiqun, Director and Senior Vice President, held 13,000 A shares of Sinopec Corp. and Mr. Li Defang, Supervisor, held 40,000 A shares of Sinopec Corp. (held as interest of spouse).

 

Save as disclosed above, the directors, supervisors and senior management of Sinopec Corp. and their respective associates confirmed that none of them 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 to 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 in 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 to the Hong Kong Listing Rules.

 

(5)  Review of the Interim Report

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

 

2    DIVIDEND

(1)  Dividend distribution for the year ended 31 December 2019

Upon the approval at its annual general meeting for 2019, Sinopec Corp. distributed the final cash dividend of RMB  0.19 per share (tax inclusive) for 2019. The final dividend for 2019 has been distributed to shareholders on or before 19 June 2020 whose names appeared on the register of members of Sinopec Corp. on 9 June 2020. Combined with the 2019 interim cash dividend of RMB 0.12 per share (tax inclusive), the total cash dividend for the whole year of 2019 amounted to RMB 0.31 per share (tax inclusive).

 

(2)  Special interim dividend distribution plan for 2020

Pursuant to the Articles of Association, the amount of the half-yearly dividend distribution shall not exceed 50% of net profit for the reporting period. In order to maintain continuity and steadiness of dividend distribution of the Company and considering the long-term development of the Company and overall interests of all shareholders, the sixteenth meeting of the seventh session of the Board approved and proposed to distribute a special interim dividend of RMB 0.07 per share (tax inclusive). The independent non-executive directors had issued independent opinions on the special interim dividend distribution plan for 2020 which is subject to the approval at the extraordinary general meeting of Sinopec Corp.

 

The special interim dividend will be distributed on or before 5 November 2020 to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of 22 October 2020. In order to be qualified for the special 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, no later than 4:30 p.m. on 15 October 2020. The register of members of H shares of Sinopec Corp. will be closed from 16 October 2020 to 22 October 2020 (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 special interim dividend.

 

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 enterprise 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)  Zhongke integrated refining and chemical project

Zhongke integrated refining and chemical project consists mainly of a 10,000,000 tpa refinery, 800,000 tpa ethylene unit, 300,000 tonne capacity jetty and relevant utilities project. The project was put into operation on 16 June 2020. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining. As of 30 June 2020, the aggregate investment was RMB 33.2 billion.

 

(2)  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 ancillary projects started at the end of October 2018 and the mechanical completion is expected to be achieved in the middle of 2021. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining. As of 30 June 2020, the aggregate investment was RMB 5.0 billion.

 

(3)  Wuhan ethylene debottlenecking project

Wuhan ethylene debottlenecking project will expand the existing 800,000 tpa ethylene to 1,100,000 tpa ethylene. The project started at the end of October 2018 and the mechanical completion is expected to be achieved 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. As of 30 June 2020, the aggregate investment was RMB 2.7 billion.

 

(4)  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. As of 30 June 2020, the aggregate investment was RMB 2.5 billion.

 

4    CORPORATE BONDS ISSUED AND INTEREST PAYMENTS

 

Basic information of corporate bonds

 

Sinopec Corp.

Sinopec Corp.

Sinopec Corp.

Bond name

2010 Corporate bond

2012 Corporate bond

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)

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 instalment of interest.

 

Payment of interests

 

Sinopec Corp. had paid in full the interest accrued of "12石化02" during the reporting period and "10石化02" had been repaid and delisted from the Shanghai Stock Exchange.

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 exchange

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, the latest credit rating results have been published through media designated by regulators within two months commencing from the date of disclosure of the 2019 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 arrangement to credit addition mechanism and change of the repayment for the above-mentioned corporate bonds. Sinopec Corp. strictly followed the provisions in the corporate bond prospectus to repay interests of the corporate bonds to bondholders.

 

 

 

 

The guarantor of 10石化02 and 12石化02 is China Petrochemical Corporation. For more information of the guarantor, please refer to the 2019 annual report of corporate bonds which had 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 had 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 2020

 

As of 30 June

As of 31 December

Principal data

2020

2019

Change

Reasons for change

Current ratio

0.81

0.77

0.04

Due to the increase of current assets

Quick ratio

 

0.52

 

0.44

 

0.08

 

Due to the increase of cash at bank

and on hand

Liability-to-asset ratio

 

54.37%

 

50.04%

 

4.33

percentage points

Due to increase of liabilities

 

Loan repayment rate

100%

100%

-

 

 

Six-month period ended 30 June

2020

2019

Change

Reasons for change

EBITDA-to-interest coverage ratio

3.79

12.20

(8.41)

Due to the decrease of EBITDA

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 2020, the standby credit line provided by several domestic financial institutions to the Company was RMB 287.502 billion in total, facilitating the Company to get such amount of unsecured loans. During the reporting period, Sinopec Corp. fulfilled relevant undertakings in the offering circular 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 and delisted; the 5-year notes principal totaled USD 1 billion, with an annual interest rate of 1.875% and was repaid in full and delisted; 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    DISPOSAL OF ASSETS AND EXTERNAL INVESTMENT

On 23 July 2020, Sinopec Corp. entered into the Agreement on Additional Issuance of Equity to Purchase Relevant Oil and Gas Pipeline Assets with China Oil & Gas Pipeline Network Corporation (PipeChina) in Beijing, pursuant to which Sinopec Corp. proposed to transfer equity interests in the relevant oil and gas pipeline companies to PipeChina to subscribe for PipeChina's registered capital of RMB 47.113 billion upon completion of the PipeChina reorganisation. PipeChina will issue additional equity to Sinopec Corp. to satisfy the transaction consideration. The appraised value of the target assets, as well as the transaction consideration, amounts to RMB 47.113 billion, while the final consideration shall be subject to the appraised value upon the performance of approval/filing procedures in accordance with PRC laws and regulations.

 

On 23 July 2020, Sinopec Natural Gas Limited Company (Sinopec Natural Gas), entered into the Agreement on Additional Issuance of Equity and Cash Payment to Purchase Relevant Oil and Gas Pipeline Assets with PipeChina in Beijing, pursuant to which Sinopec Natural Gas proposed to transfer equity interests in the relevant oil and gas pipeline companies to PipeChina to subscribe for PipeChina's registered capital of RMB 22.887 billion upon completion of the PipeChina reorganisation and will receive RMB 18.621 billion paid by PipeChina in cash. PipeChina will issue additional equity and make cash payment to Sinopec Natural Gas to satisfy the transaction consideration. The appraised value of the target assets, as well as the transaction consideration, amounts to RMB 41.509 billion, while the final consideration shall be subject to the appraised value upon the performance of approval/filing procedures in accordance with PRC laws and regulations.

 

On 23 July 2020, Sinopec Marketing Co., Limited (Marketing Company), entered into the Agreement on Cash Payment to Purchase Relevant Oil and Gas Pipeline Assets with PipeChina in Beijing, pursuant to which Marketing Company proposed to transfer the refined oil pipelines and other assets held by it to PipeChina, in exchange for cash consideration paid by PipeChina. The appraised value of the target assets held by Marketing Company, as well as the transaction consideration, amounts to RMB 30.813 billion, while the final consideration shall be subject to the appraised value upon the performance of approval/filing procedures in accordance with PRC laws and regulations.

 

In addition, on 21 July 2020, Sinomart KTS Development Limited (KTS Company) entered into the Agreement on Cash Payment to Purchase 100% Equity in Sinopec Yu Ji Pipeline Company Limited (Sinopec Yu Ji Company) with PipeChina in Beijing, pursuant to which KTS Company proposed to transfer 100% equity interest in Sinopec Yu Ji Company, its subsidiary, to PipeChina, in exchange for cash consideration paid by PipeChina. The appraised value of the target assets held by KTS Company, as well as the transaction consideration, amounts to RMB 3.220 billion, while the final consideration shall be subject to the appraised value upon the performance of approval/filing procedures in accordance with PRC laws and regulations.

 

For 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 24 July 2020, and on the website of Hong Kong Stock Exchange on 23 July 2020. The above disposal of assets and external investment is subject to the approval at the extraordinary general meeting of Sinopec Corp.

 

6    ABSORPTION AND MERGER OF ZHANJIANG DONGXING BY ZHONGKE REFINING

On 29 April 2020, Zhongke (Guangdong) Refining and Petrochemical Co., Ltd. (Zhongke Refining) entered into the Merger Agreement with Sinopec Zhanjiang Dongxing Petrochemical Company Limited (Zhanjiang Dongxing), and Sinopec Corp. entered into the Joint Venture Contract with Sinopec Century Bright Capital Investment Limited (Century Bright Company). Pursuant to the transaction documents, Zhongke Refining agreed to absorb and merge Zhanjiang Dongxing. Zhongke Refining had become the owner of all assets and liabilities of Zhanjiang Dongxing and had assumed the existing businesses and personnel of Zhanjiang Dongxing. Each of Sinopec Corp. and Century Bright Company holds 90.3% and 9.7% equity interest in Zhongke Refining, respectively. The absorption and merger of Zhanjiang Dongxing by Zhongke Refining was completed on 2 July 2020. For 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 2020 and 3 July 2020, and on the website of Hong Kong Stock Exchange on 29 April 2020 and on 2 July 2020.

 

7    CORE COMPETITIVENESS ANALYSIS

The Company is a large-scale integrated energy and petrochemical company with upstream, mid-stream and downstream operations with strong competitiveness. 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. 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 our 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 of 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 research and development 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 fulfillment social responsibilities, and carries out the green and low carbon development strategy to pursue a sustainable development. 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.

 

8    CONTINUING CONNECTED TRANSACTIONS DURING THE REPORTING PERIOD

Sinopec Corp. and China Petrochemical Corporation entered into a number of continuing connected transactions agreements, 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 continuing connected transactions agreements (as amended from time to time), the aggregate amount of the continuing connected transactions of the Company during the reporting period was RMB 168.336 billion. Among which, purchases expenses amounted to RMB 109.208 billion, representing 9.80% of the total amount of this type of transaction for the reporting period, including purchases of products and services (procurement, storage, transportation, exploration and development services, and production-related services) of RMB 101.236 billion, purchases of cultural, educational, hygiene and auxiliary services of RMB 1.572 billion, payment of property rent of RMB 269 million, payment of land use rights of RMB 5.558 billion, and interest expenses of RMB 573 million. The sales income amounted to RMB 59.128 billion, representing 5.40% of the total amount of this type of transaction for the reporting period, including sales of products of RMB 58.636 billion, agency commission income of RMB 70 million, and interest income of RMB 422 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.

 

9    FUNDS PROVIDED BETWEEN RELATED PARTIES

Unit: RMB million

 

Funds to related parties

Funds from related parties

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*

10,767

 

5,195

 

15,962

 

15,736

 

(2,015)

 

13,721

 

 

Other related parties

Associates and joint ventures

 

1,738

 

412

 

2,150

 

392

 

2,777

 

3,169

Total

 

12,505

5,607

18,112

16,128

762

16,890

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.

 

10  SIGNIFICANT LITIGATION AND ARBITRATION

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

 

11  CREDIBILITY FOR THE COMPANY, CONTROLLING SHAREHOLDER 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.

 

12  OTHER MATERIAL CONTRACTS

During the reporting period, the Company did not enter into any other significant contracts which should be disclosed.

 

13  SIGNIFICANT EQUITY INVESTMENTS

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

 

14  SIGNIFICANT ASSETS AND EQUITY SALE

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

 

15  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. and 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 Sinopec Finance Co., Ltd. and Century Bright Company can be fully withdrawn for the Company's use.

 

16  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

 

 

 

9,126

 

 

25 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.

6,745

 

 

 

18 April 2018

 

 

 

18 April 2018-31 December

2031

 

Joint liability guarantee

 

No

 

 

 

No

 

 

 

 

 

 

No

 

 

 

No

 

 

 

Total amount of guarantees provided during the reporting period2

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

15,871

Guarantees by the Company to the controlled subsidiaries

 

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

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

12,341

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

 

Total amount of guarantees (A+B)

28,212

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

4.07

Among which:

 

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

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

6,745

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

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

6,745

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.

 

17  PERFORMANCE OF THE UNDERTAKINGS

 

Whether

Whether

Background

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.

 

18  STRUCTURED ENTITY CONTROLLED BY THE COMPANY

None

 

19  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.

 

20  REPURCHASE, SALES AND REDEMPTION OF SHARES

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

 

21  INFORMATION ON MAJOR SUBSIDIARIES OR THE ASSOCIATES OR JOINT VENTURES

The net profit from the subsidiary or investment income from the associate or joint venture accounts for more than 10% of the Company's net profit:

 

Unit: RMB million

 

Percentage of

share held by

Revenue of

Profit of

Company name

Registered

capital

Sinopec Corp.

(%)

Total asset

Net Assets

Net Profit

principal

business

principal

business

Principal Activities

Sinopec Marketing

28,403

70.42

504,666

223,652

5,025

511,547

32,652

Sales of refined

 Co., Ltd.

 

 

 

 

 

 

 

oil products

 

22  ENVIRONMENTAL PROTECTION BY SINOPEC CORP. AND ITS SUBSIDIARIES

During the reporting period, certain 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 was published on national pollutant discharge license management information platform (http://permit.mee.gov.cn/permitExt/defaults/default-index!getInformation.action) and the local government website. Sinopec Corp. built prevention and control facilities for sewage, flue gas, solid waste and noise in accordance with the requirements of the national and local pollution prevention and environmental protection standards, kept effective and stable operation of pollution prevention and control facilities, and realised standardised discharges and emissions of sewage, flue gas, solid waste and factory noise. The Company further regulated environmental management of construction projects, strictly examined the environmental protection content of the feasibility report, standardised the implementation of the environment assessment in the project under construction and environmental acceptance when completed, implemented "three-simultaneity" management (environmental facilities shall be designed, constructed and put into operation simultaneously with the main construction). Sinopec Corp. strictly complies with relevant national requirements on environment emergency plan management and continually 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 acquired discharge permit and modified the self-monitoring plan according to relevant industrial self-monitoring guidance, implemented new national requirements of sewage, flue gas and noise monitor, and disclosed the environmental results as required. For other subsidiaries that are not listed as major pollutant discharge units, the Company also completed relevant environmental protection formalities in accordance with the national and local requirements, and implemented relevant environmental protection measures. According to the requirements of national and local ecological environment departments, these companies do not need to disclose relevant information.

 

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. Coupled with the continuous spread of the COVID-19 around the world, the path to the recovery of world economy in the future will be more tortuous. The Company's business could also be adversely affected by other factors such as the impact on export due to trade protectionism from certain countries, impact on import which is likely caused by regional trade agreements, and negative impact on the investment of overseas oil and gas exploration and development and refining and chemical storage projects which results from the uncertainty of geopolitics, international crude oil price and etc.

 

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 industry policy, 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 counteract the adverse influences of industry cycle to some extent.

 

Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalising the market entry regulations on petroleum and petrochemicals industry, 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, setting caps for retail prices of gasoline, diesel and other refined oil products, the imposing of the special oil income levy, formulation of refined oil products 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 fully opening up of exploration and mining rights, the opening up of crude oil import licenses and the right of tenure, removing the restriction of share ratio of refining projects to foreign enterprises, further improvement in pricing mechanism of refined oil products, cancellation of wholesale right and decentralization of retail right of refined oil products, and gas stations investment are fully opened to foreign investment, reforming and improvement in pricing mechanism of natural gas, cost supervision of gas pipeline and access to third party, and reforming in resource tax and environmental tax, 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, gases and solids. The Company has built up the supporting effluent treatment systems to prevent and reduce the pollution to the environment. However, relevant government authorities may issue and implement much stricter environmental protection laws and regulations, adopt much stricter environment protection standards. Under such situations, the Company may increase expenses in relation to the environment protection accordingly.

 

Risks from the uncertainties of additional oil and gas reserves: The sustainable development of the Company's upstream business is partly dependent on increasing our oil and natural gas resources by continuously conducting exploration, upgrading recovery rate or through acquisitions. 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 money with no guarantee of certainty. If the Company fails to acquire enough alternative crude oil and natural gas resources, the Company will face the pressure of declining reserves and production of crude oil and natural gas in future, which may adversely affect the Company's long-term sustainable development 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, economic growth, pandemic, natural disaster and other factors, the prices of crude oil fluctuated sharply, which may adversely affect the Company's production cost, financial situation and operation performance. 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 countermeasures, 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 impacts to the society, financial losses to the Company and injuries to people and their health. The Company has always been paying great emphasis on the safety production, and has implemented a strict HSSE management system as a best endeavor to avoid such risks. 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 industry 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 and expected returns may not be achieved due to major changes in factors such as market environment, prices of equipment and raw materials, and construction period 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 in trade, and politicisation of economic and trade issues, including sanctions, barriers to entry, instability in the financial and taxation policies, contract defaults, tax dispute, 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's domestic realized price of crude oil is based on international oil price, the fluctuation of the Renminbi exchange rate will have an effect on the income of the upstream sector. The Company purchases a significant portion of crude oil in foreign currency which is based on US dollar-denominated prices. 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, 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 domestic oil product price is calculated using the Renminbi central parity, while the crude oil purchase is settled using the buying exchange rate of foreign exchange. When there exists a significant difference between Renminbi central parity and the buying exchange rate, the Company's profit margin in refining sector will be influenced to a certain extent.

 

Cyber-security risks: The Company has a well- established network safety system, information infrastructure and operation system, and network safety information platform, devotes significant resources to protecting our digital infrastructure and data against cyber-attacks, if our systems against cyber-security risk prove to be ineffective, the Company could be adversely affected by, among other things, disruptions to our business operations, and loss of proprietary information, including intellectual property, financial information and employer and customer data, injuries to personnel, 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

On 13 January 2020, Ms. Shou Donghua was appointed as Chief Financial Officer of Sinopec Corp.

 

On 19 January 2020, Mr. Dai Houliang resigned as Chairman of the Board, Non-executive Director and Chairman of each of the Strategy Committee, Nomination Committee and Social Responsibility Management Committee of the Board of Sinopec Corp. due to change of working arrangement.

 

On 24 March 2020, Mr. Li Yunpeng resigned as Non-executive Director and member of the Remuneration and Appraisal Committee of Sinopec Corp. due to his age.

 

On 25 March 2020, Mr. Zhang Yuzhuo was elected as Chairman of the Board, Non-executive Director and Chairman of each of the Strategy Committee, Nomination Committee and Social Responsibility Management Committee of the Board of Sinopec Corp.

 

On 25 March 2020, Mr. Liu Hongbin was appointed as Senior Vice President of Sinopec Corp.

 

On 18 May 2020, Mr. Zhou Hengyou resigned as employee's representative supervisor of Sinopec Corp. due to change of working arrangement.

 

On 18 May 2020, Mr. Yu Xizhi resigned as employee's representative supervisor of Sinopec Corp. due to change of working arrangement.

 

On 18 May 2020, Mr. Sun Huanquan was elected as employee's representative supervisor of the seventh session of the board of supervisors of Sinopec Corp.

 

On 18 May 2020, Mr. Li Defang was elected as employee's representative supervisor of the seventh session of the board of supervisors of Sinopec Corp.

 

On 19 May 2020, Mr. Liu Hongbin was elected as an Executive Director of the seventh session of the Board.

 

On 23 July 2020, Mr. Yu Xizhi was appointed as Vice President of Sinopec Corp.

 

On 12 August 2020, Mr. Lei Dianwu resigned as Senior Vice President of Sinopec Corp. due to change of working arrangement.

 

On 28 August 2020, Mr. Fan Gang resigned as Independent Non-executive Director and member of the Strategy Committee, Chairman of the Remuneration and Appraisal Committee and member of the Social Responsibility Management Committee of the Board of Sinopec Corp. due to working arrangement.

 

2    CHANGES IN SHAREHOLDINGS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT DURING THE REPORTING PERIOD

During the reporting period, except for the disclosure of interests of directors, supervisors and other senior management in the "Significant Events" section of this report., there is no change in shareholdings of the directors, supervisors and other senior management of Sinopec Corp.

 

REPORT OF THE PRC AUDITOR

 

 

 

PwC ZT Yue Zi (2020) No.0075

 

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 2020, 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 2020, 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

28 August 2020

Signing CPA

Hu Yang

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)   financial statements prepared under china accounting STANDARDS for business enterprises

        UNAUDITED CONSOLIDATED BALANCE SHEET

               As at 30 June 2020

 

Notes

At 30 June

At 31 December

2020

2019

RMB million

RMB million

Assets

 

 

 

Current assets

 

 

 

Cash at bank and on hand

5

178,700

127,927

Financial assets held for trading

6

3,733

3,319

Derivative financial assets

7

8,057

837

Accounts receivable

8

44,173

54,865

Receivables financing

9

9,401

8,622

Prepayments

10

5,635

5,066

Other receivables

11

52,520

24,109

Inventories

12

180,500

192,442

Other current assets

 

25,261

28,669

Total current assets

 

507,980

445,856

Non-current assets

 

 

 

Long-term equity investments

13

149,172

152,204

Other equity instrument investments

 

1,494

1,521

Fixed assets

14

612,378

622,423

Construction in progress

15

181,524

173,482

Right-of-use assets

16

195,045

198,051

Intangible assets

17

109,074

108,956

Goodwill

18

8,716

8,697

Long-term deferred expenses

19

8,779

8,930

Deferred tax assets

20

28,569

17,616

Other non-current assets

21

18,908

17,335

Total non-current assets

 

1,313,659

1,309,215

 

 

 

 

Total assets

 

1,821,639

1,755,071

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Short-term loans

23

55,700

31,196

Derivative financial liabilities

7

18,458

2,729

Bills payable

24

18,582

11,834

Accounts payable

25

173,572

187,958

Contract liabilities

26

132,906

126,735

Employee benefits payable

27

10,465

4,769

Taxes payable

28

41,502

69,339

Other payables

29

81,813

72,324

Non-current liabilities due within one year

30

62,836

69,490

Other current liabilities

31

32,788

-

Total current liabilities

 

628,622

576,374

Non-current liabilities

 

 

 

Long-term loans

32

74,795

39,625

Debentures payable

33

39,314

19,157

Lease liabilities

34

175,818

177,674

Provisions

35

43,675

43,163

Deferred tax liabilities

20

7,034

6,809

Other non-current liabilities

36

21,153

15,364

Total non-current liabilities

 

361,789

301,792

 

 

 

 

Total liabilities

 

990,411

878,166

Shareholders' equity

 

 

 

Share capital

37

121,071

121,071

Capital reserve

38

122,043

122,127

Other comprehensive income

39

(2,300)

(321)

Specific reserve

 

2,877

1,741

Surplus reserves

40

207,423

207,423

Retained earnings

 

241,242

287,128

Total equity attributable to shareholders of the Company

 

692,356

739,169

Minority interests

 

138,872

137,736

Total shareholders' equity

 

831,228

876,905

 

 

 

 

Total liabilities and shareholders' equity

 

1,821,639

1,755,071

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

Chairman

President

Chief Financial Officer

(Legal representative)

 

The accompanying notes form part of these financial statements.

 

unaudited balance sheet

As at 30 June 2020

 

Notes

At 30 June

At 31 December

2020

2019

RMB million

RMB million

Assets

 

 

 

Current assets

 

 

 

Cash at bank and on hand

 

106,352

54,072

Derivative financial assets

 

1,985

940

Accounts receivable

8

16,101

21,544

Receivables financing

 

284

207

Prepayments

10

3,932

2,665

Other receivables

11

72,833

78,872

Inventories

 

47,326

49,116

Other current assets

 

14,051

25,149

Total current assets

 

262,864

232,565

Non-current assets

 

 

 

Long-term equity investments

13

309,815

304,687

Other equity instrument investments

 

395

395

Fixed assets

14

283,482

291,547

Construction in progress

15

66,233

60,493

Right-of-use assets

16

111,359

112,832

Intangible assets

 

8,626

8,809

Long-term deferred expenses

 

2,340

2,630

Deferred tax assets

 

16,236

7,315

Other non-current assets

 

6,412

2,490

Total non-current assets

 

804,898

791,198

 

 

 

 

Total assets

 

1,067,762

1,023,763

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Short-term loans

 

27,039

19,919

Derivative financial liabilities

 

4,174

157

Bills payable

 

7,966

4,766

Accounts payable

 

74,048

75,352

Contract liabilities

 

4,462

5,112

Employee benefits payable

 

5,089

1,214

Taxes payable

 

26,467

43,025

Other payables

 

155,725

118,064

Non-current liabilities due within one year

 

51,250

59,596

Other current liabilities

 

20,512

-

Total current liabilities

 

376,732

327,205

Non-current liabilities

 

 

 

Long-term loans

 

31,599

12,680

Debentures payable

 

26,973

7,000

Lease liabilities

 

107,198

107,783

Provisions

 

35,251

34,514

Other non-current liabilities

 

4,636

4,471

Total non-current liabilities

 

205,657

166,448

 

 

 

 

Total liabilities

 

582,389

493,653

Shareholders' equity

 

 

 

Share capital

 

121,071

121,071

Capital reserve

 

68,836

68,841

Other comprehensive income

 

(1,448)

1,181

Specific reserve

 

1,407

949

Surplus reserves

 

207,423

207,423

Retained earnings

 

88,084

130,645

Total shareholders' equity

 

485,373

530,110

 

 

 

 

Total liabilities and shareholders' equity

 

1,067,762

1,023,763

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

Notes

Six-month period ended 30 June

2020

2019

RMB million

RMB million

Operating income

41

1,034,246

1,498,996

Less: Operating costs

41

876,165

1,263,093

Taxes and surcharges

42

107,843

120,246

Selling and distribution expenses

 

29,483

29,740

General and administrative expenses

 

31,021

27,039

Research and development expenses

45

4,301

3,989

Financial expenses

43

5,215

5,163

Exploration expenses, including dry holes

46

4,465

4,347

Add:   Other income

47

2,462

1,600

Investment income

48

5,631

2,774

Gains/(losses) from changes in fair value

49

110

(306)

Credit impairment losses

 

(101)

(13)

Impairment losses

50

(11,667)

(82)

Asset disposal gains/(losses)

 

89

(174)

Operating (loss)/profit

 

(27,723)

49,178

Add:   Non-operating income

51

683

685

Less:   Non-operating expenses

52

972

767

(Loss)/profit before taxation

 

(28,012)

49,096

Less:   Income tax (credit)/expense

53

(5,802)

10,140

Net (loss)/profit

 

(22,210)

38,956

Classification by going concern:

 

 

 

Continuous operating net (loss)/profit

 

(22,210)

38,956

Termination of net profit

 

-

-

Classification by ownership:

 

 

 

Equity shareholders of the Company

 

(22,882)

31,338

Minority interests

 

672

7,618

Basic (losses)/earnings per share

63

(0.189)

0.259

Diluted (losses)/earnings per share

63

(0.189)

0.259

Other comprehensive (loss)/income

39

 

 

Items that may not be reclassified subsequently to profit or loss

 

 

 

Changes in fair value of other equity instrument investments

 

(30)

(20)

Items that may be reclassified subsequently to profit or loss

 

 

 

Other comprehensive loss that can be converted into profit or loss

 under the equity method

 

(1,781)

(509)

Cash flow hedges

 

(1,660)

4,791

Foreign currency translation differences

 

1,059

306

Total other comprehensive (loss)/income

 

(2,412)

4,568

 

 

 

 

Total comprehensive (loss)/income

 

(24,622)

43,524

Attributable to:

 

 

 

Equity shareholders of the Company

 

(25,095)

35,916

Minority interests

 

473

7,608

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

Notes

Six-month period ended 30 June

2020

2019

RMB million

RMB million

Operating income

41

358,575

512,335

Less: Operating costs

41

287,803

404,570

Taxes and surcharges

 

70,139

81,950

Selling and distribution expenses

 

1,475

1,550

General and administrative expenses

 

15,006

11,167

Research and development expenses

 

4,050

3,727

Financial expenses

 

4,534

3,913

Exploration expenses, including dry holes

 

3,710

4,021

Add:   Other income

 

1,894

891

Investment income

48

6,599

10,805

Gains from changes in fair value

 

360

20

Credit impairment losses

 

30

8

Impairment losses

 

(8,094)

1

Asset disposal gains

 

13

21

Operating (loss)/profit

 

(27,340)

13,183

Add:   Non-operating income

 

103

111

Less:   Non-operating expenses

 

444

277

(Loss)/profit before taxation

 

(27,681)

13,017

Less: Income tax (credit)/expense

 

(8,124)

510

Net (loss)/profit

 

(19,557)

12,507

Classification by going concern:

 

 

 

Continuous operating net (loss)/profit

 

(19,557)

12,507

Termination of net profit

 

-

-

Other comprehensive (loss)/income

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

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

 

(94)

27

Cash flow hedges

 

(2,591)

759

Total other comprehensive (loss)/income

 

(2,685)

786

 

 

 

 

Total comprehensive (loss)/income

 

(22,242)

13,293

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

Notes

Six-month period ended 30 June

2020

2019

RMB million

RMB million

Cash flows from operating activities:

 

 

 

Cash received from sale of goods and rendering of services

 

1,152,664

1,585,959

Refund of taxes and levies

 

1,665

736

Other cash received relating to operating activities

 

110,725

69,270

Sub-total of cash inflows

 

1,265,054

1,655,965

Cash paid for goods and services

 

(903,987)

(1,297,454)

Cash paid to and for employees

 

(32,355)

(32,849)

Payments of taxes and levies

 

(155,230)

(206,645)

Other cash paid relating to operating activities

 

(133,688)

(86,099)

Sub-total of cash outflows

 

(1,225,260)

(1,623,047)

 

 

 

 

Net cash flow from operating activities

55(a)

39,794

32,918

Cash flows from investing activities:

 

 

 

Cash received from disposal of investments

 

5,476

17,019

Cash received from returns on investments

 

2,744

4,038

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

 

1,520

107

Net cash received from disposal of subsidiaries and other business entities

 

31

-

Other cash received relating to investing activities

 

28,066

41,787

Sub-total of cash inflows

 

37,837

62,951

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

 

(53,063)

(46,253)

Cash paid for acquisition of investments

 

(6,362)

(11,958)

Other cash paid relating to investing activities

 

(53,953)

(53,813)

Sub-total of cash outflows

 

(113,378)

(112,024)

 

 

 

 

Net cash flow from investing activities

 

(75,541)

(49,073)

Cash flows from financing activities:

 

 

 

Cash received from capital contributions

 

3,267

1,570

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

 

3,267

1,570

Cash received from borrowings

 

400,911

331,459

Other cash received relating to financing activities

 

296

300

Sub-total of cash inflows

 

404,474

333,329

Cash repayments of borrowings

 

(306,739)

(293,992)

Cash paid for dividends, profits distribution or interest

 

(27,359)

(35,341)

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

 

(918)

(648)

Other cash paid relating to financing activities

55(d)

(9,000)

(6,941)

Sub-total of cash outflows

 

(343,098)

(336,274)

 

 

 

 

Net cash flow from financing activities

 

61,376

(2,945)

Effects of changes in foreign exchange rate

 

504

(40)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

55(b)

26,133

(19,140)

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

Notes

Six-month period ended 30 June

2020

2019

RMB million

RMB million

Cash flows from operating activities:

 

 

 

Cash received from sale of goods and rendering of services

 

409,385

591,443

Refund of taxes and levies

 

1,542

573

Other cash received relating to operating activities

 

2,015

1,080

Sub-total of cash inflows

 

412,942

593,096

Cash paid for goods and services

 

(250,667)

(431,378)

Cash paid to and for employees

 

(16,878)

(17,414)

Payments of taxes and levies

 

(91,431)

(137,807)

Other cash paid relating to operating activities

 

(9,186)

(3,625)

Sub-total of cash outflows

 

(368,162)

(590,224)

 

 

 

 

Net cash flow from operating activities

 

44,780

2,872

Cash flows from investing activities:

 

 

 

Cash received from disposal of investments

 

11,274

14,138

Cash received from returns on investments

 

5,463

8,453

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

 

6,542

17

Other cash received relating to investing activities

 

64,906

15,504

Sub-total of cash inflows

 

88,185

38,112

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

 

(23,615)

(22,231)

Cash paid for acquisition of investments

 

(12,044)

(5,783)

Other cash paid relating to investing activities

 

(90,732)

(25,900)

Sub-total of cash outflows

 

(126,391)

(53,914)

 

 

 

 

Net cash flow from investing activities

 

(38,206)

(15,802)

Cash flows from financing activities:

 

 

 

Cash received from borrowings

 

173,471

73,981

Other cash received relating to financing activities

 

105,890

35,924

Sub-total of cash inflows

 

279,361

109,905

Cash repayments of borrowings

 

(115,933)

(47,206)

Cash paid for dividends or interest

 

(25,548)

(32,501)

Other cash paid relating to financing activities

 

(121,353)

(40,385)

Sub-total of cash outflows

 

(262,834)

(120,092)

 

 

 

 

Net cash flow from financing activities

 

16,527

(10,187)

Effects of changes in foreign exchange rate

 

1

-

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

23,102

(23,117)

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

Share

capital

Capital

reserve

Other

comprehensive

income

Specific

reserve

Surplus

reserves

Retained

earnings

Total

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 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/(loss) (Note 39)

-

-

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 54)

-

-

-

-

-

(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

Balance at 1 January 2020

121,071

122,127

(321)

1,741

207,423

287,128

739,169

137,736

876,905

Change for the period

 

 

 

 

 

 

 

 

 

1.    Net (loss)/profit

-

-

-

-

-

(22,882)

(22,882)

672

(22,210)

2.    Other comprehensive loss (Note 39)

-

-

(2,213)

-

-

-

(2,213)

(199)

(2,412)

Total comprehensive (loss)/income

-

-

(2,213)

-

-

(22,882)

(25,095)

473

(24,622)

Amounts transferred to initial carrying amount
 of hedged items

-

-

234

-

-

-

234

45

279

Transactions with owners, recorded directly
 in shareholders' equity:

 

 

 

 

 

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

 

 

 

 

 

- Distributions to shareholders (Note 54)

-

-

-

-

-

(23,004)

(23,004)

-

(23,004)

4.    Contributions to subsidiaries from
 minority interests

-

-

-

-

-

-

-

2,363

2,363

5.    Transaction with minority interests

-

(70)

-

-

-

-

(70)

(69)

(139)

6.    Distributions to minority interests

-

-

-

-

-

-

-

(1,838)

(1,838)

Total transactions with owners, recorded directly
 in shareholders' equity

-

(70)

-

-

-

(23,004)

(23,074)

456

(22,618)

7.    Net increase in specific reserve for the period

-

-

-

1,136

-

-

1,136

210

1,346

8.    Others

-

(14)

-

-

-

-

(14)

(48)

(62)

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2020

121,071

122,043

(2,300)

2,877

207,423

241,242

692,356

138,872

831,228

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

Share

capital

Capital

reserve

Other

comprehensive

income

Specific

reserve

Surplus

reserves

Retained

earnings

Total

shareholders'

equity

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

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 54)

-

-

-

-

-

(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

Balance at 1 January 2020

121,071

68,841

1,181

949

207,423

130,645

530,110

Change for the period

 

 

 

 

 

 

 

1.    Net loss

-

-

-

-

-

(19,557)

(19,557)

2.    Other comprehensive loss

-

-

(2,685)

-

-

-

(2,685)

Total comprehensive loss

-

-

(2,685)

-

-

(19,557)

(22,242)

Amounts transferred to initial carrying amount
 of hedged items

-

-

56

-

-

-

56

Transactions with owners, recorded directly in
 shareholders' equity:

 

 

 

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

 

 

 

- Distributions to shareholders (Note 54)

-

-

-

-

-

(23,004)

(23,004)

Total transactions with owners, recorded
 directly in shareholders' equity

-

-

-

-

-

(23,004)

(23,004)

4.    Net increase in specific reserve for the period

-

-

-

458

-

-

458

5.    Others

-

(5)

-

-

-

-

(5)

 

 

 

 

 

 

 

 

Balance at 30 June 2020

121,071

68,836

(1,448)

1,407

207,423

88,084

485,373

 

These financial statements have been approved for issue by the board of directors on 28 August 2020.

 

 

 

 

 

Zhang Yuzhuo

Ma Yongsheng

Shou Donghua

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 2020

 

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 28 August 2020.

 

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, 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 58, and there are no significant changes related to the consolidation scope in the 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 2020, and the consolidated and company financial performance and the consolidated and company cash flows for the six-month period ended 30 June 2020.

 

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))

 

-   Receivables financing (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 57.

 

(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 previous equity investment in the subsidiary, is transferred to investment income when 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 quoted by the People's Bank of China ("PBOC 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 mainly 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)  Leases

A lease is a contract that a lessor transfers the right to use an identified asset for a period of time to a lessee 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 Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the Group exercising that option, etc. Variable payments that are based on a percentage of sales are not included in the lease payments, and should be recognised in profit or loss when incurred. Lease liabilities to be paid within one year (including one year) from 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 which comprises 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 over the shorter of the asset's useful life and the lease term on a straight-line basis. 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.

 

Payments associated with short-term leases with lease terms within 12 months and leases for which the underlying assets are individually of low value when it is new are recognised on a straight-line basis over the lease term as an expense in profit or loss or as cost of relevant assets, instead of recognising right-of-use assets and lease liabilities.

 

(b)  As Lessor

A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance 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 income which is based on a certain percentage of sales as rental income when occurred.

 

(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. However, accounts 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

 

The debt instruments held by the Group refer to the instruments that meet the definition of financial liabilities from the perspective of the issuer, and are measured in the following ways:

 

-    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. The financial assets include cash at bank and on hand and receivables.

 

-    Measured at fair value through other comprehensive income:

 

The business model for managing such financial assets by the Group are held for collection of contractual cash flows and for selling the financial assets, the contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, foreign exchange gains and losses and interest income calculated using the effective interest rate method, which are recognised in profit or loss. The financial assets include receivables financing.

 

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 is transferred 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 financial assets measured at amortised cost and receivables financing measured at fair value through other comprehensive income.

 

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 and receivables financing related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit.

 

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.

 

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 2020

At 31 December 2019

Original

Original

currency

Exchange

RMB

currency

Exchange

RMB

million

rates

million

million

rates

million

Cash on hand

 

 

 

 

 

 

Renminbi

 

 

4

 

 

14

Cash at bank

 

 

 

 

 

 

Renminbi

 

 

122,049

 

 

78,924

US Dollar

1,382

7.0795

9,781

1,889

6.9762

13,174

Hong Kong Dollar

67

0.9134

61

17

0.8958

15

EUR

3

7.9610

26

1

7.8155

8

Others

 

 

131

 

 

85

 

 

 

132,052

 

 

92,220

Deposits at related parities

 

 

 

 

 

 

Renminbi

 

 

28,643

 

 

17,684

US Dollar

2,508

7.0795

17,775

2,560

6.9762

17,862

EUR

18

7.9610

143

14

7.8155

106

Others

 

 

87

 

 

55

 

 

 

46,648

 

 

35,707

Total

 

 

178,700

 

 

127,927

 

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 2020, time deposits with financial institutions of the Group amounted to RMB 92,254 million (31 December 2019: RMB 67,614 million).

 

At 30 June 2020, structured deposits included in cash at bank and on hand with financial institutions of the Group amounted to RMB 19,121 million (31 December 2019: RMB 19,210 million).

 

6    FINANCIAL ASSETS HELD FOR TRADING

 

At 30 June

At 31 December

2020

2019

RMB million

RMB million

Structured deposits

3,732

3,318

Equity investments, listed and at quoted market price

1

1

Total

3,733

3,319

 

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 contracts. See Note 62.

 

8    ACCOUNTS RECEIVABLE

 

The Group

The Company

At 30 June

At 31 December

At 30 June

At 31 December

2020

2019

2020

2019

RMB million

RMB million

RMB million

RMB million

Accounts receivable

46,145

56,713

16,217

21,675

Less: Allowance for doubtful accounts

1,972

1,848

116

131

Total

44,173

54,865

16,101

21,544

 

Ageing analysis on accounts receivable is as follows:

 

The Group

At 30 June 2020

At 31 December 2019

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

45,069

97.7

1,337

3.0

55,721

98.2

1,204

2.2

Between one and two years

346

0.7

68

19.7

260

0.5

70

26.9

Between two and three years

118

0.3

59

50.0

129

0.2

65

50.4

Over three years

612

1.3

508

83.0

603

1.1

509

84.4

Total

46,145

100.0

1,972

 

56,713

100.0

1,848

 

 

The Company

At 30 June 2020

At 31 December 2019

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

15,941

98.2

-

-

21,368

98.6

-

-

Between one and two years

96

0.6

12

12.5

105

0.5

17

16.2

Between two and three years

25

0.2

13

52.0

51

0.2

15

29.4

Over three years

155

1.0

91

58.7

151

0.7

99

65.6

Total

16,217

100.0

116

 

21,675

100.0

131

 

 

At 30 June 2020 and 31 December 2019, the total amounts of the top five accounts receivable of the Group are set out below:

 

At 30 June

At 31 December

2020

2019

Total amount (RMB million)

12,979

9,878

Percentage to the total balance of accounts receivable

28.1%

17.4%

Allowance for doubtful accounts

743

732

 

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

 

Accounts receivable (net of allowance for doubtful accounts) 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 62.

 

During for the six-month periods ended 30 June 2020 and 2019, 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 2020 and 2019, 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.

 

9    RECEIVABLES FINANCING

 

Receivables financing represents mainly the bills of acceptance issued by banks for sales of goods and products.

 

At 30 June 2020, the Group's derecognised but outstanding bills due to endorsement or discount amounted to RMB 23,253 million.

 

At 30 June 2020, 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.

 

10  PREPAYMENTS

 

The Group

The Company

At 30 June

At 31 December

At 30 June

At 31 December

2020

2019

2020

2019

RMB million

RMB million

RMB million

RMB million

Prepayments

5,766

5,146

3,941

2,671

Less: Allowance for doubtful accounts

131

80

9

6

Total

5,635

5,066

3,932

2,665

 

Ageing analysis of prepayments is as follows:

 

The Group

At 30 June 2020

At 31 December 2019

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

4,819

83.6

-

-

4,405

85.6

-

-

Between one and two years

688

11.9

70

10.2

589

11.5

26

4.4

Between two and three years

134

2.3

8

6.0

33

0.6

5

15.2

Over three years

125

2.2

53

42.4

119

2.3

49

41.2

Total

5,766

100.0

131

 

5,146

100.0

80

 

 

The Company

At 30 June 2020

At 31 December 2019

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

3,715

94.3

-

-

2,424

90.7

-

-

Between one and two years

111

2.8

3

2.7

123

4.6

1

0.8

Between two and three years

27

0.7

-

-

39

1.5

2

5.1

Over three years

88

2.2

6

6.8

85

3.2

3

3.5

Total

3,941

100.0

9

 

2,671

100.0

6

 

 

At 30 June 2020 and 31 December 2019, the total amounts of the top five prepayments of the Group are set out below:

 

At 30 June

At 31 December

2020

2019

Total amount (RMB million)

1,133

1,940

Percentage to the total balance of prepayments

19.6%

37.7%

 

11  OTHER RECEIVABLES

The Group

The Company

At 30 June

At 31 December

At 30 June

At 31 December

2020

2019

2020

2019

RMB million

RMB million

RMB million

RMB million

Other receivables

53,957

25,565

73,767

79,827

Less: Allowance for doubtful accounts

1,437

1,456

934

955

Total

52,520

24,109

72,833

78,872

 

Ageing analysis of other receivables is as follows:

 

The Group

At 30 June 2020

At 31 December 2019

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

50,271

93.2

86

0.2

22,115

86.5

87

0.4

Between one and two years

1,723

3.2

44

2.6

1,554

6.1

52

3.3

Between two and three years

336

0.6

101

30.1

198

0.8

71

35.9

Over three years

1,627

3.0

1,206

74.1

1,698

6.6

1,246

73.4

Total

53,957

100.0

1,437

 

25,565

100.0

1,456

 

 

The Company

At 30 June 2020

At 31 December 2019

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

36,845

50.0

-

-

44,402

55.6

-

-

Between one and two years

14,781

20.0

1

-

13,826

17.3

3

-

Between two and three years

5,623

7.6

5

0.1

6,933

8.7

1

-

Over three years

16,518

22.4

928

5.6

14,666

18.4

951

6.5

Total

73,767

100.0

934

 

79,827

100.0

955

 

 

At 30 June 2020 and at 31 December 2019, the total amounts of the top five other receivables of the Group are set out below:

 

At 30 June

At 31 December

2020

2019

Total amount (RMB million)

36,485

10,561

Ageing

Within one year

and Between one

and two years

Within one year

Percentage to the total balance of other receivables

67.6%

41.3%

Allowance for doubtful accounts

-

-

 

During the six-month periods ended 30 June 2020 and 2019, 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 2020 and 2019, 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

2020

2019

RMB million

RMB million

Raw materials

68,987

88,465

Work in progress

10,509

12,615

Finished goods

100,891

91,368

Spare parts and consumables

3,680

2,576

 

184,067

195,024

Less: Provision for diminution in value of inventories

3,567

2,582

Total

180,500

192,442

 

During the six-month period ended 30 June 2020, the provision for diminution in value of inventories of the Group was primarily due to the costs of raw materials were higher than net realisable value.

 

13  LONG-TERM EQUITY INVESTMENTS

 

The Group

 

Provision for

Investments in

Investments

impairment

joint ventures

in associates

losses

Total

RMB million

RMB million

RMB million

RMB million

Balance at 1 January 2020

57,433

96,481

(1,710)

152,204

Additions for the period

1,055

343

-

1,398

Share of profits less losses under the equity method

(1,601)

1,609

-

8

Change of other comprehensive income

 under the equity method

(889)

(892)

-

(1,781)

Other equity movements under the equity method

(5)

(2)

-

(7)

Dividends declared

(1,528)

(1,598)

-

(3,126)

Disposals for the period

(16)

(7)

-

(23)

Foreign currency translation differences

267

257

(25)

499

Balance at 30 June 2020

54,716

96,191

(1,735)

149,172

 

The Company

 

Investments

in subsidiaries

Investments in

joint ventures

Investments

in associates

Provision for

impairment

losses

Total

RMB million

RMB million

RMB million

RMB million

RMB million

Balance at 1 January 2020

274,220

15,530

22,816

(7,879)

304,687

Additions for the period

5,360

-

2

-

5,362

Share of profits less losses under

 the equity method

-

(102)

646

-

544

Change of other comprehensive income

 under the equity method

-

-

(94)

-

(94)

Other equity movements under the equity method

-

(7)

-

-

(7)

Dividends declared

-

(519)

(158)

-

(677)

Disposals for the period

(3)

-

-

-

(3)

Movement of provision for impairment

-

-

-

3

3

Balance at 30 June 2020

279,577

14,902

23,212

(7,876)

309,815

 

For the six-month period ended 30 June 2020, 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 58.

 

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

Hong Jianqiao

Manufacturing and distribution of

12,704

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") (i)

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

10,002 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