Company Announcements

RNS Number : 0883K
China Petroleum & Chemical Corp
29 August 2021
 

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.

 

 

(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 2021

 

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 2021. This announcement, containing the full text of the 2021 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. Printed version of the 2021 Interim Report of Sinopec Corp. will be delivered to the shareholders of H shares of Sinopec Corp. in September 2021.

 

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,

27 August 2021

 

As of the date of this announcement, directors of the Company are: Ma Yongsheng#, Zhao Dong*, Yu Baocai#, Liu Hongbin#, Ling Yiqun#, Li Yonglin#, Cai Hongbin+, Ng, Kar Ling Johnny+, Shi Dan+ and Bi Mingjian+.

 

#              Executive Director

*              Non-executive Director

+              Independent Non-executive Director

 

 

 

CONTENTS

 

2

Company Profile

4

Principal Financial Data and Indicators

6

Business Review and Prospects

10

Management's Discussion and Analysis

21

Corporate Governance

24

Environment and Social Responsibilities

26

Significant Events

33

Changes in Share Capital and

 Shareholdings of Shareholders

34

Bond General Information

36

Financial Statements

136

Index of 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 27 August 2021 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. MA YONGSHENG, DIRECTOR AND 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 2021.

 

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;

Sinopec Finance Co.: Sinopec Finance Co., Ltd.

Century Bright: Sinopec Century Bright Capital Investment Ltd.

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

中國石油化工股份有限公司

 

CHINESE ABBREVIATION

中國石化

 

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 REGISTERED ADDRESS IN THE REPORTING PERIOD

There was no change to the registered address in the reporting period.

PRINCIPAL FINANCIAL DATA AND INDICATORS

 

1    FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASs

 

(1)  Principal accounting data

 

Items

Six-month period ended 30 June

Changes

over the same

period of the

preceding year

(%)

2021

RMB million

2020

RMB million

(adjusted)

2020

RMB million

(before

adjustment)

Operating income

1,261,603

1,033,064

1,034,246

22.1

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

39,153

(23,001)

(22,882)

-

Net profit/(loss) attributable to equity shareholders
 of the Company excluding extraordinary gains and losses

38,420

(24,404)

(24,404)

-

Net cash flow from operating activities

47,736

40,365

39,794

18.3

 

 

As of

30 June

2021

RMB million

As of

31 December

2020

RMB million

Changes

from the end

of last year

(%)

Total equity attributable to shareholders of the Company

765,154

742,463

3.1

Total assets

1,852,964

1,733,805

6.9

 

Note:     The Company completed the reorganisation of Sinopec Baling Petrochemical Co. Ltd. in 2020. This business reorganisation has been accounted as business combination under common control. Accordingly, the Company has retrospectively adjusted the relevant financial data for the same period in 2020.

 

(2)  Principal financial indicators

 

Items

Six-month period ended 30 June

Changes

over the same

period of the

preceding year

(%)

2021

RMB

2020

RMB

(adjusted)

2020

RMB

(before

adjustment)

Basic earnings/(losses) per share

0.323

(0.190)

(0.189)

-

Diluted earnings/(losses) per share

0.323

(0.190)

(0.189)

-

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

0.317

(0.202)

(0.202)

-

Weighted average return on net assets (%)
 

5.19
 

(3.21)
 

(3.21)
 

8.40
percentage points

Weighted average return (excluding extraordinary gains
 and losses) on net assets (%)

5.10
 

(3.41)
 

(3.42)
 

8.51
percentage points

 

(3)  Extraordinary items and corresponding amounts

 

Items

Six-month period

ended 30 June 2021

(income)/expenses

RMB million

Net gain on disposal of non-current assets

(281)

Donations

8

Government grants

(1,549)

Gain on holding and disposal of various investments

(166)

Other extraordinary expenses, net

690

Subtotal

(1,298)

Tax effect

388

Total

(910)

Attributable to

 

Equity shareholders of the Company

(733)

Minority interests

(177)

 

2    FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH IFRS

 

(1)  Principal accounting data

 

Items

 

 

Six-month period ended 30 June

Changes

over the same

period of the

preceding year

(%)

2021

RMB million

2020

RMB million

(adjusted)

2020

RMB million

(before

adjustment)

Operating profit/(loss)

58,109

(21,659)

(21,501)

-

Profit/(loss) attributable to shareholders of the Company

39,954

(21,844)

(21,725)

-

Net cash generated from operating activities

47,736

40,365

39,794

18.3

 

 

As of

30 June

2021

RMB million

As of

31 December

2020

RMB million

Changes

from the end

of last year

(%)

Total equity attributable to shareholders of the Company

764,208

741,494

3.1

Total assets

1,852,964

1,733,805

6.9

 

Note:      The Company completed the reorganisation of Sinopec Baling Petrochemical Co. Ltd. in 2020. This business reorganisation has been accounted as business combination under common control. Accordingly, the Company has retrospectively adjusted the relevant financial data for the same period in 2020.

 

(2)  Principal financial indicators

 

Items

 

 

Six-month period ended 30 June

Changes

over the same

period of the

preceding year

(%)

2021

RMB

2020

RMB

(adjusted)

2020

RMB

(before

adjustment)

Basic earnings/(losses) per share

0.330

(0.180)

(0.179)

-

Diluted earnings/(losses) per share

0.330

(0.180)

(0.179)

-

Return on capital employed (%)
 

6.14
 

(1.91)
 

(1.89)
 

8.05
percentage points

 

BUSINESS REVIEW AND PROSPECTS

 

BUSINESS REVIEW

In the first half of 2021, as the world economy gradually picked up, China's economy kept a sustainable and steady recovery, registering a GDP growth of 12.7% year-on-year. Domestic demand for natural gas continued to grow rapidly, with an apparent consumption up by 17.5% year-on-year. Domestic refined oil products demand recovered with a growth of 5.7% year-on-year in the apparent consumption, of which the demand for gasoline and kerosene rose by 10.7% and 39.8% year-on-year respectively, and that for diesel fell by 3.5% year-on-year. Domestic demand for major chemicals sustained growth. Based on our statistics, domestic consumption of ethylene equivalent increased by 1.1% compared with that of the preceding year.

 

In the first half of 2021, international crude oil prices fluctuated with an upward trend. The average spot price of Platts Brent was USD65.23 per barrel, up by 62.8% year-on-year.

 

 

Confronted with the environment where the international oil price went up and the demand for petrochemical products recovered steadily, the Company focused on addressing challenges while increasing profit on a regular basis and stressed on improving our systems, expanding markets, and controlling costs, thus realising outstanding operation results.

 

1    PRODUCTION & OPERATIONS REVIEW

 

(1)  Exploration and Production

 

In the first half of 2021, the Company seized the favourable opportunity of rising oil prices, pressed ahead with high-quality exploration and profit-oriented development, strengthened the foundation of resources, and raised operational efficiency to realise production and profit increase. In terms of exploration, we strengthened risk exploration in new regions and new sectors, which led to new discoveries in Tarim Basin, Sichuan Basin, and Erdos Basin, and major breakthroughs in continental facies shale oilfields of Bohai Bay Basin, Sichuan Basin, and North Jiangsu Basin. In terms of production, we efficiently proceeded with the capacity building of major oilfields, strengthened fine development in mature fields, expanded market, sales and profit of natural gas, signed long-term LNG contracts, stabilised overseas oil and gas supply, and continuously boosted the sales and market penetration of natural gas. The Company's production of oil and gas reached 235.29 million barrels of oil equivalent, up by 4.2% year-on-year, with domestic crude production reaching 123.62 million barrels and natural gas production totalled 582.6 billion cubic feet, up by 13.7% year-on-year.

 

Exploration and Production: Summary of Operations

 

 

Six-month period ended 30 June

Changes

 

2021

2020

(%)

Oil and gas production (mmboe)

235.29

225.71

4.2

Crude oil production (mmbbls)

138.15

140.27

(1.5)

China

123.62

124.05

(0.3)

Overseas

14.53

16.22

(10.4)

Natural gas production (bcf)

582.60

512.41

13.7

 

(2)  Refining

 

In the first half of 2021, the Company grasped the opportunity of market recovery in the post-pandemic period, integrated and coordinated production and marketing, raised processing volume, kept high utilisation rate, and maximised profits along the industrial chain. We optimised crude oil allocation and cut procurement costs. We insisted on the strategy of shifting from oil to chemicals, lowered refined oil products yield and diesel-gasoline ratio, and increased production of readily marketable products like gasoline and light chemical feedstock. We increased production of high value-added products and specialty products, built 4 sets of hydrogen purification units, and developed high-end needle-shaped coke products and lubricating grease, etc., and domestic market share of low-sulphur bunker fuel ranked the first. We expedited advanced capacity building and pushed ahead with restructuring projects. In the first half of 2021, the Company processed 126 million tonnes of crude oil, an increase of 13.7% year-on-year, and produced 72.19 million tonnes of refined oil products, up by 7.4% year-on-year, among which, gasoline production reached 32.40 million tonnes, up by 20.8% year-on-year, and kerosene stood at 11.24 million tonnes, an increase of 13.5% year-on-year.

 

Refining: Summary of Operations   Unit: million tonnes

 

 

Six-month period ended 30 June

Changes

 

2021

2020

(%)

Refinery throughput

126.11

110.95

13.7

Gasoline, diesel and kerosene production

72.19

67.19

7.4

Gasoline

32.40

26.82

20.8

Diesel

28.54

30.47

(6.3)

Kerosene

11.24

9.90

13.5

Light chemical feedstock production

22.26

19.00

17.2

 

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

 

(3)  Marketing and Distribution

 

In the first half of 2021, in view of rising domestic refined oil products consumption, the Company leveraged our advantage of integrated production and marketing network to expand markets, resulting in an elevation of quality and scale. We adopted targeted marketing strategy, and focused on differentiated marketing. We consolidated our resources of customers and marketing throughout the country, and continuously improved the quality of our services. We optimised the network layout to reach end users, accelerated the construction of integrated energy service stations offering petrol, gas, hydrogen, power, and non-fuel services, and put our first carbon-neutral station and BIPV (building integrated photo-voltaic) station into operation. In the first half of 2021, total sales volume of refined oil products was 109 million tonnes, up by 2.0% year-on-year, of which domestic sales volume accounted for 84.01 million tonnes, an increase of 8.1% year-on-year. The Company strengthened the development and marketing of company-owned brands, actively explored emerging business models such as car services, fast food, and advertising, and speed up the development of non-fuel businesses.

 

Marketing and Distribution: Summary of Operations

 

 

Six-month period ended 30 June

Change

 

2021

2020

(%)

Total sales volume of refined oil products (million tonnes)

109.13

107.03

2.0

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

84.01

77.75

8.1

Retail (million tonnes)

55.50

52.50

5.7

Direct sales and Distribution (million tonnes)

28.51

25.24

13.0

Annualised average throughput per station (tonne/station)

3,614

3,419

5.7

 

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

 

2021

2020

(%)

Total number of Sinopec-branded service stations

30,716

30,713

0.0

Number of convenience stores

27,812

27,721

0.3

 

(4)  Chemicals

 

In the first half of 2021, by adhering to "following the market and centering on profits", the Company sped up the advanced capacity building and structural adjustment, and developed a batch of products with high value added and profitability; we fine-tuned chemical feedstock to reduce costs; we adjusted the structure of the facilities and optimised maintenance schedule to raise the utilisation of profitable facilities; we optimised product slate to continuously increase the ratio of high value-added products, raising the ratio of synthetic resin, synthetic rubber, and synthetic fibre by 0.3, 4.9, and 0.8 percentage points respectively year-on-year. In the first half of 2021, ethylene production reached 6.46 million tonnes, up by 11.9% year-on-year. Meanwhile, we scored achievements in key clients management, scaled up profit generation through exports, and launched self-marketing products on e-commerce. The total sales volume of chemical products for the first half of 2021 was 40 million tonnes.

 

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

 

 

Six-month period ended 30 June

Changes

 

2021

2020

(%)

Ethylene

6,463

5,776

11.9

Synthetic resin

9,292

8,376

10.9

Synthetic fiber monomer and polymer

4,507

4,421

1.9

Synthetic fiber

676

573

18.0

Synthetic rubber

594

526

12.9

 

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

 

2    HEALTH and SAFETY

In the first half of 2021, the Company revised and launched HSE management system and practice code, and kept improving the construction and operation of the system. We pushed ahead with the health management of all staff, strengthened the COVID-19 prevention and control measures, and safeguarded the occupational, physical, and psychological health of employees both at home and abroad. We continued to enhance safety supervision, took stringent measures in managing and controlling major safety risks, grounded efforts in managing hidden dangers, made solid strides in the three-year programme of special rectification of work safety, and conducted special campaigns targeting at "zero accidents in 100 days", maintaining a steady momentum in work safety.

 

3    CAPITAL EXPENDITURES

Focusing on investment quality and profitability, the Company optimised its investment management system, with total capital expenditures of RMB57.941 billion in the first half of 2021. The capital expenditure for exploration and production segment was RMB23.965 billion, mainly for the capacity building of Shunbei oilfield, Weirong, Fuling, and Western Sichuan natural gas projects, and the construction of storage and transportation facilities for phase II of Tianjin LNG project, etc. The capital expenditure for the refining segment was RMB7.887 billion, mainly for the refining structural upgrading projects in Zhenhai and Anqing, and construction of hydrogen purification project, etc. The capital expenditure for the marketing and distribution segment was RMB6.773 billion, mainly for building oil (gas) stations, integrated energy service stations offering petrol, gas, hydrogen, power, and services and logistics facilities, etc. The capital expenditure for the chemicals segment was RMB18.961 billion, mainly for Zhenhai, Sino-Korea, and Hainan ethylene projects, the overseas AGCC project, Jiujiang Aromatics project, Yizheng PTA project, etc. The capital expenditure for corporate and others was RMB355 million, mainly for R&D facilities and information technology projects, etc.

 

BUSINESS PROSPECTS

Looking forward to the second half of the year, the global pandemic continues to evolve, and the external environment remains complex and severe. China's economy is expected to maintain steady growth on the basis of the good momentum in the first half of the year. It is expected that the demand for refined oil will keep stable, the demand for chemical products will maintain a good growth rate, and the demand for natural gas will grow rapidly. Given the factors such as the supply capacity of oil producers, global demand growth, and inventory levels, international oil prices are expected to fluctuate within a wide range. Regarding the current situation, the Company will exert greater efforts to enhance technology innovation and advancement, optimise and adjust structure, expand market, deepen reform, promote development, control risks, and focus on the following aspects:

 

Exploration and Production. The Company will continue to intensify exploration efforts, accelerate oil and gas production capacity building, and increase oil and gas reserves, production and profitability. In crude oil development, more efforts will be made in speeding up the capacity building in Shunbei, Tahe and other regions, strengthening the fine management of mature oilfields, advancing the research and application of EOR technologies, and continuously reducing the cost of crude development. In natural gas development, the Company will focus on natural gas leapfrog development by speeding up the capacity building of key projects, vigorously increasing the reserves-production ratio and recovery rates, and promoting large-scale natural gas production. In the second half of the year, the Company plans to produce 141 million barrels of crude oil and 633.5 billion cubic feet of natural gas.

 

Refining. The Company will integrate and coordinate production and sales, increase efforts in shifting from oil products to chemicals, flexibly adjust the yield of refined oil products, and continue to reduce the diesel-to-gasoline ratio. More high value-added products and specialties will be produced at a faster pace. The Company will optimise the allocation of crude resources and make overall plans for the whole crude supply process to reduce procurement costs. Capacity optimisation will be accelerated to enhance market competitiveness. The Company will continue to optimise low-sulfur bunker fuel oil production and operation plans to reduce production and logistics costs. We plan to process 126 million tonnes of crude oil in the second half of the year.

 

Marketing and Distribution. The Company will seize opportunities brought by policy adjustment, accurately implement marketing strategies by focusing on meeting customer needs, and improve customer experience, to continuously enhance quality and profitability. End-user network will be further optimised to reinforce and improve advantages. The Company will continue to promote integration of fuel and non-fuel, online and offline business. We will also promote construction of integrated energy service stations offering petrol, gas, hydrogen, power, and services, and accelerate the transformation toward an integrated energy service provider. In the second half of the year, our target for domestic sales volume of refined products is 86.36 million tonnes.

 

Chemicals. The Company will adhere to the development direction of "basic + high-end" and "chemicals + materials", strengthen technology innovation, improve quality and profitability, extend the industrial chain and cultivate growth drivers. We will dynamically adjust feedstock and product slate, optimise utilisation and schedule arrangement to improve operation efficiency. The Company will further integrate production, marketing, research and application, intensify the research and development of high-end products and new materials, and continuously increase the proportion of high value-added products. At the same time, market research will be further enhanced to optimise the "one customer, one case" strategy, and acquire a larger market share. In the second half of the year, the Company plans to produce 6.54 million tonnes of ethylene.

 

Capital Expenditures. The capital expenditures for the second half of the year are budgeted at RMB109.259 billion, and the investment projects will be dynamically optimised and adjusted based on market changes. RMB42.835 billion will be invested in exploration and production segment, mainly for the capacity building of Shunbei oilfield, Weirong, Fuling, and Western Sichuan natural gas projects, the construction of storage and transportation facilities for phase II of Tianjin LNG project, and CCUS project in Shengli oilfield, etc. The capital expenditure for the refining segment is budgeted at RMB12.213 billion, mainly for Zhenhai Refining and Chemical Expansion project and the structural upgrading of the Yangzi project, etc. The capital expenditure for the marketing and distribution segment will be RMB19.727 billion, mainly for oil (gas) stations, integrated energy stations offering petrol, gas, hydrogen, power, and services and logistics facilities, etc. RMB29.639 billion will be invested in the chemicals segment, mainly for Hainan, Zhenhai, Tianjin Nangang, Maoming and other ethylene projects, the overseas AGCC project, Jiujiang Aromatics project, Yizheng PTA project, Guizhou PGA project, Qilu CCUS project, etc. RMB4.845 billion will be invested in corporate and others, mainly for R&D facilities and information technology projects, etc.

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 2021, facing the condition of sustainable and steady recovery of domestic economy, significant increase of global crude oil price, the Company's revenue from primary business and other operating revenues were RMB1,261.6 billion, representing an increase of 22.1% year-on-year, which was due to the increase of output, sales volume and product prices. In the first half of 2021, the Company achieved an operating profit of RMB58.1 billion, representing an increase of RMB79.8 billion year-on-year by seizing good opportunity of demand picking up, and optimising production and operation to tide over difficulties and improve performance.

 

The following table sets forth the principal revenue and expense items from the Company's consolidated financial statements for the first half of 2021 and the corresponding period in 2020:

 

 

Six-month period ended 30 June

 

 

2021

2020

Change

 

RMB million

RMB million

(%)

Revenue

1,261,603

1,033,064

22.1

Revenue from primary business

1,231,980

1,006,808

22.4

Other operating revenues

29,623

26,256

12.8

Operating expenses

(1,203,494)

(1,054,723)

14.1

Purchased crude oil, products and operating supplies and expenses

(947,242)

(835,004)

13.4

Selling, general and administrative expenses

(25,748)

(24,373)

5.6

Depreciation, depletion and amortisation

(54,267)

(51,465)

5.4

Exploration expenses, including dry holes

(4,846)

(4,465)

8.5

Personnel expenses

(45,010)

(38,476)

17.0

Taxes other than income tax

(120,866)

(108,711)

11.2

Impairment reversal/(losses) on trade and other receivables

55

(101)

-

Other operating (expenses)/income, net

(5,570)

7,872

-

Operating profit/(loss)

58,109

(21,659)

-

Net finance costs

(4,901)

(5,263)

(6.9)

Investment income and share of profits less losses
 from associates and joint ventures

11,247

73

15,306.8

Profit/(loss) before taxation

64,455

(26,849)

-

Income tax expense

(14,949)

5,791

-

Profit/(loss) for the period

49,506

(21,058)

-

Attributable to:

Shareholders of the Company

39,954

(21,844)

-

Non-controlling interests

9,552

786

1,115.3

 

(1)  Revenue

In the first half of 2021, the Company's revenue from primary business was RMB1,232.0 billion, representing an increase of 22.4% year-on-year. The change was mainly due to the gradual picking up of world economy, significant increase of international crude oil price, and the increase of the Company's sales volume and product prices resulting from the good control of domestic pandemic and the booming demand of petroleum and petrochemical products.

 

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 2021 as compared with the first half of 2020.

 

 

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

 

2021

2020

(%)

2021

2020

(%)

Crude oil

3,537

3,488

1.4

2,794

2,006

39.3

Natural gas (million cubic meters)

14,371

12,475

15.2

1,522

1,360

11.9

Gasoline

45,597

39,799

14.6

7,307

6,372

14.7

Diesel

34,648

35,980

(3.7)

5,388

4,862

10.8

Kerosene

11,016

9,519

15.7

3,397

2,892

17.5

Basic chemical feedstock

17,665

17,109

3.3

5,168

3,578

44.4

Synthetic fibre monomer and
 polymer

3,408

4,542

(25.0)

6,216

4,347

43.0

Synthetic resin

8,652

8,304

4.2

8,174

6,658

22.8

Synthetic fibre

714

602

18.6

7,356

6,723

9.4

Synthetic rubber

622

647

(3.9)

10,584

7,742

36.7

 

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 2021, the revenue from crude oil, natural gas and other upstream products sold externally amounted to RMB67.7 billion, up by 41.1% year-on-year, accounting for 5.4% of the Company's revenue from primary business and other operating revenues. The change was mainly due to the increase of crude oil and natural gas sales volume and 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 RMB693.6 billion, representing an increase of 26.4% year-on-year and accounting for 55% of the Company's revenue from primary business and other operating revenues. Those changes were mainly due to the increased price and sales volume of refined oil products and other refined petroleum products. The sales revenue of gasoline, diesel and kerosene was RMB557.3 billion, representing an increase of 22.2% year-on-year, accounting for 80.4% of the total sales revenue of petroleum products. The sales revenue of other refined petroleum products was RMB136.3 billion, accounting for 19.6% of the sales revenue of petroleum products, up by 46.7% year-on-year.

 

The Company's external sales revenue of chemical products was RMB197.9 billion, accounting for 15.7% of its revenue from primary business and other operating revenues, up by 33% year-on-year. The change was mainly due to the gradual recovery of the chemical market, and the increased chemical products' sales volume and price of the Company.

 

(2)  Operating expenses

In the first half of 2021, the Company's operating expenses were RMB1,203.5 billion, up by 14.1% year-on-year. The operating expenses mainly consisted of the following:

 

Purchased crude oil, products and operating supplies and expenses were RMB947.2 billion, representing an increase of 13.4% year-on-year, accounting for 78.7% of total operating expenses, of which:

 

‧   Crude oil purchasing expenses were RMB300.1 billion, representing an increase of 20% year-on-year. Throughput of crude oil purchased externally in the first half of 2021 was 118 million tonnes (excluding the volume processed for third parties), up by 13.7% year-on-year. The average processing cost of crude oil purchased externally was RMB2,846 per tonne, up by 6.7% year-on-year.

 

‧   The Company's purchasing expenses of refined oil products were RMB136.0 billion, up by 0.9% year-on-year.

 

‧   The Company's purchasing expenses related to trading activities were RMB260.0 billion, up by 7.7% year-on-year.

 

‧   Other purchasing expenses were RMB251.2 billion, up by 20.3% year-on-year.

 

Selling, general and administrative expenses of the Company totalled RMB25.7 billion, representing an increase of 5.6% year-on-year. This was mainly due to the increased freight and other related expenses incurred in sales activities as a result of increased business scale.

 

Depreciation, depletion and amortisation of the Company were RMB54.3 billion, representing an increase of 5.4% year-on-year. This was mainly because that with the decrease of crude oil price, the proved reserve decreased, which led to the increase of depletion rate in oil and gas assets.

 

Exploration expenses were RMB4.8 billion, representing an increase of 8.5% year-on-year. This was mainly because the Company enhanced the effort in exploration.

 

Personnel expenses were RMB45.0 billion, representing an increase of 17% year-on-year. This is mainly due to the temporary enterprise social insurance premium preferential policy adopted by the nation in response to the impact of the COVID-19 last year and was cancelled this year.

 

Taxes other than income tax were RMB120.9 billion, representing an increase of 11.2% year-on-year, mainly because of consumption tax increased year-on-year resulting from the taxable products production and revenue increased.

 

Other operating (expenses)/income, net were RMB5.6 billion, mainly due to the loss on derivative financial instruments.

 

(3)  Operating profit/(loss)

In the first half of 2021, the Company's operating profit was RMB58.1 billion, representing an increase of RMB79.8 billion year-on-year. This was mainly due to the increase of output, business scale and main products' margin, resulting from the significant increase of international crude oil price and booming market demand.

 

(4)  Net finance costs

In the first half of 2021, the Company's net finance costs were RMB4.9 billion, down by RMB0.4 billion and 6.9% year-on-year.

 

(5)  Profit/(loss) before taxation

In the first half of 2021, the Company's profit before taxation amounted to RMB64.5 billion, representing an increase of RMB91.3 billion year-on-year.

 

(6)  Income tax expense

In the first half of 2021, the Company's income tax expense totalled RMB14.9 billion, representing an increase of RMB20.7 billion year-on-year. This was mainly because the Company realised good performance and made turnaround from loss compared with the same period last year.

 

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

In the first half of 2021, profit attributable to non-controlling interests was RMB9.6 billion, representing an increase of RMB8.8 billion year-on-year.

 

(8)  Profit/(loss) attributable to shareholders of the Company

In the first half of 2021, profit attributable to shareholders of the Company was RMB40.0 billion, representing an increase of RMB61.8 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

 

2021

2020

2021

2020

2021

2020

 

RMB million

(%)

(%)

Exploration and Production Segment

 

 

 

 

 

External sales*

70,135

50,177

3.2

2.9

5.6

4.9

Inter-segment sales

39,391

28,752

1.8

1.7

 

 

Operating revenues

109,526

78,929

5.0

4.6

 

 

Refining Segment

 

 

 

 

 

 

External sales*

82,469

52,243

3.7

3.1

6.5

5.1

Inter-segment sales

543,540

386,115

24.4

22.7

 

 

Operating revenues

626,009

438,358

28.1

25.8

 

 

Marketing and Distribution Segment

 

 

 

 

 

External sales*

632,203

527,519

28.5

30.8

50.1

51.1

Inter-segment sales

2,967

2,282

0.1

0.1

 

 

Operating revenues

635,170

529,801

28.6

30.9

 

 

Chemicals Segment

 

 

 

 

 

 

External sales*

203,158

152,906

9.2

8.9

16.1

13.5

Inter-segment sales

30,025

25,786

1.4

1.5

 

 

Operating revenues

233,183

178,692

10.6

10.4

 

 

Corporate and Others

 

 

 

 

 

 

External sales*

273,638

261,906

12.3

15.3

21.7

25.4

Inter-segment sales

340,701

222,719

15.4

13.0

 

 

Operating revenues

614,339

484,625

27.7

28.3

 

 

Operating revenue before elimination
 of inter-segment sales

2,218,227

1,710,405

100.0

100.0

 

 

Elimination of inter-segment sales

(956,624)

(677,341)

 

 

 

 

Consolidated operating revenues

1,261,603

1,033,064

 

 

100.0

100.0

 

* Other operating revenues are included.

 

The following table sets forth the operating revenues, operating expenses and operating profit/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the percentage change between the first half of 2021 and the first half of 2020.

 

 

Six-month period ended 30 June

 

 

2021

2020

Change

 

RMB million

(%)

Exploration and Production Segment

 

 

 

Operating revenues

109,526

78,929

38.8

Operating expenses

103,293

84,931

21.6

Operating profit/(loss)

6,233

(6,002)

-

Refining Segment

 

 

 

Operating revenues

626,009

438,358

42.8

Operating expenses

586,611

470,047

24.8

Operating profit/(loss)

39,398

(31,689)

-

Marketing and Distribution Segment

 

 

 

Operating revenues

635,170

529,801

19.9

Operating expenses

619,102

521,137

18.8

Operating profit

16,068

8,664

85.5

Chemicals Segment

 

 

 

Operating revenues

233,183

178,692

30.5

Operating expenses

220,178

175,656

25.3

Operating profit

13,005

3,036

328.4

Corporate and Others

 

 

 

Operating revenues

614,339

484,625

26.8

Operating expenses

618,074

484,793

27.5

Operating loss

(3,735)

(168)

-

Elimination

(12,860)

4,500

-

 

(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 2021, operating revenues of the segment were RMB109.5 billion, representing an increase of 38.8% year-on-year. This was mainly due to the increase in sales prices of domestic crude oil, as well as the year-on-year increase in sales volume and sales price of natural gas and LNG.

 

In the first half of 2021, the segment sold 16.94 million tonnes of crude oil, representing a decrease of 1.1% year-on-year. Natural gas sales volume was 14.8 bcm, representing an increase of 11.4% year-on-year. LNG regas sales volume was 9.3 bcm, representing an increase of 30.9% year-on-year. LNG liquid sales volume was 3.31 million tonnes, representing an increase of 36.0% year-on-year. Average realised prices of crude oil, natural gas, LNG regas, and LNG liquid were RMB2,675 per tonne, RMB1,521 per thousand cubic meters, RMB1,933 per thousand cubic meters, and RMB3,107 per tonne, representing increase of 42.7%, 11.1%, 2.5% and 21.6% year-on-year respectively.

 

In the first half of 2021, the operating expenses of the segment were RMB103.3 billion, representing an increase of 21.6% year-on-year. This was mainly due to LNG procurement cost increased by RMB7.7 billion year-on-year, pipelining cost increased by RMB2.9 billion year-on-year, depreciation, depletion and amortisation increased by RMB2.4 billion year-on-year as a result of the increase in oil and gas asset depletion rate, taxes including resource tax increased by RMB1.1 billion year-on-year.

 

In the first half of 2021, the oil and gas lifting cost was RMB740.22 per tonne, representing a decrease of 1.2% year-on-year. This was mainly due to the cost of outsourced material, fuels and power decreased as a result of the segment continuously reinforced the cost control.

 

In the first half of 2021, the operating profit of the segment was RMB6.2 billion, representing an increase of RMB12.2 billion year-on-year. This was mainly because the segment grasped the opportunity facing crude price upward, continuously made efforts to enhance the exploration and production, effectively pushed ahead with the profitable capacity construction and fine development of reservoir, accelerated the construction of nature gas production-supply-storage-marketing system, promoted profitability of the whole industrial chain.

 

(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 2021, operating revenues of the segment were RMB626.0 billion, representing an increase of 42.8% year-on-year. This was mainly because the sales volume and price of refined oil products increased as a result of significant recovery of the market demand.

 

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 2021 and that of the same period of 2020.

 

 

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

 

2021

2020

(%)

2021

2020

(%)

Gasoline

31,795

25,773

23.4

6,786

5,929

14.5

Diesel

28,021

29,063

(3.6)

5,056

4,390

15.2

Kerosene

8,991

8,208

9.6

3,371

2,969

13.5

Chemical feedstock

22,337

18,334

21.8

3,609

2,561

40.9

Other refined petroleum products

33,752

30,677

10.0

4,600

2,757

66.8

 

In the first half of 2021, the sales revenues of gasoline were RMB215.8 billion, representing an increase of 41.2% year-on-year, accounting for 34.5% of the segment's operating revenues.

 

In the first half of 2021, the sales revenues of diesel were RMB141.7 billion, representing an increase of 11.1% year-on-year, accounting for 22.6% of the segment's operating revenues.

 

In the first half of 2021, the sales revenues of kerosene were RMB30.3 billion, representing an increase of 24.4% year-on-year, accounting for 4.8% of the segment's operating revenues.

 

In the first half of 2021, the sales revenues of chemical feedstock were RMB80.6 billion, representing an increase of 71.7% year-on-year, accounting for 12.9% of the segment's operating revenues.

 

In the first half of 2021, the sales revenues of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock were RMB155.3 billion, representing an increase of 83.6% year-on-year, accounting for 24.8% of the segment's operating revenues.

 

In the first half of 2021, the segment's operating expenses were RMB586.6 billion, representing an increase of 24.8% year-on-year, which was mainly attributable to the increase of crude procurement costs as a result of international crude oil price increase, as well as the year-on-year increase of income tax and surcharges related to sales revenue.

 

In the first half of 2021, the average processing cost of crude oil was RMB2,959 per tonne, representing an increase of 8.4% year-on-year. Total crude oil throughput was 130.27 million tonnes (excluding volume processed for third parties), representing an increase of 13.7% year-on-year. In the first half of 2021, the total processing cost for crude oil was RMB385.5 billion, representing an increase of 23.3% year-on-year. This was mainly due to the international crude price increase.

 

In the first half of 2021, the refining margin was RMB561 per tonne, increased by RMB573 per tonne year-on-year, which was mainly due to the significant recovery of margin resulting from surged demand of refined oil products, as well as the significant inventory gains of crude oil and refined products.

 

In the first half of 2021, 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 RMB188.51 per tonne, representing an increase of 6.7% year-on-year, which was mainly because the facilities overhaul and the HSE related expenses increased.

 

In the first half of 2021, the operating profit of the segment was RMB39.4 billion, representing an increase of RMB71.1 billion year-on-year. This was mainly because the segment seized the market opportunity to increase the run rate of facilities and make efforts to optimise the product slate.

 

(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 wholesale and direct sales to domestic and overseas 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 2021, the operating revenues of this segment were RMB635.2 billion, increased by 19.9% year-on-year. This was mainly because the sales volume and prices of refined oil products increased as a result of upward trend of international oil price and recovery of market demand. The sales revenues of gasoline were RMB333.3 billion, increased by 28.3% year-on-year, the sales revenues of diesel were RMB187.2 billion, increased by 3.3% year-on-year and the sales revenues of kerosene were RMB37.4 billion, increased by 36.0% year-on-year.

 

The following table sets forth the sales volume, average realised prices and respective changes of the segment's four major refined oil products in the first half of 2021 and 2020, including the detailed information about the retail, direct sales and distribution of gasoline and diesel.

 

 

Sales volume

(thousand tonnes)

Average realised price

(RMB/tonne)

Six-month period

ended 30 June

Change

Six-month period

ended 30 June

Change

2021

2020

(%)

2021

2020

(%)

Gasoline

45,606

39,807

14.6

7,307

6,523

12.0

Retail

32,383

28,322

14.3

7,807

7,128

9.5

Direct sales and distribution

13,222

11,485

15.1

6,082

5,031

20.9

Diesel

34,742

36,098

(3.8)

5,388

5,019

7.4

Retail

15,065

17,137

(12.1)

6,079

5,500

10.5

Direct sales and distribution

19,677

18,961

3.8

4,860

4,584

6.0

Kerosene

11,016

9,519

15.7

3,397

2,891

17.5

Fuel oil

12,751

11,548

10.4

3,103

2,736

13.4

 

In the first half of 2021, the operating expenses of this segment were RMB619.1 billion, representing an increase of RMB98.0 billion, up by 18.8% year-on-year. This was mainly due to the year-on-year increase of procurement cost as a result of an increase of sales volume and prices.

 

In the first half of 2021, the segment's marketing cash operating cost (defined as the operating expenses less the purchase costs, taxed other than income tax, depreciation and amortization, divided by sales volume) was RMB175.86 per tonne, down by 0.1% year-on-year.

 

In the first half of 2021, the operating revenues of non-fuel business of this segment were RMB18.0 billion, representing an increase of RMB1.4 billion year-on-year, and the profit of non-fuel business was RMB2.3 billion, representing an increase of RMB300 million year-on-year. This was mainly because the Company proactively promoted the company-owned brands and expanded emerging business models resulting in an increase of volume and profit of non-fuel business.

 

In the first half of 2021, the segment seized the opportunity of demand recovery, integrated and coordinated production and marketing to expand market and achieved the increase of sales volume of refined oil products year-on-year, realising an operating profit of RMB16.1 billion, representing an increase of RMB7.4 billion year-on-year, up by 85.5% year-on-year.

 

(4)  Chemicals

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

 

In the first half of 2021, the operating revenues of this segment were RMB233.2 billion, increased by 30.5% year-on-year. This was mainly due to the increase of chemical products prices and increase of sales volume of some products as a result of the rise of international oil prices and strong demand of chemical market.

 

In the first half of 2021, the operating revenue generated by the segment's six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fiber monomer and polymer, synthetics fibre, synthetic rubber and chemical fertiliser) was RMB221.5 billion, increased by 35.8% year-on-year, accounting for 95.0% of the operating revenues of the segment.

 

The following table sets forth the sales volume, average realised prices and respective changes of each of the segment's six categories of chemical products in the first half of 2021 and 2020.

 

 

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

2021

2020

(%)

2021

2020

(%)

Basic organic chemicals

23,377

21,928

6.6

4,968

3,541

40.3

Synthetic fibre monomer and
 polymer

3,432

4,572

(24.9)

6,253

4,354

43.6

Synthetic resin

8,652

8,312

4.1

8,174

6,661

22.7

Synthetics fibre

714

602

18.5

7,356

6,771

8.6

Synthetic rubber

624

649

(3.8)

10,589

7,747

36.7

Chemical fertiliser

505

592

(14.7)

2,666

1,928

38.3

 

In the first half of 2021, the operating expenses of this segment were RMB220.2 billion, increased by 25.3% year-on-year, mainly due to the year-on-year increase in the price of externally purchased feedstock.

 

In the first half of 2021, the segment seized the opportunity of strong market demand and high prices of chemical products, vigorously optimised the feedstock, the product slate and the maintenance plan, focused on the technologies research and development and industrial upgrading, and increased the production of high value-added and profitable products, realising an operating profit of RMB13.0 billion, representing an increase of RMB10.0 billion year-on-year, up by 328.4% year-on-year.

 

(5)  Corporate and others

The business activities of corporate and others mainly consists 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 2021, the operating revenue generated from the corporate and others was RMB614.3 billion, increased by 26.8% year-on-year, mainly due to the increase in the trading prices of crude oil and refined oil.

 

In the first half of 2021, the operating expenses for corporate and others were RMB618.1 billion, increased by 27.5% year-on-year.

 

In the first half of 2021, the segment's operating loss was RMB3.7 billion.

 

3    Assets, Liabilities, Equity and Cash flows

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

 

(1)  Assets, Liabilities and Equity          UnitRMB million

 

 

As of

30 June

2021

As of

31 December

2020

Change

Total assets

1,852,964

1,733,805

119,159

Current assets

553,436

455,395

98,041

Non-current assets

1,299,528

1,278,410

21,118

Total liabilities

946,656

850,947

95,709

Current liabilities

623,995

522,190

101,805

Non-current liabilities

322,661

328,757

(6,096)

Total equity attributable to the shareholders of the Company

764,208

741,494

22,714

Share capital

121,071

121,071

-

Reserves

643,137

620,423

22,714

Non-controlling interests

142,100

141,364

736

Total equity

906,308

882,858

23,450

 

As of 30 June 2021, the Company's total assets were RMB1,853.0 billion, representing an increase of RMB119.2 billion compared with the beginning of 2021, of which:

 

Current assets were RMB553.4 billion, representing an increase of RMB98.0 billion compared with that as of the beginning of 2021, mainly because inventories increased by RMB47.3 billion, accounts receivable increased by RMB36.3 billion, cash and cash equivalents decreased by RMB9.4 billion, the time deposits with financial institutions increased by RMB11.9 billion.

 

Non-current assets were RMB1,299.5 billion, representing an increase of RMB21.1 billion compared with that as of the beginning of 2021, mainly because construction in progress increased by RMB13.0 billion, property, plant and equipment net decreased by RMB8.6 billion, interest in associates increased by RMB4.7 billion, interest in joint ventures increased by RMB6.6 billion.

 

As of 30 June 2021, the Company's total liabilities were 946.7 billion, representing an increase of RMB95.7 billion, of which:

 

Current liabilities were RMB624.0 billion, representing an increase of RMB101.8 billion compared with that as of the beginning of 2021, mainly because short-term debts increased by RMB45.1 billion, accounts payable and bills payable increased by RMB65.9 billion, and other payables decreased by RMB18.4 billion.

 

Non-current liabilities were RMB322.7 billion, representing a decrease of RMB6.1 billion compared with that as the beginning of 2021, mainly because long-term debts decreased by RMB9.4 billion, and deferred tax liabilities increased by RMB2.4 billion.

 

As of 30 June 2021, total equity attributable to shareholders of the Company was RMB764.2 billion, representing an increase of RMB22.7 billion compared with that as of the beginning of 2021.

 

(2)  Cash Flows

The following table sets forth the major items in the consolidated cash flow statements for the first half of 2021 and of 2020:

 

UnitRMB million

 

Major items of cash flows

Six-month period ended 30 June

Change

2021

2020

Net cash generated from operating activities

47,736

40,365

7,371

Net cash used in investing activities

(65,791)

(75,605)

9,814

Net cash generated from financing activities

9,062

61,224

(52,162)

Net (decrease)/increase in cash and cash equivalents

(8,993)

25,984

(34,977)

 

In the first half of 2021, net cash generated from operating activities was RMB47.7 billion, representing an increase of RMB7.4 billion year-on-year, mainly because profit before taxation increased by RMB91.3 billion, share of profits from associates and joint ventures increased by RMB11.1 billion, impairment losses on assets decreased by RMB10.7 billion, net change of inventories decreased by RMB48.6 billion, income tax paid increased by RMB11.1 billion.

 

In the first half of 2021, the Company's net cash used in investing activities was RMB65.8 billion, representing a decrease of RMB9.8 billion year-on-year, mainly because time deposits with maturities over three months decreased by RMB9.6 billion year-on-year.

 

In the first half of 2021, the Company's net cash generated from financing activities was RMB9.1 billion, representing a decrease of RMB52.2 billion year-on-year, mainly because proceeds from bank and other loans decreased by RMB232.9 billion, repayments of bank and other loans decreased by RMB178.1 billion.

 

In the first half of 2021 the Company's cash and cash equivalents were RMB78.1 billion.

 

(3)  Contingent Liabilities

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

 

(4)  Capital Expenditure

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

 

(5)  Research & Development and Environmental Expenditure

Research and Development expenditures referred to fees incurred in the period and recognised as expenses. In the first half of 2021, the Company's research and development expenditure amounted to RMB8.85 billion, of which expensed was RMB5.36 billion and capital expenditure was RMB3.49 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 2021, the environmental expenditures amounted to RMB4.21 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. The following table sets forth items relevant to measurement of fair values.

 

Items relevant to measurement of fair values     Unit: RMB million

 

 

 

 

Profits and

losses from

variation of fair

Accumulated

variation

Impairment

loss provision

 

 

Beginning of

End of the

values in the

of fair values

of the current

 

Items

the reporting

period

reporting

period

current reporting

period

recorded as

equity

reporting

period

Funding

source

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

1

3,988

23

-

-

Self-owned fund

Structured deposit

-

3,988

23

-

-

Self-owned fund

Stock

1

-

-

-

-

Self-owned fund

Derivative financial instruments

157

(1,598)

(5,936)

-

-

 

Cash flow hedges

7,545

19,205

(303)

5,214

-

 

Other equity instruments

1,525

1,534

-

(11)

-

 

Total

9,228

23,129

(6,216)

5,203

-

 

 

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 on page 135 of 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

 

2021

2020

 

RMB million

RMB million

Operating income

 

 

Exploration and Production Segment

109,526

78,929

Refining Segment

626,009

438,358

Marketing and Distribution Segment

635,170

529,801

Chemicals Segment

233,183

178,692

Corporate and Others

614,339

484,625

Elimination of inter-segment sales

(956,624)

(677,341)

Consolidated operating income

1,261,603

1,033,064

Operating profit/(loss)

 

 

Exploration and Production Segment

5,218

(8,044)

Refining Segment

39,177

(32,548)

Marketing and Distribution Segment

16,583

6,807

Chemicals Segment

12,468

2,699

Corporate and Others

1,646

(4,388)

Elimination of inter-segment sales

(12,860)

4,500

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

386

582

Other income

1,244

2,467

Consolidated operating profit/(loss)

63,862

(27,925)

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

39,153

(23,001)

 

Operating profit: In the first half of 2021, the operating profit of the Company was RMB63.9 billion, representing an increase of RMB91.8 billion year-on-year.

 

Net profit: In the first half of 2021, net profit attributable to the equity shareholders of the Company was RMB39.2 billion, representing an increase of 62.2 billion year-on-year.

 

(2)  Financial data prepared under CASs:

 

 

At 30 June

At 31 December

 

 

2021

2020

Changes

 

RMB million

RMB million

RMB million

Total assets

1,852,964

1,733,805

119,159

Non-current liabilities

321,668

327,739

(6,071)

Shareholders' equity

907,301

883,876

23,425

 

Changes analysis:

 

Total assets: As of 30 June 2021, the Company's total assets were RMB1,853.0 billion, representing an increase of RMB119.2 billion compared with the beginning of 2021. This was mainly due to the increase in the accounts receivable of RMB36.3 billion, inventories increased by RMB47.3 billion, long-term equity investment increased by RMB11.3 billion, fixed assets decreased by RMB8.4 billion and construction projects increased by RMB13.0 billion.

 

Non-current liabilities: As of 30 June 2021, the Company's non-current liabilities were RMB321.7 billion, representing an decrease of RMB6.1 billion compared with the beginning of 2021. This was mainly due to the decrease in the bond payable of RMB7.1 billion.

 

Shareholders' equity: As of 30 June 2021, total shareholders' equity of the Company was RMB907.3 billion, representing an increase of RMB23.4 billion compared with the beginning of 2021.

 

(3)  The results of the principal operations by segments

 

 

 

 

 

 

 

Increase of

 

 

 

 

 

 

gross profit

 

 

 

 

Increase of

Increase of

margin on

 

 

 

 

operating

operating

a year-on-year

 

Operating

 

Gross profit

income on

cost on

basis

 

income

Operating cost

margin*

a year-on-year

a year-on-year

(percentage

Segments

(RMB million)

(RMB million)

(%)

basis (%)

basis (%)

points)

Exploration and Production

109,526

87,795

15.5

38.8

21.4

11.8

Refining

626,009

461,307

8.2

42.8

31.6

11.4

Marketing and Distribution

635,170

585,264

7.6

19.9

18.9

0.7

Chemicals

233,183

205,184

11.4

30.5

33.5

2.2

Corporate and Others

614,339

604,198

1.6

26.8

26.0

0.5

Elimination of inter-segment sales

(956,624)

(943,765)

N/A

N/A

N/A

N/A

Total

1,261,603

999,983

11.2

22.1

14.4

6.3

 

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

CORPORATE GOVERNANCE

 

1.   IMPROVEMENTS IN CORPORATE GOVERNANCE

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 on securities, adhered to the standard operation, and improved the corporate governance capabilities and levels. The Company completed the change of terms of the Board and the Board of Supervisors, elected the eighth session of the Board and the eighth session of the Board of Supervisors, adjusted the composition of all special committees, renamed the Social Responsibility Management Committee as the Sustainable Development Committee and refined its working rules, appointed senior management, all of which further enhanced the professional and gender backgrounds diversification of the Board and improved the corporate governance structure. The Board and its special committees fulfilled their duties with due diligence and reasonable care and were committed to better integrating environmental protection, social responsibility, and corporate governance into the Company's development strategy and operations. The Party organisation also participated in corporate governance to promote scientific decision-making. The Company continued deepening the campaign of promoting the execution effectiveness of internal control to strengthen the internal control and risk management, enhancing the communication with stakeholders, and further perfecting the information disclosure and investor relations work.

 

2.   GENERAL MEETINGS

During the reporting period, Sinopec Corp. convened the 2020 Annual General Meeting on 25 May 2021 in Beijing, China, strictly in compliance with the relevant laws, regulations, and the required notice, convening and holding procedures under the Articles of Association, whereby the proposals in relation to the following matters were approved: (i) Report of the seventh session of the Board (including the Report of the Board for 2020); (ii) Report of the seventh session of the Board of Supervisors (including the Report of the Board of Supervisors for 2020); (iii) The audited financial reports of Sinopec Corp. for the year ended 31 December 2020 prepared by PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers; (iv) The profit distribution plan for 2020; (v) To authorise the Board to determine the interim profit distribution plan for 2021; (vi) To appoint KPMG Huazhen LLP (special general partnership) and KPMG as external auditors of Sinopec Corp. for 2021 and to authorise the Board to decide on their remunerations; (vii) To authorise the Board to determine the proposed plan for issuance of debt financing instrument(s); (viii) To grant the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp.; (ix) The service contracts for the directors of the eighth session of the Board and the supervisors of the eighth session of the Board of Supervisors of Sinopec Corp. (including the remuneration terms); (x) Bills on the election of Directors (excluding independent Non-executive Directors); (xi) Bills on the election of independent Non-executive Directors; and (xii) Bills on the election of supervisors (excluding employee representative supervisors). 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.

 

3.   DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT

(1)  Information On Appointment Or Termination

On January 11, 2021, Mr. Yu Renming and Mr. Sun Huanquan resigned as employee's representative supervisor due to change of working arrangement. After performing the democratic procedure, Mr. Lv Dapeng and Mr. Chen Yaohuan were elected as employee's representative supervisors of Sinopec Corp. from January 11, 2021 to the expiration date of the term of the seventh session of the Board of Supervisors.

 

On January 28, 2021, Mr. Zou Huiping resigned as supervisor of Sinopec Corp. due to his age.

 

On May 25, 2021, the 2020 Annual General Meeting elected members of the eighth session of the Board and the eighth session of the Board of Supervisors. On the same day, the first meeting of the eighth session of the Board elected the Chairman of the Board and appointed senior management; the first meeting of the eighth session of the Board of Supervisors elected the Chairman of the Board of Supervisors. Changes in directors, supervisors and senior management were as follows:

 

The eighth session of the Board: Mr. Zhang Yuzhuo as Non-executive Director and Chairman of the Board; Mr. Ma Yongsheng as Executive Director and President; Mr. Zhao Dong as Non-executive Director; Mr. Yu Baocai, Mr. Liu Hongbin, Mr. Ling Yiqun, and Mr. Li Yonglin as Executive Director and Senior Vice President; Mr. Cai Hongbin, Mr. Ng, Kar Ling Johnny, Ms. Shi Dan, and Mr. Bi Mingjian as the Independent Non-executive Director. Mr. Tang Min is no longer the Independent Non-executive Director.

 

The eighth session of the Board of Supervisors: Mr. Zhang Shaofeng as the Chairman of the Board of Supervisors; Mr. Jiang Zhenying, Mr. Zhang Zhiguo, Mr. Yin Zhaolin and Mr. Guo Hongjin as the supervisors; Mr. Li Defang, Mr. Lv Dapeng and Mr. Chen Yaohuan as employee's representative supervisors. Mr. Zhao Dong is no longer the Chairman of the Board of Supervisors.

 

Other senior management: Mr. Chen Ge as the Senior Vice President; Mr. Yu Xizhi, Mr. Zhao Rifeng and Mr. Huang Wensheng as the Vice Presidents; Ms. Shou Donghua as the Chief Financial Officer; and Mr. Huang Wensheng as the Secretary to the Board.

 

On August 2, 2021, Mr. Zhang Yuzhuo resigned as Chairman of the Board, Non-executive Director, Chairman of each of the Strategy Committee and the Sustainable Development Committee, the member of Nomination Committee of the Board of Sinopec Corp. due to change of working arrangement.

 

(2)  Equity Interests of Directors, Supervisors, and Other Senior Management

As of June 30, 2021, Mr. Ling Yiqun, Director, 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, as of June 30, 2021, none of the directors, supervisors and senior management of Sinopec Corp. and their respective associates had any interests or short positions (including any interests or short positions that are regarded or treated as being held in accordance with the SFO) in any shares, underlying shares or debentures of Sinopec Corp. or any associated corporations (as defined in Part XV of 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 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    DIVIDEND

(1)  Dividend distribution for the year ended 31 December 2020

Upon the approval at its annual general meeting for 2020, Sinopec Corp. distributed the final cash dividend of RMB0.13 per share (tax inclusive) for 2020. The final dividend for 2020 has been distributed to shareholders on or before 28 June 2021 whose names appeared on the register of members of Sinopec Corp. on 16 June 2021. Combined with the 2020 special interim dividend of RMB0.07 per share (tax inclusive), the total cash dividend for the whole year of 2020 amounted to RMB0.20 per share (tax inclusive).

 

(2)  Interim dividend distribution plan for the six months ended 30 June 2021

As approved at the second meeting of the eighth session of the Board, the interim dividend for the six months ended 30 June 2021 of RMB0.16 per share (tax inclusive) will be distributed based on the total number of shares as of 16 September 2021 (record date) in cash.

 

The 2021 interim dividend distribution plan of Sinopec Corp., with the consideration of interest of shareholders and development of the Company, is in compliance with the Articles of Association and relevant procedures. The independent Non-executive Directors have issued independent opinions on it. The interim dividend will be distributed on or before 30 September 2021 to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of 16 September 2021. In order to be qualified for the interim dividend, holders of H shares shall lodge their share certificates and transfer documents with Hong Kong Registrars Limited at 1712-1716, 17th floor, Hopewell Centre, No. 183 Queen's Road East, Wanchai, Hong Kong, for registration, no later than 4:30 p.m. on 10 September 2021. The register of members of H shares of Sinopec Corp. will be closed from 11 September 2021 to 16 September 2021 (both days inclusive).

 

The dividend will be denominated and declared in RMB and distributed to domestic shareholders and Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program in RMB and to the foreign shareholders in Hong Kong Dollars. The exchange rate for dividend to be paid in Hong Kong dollars is based on the average benchmark exchange rate of RMB against Hong Kong Dollar as published by the People's Bank of China one week ahead of the date of declaration of the interim dividend (1 Hong Kong dollar=RMB0.83259).

 

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) and the Notice on the Tax Policies Related to the Pilot Program of the Shenzhen-Hong Kong Stock Connect (《關於深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[2016] No.127):

 

For domestic investors investing in the H Shares of Sinopec Corp. through Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program, the Company shall withhold and pay income tax at the rate of 20% on behalf of individual investors and securities investment funds. The Company 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 by themselves.

 

For dividends of investors of 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 competent tax authorities for the withholding. For investors who are tax residents of other countries which have 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 competent 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 according to such tax treaty will be refunded.

 

5.   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.

 

6.   COMPLY WITH CORPORATE GOVERNANCE CODE

In the reporting period, Sinopec Corp. has complied with the rules stipulated in Corporate Governance Code in Appendix 14 to the Hong Kong Listing Rules.

 

7.   REVIEW THE INTERIM REPORT

The Audit Committee of Sinopec Corp. has reviewed and confirmed this interim report.

ENVIRONMENT AND SOCIAL RESPONSIBILITIES

 

1    Ecological protection, pollution prevention and control, and environmental responsibility during the reporting period

During the reporting period, the Company actively implemented green and clean development strategy, comprehensively promoted "Green Enterprise Campaign", revised and released the handbook of HSE management system, continuously improved construction and operation of HSE management system and strengthened management responsibility for energy and environment. The Company enhanced ecological environment protection of enterprises in key river basins such as the Yangtze River and Yellow River, further promoted management of solid waste and hazardous waste, launched a three-year environment management promotion campaign to continuously strengthen pollution prevention and control. Compared with the first half of 2020, COD of discharged water decreased by 2.0%, SO2 emissions decreased by 4.2% and all solid waste were properly treated.

 

2    Measures and effects taken by the Company to reduce carbon emissions during the reporting period

During the reporting period, the Company reinforced the strategic studies on pathway to carbon emissions peak and carbon neutrality, issued the Guidance on pathway to carbon peaking and carbon neutrality, jointly launched China Oil and Gas Methane Alliance, launched million-tonne CCUS project of Qilu Petrochemical-Shengli Oil Field and actively implemented emissions reduction measures of GHG, such as CO2 and methane, and continuously promoted the clean utilisation of fossil energy, scaling up of clean energy, and low-carbon of production process and accelerated the new energy development. In the first half of 2021, the Company continuously promoted energy conservation and consumption reduction and GHG emissions decreased by 2.304 million tonnes of CO2 equivalent, 716 thousand tonnes of CO2 were recycled, 155 thousand tonnes of CO2 were injected for oil displacement and 320 million cubic meters of methane were recovered, equivalent to reducing 4.8 million tonnes of CO2 emissions.

 

3    Environmental protection statements of companies and their subsidiaries as key pollutant discharge units recognised by environmental protection departments

(1)  Information of pollutant discharging

During the reporting period, certain subsidiaries of Sinopec Corp. which are listed as major pollutant discharge units have acquired discharge permit according to the national pollution permit and disclosed environmental information as required by the relevant authorities and local government. The details of such information were published on national pollutant discharge license management information platform (http://permit.mee.gov.cn/permitExt/defaults/default-index!getInformation.action) and the relevant websites of the local government.

 

(2)  Construction and operation of prevention and control facilities

During the reporting period, 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.

 

(3)  Environmental impact assessment of construction projects and other environmental protection administrative permits

During the reporting period, the Company further regulated and enhanced the environmental management of construction projects, in the whole production and operation cycle, and implemented "three-simultaneity" management (environmental facilities shall be designed, constructed and put into operation simultaneously with the main construction). All of the newly-built projects have obtained approvals from the environment authorities.

 

(4)  Emergency response plan for environmental emergencies

During the reporting period, Sinopec Corp. strictly complied with relevant national requirements on environment emergency plan management and continuously improved the emergency plans for environmental emergencies and heavy pollution weather.

 

5)   Environmental self-monitoring programme

During the reporting period, according to the national pollution permit and self-monitoring technology guidelines in relevant industries, we modified the self-monitoring plan, implemented new national requirements of sewage, flue gas and noise monitory, and disclosed the environmental monitoring results as instructed by relevant requirements.

 

(6)  Administrative penalties imposed for environmental problems during the reporting period

 

Company

Time

Penalty

document

Penalty amount/

RMB thousand

    Penalty

    reason

Rectification

measures

Sinopec Nanjing Catalyst
 Co. LTD



 

 

 

 



 

2021 January






 

 

 

 

 

寧新區管環罰

[2020]117



 

 

 

 

 


 

272



 

 

 

 

 



 

    In some periods of 2019 and 2020, the average online monitoring data of total non-methane hydrocarbons exceeded standard for 3 hours within 24 hours.

 

 

 

 


 

    The Company has taken rectification measures and established mechanism of abnormal environmental protection online data, strengthened the management of environmental protection facilities and online monitoring facilities, and conducted assessment of relevant contractors.

 

(7)  Other environmental information required to be disclosed

During the reporting period, 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.

 

4    Performance of Poverty Alleviation and Rural REVITALIsATION during the reporting period

During the reporting period the Company earnestly implemented the decisions and plans of the state, kept our support of capital and personnel stable. The Company has regarded the eight designated targeted poverty alleviation counties that have been lifted out of poverty as the priority counties for rural revitalisation. According to the general requirements of "Thriving businesses, Pleasant living environment, Social etiquette and civility, Effective governance and Prosperity", the Company focused on the three themes of industry and education development, education promotion and consumption support to effectively consolidate and expand the achievements in poverty alleviation in coordination with rural revitalisation.

 

On 1 March 2021, the Company released "14th five-year plan for supporting rural revitalisation" and made plans for continuously consolidating poverty alleviation achievements, supporting industry development, improving education quality, supporting consumption of products from poor areas to increase farmers' income and building beautiful counties.

 

5    Rendering assistance to flood control and disaster relief and post-disaster reconstruction in Henan province

In July 2021, Henan province was hit by a rare rainstorm and the Company immediately mobilised enterprises and resources in the disaster-stricken areas and fully cooperated with the flood control and disaster relief, secured the supply of refined oil products in the disaster areas, actively participated in the emergency rescue and donated RMB50 million to the Henan Charity Federation, earnestly fulfilling the social responsibilities.

 

6    Supporting Beijing 2022 Winter Olympics and Paralympics

As the official partner of the Beijing 2022 Winter Olympics and Paralympics, the Company actively practiced the concept the "Clean Energy for Winter Olympics", promoted the construction of integrated energy supply station of refined oil products, gas and hydrogen to prepare for the clean energy supply and provided carbon fiber and composite materials for the 2022 Olympic torch named "Flying".

SIGNIFICANT EVENTS

 

1.   MAJOR PROJECTS

(1)  Zhenhai Refining & Chemical expansion project (phase 1)

Zhenhai Refining & Chemical expansion project (phase 1) consists of a 4,000,000 tpa crude oil modification project and a 1,200,000 tpa ethylene project in the mature oil refinery region. The project was approved in June 2018, the construction started in October 2018.The mechanical completion was achieved in June 2021. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB19.4 billion.

 

(2)  Zhenhai Refining & Chemical expansion project (phase 2)

Zhenhai Refining & Chemical expansion project (phase 2) consists of building a 11,000,000 tpa refinery project and a 600,000 tpa propane dehydrogenatin and downstream projects. The refinery project is expected to begin construction in October 2021 and to be put into operation by the end of 2024. The Company's self-owned fund accounts for 30% of the project investment, and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB0.3 billion.

 

(3)Tianjin Nanggang ethylene and downstream high-end new material industry cluster project

Tianjin Nanggang ethylene and downstream high-end new material industry cluster project consists of a 1,200,000 tpa ethylene project and downstream processing units. The project began construction in May 2021 and is expected to be put into operation in the end of 2023. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB0.1 billion.

 

(4)  Wuhan ethylene de-bottleneck project

Wuhan ethylene de-bottleneck project mainly consists of an 800,000 tpa to 1,100,000 tpa ethylene capacity expansion project. The project started construction at the end of October 2018. The mechanical completion was achieved in June 2021. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB3.6 billion.

 

(5)  Hainan Refining 1,000,000 tpa ethylene and refinery revamping and expansion project

Hainan Refining 1,000,000 tpa ethylene and refinery revamping and expansion project mainly consists of the construction of 1,000,000 tpa ethylene and auxiliary units. The project started in December 2018 and is expected to achieve the mechanical completion in June 2022. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB10.4 billion.

 

(6)  Weirong shale gas project (phase 1 and phase 2)

Under the guidance of the principle of "overall deployment, stage-wise implementation and fully consideration", the capacity construction was promoted comprehensively from August 2018. The construction of phase 1 project with a production capacity of 1 billion cubic meters per year was completed and put into operation in December 2020. The phase 2 project with a production capacity of 2 billion cubic meters per year is expected to be completed and put into operation in December 2022. The Company's self-owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB5.3 billion.

 

(7)  Tianjin LNG project (phase 2)

Tianjin LNG project (phase 2) mainly consists of a new wharf, five new 220,000-cubic-meter storage tanks etc. LNG processing capacity will reach 11,000,000 tpa after phase 2 expansion project is completed. The project started in January 2019 and is expected to be put into operation in August 2023. The Company's self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining 70%. As of 30 June 2021, the aggregate investment was RMB2.2 billion.

 

2.   CORE COMPETITIVENESS ANALYSIS

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

 

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

 

The Company enjoys a favourable positioning with its operations located close to the consumer markets. The steady growth in the Chinese economy is helpful to the development of both refined oil business and chemical business of the Company; 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 with expertise 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 enjoys a favourable operational cost advantage in its downstream businesses.

 

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

 

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

 

3.   ACTUAL CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BY THE COMPANY 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.

 

In the reporting period, pursuant to the above-mentioned continuing connected transactions agreements, the aggregate amount of the continuing connected transactions of the Company during the reporting period was RMB202.595 billion. Among which, purchases expenses amounted to RMB137.166 billion, representing 10.75% of the total amount of this type of transaction for the reporting period, including purchases of products and services (procurement, storage, transportation, exploration and production services, and production-related services) of RMB130.653 billion, purchases of auxiliary and community services of RMB642 million, payment of property rent of RMB272 million, payment of land use rights of RMB5.402 billion, and interest expenses of RMB196 million. The sales income amounted to RMB65.429 billion, representing 4.93% of the total amount of this type of transaction for the reporting period, including sales of products of RMB64.977 billion, agency commission income of RMB69 million, and interest income of RMB381 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.

 

4.   FUNDS PROVIDED BETWEEN RELATED PARTIES

Unit: RMB million

 

 

Funds to related parties

Funds from related parties

Related Parties

Relations

Amount incurred

Balance

at the

beginning

of the reporting

 period

Balance at

the end

of the reporting

period

Sinopec Group
 

Parent company and
 affiliated companies*

179
 

9,027
 

28,672
 

Other related parties

 

Associates and joint ventures

(6,172)

 

6,087

 

4,004

 

Total

 

(5,993)

15,114

32,676

Reason for provision of funds between related parties

Loans and accounts receivable and payable

 

Impacts of the provision of funds on the Company

No material negative impact

 

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

 

5.   ACTUAL DAILY RELATED TRANSACTIONS ENTERED INTO BY THE COMPANY AND CHINA OIL & GAS PIPELINE NETWORK CORPORATION (PIPECHINA) DURING THE REPORTING PERIOD

On 28 January 2021, the Board of Sinopec Corp. approved the daily related transaction cap in relation to refined oil pipeline transportation services between Sinopec Marketing and PipeChina, within the period from 1 October 2020 to 31 December 2021. The actual executed amount of the daily related transaction of the Company and PipeChina regarding refined oil pipeline transportation services from 1 January 2021 to 30 June 2021 was RMB2.438 billion.

 

6.   ACQUISITION OF EQUITY AND NON-EQUITY ASSETS

On 26 March 2021, Sinopec Corp. and Assets Company of Sinopec Group entered into acquisition agreements to purchase the equity interest in Cangzhou Toray and the polypropylene and utilities assets, Sinopec Corp. and Orient Petrochemical entered into agreement to purchase equipment and related assets. On the same day, Overseas Investment Company of Sinopec Corp. and Century Bright Company entered into agreement to purchase equity interest in Hainan Refining and Chemical, Beihai Refining & Chemical of Sinopec Corp. and Beihai Petrochemical entered in agreement to purchase the non-equity assets including the pier operation platform held by Beihai Petrochemical. The above agreements have been entered on purchase of equity and non-equity assets by Sinopec Corp. or its subsidiaries. As of 1 July 2021, conditions precedent for above agreements have been met, the ownership, obligations, responsibilities and risks of targeted assets have been transferred to Sinopec Corp. or its subsidiaries.

 

For details, please refer to the announcements published by Sinopec Corp. on China Securities Journal, Shanghai Securities News, Securities Times, and on the website of Shanghai Stock Exchange on 29 March 2021, 2 July 2021 and on the website of Hong Kong Stock Exchange on 28 March 2021, 1 July 2021.

 

7.   SIGNIFICANT LITIGATION, ARBITRATION RELATING TO THE COMPANY

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

 

8.   CREDIBILITY FOR THE COMPANY, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER

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

 

9.   MATERIAL CONTRACTS AND THEIR PERFORMANCE

During the reporting period, the Company did not enter into any material contracts subject to disclosure obligations during the reporting period.

 

10. SIGNIFICANT EQUITY INVESTMENT

In the reporting period, no significant equity investment occurred by the Company.

 

11. SIGNIFICANT SALE OF ASSETS OR EQUITY

In the reporting period, no significant sale of assets or equity occurred by the Company.

 

12. BUSINESS WITH SINOPEC FINANCE CO. AND CENTURY BRIGHT

(1)  DEPOSIT BUSINESS

Unit: RMB Million

Related Parties

Relations

Daily Deposit Cap

Deposit Interest Rate Range

Balance at the

Beginning of the

Reporting Period

Sinopec Finance Co.


 

51% by China Petrochemical Corporation, 49% by Sinopec Corp.


 

Cap RMB80.0 billion by Sinopec Finance Co. and Century Bright


 

current deposit 0.35%-
1.725%; time deposit
1.62%-7.4%

23,953

 

 

 

Century Bright


 

100% by China Petrochemical Corporation

 

 


 

 

 

current deposit 0%-0.25%;
time deposit 0.08%-1.23%

29,464
 

 

 

Total

/

/

/

53,417

 

Note 1:     In general, the deposit interest rate in Sinopec Finance Co. and Century Bright by Sinopec Corp. is no lower than the same kind and same period deposit interest rate of major commercial banks.

 

Note 2:     The amount incurred in the reporting period is in the calibre of time deposits (new deposits and mature deposits), of which the time deposit of the Sinopec Finance Co. increased by RMB3.986 billion in the first half of the 2021 and due by RMB2.882 billion; the time deposit of Century Bright increased by RMB60.811 billion in the first half of the 2021, and due by RMB52.701 billion.

 

(2)  LOAN BUSINESS

Unit: RMB Million

Related Parties

Relations

Loan Cap

Loan Interest Rate Range

Balance at the

Beginning of the

Reporting Period

Century Bright
 

100% by China Petrochemical Corporation 

120,956
 

0.62%-4.25%
 

6,614
 

Sinopec Finance Co.

 

51% by China Petrochemical Corporation, 49% by Sinopec Corp.
 

10,400

 

1.08%-5.23%

 

10,428

 

Total

/

/

/

17,042

 

Note 1:     In general, the loan interest rate by Sinopec Finance Co. and Century Bright to Sinopec Corp. is no higher than the same kind and same period loan interest rate of major commercial banks.

 

Note 2:     Among the amounts incurred in the reporting period, that of Century Bright increased by RMB59.396 billion and decreased by RMB56.011 billion, and that of Sinopec Finance Co. increased by RMB11.416 billion and decreased by RMB11.444 billion.

 

(3)  CREDIT BUSINESS AND OTHER FINANCE BUSINESS

Unit: RMB Million

Related Parties

Relations

Business Type

Balance at the end

of the Reporting Period

Amount Incurred

Sinopec Finance Co.

51% by China Petrochemical
Corporation, 49% by Sinopec Corp.

Acceptance bill

9,735

10,318

Discounted bill

/

2,884

 

Note:        the amount incurred is that of the newly-issued bill in the reporting period

 

13. 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

company

Amount

Transaction date

(date of signing)

Period of guarantee

Type

Main Debts

Guarantees

Whether

completed

or not

Whether

overdue

or not

Amount of

overdue

guarantee

Counter-

guaranteed

Whether

guaranteed

for connected

parties*1

Sinopec Corp.

 

 

 


 

The listed company
itself

 

 


 

Zhongtian Hechuang
Energy Co., Ltd.

 

 

 

6,760

 

 

 

 


 

25 May 2016

 

 

 


 

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

Joint liability
guarantee

 

 

 

 

Normal
performance

 

 

 

 

 

None

 

 

 

 

 

No

 

 

 

 

 

No

 

 

 

 


 

None

 

 

 

 


 

No

 

 

 

 


 

No

 

 

 

 


 

Sinopec Corp.


 

The listed company
itself

 

Zhong An United Coal
Chemical Co., Ltd.

6,035
 

 

 

18 April 2018
 

 

18 April 2018-31 December
2031

Joint liability
guarantee

 

Normal
performance

 

 

None
 

 

 

No
 

 

 

No
 

 

 

None
 

 

 

No
 

 

 

No
 

 

 

Total amount of guarantees provided during the reporting period*2

0

Total balance amount of guarantee at the end of reporting period*2 (A)

12,795

Guarantees by the Company to the controlled subsidiaries

 

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

0

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

11,305

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

 

Total amount of guarantees (A+B)

24,100

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

3.15%

Among which:

 

Guarantees provided for shareholder, de facto controller and its related parties (C)

0

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

6,035

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

0

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

6,035

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.

 

14. PERFORMANCE OF THE UNDERTAKINGS BY CHINA PETROCHEMICAL CORPORATION

 

Background

Type of

Undertaking

Party

Contents

Term for performance

Whether bears

deadline or not

Whether strictly

performed or not

Undertakings related to
 Initial Public
 Offerings (IPOs)












 

 

 

 

IPOs












 

 

 

 

 


 

China Petrochemical
Corporation











 

 

 

 



 

1       Compliance with the connected transaction agreements;

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.

From 22 June 2001












 

 

 

 

 


 

No












 

 

 

 

 


 

Yes











 

 

 

 

 



 

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) within ten years from the issuance date of this undertaking, 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 financial performance, 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.

 

15. STRUCTURED ENTITY CONTROLLED BY THE COMPANY

None

 

16. 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..

 

17. 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

 

 

 

 

Profit of

 

Company name

Registered

capital

Total asset

Net Profit

primary

business

Primary Activities

Sinopec Marketing

28,403

521,709

12,969

44,145

Sales of refined

 Co., Ltd.

 

 

 

 

oil products

 

18. CHANGE OF AUDITORS

As PricewaterhouseCoopers Zhong Tian LLP (Special general partnership) and PricewaterhouseCoopers have been auditors of Sinopec Corp. for eight consecutive years, according to domestic regulation, Sinopec Corp. needs to change its auditors in 2021. The 21st meeting of the 7th session of the Board has approved to appoint KPMG Huazhen LLP (Special general partnership) and KPMG as the domestic and overseas auditors of Sinopec Corp. for 2021. The appointment has been approved by the 2020 Annual General Meeting of Sinopec Corp. held on 25 May 2021.

 

19. RISK FACTORS

In the course of its production and operations, Sinopec Corp. 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. As the Covid-19 situation has been effectively controlled, the domestic economy is recovering steadily. With expanded vaccination and developed countries such as the US, European countries and Japan continuing their loose currency and fiscal stimulus policy, the world economy is recovering gradually, but with an uneven trend. The economic development is more and more constrained by climate change and environmental problems. 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 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 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 a certain extent.

 

Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalizing the market entry regulations on petroleum and petrochemicals sector, the petroleum and petrochemical industries in China are still subject to entry regulations to a certain degree, which include: issuing licenses in relation to exploration and development of crude oil and natural gas, issuing business licenses for trading crude oil and refined oil, setting caps for retail prices of gasoline, diesel and other oil products, the imposition of the special oil income levy; the formulation of refined oil import and export quotas and procedures; the formulation of safety, quality and environmental protection standards and the formulation of energy conservation policies. In addition, the changes which have occurred or might occur in macroeconomic and industry policies such as the opening up of crude oil import licenses and the right of tenure; reforming and improvement in pricing mechanism of natural gas, cost supervision of gas pipeline and access to third party; cancellation of qualification approval of the wholesale and storage of refined oil business, decentralisation of retail business authorisation of refined oil products to regional and city level government, further improvement in pricing mechanism of refined oil products, gas stations investment being fully opened to foreign investment; and reforming in resource tax and environmental tax, etc. Such changes might further intensify market competition and have certain effects 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, the 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 obtaining additional oil and gas resources: The future sustainable development of the Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring additional oil and natural gas resources. To obtain additional oil and natural gas resources, the Company faces some inherent risks associated with exploration and development and/or with acquisition activities, and the Company has to invest a large amount of money with no guarantee of certainty. If the Company fails to acquire additional resources through further exploration, development and acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the Company may decline over time which may adversely affect the Company's financial situation and operation performance.

 

Risks with regard to the external purchase of crude oil: A significant amount of crude oil as needed by the Company is satisfied through external purchases. In recent years, especially influenced by the mismatch between supply and demand of crude oil, geopolitics, global economic growth and other factors, the prices of crude oil fluctuate sharply. Additionally, the supply of crude oil may even be interrupted due to some extreme major incidents in certain regions. Although the Company has taken flexible 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 serious impacts to the society, major financial losses to the Company and grievous injuries to people. The Company has always been laying great emphasis on the safety production, and has implemented a strict HSE management system as an effort to avoid such risks as far as possible. Meanwhile, the main assets and inventories of the Company as well as the possibility of damage to a third party have been insured. However, such measures may not shield the Company from financial losses or adverse impact resulting from such contingencies.

 

Investment risks: Petroleum and chemical sector is a capital intensive industry. Although the Company has adopted a prudent investment strategy, as stipulated and enforced by the new investment decision-making procedures and rules in 2020, 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 and trade structure, exclusiveness of regional trading blocs, polarisation of benefits distribution in trade, and politicisation of economic and trade issues, including pandemic, sanctions, barriers to entry, instability in the financial and taxation policies, contract defaults, tax dispute, the Company's risks with regard to overseas business development and management could be increased.

 

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

 

Cyber-security risks: 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. However, if our systems against cyber-security risk are proved to be ineffective, we 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, thus causing harm to our 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.

CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SHAREHOLDERS

 

1    CHANGES IN THE SHARE CAPITAL

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 2021, there were a total of 507,150 shareholders of Sinopec Corp., of which 501,507 were holders of A shares and 5,643 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 2021

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

25,385,923,845

643,437

unknown

中國證券金融股份有限公司

A share

1.92

2,325,374,407

(283,937,650)

0

香港中央結算有限公司

A share

0.93

1,122,299,922

281,227,640

0

中國人壽保險股份有限公司-傳統
-普通保險產品-005LCT001

A share
 

0.67
 

813,500,331
 

(1,105,700)
 

0
 

中國人壽保險股份有限公司-分紅
-個人分紅-005LFH002

A share
 

0.27
 

323,077,505
 

(492,592,663)
 

0
 

中中央匯金資產管理有限責任公司

A share

0.27

322,037,900

0

0

國信證券股份有限公司

A share

0.16

196,977,796

177,793,001

0

黃長富

A share

0.13

160,000,087

160,000,087

0

全國社保基金一一三組合

A share

0.09

107,387,897

107,387,897

0

 

1.     As compared with the number of shares as at 31 December 2020.

 

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-傳統-普通保險產品-005L-CT001 and 中國人壽保險股份有限公司-分紅-個人分紅-005L-FH002which 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 2021

Name of shareholders

Status of shareholders

Number of

shares

interests held

or regarded as

held

Approximate

percentage

of Sinopec Corp.'s

issued share

capital

(H share) (%)

Citigroup Inc.

Person having a security interest in shares

7,771,000(L)

0.03(L)

 

Interests of corporation controlled by the

127,810,267(L)

0.50(L)

 

substantial shareholder

124,137,279(S)

0.49(S)

 

Approved lending agent

1,901,979,079(L)

7.45(L)

BlackRock, Inc.

Interests of corporation controlled by the

1,968,236,873(L)

7.71(L)

 

substantial shareholder

5,529,900(S)

0.02(S)

GIC Private Limited

Investment manager

1,523,751,125(L)

5.97(L)

 

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

 

3    CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER

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

 

BOND GENERAL INFORMATION

 

1.   Corporate Bond

 

Bond name

Sinopec Corp.2012 Corporate bond

Abbreviation

12石化02

Code

122150

Issuance date

1 June 2012

Interest commencement date

1 June 2012

Maturity date

1 June 2022

Amount issued (RMB billion)

7

Outstanding balance (RMB billion)

7

Interest rate (%)

4.90

Principal and interest repayment


 

Simple interest is calculated and paid on an annual basis without compounding interests. Interest is paid once a year. The principal will be paid at maturity with last instalment of interest.

Investor Qualification Arrangement
 

12石化02 was publicly offered to qualified investors in accordance with Administration of the Issuance and Trading of Corporate Bonds.

Applicable trading mechanism

floor trading at Shanghai Stock Exchange, in line with pledge repurchase requirement

Risk of suspension for listed trading, and
 countermeasures

N/A
 

Listing exchange

Shanghai Stock Exchange

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 agency

 

 

 


 

During the reporting period, United Credit Ratings Co., Ltd. tracked and provided credit rating for 12石化02 and reaffirmed AAA credit rating in the continuing credit rating report. The 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 disclosure of annual report for 2020.

Special terms for Issuer or investor option
 or investor protection, whether triggered
 or executed

No special terms for Issuer or investor option or investor protection, thus not applicable

 

Guarantee and repayment scheme and other
 relative events in the reporting period

China Petrochemical Corporation bears non-irrevocable joint liability guarantee. Interest is paid as usual in the reporting period without triggering any guarantee.

Convening of corporate bond holders' meeting

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

Performance of corporate bonds trustee
 

 

 




 

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

 

2.   Non-Financial Enterprise Debt Financing Tool in Inter-Bank Bond Market

In 2020, the Company issued RMB20 billion medium-term notes with 3-year term as follows: On 31 March 2020 the first and the second phase RMB5 billion medium-term notes were issued (bond abbreviation 20中石化MTN001 and MTN002, code 102000568 and 102000569) with coupon rate 2.7%; On 27 May 2020, the third phase RMB10 billion medium-term note was issued (bond abbreviation 20中石化MTN003, code102001109) with coupon rate 2.2%.

 

On 4 February 2021, the Company issued RMB5 billion super short-term commercial paper with 180-day term (bond abbreviation 21中石化SCP001, code 012100565) with annual interest rate 2.50%; On 4 March 2021, RMB11.0 billion super short-term commercial paper with 119-day term (bond abbreviation 21中石化SCP002, code 012100810) with annual interest rate 2.65%; On 25 March 2021, RMB3.0 billion super short-term commercial paper with 180-day term (bond abbreviation 21中石化SCP003, code 012101228) with annual interest rate 2.64%; On 29 March 2021, RMB8.0 billion super short-term commercial paper with 120-day term (bond abbreviation 21中石化SCP005, code 012101281) with annual interest rate 2.45%

 

The abovementioned bonds were issued to institutional investors of domestic inter-bank bond market. The key issuance factors such as listing, circulation and transfer, interest commencement date and maturity date were disclosed in the announcements at Shanghai Clearing House and China Currency Web. For super short-term commercial paper, it's one-off repayment with principal and interest. For medium-term notes, interest is paid annually with repayment of principal at maturity. The Company uses proceeds according to the prospectus. All bonds credit were rated by United Credit Ratings Co., Ltd. in terms of company and bond, with company long-term credit of the Company rated AAA and outlook stable, medium-term notes credit rated AAA. There exists no risk of suspension of listing for above bonds and no guarantee is arranged.

 

Shanghai Petrochemical Co., Ltd., the subsidiary of Sinopec Corp., issued its super short-term commercial paper, which was disclosed in its interim report for 2021 on the web of Shanghai Stock Exchange.

 

Principal accounting data and financial indicators at the end of reporting period

 

Principal data

At the end of the

reporting period

At the end of

last year

Change

  Reason for change

Current ratio

0.89

0.87

0.02

  Due to increase of current assets

Quick ratio

0.57

0.58

(0.01)

  Due to slightly increase of other current liabilities

Liability-to-asset ratio

51.04%

49.02%

2.02 percentage points

  Due to increase of liabilities

Loan repayment rate

100%

100%

-

  -

 

 

The reporting

period for 2021

(January-June)

The reporting

period for 2020

(January-June)

Change

  Reason for change

Net profit/(loss) attributable to equity
 shareholders of the Company
 excluding extraordinary gains
 and losses

38,420


 

(24,404)


 

62,824


 

  Due to increase of net profit


 

Net profit/(loss) excluding
 extraordinary gains and losses

47,618
 

(23,836)
 

71,454
 

  Due to increase of net profit
 

EBITDA-to-total debt ratio

0.77

0.18

0.59

  Due to increase of EBITDA

EBITDA-to-interest coverage ratio

16.17

2.99

13.18

  Due to increase of EBITDA

Interest coverage ratio

9.68

(2.46)

12.14

  Due to increase of profit before tax

Cash interest coverage ratio

29.29

13.88

15.41

  Due to increase of operating cash flow

Interest payment rate

100%

100%

-

 

 

note: Liability-to-asset ratio = total liability/total assets

 

During the reporting period, the Company paid in full the interest accrued for the other bonds and debt financing instruments. As at 30 June 2021, the standby credit line provided by several domestic financial institutions to the Company was RMB444.0 billion in total, facilitating the Company to get such amount of unsecured loans. The Company has fulfilled all the relevant undertakings in the offering circular of corporate bonds and 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 the Company with four different maturities, namely 3 years, 5 years, 10 years and 30 years. The 3-year notes principal totalled USD750 million, with an annual interest rate of 1.250% and had been repaid and delisted; the 5-year notes principal totalled USD1.0 billion, with an annual interest rate of 1.875% and had been repaid and delisted; the 10-year notes principal totalled USD1.25 billion, with an annual interest rate of 3.125%; and the 30-year notes principal totalled USD500 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 all notes with maturity of 10 years and 30 years.

AUDITOR'S REPORT

 

To the Shareholders of China Petroleum & Chemical Corporation,

 

We have reviewed the accompanying interim financial statements of China Petroleum & Chemical Corporation ("Sinopec Corp."), which comprise the consolidated and company balance sheets as of 30 June 2021, and the consolidated and company income statements, the consolidated and company cash flow statements and the consolidated and company statements of changes in shareholders' equity for the period from 1 January 2021 to 30 June 2021, and the notes to the financial statements. Management of Sinopec Corp. is responsible for the preparation of these financial statements. 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 of Sinopec Corp. are not prepared in accordance with the requirements of Accounting Standards for Business Enterprises ("CASs"), and do not present fairly, in all material respects, the consolidated and the company's financial position of Sinopec Corp. as at 30 June 2021, and the consolidated and the company's financial performance and cash flows for the period from 1 January 2021 to 30 June 2021.

 

 

 

 

 

 

 

 

 

 

 

KPMG Huazhen LLP                                                                                                               Certified Public Accountants

                                                                                                                                               Registered in the People's Republic of China

 

 

                                                                                                                                               Yang Jie (Engagement Partner)

 

 

Beijing, China                                                                                                                           He Shu

 

                                                                                                                                               27 August 2021

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

        UNAUDITED CONSOLIDATED BALANCE SHEET

               As at 30 June 2021

 

 

Notes

At 30 June

At 31 December

 

 

2021

2020

 

 

RMB million

RMB million

Assets

 

 

 

Current assets

 

 

 

Cash at bank and on hand

5

190,482

184,412

Financial assets held for trading

6

3,988

1

Derivative financial assets

7

24,554

12,528

Accounts receivable

8

71,843

35,587

Receivables financing

9

9,686

8,735

Prepayments

10

8,317

4,862

Other receivables

11

28,605

33,602

Inventories

12

199,234

151,895

Other current assets

 

16,727

23,773

Total current assets

 

553,436

455,395

Non-current assets

 

 

 

Long-term equity investments

13

199,652

188,342

Other equity instrument investments

 

1,534

1,525

Fixed assets

14

580,846

589,285

Construction in progress

15

137,799

124,765

Right-of-use assets

16

189,103

189,583

Intangible assets

17

115,425

114,066

Goodwill

18

8,609

8,620

Long-term deferred expenses

19

9,689

9,535

Deferred tax assets

20

29,989

25,054

Other non-current assets

21

26,882

27,635

Total non-current assets

 

1,299,528

1,278,410

Total assets

 

1,852,964

1,733,805

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Short-term loans

23

37,649

20,756

Derivative financial liabilities

7

6,947

4,826

Bills payable

24

11,260

10,394

Accounts payable

25

216,268

151,262

Contract liabilities

26

127,920

126,160

Employee benefits payable

27

15,826

7,081

Taxes payable

28

36,897

76,843

Other payables

29

101,977

84,600

Non-current liabilities due within one year

30

29,397

22,493

Other current liabilities

31

39,854

17,775

Total current liabilities

 

623,995

522,190

Non-current liabilities

 

 

 

Long-term loans

32

43,149

45,459

Debentures payable

33

31,251

38,356

Lease liabilities

34

171,945

172,306

Provisions

35

45,947

45,552

Deferred tax liabilities

20

10,572

8,124

Other non-current liabilities

36

18,804

17,942

Total non-current liabilities

 

321,668

327,739

Total liabilities

 

945,663

849,929

Shareholders' equity

 

 

 

Share capital

37

121,071

121,071

Capital reserve

38

121,194

122,558

Other comprehensive income

39

901

1,038

Specific reserve

 

2,719

1,941

Surplus reserves

40

209,280

209,280

Undistributed profits

 

309,989

286,575

Total equity attributable to shareholders of the Company

 

765,154

742,463

Minority interests

 

142,147

141,413

Total shareholders' equity

 

907,301

883,876

Total liabilities and shareholders' equity

 

1,852,964

1,733,805

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

 

UNAUDITED BALANCE SHEET

As at 30 June 2021

 

 

Notes

At 30 June

At 31 December

 

 

2021

2020

 

 

RMB million

RMB million

Assets

 

 

 

Current assets

 

 

 

Cash at bank and on hand

 

95,080

99,188

Derivative financial assets

 

6,858

7,776

Accounts receivable

8

26,060

21,763

Receivables financing

 

656

707

Prepayments

10

4,588

2,626

Other receivables

11

39,507

37,938

Inventories

 

47,429

39,034

Other current assets

 

13,380

14,048

Total current assets

 

233,558

223,080

Non-current assets

 

 

 

Long-term equity investments

13

348,233

343,356

Other equity instrument investments

 

428

428

Fixed assets

14

278,692

283,695

Construction in progress

15

63,373

59,880

Right-of-use assets

16

107,899

108,737

Intangible assets

 

8,558

8,779

Long-term deferred expenses

 

2,485

2,499

Deferred tax assets

 

17,324

12,661

Other non-current assets

 

33,769

26,828

Total non-current assets

 

860,761

846,863

Total assets

 

1,094,319

1,069,943

Liabilities and shareholders' equity

 

 

 

Current liabilities

 

 

 

Short-term loans

 

20,180

20,669

Derivative financial liabilities

 

175

362

Bills payable

 

6,557

6,061

Accounts payable

 

84,884

65,779

Contract liabilities

 

5,162

5,840

Employee benefits payable

 

6,779

1,673

Taxes payable

 

21,237

43,500

Other payables

 

192,810

188,568

Non-current liabilities due within one year

 

18,867

12,026

Other current liabilities

 

27,342

439

Total current liabilities

 

383,993

344,917

Non-current liabilities

 

 

 

Long-term loans

 

29,832

30,413

Debentures payable

 

19,982

26,977

Lease liabilities

 

105,573

105,691

Provisions

 

36,644

36,089

Other non-current liabilities

 

3,452

3,581

Total non-current liabilities

 

195,483

202,751

Total liabilities

 

579,476

547,668

Shareholders' equity

 

 

 

Share capital

 

121,071

121,071

Capital reserve

 

69,012

68,976

Other comprehensive income

 

5,819

5,910

Specific reserve

 

1,467

1,189

Surplus reserves

 

209,280

209,280

Undistributed profits

 

108,194

115,849

Total shareholders' equity

 

514,843

522,275

Total liabilities and shareholders' equity

 

1,094,319

1,069,943

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the six-month period ended 30 June 2021

 

 

Notes

Six-month period ended 30 June

 

 

2021

2020

 

 

RMB million

RMB million

Operating income

41

1,261,603

1,033,064

Less: Operating costs

41

999,983

873,735

Taxes and surcharges

42

120,866

108,711

Selling and distribution expenses

 

31,700

29,510

General and administrative expenses

 

35,746

31,530

Research and development expenses

45

5,359

4,319

Financial expenses

43

4,901

5,263

Including: Interest expenses

 

7,658

8,083

     Interest income

 

2,662

2,267

Exploration expenses, including dry holes

46

4,846

4,465

Add:   Other income

47

1,244

2,467

Investment income

48

4,890

5,631

Including: Income from investment in associates and joint ventures

 

11,133

8

Gains from changes in fair value

49

116

110

Credit impairment reversals/(losses)

 

55

(101)

Impairment losses

50

(926)

(11,667)

Asset disposal gains

 

281

104

Operating profit/(loss)

 

63,862

(27,925)

Add:   Non-operating income

51

696

684

Less:   Non-operating expenses

52

1,081

977

Profit/(loss) before taxation

 

63,477

(28,218)

Less:   Income tax expense

53

14,949

(5,791)

Net profit/(loss)

 

48,528

(22,427)

Including: net loss of acquiree before business combination under common control

 

-

(217)

Classification by going concern:

 

 

 

Continuous operating net profit/(loss)

 

48,528

(22,427)

Termination of net profit

 

-

-

Classification by ownership:

 

 

 

Equity shareholders of the Company

 

39,153

(23,001)

Minority interests

 

9,375

574

Basic earnings/(losses) per share

64

0.323

(0.190)

Diluted earnings/(losses) per share

64

0.323

(0.190)

Other comprehensive income

39

 

 

Items that may not be reclassified subsequently to profit or loss

 

 

 

Changes in fair value of other equity instrument investments

 

8

(30)

Items that may be reclassified subsequently to profit or loss

 

 

 

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

 

121

(1,781)

Cost of hedging reserve

 

(40)

-

Cash flow hedges

 

8,640

(1,660)

Foreign currency translation differences

 

(621)

1,059

Total other comprehensive income

 

8,108

(2,412)

Total comprehensive income

 

56,636

(24,839)

Attributable to:

 

 

 

Equity shareholders of the Company

 

47,137

(25,214)

Minority interests

 

9,499

375

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED INCOME STATEMENT

For the six-month period ended 30 June 2021

 

 

Notes

Six-month period ended 30 June

 

 

2021

2020

 

 

RMB million

RMB million

Operating income

41

469,122

358,575

Less: Operating costs

41

363,427

287,803

Taxes and surcharges

 

72,725

70,139

Selling and distribution expenses

 

1,866

1,475

General and administrative expenses

 

16,386

15,006

Research and development expenses

 

4,962

4,050

Financial expenses

 

5,382

4,534

Including: Interest expenses

 

4,193

4,027

     Interest income

 

1,160

500

Exploration expenses, including dry holes

 

4,182

3,710

Add:         Other income

 

743

1,894

Investment income

48

10,602

6,599

Including: Income from investment in associates and joint ventures

 

4,366

544

Gains from changes in fair value

 

232

360

Credit impairment losses

 

2

30

Impairment losses

 

(753)

(8,094)

Asset disposal (losses)/gains

 

(3)

13

Operating profit/(loss)

 

11,015

(27,340)

Add:   Non-operating income

 

203

103

Less:   Non-operating expenses

 

519

444

Profit/(loss) before taxation

 

10,699

(27,681)

Less: Income tax expense

 

2,813

(8,124)

Net profit/(loss)

 

7,886

(19,557)

Classification by going concern:

 

 

 

Continuous operating net profit/(loss)

 

7,886

(19,557)

Termination of net profit

 

-

-

Other comprehensive income

 

 

 

Items that may be reclassified subsequently to profit or loss

 

 

 

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

 

18

(94)

Cash flow hedges

 

5,936

(2,591)

Total other comprehensive income

 

5,954

(2,685)

Total comprehensive income

 

13,840

(22,242)

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

For the six-month period ended 30 June 2021

 

 

Notes

Six-month period ended 30 June

 

 

2021

2020

 

 

RMB million

RMB million

Cash flows from operating activities:

 

 

 

Cash received from sale of goods and rendering of services

 

1,310,456

1,150,544

Refund of taxes and levies

 

788

1,665

Other cash received relating to operating activities

 

65,751

110,834

Sub-total of cash inflows

 

1,376,995

1,263,043

Cash paid for goods and services

 

(1,031,983)

(899,824)

Cash paid to and for employees

 

(36,563)

(32,751)

Payments of taxes and levies

 

(195,923)

(156,244)

Other cash paid relating to operating activities

 

(64,790)

(133,859)

Sub-total of cash outflows

 

(1,329,259)

(1,222,678)

Net cash flow from operating activities

55(a)

47,736

40,365

Cash flows from investing activities:

 

 

 

Cash received from disposal of investments

 

3,341

5,476

Cash received from returns on investments

 

3,316

2,744

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

 

502

1,522

Net cash received from disposal of subsidiaries and other business entities

55(d)

4,296

31

Other cash received relating to investing activities

 

21,019

28,066

Sub-total of cash inflows

 

32,474

37,839

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

 

(56,023)

(53,109)

Cash paid for acquisition of investments

 

(9,226)

(6,362)

Other cash paid relating to investing activities

 

(33,016)

(53,973)

Sub-total of cash outflows

 

(98,265)

(113,444)

Net cash flow from investing activities

 

(65,791)

(75,605)

Cash flows from financing activities:

 

 

 

Cash received from capital contributions

 

302

3,267

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

 

302

3,267

Cash received from borrowings

 

170,144

403,021

Other cash received relating to financing activities

 

-

296

Sub-total of cash inflows

 

170,446

406,584

Cash repayments of borrowings

 

(130,857)

(308,951)

Cash paid for dividends, profits distribution or interest

 

(19,181)

(27,409)

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

 

(1,203)

(918)

Other cash paid relating to financing activities

55(c)

(11,346)

(9,000)

Sub-total of cash outflows

 

(161,384)

(345,360)

Net cash flow from financing activities

 

9,062

61,224

Effects of changes in foreign exchange rate

 

(452)

504

Net (decrease)/increase in cash and cash equivalents

 

(9,445)

26,488

Add: Cash and cash equivalents at the beginning of the year

 

87,559

60,438

Cash and cash equivalents at the end of the period

55(b)

78,114

86,926

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED CASH FLOW STATEMENT

For the six-month period ended 30 June 2021

 

 

Notes

Six-month period ended 30 June

 

 

2021

2020

 

 

RMB million

RMB million

Cash flows from operating activities:

 

 

 

Cash received from sale of goods and rendering of services

 

512,907

409,385

Refund of taxes and levies

 

492

1,542

Other cash received relating to operating activities

 

6,052

2,015

Sub-total of cash inflows

 

519,451

412,942

Cash paid for goods and services

 

(369,090)

(250,667)

Cash paid to and for employees

 

(19,181)

(16,878)

Payments of taxes and levies

 

(110,031)

(91,431)

Other cash paid relating to operating activities

 

(9,587)

(9,186)

Sub-total of cash outflows

 

(507,889)

(368,162)

Net cash flow from operating activities

 

11,562

44,780

Cash flows from investing activities:

 

 

 

Cash received from disposal of investments

 

12,101

11,274

Cash received from returns on investments

 

4,676

5,463

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

 

39

6,542

Other cash received relating to investing activities

 

58,662

64,906

Sub-total of cash inflows

 

75,478

88,185

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

 

(25,419)

(23,615)

Cash paid for acquisition of investments

 

(19,726)

(12,044)

Other cash paid relating to investing activities

 

(61,762)

(90,732)

Sub-total of cash outflows

 

(106,907)

(126,391)

Net cash flow from investing activities

 

(31,429)

(38,206)

Cash flows from financing activities:

 

 

 

Cash received from borrowings

 

88,635

173,471

Other cash received relating to financing activities

 

136,030

105,890

Sub-total of cash inflows

 

224,665

279,361

Cash repayments of borrowings

 

(63,205)

(115,933)

Cash paid for dividends or interest

 

(19,812)

(25,548)

Other cash paid relating to financing activities

 

(127,904)

(121,353)

Sub-total of cash outflows

 

(210,921)

(262,834)

Net cash flow from financing activities

 

13,744

16,527

Effects of changes in foreign exchange rate

 

(1)

1

Net increase/(decrease) in cash and cash equivalents

 

(6,124)

23,102

Add: Cash and cash equivalents at the beginning of the year

 

28,081

15,984

Cash and cash equivalents at the end of the period

 

21,957

39,086

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED CONSOLIDATED STATEMENTOF CHANGES IN EQUITY

For the six-month period ended 30 June 2021

 

 

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 31 December 2019

121,071

122,127

(321)

1,741

207,423

287,128

739,169

137,736

876,905

Adjustment for business combination of entities
 under common control (Note 59)

-

737

-

-

-

59

796

673

1,469

Balance at 1 January 2020

121,071

122,864

(321)

1,741

207,423

287,187

739,965

138,409

878,374

Change for the period

 

 

 

 

 

 

 

 

 

1.   Net (loss)/profit

-

-

-

-

-

(23,001)

(23,001)

574

(22,427)

2.   Other comprehensive loss (Note 39)

-

-

(2,213)

-

-

-

(2,213)

(199)

(2,412)

Total comprehensive income

-

-

(2,213)

-

-

(23,001)

(25,214)

375

(24,839)

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

-

33

-

-

-

(5)

28

(14)

14

Balance at 30 June 2020

121,071

122,827

(2,300)

2,877

207,423

241,177

693,075

139,481

832,556

Balance at 1 January 2021

121,071

122,558

1,038

1,941

209,280

286,575

742,463

141,413

883,876

Change for the period

 

 

 

 

 

 

 

 

 

1.   Net profit

-

-

-

-

-

39,153

39,153

9,375

48,528

2.   Other comprehensive income (Note 39)

-

-

7,984

-

-

-

7,984

124

8,108

Total comprehensive (loss)/income

-

-

7,984

-

-

39,153

47,137

9,499

56,636

Amounts transferred to initial carrying amount
 of hedged items

-

-

(8,121)

-

-

-

(8,121)

(549)

(8,670)

Transactions with owners, recorded directly
 in shareholders' equity:

 

 

 

 

 

 

 

 

 

3.   Appropriations of profits:

 

 

 

 

 

 

 

 

 

- Distributions to shareholders (Note 54)

-

-

-

-

-

(15,739)

(15,739)

-

(15,739)

4.   Contributions from minority interests

-

-

-

-

-

-

-

559

559

5.   Transactions with minority interests

-

(1,384)

-

-

-

-

(1,384)

(6,818)

(8,202)

6.   Distributions to minority interests

-

-

-

-

-

-

-

(1,885)

(1,885)

Total transactions with owners, recorded directly
 in shareholders' equity

-

(1,384)

-

-

-

(15,739)

(17,123)

(8,144)

(25,267)

7.   Net increase in specific reserve for the period

-

-

-

778

-

-

778

175

953

8.   Others

-

20

-

-

-

-

20

(247)

(227)

Balance at 30 June 2021

121,071

121,194

901

2,719

209,280

309,989

765,154

142,147

907,301

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED STATEMENT OF CHANGES IN EQUITY

For the six-month period ended 30 June 2021

 

 

Share

capital

Other

comprehensive

income

Surplus

reserves

Total

shareholders'

equity

 

RMB million

RMB million

RMB million

RMB million

Balance at 1 January 2020

121,071

1,181

207,423

530,110

Change for the period

 

 

 

 

1.    Net loss

-

-

-

(19,557)

2.    Other comprehensive income

-

(2,685)

-

(2,685)

Total comprehensive income

-

(2,685)

-

(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)

Total transactions with owners, recorded
 directly in shareholders' equity

-

-

-

(23,004)

4.    Net increase in specific reserve for the period

-

-

-

458

5.    Others

-

-

-

(5)

Balance at 30 June 2020

121,071

(1,448)

207,423

485,373

Balance at 1 January 2021

121,071

5,910

209,280

522,275

Change for the period

 

 

 

 

1.    Net profit

-

-

-

7,886

2.    Other comprehensive income

-

5,954

-

5,954

Total comprehensive income

-

5,954

-

13,840

Amounts transferred to initial carrying amount
 of hedged items

-

(6,045)

-

(6,045)

Transactions with owners, recorded directly
 in shareholders' equity:

 

 

 

 

3.    Appropriations of profits:

 

 

 

 

- Distributions to shareholders (Note 54)

-

-

-

(15,739)

Total transactions with owners, recorded
 directly in shareholders' equity

-

-

-

(15,739)

4.    Net increase in specific reserve for the period

-

-

-

278

5.    Others

-

-

-

234

Balance at 30 June 2021

121,071

5,819

209,280

514,843

 

These financial statements have been approved for issue by the board of directors on 27 August 2021.

 

 

 

 

 

Ma Yongsheng

Shou Donghua

 

Director and President

Chief Financial Officer

 

 

The accompanying notes form part of these financial statements.

UNAUDITED NOTES TO THE FINANCIAL STATEMENTS

For the six-month period ended 30 June 2021

 

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 27 August 2021.

 

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 RMB98,249,084,000. 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 RMB1.00 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 2021, and the consolidated and company financial performance and the consolidated and company cash flows for the six-month period ended 30 June 2021.

 

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 fair value or cash flows are expected to offset changes in the fair value or 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 amount of the cash flow hedge reserve is adjusted to the lower of the following (in absolute amounts):

 

-    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.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(11)  Financial Instruments (Continued)

 

(d)  Derivative financial instruments and hedge accounting (Continued)

 

-    Cash flow hedges (Continued)

 

When the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (i.e. 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.

 

-    Fair value hedges

 

A fair value hedge is a hedge of the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, or a portion of such an asset, liability or firm commitment.

 

The gain or loss from remeasuring the hedging instrument is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the recognised hedged item not measured at fair value and is recognised in profit or loss.

 

Any adjustment to the carrying amount of a hedged item is amortised to profit or loss if the hedged item is a financial instrument (or a component thereof) measured at amortised cost. The amortisation is based on a recalculated effective interest rate at the date that amortisation begins.

 

(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, long-term deferred expenses 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.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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.

 

(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.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(15)  Income tax (Continued)

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.

 

(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.

 

3    SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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.

 

(m) the Company and the Joint ventures or associates of other members of the Company's holding company (including the holding company and the subsidiaries);and

 

(n)  joint ventures of the Company and other joint ventures or associates of the Company.

 

In addition to the related parties stated above, the Company determines related parties based on the disclosure requirements of Administrative Procedures on the Information Disclosures of Listed Companies issued by the CSRC.

 

(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.

 

Type of taxes

Tax rate

Tax basis and method

Value Added Tax (the "VAT")


 

13%, 9%, 6%


 

Based on taxable value added amount. Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less current period's deductible VAT input.

Resource Tax
 

6%
 

Based on the revenue from sales of crude oil and natural gas.

Consumption Tax





 

RMB2,109.76 per tonnage for Gasoline, RMB1,411.20 per tonnage for Diesel, RMB2,105.20 per tonnage for Naphtha, RMB1,948.64 per tonnage for Solvent oil, RMB1,711.52 per tonnage for Lubricant oil, RMB1,218.00 per tonnage for Fuel oil, and RMB1,495.20 per tonnage for Jet fuel oil.

Based on quantities





 

Corporate Income Tax

5% to 50%

Based on taxable income.

Crude Oil Special Gain Levy
 

20% to 40%
 

Based on the sales of domestic crude oil at prices higher than a specific level.

City Maintenance and
 Construction Tax

1%, 5% or 7%
 

Based on the actual paid VAT and consumption tax.
 

Education surcharges

3%

Based on the actual paid VAT and consumption tax.

Local Education surcharges

2%

Based on the actual paid VAT and consumption tax.

 

5    CASH AT BANK AND ON HAND

 

The Group

 

 

At 30 June 2021

At 31 December 2020

 

Original

 

 

Original

 

 

 

currency

Exchange

RMB

currency

Exchange

RMB

 

million

rates

million

million

rates

million

Cash on hand

 

 

 

 

 

 

Renminbi

 

 

1

 

 

8

Cash at bank

 

 

 

 

 

 

Renminbi

 

 

123,868

 

 

120,542

US Dollar

1,494

6.4601

9,653

1,054

6.5249

6,875

Hong Kong Dollar

3,214

0.8321

2,674

1,377

0.8416

1,159

EUR

1

7.6862

10

1

8.0250

8

Others

 

 

126

 

 

2,403

 

 

 

136,332

 

 

130,995

Deposits at related parities

 

 

 

 

 

 

Renminbi

 

 

17,969

 

 

23,737

US Dollar

5,371

6.4601

34,706

4,443

6.5249

28,993

EUR

57

7.6862

441

49

8.0250

394

Others

 

 

1,034

 

 

293

 

 

 

54,150

 

 

53,417

Total

 

 

190,482

 

 

184,412

 

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 2021, time deposits with financial institutions of the Group amounted to RMB112,368 million (31 December 2020: RMB96,853 million).

 

6    FINANCIAL ASSETS HELD FOR TRADING

 

 

At 30 June

At 31 December

 

2021

2020

 

RMB million

RMB million

Structured deposits

3,988

-

Equity investments, listed and at quoted market price

-

1

Total

3,988

1

 

The financial assets for trading are primarily the structured deposits with financial institutions, which are expected to be expired within 12 months.

 

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 63.

 

8    ACCOUNTS RECEIVABLE

 

 

The Group

The Company

 

At 30 June

At 31 December

At 30 June

At 31 December

 

2021

2020

2021

2020

 

RMB million

RMB million

RMB million

RMB million

Accounts receivable

75,614

39,447

26,158

21,871

Less: Allowance for doubtful accounts

3,771

3,860

98

108

Total

71,843

35,587

26,060

21,763

 

Ageing analysis on accounts receivable is as follows:

 

 

The Group

 

At 30 June2021

At 31 December 2020

 

 

 

 

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

70,642

93.4

2

-

34,626

87.8

117

0.3

Between one and two years

4,220

5.6

3,186

75.5

4,062

10.3

3,131

77.1

Between two and three years

182

0.2

82

45.1

149

0.4

85

57.0

Over three years

570

0.8

501

87.9

610

1.5

527

86.4

Total

75,614

100.0

3,771

 

39,447

100.0

3,860

 

 

 

The Company

 

At 30 June 2021

At 31 December 2020

 

 

 

 

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

25,814

98.7

-

-

21,647

99.0

1

-

Between one and two years

221

0.8

12

5.4

76

0.3

7

9.2

Between two and three years

30

0.1

2

6.7

49

0.2

13

26.5

Over three years

93

0.4

84

90.3

99

0.5

87

87.9

Total

26,158

100.0

98

 

21,871

100.0

108

 

 

At 30 June 2021 and 31 December 2020, the total amounts of the top five accounts receivable of the Group are set out below:

 

 

At 30 June

At 31 December

 

2021

2020

Total amount (RMB million)

19,515

15,628

Percentage to the total balance of accounts receivable

25.8%

39.6%

Allowance for doubtful accounts

-

2,057

 

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 63.

 

During for the six-month periods ended 30 June 2021 and 2020, 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 2021 and 2020, 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, The business model of receivables financing is to collect contract cash flow and sell it.

 

At 30 June 2021, the Group's derecognised but outstanding bills due to endorsement or discount amounted to RMB23,177 million (31 December 2020: RMB25,740 million).

 

At 30 June 2021, 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

 

2021

2020

2021

2020

 

RMB million

RMB million

RMB million

RMB million

Prepayments

8,385

4,939

4,600

2,637

Less: Allowance for doubtful accounts

68

77

12

11

Total

8,317

4,862

4,588

2,626

 

Ageing analysis of prepayments is as follows:

 

 

The Group

 

At 30 June 2021

At 31 December 2020

 

 

 

 

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

7,450

88.8

-

-

4,440

89.9

-

-

Between one and two years

558

6.7

6

1.1

267

5.4

20

7.5

Between two and three years

203

2.4

10

4.9

142

2.9

8

5.6

Over three years

174

2.1

52

29.9

90

1.8

49

54.4

Total

8,385

100.0

68

 

4,939

100.0

77

 

 

 

The Company

 

At 30 June 2021

At 31 December 2020

 

 

 

 

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

4,058

88.2

-

-

2,337

88.6

-

-

Between one and two years

398

8.7

6

1.5

159

6.0

7

4.4

Between two and three years

43

0.9

3

7.0

39

1.5

-

-

Over three years

101

2.2

3

3.0

102

3.9

4

3.9

Total

4,600

100.0

12

 

2,637

100.0

11

 

 

At 30 June 2021 and 31 December 2020, the total amounts of the top five prepayments of the Group are set out below:

 

 

At 30 June

At 31 December

 

2021

2020

Total amount (RMB million)

2,134

1,131

Percentage to the total balance of prepayments

25.5%

22.9%

 

11  OTHER RECEIVABLES

 

 

The Group

The Company

 

At 30 June

At 31 December

At 30 June

At 31 December

 

2021

2020

2021

2020

 

RMB million

RMB million

RMB million

RMB million

Other receivables

30,116

35,133

40,406

38,835

Less: Allowance for doubtful accounts

1,511

1,531

899

897

Total

28,605

33,602

39,507

37,938

 

Ageing analysis of other receivables is as follows:

 

 

The Group

 

At 30 June 2021

At 31 December 2020

 

 

 

 

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

18,906

62.8

51

0.3

23,888

68.1

51

0.2

Between one and two years

8,565

28.4

179

2.1

8,513

24.2

196

2.3

Between two and three years

1,021

3.4

48

4.7

1,169

3.3

84

7.2

Over three years

1,624

5.4

1,233

75.9

1,563

4.4

1,200

76.8

Total

30,116

100.0

1,511

 

35,133

100.0

1,531

 

 

 

The Company

 

At 30 June 2021

At 31 December 2020

 

 

 

 

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

24,031

59.5

-

-

21,378

55.0

-

-

Between one and two years

1,171

2.9

1

0.1

2,123

5.5

1

-

Between two and three years

1,729

4.3

2

0.1

1,618

4.2

5

0.3

Over three years

13,475

33.3

896

6.6

13,716

35.3

891

6.5

Total

40,406

100.0

899

 

38,835

100.0

897

 

 

At 30 June 2021 and at 31 December 2020, the total amounts of the top five other receivables of the Group are set out below:

 

 

At 30 June

At 31 December

 

2021

2020

Total amount (RMB million)

25,576

22,581

Ageing

Within one year,

between one

and two years,

between two and

three years and

over three years

Within one year,

between one

and two years,

between two and

three years and

over three years

Percentage to the total balance of other receivables

84.9%

64.3%

Allowance for doubtful accounts

73

-

 

During the six-month periods ended 30 June 2021 and 2020, 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 2021 and 2020, 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

 

2021

2020

 

RMB million

RMB million

Raw materials

88,869

60,155

Work in progress

13,972

13,053

Finished goods

96,164

78,415

Spare parts and consumables

3,601

3,372

 

202,606

154,995

Less: Provision for diminution in value of inventories

3,372

3,100

Total

199,234

151,895

 

During the six-month period ended 30 June 2021, 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 2021

55,018

136,872

(3,548)

188,342

Additions for the period

2,638

659

-

3,297

Share of profits less losses under the equity method

5,151

5,982

-

11,133

Change of other comprehensive income
 under the equity method

(29)

150

-

121

Other equity movements under the equity method

6

19

-

25

Dividends declared

(996)

(2,239)

-

(3,235)

Disposals for the period

(29)

(8)

-

(37)

Foreign currency translation differences

(141)

(84)

19

(206)

Other movements

-

247

-

247

Movement of provision for impairment

-

-

(35)

(35)

Balance at 30 June 2021

61,618

141,598

(3,564)

199,652

 

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 2021

266,939

14,762

69,540

(7,886)

343,355

Additions for the period

77

673

63

-

813

Share of profits less losses under the equity
 method

-

2,377

1,989

-

4,366

Change of other comprehensive income under the
 equity method

-

2

16

-

18

Other equity movements under the equity method

-

4

25

-

29

Dividends declared

-

(352)

(81)

-

(433)

Disposals for the period

(72)

-

-

-

(72)

Other movements

-

-

198

-

198

Movement of provision for impairment

-

-

-

(41)

(41)

Balance at 30 June 2021

266,944

17,466

71,750

(7,927)

348,233

 

For the six-month period ended 30 June 2021, 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.

 

13  LONG-TERM EQUITY INVESTMENTS (Continued)

 

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

 

(a)  Principal joint ventures and associates

 

 

 

 

 

 

Name of investees

Principal place

of business

Register location

Legal

representative

Principal activities

1. Joint ventures

 

 

 

 

Fujian Refining & Petrochemical

PRC

PRC

Gu Yuefeng

Manufacturing refining oil products

 Company Limited ("FREP")

 

 

 

 

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

PRC

PRC

Gu Yuefeng

Manufacturing and distribution of

 

 

 

 

 petrochemical products

Taihu Limited ("Taihu")

Russia

Cyprus

NA

Crude oil and natural gas extraction

Yanbu Aramco Sinopec Refining

Saudi Arabia

Saudi Arabia

NA

Petroleum refining and processing

 Company Ltd. ("YASREF")

 

 

 

 

Sinopec SABIC Tianjin Petrochemical

PRC

PRC

AHMED

Manufacturing and distribution of

 Company Limited ("Sinopec SABIC Tianjin")

 

 

AL-SHAIKH

 petrochemical products

2. Associates

 

 

 

 

National Petroleum Pipe Network Group Co.,

PRC

PRC

Zhang Wei

Operation of natural gas pipelines

 Ltd. ("National Pipe Network Group") (i)

 

 

 

 and auxiliary facilities

Sinopec Finance Company Limited

PRC

PRC

Jiang Yongfu

Provision of non-banking financial

 ("Sinopec Finance")

 

 

 

 services

PAO SIBUR Holding ("SIBUR") (i)

Russia

Russia

NA

Processing natural gas and

 

 

 

 

 manufacturing petrochemical

 

 

 

 

 products

Zhongtian Synergetic Energy Company Limited

PRC

PRC

Peng Yi

Mining coal and manufacturing of

 ("Zhongtian Synergetic Energy")

 

 

 

 coal-chemical products

Caspian Investments Resources Ltd. ("CIR")

Kazakhstan

The Republic of

NA

Crude oil and natural gas extraction

 

 

British Virgin Islands

 

 

 

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

 

(b)  Major financial information of principal joint ventures

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

 

 

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

 

At 30

At 31

At 30

At 31

At 30

At 31

At 30

At 31

At 30

At 31

 

June

December

June

December

June

December

June

December

June

December

 

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

6,702

7,448

2,645

1,838

1,279

1,280

979

1,408

6,172

5,259

Other current assets

10,459

7,492

6,439

4,777

1,527

1,223

10,453

7,516

3,660

2,665

Total current assets

17,161

14,940

9,084

6,615

2,806

2,503

11,432

8,924

9,832

7,924

Non-current assets

14,348

15,237

9,538

9,993

13,233

12,531

44,475

45,413

18,230

18,258

Current liabilities

 

 

 

 

 

 

 

 

 

 

Current financial liabilities

(1,240)

(1,203)

(20)

(456)

(37)

(38)

(9,028)

(9,520)

(607)

(998)

Other current liabilities

(4,949)

(5,147)

(2,512)

(2,190)

(1,641)

(1,043)

(11,628)

(8,644)

(4,264)

(3,052)

Total current liabilities

(6,189)

(6,350)

(2,532)

(2,646)

(1,678)

(1,081)

(20,656)

(18,164)

(4,871)

(4,050)

Non-current liabilities

 

 

 

 

 

 

 

 

 

 

Non-current financial liabilities

(8,148)

(8,761)

-

-

(94)

(85)

(30,086)

(29,650)

(7,915)

(6,773)

Other non-current liabilities

(241)

(235)

(35)

(42)

(1,488)

(2,017)

(1,785)

(2,008)

(377)

(378)

Total non-current liabilities

(8,389)

(8,996)

(35)

(42)

(1,582)

(2,102)

(31,871)

(31,658)

(8,292)

(7,151)

Net assets

16,931

14,831

16,055

13,920

12,779

11,851

3,380

4,515

14,899

14,981

Net assets attributable to
 shareholders of the Company

16,931

14,831

16,055

13,920

12,335

11,439

3,380

4,515

14,899

14,981

Net assets attributable to
 minority interests

 

-

-

-

444

412

-

-

-

-

Share of net assets

 from joint ventures

8,466

7,416

6,422

5,568

6,044

5,605

-

-

7,450

7,491

Carrying Amounts

8,466

7,416

6,422

5,568

6,044

5,605

-

-

7,450

7,491

 

13  LONG-TERM EQUITY INVESTMENTS (Continued)

 

(b)  Major financial information of principal joint ventures (Continued)

 

Summarised income statement

 

Six-month period ended 30 June

FREP

BASF-YPC

Taihu

YASREF

Sinopec SABIC Tianjin

 

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Revenue

22,263

18,852

12,776

6,195

6,847

4,426

28,009

15,977

11,645

6,168

Interest income

73

53

17

15

193

188

2

16

103

95

Interest expense

(210)

(278)

(3)

(8)

(42)

(126)

(484)

(626)

(46)

(66)

Profit/(Loss) before taxation

2,472

(1,625)

3,968

(538)

1,250

690

(1,829)

(2,437)

1,295

(132)

Tax expense

(618)

429

(991)

132

(246)

(185)

302

371

(377)

(6)

Profit/(Loss) for the period

1,854

(1,196)

2,977

(406)

1,004

505

(1,527)

(2,066)

918

(138)

Other comprehensive income

-

-

-

-

(352)

(1,019)

392

(15)

-

-

Total comprehensive income

1,854

(1,196)

2,977

(406)

652

(514)

(1,135)

(2,081)

918

(138)

Dividends from joint ventures

-

300

336

461

-

-

-

-

500

-

Share of net profit/(loss) from
 joint ventures

927

(598)

1,191

(162)

492

239

-

(775)

459

(69)

Share of other comprehensive
 income from joint ventures (ii)

-

-

-

-

(172)

(482)

-

(6)

-

-

 

The share of profit and other comprehensive income for the six-month period ended 30 June 2021 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB2,082 million (six-month period ended 30 June 2021: loss RMB236 million) and RMB143 million (six-month period ended 30 June 2020: loss RMB401 million) respectively. As at 30 June 2021, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB33,236 million (31 December 2020: RMB26,099 million).

 

(c)  Major financial information of principal associates

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

 

 

Pipe China

Sinopec Finance

SIBUR

Zhongtian Synergetic Energy

CIR

 

At 30

At 31

At 30

At 31

At 30

At 31

At 30

At 31

At 30

At 31

 

June

December

June

December

June

December

June

December

June

December

 

2021

2020

2021

2020

2021

2020

2021

2020

2021

2020

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Current assets

73,128

74,012

179,610

175,139

39,080

30,678

3,554

3,721

1,124

2,402

Non-current assets

729,413

655,982

52,889

53,008

138,264

147,140

51,368

53,124

756

903

Current liabilities

(69,132)

(55,562)

(201,059)

(197,872)

(33,213)

(31,157)

(8,491)

(8,315)

(722)

(699)

Non-current liabilities

(131,266)

(104,150)

(552)

(514)

(49,565)

(58,941)

(24,065)

(28,422)

(259)

(286)

Net assets

602,143

570,282

30,888

29,761

94,566

87,720

22,366

20,108

899

2,320

Net assets attributable to
 shareholders of the Company

517,329

505,336

30,888

29,761

93,300

87,280

22,366

20,108

899

2,320

Net assets attributable to
 minority interests

84,814

64,946

-

-

1,266

440

-

-

-

-

Share of net assets from associates

72,426

70,747

15,135

14,583

9,330

8,728

8,667

7,792

450

1,160

Carrying Amounts

72,426

70,747

15,135

14,583

9,330

8,728

8,667

7,792

450

1,160

 

Summarised income statement

 

Six-month period ended 30 June

Pipe China

Sinopec Finance

SIBUR

Zhongtian Synergetic Energy

CIR

 

 

2021

2021

2020

2021

2020

2021

2020

2021

2020

 

 

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

RMB million

Revenue

 

48,917

2,514

2,332

32,583

23,726

8,619

4,820

878

607

Profit/(loss) for the period

 

15,036

1,093

1,065

8,329

(2,681)

2,074

(525)

218

(43)

Other comprehensive income

 

-

34

(191)

1,057

(7,250)

-

-

(22)

198

Total comprehensive income

 

15,036

1,127

874

9,386

(9,931)

2,074

(525)

196

155

Dividends declared by associates

 

-

-

-

254

177

-

-

815

-

Share of net profit/(loss)

 from associates

 

1,625

536

522

531

(291)

804

(203)

109

(22)

Share of other comprehensive (loss)/
 income from associates (ii)

 

-

17

(94)

113

(802)

-

-

(11)

99

 

13  LONG-TERM EQUITY INVESTMENTS (Continued)

 

(c)  Major financial information of principal associates (Continued)

 

Summarised income statement (Continued)

 

The share of profit and other comprehensive loss for the six-month period ended 30 June 2021 in all individually immaterial associates accounted for using equity method in aggregate was RMB2,377 million (six-month period ended 30 June 2020: RMB1,603 million) and RMB31 million (six-month period ended 30 June 2020: RMB95 million) respectively. As at 30 June 2021, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB35,590 million (31 December 2020: RMB33,153 million).

 

Note:

 

(i)    Sinopec is able to exercise significant influence in National Pipe Network Group and SIBUR since Sinopec has a member in National Pipe Network Group and SIBUR's Board of Director.

 

(ii)   Including foreign currency translation differences.

 

14  FIXED ASSETS

 

The Group

 

 

At 30 June

At 31 December

 

2021

2020

 

RMB million

RMB million

Fixed assets (a)

580,689

589,247

Fixed assets pending for disposal

157

38

Total

580,846

589,285

 

(a)  Fixed assets

 

 

 

Oil

Equipment,

 

 

Plants and

and gas

machinery

 

 

buildings

properties

and others

Total

 

RMB million

RMB million

RMB million

RMB million

Cost:

 

 

 

 

Balance at 1 January 2021

136,445

757,592

986,094

1,880,131

Additions for the period

28

739

303

1,070

Transferred from construction in progress

2,016

14,967

18,114

35,097

Reclassifications

43

(32)

(11)

-

Decreases for the period

(660)

(202)

(3,960)

(4,822)

Exchange adjustments

(23)

(408)

(38)

(469)

Balance at 30 June 2021

137,849

772,656

1,000,502

1,911,007

Accumulated depreciation:

 

 

 

 

Balance at 1 January 2021

58,484

572,603

571,545

1,202,632

Additions for the period

2,251

17,247

23,662

43,160

Reclassifications

111

(28)

(83)