SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of August, 2005
CHINA PETROLEUM & CHEMICAL CORPORATION
A6, Huixindong Street,
Chaoyang District Beijing, 100029
People's Republic of China
Tel: (8610) 6499-0060
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F _____
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934. )
Yes ____ No ___X___
(If "Yes" is marked, indicate below the file number assigned to
registrant in connection with Rule 12g3-2(b): 82-__________.)
N/A
This Form 6-K consists of:
The 2005 Interim Results of China Petroleum & Chemical Corporation (the
"Registrant"), made by the Registrant in English on August 26, 2005.
CONTENTS
Company Profile 2
Principal Financial Data and Indicators 3
Changes in Share Capital and Shareholdings of Principal Shareholders 8
Business Review and Prospects 10
Management's Discussion and Analysis 16
Significant Events 28
Financial Statements 38
Documents for Inspection 110
Disclaimer
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,
estimates and business plans) are forward-looking statements. The actual
results or developments of the Company may differ materially from those
indicated by these forward-looking statements as a result of various factors
and uncertainties. The Company makes the forward-looking statements referred to
herein as at 26 August 2005 and, unless otherwise required by the relevant
regulatory authorities, undertakes no obligation to update these statements.
1
IMPORTANT NOTICE: THE BOARD OF DIRECTORS OF CHINA PETROLEUM & CHEMICAL
CORPORATION ("SINOPEC CORP.") AND THE DIRECTORS WARRANT THAT THERE ARE NO
MATERIAL OMISSIONS, OR MISREPRESENTATIONS OR MISLEADING STATEMENTS 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. MESSRS. MOU SHULING, GAO JIAN, FAN YIFEI, SHI WANPENG AND
ZHANG YOUCAI, DIRECTORS OF SINOPEC CORP., DID NOT ATTEND THE 19TH MEETING OF
THE SECOND SESSION OF THE BOARD FOR REASONS OF OFFICIAL DUTIES. MR. MOU
SHULING, DIRECTOR OF SINOPEC CORP., AUTHORISED MR. CAO XIANGHONG, DIRECTOR OF
SINOPEC CORP., MR. GAO JIAN, DIRECTOR OF SINOPEC CORP., AUTHORISED MR. CHEN
TONGHAI, CHAIRMAN OF THE BOARD, MR. FAN YIFEI, DIRECTOR OF SINOPEC CORP,
AUTHORISED MR. WANG JIMING, VICE CHAIRMAN OF THE BOARD, AND MESSRS, SHI WANPENG
AND ZHANG YOUCAI, DIRECTORS OF SINOPEC CORP., AUTHORISED MR. CHEN QINGTAI,
DIRECTOR OF SINOPEC CORP. RESPECTIVELY, TO VOTE ON THEIR BEHALF IN RESPECT OF
THE RESOLUTIONS PUT FORWARD IN THE 19TH MEETING OF THE SECOND SESSION OF THE
BOARD. MR. CHEN TONGHAI, CHAIRMAN OF THE BOARD, MR. WANG TIANPU, PRESIDENT, MR.
ZHANG JIAREN, DIRECTOR, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER AND
MR. LIU YUN, HEAD OF THE ACCOUNTING DEPARTMENT WARRANT THE AUTHENTICITY AND
COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED IN THIS INTERIM REPORT.
THE FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2005 OF SINOPEC
CORP. AND ITS SUBSIDIARIES ("THE COMPANY") PREPARED IN ACCORDANCE WITH THE PRC
ACCOUNTING RULES AND REGULATIONS, AND INTERNATIONAL FINANCIAL REPORTING
STANDARDS ("IFRS") HAVE BEEN AUDITED BY KPMG HUAZHEN AND KPMG, RESPECTIVELY,
AND BOTH FIRMS HAVE ISSUED STANDARD UNQUALIFIED OPINIONS ON THE FINANCIAL
STATEMENTS CONTAINED IN THIS INTERIM REPORT.
COMPANY PROFILE REPRESENTATIVE ON SECURITIES PLACES WHERE THE INTERIM REPORT IS
Sinopec Corp. is the first company in MATTERS AVAILABLE FOR INSPECTION
China listed on the stock exchanges in Mr. Huang Wensheng China: Board Secretariat
Hong Kong, New York, London and China Petroleum & Chemical
Shanghai, and is also an integrated REGISTERED ADDRESS, PLACE OF Corporation
energy and chemical company with BUSINESS AND CORRESPONDENCE 6A Huixindong Street,
upstream, midstream and downstream ADDRESS Chaoyang District, Beijing, PRC
operations. The principal operations of 6A Huixindong Street
the Company include: exploring for and Chaoyang District USA: Citibank, N.A.
developing, producing and trading crude Beijing, PRC 388 Greenwich St., 14th floor
oil and natural gas; processing crude Postcode: 100029 New York, NY 10013 USA
oil, producing petroleum products and Tel: 86-10-64990060
trading, transporting, distributing and Fax: 86-10-64990022 UK: Citibank N. A.
marketing petroleum products; Website: http://www.sinopec.com.cn Citigroup Centre
producing, distributing and trading Email: ir@sinopec.com.cn Canada Square
petrochemical products. Sinopec Corp.'s media@sinopec.com.cn Canary Wharf
basic information is as follows: London E14 5LB UK
PLACE OF BUSINESS IN HONG KONG
LEGAL NAME 12th Floor, Office Tower, Convention Plaza PLACES OF LISTING OF SHARES, STOCK
**[Chinese characters omitted] 1 Harbour Road, Wanchai, Hong Kong NAMES AND STOCK CODES
CHINESE ABBREVIATION NEWSPAPERS FOR INFORMATION A Shares: Shanghai Stock Exchange
**[Chinese characters omitted] DISCLOSURE Stock name:
Mainland China: Stock code: 600028
ENGLISH NAME China Securities News
China Petroleum & Chemical Corporation Shanghai Securities News H Shares: Hong Kong Stock Exchange
Securities Times Stock name: SINOPEC CORP
ENGLISH ABBREVIATION Stock code: 0386
Sinopec Corp. Hong Kong:
Hong Kong Economic Times ADSs: New York Stock Exchange
LEGAL REPRESENTATIVE South China Morning Post (English) Stock name: SINOPEC CORP
Mr. Chen Tonghai Stock code: SNP
INTERNET WEBSITE PUBLISHING INTERIM
AUTHORISED REPRESENTATIVES REPORT DESIGNATED BY THE CHINA London Stock Exchange
Mr. Wang Jiming, Mr. Chen Ge SECURITIES REGULATORY COMMISSION Stock name: SINOPEC CORP
http://www.sse.com.cn Stock code: SNP
SECRETARY TO THE BOARD OF
DIRECTORS
Mr. Chen Ge
2
PRINCIPAL FINANCIAL DATA AND INDICATORS
1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING
RULES AND REGULATIONS
(1) Financial Data and Indicators of the Company for the first half of 2005
At 30 June At 31 December Changes from the
Item 2005 2004 end of last year
RMB millions RMB millions (%)
Current assets 135,315 117,056 15.60
----------------------------------------------------------------------------------------
Current liabilities 151,747 143,910 5.45
Total assets 492,986 460,081 7.15
----------------------------------------------------------------------------------------
Shareholders' funds
(excluding minority interests) 197,571 186,350 6.02
----------------------------------------------------------------------------------------
Net assets per share
(RMB/share) (Fully diluted) 2.279 2.149 6.02
----------------------------------------------------------------------------------------
Adjusted net assets
per share (RMB/share) 2.210 2.102 5.14
----------------------------------------------------------------------------------------
Changes over
Item Six-month periods ended 30 June the same period
2005 2004 of the preceding year
RMB millions RMB millions (%)
Net profit 18,044 15,039 19.98
----------------------------------------------------------------------------------------
Net profit before
non-operating profits/losses 18,087 16,332 10.75
----------------------------------------------------------------------------------------
Return on net assets (%)
(Fully diluted) 9.13 8.73 4.58
----------------------------------------------------------------------------------------
Return on net assets (%)
(Weighted average) 9.29 8.82 5.33
----------------------------------------------------------------------------------------
Earnings per share
(RMB/share) (Fully diluted) 0.208 0.173 19.98
----------------------------------------------------------------------------------------
Earnings per share
(RMB/share)
(Weighted average) 0.208 0.173 19.98
----------------------------------------------------------------------------------------
Net cash flow from
operating activities 25,044 21,694 15.44
----------------------------------------------------------------------------------------
Six-month period
Items under non-operating profits/losses: ended 30 June 2005
RMB millions
Loss on disposal of long-term equity investments 1
-------------------------------------------------------------------------------
Written back of provisions on assets provided in
previous years (516)
-------------------------------------------------------------------------------
Non-operating expenses:
(excluding normal provisions on assets provided in
accordance with the Accounting Regulations for
Business Enterprises) 712
-------------------------------------------------------------------------------
Of which:Loss on disposal of fixed assets 109
-------------------------------------------------------------------------------
Employee reduction expenses 100
-------------------------------------------------------------------------------
Donations 128
-------------------------------------------------------------------------------
Non-operating income (133)
-------------------------------------------------------------------------------
Tax effect (21)
-------------------------------------------------------------------------------
Total 43
-------------------------------------------------------------------------------
3
(2) Appendix to income statement prepared in accordance with the PRC Accounting Rules and Regulations
Six-month period ended Six-month period ended
30 June 2005 30 June 2004
Return on net assets (%) Return on net assets (%)
Item Fully Weighted Fully Weighted
diluted average diluted average
Profit from principal operations 29.29 29.78 30.09 30.41
-----------------------------------------------------------------------------------------------------------------------------------
Operating profit 15.76 16.03 16.46 16.63
-----------------------------------------------------------------------------------------------------------------------------------
Net profit 9.13 9.29 8.73 8.82
-----------------------------------------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 9.15 9.31 9.48 9.58
-----------------------------------------------------------------------------------------------------------------------------------
Six-month period ended Six-month period ended
30 June 2005 30 June 2004
Earnings per share RMB Earnings per share RMB
Item Fully Weighted Fully Weighted
diluted average diluted average
Profit from principal operations 0.667 0.667 0.598 0.598
-----------------------------------------------------------------------------------------------------------------------------------
Operating profit 0.359 0.359 0.327 0.327
-----------------------------------------------------------------------------------------------------------------------------------
Net profit 0.208 0.208 0.173 0.173
-----------------------------------------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 0.209 0.209 0.188 0.188
-----------------------------------------------------------------------------------------------------------------------------------
(3) Significant changes of items in the financial statements
Descriptions and reasons for changes of financial data during the reporting period where the fluctuation is more
than 30%, or the fluctuation in such item represents 5% or more of the total assets or more than 10% of the profit
before tax.
At 30 At 31
June December Increase/(Decrease)
Item 2005 2004 Amount Percentage Analysis of Changes
RMB RMB RMB (%)
millions millions millions
Accounts receivable 15,247 9,756 5,491 56 Mainly due to the increase in income from
principal operations
-----------------------------------------------------------------------------------------------------------------------------------
Construction materials 984 430 554 129 Since more construction projects were
expected to commence after the end of the
period, purchase of construction material
increased
-----------------------------------------------------------------------------------------------------------------------------------
Accounts payable 34,152 23,792 10,360 44 Mainly due to the increase of crude oil prices
which resulted in an increase in accounts
payable for crude oil
-----------------------------------------------------------------------------------------------------------------------------------
Taxes payable 3,552 6,741 (3,189) (47) Please refer to Note 21 of the financial
statements prepared under the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 2,395 652 1,743 267 Mainly due to the increase in accrued and
unpaid production and operation costs
-----------------------------------------------------------------------------------------------------------------------------------
Current portion of Please refer to Note 25 of the financial
long term liabilities 7,245 14,298 (7,053) (49) statements prepared under the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 3 198 (195) (98) Please refer to Note 16 of the financial
statements prepared under the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
4
(3) Significant changes of items in the financial statements (Continued)
At 30 At 31
June December Increase/(Decrease)
Item 2005 2004 Amount Percentage Analysis of Changes
RMB RMB RMB (%)
millions millions millions
Income from principal 359,248 265,709 93,539 35.2 Please refer to Management's Discussion and
operations Analysis
-----------------------------------------------------------------------------------------------------------------------------------
Cost of sales 293,181 206,098 87,083 42.3 Please refer to Management's Discussion and
Analysis
-----------------------------------------------------------------------------------------------------------------------------------
Financial expenses 2,852 2,094 758 36.2 Please refer to Management's Discussion and
Analysis
-----------------------------------------------------------------------------------------------------------------------------------
Exploration expenses 3,355 2,475 880 35.6 Please refer to Management's Discussion and
Analysis
-----------------------------------------------------------------------------------------------------------------------------------
Investment (loss)/income (742) 516 (1,258) (243.8) Please refer to Note 36 of the financial
statements prepared under the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating expenses 1,109 4,952 (3,843) (77.6) Please refer to Note 37 of the financial
statements prepared under the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Unrecognised investment (113) 507 (620) (122.3) Mainly due to the written-back of
losses unrecognized investment losses exceeding the
carrying value of long-term equity investment
-----------------------------------------------------------------------------------------------------------------------------------
(4) Details of provisions for assets in the consolidated financial statements Unit: RMB millions
At the Increase Written Written At the
beginning in the back for off for end of
Item Lines of the period period the period the period the period
Allowance for doubtful accounts 1 7,167 294 (450) (9) 7,002
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Allowance for doubtful accounts
for trade accounts receivable 3,671 76 (194) (1) 3,552
-----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
for other receivables 3,496 218 (256) (8) 3,450
-----------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value
of short-term investments 2 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value
of inventories 3 906 131 (61) (40) 936
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses on
long-term investments 4 353 40 (5) (18) 370
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Long-term equity investments 353 40 (5) (18) 370
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses on
fixed assets 5 5,816 397 -- -- 6,213
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Land and buildings 331 -- -- -- 331
-----------------------------------------------------------------------------------------------------------------------------------
Oil and gas properties 783 -- -- -- 783
Oil depots, storage tanks and
service stations 1,249 5 -- -- 1,254
-----------------------------------------------------------------------------------------------------------------------------------
Plant, machinery, equipment and others 3,453 392 -- -- 3,845
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses on
intangible assets 6 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses on
construction in progress 7 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses on
entrusted loans 8 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total 14,242 862 (516) (67) 14,521
-----------------------------------------------------------------------------------------------------------------------------------
5
2 FINANCIAL DATA AND INDICATORS OF THE COMPANY FOR THE FIRST HALF OF 2005 FROM THE FINANCIAL STATEMENTS PREPARED
IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
Changes over
the same period
Six-month periods ended 30 June of the preceding
Item 2005 2004 year (%)
RMB millions RMB millions
Operating profit 33,682 28,562 17.93
-----------------------------------------------------------------------------------------------------------------------------------
Profit for the period attributable to equity holders of the parent 19,653 16,746 17.36
--------------------------------------------------------------------------------------------------------------------------------
Return on capital employed (%)* 6.17 6.13 0.04
percentage point
--------------------------------------------------------------------------------------------------------------------------------
Earnings per share (RMB/share) 0.227 0.193 17.36
--------------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 21,082 20,698 1.86
--------------------------------------------------------------------------------------------------------------------------------
* Return on capital employed = operating profit x (1 - income tax rate)/capital employed
At 30 June At 31 December Changes from the
Item 2005 2004 end of last year (%)
RMB millions RMB millions
Current assets 139,104 120,271 15.66
--------------------------------------------------------------------------------------------------------------------------------
Current liabilities 154,084 146,277 5.34
--------------------------------------------------------------------------------------------------------------------------------
Total assets 509,380 474,594 7.33
--------------------------------------------------------------------------------------------------------------------------------
Total equity attributable to equity holders of the parent 205,757 193,040 6.59
--------------------------------------------------------------------------------------------------------------------------------
Net assets per share (RMB/share) 2.373 2.226 6.59
--------------------------------------------------------------------------------------------------------------------------------
Adjusted net assets per share (RMB/share) 2.310 2.187 5.62
--------------------------------------------------------------------------------------------------------------------------------
3 DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS AND
INTERNATIONAL FINANCIAL REPORTING STANDARDS
(1) Analysis of the effects of major differences between the net profit under the PRC Accounting Rules
and Regulations and the profit for the period under IFRS
Six-month periods
ended 30 June
Item 2005 2004
RMB millions RMB millions
Net profit under the PRC Accounting Rules and Regulations 18,044 15,039
-----------------------------------------------------------------------------------------------------------------------------------
Adjustments:
-----------------------------------------------------------------------------------------------------------------------------------
Equity investment differences 1,169 --
-----------------------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures 442 (95)
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties 417 370
-----------------------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs, net of depreciation effect 216 247
-----------------------------------------------------------------------------------------------------------------------------------
Unrecognised losses of subsidiaries 113 (236)
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star 58 58
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants -- 899
-----------------------------------------------------------------------------------------------------------------------------------
Reduced amortisation on revaluation of land use rights 9 9
-----------------------------------------------------------------------------------------------------------------------------------
Reduced depreciation on government grants 1 --
-----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets -- 439
-----------------------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties, net of depreciation effect (209) 879
-----------------------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (607) (863)
-----------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,116 2,175
-----------------------------------------------------------------------------------------------------------------------------------
Profit for the period under IFRS 21,769 18,921
===================================================================================================================================
6
(2) Analysis of the effects of major differences between the shareholders' funds under the PRC Accounting Rules
and Regulations and the total equity under IFRS
At 30 June At 31 December
Item 2005 2004
RMB millions RMB millions
Shareholders' funds under the PRC Accounting Rules and Regulations 197,571 186,350
-------------------------------------------------------------------------------------------------------------------------
Adjustments:
-------------------------------------------------------------------------------------------------------------------------
Equity investment differences 1,169 --
-------------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (15) (457)
-------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties 12,012 11,595
-------------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs 1,821 1,605
-------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (2,637) (2,695)
-------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (968) (977)
Government grants (591) (592)
-------------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties 3,161 3,370
-------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (113) (113)
-------------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (5,653) (5,046)
-------------------------------------------------------------------------------------------------------------------------
Minority interests 29,019 31,046
-------------------------------------------------------------------------------------------------------------------------
Total equity under IFRS 234,776 224,086
=========================================================================================================================
7
CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
1 CHANGES IN THE SHARE CAPITAL OF SINOPEC CORP.
There were no changes in the total number of shares and equity structure of
Sinopec Corp. during the reporting period.
2 SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
As at 30 June 2005, there were a total of 287,800 shareholders of Sinopec
Corp., of which 277,530 were domestic holders of A Shares and 10,270 were
overseas holders of H Shares.
(1) Top ten shareholders as at 30 June 2005 Unit: 1,000 shares
Increase/ Number of Percentage at the end
decrease shares held Among Among the
during the at the end of total type of Nature of Pledges,
reporting the reporting share- shares Share- Type of lock-ups
Name of shareholders period period holdings held holders Shares held or trusts
China Petrochemical
Corporation ("Sinopec 0 58,885,561 67.92 87.73 State-owned shares Non-tradable 0
Group Company")
-----------------------------------------------------------------------------------------------------------------------------------
HKSCC (Nominees) Limited (2,848) 16,675,942 19.23 99.38 H shares Tradable Unknown
-----------------------------------------------------------------------------------------------------------------------------------
China Cinda Asset Management
Corp. 0 3,720,650 4.29 5.54 State-owned shares Non-tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
China Development Bank 0 2,632,570 3.04 3.92 State-owned shares Non-tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
China Orient Asset Management
Corp. 0 1,296,410 1.50 1.93 State-owned shares Non-tradable 0
GuoTai JunAn Corp.* 0 586,760 0.68 0.87 State-owned legal Non-tradable 293,380
person shares (pledged)/
38,230
(locked up)
-----------------------------------------------------------------------------------------------------------------------------------
3,442 3,442 0.00 0.12 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
China 50ETF 38,378 73,714 0.09 2.63 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
E FUND 50 Index Fund (8,656) 64,453 0.07 2.30 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Qingdao Port Authority 0 60,000 0.07 2.14 A shares Tradable 0
----------------------------------------------------------------------------------------------------------------------------------
CITIC Classic Allocation Fund (2,367) 56,338 0.06 2.01 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Explanation for the relationships The Company is not aware of any connection or actions in concert among the above
among the above shareholders or shareholders and is not aware of any pledges, lock-ups or trust of shareholdings of
actions in concert: holders of H Shares.
-----------------------------------------------------------------------------------------------------------------------------------
* The additional 3.442 million shares in this reporting period are tradable A shares purchased by Guo Tai Jun An Corp. on
the stock market, while the remainders are non-tradable shares. The pledged and locked-up shares are also non-tradable.
8
(2) Top ten shareholders with tradable shares as at 30 June 2005 Unit: 1,000 shares
Number of tradable
shares held
at end of the Nature of
Name of shareholders reporting period Shareholders
HKSCC (Nominees) Limited 16,675,942 H shares
-----------------------------------------------------------------------------------------------------------------------------------
China 50 ETF 73,714 A shares
-----------------------------------------------------------------------------------------------------------------------------------
E FUND 50 Index Fund 64,453 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Qingdao Port Authority 60,000 A shares
-----------------------------------------------------------------------------------------------------------------------------------
CITIC Classic Allocation Fund 56,338 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Fortis Haitong Income Investment Management 50,000 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Harvest Service Sector Fund 47,000 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Social Securities Fund 102 30,487 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Fortune SGAM Multi-strategy Growth Fund 29,856 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Jingfu Securities Investment Fund 29,303 A shares
-----------------------------------------------------------------------------------------------------------------------------------
Explanation for the relationships among the The Company is not aware of any connection or actions in concert among
above shareholders or actions in concert: the above shareholders and is not aware of any pledges, lock-ups or trust
of shareholdings of holders of H Shares.
-----------------------------------------------------------------------------------------------------------------------------------
(3) Information disclosed by the shareholders of H Shares according to the Securities and Futures Ordinance as at 30 June 2005
Approximate
percentage
Number of share of Sinopec Corp's
interests held interests
Name of shareholders Nature or regarded as held (H share) (%)
J.P. Morgan Chase & Co. Beneficial owner 317,923,000(L) 1.90(L)
Investment manager 290,220,905(L) 1.73(L)
Custodian corporation/ 560,683,942(L)(P) 3.34(L)(P)
approved lending agent,
Physically settled derivatives
-----------------------------------------------------------------------------------------------------------------------------------
Credit Suisse Group Corporate 1,076,046,844(L) 6.41(L)
Corporate 826,314,296(S) 4.92(S)
Lending pool 29,195,950(P) 0.17(P)
-----------------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. Beneficial owner 46,454,000(L) 0.28(L)
Investment manager 634,707,194(L) 3.78(L)
Others 347,184,277(L)(P) 2.07(L)(P)
-----------------------------------------------------------------------------------------------------------------------------------
Alliance Capital Management L.P. Corporate 1,006,311,601(L) 6.00(L)
-----------------------------------------------------------------------------------------------------------------------------------
Note: (L): Long position, (S): Short position, (P): Lending pool
3 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE EFFECTIVE CONTROLLERS
There was no change in the controlling shareholders or the effective
controllers during the reporting period.
9
BUSINESS REVIEW AND PROSPECTS
BUSINESS REVIEW
In the first half of 2005, China's economy maintained a steady growth and the
growth rate of GDP was 9.5%. Demand for petroleum and petrochemical products
continued to grow modestly. According to the Company's statistics, apparent
domestic consumption of refined oil products (i.e. gasoline, diesel and
kerosene including jet fuel) in the first half of this year increased by 5.56%
over that of the same period last year whilst the apparent domestic consumption
of petrochemical products (in terms of ethylene) increased by 5.70% over that
of the same period last year. During the same period, with the continued
fluctuation of international oil prices at high levels, the price of chemical
products maintained high despite of the decline compared with that of the
fourth quarter last year. Due to the tight control on domestic prices of
refined oil products, the price gap between domestic and overseas markets was
further widened. The Company flexibly responded to the changing markets through
optimizing resource allocation, rationalizing structure and intensifying
internal management. As a result, the oil and gas production increased
steadily. Major refining and petrochemical facilities were operated at a high
utilization rate. The sales of refined oil products increased steadily and
sales structure was further rationalized. Thanks to the joint efforts of all
the employees, the Company achieved sound results.
According to the PRC Accounting Rules and Regulations, in the first half of
2005, the Company's income from principal operations was RMB 359.2 billion, up
by 35.2% over that of the first half of 2004. The Company's net profit was RMB
18 billion, up by 20.0% over that of the first half of 2004. Based on the
number of shares outstanding at the end of the reporting period, earnings per
share was RMB 0.208. According to the International Financial Reporting
Standards, turnover and other operating revenues amounted to RMB 368.5 billion,
up by 31.9% over that of the first half of 2004. Profit attributable to equity
holders of the Company was RMB 19.7 billion, up by 17.4% over that of the first
half of 2004. Based on the number of shares outstanding at the end of the
reporting period, earnings per share was RMB 0.227.
The Board of Directors decided to distribute an interim dividend of RMB 0.04
per share for the first half of 2005, which is equivalent to RMB 4.00 per ADS.
1 PRODUCTION AND OPERATION
(1) Exploration and Production Segment
In the first half of 2005, the international crude oil prices continued its
climb to a higher level. The Platt's global Brent spot price averaged USD
51.40 per barrel, up by 52.75% over that of the first half of 2004. The
average crude price realized by the Company during the first half of 2005
was USD 39.40 per barrel, up by 33.02% over that of the same period last
year.
In the first half of 2005, in exploration, benefiting from theoretical and
technological innovations, the Company strengthened progressive exploration
and emphasized preliminary exploration in new blocks. Remarkable
exploration results were achieved in hidden oil and gas reserves in the
mature blocks in eastern China and important progress was achieved in the
exploration in southwestern China. In the first half of 2005, the newly
added proved geological crude oil reserves amounted to approximately 95.72
million tonnes, whilst the newly added proved natural gas geological
reserves were approximately 47.5 billion cubic meters. Since some
exploration wells were not completed, newly added proved oil and gas
reserves evaluated by the Company in accordance with SEC criteria declined
compared with those of the same period of last year. In development, a
number of key projects for production capacity building were started. In
production, by seizing the opportunity of high oil prices, the Company
carefully organized oil and gas production, stabilized production in mature
oilfields and increased production in new blocks. As a result, oil and gas
production increased steadily.
10
Summary of Operations of Exploration, Development and Production
Six-month periods
ended 30 June Changes
2005 2004 (%)
Crude oil production (million barrels) 136.69 135.85 0.62
-------------------------------------------------------------------------------------------------------------------------------
Natural gas production (billion cubic feet) 104.8 100.06 4.74
-------------------------------------------------------------------------------------------------------------------------------
Newly added proved crude oil reserves (million barrels) 85.69 124.40 (31.12)
-------------------------------------------------------------------------------------------------------------------------------
Newly added proved natural gas reserves (billion cubic feet) 518.1 872.74 (40.64)
-------------------------------------------------------------------------------------------------------------------------------
Proved crude oil reserves at the end of the reporting period
(million barrels) 3,216.2 3,245.73 (0.91)
-------------------------------------------------------------------------------------------------------------------------------
Proved natural gas reserves at the end of the reporting period
(billion cubic feet) 3,446.3 3,660.30 (5.85)
-------------------------------------------------------------------------------------------------------------------------------
Note: Crude oil production is converted at 1 tonne = 7.1 barrels, and natural gas production is converted at
1 cubic meter = 35.31 cubic feet.
(2) Refining Segment
In the first half of 2005, the Company adopted various measures to mitigate
the adverse impact brought by the tight control on domestic prices of
refined oil products. The Company strived to overcome the impact brought by
the comprehensive quality upgrading of refined products and the maintenance
of some refining facilities after long-term full-load operation. Through
strengthening operation management of the facilities, the Company achieved
full-load operation and met the market climate to the largest extent.
Through optimising resource procurement, allocation and transportation, the
Company increased the processing volume of sour and heavy crude based on
the price gap between sour and sweet crude and light and heavy crude in
order to reduce procurement cost. In addition, the Company constantly
improved processing plan and product mix, while making efforts to increase
the production of high value-added products and products of specific needs
of the market. Furthermore, focusing on technology advancement, the Company
further improved light yield and refining yield.
Summary of Operations of Refining
Six-month periods
ended 30 June Changes
2005 2004 (%)
Crude processing volume (million tonnes) 68.08 64.98 4.77
--------------------------------------------------------------------------------------------------------------------------------
Of which: Sour crude processing volume (million tonnes) 16.87 13.39 25.99
--------------------------------------------------------------------------------------------------------------------------------
Gasoline, diesel and kerosene (including jet fuel) output (million tonnes) 41.02 39.17 4.72
--------------------------------------------------------------------------------------------------------------------------------
Of which: Gasoline (million tonnes) 11.32 11.42 (0.88)
--------------------------------------------------------------------------------------------------------------------------------
Diesel (million tonnes) 26.31 24.72 6.43
--------------------------------------------------------------------------------------------------------------------------------
Kerosene including jet fuel (million tonnes) 3.39 3.03 11.88
--------------------------------------------------------------------------------------------------------------------------------
Light Chemical feedstock (million tonnes) 10.16 8.92 13.90
--------------------------------------------------------------------------------------------------------------------------------
Light yield (%) 74.24 74.06 0.18 percentage
point
--------------------------------------------------------------------------------------------------------------------------------
Refining yield (%) 93.11 93.10 0.01 percentage
point
-----------------------------------------------------------------------------------------------------------------------------------
Note:Crude processing volume is converted at 1 tonne = 7.35 barrels.
11
(3) Marketing and Distribution Segment
In the first half of 2005, by means of closely monitoring the changes of
the market, the Company increased procurement of refined oil products from
various channels to meet the domestic demand and achieved remarkable
increase in the total domestic sales volume of refined oil products. The
Company also proactively developed market, optimised sales structure and
further increased the volume of retail and direct sales. The portion of
retail and direct sales volume to the Company's total domestic sales volume
increased to 78.69% from 76.24% in the same period last year. At the same
time, the Company actively expanded and optimised the marketing network to
form a more rationalised network layout and resource flow.
The Company made new progress in promoting its petrol IC cards which have
been put in use in 13,000 petrol stations.
Summary of Operations of Marketing and Distribution
Six-month periods
ended 30 June Changes
2005 2004 (%)
Total domestic sales volume of refined
oil products (million tonnes) 50.77 45.49 11.61
------------------------------------------------------------------------------
Of which: Retail volume (million tonnes) 29.56 25.12 17.68
------------------------------------------------------------------------------
Direct sales volume (million tonnes) 10.39 9.56 8.68
------------------------------------------------------------------------------
Wholesale volume (million tonnes) 10.82 10.81 0.09
------------------------------------------------------------------------------
Average annual throughput per petrol station
(tonne/station) 2,200 1,986 10.78
------------------------------------------------------------------------------
Total number of petrol stations 30,352 30,682 (1.08)
------------------------------------------------------------------------------
Of which: Number of self-operated petrol
stations 26,870 25,306 6.18
------------------------------------------------------------------------------
Number of franchised petrol stations 3,482 5,376 (35.23)
(4) Chemicals Segment
In the first half of 2005, the Company seized the favorable opportunity of
chemical product prices and fully leveraged the newly built production
capacity. Operation management of facilities was reinforced to ensure safe,
stable, long-term, full-capacity and high quality operation of key
facilities. The production of ethylene and other major chemical products,
such as synthetic resins, synthetic rubbers and monomers and polymers for
synthetic fibers, was increased. The Company continued to reinforce product
mix improvement, and output of high value-added products, such as
performance compound of synthetic resins and differential fibers, was
further increased.
The Company actively carried out reform of the chemical marketing system.
On May 10th 2005, a chemical sales company was established to implement
unified coordination of chemical product sales, which was of great
importance in fully taking the overall advantages of the intensified
operation and erecting a unified market image to improve comprehensive
competitiveness and maximise the overall efficiency.
In the first half of 2005, the Company proactively pushed forward the
construction of new projects. The two joint venture ethylene projects of
BASF-YPC Company Limited ("BASF-YPC") and Shanghai Secco Petrochemical Co.,
Ltd. ("Shanghai Secco") were put into commercial operation on 28 June 2005
and 29 June 2005, respectively.
12
Production of Major Petrochemical Products (1) Unit: thousand tonnes
Six-month periods
ended 30 June Changes
2005 2004 (%)
Ethylene 2,434 2,081 16.96
--------------------------------------------------------------------------------
Synthetic resin 3,528 3,102 13.73
--------------------------------------------------------------------------------
Of which: Performance compound resin 1,689 1,545 9.32
--------------------------------------------------------------------------------
Synthetic fiber monomers and polymers 3,152 3,030 4.03
--------------------------------------------------------------------------------
Synthetic fiber 756 824 (8.25)
--------------------------------------------------------------------------------
Of which: Differential fiber 384 359 6.96
--------------------------------------------------------------------------------
Synthetic rubber 308 297 3.70
--------------------------------------------------------------------------------
Urea 998 1,322 (24.51)
--------------------------------------------------------------------------------
Note:
1. The operation data of the first half of 2004 and the first half of 2005
include that of the chemical assets acquired from Sinopec Group
Company and its subsidiaries (excluding the Company) ("Sinopec
Group") at the end of 2004.
2. 100% production of the two joint venture ethylene projects of
BASF-YPC and Shanghai Secco was included.
Production of Major Petrochemical Products (2) Unit: thousand tonnes
Six-month periods
ended 30 June Changes
2005 2004 (%)
Ethylene 2,434 1,863 30.65
--------------------------------------------------------------------------------
Synthetic resin 3,528 2,806 25.73
--------------------------------------------------------------------------------
Of which: Performance compound resin 1,689 1,478 14.28
--------------------------------------------------------------------------------
Synthetic fiber monomers and polymers 3,152 2,443 29.02
--------------------------------------------------------------------------------
Synthetic fiber 756 641 17.94
--------------------------------------------------------------------------------
Of which: Differential fiber 384 289 32.87
--------------------------------------------------------------------------------
Synthetic rubber 308 297 3.70
--------------------------------------------------------------------------------
Urea 998 1,322 (24.51)
--------------------------------------------------------------------------------
Note:
1. The operation data of the first half of 2004 exclude that of the chemical
assets acquired from Sinopec Group at the end of 2004, and the operation
data of the first half of 2005 include the chemical assets acquired from
Sinopec Group in 2004.
2. 100% production of the two joint venture ethylene projects of BASF-YPC and
Shanghai Secco was included.
13
2 COST REDUCTION
In the first half of 2005, the Company adopted a series of measures to
reduce costs: optimising resource allocation and fully leveraging the
modern logistics system to reduce transportation costs; further increasing
the processing volume of sour and heavy crude to reduce procurement costs;
and optimising the operation of facilities to cut down material and energy
consumption. In the first half of 2005, the Company reduced total costs of
RMB 1.282 billion, including RMB 285 million from Exploration and
Production Segment, RMB 365 million from Refining Segment, RMB 230 million
from Marketing and Distribution Segment and RMB 402 million from Chemicals
Segment. In addition, the Company further carried out measures aiming at
improving efficiencies through staff reduction in the first half of 2005,
and the total number of net head count reduction amounted to 20,500, of
which, a net reduction number of 12,000 were reduced through spin-off of
down-hole operation services and the acquisition of selected assets from
Sinopec Group, and the relevant staff reduction expenses of which were
recorded in the expenditure of 2004.
3 CAPITAL EXPENDITURE
In the first half of 2005, the Company's total capital expenditure was RMB
22.550 billion, accounting for 36.4% of the total planned capital
expenditure of RMB 62.0 billion for the year. The capital expenditure in
Exploration and Production Segment totaled RMB 10.077 billion: the Company
achieved a number of important exploration results through strengthening
progressive exploration and preliminary exploration in new blocks. The
newly built production capacity of crude oil and natural gas was 2.712
million tonnes per year and 0.9 billion cubic meters per year respectively.
The capital expenditure in Refining Segment was RMB 3.451 billion: the
construction of the second phase of Ningbo-Shanghai-Nanjing crude oil
pipeline was close to completion; the construction of Yizheng-Changling
crude oil pipeline started; and a number of refining revamping and
expansion projects were progressing smoothly. The capital expenditure in
Chemicals Segment was RMB 2.242 billion: the second round of Maoming
ethylene expansion project and the fertilizer facilities revamping projects
in Jinling and other ferlilizers were proceeding as planned. The capital
expenditure in Marketing and Distribution Segment was RMB 6.384 billion:
part of the refined oil product pipeline in southwest China was put into
operation, and the construction, acquisition and revamping of petrol
stations were carried out according to schedule. The capital expenditure
for Corporate and Others amounted to RMB 396 million.
In addition, the total capital expenditure for jointly controlled entities
such as Shanghai Secco amounted to RMB 1.854 billion.
14
BUSINESS PROSPECTS
Looking into the second half of 2005, international crude price is expected to
fluctuate at a high level and the global refining and chemical industry will
remain at a high level of the cycle. For the domestic market, China's economy
will continue to grow rapidly and demands for petroleum and petrochemical
products will increase steadily. The adjustment of China's exchange rate regime
and minor appreciation of RMB on July 21st 2005 was conducive to lowering the
Comapny's crude procurement cost and likely to reduce the import price of
chemical products. In addition, it is expected that the Chinese government
shall continue to exert austere control over refined oil product prices during
the second half of the year.
Confronted with the complicated market situation, the Company will adopt
flexible operating strategies, take the initiative in production and management
and minimise operational risks. The Company will focus on the work in the
following aspects:
In Exploration and Production Segment, the Company intends to conscientiously
implement its resource strategy, accelerate exploration and development, and
make efforts to realise 100% replacement ratio for the whole year. In addition,
the Company will focus on the production capacity construction in Tahe Oilfield
in western China and Shengli Oilfield shallow water blocks in eastern China.
Seizing the favorable opportunity of high crude price, the Company will
appropriately increase the production of high cost crude oil and proactively
develop natural gas market. In the second half of 2005, the Company plans to
produce 140.2 million barrels of crude oil and 109.0 billion cubic feet of
natural gas.
In Refining Segment, the Company will closely follow the changes of
international crude oil market, adhere to the strategy of diversified sources
of crude, and strive to increase the procurement and refining volume of sour
and heavy crude to reduce cost. Meanwhile, the Company will make full use of
crude oil pipelines and optimise the resource flow and allocation to reduce the
cost of storage and transportation. Based on market demands, the Company will
optimise refining plan and product mix to increase the production of high
value-added products. Furthermore, the Company plans to reinforce the process
technology management of facilities to ensure safe, stable, and full-load
operation. In the second half of 2005, the Company plans to process 72.0
million tonnes of crude oil.
In Marketing and Distribution Segment, the Company will conscientiously monitor
the market trend and strive to expand total sales volume of refined products
through active sales promotion. In addition, the Company will strengthen the
operation management of petrol stations, and further increase the throughput
per station and the retail plus direct sales proportion by means of improving
service quality. The Company will bring modern logistics into full play, and
optimise resource allocation to further reduce storage and transportation
costs. Furthermore, the Company attempts to accelerate the construction of
refined oil product pipelines and petrol stations in key areas while
rationalising the layout of depots and marketing network. The application of IC
cards will be expedited to realise the target of "One card, all Sinopec
stations". In the second half of 2005, the Company will target its total
domestic sales volume of refined oil products at 52.00 million tonnes,
including 30.40 million tonnes of retail volume and 10.60 million tonnes of
direct sales volume.
In the Chemicals Segment, the Company will fully exploit the newly added
chemical production capacity and maintain full-load operation of major
facilities to expand production of major chemicals. Following the market trend,
the Company will make efforts to increase the output of products catering for
the market and the production of performance compound for synthetic resins and
differential fibers. In addition, the Company will give full play to the newly
established chemical sales company to enhance the overall advantages of
chemical production and marketing competitiveness. In the second half of 2005,
the Company plans to produce 2.75 million tonnes of ethylene.
In the second half of 2005, fully aware of the current favorable conditions and
austere challenges, we will continue to adhere to the operation guidelines
featuring "reform, adjustment, innovation and development", make use of various
favorable opportunities, spare no efforts to fulfill the production and
operation objectives and maintain a sound operational results to lay a solid
foundation for the long-term and sustainable development of the Company.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. THE
FINANCIAL INFORMATION PRESENTED IN THIS SECTION ARE DERIVED FROM THE COMPANY'S
AUDITED FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED IN ACCORDANCE WITH IFRS.
1 CONSOLIDATED RESULTS OF OPERATIONS
In the first half of 2005, the Company's turnover and other operating
revenues were RMB 368.5 billion and the operating profit was RMB 33.7
billion, representing an increase of 31.9% and 17.9% over the same period
of 2004 respectively. These results are largely attributable to the
significant increase in international crude price, high prices of chemical
products and steady growth of the domestic economy. By seizing the
favorable opportunities, the Company proactively developed the market,
maintained steady growth in oil and gas production and further increased
the production of chemical products and sales volume of refined oil
products, optimised crude processing structure, intensified corporate
management and strived to relieve the pressure brought by the soaring crude
price. Thus, good operation results were achieved.
The following table lists the major items in the consolidated income
statement of the Company for the indicated periods:
Six-month periods
ended June 30
2005 2004 Changes
RMB millions (%)
Turnover and other operating revenues 368,454 279,445 31.9
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Turnover 359,248 269,601 33.3
-----------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 9,206 9,844 (6.5)
-----------------------------------------------------------------------------------------------------------------------------------
Operating expenses (334,772) (250,883) 33.4
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Purchased crude oil, products, and operating supplies
and expenses (283,036) (198,158) 42.8
-----------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses (15,510) (14,859) 4.4
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation (15,155) (15,399) (1.6)
-----------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes (3,355) (2,475) 35.6
-----------------------------------------------------------------------------------------------------------------------------------
Personnel expenses (8,536) (8,716) (2.1)
-----------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses (100) (412) (75.7)
-----------------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax (8,204) (7,833) 4.7
-----------------------------------------------------------------------------------------------------------------------------------
Other operating expenses, net (876) (3,031) (71.1)
-----------------------------------------------------------------------------------------------------------------------------------
Operating profit 33,682 28,562 17.9
===================================================================================================================================
Net finance costs (2,566) (2,079) 23.4
-----------------------------------------------------------------------------------------------------------------------------------
Investment income and share of profits less losses from associates 598 455 31.4
Profit before taxation 31,714 26,938 17.7
-----------------------------------------------------------------------------------------------------------------------------------
Taxation (9,945) (8,017) 24.0
-----------------------------------------------------------------------------------------------------------------------------------
Profit for the period 21,769 18,921 15.1
-----------------------------------------------------------------------------------------------------------------------------------
Attributable to: Equity holders of the parent 19,653 16,746 17.4
-----------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,116 2,175 (2.7)
====================================================================================================================================
16
(1) Turnover and other operating revenues
In the first half of 2005, the Company's turnover and other operating
revenues were RMB 368.5 billion. Of which, turnover was RMB 359.2 billion,
up by 33.3% over the first half of 2004. This was mainly due to the fact
that prices of crude oil and petrochemical products in the global market
increased compared with those in the same period last year, and that the
Company increased sales volume of petrochemical products and optimised
sales structure. In the first half of 2005, the Company's other operating
revenues was RMB 9.2 billion, down by 6.5% over the first half of 2004.
This was mainly due to the decrease of sales revenue from its sale of raw
and auxiliary materials to Sinopec Group and to third parties.
Most of crude oil and a small portion of natural gas produced by the
Company were internally used for its refining and chemical production. The
remaining was sold to the refineries owned by Sinopec Group and other
customers. In the first half of 2005, external sales revenues of crude oil
and natural gas amounted to RMB 8.7 billion, up by 17.3% over the first
half of 2004, accounting for 2.4% of the Company's turnover and other
operating revenues, which mainly due to increased prices of crude oil and
expanded business of nature gas.
The Company's Refining Segment and Marketing and Distribution Segment sell
petroleum products (mainly consisting of gasoline, diesel, jet fuel,
kerosene and other refined petroleum products) to third parties. In the
first half of 2005, the external sales revenue of petroleum products by
these two segments were RMB 243.8 billion, accounting for 66.2% of the
Company's turnover and other operating revenues, representing an increase
of 31.7% compared with that in the first half of 2004. The increase was
mainly due to the increased gasoline, diesel and naphtha prices and also
due to the Company's proactive efforts in increasing sales volume,
optimising sales structure and expanding the market of other refined
petroleum products. The sales revenue of gasoline, diesel and kerosene was
RMB 185.7 billion, accounting for 76.2% of the total sales revenue of
petroleum products, representing an increase of 29.7% over that in the same
period in 2004. The sales revenue of other refined petroleum products was
RMB 58.1 billion, accounting for 23.8% of the total sales revenue of
petroleum products, representing an increase of 38.7% compared with the
first half of 2004.
The following table lists the Company's principal external sales volume and
average realised prices, and changes between the first half of 2005 and the
first half of 2004:
Sales Volumes Average Realised Prices
(thousand tonnes) (RMB/tonne)
Six-month period Six-month period
ended June 30 Changes ended June 30 Changes
2005 2004 (%) 2005 2004 (%)
Crude oil 2,569 3,019 (14.9) 2,367 1,679 41.0
------------------------------------------------------------------------------------------------------------------------------
Natural gas (million cubic
meters, RMB/thousand cubic
metres) 1,962 1,767 11.0 658 601 9.5
------------------------------------------------------------------------------------------------------------------------------
Gasoline 14,609 13,266 10.1 4,151 3,580 15.9
------------------------------------------------------------------------------------------------------------------------------
Diesel 32,571 29,096 11.9 3,514 3,044 15.4
------------------------------------------------------------------------------------------------------------------------------
Kerosene including jet fuel 3,086 2,633 17.2 3,414 2,710 26.0
------------------------------------------------------------------------------------------------------------------------------
Basic chemical feedstock 3,836 3,242 18.3 4,948 3,644 35.8
------------------------------------------------------------------------------------------------------------------------------
Synthetic fiber monomer and
polymer 1,412 1,364 3.5 9,026 7,378 22.3
------------------------------------------------------------------------------------------------------------------------------
Synthetic resin 2,898 2,667 8.7 9,144 7,337 24.6
------------------------------------------------------------------------------------------------------------------------------
Synthetic fiber 784 878 (10.7) 11,499 10,300 11.6
------------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 303 299 1.3 12,394 9,301 33.3
------------------------------------------------------------------------------------------------------------------------------
Chemical fertilizer 1,004 1,287 (22.0) 1,463 1,327 10.2
------------------------------------------------------------------------------------------------------------------------------
The Company's external sales revenue of chemical products was RMB 74.7
billion, accounting for 20.3% of its turnover and other operating revenues,
representing an increase of 29.5% compared with that in the first half of
2004. The increase was mainly due to the fact that the Company captured the
favorable opportunity of the high chemical product prices and increased
sales volume.
(2) Operating expenses
In the first half of 2005, the Company's operating expenses were RMB 334.8
billion, up by 33.4% over the first half of 2004. The operating expenses
mainly consisted of the following:
Purchased crude oil, products and operating supplies and expenses
The Company's purchase of crude oil, products and operating supplies and
expenses were RMB 283.0 billion, up by 42.8% over the first half of 2004,
accounting for 84.5% of the operating expenses, of which:
Purchase of crude oil was RMB 148.3 billion, up by 44.3% over the first
half of 2004, accounting for 44.3% of the total operating expenses, up by
3.3 percentage point over the first half of 2004.
17
To meet the increasing demands in the market associated with the rapid
growth of the domestic economy, the Company increased its throughput of
crude oil purchased from third parties. In the first half of 2005, the
throughput of the Company's crude oil purchased externally was RMB 52.44
million tonnes (excluding amounts processed for third parties),
representing an increase of 7% compared with the same period in 2004.
Average cost for crude oil purchased externally in the first half of 2005
was RMB 2,828 per tonne (approximately USD 46.46 per barrel), representing
an increase of 34.8% compared with that in the first half of 2004.
In the first half of 2005, the Company's other purchasing expenses were RMB
134.7 billion, up by 41.2% over the first half of 2004, accounting for
40.2% of the total operating expenses. This increase was mainly due to the
increased costs of outsourced refined oil products and chemical feedstock.
Selling, general and administrative expenses
In the first half of 2005, the Company's selling, general and
administrative expenses were RMB 15.5 billion, up by 4.4% over the first
half of 2004. This increase was mainly due to the increase in sales
expenses, such as the costs of transportation, as a result of the increase
in the sales volume of refined oil products and the increased proportion of
retail and direct sales volume over total sales volume of refined oil
products.
Depreciation, depletion and amortisation
In the first half of 2005, the Company's depreciation, depletion and
amortisation were RMB 15.2 billion, down by 1.6% compared with the first
half of 2004. The decrease was mainly due to the decrease in depreciation
as a result of the Company's disposal of less efficient assets and
provision for impairment loss on some less efficient facilities in the
previous years.
Exploration expenses
In the first half of 2005, the Company's exploration expenses were RMB 3.4
billion, representing an increase of 35.6% compared with the first half of
2004. The increase was mainly due to the fact that the Company increased
exploration activities in major new blocks in the western and southern
parts of China.
Personnel expenses
In the first half of 2005, the Company's personnel expenses were RMB 8.5
billion, representing a decrease of 2.1% compared with the first half of
2004. The decrease was largely due to the decreased personnel expenses of
employees as a result of the disposal of the downhole operation in 2004.
Employee reduction expenses
In the first half of 2005, in accordance with the Company's voluntary
employee reduction plan, the Company recorded employee reduction expenses
of approximately RMB 0.1 billion relating to the reduction of approximately
1,800 employees, down by RMB 0.3 billion compared with that in the first
half of 2004.
Taxes other than income tax
In the first half of 2005, the Company's taxes other than income tax were
RMB 8.2 billion, up by 4.7% over the first half of 2004. The increase was
mainly attributable to the increase of consumption tax and surcharges as a
result of the increase in sales volume of gasoline and diesel of the
Company.
Other operating expenses
In the first half of 2005, the Company's other operating expenses (net)
were RMB 0.9 billion, down by 71.1% compared with the first half of 2004.
This was mainly due to the impairment losses on long-lived assets decreased
by RMB 1.9 billion compared with the first half of 2004 and the loss on
disposals of assets decreased by RMB 0.4 billion.
(3) Operating profit
In the first half of 2005, the Company's operating profit was RMB 33.7
billion, up by 17.9% over the first half of 2004.
(4) Net finance costs
In the first half of 2005, the Company's net finance costs were RMB 2.6
billion, up by 23.4% compared with those in the first half of 2004, which
was mainly due to the increase in interest expenses, as a result of the
increase in long-term loan to finance investment, as well as other factors,
such as the increased prices of crude oil, which led to an increase in
short-term loan as a result of more capital being employed by operating
activities, such as inventories.
(5) Profit before taxation
In the first half of 2005, the Company's profit before taxation was RMB
31.7 billion, up by 17.7% over the first half of 2004.
(6) Taxation
In the first half of 2005, the Company's income tax was RMB 9.9 billion, up
by 24.0% over the first half of 2004.
(7) Profit attributable to minority interests
In the first half of 2005, the Company's profit attributable to minority
interests were RMB 2.1 billion, down by 2.7% compared with the first half
of 2004.
(8) Profit attributable to equity holders of the parent
In the first half of 2005, the Company's profit attributable to equity
holders of the parent was RMB 19.7 billion, up by 17.4% over the first half
of 2004.
18
2 DISCUSSION ON RESULTS OF SEGMENT OPERATIONS
The Company divides its operations into four business segments (Exploration
and Production Segment, Refining Segment, Marketing and Distribution
Segment and Chemicals Segment) and Corporate and Others. Unless otherwise
specified, the financial data discussed in the section have not eliminated
inter-segment transactions. In addition, the operating revenue data of each
segment include other operating revenues of the segment.
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 As a percentage of
consolidated operating consolidated operating
revenues before elimination revenues after elimination
of inter-segment sales of inter-segment sales
Six-month periods Six-month periods Six-month periods
ended June 30 ended June 30 ended June 30
2005 2004 2005 2004 2005 2004
RMB millions % %
Exploration and Production Segment
-----------------------------------------------------------------------------------------------------------------------------------
External sales* 12,278 10,920 2.0 2.4 3.3 3.9
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 35,745 26,316 5.9 5.7
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 48,023 37,236 7.9 8.1
===============================================================================================================================
Refining Segment
-------------------------------------------------------------------------------------------------------------------------------
External sales* 38,934 30,915 6.4 6.7 10.6 11.1
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 172,035 130,319 28.4 28.5
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 210,969 161,234 34.8 35.2
===============================================================================================================================
Marketing and Distribution Segment
-----------------------------------------------------------------------------------------------------------------------------------
External sales* 207,296 156,901 34.1 34.2 56.2 56.1
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 1,320 1,334 0.2 0.3
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 208,616 158,235 34.3 34.5
===============================================================================================================================
Chemicals Segment
-----------------------------------------------------------------------------------------------------------------------------------
External sales* 77,681 60,434 12.8 13.2 21.1 21.6
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 8,335 4,794 1.4 1.0
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 86,016 65,228 14.2 14.2
===============================================================================================================================
Corporate and others segment
-----------------------------------------------------------------------------------------------------------------------------------
External sales* 32,265 20,275 5.3 4.4 8.8 7.3
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 21,228 16,552 3.5 3.6
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 53,493 36,827 8.8 8.0
===============================================================================================================================
Operating revenues before elimination
of inter-segment sales 607,117 458,760 100.0 100.0
===============================================================================================================================
Elimination of inter-segment sales (238,663) (179,315)
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated operating revenues 368,454 279,445 100.0 100.0
===================================================================================================================================
* Including other operating revenues
19
The following table shows the operating revenues, operating expenses and
operating profit by each segment before elimination of the inter-segment
transactions for the periods indicated, and the percentage change from the
first half of 2004 to the first half of 2005:
Six-month periods
ended June 30
2005 2004 Changes
RMB millions %
Exploration and Production Segment
------------------------------------------------------------------------------
Operating revenue 48,023 37,236 29.0
--------------------------------------------------------------------------
Operating expenses 30,228 26,716 13.1
--------------------------------------------------------------------------
Operating profit 17,795 10,520 69.2
==========================================================================
Refining Segment
------------------------------------------------------------------------------
Operating revenue 210,969 161,234 30.8
--------------------------------------------------------------------------
Operating expenses 212,265 156,947 35.2
--------------------------------------------------------------------------
Operating profit (1,296) 4,287 (130.2)
==========================================================================
Marketing and Distribution Segment
------------------------------------------------------------------------------
Operating revenue 208,616 158,235 31.8
--------------------------------------------------------------------------
Operating expenses 201,973 149,666 34.9
--------------------------------------------------------------------------
Operating profit 6,643 8,569 (22.5)
==========================================================================
Chemicals Segment
------------------------------------------------------------------------------
Operating revenue 86,016 65,228 31.9
--------------------------------------------------------------------------
Operating expenses 75,201 59,223 27.0
--------------------------------------------------------------------------
Operating profit 10,815 6,005 80.1
==========================================================================
Corporate and others segment
--------------------------------------------------------------------------------
Operating revenue 53,493 36,827 45.3
----------------------------------------------------------------------------
Operating expenses 53,768 37,646 42.8
----------------------------------------------------------------------------
Operating profit (275) (819) (66.4)
================================================================================
(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
crude oil produced by the Company were sold to refineries owned by Sinopec
Group and third party customers.
In the first half of 2005, the operating revenues of this segment were RMB
48.0 billion, up by 29.0% over the first half of 2004, which was mainly due
to the increase in sales volume and the realised price of crude oil over
those in the first half of 2004.
In the first half of 2005, this segment sold 17.97 million tonnes of crude
oil, up by 0.1% over the first half of 2004. 2 billion cubic meters of
natural gas were sold, up by 9.9% over the first half of 2004. The average
realised price of crude oil was RMB 2,316 per tonne (approximately USD
39.4/barrel) up by 33.0% over the first half of 2004; the average realised
price of natural gas was RMB 660 per thousand cubic meters, increased by
8.8% over the first half of 2004.
In the first half of 2005, the operating expenses of this segment were RMB
30.2 billion, up by 13.1% over the first half of 2004. This was mainly due
to the following reasons:
o The rise in fuel and power costs as a result of the increase in oil and
gas production and fuel prices, resulting in an increase in the
operating expenses by approximately RMB 1.4 billion compared with the
first half of 2004;
o Exploration expenses, including dry holes, were up by RMB 0.9 billion
compared with the first half of 2004, which was mainly due to the fact
that the Company increased exploration activities at major new blocks
in the western and southern parts of China;
o Increase in enhanced oil recovery activities and other operating
expenses including cost of sales of materials were up by RMB 0.6
billion compared with the first half of 2004;
o The Company endeavored to increase oil and gas production during the
period of high oil prices, increased workload and repaired suspended
wells, as a result, the downhole operation expense was up by RMB 0.3
billion compared with the first half of 2004;
o Due to the increase in crude oil prices and the sales revenues of crude
oil increased accordingly, as a result, the natural resources
compensation fee, city construction tax and education surcharge were
increased by RMB 0.2 billion.
In the first half of 2005, due to the increases in water and electricity
costs associated with the production of oil and gas and the increase in
enhanced oil recovery activities in order to maintain a steady increase in
oil and gas production, the lifting cost of crude oil and natural gas
increased by 11.1% from USD 6.28 per barrel in the first half of 2004 to
USD 6.98 per barrel in the first half of 2005.
In the first half of 2005, operating profit for the Exploration and
Production Segment was RMB 17.8 billion, up by 69.2% over the first half of
2004.
(2) Refining Segment
The business activities of the Refining Segment consist of purchasing crude
oil from the Exploration and Production Segment and third parties,
processing crude oil into refined petroleum products, selling gasoline,
diesel and kerosene including jet fuel to the Marketing and Distribution
Segment, and selling other refined petroleum products to domestic and
overseas customers.
In the first half of 2005, the segment's operating revenues were RMB 211.0
billion, up by 30.8% over the first half of 2004. The increase was mainly
due to the increase in the realised prices and sales volumes of various
refined petroleum products.
20
The following table shows the sales volumes, average realised prices and
the percentage change of various kinds of refined petroleum products of the
segment between the first half of 2004 and the first half of 2005:
Sales Volumes Average Realized Prices
(thousand tonnes) (RMB/tonne)
Six-month periods Six-month periods
ended June 30 Changes ended June 30 Changes
2005 2004 (%) 2005 2004 (%)
Gasoline 10,323 10,167 1.5 3,451 2,771 24.5
--------------------------------------------------------------------------------------------------------------------------------
Diesel 25,792 24,210 6.5 3,218 2,711 18.7
--------------------------------------------------------------------------------------------------------------------------------
Chemical feedstock 12,781 11,580 10.4 3,456 2,439 41.7
--------------------------------------------------------------------------------------------------------------------------------
Other refined petroleum products 16,263 15,520 4.8 2,846 2,372 20.0
--------------------------------------------------------------------------------------------------------------------------------
In the first half of 2005, the sales revenues of gasoline realised by the
segment were RMB 35.6 billion, representing an increase of 26.4% compared
with the first half of 2004, accounting for 16.9% of this segment's
operating revenues, down by 0.6 percentage points compared with the first
half of 2004.
In the first half of 2005, the sales revenues of diesel realised by the
segment were RMB 83.0 billion, representing an increase of 26.4% compared
with the first half of 2004, accounting for 39.3% of this segment's
operating revenues, down by 1.4 percentage points compared with the first
half of 2004.
In the first half of 2005, the sales revenues of chemical feedstock
realised by the segment were RMB 44.2 billion, representing an increase of
56.4% compared with the first half of 2004, accounting for 20.9% of this
segment's operating revenues, up by 3.4 percentage points compared with the
first half of 2004. The growth rate of the sales revenues of chemical
feedstock was higher than the growth rate of sales revenues in gasoline and
diesel, which was mainly due to increased naphtha price and increased
supply volume of chemical feedstock.
In the first half of 2005, the sales revenues of refined petroleum products
other than gasoline, diesel and chemical feedstock were RMB 46.3 billion,
representing an increase of 25.8% compared with that in the first half of
2004, and accounting for 21.9% of this segment's operating revenues, down
by 0.9 percentage point compared with that in the first half of 2004
In the first half of 2005, the segment's operating expenses were RMB 212.3
billion, up by 35.2% over the first half of 2004, principally due to the
high price of crude oil and increased processing volume.
In the first half of 2005, the average cost of crude oil was RMB 2,745 per
tonne (approximately USD 45.1/barrel), representing an increase by 34.8%
compared with that in the first half of 2004. Refining throughput was 65.88
million tonnes (excluding amounts processed for third parties),
representing an increase of 4.1% compared with that in the first half of
2004. In the first half of 2005, the total crude oil costs were RMB 180.9
billion, representing an increase of 40.5%, accounting for 85.2% of the
segment's operating expenses, up by 3.2 percentage points compared with
that in the first half of 2004.
In the first half of 2005, with the oil price maintaining at a high level,
the refining margin was reduced as a result of the Chinese government's
macro economic control on prices of refined oil products. Despite the fact
that the Company endeavored to increase the revenue of refined oil products
and expand the market of refined petroleum products other than gasoline,
diesel and kerosene, the growth rate of refined oil price was less than
that of crude oil prices. The refining margin was USD 2.32 per barrel
(defined as the sales revenues less the crude oil costs and refining
feedstock costs and taxes other than income tax divided by the throughput
of crude oil and refining feedstock), down by USD 1.75 per barrel compared
with USD 4.07 per barrel in the first half of 2004, representing a decrease
of 43%.
In the first half of 2005, the unit refining cash operating cost (defined
as operating expenses less the purchasing costs of crude oil and refining
feedstock, depreciation and amortisation, taxes other than income tax,
other operating expenses; and divided by the throughput of crude oil and
refining feedstock) was USD 1.93 per barrel, down by USD 0.05 per barrel
compared with the first half of 2004, representing a decrease of 2.53%.
This is mainly due to the continous cost savings and increase in refining
volume.
In the first half of 2005, operating loss of the Refining Segment was RMB
1.3 billion. Operating profit was RMB 5.6 billion lower compared with that
in the first half of 2004.
21
(3) Marketing and Distribution Segment
The business of Marketing and Distribution Segment includes purchasing
refined oil products from the Refining Segment and third parities,
conducting wholesale and direct sale to domestic users, and retailing,
distributing refined oil products through the segment's retail and
distribution network, as well as providing services related to refined
product sales.
In the first half of 2005, the operating revenues of this segment was RMB
208.6 billion, up by 31.8% over the first half of 2004. The increase was
mainly due to the increases in sales volume and prices of refined oil
products and the sustained optimisation of sales structure, which further
increased the retail proportion of gasoline and diesel.
In the first half of 2005, the operating revenues from sales of gasoline
and diesel were RMB 176.2 billion, accounting for 84.5% of the operating
revenues of this segment. The percentage of retail sales volume of gasoline
and diesel in the total sales volume of gasoline and diesel increased from
53.3% in the first half of 2004 to 56.8% in the first half of 2005,
representing an increase of 3.5 percentage points. The percentage of sales
volume of gasoline and diesel by distribution in the total sales volume
decreased from 21.0% in the first half of 2004 to 20.0% in the first half
of 2005, down by 1 percentage point. The percentage of wholesale volume in
the total sales volume of gasoline and diesel decreased from 25.7% in the
first half of 2004 to 23.3% in the first half of 2005, down by 2.4
percentage points.
The following table shows the sales volumes, average realised prices, and
respective percentages of changes of the four product categories in the
first half of 2004 and 2005, including detailed information of different
sales channels for gasoline and diesel.
Sales Volumes Average Realised Prices
(thousand tonnes) (RMB/tonne)
Six-month periods Six-month periods
ended June 30 Changes ended June 30 Changes
2005 2004 (%) 2005 2004 (%)
Gasoline 14,660 13,356 9.8 4,150 3,577 16.0
------------------------------------------------------------------------------------------------------------------------------
Of which: Retail 10,040 8,783 14.3 4,293 3,733 15.0
-----------------------------------------------------------------------------------------------------------------------
Direct sales 1,429 1,454 (1.7) 3,904 3,347 16.6
-----------------------------------------------------------------------------------------------------------------------
Wholesale 3,191 3,119 2.3 3,810 3,245 17.4
-----------------------------------------------------------------------------------------------------------------------
Diesel 32,866 29,428 11.7 3,510 3,039 15.5
------------------------------------------------------------------------------------------------------------------------------
Of which: Retail 16,935 13,999 21.0 3,635 3,164 14.9
-----------------------------------------------------------------------------------------------------------------------
Direct sales 8,057 7,541 6.8 3,501 3,045 15.0
-----------------------------------------------------------------------------------------------------------------------
Wholesale 7,874 7,888 (0.2) 3,249 2,811 15.6
-----------------------------------------------------------------------------------------------------------------------
Kerosene including jet fuel 3,058 2,597 17.8 3,412 2,706 26.1
==============================================================================================================================
Fuel oil 6,459 4,973 29.9 2,099 1,715 22.4
==============================================================================================================================
In the first half of 2005, this segment's operating expenses were RMB 202.0
billion, up by 34.9% compared with that in the first half of 2004, mainly
due to the increase of procurement costs, of which purchasing costs of
gasoline and diesel were RMB 159.0 billion, accounting for 78.7% of the
segment's operating expenses, up by 34.6% over that in the first half of
2004. In the first half of 2005, average purchased prices of gasoline and
diesel increased by 24.9% and 19.4%, respectively, compared with that in
the first half of 2004, to RMB 3,506 per tonne and RMB 3,273 per tonne,
respectively. The purchasing volume of gasoline and diesel increased by
9.7% and 11.7%, respectively, compared with that in the first half of 2004,
to 14.66 million tonnes and 32.87 million tonnes, respectively.
In the first half of 2005, the segment's cash operating cost per tonne of
petroleum products (defined as the operating expenses less the purchasing
costs, taxes other than income tax, depreciation and amortisation, and
divided by the sales volume) was RMB 149.93 per tonne, down by 2.2%
compared with that in the first half of 2004. This decrease was primarily
attributable to diluted expenses caused by increased total sales volume and
measures of cost savings.
In the first half of 2005, the Marketing and Distribution Segment's
operating profit was RMB 6.6 billion, down by 22.5% compared with the first
half of 2004.
22
(4) Chemicals Segment
The business activities of the Chemicals Segment include purchasing
chemical feedstock from the Refining Segment and third parties, producing,
marketing and distributing of petrochemical products.
In the first half of 2005, operating revenues of the Chemicals Segment were
RMB 86.0 billion, up by 31.9% over the first half of 2004, mainly because
of the increase in sales volume of major chemical products and the increase
in realised prices.
The sales revenue mainly generated from the Company's six categories of
chemical products (i.e. basic organic chemicals, synthetic resin, synthetic
rubber, synthetic fiber monomer and polymer, synthetic fiber and chemical
fertilizer) totaled RMB 75.3 billion, accounting for 87.6% of the operating
revenues of this segment, up by 34.9% over the first half of 2004.
The following table lists the sales volumes, average realised price and
rates of change of each of these six categories of chemical products of
this segment in the first half of 2004 and 2005.
Sales Volumes Average Realised Prices
(thousand tonnes) (RMB/tonne)
Six-month periods Six-month periods
ended June 30 Changes ended June 30 Changes
2005 2004 (%) 2005 2004 (%)
Basic organic chemicals 4,454 3,507 27.0 4,885 3,593 36.0
----------------------------------------------------------------------------------------------------------------------------
Synthetic fiber monomer and polymer 1,420 1,371 3.6 9,018 7,376 22.3
----------------------------------------------------------------------------------------------------------------------------
Synthetic resin 2,899 2,667 8.7 9,144 7,337 24.6
----------------------------------------------------------------------------------------------------------------------------
Synthetic fiber 784 878 (10.7) 11,499 10,300 11.6
----------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 303 299 1.3 12,393 9,301 33.2
----------------------------------------------------------------------------------------------------------------------------
Chemical fertilizer 1,005 1,314 (23.5) 1,463 1,326 10.3
----------------------------------------------------------------------------------------------------------------------------
In the first half of 2005, operating expenses of the Chemicals Segment were
RMB 75.2 billion, up by 27% over the first half of 2004. This was primarily
due to the increase in the price of feedstock and the significant increase
in the Segment's production, the expenses for various raw materials and
ancillary materials, other variable expenses and fixed costs increased
accordingly. Of which:
o The purchasing costs for raw materials, operating supplies and other
related expenses increased by approximately RMB 16.8 billion compared
with that in the first half of 2004 due to the increase in the
consumption of raw materials and ancillary materials and the increase
in their unit prices.
o Provision for the impairment losses on assets was RMB 0.4 billion, down
by RMB 1.3 billion compared with that in the first half of 2004.
In the first half of 2005, operating profit for chemical segment was RMB
10.8 billion, up by 80.1% over the first half of 2004. The percentage of
operating profit of the Chemicals Segment in the Company's total operating
profit increased from 21.0% in the first half of 2004 to 32.1% in the first
half of 2005, representing an increase of 11.1 percentage points.
(5) Corporate and Others
The business activities of Corporate and Others mainly consist of import
and export business activities of the subsidiaries, research and
development activities of the Company, and managerial activities of its
headquarters.
In the first half of 2005, the operating revenues generated from corporate
and others was RMB 53.5 billion, up by 45.3% over the first half of 2004.
The increase was largely because China Petrochemical International Company
Limited and its subsidiaries increased their trading volume in importing
and exporting of crude oil and refined oil products and other business
transactions.
In the first half of 2005, the operating expenses were RMB 53.8 billion, up
by 42.8% over the first half of 2004. This increase was mainly due to the
increase in the purchasing costs of China Petrochemical International
Company Limited and its subsidiaries associated with the increase in
operating revenue.
In the first half of 2005, the operating losses were RMB 0.3 billion ,
representing an decrease in losses by RMB 0.5 billion compared with that in
the first half of 2004.
23
3 ASSETS, LIABILITIES, EQUITY, AND CASH FLOW
(1) Assets, liabilities and equity
Units: RMB millions
At 30 June At 31 December
2005 2004 Changes
Current assets 139,104 120,271 18,833
-------------------------------------------------------------------------
Non-current assets 370,276 354,323 15,953
-------------------------------------------------------------------------
Total assets 509,380 474,594 34,786
--------------------------------------------------------------------------------
Current liabilities 154,084 146,277 7,807
-------------------------------------------------------------------------
Non-current liabilities 120,520 104,231 16,289
-------------------------------------------------------------------------
Total liabilities 274,604 250,508 24,096
--------------------------------------------------------------------------------
Total equity attributable to
equity holders of the parent 205,757 193,040 12,717
--------------------------------------------------------------------------------
Share capital 86,702 86,702 --
-------------------------------------------------------------------------
Reserves 119,055 106,338 12,717
-------------------------------------------------------------------------
Minority interests 29,019 31,046 (2,027)
--------------------------------------------------------------------------------
Total equity 234,776 224,086 10,690
--------------------------------------------------------------------------------
At 30 June 2005, the Company's total assets were RMB 509.38 billion, up by
RMB 34.786 billion compared with that at the end of 2004, of which:
o Current assets were RMB 139.104 billion, up by RMB 18.833 billion
compared with that at the end of 2004. The change was mainly due to the
increase in inventories by RMB 15.104 billion during the first half of
2005, of which, crude oil and other feedstock increased by RMB 12.532
billion, the work in progress and finished products increased by RMB
1.701 billion. In the first half of 2005, with significant increase in
the income from principal operations, accounts receivable and bills
receivable increased by RMB 6.035 billion, prepaid expenses and other
current assets increased by RMB 652 million. The Company also further
reinforced the centralised fund management and as a result cash and
cash equivalents and time deposits decreased by RMB 2.958 billion.
o The Company's non-current assets were RMB 370.276 billion, up by RMB
15.953 billion compared with that at the end of 2004. The change was
primarily attributable to the additions of property, plant and
equipment and construction in progress of RMB 15.368 billion according
to the annual investment plan.
At 30 June 2005, the Company's total liabilities were RMB 274.604 billion,
up by RMB 24.096 billion compared with that at the end of 2004, of
which:
o Current liabilities were RMB 154.084 billion, up by RMB 7.807 billion
compared with that at the end of 2004. Such increases was mainly due to
the increase in accounts payable and bills payable by RMB 6.456
billion.
o Non-current liabilities were RMB 120.520 billion, up by RMB 16.289
billion compared with that at the end of 2004. This was mainly due to
the increase in long-term loans as a result of the implementation of
the investment projects.
At 30 June 2005, the Company's total equity attributable to equity holders
of the parent was RMB 205.757 billion, up by RMB 12.717 billion compared
with that at the end of 2004, which was due to the increase of reserves.
24
(2) Cash flow
In the first half of 2005, cash and cash equivalents decreased by a net
amount of RMB 2.765 billion from RMB 16.381 billion as at 31 December 2004
to RMB 13.616 billion as at 30 June 2005.
The following table lists the major items in the consolidated cash flow
statements of the Company for the first half of 2005 and the first half of
2004.
Units: RMB millions
Six-month period
ended June 30
Major items of cash flows 2005 2004 Changes
Net cash inflow from operating activities 21,082 20,698 384
--------------------------------------------------------------------------------------
Net cash used in investing activities (31,400) (31,050) (350)
--------------------------------------------------------------------------------------
Net cash inflow from financing activities 7,553 9,500 (1,947)
--------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,765) (852) (1,913)
--------------------------------------------------------------------------------------
Net cash inflow from operating activities was RMB 21.082 billion
Major sources: In the first half of 2005, profit before taxation was RMB
31.714 billion, deducted by cash outflow of income tax of RMB 12.424
billion, and adjusted for operating expenses items that have no cash flow
effect : depreciation, depletion and amortization of RMB 15.155 billion;
impairment losses on long-lived assets of RMB 397 million and the dry holes
costs of RMB 1.325 billion, amounting to a total of RMB 36.167 billion.
After deducting the cash outflow caused by the increase in inventory,
including crude oil, by RMB 14.957 billion and the cash outflow from
changes in operating receivables and payables of RMB 128 million, the net
cash inflow from operating activities was RMB 21.082 billion.
Net cash used in investing activities was RMB 31.4 billion, which was mainly
used for:
o The Company's capital expenditure of RMB 25.368 billion;
o The jointly controlled entities' capital expenditure of RMB 1.896
billion;
o Acquisition of a subsidiary's minority interests of RMB 4.088 billion;
Net cash inflow from financing activities was RMB 7.553 billion. This was
mainly derived from bank loans.
(3) Contingent liabilities
At 30 June 2005, the amount of guarantees provided by the Company in
respect of banking facilities granted to associates amounted to
approximately RMB 109 million.
4 CAPITAL EXPENDITURE
Please refer to "Capital Expenditure"
in the section headed "Business Review and Prospects".
5 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND
REGULATIONS
(1) The major differences between the Company's financial statements
prepared under the PRC Accounting Rules and Regulations and IFRS are
set out in Section C of the financial statements of the Company on
page 106 to page 107 of this report.
25
(2) The following table sets forth each of its segments' income from
principal operations, cost of sales, sales taxes and surcharges and
profit from principal operations, as prepared under the PRC Accounting
Rules and Regulations:
Six-month period ended June 30
2005 2004
RMB millions RMB millions
Income from principal operations
---------------------------------------------------------------------------------------------------------
Exploration and Production Segment 44,396 33,692
-----------------------------------------------------------------------------------------------------
Refining Segment 209,118 158,890
-----------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 208,083 157,873
-----------------------------------------------------------------------------------------------------
Chemicals Segment 83,066 55,740
-----------------------------------------------------------------------------------------------------
Others 53,248 35,108
-----------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (238,663) (175,594)
-----------------------------------------------------------------------------------------------------
Consolidated income from principal operations 359,248 265,709
-----------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges
---------------------------------------------------------------------------------------------------------
Exploration and Production Segment 17,920 16,165
-----------------------------------------------------------------------------------------------------
Refining Segment 208,147 151,772
-----------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 190,761 138,914
-----------------------------------------------------------------------------------------------------
Chemicals Segment 68,283 45,685
-----------------------------------------------------------------------------------------------------
Others 52,619 34,769
-----------------------------------------------------------------------------------------------------
Elimination of the cost of inter-segment sales (236,345) (173,431)
-----------------------------------------------------------------------------------------------------
Consolidated cost of sales, sales taxes and surcharges 301,385 213,874
-----------------------------------------------------------------------------------------------------
Profit from principal operations
---------------------------------------------------------------------------------------------------------
Exploration and Production Segment 23,738 15,568
-----------------------------------------------------------------------------------------------------
Refining Segment 1,391 6,914
-----------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 17,322 18,959
-----------------------------------------------------------------------------------------------------
Chemicals Segment 14,783 10,055
-----------------------------------------------------------------------------------------------------
Others 629 339
-----------------------------------------------------------------------------------------------------
Consolidated profit from principal operations 57,863 51,835
-----------------------------------------------------------------------------------------------------
Consolidated net profit 18,044 15,039
---------------------------------------------------------------------------------------------------------
Profit from principal operations: In the first half of 2005, the profit
from principal operations realized by the Company was RMB 57.863 billion,
up by RMB 6.028 billion, representing an increase of 11.63% over the first
half of 2004. This increase was mainly due to the increase in prices of
crude oil and petrochemical products during the first half of 2005. The
Company captured market opportunities, expanded the production volume and
sales, rationalised marketing structure and improved its operating
efficiency.
Net profit: In the first half of 2005, the Company's realised net profit
was RMB 18.044 billion, up by RMB 3.005 billion, representing an increase
of 19.98% over the first half of 2004. This was mainly due to the increase
in profit from principal operations.
26
(3) Financial data prepared in accordance with the PRC Accounting Rules and
Regulations:
At June 30 At December 31
2005 2004
RMB millions RMB millions
Total assets 492,986 460,081
-------------------------------------------------------------------------------
Long-term liabilities 114,491 98,407
-------------------------------------------------------------------------------
Shareholders' funds 197,571 186,350
-------------------------------------------------------------------------------
Analysis of changes
Total assets: At 30 June 2005, the Company's total assets were RMB 492.986
billion, up by RMB 32.905 billion compared with that at the end of 2004,
representing an increase of 7.15%. Current assets were RMB 135.315 billion,
up by RMB 18.259 billion compared with that at the end of 2004. The change
was mainly due to the increase in the Company's inventory by RMB 14.549
billion, of which the increase in crude oil and other feedstock amounted to
RMB 12.531 billion and the work in progress and finished products amounted
to RMB 1.701 billion, the increase in accounts receivable, bills receivable
and advance payments by RMB 7.448 billion, which was mainly due to the
significant increase in sales revenue compared with that in the first half
of 2004. During the first half of 2005, the Company further reduced working
capital occupied, and as a result, cash at bank and in hand decreased by
RMB 2.958 billion and other receivables decreased by RMB 780 million.
Non-current assets were RMB 357.671 billion, increased by RMB 14.646
billion compared with that at the end of 2004. This was mainly due to the
additions of RMB 15.4 billion of fixed assets and construction in progress
according to the annual investment plan.
Long-term liabilities: At 30 June 2005, the Company's long-term liabilities
were RMB 114.491 billion, up by RMB 16.084 billion compared with that at
the end of 2004, representing an increase by 16.34%. This was mainly due to
the increase in long-term loans.
Shareholders' funds: At 30 June 2005, the shareholders' funds of the
Company were RMB 197.571 billion, up by RMB 11.221 billion compared with
that at the end of 2004, representing an increase of 6.02%.
6 SIGNIFICANT DIFFERENCES BETWEEN THE FINANCIAL STATEMENTS PREPARED UNDER
IFRS AND US GAAP
The significant differences between the Company's financial statements
prepared under IFRS and US GAAP are set out in Section D of the financial
statements of the Company on page 108 to page 109 of this report.
27
SIGNIFICANT EVENTS
1 CORPORATE GOVERNANCE
During the first half of 2005, Sinopec Corp. has further strengthened its
corporate governance. Pursuant to the relevant domestic and overseas
regulatory requirements, the Company revised and improved the "Working
Rules and Procedures of Audit Committee of the Board of Directors", and
responsively adjusted the composition of the audit committee to the Board
of the Directors. The Company has fully implemented its internal control
system and carried out inspection thereof. As a result, internal
supervision and control of the Company was improved. In accordance with the
requirements of China Securities Regulatory Commission ("CSRC"), the
Company implemented procedures to monitor the use of proceeds from issuance
of shares, guarantees and the use of funds by connected parties, and put
forward remedies for the problems discovered during the inspection.
During the same period, the company further improved quality of disclosure
of information and strengthened investor relations.
During the first half of 2005, Sinopec Corp. considered the "Code on
Corporate Governance Practice" issued by The Stock Exchange of Hong Kong
Limited ("the Hong Kong Stock Exchange") and compiled relevant training
materials for the directors, supervisors and other members of the senior
management.
The "Rules of Securities Transactions by Corporate Employees" was prepared
by the Company taking into account the circumstances of the Company. Save
as the above, the Company is not aware of any breach of the "Code on
Corporate Governance Practice".
2 DIVIDEND DISTRIBUTION FOR THE
YEAR ENDED 31 DECEMBER 2004
AND INTERIM DIVIDEND DISTRIBUTION PLAN FOR THE PERIOD
ENDED 30 JUNE 2005
(1) Dividend distribution for the year ended 31 December 2004
As approved at the Annual General Meeting of Sinopec Corp. for the Year
2004, a final cash dividend of RMB 0.08 (inclusive of tax) per share
for the year ended 31 December 2004 was distributed, which amounted to
an aggregate of RMB 6.936 billion. Shareholders whose names appeared on
the register of members of Sinopec Corp. on 3 June 2005 had already
received the final dividend on 27 June 2005.
For the Year 2004, the annual cash dividend of RMB 0.12 (inclusive of
tax) per share was distributed and the total cash dividend amounted to
RMB 10.404 billion.
(2) Interim dividend distribution plan
for the six-month period ended 30 June 2005
According to the provisions of the Articles of Association of Sinopec
Corp., the Board approved the Interim Dividend Distribution Plan for
the period ended 30 June 2005 at the nineteenth meeting of the Second
Session of the Board of Directors. An interim cash dividend of RMB 0.04
(inclusive of tax) per share will be distributed, based on the total
number of shares of 86,702.439 million as at 30 June 2005. The total
cash dividend amounts to approximately RMB 3.468 billion.
The interim dividend will be distributed on or before Friday, 30
September 2005 to the shareholders whose names appear on the register
of members of Sinopec Corp. on Tuesday, 20 September 2005.
To be entitled to the interim dividend, holders of H shares shall lodge
their share certificate(s) and transfer documents with Hong Kong
Registrars Limited at Shops 1712-1716, 17/F., Hopewell Center, 183
Queen's Road East, Wanchai, Hong Kong for registration of transfer, no
later than 4:00pm on Tuesday, 13 September 2005. The register of
members of the H shares of Sinopec Corp. will be closed from Wednesday,
14 September 2005 to Tuesday, 20 September 2005 (both dates inclusive).
Dividends will be denominated and declared in Renminbi. Dividends for
domestic shares will be paid in Renminbi and dividends for foreign
shares will be paid in Hong Kong dollars. The exchange rate for
dividends to be paid in Hong Kong dollars is the mean of the average
rate of Hong Kong dollar to Renminbi published by the People's Bank of
China during the calendar week (from 15 August 2005 to 19 August 2005)
prior to the date of declaration of dividends, being Friday, 26 August
2005.
3 THE COMPANY HAS NOT BEEN INVOLVED IN ANY MATERIAL LITIGATIONS AND
ARBITRATIONS DURING THE REPORTING PERIOD
28
4 CONNECTED TRANSACTIONS
(1) Connected transactions entered into by the Company during the
reporting period
During the reporting period, the aggregate amount of connected
transactions incurred between the Company and the connected parties was
RMB 72.495 billion, of which, incoming trade amounted to RMB 35.469
billion, and outgoing trade amounted to RMB 37.026 billion (including
RMB 36.976 billion of sales of products and services). Details of the
connected transactions incurred during the reporting period are set out
in the notes to the financial statements contained in this report.
All connected transactions incurred during the reporting period have
been carried out in compliance with its respective agreements as
published in the relevant announcements.
The following table shows the principal operations categorised by business
segments and the details of the connected transactions, including income from
principal operations and cost of sales for each business segment which are
extracted from the Company's financial statements prepared under the PRC
Accounting Rules and Regulations:
Increase/decrease
of income Increase/decrease
from principal of cost
operations of sales Increase/decrease
compared to compared to of gross profit
Income from the same the same ratio compared to
Categorised by principal Gross profit period of period of the same period
business segments operations Cost of sales ratio* preceding year preceding year of preceding year
(RMB millions) (RMB millions) (%) (%) (%) (percentage point)
Exploration and production 44,396 17,215 53.47 31.77 10.54 7.26
-----------------------------------------------------------------------------------------------------------------------------------
Refining 209,118 201,315 0.67 31.61 38.69 (3.68)
-----------------------------------------------------------------------------------------------------------------------------------
Chemicals 83,066 67,905 17.80 49.02 49.58 (0.24)
-----------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 208,083 190,487 8.33 31.80 37.40 (3.68)
-----------------------------------------------------------------------------------------------------------------------------------
Others 53,248 52,604 1.18 51.67 51.32 0.21
-----------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (238,663) (236,345) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Total 359,248 293,181 16.11 35.20 42.25 (3.40)
-----------------------------------------------------------------------------------------------------------------------------------
Of which: connected transactions 31,795 28,777 9.07 44.52 47.39 (1.39)
-----------------------------------------------------------------------------------------------------------------------------------
Pricing policy for (1) Government-prescribed prices and government-guided prices are adopted for products or items
connected transactions if such prices are available;
(2) Where there is no government-prescribed price or government-guided price for products or
items, the market price (inclusive of bidding price) will apply;
(3) Where none of the above is applicable, the price will be decided based on the reasonable cost
incurred plus sales taxes and reasonable profit. Reasonable cost means the average
production cost of products by the same type of enterprises within regions with proximity
using the same kind of raw materials. Reasonable profit means profit margin of not more than
6% of the cost incurred based on the current interest rate level set by the government.
-----------------------------------------------------------------------------------------------------------------------------------
Of which: during the reporting period, the total amount of connected transactions of the products sold and
the services provided by the Company to Sinopec Group was RMB 22,090 million.
* Gross profit ratio = profit from principal operations/income from principal operations
29
5 ACQUISITIONS, DISPOSALS AND REORGANISATIONS OF ASSETS
(1) Acquisitions or purchases of assets
Net profit/(loss)
contributed Whether it
to the Company constituted a Whether
during the connected related
The other party period from transaction Whether debts and
to the transaction the purchase day (if yes, the assets liabilities
and the assets Date of Transaction to the end of explain the has been have been
acquired or invested purchase price the reporting period pricing principle) transferred transferred
Acquisition of 21 Jan 2005 RMB 124 million RMB(5.94) million No No No
10.5% of the shares
in Qingdao Qirun
held by Hong Kong
Huarun
-------------------------------------------------------------------------------------------------------------------------------
(2) Sales or disposals of assets
There was no major sales or disposals of assets during the reporting period.
6 DELISTING OF BEIJING YANHUA
Sinopec Corp. privatised Beijing Yanhua Petrochemical Company Limited
("Beijing Yanhua") by way of merger by absorption through Beijing Feitian
Petrochemical Company Limited ("Beijing Feitian"), a wholly-owned
subsidiary of Sinopec Corp., established for the purpose of such merger.
Pursuant to the agreement entered into between Beijing Feitian and Beijing
Yanhua on 29 December 2004, Beijing Feitian purchased the listed shares of
Beijing Yanhua from shareholders at a price of HK$ 3.80 per share in cash.
The total consideration amounted to approximately HK$ 3.846 billion.
Beijing Yuanhua was delisted on 11 May 2005. Please refer to Sinopec
Corp.'s announcement published in China Securities, Shanghai Securities and
Securities Times in Mainland China and South China Morning Post and Hong
Kong Economic Times in Hong Kong on 30 December 2004 and 7 March 2005 for
details.
7 SIGNIFICANT TRUSTEESHIP, CONTRACT AND LEASE
During this reporting period, Sinopec Corp. did not have any significant
trusteeship, sub-contract or lease of any other company's assets, nor
placed its assets to or under any other company's trusteeship, sub-contract
or lease which were required to be disclosed.
8 DURING THIS REPORTING PERIOD, SINOPEC CORP. DID NOT ENTRUST ANY OTHER PARTY
TO CARRY OUT CASH ASSETS MANAGEMENT
30
9 SIGNIFICANT GUARANTEES (1)
Guarantees provided by Sinopec Corp. (excluding the guarantees provided
for its controlling subsidiaries)
Date of
occurrence Whether
(date of Amount Whether for
Obligors execution of RMB discharged connected
agreement) millions Type Term or not party
Shanghai Secco Petrochemical
Co., Ltd. 9 Feb. 2002 2,930 Joint and several liability 9 Feb. 2002-
20 Dec. 2021 No Yes
-----------------------------------------------------------------------------------------------------------------------------------
Shanghai Secco Petrochemical
Co., Ltd. 9 Feb. 2002 4,062 Joint and several liability 9 Feb. 2002-
20 Dec. 2013 No Yes
-----------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Co., Ltd. 7 Mar. 2003 4,680 Joint and several liability 7 Mar. 2003-
31 Dec. 2008 No Yes
-----------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec Shell Coal
Gasification Co., Ltd. 10 Dec. 2003 377 Joint and several liability 10 Dec.2003-
10 Dec. 2017 No Yes
-----------------------------------------------------------------------------------------------------------------------------------
Fujian Zhangzhao Expressway
service Company Limited 21 Jan 2003 10 Joint and several liability 21 Jan.2003-
31 Oct. 2007 No Yes
-----------------------------------------------------------------------------------------------------------------------------------
External guarantees of Sinopec
Shanghai Petrochemical
Co.,Ltd. (2) N/A 44
-----------------------------------------------------------------------------------------------------------------------------------
External guarantees of Sinopec
Zhenhai Refining and
Chemical Co.,Ltd. (2) N/A 14
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee provided
during the reporting period None
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee outstanding
at the end of the reporting period RMB 12,117 million
-----------------------------------------------------------------------------------------------------------------------------------
GUARANTEES PROVIDED BY SINOPEC CORP. FOR ITS CONTROLLING SUBSIDIARIES
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee provided for its
controlling subsidiaries during the reporting period None
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee for its controlling subsidiaries
outstanding at the end of the reporting period RMB 2,617 million
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL AMOUNT OF GUARANTEE PROVIDED BY SINOPEC CORP. (including those provided for its controlling subsidiaries)
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee (3) RMB 14,734 million
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee as a percentage
of the Sinopec Corp. net assets 7.5%
-----------------------------------------------------------------------------------------------------------------------------------
GUARANTEES NOT IN COMPLIANCE WITH THE REQUIREMENTS OF ZHENG JIAN FA [2003] NO. 56 (4)
-----------------------------------------------------------------------------------------------------------------------------------
Amount of guarantee provided for the holding shareholder or the
other connected parties in which less than 50% (excluding 50%)
shares are owned by Sinopec Corp. (5) RMB 24 million
-----------------------------------------------------------------------------------------------------------------------------------
Amount of debt guarantee provided for the companies with
liabilities to assets ratio of over 70% (5) RMB 170 million
-----------------------------------------------------------------------------------------------------------------------------------
Whether the total guaranteed amount is over 50% of the net assets (5) No
-----------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee not in compliance with the
requirements of Zheng Jian Fa [2003] No. 56 (5) RMB 194 million
-----------------------------------------------------------------------------------------------------------------------------------
Note 1: All the guarantees listed above followed the specified review procedures.
Note 2: This represents the sum of the external guarantees provided by the controlling subsidiaries of Sinopec Corp. in the
reporting period multiplied by the respective shareholdings held by Sinopec Corp. in the subsidiaries.
Note 3: Total amount of guarantee is the aggregate amount of guarantee outstanding (excluding the guarantee to controlling
subsidiaries) plus total amount of guarantee outstanding provided to its controlling subsidiaries at the end of the
reporting period.
31
Note 4: It refers to the Notice on Certain Issues Relating to Regulating Fund Transfers between a Listed Company and Connected
Parties and the External Guarantees of Listed Company (Zheng Jian Fa [2003] No.56) jointly issued by CSRC and State
Assets Supervision and Administration Commission (SASAC) in August, 2003.
Note 5: Pursuant to the provisions in the "Disclosure Format Guideline for the Summary of Interim Report" issued by the
Shanghai Stock Exchange in 2005, the relevant amounts are as follow:
1. The amount of the guarantees provided by Sinopec Corp.
not in compliance with the requirements of Zheng Jian Fa [2003] No. 56; and
2. The amount of the guarantees provided by controlling subsidiaries of Sinopec Corp.
not in compliance with the requirements of Zheng Jian Fa [2003] No. 56 multiplied by the respective
shareholdings held by Sinopec Corp.
Material Items of Guarantees under Performance
At the fourteenth meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board approved Sinopec Corp. to provide conditional
guarantee in both domestic and foreign currencies for the Shanghai Secco
project loan, and the amount of guarantee was RMB 6.992 billion. For further
details, please refer to Sinopec Corp.'s announcement published in China
Securities, Shanghai Securities and Securities Times in Mainland China on 2
April 2002 and the results announcement for the year 2001 published in South
China Morning Post and Hong Kong Economic Times in Hong Kong.
At the fourteenth meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board approved the proposal regarding Sinopec Corp.'s
provision of guarantee for the BASF-YPC projects. On 7 March 2003, Sinopec
Corp. entered into guarantee agreements for the completion of construction of
the BASF-YPC project with domestic and foreign banks, whereby it guaranteed 40%
of a domestic and foreign currencies denominated loan equivalent to
approximately RMB 11.7 billion provided by such banks to BASF-YPC Co., Ltd. for
completion of construction.
At the twenty-second meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board approved the proposal regarding Sinopec Corp.'s
provision of equity pledge for the BASF-YPC project loan on the condition that
BASF should provide equity pledge on the same terms. On 12 August 2004, Sinopec
Corp. officially entered into the relevant equity pledge agreement.
At the twenty-second meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board also approved the proposal regarding Sinopec Corp.'s
provision of guarantee for Yueyang Sinopec Shell Coal Gasification Co., Ltd.
with an amount of RMB 377 million.
At the thirteenth meeting of the Second Session of the Board of Directors of
Sinopec Corp, the Board approved the provision of a credit line guarantee
equivalent to RMB 2.483 billion to China International United Petroleum &
Chemical Co., Ltd..
Specific explanations and independent opinions on the external guarantees
presented by the independent directors
As independent directors of Sinopec Corp., we have carefully reviewed the
external guarantees of Sinopec Corp. The explanations on Sinopec Corp.'s
accumulative and current external guarantees for the first half of 2005 (ended
30 June 2005) are as follows:
In the first half of 2005, no new external guarantees were provided by Sinopec
Corp. The outstanding amount of accumulative external guarantees was
approximately RMB 14.734 billion, decreased by approximately RMB 65 million
compared with that at the end of 2004, and the total amount of guarantees
accounted for 7.5% of the net assets of the Company. The total amount of the
guarantees (including the related amount of external guarantees provided by
controlling subsidiaries calculated with reference to respective shareholdings)
not in compliance with the requirements of Zheng Jian Fa [2003] No. 56 was
approximately RMB 194 million, of which, the amount of guarantees provided by
the Company not in compliance with the requirements of Zheng Jian Fa [2003] No.
56 was RMB 145 million.
Information related to the external guarantees incurred in or before 2004 had
been disclosed in details in Sinopec Corp.'s 2004 Annual Report.
We present our independent opinions
as follows:
Sinopec Corp. has carried out self-inspection on the accumulative and current
external guarantees incurred in the first half of 2005 and has taken steps to
eliminate them. The result shows that there was no new external guarantees
incurred in the first half year of 2005 and the amount of accumulative
guarantees decreased approximately by RMB 65 million compared with that at the
end of 2004. The amount of guarantees provided by the Company not in compliance
with Zheng Jian Fa [2003] No. 56 decreased by RMB 38 million compared with that
at the end of 2004.
Sinopec Corp. shall, in accordance with the laws and regulations of the PRC and
the Articles of Association and other internal rules and regulations, further
reinforce the risk management of external guarantees, and decrease those
guarantees that are not in compliance with the requirements under Zheng Jian Fa
[2003] No. 56.
32
10 PROVISION OF FUND TO AND FUND PROVIDED BY CONNECTED PARTIES
Unit: RMB millions
Provision of Funds provided
funds to by connected party
Connected party Relationship connected party to the Company
Net occurrence Balance Net occurrence Balance
Sinopec Group Controlling shareholder (2,103) 4,032 34 9,713
and its controlled
legal persons
-------------------------------------------------------------------------------------------------------------------------------
Other connected parties Associates 248 556 -- --
-------------------------------------------------------------------------------------------------------------------------------
Total (1,855) 4,588 34 9,713
-------------------------------------------------------------------------------------------------------------------------------
11 SUMMARY OF THE USE OF FUNDS BY THE CONTROLLING SHAREHOLDER AND OTHER CONNECTED PARTIES FOR THE
FIRST HALF OF 2005
Unit: RMB millions
Nature of Name of Opening Increase Decrease Ending
the use of connected Account balance of during during balance of
funds parties Relationship caption the period the period the period the period
Borrowings -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Entrusted loans BASF-YPC Styrene Other connected Long-term 60 66 24 102
Co., Ltd. parties investment
--------------------------------------------------------------------------------------------------------------------------------
Entrusted investment -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Issuing commercial -- -- -- -- -- -- --
bills without
genuine business
transaction
--------------------------------------------------------------------------------------------------------------------------------
Repay debt on behalf
of other entities -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Accounts receivable Sinopec Group Controlling Other 2,502 -- 500 2,002
and other Company shareholder receivables
receivables aged
over one year as
at 30 June 2005
Fellow subsid- Other Other receiv- 1,696 120 1,348 468
iaries con- connected ables/accounts
trolled by parties receivable
Sinopec Group
Company/other
connected
companies
--------------------------------------------------------------------------------------------------------------------------------
Total 4,258 186 1,872 2,572
--------------------------------------------------------------------------------------------------------------------------------
33
12 PERFORMANCE OF THE COMMITMENTS BY SINOPEC CORP. AND ITS SHAREHOLDER
HOLDING 5% OR MORE OF THE TOTAL ISSUED SHARE CAPITAL, NAMELY, SINOPEC
GROUP COMPANY
(1) As at the end of the reporting period, the undertakings made by
Sinopec Corp. include:
(a) Carrying out the reorganisation of its three wholly-owned
subsidiaries, namely, Sinopec Shengli Oilfield Company
Limited, Sinopec Sales Company Limited and Sinopec
International Company Limited, in accordance with the PRC
Company Law within a specified period of time;
(b) Changing the logo currently used at the petrol stations
within a specified period of time;
(c) Setting up separate office buildings between Sinopec Group
Company and Sinopec Corp. within a specified period of time;
and
(d) Complying with the relevant applicable provisions and rules
of the Hong Kong Stock Exchange regarding the waiver of
connected transactions.
(2) As at the end of the reporting period, the major undertakings given by
Sinopec Group Company include:
(a) Complying with the agreements concerning connected
transactions;
(b) Solving the issues arising from the land use rights
certificates and property ownership rights certificates
within a specified period of time;
(c) Implementing the Reorganisation Agreement (defined in the
Prospectus for the Issuance of H Shares);
(d) Granting licenses for intellectual property rights;
(e) Avoiding competition within the industry; and
(f) Giving up the business competition and conflict of interests
with Sinopec Corp.
Details of the above commitments were included in the prospectus
for the issuance of A shares published by Sinopec Corp. in China
Securities, Shanghai Securities, and Securities Times on 22 June
2001. During the period of the report, Sinopec Corp. did not breach
and was not aware of itself or the above-mentioned principal
shareholders having breached the commitments.
13 USE OF PROCEEDS FROM ISSUANCE OF A SHARE
The proceeds from the issuance of A shares of Sinopec Corp. amounted to
RMB 11.816 billion. After deducting the issuance expenses, the net
proceeds from the issuance of A shares amounted to RMB 11.648 billion. In
the year of 2001, RMB 7.766 billion was used, of which, RMB 6.446 billion
was used to acquire Sinopec National Star, RMB 50 million to cover the
initial preparation cost of the southwest refined oil product pipeline
project and RMB 1.27 billion to supplement Sinopec Corp.'s working
capital. RMB 696 million was used in 2002, of which, RMB 46 million was
used to cover the initial preparation cost of the southwest refined oil
product pipeline project and RMB 650 million to build the
Ningbo-Shanghai-Nanjing crude oil pipeline. During the year of 2003, RMB
1.514 billion was used, of which, RMB 814 million was used for the
construction of Ningbo-Shanghai-Nanjing crude oil pipeline, RMB 700
million for the construction of the southwest refined oil product
pipeline project. RMB 1.061 billion was used for the southwest refining
oil product pipeline project in 2004.
During this reporting period, RMB 611 million was used for the southwest
refining oil product pipeline project. As at 30 June 2005, the proceeds
from the issuance of A shares had been completely used.
34
14 QINGDAO REFINING PROJECT
On 22 June 2004, the Report of Feasibility Study on Qingdao Refining
Project was approved by National Development and Reform Commission. The
capacity of the refinery is expected to be 10 million tonnes per year.
Sinopec Qingdao Refining and Chemical Company Limited ("Qingdao
Refinery") was established in Qingdao on 18 November 2004. In June 2005,
the ground breaking ceremony was held in Qiangdao, marking the
commencement of the construction of the Qingdao Refinery.
15 ACQUISITION OF 40.5% OF THE SHARES IN QINGDAO QIRUN HELD BY HONG KONG
HUARUN
Qingdao Qirun Petrochemical Company Limited ("Qingdao Qirun") is a
Sino-foreign joint venture established by Qingdao Petroleum Company, Qilu
Petrochemical Company and Hong Kong Huarun Petrochemical (Group) Company
Limited ("Hong Kong Huarun") on 27 April 1993. The parties contributed
21%, 38.5% and 40.5%, respectively, to the total registered capital of
USD 27.38 million. Qingdao Qirun is mainly engaged in storing,
transporting and transferring crude oil and refined oil product. Qingdao
Qirun owns a 500,000 meters of crude/refined oil storage tanks, four
pipelines linked to Qingdao oil terminal, railways connecting to the
Jiaoji railway and road delivery and transport system for crude/refined
oil product.
To facilitate oil products storage and transportation for Qingdao
Refining Project, Sinopec Corp. and Hong Kong Huarun entered into a share
transfer agreement on 17 November 2004, pursuant to which Sinopec Corp.
acquired 30% interest in Qingdao Qirun from Hong Kong Huarun. During the
reporting period, Sinopec Corp. and Hong Kong Huarun entered into another
share transfer agreement on 21 January 2005, pursuant to which Sinopec
Corp. acquired the remaining 10.5% interest in Qingdao Qirun from Hong
Kong Huarun. The consideration of such share transfer amounted to RMB 124
million.
16 BASF-YPC INTEGRATED PROJECT FORMALLY PUT INTO OPERATION
On 28 June 2005, the 600,000
tonnes per year ethylene project of
BASF-YPC was officially put into commercial operation.
BASF-YPC is a joint venture invested by Sinopec Corp. and its related
parties, and BASF with the capital proportion of 50:50. The joint venture
has nine production units, which collectively have production capacities
of 600,000 tonnes per year of ethylene, 300,000 tonnes per year of
ethylene glycol, 160,000 tonnes per year of acrylic acid, 215,000 tonnes
per year of acrylic ester, 250,000 tonnes per year of C4-Oxo, 400,000
tonnes per year of polyethylene, 50,000 tonnes per year of formic acid,
36,000 tonnes per year of methylamine, 40,000 tonnes per year of
dimethylformamide, 30,000 tonnes per year of propionic acid.
In addition, BASF-YPC has a syngas unit, a self-suporting power plant and
related utilities and ancillary facilities.
35
17 SHANGHAI SECCO 900,000 TONNES ETHYLENE PROJECT FORMALLY PUT INTO OPERATION
On June 29 2005, the 900,000 tonnes per year ethylene project of Shanghai
Secco was officially put into operation.
Shanghai Secco is a joint venture invested by Sinopec Corp., Sinopec
Shanghai Petrochemical Co.,Ltd. and BP with the investment proportion of
30:20:50. The said project consists of 8 major production facilities with
production capacities of 900,000 tonnes per year of ethylene, 600,000
tonnes-per-year of polyethylene, 250,000 tonnes per year of
polypropylene, 300,000 tonnes per year of polystyrene and etc.
18 COMMENCEMENT OF THE CONSTRUCTION OF FUJIAN
REFINING AND ETHYLENE INTEGRATED JV PROJECT
On 8 July 2005, the opening ceremony for the construction of Fujian
Refining and Ethylene Integrated JV project was held in Quanzhou, Fujian
Province, the world class integrated refining and chemical project
officially entered into its construction stage. On the day of the
ceremony, the three parties of the joint venture initialed cooperative
documents including the Joint Venture Contract and the Articles of
Association for Associate and agreed to submit the documents to the
Ministry of Commerce.
Fujian Refining and Ethylene Integrated JV project is a joint venture
funded by Fujian Refinery Company Limited, Aramco Overseas Company BV,
and ExxonMobil China Petroleum and Petrochemical Company Limited with the
investment proportion of 50%, 25% and 25%, respectively. The project will
increase the processing capacity of Fujian Refinery from current 4
million tonnes per year to 12 million tonnes per year and improve its
sour crude oil processing capacity. The said project involves
construction of new chemical facilities including a 800,000 tonnes per
year ethylene cracker, 650,000 tonnes per year polyethylene unit, 400,000
tonnes per year polypropylene unit and a 1,000,000 tonnes per year
aromatics unit.
In addition, the said project involves the construction of auxiliary
utilities and a 300,000 tonnes per year crude oil berth.
19 AUDITORS
At the Annual General Meeting of Sinopec Corp. for the Year 2004 held on
18 May 2005, KPMG Huazhen and KPMG were reappointed as the domestic and
international auditors of the Company for the year of 2005, respectively,
and the Board of Directors was authorised to determine the remunerations
for them. The audit fee accrued for the first half of 2005 was RMB 25
million. The financial statements for the first half of 2005 have been
audited by KPMG Huazhen and KPMG. The signing certified public
accountants of KPMG Huazhen are Wu Wei and Zhang Jingjing.
20 ISSUANCE AND LISTING OF CORPORATE BONDS
On 8 March 2004, Sinopec Corp. successfully issued domestic 10-year term
corporate bonds which amounted to RMB 3.5 billion with a fixed coupon
rate of 4.61%. On 28 September 2004, the said corporate bonds were listed
on the Shanghai Stock Exchange. For further details, please refer to
Sinopec Corp.'s announcement published in China Securities, Shanghai
Securities, and Securities Times in Mainland China, and South China
Morning Post and Hong Kong Economic Times in Hong Kong on 24 February
2004 and 28 September 2004. As of 31 December 2004, the outstanding
principal balance of the said corporate bonds was RMB 3.5 billion. From
24 February 2005 to 23 March 2005, Sinopec Corp. has fully repaid the
coupon interests for the first year.
21 ISSUANCE OF SHORT-TERM FINANCIAL PAPER
At the eighteenth meeting of the second session of the Board of Directors
of Sinopec Corp. held on 29 July 2005, the Board considered and approved
the proposal concerning the issuance of short-term financial paper, and
approved that the total amount of short-term financial paper to be issued
by Sinopec Corp. should not exceed 10% of its net assets recorded in the
latest audited consolidated balance sheet in accordance with the PRC
accounting rules and regulations. The Board of Directors or more than two
directors were unconditionally authorised to decide on the specified
terms, regulations, conditions and related issues on the issuance of
financial paper in accordance with the requirements of Sinopec Corp. and
the market conditions. The Board approved the submission of the proposal
to the first Extraordinary General Meeting on 19 September 2005 to be
considered and approved. For further details, please refer to Sinopec
Corp.'s announcement published in China Securities, Shanghai Securities,
and Securities Times in Mainland China, and South China Morning Post and
Hong Kong Economic Times in Hong Kong SAR on 1 August 2005.
36
22 APPLICATION OF THE MODEL CODE
During this reporting period, no director has infringed the requirements
set out under the Model Code for Securities Transactions by Directors of
Listed Issuers, Appendix 10 to the Listing Rules stipulated by the Hong
Kong Stock Exchange.
23 REPURCHASE, SALE AND REDEMPTION OF SHARES
Apart from those as disclosed above, Sinopec Corp. or any of its
subsidiaries, has not repurchased, sold or redeemed any securities of
Sinopec Corp. or its subsidiaries during the reporting period.
24 INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER MEMBERS OF THE SENIOR
MANAGEMENT IN THE SHARE CAPITAL AND THEIR ENGAGEMENT OR DISMISSAL
(1) Interests of Directors, Supervisors and Other Members of the Senior
Management in the Share Capital As of 30 June 2005, none of the
directors, supervisors or senior management of Sinopec Corp. had
any interest in any shares of Sinopec Corp.
As of 30 June 2005, none of the directors, supervisors or senior
management or any of their respective associates had any interests
and short positions in any shares, debentures or related shares of
Sinopec Corp. or its associated corporations (as defined in Part XV
of the Securities and Futures Ordinance) which were required to be
notified to Sinopec Corp. and the Hong Kong Stock Exchange pursuant
to Division 7 and 8 of Part XV of the Securities and Futures
Ordinance or which were required pursuant to section 352 of the
Securities and Futures Ordinance to be entered in the register
referred to therein, or which were required to be notified to
Sinopec Corp. and the Hong Kong Stock Exchange pursuant to the
Model Code for Securities Transactions Entered by Directors of
Listed Companies as specified in the Listing Rules of The Stock
Exchange of Hong Kong Limited (including those interests and short
positions that are deemed to be such, or are regarded to be owned
in accordance with the relative provisions under the Securities and
Futures Ordinance).
(2) The engagement or dismissal of Directors, Supervisors and Other
Members of the Senior Management At the sixteenth meeting of the
Second Session of the Board of Directors of Sinopec Corp., the
Board approved the applications of Mr. Wang Jiming to resign as the
President of Sinopec Corp. and Mr. Mou Shuling to resign as the
Senior Vice President of Sinopec Corp. The Board of Directors also
approved the appointment of Mr. Wang Tianpu as President of Sinopec
Corp. and Mr. Zhang Jianhua and Mr. Wang Zhigang as Senior Vice
President of Sinopec Corp., respectively.
25 OTHER SIGNIFICANT EVENTS
During this reporting period, neither Sinopec Corp., the Board of
Directors of Sinopec Corp., nor the directors were subject to any
investigation from the CSRC, nor was there any administrative penalty or
circular of criticism issued by the CSRC, the Securities and Futures
Commission of Hong Kong and the Securities and Exchange Commission of the
United States, nor any reprimand published by the Shanghai Stock
Exchange, the Hong Kong Stock Exchange, the New York Stock Exchange or
the London Stock Exchange.
37
REPORT OF THE PRC AUDITORS
[KPMG Huazhen LOGO GRAPHIC OMITTED]
To the Shareholders of China Petroleum & Chemical Corporation:
We have audited the accompanying Company's consolidated balance sheet and
balance sheet at 30 June 2005, and the consolidated income statement and profit
appropriation statement, income statement and profit appropriation statement,
consolidated cash flow statement and cash flow statement for the six-month
period ended 30 June 2005. The preparation of these financial statements is the
responsibility of the Company's management. Our responsibility is to express an
audit opinion on these financial statements based on our audit.
We conducted our audit in accordance with China's Independent Auditing
Standards of the Certified Public Accountants. Those standards require that we
plan and perform the audit to obtain reasonable assurance as to whether the
financial statements are free from material misstatement. An audit includes
examination, on a test basis, of evidence supporting the amounts and
disclosures in the financial statements, an assessment of the accounting
policies used and significant estimates made by the Company's management in the
preparation of the financial statements, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the above-mentioned financial statements comply with the
requirements of the Accounting Standards for Business Enterprises and the
Accounting Regulations for Business Enterprises issued by the Ministry of
Finance of the People's Republic of China and present fairly, in all material
respects, the Company's consolidated financial position and financial position
at 30 June 2005, and the consolidated results of operations, results of
operations, consolidated cash flows and cash flows for the six-month period
ended 30 June 2005.
KPMG Huazhen Certified Public Accountants
Registered in the People's
Republic of China
8/F, Office Tower E2 Wu Wei
Oriental Plaza Zhang Jingjing
No.1, East Chang An Ave.
Beijing, The People's Republic of China 26 August 2005
Post Code: 100738
38
(A) FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND
REGULATIONS CONSOLIDATED BALANCE SHEET
at 30 June 2005
AT 30 JUNE At 31 December
Note 2005 2004
RMB millions RMB millions
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Current assets
Cash at bank and in hand 4 15,322 18,280
-------------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 8,356 7,812
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 15,247 9,756
-------------------------------------------------------------------------------------------------------------------------------
Other receivables 7 11,682 12,462
-------------------------------------------------------------------------------------------------------------------------------
Advance payments 8 6,241 4,828
-------------------------------------------------------------------------------------------------------------------------------
Inventories 9 78,467 63,918
-----------------------------------------------------------------------------------------------------------------------------------
Total current assets 135,315 117,056
-----------------------------------------------------------------------------------------------------------------------------------
Long-term equity investments (Including equity investment
differences of RMB 572 million (2004: RMB 383 million)) 10 10,549 13,409
-----------------------------------------------------------------------------------------------------------------------------------
Fixed assets
Fixed assets, at cost 548,413 519,462
-------------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 258,317 243,510
-------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets before impairment losses 11 290,096 275,952
-------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 6,213 5,816
-------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 283,883 270,136
-------------------------------------------------------------------------------------------------------------------------------
Construction materials 12 984 430
-------------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 47,629 45,976
-------------------------------------------------------------------------------------------------------------------------------
Total fixed assets 332,496 316,542
-----------------------------------------------------------------------------------------------------------------------------------
Intangible assets and other assets
-----------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 6,125 5,345
-------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 15 3,783 3,563
-------------------------------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 9,908 8,908
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 16 4,718 4,166
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 492,986 460,081
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term loans 17 34,419 26,723
-------------------------------------------------------------------------------------------------------------------------------
Bills payable 18 26,893 30,797
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 19 34,152 23,792
-------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 20 9,189 8,605
-------------------------------------------------------------------------------------------------------------------------------
Wages payable 3,615 3,223
-------------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 1,095 1,101
-------------------------------------------------------------------------------------------------------------------------------
Taxes payable 21 3,552 6,741
-------------------------------------------------------------------------------------------------------------------------------
Other payables 22 1,808 1,519
-------------------------------------------------------------------------------------------------------------------------------
Other creditors 23 27,384 26,459
-------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 24 2,395 652
-------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term liabilities 25 7,245 14,298
-------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 151,747 143,910
-----------------------------------------------------------------------------------------------------------------------------------
Long-term liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Long-term loans 26 110,099 94,087
-------------------------------------------------------------------------------------------------------------------------------
Debentures payable 27 3,500 3,500
-------------------------------------------------------------------------------------------------------------------------------
Other long-term payables 28 892 820
-------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 114,491 98,407
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 16 3 198
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 266,241 242,515
-----------------------------------------------------------------------------------------------------------------------------------
Minority interests 29,174 31,216
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------------
Share capital 29 86,702 86,702
-------------------------------------------------------------------------------------------------------------------------------
Capital reserve 30 37,121 37,121
-------------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public welfare fund of
RMB 11,362 million (2004: RMB 9,558 million)) 31 29,724 26,116
-------------------------------------------------------------------------------------------------------------------------------
Unrecognised investment losses (600) (713)
-------------------------------------------------------------------------------------------------------------------------------
Undistributed profits (Including cash dividend declared after the
balance sheet date of RMB 3,468 million (2004: Proposed cash
dividend of RMB 6,936 million)) 39 44,624 37,124
-------------------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 197,571 186,350
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' funds 492,986 460,081
===================================================================================================================================
Approved by the Board of Directors on 26 August 2005.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director, Senior Vice President Head of Accounting
(Authorised representative) and Chief Financial Officer Division
The notes on pages 47 to 74 form part of these financial statements.
39
BALANCE SHEET
at 30 June 2005
At 30 June At 31 December
Note 2005 2004
RMB millions RMB millions
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Current assets
-----------------------------------------------------------------------------------------------------------------------------------
Cash at bank and in hand 4 4,692 6,299
-------------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 1,244 1,597
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 8,790 8,245
-------------------------------------------------------------------------------------------------------------------------------
Other receivables 7 16,137 19,625
-------------------------------------------------------------------------------------------------------------------------------
Advance payments 8 5,072 4,358
-------------------------------------------------------------------------------------------------------------------------------
Inventories 9 39,000 33,951
-------------------------------------------------------------------------------------------------------------------------------
Total current assets 74,935 74,075
===================================================================================================================================
Long-term equity investments (Including equity investment differences of
RMB 582 million (2004: RMB 400 million)) 10 126,733 124,211
===================================================================================================================================
Fixed assets
-----------------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 278,794 271,120
-------------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 120,917 113,572
-------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets before impairment losses 11 157,877 157,548
-------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 4,043 4,038
-------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 153,834 153,510
-------------------------------------------------------------------------------------------------------------------------------
Construction materials 12 215 93
-------------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 35,706 28,779
-------------------------------------------------------------------------------------------------------------------------------
Total fixed assets 189,755 182,382
===================================================================================================================================
Intangible assets and other assets
-----------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 4,316 4,261
-------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 15 2,906 2,530
-------------------------------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 7,222 6,791
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 16 2,376 3,708
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 401,021 391,167
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------------
Current liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Short-term loans 17 20,482 16,254
-------------------------------------------------------------------------------------------------------------------------------
Bills payable 18 23,054 21,589
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 19 17,296 21,137
-------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 20 7,513 6,106
-------------------------------------------------------------------------------------------------------------------------------
Wages payable 2,171 1,854
-------------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 467 498
-------------------------------------------------------------------------------------------------------------------------------
Taxes payable 21 (269) 3,170
-------------------------------------------------------------------------------------------------------------------------------
Other payables 22 510 442
-------------------------------------------------------------------------------------------------------------------------------
Other creditors 23 27,467 34,156
-------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 24 624 430
-------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term liabilities 25 3,802 11,506
-------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 103,117 117,142
===================================================================================================================================
Long-term liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Long-term loans 26 95,094 82,332
-------------------------------------------------------------------------------------------------------------------------------
Debentures payable 27 3,500 3,500
-------------------------------------------------------------------------------------------------------------------------------
Other long-term payables 28 476 438
-------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 99,070 86,270
===================================================================================================================================
Deferred tax liabilities 16 1 16
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 202,188 203,428
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------------
Share capital 29 86,702 86,702
-------------------------------------------------------------------------------------------------------------------------------
Capital reserve 30 37,797 37,797
-------------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public welfare fund of
RMB 11,362 million (2004: RMB 9,558 million)) 31 29,724 26,116
-------------------------------------------------------------------------------------------------------------------------------
Undistributed profits (Including cash dividend declared after the
balance sheet date of RMB 3,468 million (2004: Proposed cash dividend
of RMB 6,936 million)) 39 44,610 37,124
-----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 198,833 187,739
-----------------------------------------------------------------------------------------------------------------------------------
===================================================================================================================================
Total liabilities and shareholders' funds 401,021 391,167
===================================================================================================================================
Approved by the Board of Directors on 26 August 2005.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director, Senior Vice President Head of Accounting
(Authorised representative) and Chief Financial Officer Division
The notes on pages 47 to 74 form part of these financial statements.
40
CONSOLIDATED INCOME STATEMENT AND PROFIT APPROPRIATION STATEMENT
for the six-month period ended 30 June 2005
Six-month periods
ended 30 June
Note 2005 2004
RMB millions RMB millions
Income from principal operations 32 359,248 265,709
-----------------------------------------------------------------------------------------------------------------------------------
Less: Cost of sales 293,181 206,098
Sales taxes and surcharges 33 8,204 7,776
----------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 57,863 51,835
===================================================================================================================================
Add:Profit from other operations 447 616
-----------------------------------------------------------------------------------------------------------------------------------
Less: Selling expenses 10,359 8,664
-----------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 10,600 10,865
----------------------------------------------------------------------------------------------------------------------------
Financial expenses 34 2,852 2,094
----------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 35 3,355 2,475
----------------------------------------------------------------------------------------------------------------------------
Operating profit 31,144 28,353
===================================================================================================================================
Add:Investment (loss) / income 36 (742) 516
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating income 133 181
----------------------------------------------------------------------------------------------------------------------------
Less: Non-operating expenses 37 1,109 4,952
-----------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 29,426 24,098
===================================================================================================================================
Less: Taxation 38 9,168 7,154
-----------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,101 2,412
----------------------------------------------------------------------------------------------------------------------------
Add: Unrecognised investment losses (113) 507
-----------------------------------------------------------------------------------------------------------------------------------
Net profit 18,044 15,039
===================================================================================================================================
Add: Undistributed profits at the beginning of the period 37,124 19,975
-----------------------------------------------------------------------------------------------------------------------------------
Distributable profits 55,168 35,014
===================================================================================================================================
Less: Transfer to statutory surplus reserve 31 1,804 1,504
----------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 31 1,804 1,504
----------------------------------------------------------------------------------------------------------------------------
Distributable profits to shareholders 51,560 32,006
===================================================================================================================================
Less: Distribution of ordinary shares' dividends 39 6,936 5,202
-----------------------------------------------------------------------------------------------------------------------------------
Undistributed profits at the end of the period (Including dividend
declared after the balance sheet date of RMB 3,468 million
(2004: RMB 3,468 million)) 39 44,624 26,804
===================================================================================================================================
Approved by the Board of Directors on 26 August 2005.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director, Senior Vice President Head of Accounting
(Authorised representative) and Chief Financial Officer Division
The notes on pages 47 to 74 form part of these financial statements.
41
INCOME STATEMENT AND PROFIT APPROPRIATION STATEMENT
for the six-month period ended 30 June 2005
Six-month periods
ended 30 June
Note 2005 2004
RMB millions RMB millions
Income from principal operations 32 241,340 183,836
-----------------------------------------------------------------------------------------------------------------------------------
Less: Cost of sales 212,726 154,678
-----------------------------------------------------------------------------------------------------------------------------------
Sales taxes and surcharges 33 5,386 4,661
-----------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 23,228 24,497
====================================================================================================================================
Add:Profit from other operations 175 29
-----------------------------------------------------------------------------------------------------------------------------------
Less: Selling expenses 6,609 5,590
-----------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 6,141 7,204
-----------------------------------------------------------------------------------------------------------------------------------
Financial expenses 34 1,852 1,287
-----------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 35 2,678 1,831
-----------------------------------------------------------------------------------------------------------------------------------
Operating profit 6,123 8,614
====================================================================================================================================
Add:Investment income 36 20,934 16,640
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating income 99 112
-----------------------------------------------------------------------------------------------------------------------------------
Less: Non-operating expenses 37 432 3,552
-----------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 26,724 21,814
-----------------------------------------------------------------------------------------------------------------------------------
Less: Taxation 38 8,694 6,532
-----------------------------------------------------------------------------------------------------------------------------------
Net profit 18,030 15,282
===================================================================================================================================
Add: Undistributed profits at the beginning of the period 37,124 19,732
-----------------------------------------------------------------------------------------------------------------------------------
Distributable profits 55,154 35,014
-----------------------------------------------------------------------------------------------------------------------------------
Less: Transfer to statutory surplus reserve 31 1,804 1,504
-----------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 31 1,804 1,504
-----------------------------------------------------------------------------------------------------------------------------------
Distributable profits to shareholders 51,546 32,006
-----------------------------------------------------------------------------------------------------------------------------------
Less: Distribution of ordinary shares' dividends 39 6,936 5,202
-----------------------------------------------------------------------------------------------------------------------------------
Undistributed profits at the end of the period (Including
dividend declared after the balance sheet date of RMB 3,468
million (2004: RMB 3,468 million)) 39 44,610 26,804
====================================================================================================================================
Approved by the Board of Directors on 26 August 2005.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director, Senior Vice President Head of Accounting
(Authorised representative) and Chief Financial Officer Division
The notes on pages 47 to 74 form part of these financial statements.
42
CONSOLIDATED CASH FLOW STATEMENT
for the six-month period ended 30 June 2005
Six-month periods
ended 30 June
Note 2005 2004
RMB millions RMB millions
Cash flows from operating activities
-----------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 423,708 313,412
-------------------------------------------------------------------------------------------------------------------------------
Rentals received 89 202
-------------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 1,787 1,105
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 425,584 314,719
====================================================================================================================================
Cash paid for goods and services (349,021) (246,030)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (2,691) (2,122)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (8,272) (8,282)
-------------------------------------------------------------------------------------------------------------------------------
Value added tax paid (14,217) (12,672)
-------------------------------------------------------------------------------------------------------------------------------
Income tax paid (12,424) (8,347)
-------------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (8,986) (8,456)
-------------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (4,929) (7,116)
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (400,540) (293,025)
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities (a) 25,044 21,694
====================================================================================================================================
Cash flows from investing activities
====================================================================================================================================
Cash received from sale of investments 63 31
-------------------------------------------------------------------------------------------------------------------------------
Dividends received 362 222
-------------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 201 187
-------------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 527 800
-------------------------------------------------------------------------------------------------------------------------------
Other cash received relating to investing activities 168 170
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 1,321 1,410
====================================================================================================================================
Cash paid for acquisition of fixed assets and intangible assets (26,339) (26,424)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets
of jointly controlled entities (1,896) (3,368)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for purchases of investments (706) (919)
-------------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (334) (1,371)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of operating assets and
the associated liabilities from China Petrochemical Corporation (3,128) (1,828)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of H shares of a subsidiary (4,088) --
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (36,491) (33,910)
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (35,170) (32,500)
====================================================================================================================================
Cash flows from financing activities
====================================================================================================================================
Proceeds from contribution from minority shareholders 86 92
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of corporate bonds, net of issuing expenses -- 3,472
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings 292,505 160,356
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings of jointly controlled entities 2,603 1,621
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 295,194 165,541
====================================================================================================================================
Repayments of borrowings (281,804) (150,838)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, distribution of profit or interest (5,515) (4,703)
-------------------------------------------------------------------------------------------------------------------------------
Dividends paid to minority shareholders by subsidiaries (514) (141)
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (287,833) (155,682)
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 7,361 9,859
====================================================================================================================================
Effects of foreign exchange rate -- (1)
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (c) (2,765) (948)
====================================================================================================================================
The notes on pages 47 to 74 form part of these financial statements.
43
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
(a) Reconciliation of net profit to cash flows from operating activities
--------------------------------------------------------------------------------------------------------------------------------
Net profit 18,044 15,039
--------------------------------------------------------------------------------------------------------------------------------
Add:(Reversal of) / provision for allowance for doubtful accounts (156) 505
--------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 70 145
------------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 15,107 14,749
------------------------------------------------------------------------------------------------------------------------
Amortisation of intangible assets 305 287
------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 397 2,763
------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 35 39
------------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 21 1,376
------------------------------------------------------------------------------------------------------------------------
Financial expenses 2,852 2,094
------------------------------------------------------------------------------------------------------------------------
Dry hole costs 1,325 764
------------------------------------------------------------------------------------------------------------------------
Investment loss / (income) 707 (403)
------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities (less: assets) (747) (1,414)
------------------------------------------------------------------------------------------------------------------------
Increase in inventories (15,026) (14,653)
------------------------------------------------------------------------------------------------------------------------
Increase in operating receivables (6,599) (6,681)
------------------------------------------------------------------------------------------------------------------------
Increase in operating payables 6,608 4,672
------------------------------------------------------------------------------------------------------------------------
Minority interests 2,101 2,412
------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 25,044 21,694
================================================================================================================================
(b) Financing activities not requiring the use of cash
--------------------------------------------------------------------------------------------------------------------------------
Current portion of convertible bonds -- 1,500
----------------------------------------------------------------------------------------------------------------------------
(c) Net decrease in cash and cash equivalents
--------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period 13,616 14,273
----------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the period 16,381 15,221
----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,765) (948)
================================================================================================================================
Approved by the Board of Directors on 26 August 2005.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director, Senior Vice President Head of Accounting
(Authorised representative) and Chief Financial Officer Division
The notes on pages 47 to 74 form part of these financial statements.
44
CASH FLOW STATEMENT
for the six-month period ended 30 June 2005
Six-month periods
ended 30 June
Note 2005 2004
RMB millions RMB millions
Cash flows from operating activities
-----------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 290,762 217,649
-------------------------------------------------------------------------------------------------------------------------------
Rentals received 45 106
-------------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 1,450 820
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 292,257 218,575
====================================================================================================================================
Cash paid for goods and services (254,608) (181,662)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (2,084) (1,472)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (4,640) (4,314)
-------------------------------------------------------------------------------------------------------------------------------
Value added tax paid (6,338) (7,122)
-------------------------------------------------------------------------------------------------------------------------------
Income tax paid (2,837) (3,265)
-------------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (5,878) (5,193)
-------------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (12,269) (6,924)
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (288,654) (209,952)
====================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities (a) 3,603 8,623
====================================================================================================================================
Cash flows from investing activities
====================================================================================================================================
Cash received from sale of investments 62 62
-------------------------------------------------------------------------------------------------------------------------------
Dividends received 15,910 4,908
-------------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 104 98
-------------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 184 422
-------------------------------------------------------------------------------------------------------------------------------
Other cash received relating to investing activities 57 74
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 16,317 5,564
====================================================================================================================================
Cash paid for acquisition of fixed assets and intangible assets (18,044) (18,628)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for purchases of investments (1,161) (1,240)
-------------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions -- (395)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of operating assets and the associated liabilities
from China Petrochemical Corporation (3,128) (1,828)
-------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of H shares of a subsidiary (4,088) --
-------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (26,421) (22,091)
====================================================================================================================================
Net cash flows from investing activities (10,104) (16,527)
====================================================================================================================================
Cash flows from financing activities
====================================================================================================================================
Proceeds from issuance of corporate bonds, net of issuing expenses -- 3,472
-----------------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings 186,066 73,745
-----------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 186,066 77,217
-----------------------------------------------------------------------------------------------------------------------------------
Repayments of borrowings (176,629) (64,779)
-----------------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, distribution of profit or interest (4,359) (3,760)
-----------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (180,988) (68,539)
====================================================================================================================================
Net cash flows from financing activities 5,078 8,678
====================================================================================================================================
Net (decrease) / increase in cash and cash equivalents (b) (1,423) 774
====================================================================================================================================
The notes on pages 47 to 74 form part of these financial statements.
45
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
(a) Reconciliation of net profit to cash flows from operating activities
-----------------------------------------------------------------------------------------------------------------------------------
Net profit 18,030 15,282
-----------------------------------------------------------------------------------------------------------------------------------
Add:Provision for allowance for doubtful accounts 11 613
-----------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 1 87
---------------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 7,539 6,201
---------------------------------------------------------------------------------------------------------------------------
Amortisation of intangible assets 203 173
---------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 5 1,741
---------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 7 --
---------------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 19 1,207
---------------------------------------------------------------------------------------------------------------------------
Financial expenses 1,852 1,287
---------------------------------------------------------------------------------------------------------------------------
Dry hole costs 990 408
---------------------------------------------------------------------------------------------------------------------------
Investment income (13,292) (12,103)
---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities (less: assets) 1,317 (881)
---------------------------------------------------------------------------------------------------------------------------
Increase in inventories (5,172) (9,158)
---------------------------------------------------------------------------------------------------------------------------
Decrease / (increase) in operating receivables 3,304 (1,009)
---------------------------------------------------------------------------------------------------------------------------
(Decrease) / increase in operating payables (11,211) 4,775
---------------------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 3,603 8,623
====================================================================================================================================
(b) Net (decrease) / increase in cash and cash equivalents
====================================================================================================================================
Cash and cash equivalents at the end of the period 4,628 7,119
-------------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the period 6,051 6,345
-------------------------------------------------------------------------------------------------------------------------------
Net (decrease) / increase in cash and cash equivalents (1,423) 774
====================================================================================================================================
Approved by the Board of Directors on 26 August 2005.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director, Senior Vice President Head of Accounting
(Authorised representative) and Chief Financial Officer Division
The notes on pages 47 to 74 form part of these financial statements.
46
NOTES ON THE FINANCIAL STATEMENTS
for the six-month period ended 30 June 2005
1 STATUS OF THE COMPANY
China Petroleum & Chemical Corporation (the "Company") was established on
25 February 2000 as a joint stock limited company.
According to the State Council's approval to the "Preliminary Plan for the
Reorganisation of China Petrochemical Corporation" ( the "Reorganisation"),
the Company was established by China Petrochemical Corporation ("Sinopec
Group Company"), which transferred its core businesses together with the
related assets and liabilities at 30 September 1999 to the Company. Such
assets and liabilities had been valued jointly by China United Assets
Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets
Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation ("registered valuers"). The net asset value was determined at
RMB 98,249,084,000. The valuation was reviewed and approved by the Ministry
of Finance (the "MOF") (Cai Ping Zi [2000] No. 20 "Comments on the Review
of the Valuation Regarding the Formation of a Joint Stock Limited Company
by China Petrochemical Corporation").
In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 "Reply to the
Issue Regarding Management of State-Owned Equity by China Petroleum and
Chemical Corporation" issued by the MOF, 68.8 billion domestic state-owned
shares with a par value of RMB 1.00 each were issued to Sinopec Group
Company, the amount of which is equivalent to 70% of the above net asset
value transferred from Sinopec Group Company to the Company in connection
with the Reorganisation.
Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 "Reply on the
Formation of China Petroleum and Chemical Corporation", the Company
obtained the approval from the State Economic and Trade Commission on 21
February 2000 for the formation of a joint stock limited company.
The Company took over the exploration, development and production of crude
oil and natural gas, refining, chemicals and related sales and marketing
business of Sinopec Group Company after the establishment of the Company.
Pursuant to the resolution passed at the Extraordinary General Meeting held
on 24 August 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from
Sinopec Group Company for a consideration of RMB 6.45 billion.
Pursuant to the resolution passed at the Board of Directors' meeting held
on 28 October 2004, the Company acquired the principal assets and
liabilities related to the 380 Kiloton ethylene production and distribution
equipment from Sinopec Group Maoming Petrochemical Company ("Sinopec
Maoming"), for a consideration of RMB 3.3 billion (hereinafter referred to
as the "Acquisition of Ethylene Assets").
Pursuant to the resolution passed at the Board of Directors' meeting held
on 29 December 2004, the Company acquired all operating assets and
liabilities of two wholly owned subsidiaries of Sinopec Group Company,
being Tahe Oilfield Petrochemical Factory ("Tahe Petrochemical") and Xi'an
Petrochemical Main Factory ("Xi'an Petrochemical") from Sinopec Group
Company, for considerations of RMB 0.14 billion and RMB 0.22 billion,
respectively (hereinafter referred to as the "Acquisition of Refining
Assets").
Pursuant to the resolutions passed at the Extraordinary General Meeting
held on 21 December 2004, the Company acquired certain operating assets and
the related liabilities of certain refining, petrochemicals, catalysts and
gas stations businesses (the "Acquisition of Acquired Assets") from Sinopec
Group Company for considerations totalling RMB 5.360 billion. In connection
with these acquisitions, the Group disposed of certain assets and
liabilities of its oilfield downhole operation (the "Disposal of Downhole
Assets") to Sinopec Group Company for a consideration of RMB 1.712 billion,
resulting in a net consideration of RMB 3.648 billion payable to Sinopec
Group Company.
2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Company and its
subsidiaries ("the Group") are in conformity with the Accounting Standards
for Business Enterprises and "Accounting Regulations for Business
Enterprises" and other relevant regulations issued by the MOF of the PRC.
(a) Accounting year
The accounting year of the Group is from 1 January to 31 December.
(b) Basis of consolidation
The Group prepared the consolidated financial statements according to
"Accounting Regulations for Business Enterprises" and Cai Kuai Zi
[1995] No.11 "Provisional regulations on consolidated financial
statements" issued by the MOF.
The consolidated financial statements include the financial statements
of the Company and all of its principal subsidiaries. A subsidiary is
a company held by the Company directly or indirectly, more than 50%
(excluding 50%) of the equity interest, or the Company holds less than
50% of the equity interest of a company but has effective controlling
power. The consolidated income statement of the Company only includes
the results of the subsidiaries during the period when the Company
holds more than 50% of the equity interests or holds less than 50% of
equity interest but exercises effective control. The effect of
minority interests on equity and profit/loss attributable to minority
shareholders are separately shown in the consolidated financial
statements. For those subsidiaries whose assets and results of
operation are not significant and have no significant effect on the
Group's consolidated financial statements, the Company does not
consolidate these subsidiaries, but accounts for under the equity
method in the long-term equity investments.
Where the accounting policies adopted by the subsidiaries are
different from the policies adopted by the Company, the financial
statements of the subsidiaries have been adjusted in accordance with
the accounting policies adopted by the Company on consolidation. All
significant inter-company balances and transactions, and any
unrealised gains arising from inter-company transactions, have been
eliminated on consolidation.
For those jointly controlled entities which the Company has joint
control with other investors under contractual arrangement, the
Company consolidates their assets, liabilities, revenues, costs and
expenses based on the proportionate consolidation method according to
its percentage of holding of equity interest in those entities in the
consolidated financial statements.
47
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Basis of preparation
The financial statements of the Group have been prepared on an accrual
basis under the historical costs convention, unless otherwise stated.
(d) Reporting currency and translation of foreign currencies
The Group's reporting currency is the Renminbi.
Foreign currency transactions during the period are translated into
Renminbi at exchange rates quoted by the People's Bank of China
(OOPBOC rates'') prevailing on the transaction dates. Foreign currency
monetary assets and liabilities are translated into Renminbi at the
PBOC rates at the balance sheet date. Exchange gains and losses on
foreign currency translation, except for those directly relating to
the construction of fixed assets (see note 2(i)), are dealt with in
the income statement.
The results of overseas subsidiaries are translated into Renminbi at
the period/annual average PBOC rates. The balance sheet items are
translated into Renminbi at the PBOC rates at the balance sheet date.
The resulting exchange gains or losses are accounted for as foreign
currency exchange differences.
(e) Cash equivalents
Cash equivalents held by the Group are 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.
(f) Allowance for doubtful accounts
Trade accounts receivable showing signs of uncollectibility are
identified individually and allowance is then made based on the
probability of being uncollectible. In respect of trade accounts
receivable showing no sign of uncollectibility, allowance is made with
reference to the ageing analysis and management's estimation based on
past experience. Allowances for other receivables are determined based
on the nature and corresponding collectibility. Specific approval from
management is required for allowances made in respect of significant
doubtful accounts.
(g) Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realisable value.
Inventories are measured at their actual cost upon acquisition. The
cost of inventories is calculated using the weighted average method.
In addition to the purchase cost of raw materials, work in progress
and finished goods include direct labour and appropriate proportion of
production overheads.
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 to completion
and the estimated expenses and related taxes necessary to make the
sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence. Consumables are expensed when being consumed.
Inventories are recorded by perpetual method.
(h) Long-term equity investments
Where the Group has the power to control, jointly control or exercise
significant influence over an investee enterprise, the investment is
accounted for under the equity method whereby the investment is
initially recorded at cost and adjusted thereafter for any post
acquisition change in the Group's share of the shareholders' funds in
the investee enterprise.
Equity investment difference, which is the difference between the
initial investment cost and the Group's share of shareholders' funds
of the investee enterprise, is accounted for as follows:
Any excess of the initial investment cost over the share of
shareholders' funds of the investee enterprise is amortised on a
straight-line basis. The amortisation period is determined according
to the investment period as stipulated in the relevant agreement, or
not more than 10 years if the investment period is not specified in
the agreement. The unamortised balance is included in long-term equity
investments at the period end.
Any shortfall of the initial investment cost over the share of
shareholders' funds of the investee is recognised in capital reserve
-- reserve for equity investment acquired after the issuance of Cai
Kuai [2003] No.10 "Questions and answers on implementing Accounting
Regulations for Business Enterprises and related accounting standards
(II)". If the investment was acquired before the issuance of Cai Kuai
[2003] No.10 "Questions and answers on implementing Accounting
Regulations for Business Enterprises and related accounting standards
(II)", such shortfall is amortised on a straight-line basis over the
investment period as stipulated in the relevant agreement, or 10 years
if the investment period is not specified in the agreement. The
unamortised balance is included in long-term equity investments at the
period end.
Where the Group does not control, jointly control or exercise
significant influence over an investee enterprise, the investment is
accounted for under the cost method, stating it at the initial
investment cost. Investment income is recognised when the investee
enterprise declares a cash dividend or distributes profits.
Disposals or transfers of long-term equity investments are recognised
in investment income / losses based on the difference between the
disposal proceeds and the carrying amount of the investments.
The Group makes provision for impairment losses on long-term equity
investments (see note 2(w)).
48
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Fixed assets and construction in progress
Fixed assets represent the assets held by the Group for production of
products and administrative purpose with useful life over 1 year and
comparatively high unit value.
Fixed assets are stated in the balance sheet at cost or revalued
amount less accumulated depreciation and impairment losses (see note
2(w)). Construction in progress is stated in the balance sheet at cost
or revalued amount less impairment losses (see note 2(w)). The
revalued amount represents the value of an asset which has been
adjusted based on revaluation carried out in accordance with the
relevant rules and regulations.
All direct and indirect costs related to the purchase or construction
of fixed assets, incurred before the assets are ready for their
intended uses, are capitalised as construction in progress. Those
costs include borrowing costs (including foreign exchange differences
arising from the loan principal and the related interest) on specific
borrowings for the construction of the fixed assets during the
construction period.
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.
Fixed assets of the Group are depreciated using the straight-line
method over their estimated useful lives. The estimated useful lives
and the estimated rate of residual values adopted for respective
classes of fixed assets are as follows:
Estimated
Estimated rate of
useful lives residual value
Land and buildings 15-45 years 3%-5%
------------------------------------------------------------------------
Oil and gas properties 10-14 years 0%-3%
------------------------------------------------------------------------
Plant, machinery, equipment and vehicles 4-18 years 3%
------------------------------------------------------------------------
Oil depots and storage tanks 8-14 years 3%
------------------------------------------------------------------------
Service stations 25 years 3%-5%
------------------------------------------------------------------------
(j) Oil and gas properties
Costs of development wells and the 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 charged to expense. All other
exploration costs, including geological and geophysical costs, are
expensed as incurred.
(k) Intangible assets
Intangible assets are carried in the balance sheet at cost or
valuation less accumulated amortisation and provision for impairment
losses (see note 2(w)). Amortisation is provided on a straight-line
basis. The amortisation period is the shorter of the beneficial period
as specified in the related agreement and the legal life of the
intangible asset. Amortisation is provided over 10 years if it is not
specified in agreements or stipulated by law.
Intangible assets include exploration and production right.
Exploration and production right are amortised on a straight-line
basis over the average period of the production rights of the related
oil fields.
(l) Pre-operating expenditures
Except for the acquisition and constructions of fixed assets, all
expenses incurred during the start-up period are recorded in long-term
deferred expenses and charged to the income statement in the month
when business operation commences.
(m) Debentures payable
Debentures payable is stated in the balance sheet at proceeds received
upon issuance. Interest expense is calculated based on stipulated
interest rate.
(n) Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum
and chemical products and all other items are recorded when the
customer accepts the goods and the significant risks and rewards of
ownership and title have been transferred to the buyer. No revenue is
recognised if there are significant uncertainties regarding recovery
of the consideration due, the possible return of goods, or when the
amount of revenue and the costs incurred or to be incurred in respect
of the transaction cannot be measured reliably.
Revenue from the rendering of services only involving in one
accounting year is recognised in the income statement upon performance
of services. If a transaction lasts more than one accounting years,
when the outcome of the transaction involving the rendering of
services can be estimated reliably, revenue from the rendering of
services is recognised in the income statement in proportion to the
stage of completion of the transaction based on the progress of work
performed; or when the outcome of the transaction involving the
rendering of services cannot be estimated reliably, revenues are
recognised only to the extent that costs incurred which are expected
to be recoverable.
Interest income is recognised on a time proportion basis according to
the outstanding principal and the applicable interest rate.
49
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(o) Income tax
Income tax is recognised using the tax effect accounting method.
Income tax for the period comprises provision for current tax and
movement of deferred tax assets and liabilities.
Current tax for the period is calculated on taxable income by applying
the applicable tax rates.
Deferred tax is provided using the liability method for timing
differences between accounting profit before tax and taxable income
arising from the differences in the tax and accounting treatment of
income expenses or loss item.
The tax value of losses expected to be available for utilisation
against future taxable income is set off against the deferred tax
liability within the same legal tax unit and jurisdiction. A valuation
allowance is provided for the tax value of losses to reduce the
deferred tax asset to the amount that is more likely than not to be
realised through future taxable income.
(p) Borrowing costs
Borrowing costs on specific borrowings for the construction of fixed
assets are capitalised into the cost of the fixed assets during the
construction period until the fixed assets are ready for their
intended uses.
Except for the above, other borrowing costs are recognised as
financial expenses in the income statement when incurred.
(q) Repairs and maintenance expenses
Repairs and maintenance expenses, including cost of major overhaul,
are recognised in the income statement when incurred.
(r) Environmental expenditures
Environmental expenditures that relate to current ongoing operations
or to conditions caused by past operations are recognised in the
income statement when incurred.
(s) Research and development costs
Research and development costs are recognised in the income statement
when incurred.
(t) Operating leases
Operating lease payments are charged to the income statement on a
straight-line basis over the period of the respective leases.
(u) Dividends
Dividends are recognised in the income statement and profit
appropriation statement when they are declared. Dividends proposed or
approved after the balance sheet date but before the date on which the
financial statements are authorised for issue are separately disclosed
under shareholders' funds in the balance sheet.
(v) Retirement benefits
Pursuant to the relevant laws and regulations in the PRC, the Group
has joined a defined contribution retirement plans for the employees
organised by governmental organisations. The Group makes contributions
to the retirement plans at the applicable rates based on the
employees' salaries. The contributions payable under the retirement
plans are charged to the income statement when incurred.
(w) Provision for impairment
The carrying amounts of assets (including long-term equity
investments, fixed assets, construction in progress, intangible assets
and other assets) are reviewed periodically in order to assess whether
the recoverable amounts have declined below the carrying amounts.
Assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be
recoverable. When such a decline has occurred, the carrying amount is
reduced to the recoverable amount. The amount by which the carrying
amount is reduced is the impairment loss.
The recoverable amount is the greater of the net selling price and the
present value of the estimated future cash flows generated by the
continuous use of the asset and the proceed from the disposal of the
asset at the end of its useful life.
Provision for impairment loss is calculated on an item by item basis
and recognised as an expense in the income statement. However, when a
difference between the initial investment cost and the Group's share
of the shareholders' funds of the investee enterprise has been
credited to the capital reserve, any impairment losses for long-term
equity investment is firstly set off against the difference initially
recognised in the capital reserve in connection with the related
investment and any excess impairment losses are then recognised in the
income statement.
If there is an indication that there has been a change in the
estimates used to determine the recoverable amount and as a result the
estimated recoverable amount is greater than the carrying amount of
the asset, the impairment loss recognised in prior years is reversed.
Reversal of impairment loss is recognised in current period's income
statement. Impairment loss is reversed to the extent of the asset's
carrying amount that would has been determined had no impairment loss
been recognised in prior years. In respect of the reversal of an
impairment loss for a long-term equity investment, the reversal starts
with the impairment loss that had previously been recognised in the
income statement and then the impairment loss that had been charged to
the capital reserve.
(x) Related parties
If the Group has the ability, directly or indirectly, to control,
jointly control or exercise significant influence over another party,
or vice versa, or where the Group and one or more parties are subject
to common control from another party, they are considered to be
related parties. Related parties may be individuals or enterprises.
50
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(y) Provisions and contingent liabilities
A provision is recognised when the Group has an obligation as a result
of a past event, and it is probable that an outflow of economic
benefits will be required to settle the obligations and a reliable
estimate can be made.
Where it is not probable that the settlement of the above obligation
will cause an outflow of economic benefits, or the amount of the
outflow cannot be estimated reliably, the obligation is disclosed as a
contingent liability.
3 TAXATION
Major taxes applicable to the Group and the Company comprise income tax,
consumption tax, resources tax and value added tax.
Income tax rate is 33% and that of certain subsidiaries is 15%.
Consumption tax is levied on gasoline and diesel at a rate of RMB 277.6 per
tonne and RMB 117.6 per tonne respectively.
Resources tax is levied on crude oil and natural gas at rates ranging from
RMB 8 per tonne to RMB 30 per tonne and RMB 2 to RMB 15 per 1000 cubic
metre respectively.
Value added tax rate for liquefied petroleum gas, natural gas and certain
agricultural products is 13% and that for other products is 17%.
The branches, subsidiaries and jointly controlled entities granted with tax
concession are set out below:
Name of branches, subsidiaries
and jointly controlled entities Preferential tax rate Reasons for granting concession
Sinopec National Star Xinan Branch 15% Tax preferential policy in the western part of China
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec National Star Xibei Branch 15% Tax preferential policy in the western part of China
Sinopec Southern Exploration Branch 15% Tax preferential policy in the western part of China
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical Company Limited 15% The first batch of joint stock enterprise which
successfully got listed overseas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre Company Limited 15% The first batch of joint stock enterprise which
successfully got listed overseas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 15% High technology enterprise
Sinopec Zhongyuan Petroleum Company Limited 15% High technology enterprise
-----------------------------------------------------------------------------------------------------------------------------------
Petro-CyberWorks Information 15% High technology enterprise
Technology Company Limited
-----------------------------------------------------------------------------------------------------------------------------------
Shanghai Secco Petrochemical Company Limited 2-year exemption and Foreign investment enterprise
3-year 50% reduction
-----------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited 2-year exemption and Foreign investment enterprise
3-year 50% reduction
-----------------------------------------------------------------------------------------------------------------------------------
4 CASH AT BANK AND IN HAND
The Group
AT 30 JUNE 2005 At 31 December 2004
ORIGINAL Original
CURRENCY EXCHANGE RMB currency Exchange RMB
MILLIONS RATES MILLIONS millions rates millions
Cash in hand
------------------------------------------------------------------------------------------------------------------------
Renminbi 61 115
---------------------------------------------------------------------------------------------------------------------
Cash at bank
------------------------------------------------------------------------------------------------------------------------
Renminbi 12,759 12,621
---------------------------------------------------------------------------------------------------------------------
US Dollars 63 8.2765 527 96 8.2765 795
---------------------------------------------------------------------------------------------------------------------
Hong Kong Dollars 124 1.0649 133 47 1.0637 50
---------------------------------------------------------------------------------------------------------------------
Japanese Yen 253 0.0751 19 220 0.0797 18
---------------------------------------------------------------------------------------------------------------------
Euro 3 9.9610 26 1 11.2627 10
---------------------------------------------------------------------------------------------------------------------
13,525 13,609
------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
------------------------------------------------------------------------------------------------------------------------
Renminbi 1,796 4,657
---------------------------------------------------------------------------------------------------------------------
US Dollars -- 8.2765 1 2 8.2765 14
---------------------------------------------------------------------------------------------------------------------
TOTAL CASH AT BANK AND IN HAND 15,322 18,280
========================================================================================================================
51
4 CASH AT BANK AND IN HAND (Continued)
The Company
AT 30 JUNE 2005 At 31 December 2004
ORIGINAL Original
CURRENCY EXCHANGE RMB currency Exchange RMB
MILLIONS RATES MILLIONS millions rates millions
Cash in hand
----------------------------------------------------------------------------------------------------------------------
Renminbi 14 107
-------------------------------------------------------------------------------------------------------------------
Cash at bank
----------------------------------------------------------------------------------------------------------------------
Renminbi 4,366 4,892
-------------------------------------------------------------------------------------------------------------------
US Dollars 2 8.2765 16 1 8.2765 6
-------------------------------------------------------------------------------------------------------------------
4,396 5,005
----------------------------------------------------------------------------------------------------------------------
Deposits at related parties
----------------------------------------------------------------------------------------------------------------------
Renminbi 295 1,280
-------------------------------------------------------------------------------------------------------------------
US Dollars -- 8.2765 1 2 8.2765 14
-------------------------------------------------------------------------------------------------------------------
TOTAL CASH AT BANK AND IN HAND 4,692 6,299
======================================================================================================================
Deposits at related parties represent deposits placed at Sinopec Finance Company Limited. Interest income is calculated at
market rate.
5 BILLS RECEIVABLE
Bills receivable represents mainly the bills of acceptance issued by banks
for sales of goods and products.
6 TRADE ACCOUNTS RECEIVABLE
The Group The Company
AT 30 JUNE At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 5,142 5,026
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow subsidiaries 2,705 2,349 812 858
-------------------------------------------------------------------------------------------------------------------------------
Associates 563 89 27 19
-------------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities 404 -- 248 --
-------------------------------------------------------------------------------------------------------------------------------
Others 15,127 10,989 5,300 5,179
-------------------------------------------------------------------------------------------------------------------------------
18,799 13,427 11,529 11,082
-------------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,552 3,671 2,739 2,837
-------------------------------------------------------------------------------------------------------------------------------
TOTAL 15,247 9,756 8,790 8,245
======================================================================================================================
Allowance for doubtful accounts are analysed as follows:
The Group The Company
AT 30 JUNE At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 3,671 3,185 2,837 2,299
-------------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 76 931 51 708
-------------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (194) (85) (149) (37)
-------------------------------------------------------------------------------------------------------------------------------
Written off for the period/year (1) (360) -- (133)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE/31 DECEMBER 3,552 3,671 2,739 2,837
======================================================================================================================
Ageing analysis on trade accounts receivable are as follows:
The Group
AT 30 JUNE 2005 At 31 December 2004
AMOUNT ALLOWANCE Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 14,964 79.6 201 1.3 9,546 71.1 390 4.1
-------------------------------------------------------------------------------------------------------------------------------
Between one and two years 278 1.5 52 18.7 308 2.3 83 26.9
-------------------------------------------------------------------------------------------------------------------------------
Between two and three years 259 1.4 124 47.9 527 3.9 361 68.5
-------------------------------------------------------------------------------------------------------------------------------
Over three years 3,298 17.5 3,175 96.3 3,046 22.7 2,837 93.1
-------------------------------------------------------------------------------------------------------------------------------
TOTAL 18,799 100.0 3,552 13,427 100.0 3,671
======================================================================================================================
The Company
AT 30 JUNE 2005 At 31 December 2004
AMOUNT ALLOWANCE Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 8,706 75.5 139 1.6 8,103 73.1 275 3.4
-------------------------------------------------------------------------------------------------------------------------------
Between one and two years 186 1.6 38 20.4 193 1.8 66 34.2
-------------------------------------------------------------------------------------------------------------------------------
Between two and three years 135 1.2 86 63.7 334 3.0 251 75.1
-------------------------------------------------------------------------------------------------------------------------------
Over three years 2,502 21.7 2,476 99.0 2,452 22.1 2,245 91.6
-------------------------------------------------------------------------------------------------------------------------------
TOTAL 11,529 100.0 2,739 11,082 100.0 2,837
======================================================================================================================
52
6 TRADE ACCOUNTS RECEIVABLE (Continued)
Major trade accounts receivable of the Group at 30 June 2005 are set out below:
Percentage of
trade accounts
Name of entity Balance receivable
RMB millions %
Trafigura Pte Limited 378 2.0
---------------------------------------------------------------------------------------------------------------------------
Baling Petrochemical Yueyang Petrochemical Company 283 1.5
---------------------------------------------------------------------------------------------------------------------------
Qingdao Petrochemical Plant 191 1.0
---------------------------------------------------------------------------------------------------------------------------
Maoming Petrochemical Shihua Company Limited 166 0.9
---------------------------------------------------------------------------------------------------------------------------
Sinopec Railway Oil Marketing Company Limited 165 0.9
---------------------------------------------------------------------------------------------------------------------------
Major trade accounts receivable of the Group at 31 December 2004 are set out below:
Percentage of
trade accounts
Name of entity Balance receivable
RMB millions %
Baling Petrochemical Yueyang Petrochemical Company 393 2.9
---------------------------------------------------------------------------------------------------------------------------
Qingdao Petrochemical Plant 379 2.8
---------------------------------------------------------------------------------------------------------------------------
Petrolimex Vietnam 311 2.3
---------------------------------------------------------------------------------------------------------------------------
Phibro GmbH 294 2.2
---------------------------------------------------------------------------------------------------------------------------
Maoming Petrochemical Shihua Company Limited 248 1.8
---------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 40, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of trade accounts receivable.
During the six-month period ended 30 June 2005, the Group and the Company
had no individually significant trade accounts receivable which had been
fully or substantially provided for.
During the six-month period ended 30 June 2005, the Group and the Company
had no individually significant write off or recover of doubtful debts
which had been fully or substantially provided for in prior years.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant trade accounts receivable that aged over three
years.
7 OTHER RECEIVABLES
The Group The Company
AT 30 JUNE At 31 December AT 30 JUNE At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 7,810 11,004
----------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow subsidiaries 4,032 6,135 3,578 5,616
-----------------------------------------------------------------------------------------------------------------------------
Associates 556 308 426 260
-----------------------------------------------------------------------------------------------------------------------------
Others 10,544 9,515 7,631 6,168
-----------------------------------------------------------------------------------------------------------------------------
15,132 15,958 19,445 23,048
-----------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,450 3,496 3,308 3,423
-----------------------------------------------------------------------------------------------------------------------------
TOTAL 11,682 12,462 16,137 19,625
=============================================================================================================================
Allowance for doubtful accounts are analysed as follows:
The Group The Company
AT 30 JUNE At 31 December AT 30 JUNE At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 3,496 2,348 3,423 1,967
-----------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 218 1,245 80 1,514
-----------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (256) (41) (189) (26)
-----------------------------------------------------------------------------------------------------------------------------
Written off for the period/year (8) (56) (6) (32)
-----------------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 3,450 3,496 3,308 3,423
=============================================================================================================================
53
7 OTHER RECEIVABLES (Continued)
Ageing analysis of other receivables are as follows:
The Group
AT 30 JUNE 2005 At 31 December 2004
AMOUNT ALLOWANCE Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 8,776 58.0 23 0.3 8,577 53.8 14 0.2
---------------------------------------------------------------------------------------------------------------------------
Between one and two years 888 5.9 129 14.5 485 3.0 17 3.5
---------------------------------------------------------------------------------------------------------------------------
Between two and three years 200 1.3 100 50.0 3,549 22.2 430 12.1
---------------------------------------------------------------------------------------------------------------------------
Over three years 5,268 34.8 3,198 60.7 3,347 21.0 3,035 90.7
---------------------------------------------------------------------------------------------------------------------------
TOTAL 15,132 100.0 3,450 15,958 100.0 3,496
===========================================================================================================================
The Company
AT 30 JUNE 2005 At 31 December 2004
AMOUNT ALLOWANCE Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 13,959 71.8 14 0.1 16,168 70.1 12 0.1
---------------------------------------------------------------------------------------------------------------------------
Between one and two years 701 3.6 613 87.4 923 4.0 592 64.1
---------------------------------------------------------------------------------------------------------------------------
Between two and three years 129 0.7 39 30.2 2,620 11.4 48 1.8
---------------------------------------------------------------------------------------------------------------------------
Over three years 4,656 23.9 2,642 56.7 3,337 14.5 2,771 83.0
---------------------------------------------------------------------------------------------------------------------------
TOTAL 19,445 100.0 3,308 23,048 100.0 3,423
===========================================================================================================================
Major other receivables of the Group at 30 June 2005 are set out below:
Percentage of
Name of entity Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 2,002 13.2
---------------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 219 1.4
---------------------------------------------------------------------------------------------------------------------------
Shenzhen Material Group Company Current Account 200 1.3
---------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oil Field Dynamic Company Limited Current Account 200 1.3
---------------------------------------------------------------------------------------------------------------------------
China Ruilian Industrial Group Corporation Current Account 184 1.2
---------------------------------------------------------------------------------------------------------------------------
Major other receivables of the Group at 31 December 2004 are set out below:
Percentage of
Name of entity Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 2,502 15.7
---------------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 219 1.4
---------------------------------------------------------------------------------------------------------------------------
China Ruilian Industrial Group Corporation Current Account 184 1.2
---------------------------------------------------------------------------------------------------------------------------
Anhui Jinyu Highway Development Company Limited Current Account 121 0.8
---------------------------------------------------------------------------------------------------------------------------
Anhui He Chao Wu Highway Company Limited Current Account 107 0.7
-------------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 40, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of other receivables.
During the six-month period ended 30 June 2005, the Group and the Company
had no individually significant other receivables which had been fully or
substantially provided for.
During the six-month period ended 30 June 2005, the Group and the Company
had no individually significant write off or recover of doubtful debts
which had been fully or substantially provided for in prior years.
At 30 June 2005, other than the other receivables due from Sinopec Group
Company, the Group and the Company had no individually significant other
receivables that aged over three years.
8 ADVANCE PAYMENTS
All advance payments are aged within one year.
Except for the balances disclosed in Note 40, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of advance payments.
54
9 INVENTORIES
The Group The Company
AT 30 JUNE At 31 December AT 30 JUNE At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Raw materials 45,112 32,581 18,044 14,544
---------------------------------------------------------------------------------------------------------------------------
Work in progress 11,598 8,341 3,877 3,605
---------------------------------------------------------------------------------------------------------------------------
Finished goods 19,248 20,804 16,020 15,163
---------------------------------------------------------------------------------------------------------------------------
Spare parts and consumables 3,445 3,098 1,430 1,033
---------------------------------------------------------------------------------------------------------------------------
79,403 64,824 39,371 34,345
---------------------------------------------------------------------------------------------------------------------------
Less: Provision for diminution in value of inventories 936 906 371 394
---------------------------------------------------------------------------------------------------------------------------
78,467 63,918 39,000 33,951
===========================================================================================================================
All of the above inventories are purchased or self-manufactured.
Provision for diminution in value of inventories is mainly against finished
goods and spare parts.
Provision for diminution in value of inventories are analysed as follows:
The Group The Company
AT 30 JUNE At 31 December AT 30 JUNE At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 906 519 394 226
-----------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 131 621 38 314
-----------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (61) (188) (37) (124)
-----------------------------------------------------------------------------------------------------------------------------
Written off (40) (46) (24) (22)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE/31 DECEMBER 936 906 371 394
=============================================================================================================================
The cost of inventories recognised as costs and expenses by the Group and
the Company amounted to RMB 298,803 million (2004: RMB 211,880 million) and
RMB 218,070 million (2004: RMB 158,638 million) for the six-month period
ended 30 June 2005.
10 LONG-TERM EQUITY INVESTMENTS
The Group
Unlisted Provision
stock and Equity for
Listed stock other equity investment impairment
investment investment differences losses Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2005 790 12,589 383 (353) 13,409
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period -- 505 1,358 -- 1,863
-----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 35 330 -- -- 365
-----------------------------------------------------------------------------------------------------------------------------
Long-term equity investments accounted for
as jointly controlled entities -- (3,516) -- -- (3,516)
-----------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received (48) (217) -- -- (265)
-----------------------------------------------------------------------------------------------------------------------------
Disposal for the period -- (121) -- -- (121)
-----------------------------------------------------------------------------------------------------------------------------
Amortisation for the period -- -- (1,169) -- (1,169)
-----------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- (17) (17)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 777 9,570 572 (370) 10,549
=============================================================================================================================
The Company
Unlisted Provision
stock and Equity for
Listed stock other equity investment impairment
investment investment differences losses Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2005 49,731 74,235 400 (155) 124,211
----------------------------------------------------------------------------------------------------------------------------
Addition for the period -- 3,897 1,352 -- 5,249
----------------------------------------------------------------------------------------------------------------------------
Reclassification (6,856) 6,856 -- -- --
----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 5,417 9,021 -- -- 14,438
----------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received (2,487) (13,399) -- -- (15,886)
----------------------------------------------------------------------------------------------------------------------------
Disposal for the period -- (102) -- -- (102)
----------------------------------------------------------------------------------------------------------------------------
Amortisation for the period -- -- (1,170) -- (1,170)
----------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- (7) (7)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 45,805 80,508 582 (162) 126,733
============================================================================================================================
55
10 LONG-TERM EQUITY INVESTMENTS (Continued)
Provision for impairment losses are analysed as follows:
The Group The Company
AT 30 JUNE At 31 December AT 30 JUNE At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 353 271 155 160
--------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 40 96 7 2
--------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (5) (8) -- (2)
--------------------------------------------------------------------------------------------------------------------------
Written off (18) (6) -- (5)
--------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE/31 DECEMBER 370 353 162 155
==========================================================================================================================
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant long-term equity investments which had been
provided for.
Other equity investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas and chemical
activities and operations. This includes non-consolidated entities which
the Group has over 50% equity interest but the costs of investment are not
significant or the Group has no control on the entities. Stock investments
of the Company represent investments in subsidiaries, associates and
jointly controlled entities. Details of the Company's principal
subsidiaries are set out in Note 41.
At 30 June 2005, details of listed stock investment of the Group are as follows:
Shares of
Percentage profits Market
of equity accounted Balance value
interest Initial Balance at for under Dividends at at
Type of No. of held by investment 1 January the equity receivable/ 30 June 30 June
Name of investee equity interest shares the Group cost 2005 method received 2005 2005*
enterprise millions RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions
Sinopec Shengli Legal person 96 26.33% 223 461 24 (29) 456 471
Oil Field shares
Dynamic Co
Ltd
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Legal person 186 38.68% 124 329 11 (19) 321 524
Taishan shares
Petroleum Co
Ltd
-----------------------------------------------------------------------------------------------------------------------------------
790 35 (48) 777
===================================================================================================================================
* Information of market price is sourced from Shenzhen Stock Exchange.
At 30 June 2005, details of principal unlisted stock and other equity investment of the Group are as follows:
Share of
profits/
(losses)
Percentage accounted
of equity Balance for the Balance
Initial interest at Addition under Dividends at
investment Investment held by 1 January for the equity receivable/ 30 June
Name of investee cost period the Group 2005 year method received 2005
enterprise RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions
Sinopec Finance
Company Limited 1,205 -- 40% 1,311 -- 69 -- 1,380
---------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum
National Gas
Corporation 300 -- 30% 912 -- 131 (135) 908
---------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical
Industry Park
Development
Company Limited 608 30 years 38% 651 -- (15) (2) 634
---------------------------------------------------------------------------------------------------------------------------------
China Shipping &
Sinopec Suppliers
Company Limited 438 -- 50% 468 -- 19 -- 487
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Changjiang Fuel
Company Limited 190 20 years 50% 251 -- (16) -- 235
---------------------------------------------------------------------------------------------------------------------------------
Hunan Highway
Industrial
Development
Company Limited 215 -- 49% 218 -- -- -- 218
---------------------------------------------------------------------------------------------------------------------------------
Beijng International
Trust and Investment
Company Limited 200 -- 8% -- 200 -- -- 200
---------------------------------------------------------------------------------------------------------------------------------
Zhejiang Express
Petroleum Development
Company Limited 174 30 years 50% -- 174 2 -- 176
---------------------------------------------------------------------------------------------------------------------------------
China Gas Holdings Ltd 136 -- 11% 136 -- -- -- 136
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Railway Oil
Marketing Company
Limited 74 20 years 50% 110 24 18 (48) 104
---------------------------------------------------------------------------------------------------------------------------------
Shanghai Jinpu
Packaging Material
Company Limite 102 30 years 50% 93 -- (3) -- 90
---------------------------------------------------------------------------------------------------------------------------------
No provision for individually significant impairment losses or individually
significant equity investment difference was made for the long-term equity
investments as set out above.
At 30 June 2005, the Group's and the Company's proportion of the total
investments to the net assets was 5% (2004: 7%) and 64% (2004: 66%)
respectively.
56
11 FIXED ASSETS
The Group -- by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions
Cost/valuation:
----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 170,457 117,063 64,775 163,075 4,092 519,462
----------------------------------------------------------------------------------------------------------------------------
Addition for the period 8 85 77 96 147 413
----------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 3,386 3,120 5,753 15,390 95 27,744
----------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity -- -- -- 1,315 -- 1,315
----------------------------------------------------------------------------------------------------------------------------
Disposals (97) (84) (220) (102) (18) (521)
----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 173,754 120,184 70,385 179,774 4,316 548,413
----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 86,550 56,614 11,657 87,282 1,407 243,510
----------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 5,451 3,271 1,357 4,894 134 15,107
----------------------------------------------------------------------------------------------------------------------------
Written back on disposal (87) (58) (95) (54) (6) (300)
----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 91,914 59,827 12,919 92,122 1,535 258,317
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Net book value:
----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 81,840 60,357 57,466 87,652 2,781 290,096
----------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 83,907 60,449 53,118 75,793 2,685 275,952
============================================================================================================================
The Company -- by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions
Cost/valuation:
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 61,025 87,893 61,413 57,719 3,070 271,120
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period 8 66 54 -- 120 248
-----------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 2,352 1,426 3,733 142 90 7,743
-----------------------------------------------------------------------------------------------------------------------------
Disposals (97) (9) (196) (11) (4) (317)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 63,288 89,376 65,004 57,850 3,276 278,794
-----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 26,483 42,803 11,117 32,112 1,057 113,572
-----------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 2,081 2,557 1,281 1,531 89 7,539
-----------------------------------------------------------------------------------------------------------------------------
Written back on disposal (87) (7) (92) (7) (1) (194)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 28,477 45,353 12,306 33,636 1,145 120,917
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net book value:
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 34,811 44,023 52,698 24,214 2,131 157,877
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 34,542 45,090 50,296 25,607 2,013 157,548
=============================================================================================================================
The Group -- by asset class
Oil depots, Plant,
storage tanks machinery,
Land and Oil and gas and service equipment
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 47,107 151,945 59,963 260,447 519,462
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period 43 1 63 306 413
-----------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 1,265 3,130 5,054 18,295 27,744
-----------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity 469 -- -- 846 1,315
-----------------------------------------------------------------------------------------------------------------------------
Disposals (117) (59) (156) (189) (521)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 48,767 155,017 64,924 279,705 548,413
-----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 19,988 77,666 10,493 135,363 243,510
-----------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 808 5,120 1,193 7,986 15,107
-----------------------------------------------------------------------------------------------------------------------------
Written back on disposal (42) (50) (60) (148) (300)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 20,754 82,736 11,626 143,201 258,317
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net book value:
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 28,013 72,281 53,298 136,504 290,096
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 27,119 74,279 49,470 125,084 275,952
=============================================================================================================================
57
11 FIXED ASSETS (Continued)
The Company -- by asset class
Oil depots, Plant,
storage tanks machinery,
Land and Oil and gas and service equipment
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 25,187 53,307 56,824 135,802 271,120
------------------------------------------------------------------------------------------------------------------------
Addition for the period 7 1 43 197 248
------------------------------------------------------------------------------------------------------------------------
Transferred from
construction in progress 503 2,098 3,066 2,076 7,743
------------------------------------------------------------------------------------------------------------------------
Disposals (54) (59) (136) (68) (317)
------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 25,643 55,347 59,797 138,007 278,794
------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 9,672 24,299 10,116 69,485 113,572
------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 478 1,933 1,170 3,958 7,539
------------------------------------------------------------------------------------------------------------------------
Written back on disposal (23) (50) (58) (63) (194)
------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 10,127 26,182 11,228 73,380 120,917
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 15,516 29,165 48,569 64,627 157,877
------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 15,515 29,008 46,708 66,317 157,548
========================================================================================================================
Fixed assets and construction in progress of the Group at 30 September 1999
were valued by registered valuers. The valuation was reviewed and approved
by the MOF (Note 1). Surplus on revaluation was RMB 29,093 million and
deficit on revaluation was RMB 3,210 million. A net surplus on revaluation
of RMB 25,883 million was resulted which has been incorporated in the
Group's financial statements since the year ended 31 December 1999.
In accordance with the relevant rules and regulations in respect of the
acquisition of Sinopec National Star, fixed assets and construction in
progress of Sinopec National Star have been valued by a firm of independent
valuers. Surplus on revaluation of RMB 541 million has been incorporated in
the Group's financial statements since the year ended 31 December 2001.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Ethylene Assets, fixed assets and construction in progress
of Sinopec Maoming have been revalued by a firm of independent valuers.
Deficit on revaluation of RMB 86 million has been incorporated in the
Group's financial statements since the year ended 31 December 2003.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Refining Assets, fixed assets and construction in progress
of Tahe Petrochemical and Xi'an Petrochemical have been revalued by a firm
of independent valuers. Surplus on revaluation of RMB 82 million has been
incorporated in the Group's financial statements since the year ended 31
December 2003.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Acquired Assets, fixed assets and construction in progress
of the Acquired Assets have been revalued by independent valuers. Surplus
on revaluation of RMB 492 million has been incorporated in the Group's
financial statements for the year ended 31 December 2004.
At 30 June 2005, the carrying amounts of fixed assets that were pledged by
the Group and the Company were RMB 100 million (2004: RMB 123 million) and
RMB 10 million (2004: RMB 10 million) respectively.
Provision for impairment losses on fixed assets are analysed as follows:
The Group -- by segment
Exploration Marketing
and and
production Refining Distribution Chemicals Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 783 64 1,769 3,200 5,816
--------------------------------------------------------------------------------------------------------------------
Addition for the period -- -- 5 392 397
--------------------------------------------------------------------------------------------------------------------
At 30 June 2005 783 64 1,774 3,592 6,213
====================================================================================================================
The Company -- by segment
Exploration Marketing
and and
production Refining Distribution Chemicals Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 720 13 1,737 1,568 4,038
---------------------------------------------------------------------------------------------------------------------
Addition for the period -- -- 5 -- 5
---------------------------------------------------------------------------------------------------------------------
At 30 June 2005 720 13 1,742 1,568 4,043
=====================================================================================================================
58
11 FIXED ASSETS (Continued)
The Group -- by asset class
Oil depots, Plant,
storage tanks machinery,
Land and Oil and gas and service equipment
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 331 783 1,249 3,453 5,816
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period -- -- 5 392 397
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 331 783 1,254 3,845 6,213
=============================================================================================================================
The Company -- by asset class
Oil depots, Plant,
storage tanks machinery,
Land and Oil and gas and service equipment
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 184 720 1,249 1,885 4,038
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period -- -- 5 -- 5
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 184 720 1,254 1,885 4,043
=============================================================================================================================
Provision for impairment losses recognised on fixed assets of the chemicals
segment of RMB 392 million (2004: RMB 2,140 million) for the six-month
period ended 30 June 2005 relate to certain chemicals production facilities
that are held for use. The carrying values of these facilities were written
down to their recoverable values which were based on the selling price less
cost to sell for the six-month period ended 30 June 2005. The primary
factor resulting in the provision for impairment losses of the chemicals
segment was due to higher operating and production costs caused by the
increase in the prices of raw materials that are not expected to be
recovered through an increase in selling price.
Provision for impairment losses recognised on fixed assets of the marketing
and distribution segment of RMB 5 million (2004: RMB 623 million) for the
six-month period ended 30 June 2005 primarily relate to certain service
stations that were closed during the period. In measuring the amounts of
impairment charges, the carrying amounts of these assets were compared to
the present value of the expected future cash flows of the assets, as well
as information about sales and purchases of similar properties in the same
geographic area.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant fixed assets which were temporarily idle or
pending for disposal.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant fully depreciated fixed assets which were still in
use.
12 CONSTRUCTION MATERIALS
At 30 June 2005 and 31 December 2004, the Group's and the Company's
construction materials mainly represent the actual cost of materials such
as steel and copper to be used for construction projects.
13 CONSTRUCTION IN PROGRESS
The Group
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions
At 1 January 2005 9,262 8,215 13,451 13,535 1,513 45,976
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period 11,352 3,493 6,151 2,120 249 23,365
Addition by jointly controlled entities 396 -- -- 1,500 -- 1,896
-----------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity -- -- -- 5,461 -- 5,461
-----------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (1,325) -- -- -- -- (1,325)
-----------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (3,386) (3,120) (5,753) (15,390) (95) (27,744)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 16,299 8,588 13,849 7,226 1,667 47,629
=============================================================================================================================
The interest rates per annum at which borrowing costs were capitalised
during the six-month period ended 30 June 2005 by the Group ranged from
3.4% to 6.1% (2004: 3.1% to 6.0%).
The Group's proportionate share of the jointly controlled entities'
construction in progress at 30 June 2005 in the exploration & production
and the chemicals segments were RMB 2,449 million (2004: RMB 2,053 million)
and RMB 321 million (2004: RMB 8,171 million), respectively.
59
13 CONSTRUCTION IN PROGRESS (Continued)
At 30 June 2005, major projects of the Group are as follows:
Accumulated
interest
At Addition Transfer At Percentage Source capitalised
Budgeted 1 January for the to fixed 30 June of of at 30
Project name amount 2005 period assets 2005 completion funding June 2005
RMB RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions millions
THE GROUP
------------------------------------------------------------------------------------------------------------------------------
South-west Fuel Oil
Pipeline Project 3,526 2,448 393 (1,239) 1,602 81% Bank loans & 44
self-financing
------------------------------------------------------------------------------------------------------------------------------
Yizheng-Changling Crude Oil
Pipeline Project 4,820 893 480 (1) 1,372 28% Bank loans &
22 self-financing
------------------------------------------------------------------------------------------------------------------------------
800,000 tonnes Ethylene 7,494 509 486 -- 995 13% Bank loans & 6
Improvement/Expansion Project self-financing
------------------------------------------------------------------------------------------------------------------------------
Fertilizer Improvement Project 1,063 890 103 -- 993 93% Bank loans & 16
self-financing
------------------------------------------------------------------------------------------------------------------------------
Chaoyang Square Project 2,800 906 30 -- 936 33% Self-financing --
------------------------------------------------------------------------------------------------------------------------------
Coal in replacement of Oil
Technology Improvement 1,256 603 165 -- 768 61% Bank loans & 19
Project self-financing
------------------------------------------------------------------------------------------------------------------------------
THE COMPANY
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB RMB RMB RMB RMB RMB
millions millions millions millions millions millions
At 1 January 2005 6,607 6,759 9,941 3,978 1,494 28,779
-------------------------------------------------------------------------------------------------------------------
Addition for the period 7,383 2,292 4,372 1,375 238 15,660
-------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (990) -- -- -- -- (990)
-------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (2,352) (1,426) (3,733) (142) (90) (7,743)
-------------------------------------------------------------------------------------------------------------------
At 30 June 2005 10,648 7,625 10,580 5,211 1,642 35,706
===================================================================================================================
The interest rates per annum at which borrowing costs were capitalised for
the six-month period ended 30 June 2005 by the Company ranged from 3.4% to
6.1% (2004: 3.1% to 6.0%).
14 INTANGIBLE ASSETS
The Group
Exploration
Computer and
software Technical production
license know-how right Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 852 2,286 3,163 635 6,936
-------------------------------------------------------------------------------------------------------------------------------
Addition for the period 11 633 -- 442 1,086
-------------------------------------------------------------------------------------------------------------------------------
Disposals (2) -- -- (23) (25)
-------------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 861 2,919 3,163 1,054 7,997
-------------------------------------------------------------------------------------------------------------------------------
Accumulated Amortisation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 185 841 468 97 1,591
-------------------------------------------------------------------------------------------------------------------------------
Amortisation charge for the period 66 138 58 43 305
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (2) -- -- (22) (24)
-------------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 249 979 526 118 1,872
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net book value:
-------------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 612 1,940 2,637 936 6,125
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 667 1,445 2,695 538 5,345
===============================================================================================================================
Except for the exploration and production right, the above intangible
assets were acquired from third parties. The Company acquired Sinopec
National Star together with the exploration and production right from
Sinopec Group Company. The exploration and production right was valued with
reference to the proved reserves of the associated oil fields. The
amortisation period of the exploration and production right was 27 years.
The amortisation periods of other intangible assets range from 4 to 10
years. At 30 June 2005, the remaining amortisation period of the
exploration and production right was 22.5 years.
60
14 INTANGIBLE ASSETS (Continued)
The Company
Exploration
Computer and
software Technical production
license know-how right Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost:
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 671 1,316 3,163 421 5,571
-----------------------------------------------------------------------------------------------------------------------------
Addition for the period 6 -- -- 252 258
-----------------------------------------------------------------------------------------------------------------------------
Disposals (1) -- -- (22) (23)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 676 1,316 3,163 651 5,806
-----------------------------------------------------------------------------------------------------------------------------
Accumulated Amortisation:
-----------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 120 673 468 49 1,310
-----------------------------------------------------------------------------------------------------------------------------
Amortisation charge for the period 55 65 58 25 203
-----------------------------------------------------------------------------------------------------------------------------
Written back on disposal (1) -- -- (22) (23)
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 174 738 526 52 1,490
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net book value:
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 502 578 2,637 599 4,316
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 551 643 2,695 372 4,261
=============================================================================================================================
Except for the exploration and production right, the above intangible
assets were acquired from third parties. The Company acquired Sinopec
National Star together with the exploration and production right from
Sinopec Group Company. The exploration and production right was valued with
reference to the proved reserves of the associated oil fields. The
amortisation period of the exploration and production right was 27 years.
The amortisation periods of other intangible assets range from 4 to 10
years. At 30 June 2005, the remaining amortisation period of the
exploration and production right was 22.5 years.
15 LONG-TERM DEFERRED EXPENSES
Long-term deferred expenses primarily represent prepaid rental expenses
over one year and catalysts expenditures.
16 DEFERRED TAX ASSETS AND LIABILITIES
The Group
Deferred tax assets Deferred tax liabilities Net balance
At At At At At At
30 June 31 December 30 June 31 December 30 June 31 December
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
-----------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for
receivables and inventories 2,919 2,524 -- -- 2,919 2,524
-----------------------------------------------------------------------------------------------------------------------------
Non-current
-----------------------------------------------------------------------------------------------------------------------------
Fixed assets 1,580 1,566 (3) (198) 1,577 1,368
-----------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward,
net of valuation allowance 200 66 -- -- 200 66
-----------------------------------------------------------------------------------------------------------------------------
Others 19 10 -- -- 19 10
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/ (liabilities) 4,718 4,166 (3) (198) 4,715 3,968
=============================================================================================================================
The Company
Deferred tax assets Deferred tax liabilities Net balance
At At At At At At
30 June 31 December 30 June 31 December 30 June 31 December
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
-----------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for
receivables and inventories 932 2,245 -- -- 932 2,245
-----------------------------------------------------------------------------------------------------------------------------
Non-current
-----------------------------------------------------------------------------------------------------------------------------
Fixed assets 1,431 1,457 (1) (16) 1,430 1,441
-----------------------------------------------------------------------------------------------------------------------------
Others 13 6 -- -- 13 6
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/ (liabilities) 2,376 3,708 (1) (16) 2,375 3,692
=============================================================================================================================
61
17 SHORT-TERM LOANS
The Group's and the Company's short-term loans represent:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Short-term bank loans 32,129 20,009 18,819 10,527
-----------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company
and fellow subsidiaries 2,290 6,714 1,663 5,727
-----------------------------------------------------------------------------------------------------------------------------
Total 34,419 26,723 20,482 16,254
=============================================================================================================================
The Group's and the Company's weighted average interest rates per annum on
short-term loans were 4.3% (2004: 3.9%) and 4.4% (2004: 4.0%) respectively
at 30 June 2005. The majority of the above loans are unsecured.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
significant overdue short-term loans.
18 BILLS PAYABLE
Bills payable primarily represents the bank accepted bills for the purchase
of material, goods and products. The repayment term is normally from three
to six months.
19 TRADE ACCOUNTS PAYABLE
The ageing analysis of trade accounts payable are as follows:
The Group
At 30 June 2005 At 31 December 2004
RMB millions % RMB millions %
Within 3 months 21,601 63.3 12,868 54.1
----------------------------------------------------------------------------------------------------------------
Between 3 and 6 months 10,113 29.6 9,110 38.3
----------------------------------------------------------------------------------------------------------------
Over 6 months 2,438 7.1 1,814 7.6
----------------------------------------------------------------------------------------------------------------
Total 34,152 100.0 23,792 100.0
================================================================================================================
The Company
At 30 June 2005 At 31 December 2004
RMB millions % RMB millions %
Within 3 months 8,798 50.9 13,462 63.7
----------------------------------------------------------------------------------------------------------------
Between 3 and 6 months 7,340 42.4 6,183 29.3
----------------------------------------------------------------------------------------------------------------
Over 6 months 1,158 6.7 1,492 7.0
----------------------------------------------------------------------------------------------------------------
Total 17,296 100.0 21,137 100.0
================================================================================================================
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of trade accounts payable.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant trade accounts payable aged over three years.
20 RECEIPTS IN ADVANCE
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of receipts in advance.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant receipts in advance aged over one year.
21 TAXES PAYABLE
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Value added tax (1,060) (1,119) (1,249) (1,377)
----------------------------------------------------------------------------------------------------------------
Consumption tax 976 1,443 728 1,146
----------------------------------------------------------------------------------------------------------------
Income tax 2,882 5,391 33 3,142
----------------------------------------------------------------------------------------------------------------
Business tax 38 99 22 37
----------------------------------------------------------------------------------------------------------------
Other taxes 716 927 197 222
----------------------------------------------------------------------------------------------------------------
Total 3,552 6,741 (269) 3,170
================================================================================================================
The provision for PRC current income tax is based on a statutory rate of
33% of the assessable income of the Group and the Company as determined in
accordance with the relevant income tax rules and regulations of the PRC
during the six-month periods ended 30 June 2005 and 2004, except for
certain branches and subsidiaries of the Company, which are taxed at a
preferential rate of 15%, and certain jointly controlled entities of the
Company, which are entitled to a tax holiday of a tax-free period for the
first two years and a 50% reduction in income tax for the following three
years.
22 OTHER PAYABLES
At 30 June 2005 and 31 December 2004, the Group's and the Company's other
payables primarily represent payables for resources compensation fee and
education surcharge.
62
23 OTHER CREDITORS
At 30 June 2005 and 31 December 2004, the Group's and the Company's other
creditors primarily represent payables for constructions.
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of other creditors.
At 30 June 2005 and 31 December 2004, the Group and the Company had no
individually significant other creditors aged over three years.
24 ACCRUED EXPENSES
At 30 June 2005 and 31 December 2004, the Group's and the Company's accrued
expenses primarily represent accrued interest expenses, repair and
maintenance expenses, research and development expenses and other
production expenses.
25 CURRENT PORTION OF LONG-TERM LIABILITIES
The Group's and the Company's current portion of long-term liabilities represent:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Long-term bank loans
----------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 5,436 8,500 2,524 6,247
-------------------------------------------------------------------------------------------------------------------------
-- Japanese Yen loans 594 805 594 798
-------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans 1,162 2,841 647 2,341
-------------------------------------------------------------------------------------------------------------------------
-- Euro loans 6 28 6 28
-------------------------------------------------------------------------------------------------------------------------
-- Hong Kong Dollar loans 3 3 -- --
-------------------------------------------------------------------------------------------------------------------------
7,201 12,177 3,771 9,414
.........................................................................................................................
----------------------------------------------------------------------------------------------------------------------------
Long-term other loans
----------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 14 88 3 61
-------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans 30 33 28 31
-------------------------------------------------------------------------------------------------------------------------
44 121 31 92
.........................................................................................................................
Long-term loans from
Sinopec Group Company and fellow subsidiaries
-------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans -- 2,000 -- 2,000
.........................................................................................................................
-------------------------------------------------------------------------------------------------------------------------
Total current portion of long-term liabilities 7,245 14,298 3,802 11,506
----------------------------------------------------------------------------------------------------------------------------
At 30 June 2005 and 31 December 2004, the Group and the Company had no
significant overdue long-term loans.
63
26 LONG-TERM LOANS
The Group's and the Company's long-term loans represent:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
Interest rate and final maturity 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
THIRD PARTIES DEBTS
-------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from
interest free to 5.8% per annum
at 30 June 2005 with maturities
through 2013 57,013 52,227 51,484 45,233
-------------------------------------------------------------------------------------------------------------------------------
Japanese Yen loans Interest rates ranging from 2.6% to
5.8% per annum at 30 June 2005
with maturities through 2024 4,029 4,562 4,029 4,556
-------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from interest
free to 7.4% per annum at 30 June
2005 with maturities through 2031 6,140 7,729 3,848 5,278
-------------------------------------------------------------------------------------------------------------------------------
Euro loans Fixed rate at 6.7% per annum at
30 June 2005 with maturities
through 2010 147 165 147 165
-------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar loans Floating rate at Hong Kong Prime Rate
plus 0.3% per annum at 30 June
2005 with maturities through 2006 3 5 -- --
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 7,102 12,177 3,771 9,414
===============================================================================================================================
Long-term bank loans 60,230 52,511 55,737 45,818
...............................................................................................................................
Other long-term loans
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from interest
free to 5.0% per annum at 30 June
2005 with maturities through 2008 156 359 17 200
-------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from interest
free to 4.0% per annum at 30 June
2005 with maturities through 2015 80 110 55 89
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 44 121 31 92
-------------------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LOANS 192 348 41 197
...............................................................................................................................
LONG-TERM BANK LOANS OF JOINTLY CONTROLLED ENTITIES
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Floating rate at 90% of PBOC's base
lending rate per annum at 30 June 2005
with maturities through 2021 5,570 2,415 -- --
-------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Floating rate at London Interbank Offer
Rate plus 0.4% to 0.7% per annum at
30 June 2005 with maturities through 2021 4,342 2,048 -- --
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 99 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS OF JOINTLY CONTROLLED ENTITIES 9,813 4,463 -- --
...............................................................................................................................
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest free with maturity in 2020 35,561 35,561 35,561 35,561
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from 4.8% to
5.2% per annum at 30 June 2005 with
maturities through 2009 4,303 3,204 3,755 2,756
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion -- 2,000 -- 2,000
-------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY
AND FELLOW SUBSIDIARIES 39,864 36,765 39,316 36,317
...............................................................................................................................
-------------------------------------------------------------------------------------------------------------------------------
110,099 94,087 95,094 82,332
===============================================================================================================================
The maturity analysis of the Group's and the Company's long-term loans are as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Between one and two years 22,046 15,886 19,315 12,363
-------------------------------------------------------------------------------------------------------------------------------
Between two and five years 40,764 36,041 36,268 31,279
-------------------------------------------------------------------------------------------------------------------------------
After five years 47,289 42,160 39,511 38,690
-------------------------------------------------------------------------------------------------------------------------------
Total long-term loans 110,099 94,087 95,094 82,332
===============================================================================================================================
At 30 June 2005, the Group and the Company had loans secured by fixed
assets from third parties amounting to RMB 35 million (2004: RMB 40
million) and RMB 12 million (2004: RMB 9 million) respectively. At 30 June
2005, the Group had loans secured by long-term investments from third
parties amounting to RMB 3,827 million (2004: RMB Nil). All long-term other
loans are unsecured.
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of long-term loans.
64
27 DEBENTURES PAYABLE
The Group and the Company
At 30 June At 31 December
Interest rate and final maturity 2005 2004
RMB millions RMB millions
Corporate bonds Fixed rate at 4.61% per annum, redeemable in February 2014 3,500 3,500
-------------------------------------------------------------------------------------------------------------------------
The Company issued ten years corporate bonds of RMB 3.5 billion to PRC
citizens as well as PRC legal and non-legal persons on 24 February 2004,
guaranteed by Sinopec Group Company, with a fixed interest rate at 4.61%
per annum and annual interest payment schedule. Interest payable for the
current period was included in accrued expenses.
28 OTHER LONG-TERM PAYABLES
Other long-term payables primarily represent provisions for future
dismantlement of oil and gas properties, the costs arising from
environmental restoration and specific research and development projects.
29 SHARE CAPITAL
The Group and the Company
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Registered, issued and fully paid:
---------------------------------------------------------------------------------------------------------------
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
---------------------------------------------------------------------------------------------------------------
16,780,488,000 H shares of RMB 1.00 each 16,780 16,780
---------------------------------------------------------------------------------------------------------------
2,800,000,000 A shares of RMB 1.00 each 2,800 2,800
---------------------------------------------------------------------------------------------------------------
86,702 86,702
---------------------------------------------------------------------------------------------------------------
The Company was established on 25 February 2000 with a registered capital
of 68.8 billion state-owned domestic shares with a par value of RMB 1.00
each, which were all held by Sinopec Group Company (see Note 1).
Pursuant to the resolutions passed in the Extraordinary General Meeting of
the Company held on 25 July 2000 and the approval from relevant
authorities, the Company issued 15,102,439,000 H shares with a par value of
RMB 1.00 each in its initial global offering in October 2000. The shares
include 12,521,864,000 H shares and 25,805,750 American Depositary Shares
("ADSs", each representing 100 H shares) at prices of HK$ 1.59 and US$
20.645 respectively. As part of the offering, 1,678,049,000 shares were
offered in placing to Hong Kong and overseas investors.
In July 2001, the Company issued 2,800,000,000 domestic listed A shares
with a par value of RMB 1.00 each at RMB 4.22.
All the domestic ordinary shares and H shares rank pari passu in all
material aspects.
KPMG Huazhen had verified the above paid-in capital. The capital
verification reports, KPMG-C (2000) CV No. 0007, KPMG-C (2001) CV No. 0002
and KPMG-C (2001) CV No. 0006 were issued on 22 February 2000, 27 February
2001 and 23 July 2001 respectively.
30 CAPITAL RESERVE
The movements in capital reserve are as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 37,121 36,852 37,797 36,852
-------------------------------------------------------------------------------------------------------------------
Government grants (i) -- 269 -- 269
-------------------------------------------------------------------------------------------------------------------
Reserve for equity investment (ii) -- -- -- 676
-------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 37,121 37,121 37,797 37,797
===================================================================================================================
(i) During the year ended 31 December 2004, the Group received subsidy on
investments amounted to RMB 269 million, pursuant to Fa Gai Tou Zi
[2004] No. 1248 "Notice on the Enterprise Technology Reform and
Industry Upgrade regarding the Fir8t Batch State Debt's Project Fund
Plan in 2004" issued by the National Development and Reform
Commission and the MOF. This fund is used for technology improvement
projects.
(ii) During the year ended 31 December 2004, the Company invested in
certain newly set up subsidiaries using non-monetary assets at
revalued amount as the Group's capital investment in these
subsidiaries. The difference between the revalued amount of these
non-monetary assets and their original book value (that is the
Group's shared shareholders' funds in these subsidiaries over the
initial investment cost) was recorded in capital reserve. Such
difference has been eliminated in the Group's consolidated financial
statements.
65
31 SURPLUS RESERVES
Movements in surplus reserves are as follows:
The Group and the Company
Statutory Statutory Discretionary
surplus public surplus
reserve welfare fund reserve Total
RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 6,330 6,330 7,000 19,660
--------------------------------------------------------------------------------------------------------------
Appropriation of net profit 3,228 3,228 -- 6,456
--------------------------------------------------------------------------------------------------------------
At 31 December 2004 9,558 9,558 7,000 26,116
==============================================================================================================
At 1 January 2005 9,558 9,558 7,000 26,116
--------------------------------------------------------------------------------------------------------------
Appropriation of net profit 1,804 1,804 -- 3,608
--------------------------------------------------------------------------------------------------------------
At 30 June 2005 11,362 11,362 7,000 29,724
==============================================================================================================
The Articles of Association of the Company and the following profit
appropriation plans had been approved at the Extraordinary General Meeting
held on 25 July 2000:
(a) 10% of the net profit is transferred to the statutory surplus
reserve;
(b) 5% to 10% of the net profit is transferred to the statutory public
welfare fund; and
(c) after the transfers to the statutory surplus reserve and the
statutory public welfare fund, a transfer to discretionary surplus
reserve can be made upon the passing of a resolution at the
shareholders' meeting.
32 INCOME FROM PRINCIPAL OPERATIONS
The income from principal operations represents revenue from sales of crude
oil, natural gas, petroleum and chemical products net of value added tax.
The Group's segmental information is set out in Note 45.
For the six-month period ended 30 June 2005, revenue from sales to top five
customers amounted to RMB 26,877 million (2004: RMB 27,255 million) which
accounted for 7% (2004: 10%) of income from principal operations of the
Group.
33 SALES TAXES AND SURCHARGES
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Consumption tax 5,906 5,671 4,278 3,683
----------------------------------------------------------------------------------------------------------------
City construction tax 1,332 1,214 652 579
----------------------------------------------------------------------------------------------------------------
Education surcharge 649 591 325 289
----------------------------------------------------------------------------------------------------------------
Resources tax 221 221 58 55
----------------------------------------------------------------------------------------------------------------
Business tax 96 79 73 55
----------------------------------------------------------------------------------------------------------------
Total 8,204 7,776 5,386 4,661
================================================================================================================
34 FINANCIAL EXPENSES
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Interest expenses incurred 3,399 2,379 2,195 1,447-
-----------------------------------------------------------------------------------------------------------------
Less: Capitalised interest expenses (268) (102) (172) (65)
------------------------------------------------------------------------------------------------------------------
Net interest expenses 3,131 2,277 2,023 1,382
------------------------------------------------------------------------------------------------------------------
Interest income (168) (169) (57) (74)
------------------------------------------------------------------------------------------------------------------
Foreign exchange losses 40 29 17 12
------------------------------------------------------------------------------------------------------------------
Foreign exchange gains (151) (43) (131) (33)
------------------------------------------------------------------------------------------------------------------
Total 2,852 2,094 1,852 1,287
==================================================================================================================
35 EXPLORATION EXPENSES
Exploration expenses include geological and geophysical expenses and
dry hole costs.
66
36 INVESTMENT (LOSS)/INCOME
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Investment income accounted for under the cost method 62 30 17 17
---------------------------------------------------------------------------------------------------------------------------
Amortisation of equity investment differences (1,169) (90) (1,170) (88)
---------------------------------------------------------------------------------------------------------------------------
Investment income accounted for under the equity method 365 576 22,087 16,711
---------------------------------------------------------------------------------------------------------------------------
Total (742) 516 20,934 16,640
===========================================================================================================================
37 NON-OPERATING EXPENSES
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Loss on disposal of fixed assets 109 1,405 88 1,230
---------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 397 2,763 5 1,741
---------------------------------------------------------------------------------------------------------------------------
Fines, penalties and compensations 111 33 107 31
---------------------------------------------------------------------------------------------------------------------------
Donations 128 49 105 35
---------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses (Note) 100 412 -- 325
---------------------------------------------------------------------------------------------------------------------------
Others 264 290 127 190
---------------------------------------------------------------------------------------------------------------------------
Total 1,109 4,952 432 3,552
===========================================================================================================================
Note: During the six-month period ended 30 June 2005, in accordance with
the Group's voluntary employee reduction plan, the Group recorded
employee reduction expenses of RMB 100 million (2004: RMB 412
million) relating to the reduction of approximately 1,800 employees
(2004: 8,000 employees).
38 INCOME TAX
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Provision for PRC income tax 9,438 8,477 6,865 7,262
---------------------------------------------------------------------------------------------------------------------------
Deferred taxation (747) (1,414) 1,317 (881)
---------------------------------------------------------------------------------------------------------------------------
Underprovision for income tax in prior year 477 91 512 151
---------------------------------------------------------------------------------------------------------------------------
Total 9,168 7,154 8,694 6,532
===========================================================================================================================
39 DIVIDENDS
(a) Dividends of ordinary shares declared after the balance sheet date
Pursuant to the Articles of Association of the Company and the
resolution passed at the Directors' meeting on 26 August 2005, an
interim dividend for the year ending 31 December 2005 of RMB 0.04
(2004: RMB 0.04) per share totalling RMB 3,468 million (2004: RMB
3,468 million) was declared.
(b) Dividends of ordinary shares declared during the period
Pursuant to the shareholders' approval at the Annual General Meeting
on 18 May 2005, a final dividend of RMB 0.08 per share totalling RMB
6,936 million in respect of the year ended 31 December 2004 was
declared and paid on 18 May 2005.
Pursuant to the shareholders' approval at the Annual General Meeting
on 18 May 2004, a final dividend of RMB 0.06 per share totalling RMB
5,202 million in respect of the year ended 31 December 2003 was
declared and paid on 28 June 2004.
67
40 RELATED PARTIES AND RELATED PARTY TRANSACTIONS
(a) Related parties having the ability to exercise control over the Group
The name of the company : China Petrochemical Corporation
Registered address : No. 6A, Huixin East Street, Chaoyang
District, Beijing
Principal activities : Processing crude oil into refined products
and petrochemical products, petrochemical
products which include: petrochemical
products made from crude oil and natural
gas; production, sale and import and
export of synthetic fibre and synthetic
fibre monomer.
Relationship with the Group : Ultimate holding company
Types of legal entity : State-owned
Authorised representative : Chen Tonghai
Registered capital : RMB 104,912 million
There is no movement in the above registered capital for the six-month
period ended 30 June 2005.
At 30 June 2005, Sinopec Group Company held 67.92% shares of the Company
and there is no change on percentage shareholdings during this reporting
period.
(b) Related parties not having the ability to exercise control over the Group
Related parties under common control of a parent company with the Company:
Sinopec Finance Company Limited
Nanjing Chemical Industry Company Limited
Sichuan Vinylon Company
Nanjing Petrochemical Company
Qingjiang Petrochemical Company
Baoding Petrochemical Company
Baling Petrochemical Yueyang Petrochemical Company
Tianjin United Chemical Company
Zhanjiang Dongxing Petroleum Corporation Company Limited
Qingdao Petrochemical Company
Baling Petrochemical Company Limited
Jinling Petrochemical Company Limited
Yangzi Petrochemical Company Limited
Associates of the Company:
Sinopec Railway Oil Marketing Company Limited
Sinopec Changjiang Fuel Company Limited
China Shipping & Sinopec Suppliers Company Limited
(c) The principal related party transactions carried out in the ordinary
course of business are as follows:
Six-month periods ended 30 June
Note 2005 2004
RMB millions RMB millions
Sales of goods (i) 36,976 30,715
-----------------------------------------------------------------------------------------------------------
Purchases (ii) 20,134 18,253
-----------------------------------------------------------------------------------------------------------
Transportation and storage (iii) 893 979
-----------------------------------------------------------------------------------------------------------
Exploration and development services (iv) 7,692 7,101
-----------------------------------------------------------------------------------------------------------
Production related services (v) 3,757 3,831
-----------------------------------------------------------------------------------------------------------
Ancillary and social services (vi) 912 906
-----------------------------------------------------------------------------------------------------------
Operating lease charges (vii) 1,565 1,646
-----------------------------------------------------------------------------------------------------------
Agency commission income (viii) 29 31
-----------------------------------------------------------------------------------------------------------
Intellectual property license fee paid (ix) 9 5
-----------------------------------------------------------------------------------------------------------
Interest received (x) 21 25
-----------------------------------------------------------------------------------------------------------
Interest paid (xi) 507 349
-----------------------------------------------------------------------------------------------------------
Net deposits withdrawn from related parties (xii) 2,874 1,532
-----------------------------------------------------------------------------------------------------------
Net loans (paid to)/obtained from related parties (xiii) (3,325) 921
-----------------------------------------------------------------------------------------------------------
The amounts set out in the table above in respect of the six-month
periods ended 30 June 2005 and 2004 represent the relevant costs to the
Group and income from related parties as determined by the corresponding
contracts with the related parties.
At 30 June 2005 and 31 December 2004, there were no guarantees given to
banks by the Group in respect of banking facilities to Sinopec Group
Company and fellow subsidiaries.
The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course
of business and on normal commercial terms or in accordance with the
agreements governing such transactions.
68
40 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)
Notes:
(i )Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary
materials.
(ii) Purchases represent the purchase of materials and utility
supplies directly related to the Group's operations such as the
procurement of raw and ancillary materials and related services,
supply of water, electricity and gas.
(iii) Transportation and storage represent the cost for the use of
railway, road and marine transportation services, pipelines,
loading, unloading and storage facilities.
(iv) Exploration and development services comprise direct costs
incurred in the exploration and development activities such as
geophysical, drilling, well testing and well measurement
services.
(v) Production related services represent ancillary services
rendered in relation to the Group's operations such as equipment
repair and general maintenance, insurance premium, technical
research, communications, fire fighting, security, product
quality testing and analysis, information technology, design and
engineering, construction which includes the construction of
oilfield ground facilities, refineries and chemical plants,
manufacture of replacement parts and machinery, installation,
project management and environmental protection.
(vi) Ancillary and social services represent expenditures for social
welfare and support services such as educational facilities,
media communication services, sanitation, accommodation,
canteens, property maintenance and management services.
(vii) Operating lease charges represent the rental paid to Sinopec
Group Company for operating leases in respect of land, buildings
and service stations.
(viii) Agency commission income represents commission earned for acting
as an agent in respect of sales of products and purchase of
materials for certain entities owned by Sinopec Group Company.
(ix) Intellectual property license fee represents reimbursement paid
to Sinopec Group Company for fees required to maintain the
validity of licenses for trademarks, patents, technology and
computer software.
(x) Interest received represents interest received from deposits
placed with Sinopec Finance Company Limited, a finance company
controlled by Sinopec Group Company. The applicable interest
rate is determined in accordance with the prevailing saving
deposit rate.
(xi) Interest paid represents interest charges on the loans obtained
from Sinopec Group Company and Sinopec Finance Company Limited.
(xii) Deposits were withdrawn from/placed with Sinopec Finance Company
Limited during the period.
(xiii) The Group obtained/repaid loans from/to Sinopec Group Company
and Sinopec Finance Company Limited. The average loan balance
for the six-month period ended 30 June 2005, which is calculated
based on monthly average balances, was RMB 43,882 million (2004:
RMB 42,696 million).
In connection with the Reorganisation, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social
and supporting services to the Group and 2) the Group will sell certain
goods to Sinopec Group Company. These agreements impacted the operating
results of the Group for the six-month period ended 30 June 2005. The
terms of these agreements are summarised as follows:
(a) The Company entered into a non-exclusive Agreement for Mutual
Provision of Products and Ancillary Services ("Mutual Provision
Agreement") with Sinopec Group Company under which Sinopec Group
Company has agreed to provide the Group with certain ancillary
production services, construction services, information advisory
services, supply services and other services and products. While
each of Sinopec Group Company and the Company is permitted to
terminate the Mutual Provision Agreement upon at least six
months' notice, Sinopec Group Company had agreed not to
terminate the agreement if the Group is unable to obtain
comparable services from a third party. The pricing policy for
these services and products provided by Sinopec Group Company to
the Group is as follows:
o the government-prescribed price;
o where there is no government-prescribed price, the
government-guidance price;
o where there is neither a government-prescribed price nor a
government-guidance price, the market price; or
o where none of the above is applicable, the price to be agreed
between the parties, which shall be based on a reasonable cost
incurred in providing such services plus a profit margin not
exceeding 6%.
(b) The Company has entered into a non-exclusive Agreement for
Provision of Cultural and Educational, Health Care and Community
Services with Sinopec Group Company effective from 1 January 2000
in which Sinopec Group Company has agreed to provide the Group with
certain cultural, educational, health care and community services
on the same pricing terms and termination conditions as agreed to
in the above Mutual Provision Agreement.
(c) The Company has entered into a number of lease agreements with
Sinopec Group Company to lease certain land and buildings at a
rental of approximately RMB 2,557 million and RMB 568 million,
respectively, per annum. The Company and Sinopec Group Company can
renegotiate the rental amount every three years for land and every
year for buildings, such amount not to exceed the market price as
determined by an independent third party. The Group has the option
to terminate these leases upon six months notice to Sinopec Group
Company.
(d) The Company has entered into agreements with Sinopec Group Company
effective from 1 January 2000 under which the Group has been
granted the right to use certain trademarks, patents, technology
and computer software developed by Sinopec Group Company. The Group
will reimburse Sinopec Group Company for fees required to maintain
the validity of these licenses.
(e) The Company has entered into agency agreements effective from 1
January 2000 with certain entities owned by Sinopec Group Company
under which the Group acts as a sole agent in respect of the sale
of all the products of these entities. In exchange for the Group's
sales agency services, Sinopec Group Company has agreed to pay the
Group a commission of between 0.2% and 1.0% of actual sales
receipts depending on the products and to reimburse the Group for
reasonable costs incurred in the capacity as its sales agent.
(f) The Company has entered into a service station franchise agreement
with Sinopec Group Company under which its service stations and
retail stores would exclusively sell the refined products supplied
by the Group.
69
40 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)
(d) Balances with related parties
The balances with the Group's related parties at 30 June 2005 and 31 December 2004 are as follows:
The ultimate holding company Other related companies
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Cash and cash equivalents -- -- 1,797 4,671
-------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable -- -- 3,672 2,438
-------------------------------------------------------------------------------------------------------------------------
Advance payments -- -- 1,176 350
-------------------------------------------------------------------------------------------------------------------------
Other receivables 2,002 2,502 2,586 3,941
-------------------------------------------------------------------------------------------------------------------------
Trade accounts payable -- -- 2,016 1,527
-------------------------------------------------------------------------------------------------------------------------
Receipts in advance -- -- 1,488 1,218
-------------------------------------------------------------------------------------------------------------------------
Other creditors 5,936 4,851 3,777 4,828
-------------------------------------------------------------------------------------------------------------------------
Short-term loans -- -- 2,290 6,714
-------------------------------------------------------------------------------------------------------------------------
Long-term loans (including current portion) (Note) -- -- 39,864 38,765
-------------------------------------------------------------------------------------------------------------------------
Note: The Sinopec Group Company had borrowed an interest free loan for
20 years amounted to RMB 35,561 million to the Group through
Sinopec Finance Company Limited which was included in the
long-term loans.
41 PRINCIPAL SUBSIDIARIES
The Company's principal subsidiaries are limited companies operating in the
PRC and had been consolidated into the Group's financial statements for the
six-month period ended 30 June 2005. Except for Sinopec Kantons Holdings
Limited, which is incorporated in Bermuda, the subsidiaries below are
incorporated in the PRC. The following list contains the particulars of
subsidiaries which principally affected the results or assets of the Group:
Percentage of
Registered equity interest
capital/paid-up held by the
Name of enterprise capital Company Principal activities
RMB millions %
China Petrochemical International 1,400 100.00 Trading of crude oil and petrochemical products
Company Limited
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanhua Petrochemical 3,374 100.00 Manufacturing of chemical products
Company Limited ("Beijing Yanhua") (i)
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited 1,700 100.00 Marketing and distribution of refined petroleum
products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company Limited 29,000 100.00 Exploration and production of crude oil and
natural gas
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical 2,253 50.00 Manufacturing of plastics, intermediate
Company Limited (ii) petrochemical products and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical 1,950 82.05 Manufacturing of intermediate petrochemical
Company Limited products and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical 7,200 55.56 Manufacturing of synthetic fibres, resin and ,
Company Limited plastics intermediate petrochemical products and
petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining 1,154 79.73 Manufacturing of intermediate petrochemical
Chemical Company Limited products and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings Limited HK$104 72.40 Trading of crude oil and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum 147 46.25 Marketing and distribution of refined petroleum
Group Company Limited (ii) products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix Company Limited (ii) 519 40.72 Manufacturing of petrochemical products and
petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 2,330 84.98 Manufacturing of intermediate petrochemical
products and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical 4,000 42.00 Production and sale of polyester chips and
Fibre Company Limited (ii) polyester fibres
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and 2,524 71.32 Manufacturing of intermediate petrochemical
Chemical Company Limited products and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum Company Limited 875 70.85 Exploration and production of crude oil and
natural gas
-------------------------------------------------------------------------------------------------------------------------------
Zhongyuan Petrochemical Company Limited 2,400 93.51 Manufacturing of chemical products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) Petroleum Marketing 455 60.00 Marketing and distribution of refined petroleum
Company Limited products
-------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) Petroleum 647 60.00 Marketing and distribution of refined petroleum
Company Limited products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Qingdao Refining and Chemical 800 85.00 Manufacturing of intermediate petrochemical
Company Limited products and petroleum products
-------------------------------------------------------------------------------------------------------------------------------
(i) During the period, the Group acquired the entire 1,012,000,000 H
shares, representing approximately 29.99% of the issued share capital
of Beijing Yanhua.
(ii) The Company consolidated the results of these entities because the
Company controlled the board of these entities and had the power to
govern their financial and operating policies.
70
42 PRINCIPAL JOINTLY CONTROLLED ENTITIES
At 30 June 2005, the Group's principal jointly controlled entities are as follows:
Percentage of
Registered capital/ equity interest
Name of jointly controlled entities paid-up capital held by the Group Principal activities
%
Shanghai Secco Petrochemical Registered capital 50.00 Manufacturing and distribution
Company Limited USD 901,440,964 of petrochemical products
-------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited Registered capital 40.00 Manufacturing and distribution
RMB 8,793,000,000 of petrochemical products
-------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Registered capital 50.00 Manufacturing and distribution of
Gasification Company Limited USD 45,588,700 industrial gas
-------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western -- 43.00 Exploration and production of crude
Area Chendao in Bohai Bay oil and natural gas
-------------------------------------------------------------------------------------------------------------------
43 COMMITMENTS
Operating lease commitments
The Group and the Company lease service stations and other equipment
through non-cancellable operating leases. These operating leases do not
contain provisions for contingent lease rentals. None of the rental
agreements contain escalation provisions that may require higher future
rental payments.
At 30 June 2005, the future minimum lease payments of the Group and the
Company under operating leases are as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 3,504 3,452 3,345 3,272
--------------------------------------------------------------------------------------------------------
Between one and two years 3,404 3,343 3,299 3,237
--------------------------------------------------------------------------------------------------------
Between two and three years 3,328 3,278 3,256 3,213
--------------------------------------------------------------------------------------------------------
Between three and four years 3,295 3,245 3,231 3,188
--------------------------------------------------------------------------------------------------------
Between four and five years 3,263 3,225 3,201 3,170
--------------------------------------------------------------------------------------------------------
After five years 96,634 97,527 95,098 95,968
--------------------------------------------------------------------------------------------------------
Total 113,428 114,070 111,430 112,048
--------------------------------------------------------------------------------------------------------
Capital commitments
At 30 June 2005, capital commitments are as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
THE GROUP
---------------------------------------------------------------------------
Authorised and contracted for 40,475 43,001
---------------------------------------------------------------------------
Authorised but not contracted for 40,809 60,173
---------------------------------------------------------------------------
81,284 103,174
===========================================================================
JOINTLY CONTROLLED ENTITIES
---------------------------------------------------------------------------
Authorised and contracted for 2,399 3,157
---------------------------------------------------------------------------
Authorised but not contracted for 8 2,088
---------------------------------------------------------------------------
2,407 5,245
===========================================================================
THE COMPANY
---------------------------------------------------------------------------
Authorised and contracted for 33,965 28,143
Authorised but not contracted for 23,803 37,619
---------------------------------------------------------------------------
57,768 65,762
===========================================================================
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interests in associates.
71
43 COMMITMENTS (Continued)
Exploration and production licenses
Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the
license is issued. The Ministry of Land and Resources also issues
production licenses to the Group on the basis of the reserve reports
approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation was given by the State
Council. The maximum term of the production licenses issued to the Group is
55 years as a special dispensation was given to the Group by the State
Council. The Group's production license is renewable upon application by
the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB 25
million for the six-month period ended 30 June 2005 (2004: RMB 101
million).
Estimated future annual payments are as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 138 90 102 60
---------------------------------------------------------------------------------------------------------------
Between one and two years 103 120 67 85
---------------------------------------------------------------------------------------------------------------
Between two and three years 64 75 50 47
---------------------------------------------------------------------------------------------------------------
Between three and four years 70 67 61 55
---------------------------------------------------------------------------------------------------------------
Between four and five years 70 74 62 64
---------------------------------------------------------------------------------------------------------------
After five years 246 279 112 143
---------------------------------------------------------------------------------------------------------------
Total 691 705 454 454
===============================================================================================================
44 CONTINGENT LIABILITIES
(a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the
business assumed by the Company in the Reorganisation, no other
liabilities were assumed by the Company, and the Company is not
jointly and severally liable for other debts and obligations incurred
by Sinopec Group Company prior to the Reorganisation.
(b) At 30 June 2005, guarantees given by the Group and the Company to
banks in respect of banking facilities granted to the parties below
are as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 2,617 2,656
--------------------------------------------------------------------------------------------------------------------------
Associates and jointly controlled entities 109 4,828 12,059 12,059
--------------------------------------------------------------------------------------------------------------------------
Total 109 4,828 14,676 14,715
=============================================================================================================================
The Company monitors the conditions that are subject to the guarantees to
identify whether it is probable that a loss has occurred, and recognises
any such losses under guarantees when those losses are estimable. At 30
June 2005 and 31 December 2004, it is not probable that the Company will be
required to make payments under the guarantees. Thus no liability has been
accrued relating to the Company's obligation under those guarantee
arrangements.
Environmental contingencies
To date, the Group has not incurred any significant expenditure for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC
government, however, has moved and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to
considerable uncertainties which affect the Group's ability to estimate the
ultimate cost of remediation efforts. These uncertainties include: i) the
exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold; ii) the extent
of required cleanup efforts; iii) varying costs of alternative remediation
strategies; iv) changes in environmental remediation requirements; and v)
the identification of new remediation sites. The amount of such future cost
is indeterminable due to such factors as the unknown magnitude of possible
contamination and the unknown timing and extent of the corrective actions
that may be required. Accordingly, the outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. The Group paid normal routine
pollutant discharge fee of approximately RMB 107 million for the six-month
period ended 30 June 2005 (2004: RMB 113 million).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities
will not have a material adverse effect on the financial position or
operating results of the Group.
72
45 SEGMENTAL INFORMATION
The Group has five operating segments as follows:
(i) Exploration and production -- which explores and develops oil
fields, produces crude oil and natural gas and sells such products
to the refining segment of the Group and external customers.
(ii) Refining -- which processes and purifies crude oil, which is sourced
from the exploration and production segment of the Group and
external suppliers, and manufactures and sells petroleum products to
the chemicals and marketing and distribution segments of the Group
and external customers.
(iii) Marketing and distribution -- which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals -- which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products to
external customers.
(v) Others -- which largely comprise the trading activities of the
import and export companies of the Group and research and
development undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production, refining, marketing and distribution,
chemicals, and others businesses separately. The reportable segments are
each managed separately because they manufacture and/or distribute distinct
products with different production processes and due to their distinct
operating and gross margin characteristics. In view of the fact that the
Company and its subsidiaries operate mainly in the PRC, no geographical
segment information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of
the Group's segments are the same as those described in the principal
accounting policies (see Note 2). Corporate administrative costs and assets
are not allocated to the operating segments; instead, operating segments
are billed for direct corporate services. Inter-segment transfer pricing is
based on cost plus an appropriate margin, as specified by the Group's
policy.
Reportable information on the Group's business segments is as follows:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Income from principal operations
--------------------------------------------------------------------------------------------------------------
Exploration and production
--------------------------------------------------------------------------------------------------------------
External sales 8,651 7,376
-----------------------------------------------------------------------------------------------------------
Inter-segment sales 35,745 26,316
-----------------------------------------------------------------------------------------------------------
44,396 33,692
..............................................................................................................
Refining
--------------------------------------------------------------------------------------------------------------
External sales 37,083 31,986
-----------------------------------------------------------------------------------------------------------
Inter-segment sales 172,035 126,904
-----------------------------------------------------------------------------------------------------------
209,118 158,890
...........................................................................................................
Marketing and distribution
--------------------------------------------------------------------------------------------------------------
External sales 206,763 156,539
-----------------------------------------------------------------------------------------------------------
Inter-segment sales 1,320 1,334
-----------------------------------------------------------------------------------------------------------
208,083 157,873
...........................................................................................................
Chemicals
--------------------------------------------------------------------------------------------------------------
External sales 74,731 50,946
-----------------------------------------------------------------------------------------------------------
Inter-segment sales 8,335 4,794
-----------------------------------------------------------------------------------------------------------
83,066 55,740
--------------------------------------------------------------------------------------------------------------
Others
--------------------------------------------------------------------------------------------------------------
External sales 32,020 18,862
-----------------------------------------------------------------------------------------------------------
Inter-segment sales 21,228 16,246
-----------------------------------------------------------------------------------------------------------
53,248 35,108
...........................................................................................................
Elimination of inter-segment sales (238,663) (175,594)
..............................................................................................................
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
INCOME FROM PRINCIPAL OPERATIONS 359,248 265,709
==============================================================================================================
COST OF SALES, SALES TAXES AND SURCHARGES
--------------------------------------------------------------------------------------------------------------
Exploration and production 17,920 16,165
--------------------------------------------------------------------------------------------------------------
Refining 208,147 151,772
--------------------------------------------------------------------------------------------------------------
Marketing and distribution 190,761 138,914
--------------------------------------------------------------------------------------------------------------
Chemicals 68,283 45,685
--------------------------------------------------------------------------------------------------------------
Others 52,619 34,769
--------------------------------------------------------------------------------------------------------------
Elimination of inter-segment cost of sales (236,345) (173,431)
--------------------------------------------------------------------------------------------------------------
COST OF SALES, SALES TAXES AND SURCHARGES 301,385 213,874
--------------------------------------------------------------------------------------------------------------
PROFIT FROM PRINCIPAL OPERATIONS
--------------------------------------------------------------------------------------------------------------
Exploration and production 23,738 15,568
--------------------------------------------------------------------------------------------------------------
Refining 1,391 6,914
--------------------------------------------------------------------------------------------------------------
Marketing and distribution 17,322 18,959
--------------------------------------------------------------------------------------------------------------
Chemicals 14,783 10,055
--------------------------------------------------------------------------------------------------------------
Others 629 339
--------------------------------------------------------------------------------------------------------------
PROFIT FROM PRINCIPAL OPERATIONS 57,863 51,835
==============================================================================================================
73
46 POST BALANCE SHEET EVENTS
With the authorisation from the PRC government, the People's Bank of China
announced that the PRC government reformed the exchange rate regime by
moving into a managed floating exchange rate regime based on market supply
and demand with reference to a basket of currencies on 21 July 2005. The
exchange rate of US dollars against RMB was adjusted to RMB 8.11 per US
dollar with effect from the time of 19:00 hours on 21 July 2005. The Group
does not expect this reform had a material impact on the Group's financial
position as at 30 June 2005.
47 ITEMS UNDER NON-OPERATING PROFITS/LOSSES
Pursuant to "Questions and answers in the prepayment of information
disclosures of companies issuing public shares, No.1--Extraordinary gain
and loss" (2004 revised), the extraordinary gains and losses of the Group
are as follows:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Items under non-operating profits/losses for the period:
---------------------------------------------------------------------------------------------------------------------------
Loss on disposal of fixed assets 109 1,405
---------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses 100 412
---------------------------------------------------------------------------------------------------------------------------
Donations 128 49
---------------------------------------------------------------------------------------------------------------------------
Loss on disposal of long-term equity investments 1 2
---------------------------------------------------------------------------------------------------------------------------
Other non-operating income and expenses, excluding impairment losses on long-lived assets 242 142
---------------------------------------------------------------------------------------------------------------------------
Written back of provisions for impairment losses in previous years (516) (80)
---------------------------------------------------------------------------------------------------------------------------
Tax effect (21) (637)
---------------------------------------------------------------------------------------------------------------------------
Total 43 1,293
---------------------------------------------------------------------------------------------------------------------------
48 OTHER SIGNIFICANT EVENTS
The Group had no any other significant event required to disclose as at
the approval date of these financial statements.
74
REPORT OF THE INTERNATIONAL AUDITORS
[KPMG LOGO GRAPHIC OMITTED]
TO THE SHAREHOLDERS OF
CHINA PETROLEUM & Chemical Corporation
(Established in The People's Republic of China with limited liability)
We have audited the interim financial statements on pages 76 to 105 which have
been prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible for the preparation of interim
financial statements which give a true and fair view. In preparing interim
financial statements which give a true and fair view it is fundamental that
appropriate accounting policies are selected and applied consistently, that
judgements and estimates are made which are prudent and reasonable and that the
reasons for any significant departure from applicable accounting standards are
stated.
It is our responsibility to form an independent opinion, based on our audit, on
those interim financial statements and to report our opinion solely to you, as
a body, and for no other purpose. We do not assume responsibility towards or
accept liability to any other person for the contents of this report.
BASIS OF OPINION
We conducted our audit in accordance with Hong Kong Standards on Auditing
issued by the Hong Kong Institute of Certified Public Accountants. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the interim financial statements. It also includes an assessment
of the significant estimates and judgements made by the directors in the
preparation of the interim financial statements, and of whether the accounting
policies are appropriate to the Group's circumstances, consistently applied and
adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the interim
financial statements are free from material misstatement. In forming our
opinion we also evaluated the overall adequacy of the presentation of
information in the interim financial statements. We believe that our audit
provides a reasonable basis for our opinion.
OPINION
In our opinion, the interim financial statements give a true and fair view of
the state of affairs of the Group as at 30 June 2005 and of the Group's profit
and cash flows for the six-month period ended 30 June 2005 and have been
properly prepared in accordance with International Financial Reporting
Standards promulgated by the International Accounting Standards Board.
KPMG
Certified Public Accountants
Hong Kong, China, 26 August 2005
75
(B) INTERIM FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL
REPORTING STANDARDS ("IFRS")
CONSOLIDATED INCOME STATEMENT
for the six-month period ended 30 June 2005
(Amounts in millions, except per share data)
Six-month periods
ended 30 June
Note 2005 2004
RMB RMB
Turnover and other operating revenues
----------------------------------------------------------------------------------------------------------------------------------
Turnover 3 359,248 269,601
------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 4 9,206 9,844
------------------------------------------------------------------------------------------------------------------------------
368,454 279,445
----------------------------------------------------------------------------------------------------------------------------------
Operating expenses
----------------------------------------------------------------------------------------------------------------------------------
Purchased crude oil, products and operating supplies and expenses (283,036) (198,158)
------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 5 (15,510) (14,859)
------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation (15,155) (15,399)
------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes (3,355) (2,475)
------------------------------------------------------------------------------------------------------------------------------
Personnel expenses 6 (8,536) (8,716)
------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses 7 (100) (412)
------------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax 8 (8,204) (7,833)
------------------------------------------------------------------------------------------------------------------------------
Other operating expenses, net 9 (876) (3,031)
------------------------------------------------------------------------------------------------------------------------------
Total operating expenses (334,772) (250,883)
---------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Operating profit 33,682 28,562
----------------------------------------------------------------------------------------------------------------------------------
Finance costs
Interest expense 10 (2,845) (2,272)
------------------------------------------------------------------------------------------------------------------------------
Interest income 168 179
------------------------------------------------------------------------------------------------------------------------------
Foreign exchange losses (40) (29)
------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains 151 43
------------------------------------------------------------------------------------------------------------------------------
Net finance costs (2,566) (2,079)
---------------------------------------------------------------------------------------------------------------------------
Investment income 62 --
----------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates 536 455
----------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 31,714 26,938
----------------------------------------------------------------------------------------------------------------------------------
Taxation 11 (9,945) (8,017)
----------------------------------------------------------------------------------------------------------------------------------
Profit for the period 21,769 18,921
----------------------------------------------------------------------------------------------------------------------------------
Attributable to:
----------------------------------------------------------------------------------------------------------------------------------
Equity holders of the parent 19,653 16,746
------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,116 2,175
------------------------------------------------------------------------------------------------------------------------------
Profit for the period 21,769 18,921
----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share 12 0.23 0.19
----------------------------------------------------------------------------------------------------------------------------------
Dividends attributable to the period:
----------------------------------------------------------------------------------------------------------------------------------
Interim dividend declared after the balance sheet date 13 3,468 3,468
----------------------------------------------------------------------------------------------------------------------------------
76
CONSOLIDATED BALANCE SHEET
at 30 June 2005
(Amounts in millions)
At 30 June At 31 December
Note 2005 2004
RMB RMB
Non-current assets
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 14 298,031 284,123
----------------------------------------------------------------------------------------------------------------------------
Construction in progress 15 47,645 46,185
----------------------------------------------------------------------------------------------------------------------------
Investments 16 2,434 2,538
----------------------------------------------------------------------------------------------------------------------------
Interests in associates 17 7,521 10,222
----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 23 5,091 4,558
----------------------------------------------------------------------------------------------------------------------------
Lease prepayments 1,045 750
----------------------------------------------------------------------------------------------------------------------------
Long-term prepayments and other assets 19 8,509 5,947
--------------------------------------------------------------------------------------------------------------------------------
Total non-current assets 370,276 354,323
--------------------------------------------------------------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 13,616 16,381
----------------------------------------------------------------------------------------------------------------------------
Time deposits with financial institutions 1,706 1,899
----------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 20 15,247 9,756
----------------------------------------------------------------------------------------------------------------------------
Bills receivable 20 8,356 7,812
----------------------------------------------------------------------------------------------------------------------------
Inventories 21 79,433 64,329
----------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 22 20,746 20,094
--------------------------------------------------------------------------------------------------------------------------------
Total current assets 139,104 120,271
--------------------------------------------------------------------------------------------------------------------------------
Current liabilities
--------------------------------------------------------------------------------------------------------------------------------
Short-term debts 24 39,374 32,307
----------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 24 2,290 8,714
----------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 25 34,152 23,792
----------------------------------------------------------------------------------------------------------------------------
Bills payable 25 26,893 30,797
----------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 26 48,493 45,276
----------------------------------------------------------------------------------------------------------------------------
Income tax payable 2,882 5,391
--------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 154,084 146,277
--------------------------------------------------------------------------------------------------------------------------------
Net current liabilities (14,980) E(26,006)
................................................................................................................................
================================================================================================================================
--------------------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 355,296 328,317
................................................................................................................................
Non-current liabilities
--------------------------------------------------------------------------------------------------------------------------------
Long-term debts 24 73,735 60,822
----------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 24 39,864 36,765
----------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 23 6,029 5,636
----------------------------------------------------------------------------------------------------------------------------
Other liabilities 892 1,008
----------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 120,520 104,231
................................................................................................................................
================================================================================================================================
--------------------------------------------------------------------------------------------------------------------------------
234,776 224,086
--------------------------------------------------------------------------------------------------------------------------------
Equity
--------------------------------------------------------------------------------------------------------------------------------
Share capital 27 86,702 86,702
----------------------------------------------------------------------------------------------------------------------------
Reserves 119,055 106,338
----------------------------------------------------------------------------------------------------------------------------
Total equity attributable to equity holders of the parent 205,757 193,040
--------------------------------------------------------------------------------------------------------------------------------
Minority interests 29,019 31,046
--------------------------------------------------------------------------------------------------------------------------------
Total equity 234,776 224,086
================================================================================================================================
Approved and authorised for issue by the board of directors on 26 August 2005.
CHEN TONGHAI WANG TIANPU ZHANG JIAREN
Chairman President Director, Senior Vice President and
Chief Financial Officer
The notes on pages 81 to 105 form part of these interim financial statements.
77
CONSOLIDATED CASH FLOW STATEMENT
for the six-month period ended 30 June 2005
(Amounts in millions)
Six-month periods
ended 30 June
Note 2005 2004
RMB RMB
Cash flows from operating activities (a) 21,082 20,698
-----------------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities
-----------------------------------------------------------------------------------------------------------------------------------
Capital expenditure (25,368) (26,511)
-------------------------------------------------------------------------------------------------------------------------------
Capital expenditure by jointly controlled entities (1,896) (3,368)
-------------------------------------------------------------------------------------------------------------------------------
Purchase of investments and investments in associates (505) (820)
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of investments and investments in associates 63 31
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of property, plant and equipment 201 189
-------------------------------------------------------------------------------------------------------------------------------
Acquisition of Beijing Yanhua from minority interests (4,088) --
-------------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (334) (1,371)
-------------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 527 800
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (31,400) (31,050)
-----------------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities
-----------------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans 292,505 164,301
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans of jointly controlled entities 2,603 1,621
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of corporate bonds, net of issuing expenses -- 3,472
-------------------------------------------------------------------------------------------------------------------------------
Repayments of bank and other loans (281,804) (155,704)
-------------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests (514) (141)
-------------------------------------------------------------------------------------------------------------------------------
Contributions from minority interests 86 92
-------------------------------------------------------------------------------------------------------------------------------
Dividend paid (2,195) (2,313)
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalent paid to Sinopec Group Company in connection
with the Acquisitions of Ethylene Assets and Refining Assets -- (1,828)
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalent paid to Sinopec Group Company in connection
with the Acquisition of Petrochemical and Catalyst Assets (3,128) --
-----------------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 7,553 9,500
...................................................................................................................................
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (2,765) (852)
-----------------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate -- (1)
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 16,381 16,263
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 13,616 15,410
-----------------------------------------------------------------------------------------------------------------------------------
The notes on pages 81 to 105 form part of these interim financial statements.
78
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the six-month period ended 30 June 2005
(Amounts in millions)
(a) Reconciliation of profit before taxation to cash flows from operating activities
Six-month periods
ended 30 June
2005 2004
RMB RMB
Profit before taxation 31,714 26,938
-------------------------------------------------------------------------------------------------------------------
Adjustments for:
-------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation 15,155 15,399
-------------------------------------------------------------------------------------------------------------------
Dry hole costs 1,325 764
-------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates (536) (455)
-------------------------------------------------------------------------------------------------------------------
Investment income (62) --
-------------------------------------------------------------------------------------------------------------------
Interest income (168) (179)
-------------------------------------------------------------------------------------------------------------------
Interest expense 2,845 2,272
-------------------------------------------------------------------------------------------------------------------
Unrealised foreign exchange gains (150) (32)
-------------------------------------------------------------------------------------------------------------------
Loss on disposal of property, plant and equipment, net 20 404
-------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets 397 2,324
-------------------------------------------------------------------------------------------------------------------
Increase in trade accounts receivable (5,488) (4,529)
-------------------------------------------------------------------------------------------------------------------
Increase in bills receivable (544) (2,328)
-------------------------------------------------------------------------------------------------------------------
Increase in inventories (14,957) (14,604)
-------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in prepaid expenses and other current assets (522) 303
-------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in lease prepayments (295) 16
-------------------------------------------------------------------------------------------------------------------
Increase in long-term prepayments and other assets (1,451) (758)
-------------------------------------------------------------------------------------------------------------------
Increase in trade accounts payable 9,984 3,703
-------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in bills payable (3,904) 4,408
-------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in accrued expenses and other payables 3,050 (1,977)
-------------------------------------------------------------------------------------------------------------------
Decrease in other liabilities (117) (358)
-------------------------------------------------------------------------------------------------------------------
CASH GENERATED FROM OPERATIONS 36,296 31,311
-------------------------------------------------------------------------------------------------------------------
Interest received 168 180
-------------------------------------------------------------------------------------------------------------------
Interest paid (3,320) (2,664)
-------------------------------------------------------------------------------------------------------------------
Investment and dividend income received 362 222
-------------------------------------------------------------------------------------------------------------------
Income tax paid (12,424) (8,351)
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 21,082 20,698
===================================================================================================================
The notes on pages 81 to 105 form part of these interim financial statements.
79
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2005
(Amounts in millions, except per share data)
Statutory
Statutory public
Share Capital Share Revaluation surplus welfare
capital reserve premium reserve reserve fund
RMB RMB RMB RMB RMB RMB
Balance at 1 January 2004, as previously reported 86,702 (18,960) 18,072 30,341 6,330 6,330E
----------------------------------------------------------------------------------------------------------------------------------
Adjusted for acquisition of the Acquired Group -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004, as adjusted 86,702 (18,960) 18,072 30,341 6,330 6,330
----------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2003 (Note 13) -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Profit for the period -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a) and (b)) -- -- -- -- 1,504 1,504E
----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised -- -- -- (627) -- --
----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets -- -- -- (439) -- --
----------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land use rights -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Transfer from retained earnings to other reserves -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Net assets contributed from Sinopec Group Company -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests, net -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 86,702 (18,960) 18,072 29,275 7,834 7,834
==================================================================================================================================
Balance at 1 January 2005 86,702 (19,217) 18,072 27,998 9,558 9,558
----------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2004 (Note 13) -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Profit for the period -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a) and (b)) -- -- -- -- 1,804 1,804
----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised -- -- -- (60) -- --
----------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land use rights -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Acquisition of minority interests in Beijing
Yanhua (Note 32(i)) -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests, net -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 86,702 (19,217) 18,072 27,938 11,362 11,362
==================================================================================================================================
[table continued]
Equity
attributable
Discretionary to equity
surplus Other Retained holders of Minority Total
reserve reserves earnings the parent interests equity
RMB RMB RMB RMB RMB RMB
Balance at 1 January 2004, as previously reported 7,000 252 31,832 167,899 25,866 193,765
----------------------------------------------------------------------------------------------------------------------------------
Adjusted for acquisition of the Acquired Group -- 3,616 -- 3,616 185 3,801
----------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004, as adjusted 7,000 3,868 31,832 171,515 26,051 197,566
----------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2003 (Note 13) -- -- (5,202) (5,202) -- (5,202)
----------------------------------------------------------------------------------------------------------------------------------
Profit for the period -- -- 16,746 16,746 2,175 18,921
----------------------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a) and (b)) -- -- (3,008) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised -- -- 627 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets -- -- -- (439) -- (439)
----------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land use rights -- (2) 2 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Transfer from retained earnings to other reserves -- 595 (595) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Net assets contributed from Sinopec Group Company -- 198 -- 198 -- 198
----------------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests, net -- -- -- -- (631) (631)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 7,000 4,659 40,402 182,818 27,595 210,413
==================================================================================================================================
Balance at 1 January 2005 7,000 247 53,122 193,040 31,046 224,086
----------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2004 (Note 13) -- -- (6,936) (6,936) -- (6,936)
----------------------------------------------------------------------------------------------------------------------------------
Profit for the period -- -- 19,653 19,653 2,116 21,769
----------------------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a) and (b)) -- -- (3,608) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised -- -- 60 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land use rights -- (2) 2 -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Acquisition of minority interests in Beijing
Yanhua (Note 32(i)) -- -- -- -- (2,931) (2,931)
----------------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests, net -- -- -- -- (1,212) (1,212)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 7,000 245 62,293 205,757 29,019 234,776
==================================================================================================================================
Notes:
(a) According to the Company's Articles of Association, the Company is
required to transfer 10% of its net profit, as determined in accordance
with the PRC Accounting Rules and Regulations, to statutory surplus
reserve until the reserve balance reaches 50% of the registered capital.
The transfer to this reserve must be made before distribution of a
dividend to shareholders.
Statutory surplus reserve can be used to make good previous years' losses,
if any, and may be converted into share capital by the issue of new shares
to shareholders in proportion to their existing shareholdings or by
increasing the par value of the shares currently held by them, provided
that the balance after such issue is not less than 25% of the registered
capital. During the six-month period ended 30 June 2005, the Company
transferred RMB 1,804 million (2004: RMB 1,504 million), being 10% of the
current period's net profit determined in accordance with the PRC
Accounting Rules and Regulations, to this reserve.
(b) According to the Company's Articles of Association, the Company is
required to transfer 5% to 10% of its net profit, as determined in
accordance with the PRC Accounting Rules and Regulations, to the statutory
public welfare fund. This fund can only be utilised on capital items for
the collective benefits of the Company's employees such as the
construction of dormitories, canteen and other staff welfare facilities.
This fund is non-distributable other than on liquidation. The transfer to
this fund must be made before distribution of a dividend to shareholders.
Pursuant to the Company's Articles of Associations and a resolution passed
at the Directors' meeting on 26 August 2005, the directors authorised to
transfer RMB 1,804 million (2004: RMB 1,504 million) for the six-month
period ended 30 June 2005, being 10% of the current period's net profit
determined in accordance with the PRC Accounting Rules and Regulations, to
this fund.
(c) The usage of the discretionary surplus reserve is similar to that of
statutory surplus reserve.
(d) According to the Company's Articles of Association, the amount of retained
profits available for distribution to equity holders of the parent is the
lower of the amount determined in accordance with the PRC Accounting Rules
and Regulations and the amount determined in accordance with IFRS. At 30
June 2005, the amount of retained profits available for distribution was
RMB 11,881 million, being the amount determined in accordance with IFRS.
Interim dividend of RMB 3,468 million (2004: RMB 3,468 million) declared
after the balance sheet date has not been recognised as a liability at the
balance sheet date.
(e) The capital reserve represents (i) the difference between the total amount
of the par value of shares issued and the amount of the net assets
transferred from Sinopec Group Company in connection with the
Reorganisation and (ii) the difference between the considerations paid
over the amount of the net assets acquired from Sinopec National Star,
Sinopec Maoming, Xi'an Petrochemical, Tahe Petrochemical, Tianjin
Petrochemical, Luoyang Petrochemical, Zhongyuan Petrochemical, Guangzhou
Petrochemical and Catalyst Plants.
(f) The application of the share premium account is governed by Sections 178
and 179 of the PRC Company Law.
80
NOTES ON THE INTERIM FINANCIAL STATEMENTS
for the six-month period ended 30 June 2005
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION
Principal activities
China Petroleum & Chemical Corporation (the "Company'') is an energy and
chemical company that, through its subsidiaries (hereinafter collectively
referred to as the "Group''), engages in fully integrated oil and gas and
chemical operations in the People's Republic of China (the "PRC''). Oil and
gas operations consist of exploring for, developing and producing crude oil
and natural gas; transporting crude oil, natural gas and products by
pipelines; refining crude oil into finished petroleum products; and
marketing crude oil, natural gas and refined petroleum products. Chemical
operations include the manufacture and marketing of a wide range of
chemicals for industrial uses.
Organisation
The Company was established in the PRC on 25 February 2000 as a joint stock
limited company as part of the reorganisation (the "Reorganisation") of
China Petrochemical Corporation (OOSinopec Group Company''), the ultimate
holding company of the Group and a ministry-level enterprise under the
direct supervision of the State Council of the PRC. Prior to the
incorporation of the Company, the oil and gas and chemical operations of
the Group were carried on by oil administration bureaux, petrochemical and
refining production enterprises and sales and marketing companies of
Sinopec Group Company.
As part of the Reorganisation, certain of Sinopec Group Company's core oil
and gas and chemical operations and businesses together with the related
assets and liabilities that were to be transferred to the Company were
segregated such that the operations and businesses were separately managed
beginning 31 December 1999. On 25 February 2000, in consideration for
Sinopec Group Company transferring such oil and gas and chemical operations
and businesses and the related assets and liabilities to the Company, the
Company issued 68.8 billion domestic state-owned ordinary shares with a par
value of RMB 1.00 each to Sinopec Group Company. The shares issued to
Sinopec Group Company on 25 February 2000 represented the entire registered
and issued share capital of the Company at that date. The oil and gas and
chemical operations and businesses transferred to the Company related to
(i) the exploration, development and production of crude oil and natural
gas, (ii) the refining, transportation, storage and marketing of crude oil
and petroleum products, and (iii) the production and sale of chemicals
(collectively the "Predecessor Operations").
Basis of presentation
Pursuant to the resolution passed at the Extraordinary General Meeting held
on 24 August 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from
Sinopec Group Company for a consideration of RMB 6.45 billion (hereinafter
referred to as the "Acquisition of Sinopec National Star").
Pursuant to the resolution passed at the Directors' meeting on 28 October
2003, the Group acquired the equity interest of Sinopec Group Maoming
Petrochemical Company ("Sinopec Maoming") from Sinopec Group Company, for a
consideration of RMB 3.3 billion which was paid in 2004 (hereinafter
referred to as the "Acquisition of Ethylene Assets").
Pursuant to the resolution passed at the Directors' meeting on 29 December
2003, the Group acquired the equity interest of Xi'an Petrochemical Main
Factory ("Xi'an Petrochemical") and Tahe Oilfield Petrochemical Factory
("Tahe Petrochemical") from Sinopec Group Company, for considerations of
RMB 221 million and RMB 135 million, respectively which were paid in 2004
(hereinafter referred to as the "Acquisition of Refining Assets").
Pursuant to the resolutions passed at the Extraordinary General Meeting
held on 21 December 2004, the Group acquired the equity interest of Sinopec
Group Tianjin Petrochemical Company ("Tianjin Petrochemical"), Sinopec
Group Luoyang Petrochemical General Plant ("Luoyang Petrochemical"),
Zhongyuan Petrochemical Company Limited ("Zhongyuan Petrochemical"),
Sinopec Group Guangzhou Petrochemical General Plant ("Guangzhou
Petrochemical") and certain catalyst plants ("Catalyst Plants") from
Sinopec Group Company for a total consideration of RMB 3,128 million which
was paid in 2005 (hereinafter referred to as the "Acquisition of
Petrochemical and Catalyst Assets").
As the Group, Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical,
Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants are under the
common control of Sinopec Group Company, the Acquisition of Sinopec
National Star, the Acquisition of Ethylene Assets, the Acquisition of
Refining Assets and the Acquisition of Petrochemical and Catalyst Assets
are considered as "combination of entities under common control" which are
accounted in a manner similar to a pooling-of-interests ("as-if
pooling-of-interests accounting"). Accordingly, the assets and liabilities
acquired from Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical,
Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants have been
accounted for at historical cost and the financial statements of the Group
for periods prior to the combination have been restated to include the
results of operations of Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants on a combined basis. In connection with these acquisitions,
certain assets, primarily property, plant and equipment and construction in
progress, were retained by Sinopec Group Company. The assets retained by
Sinopec Group Company were reflected as a distribution in the equity
attributable to equity holders of the parent. The considerations for these
acquisitions were treated as equity transactions.
The results of operations previously reported by the Group for the
six-month period ended 30 June 2004 have been restated to include the
results of Tianjin Petrochemical, Luoyang Petrochemical, Zhougyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants (collectively
the "Acquired Group") as set out below.
The Group
without the The Acquired
Acquired Group Group Combined
RMB millions RMB millions RMB millions
Results of operation:
------------------------------------------------------------------------------------------------------------------
Operating revenue 275,442 4,003 279,445
---------------------------------------------------------------------------------------------------------------
Profit attributable to equity holders of the parent 16,151 595 16,746
---------------------------------------------------------------------------------------------------------------
Basic earnings per share (RMB) 0.19 -- 0.19
---------------------------------------------------------------------------------------------------------------
81
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION (Continued)
For the six-month period ended 30 June 2004 presented, all significant
transactions between the Group and the Acquired Group have been eliminated.
The accompanying interim financial statements have been prepared in
accordance with IFRS promulgated by the International Accounting Standards
Board ("IASB"). IFRS includes International Accounting Standards ("IAS")
and related interpretations. These interim financial statements also comply
with the applicable disclosure provisions of the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited.
The accompanying interim financial statements are prepared on the
historical cost basis as modified by the revaluation of certain property,
plant and equipment (Note 14). The accounting policies described in Note 2
have been consistently applied by the Group, except those disclosed in Note
36.
The preparation of the interim financial statements in accordance with IFRS
requires management to make judgement, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the interim financial statements and the reported amounts of revenues
and expenses during the period. The estimates and associated assumptions
are based on historical experience and various other factors that are
believed to be reasonable under the circumstances, the results of which
form the basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both
current and future periods.
Judgement made by management in the application of IFRSs that have
significant effect on the interim financial statements and estimates with a
significant risk of material adjustment in the next financial year are
disclosed in Note 34.
2 PRINCIPAL ACCOUNTING POLICIES
(a) Basis of consolidation
The consolidated interim financial statements include the interim
financial statements of the Company and its subsidiaries. Subsidiaries
are those entities controlled by the Company. Control exists when the
Company has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities.
The results of subsidiaries are included in the consolidated income
statement from the date that control effectively commences until the
date that control effectively ceases, and the profit attributable to
minority interests is separately presented in the face of the income
statement as an allocation of the profit or loss for the period between
the minority interests and equity holders of the parent. All
significant inter-company balances and transactions and any unrealised
gains arising from inter-company transactions are eliminated on
consolidation.
The particulars of the Group's principal subsidiaries are set out in
Note 32.
(b) Translation of foreign currencies
The functional and presentation currency of the Group is Renminbi.
Foreign currency transactions during the period are translated into
Renminbi at the applicable rates of exchange quoted by the People's
Bank of China (OOPBOC rates'') prevailing on the transaction dates.
Foreign currency monetary assets and liabilities are translated into
Renminbi at the PBOC rates at the balance sheet date.
Exchange differences, other than those capitalised as construction in
progress, are recognised as income or expense in the income statement.
(c) Cash and cash equivalents
Cash equivalents consist of time deposits with financial institutions
with an initial term of less than three months when purchased. Cash
equivalents are stated at cost, which approximates fair value.
(d) Trade accounts receivable
Trade accounts receivable are stated at cost less allowance for
doubtful accounts. An allowance for doubtful accounts is provided based
upon the evaluation of the recoverability of these accounts at the
balance sheet date.
(e) Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realisable value. Cost includes the cost of
purchase computed using the weighted average method and, in the case of
work in progress and finished goods, direct labour and an appropriate
proportion of production overheads. Net realisable value is the
estimated selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs necessary to make
the sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence.
82
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(f) Property, plant and equipment
An item of property, plant and equipment is initially recorded at cost,
less accumulated depreciation and impairment losses. The cost of an
asset comprises its purchase price, any directly attributable costs of
bringing the asset to working condition and location for its intended
use and the initial estimate, where relevant, of the costs of
dismantling and removing the item and restoring the site on which it is
located. Subsequent to the revaluation (Note 14), which was based on
depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and impairment
losses. Revaluations are performed periodically to ensure that the
carrying amount does not differ materially from that which would be
determined using fair value at the balance sheet date. The Group
recognises in the carrying amount of an item of property, plant and
equipment the expenditure of replacing part of such an item when that
cost is incurred if it is probable that the future economic benefits
embodied with the item will flow to the Group and the cost of the item
can be measured reliably. All other expenditure is recognised as an
expense in the income statement in the period in which it is incurred.
Gains or losses arising from the retirement or disposal of property,
plant and equipment, other than oil and gas properties, are determined
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognised as income or expense in the
income statement on the date of retirement or disposal. On disposal of
a revalued asset, the related revaluation surplus is transferred from
the revaluation reserve to retained earnings.
Depreciation is provided to write off the cost/revalued amount of each
part of an item of property, plant and equipment, other than oil and
gas properties, over its estimated useful life on a straight-line
basis, after taking into account its estimated residual value, as
follows:
Buildings 15 to 45 years
Plant, machinery, equipment, oil depots and others 4 to 18 years
Service stations 25 years
The residual value, if not insignificant, is reassessed annually.
(g) Oil and gas properties
The Group uses the successful efforts method of accounting for its oil
and gas producing activities. Under this method, costs of development
wells and the 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.
The impairment of exploratory well costs occurs upon the determination
that the well has not found proved reserves. Exploratory wells that
find oil and gas reserves in any area requiring major capital
expenditure are expensed unless the well has found a sufficient
quantity of reserves to justify its completion as a producing well if
the required capital expenditure is made, and drilling of the
additional exploratory wells is under way or firmly planned for the
near future. 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, other dry hole costs and annual lease rentals,
are expensed as incurred. Capitalised costs relating to proved
properties are amortised at the field level on a unit-of-production
method. The amortisation rates are determined based on oil and gas
reserves estimated to be recoverable from existing facilities over the
shorter of the economic lives of crude oil and natural gas reservoirs
and the terms of the relevant production licenses.
Gains and losses on the disposal of proved oil and gas properties are
not recognised unless the disposal encompasses an entire property. The
proceeds on such disposals are credited to the carrying amounts of oil
and gas properties.
(h) Lease prepayments
Lease prepayments represent land use rights paid to the PRC's land
bureau. Land use rights are carried at cost and amortised on a
straight-line basis over the respective periods of the rights.
(i) Construction in progress
Construction in progress represents buildings, oil and gas properties,
various plant and equipment under construction and pending
installation, and is stated at cost less impairment losses. The cost of
an item comprises direct costs of construction and the initial
estimate, where relevant, of the costs of dismantling and removing the
item and restoring the site on which it is located as well as interest
charges, and foreign exchange differences on related borrowed funds to
the extent that they are regarded as an adjustment to interest charges,
during the periods of construction.
Construction in progress is transferred to property, plant and
equipment when the asset is substantially ready for its intended use.
No depreciation is provided in respect of construction in progress.
(j) Investments
Investments in unlisted equity securities are stated at cost less
provision for impairment losses. A provision is made where, in the
opinion of management, the carrying amount of the investments exceeds
its recoverable amount.
(k) Interests in associates
An associate is a company, not being a subsidiary, in which the Group
exercises significant influence over its management. Significant
influence is the power to participate in the financial and operating
policy decisions of the investee but is not control over those
policies.
Investments in associates are accounted for using the equity method
from the date that significant influence commences until the date that
significant influence ceases.
83
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(l) Jointly controlled entities
A jointly controlled entity is an entity over which the Group can
exercise joint control with other venturers. Joint control is the
contractually agreed sharing of control over an economic activity.
Investments in jointly controlled entities are accounted for on a
proportionate consolidation basis. Under this method, the Group
combines its proportionate share of the jointly controlled entity's
turnover and expenses with each major turnover and expense caption of
the Group's income statement and combines its proportionate share of
the jointly controlled entity's assets and liabilities with each major
asset and liability caption of the Group's balance sheet, from the date
that joint control commences until the date that joint control ceases.
(m) Provisions
A provision is recognised in the balance sheet when the Group has a
legal or constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to
settle the obligation.
(n) Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum
and chemical products and ancillary materials are recorded when the
customer accepts the goods and the significant risks and rewards of
ownership and title have been transferred to the buyer. Revenue from
the rendering of services is recognised in the income statement upon
performance of the services. No revenue is recognised if there are
significant uncertainties regarding recovery of the consideration due,
the possible return of goods, or when the amount of revenue and the
costs incurred or to be incurred in respect of the transaction cannot
be measured reliably.
Interest income is recognised on a time apportioned basis that takes
into account the effective yield on the asset.
(o) Borrowing costs
Borrowing costs are expensed in the income statement in the period in
which they are incurred, except to the extent that they are capitalised
as being attributable to the construction of an asset which necessarily
takes a period of time to get ready for its intended use.
(p) Repairs and maintenance expenditure
Repairs and maintenance expenditure, including cost of major overhaul,
is expensed as incurred.
(q) Environmental expenditures
Environmental expenditures that relate to current ongoing operations or
to conditions caused by past operations are expensed as incurred.
Liabilities related to future remediation costs are recorded when
environmental assessments and/or cleanups are probable and the costs
can be reasonably 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.
(r) Research and development costs
Research and development costs are recognised as expenses in the period
in which they are incurred.
(s) Operating leases
Operating lease payments are charged to the income statement on a
straight-line basis over the period of the respective leases.
(t) Retirement benefits
The contributions payable under the Group's retirement plans are
recognised as expenses in the income statement as incurred and
according to the contribution determined by the plans. Further
information is set out in Note 30.
(u) Impairment loss
The carrying amounts of long-lived assets are reviewed periodically in
order to assess whether the recoverable amounts have declined below the
carrying amounts. These assets are tested for impairment whenever
events or changes in circumstances indicate that their recorded
carrying amounts may not be recoverable. When such a decline has
occurred, the carrying amount is reduced to the recoverable amount. The
recoverable amount is the greater of the fair value less costs to sell
and the value in use. In determining the value in use, expected future
cash flows generated by the asset are discounted to their present
value. The amount of the reduction is recognised as an expense in the
income statement unless the asset is carried at revalued amount for
which an impairment loss is recognised directly against any related
revaluation reserve to the extent that the impairment loss does not
exceed the amount held in the revaluation reserve for that same asset.
The Group assesses at each balance sheet date whether there is any
indication that an impairment loss recognised for an asset in prior
years may no longer exist. An impairment loss is reversed if there has
been a favourable change in the estimates used to determine the
recoverable amount. A subsequent increase in the recoverable amount of
an asset, when the circumstances and events that led to the write-down
or write-off cease to exist, is recognised as an income unless the
asset is carried at revalued amount. Reversal of an impairment loss on
a revalued asset is credited to the revaluation reserve except for
impairment loss which was previously recognised as an expense in the
income statement; a reversal of such impairment loss is recognised as
an income. The reversal is reduced by the amount that would have been
recognised as depreciation had the write-down or write-off not
occurred.
84
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(v) Income tax
Income tax comprises current and deferred tax. Current tax is
calculated on taxable income by applying the applicable tax rates.
Deferred tax is provided using the balance sheet liability method on
all temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is calculated on the basis of the
enacted tax rates that are expected to apply in the period when the
asset is realised or the liability is settled.
The tax value of losses expected to be available for utilisation
against future taxable income is set off against the deferred tax
liability within the same legal tax unit and jurisdiction to the extent
appropriate, and is not available for set-off against the taxable
profit of another legal tax unit. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax benefit
will be realised.
(w) Dividends
Dividends are recognised as a liability in the period in which they are
declared.
(x) Segmental reporting
A business segment is a distinguishable component of the Group that is
engaged in providing products or services and is subject to risks and
rewards that are different from those of other segments.
3 TURNOVER
Turnover represents revenue from the sales of crude oil, natural gas,
petroleum and chemical products, net of value-added tax.
4 OTHER OPERATING REVENUES
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Sale of materials, service and others 9,117 9,642
-------------------------------------------------------------------------
Rental income 89 202
-------------------------------------------------------------------------
9,206 9,844
=========================================================================
5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following items are included in selling, general and administrative
expenses:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Research and development costs 736 1,031
---------------------------------------------------------------------------
Operating lease charges 2,101 1,973
---------------------------------------------------------------------------
6 PERSONNEL EXPENSES
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Wages and salaries 6,339 6,414
---------------------------------------------------------------------------
Staff welfare 794 840
---------------------------------------------------------------------------
Contributions to retirement schemes 930 992
---------------------------------------------------------------------------
Social security contributions 473 470
---------------------------------------------------------------------------
8,536 8,716
===========================================================================
7 EMPLOYEE REDUCTION EXPENSES
In accordance with the Group's voluntary employee reduction plan, the Group
recorded employee reduction expenses of RMB 100 million (2004: RMB 412
million) during the six-month period ended 30 June 2005 in respect of the
voluntary termination of approximately 1,800 (2004: 8,000) employees.
85
8 TAXES OTHER THAN INCOME TAX
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Consumption tax 5,906 5,690
---------------------------------------------------------------------------
City construction tax 1,332 1,241
---------------------------------------------------------------------------
Education surcharge 649 600
---------------------------------------------------------------------------
Resources tax 221 221
---------------------------------------------------------------------------
Business tax 96 81
---------------------------------------------------------------------------
8,204 7,833
===========================================================================
Consumption tax is levied on producers of gasoline and diesel based on a
tariff rate applied to the volume of sales. City construction tax is levied
on an entity based on its total amount of value-added tax, consumption tax
and business tax.
9 OTHER OPERATING EXPENSES, NET
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Fines, penalties and compensations 108 31
---------------------------------------------------------------------------
Donations 128 49
---------------------------------------------------------------------------
Loss on disposal of property, plant
and equipment, net 20 404
---------------------------------------------------------------------------
Impairment losses on long-lived assets(Note) 397 2,324
---------------------------------------------------------------------------
Others 223 223
---------------------------------------------------------------------------
876 3,031
===========================================================================
Note:
Impairment losses recognised on long-lived assets of the chemicals segment
of RMB 392 million for the six-month period ended 30 June 2005 relate to a
chemical production facility that is held for use. The carrying value of
this facility was written down to its recoverable value which was based on
the fair value less costs to sell. Fair value was determined based on the
appraised value of this chemical production facility. An amount of RMB 392
million was charged to the income statement. The primary factor resulting
in the impairment losses on long-lived assets of the chemicals segment was
due to higher operating and production costs caused by the increase in the
prices of raw materials that are not expected to be recovered through an
increase in selling price.
Impairment losses recognised on long-lived assets of the chemicals segment
of RMB 2,140 million for the six-month period ended 30 June 2004 relate to
certain chemical production facilities that are held for use. The carrying
values of these facilities were written down to their recoverable values
which were based on the asset held for use model using the present value of
estimated future cash flows. An amount of RMB 1,701 million was charged to
the income statement with the remaining amount of RMB 439 million
recognised directly against the related revaluation reserve in respect of
those assets that were carried at revalued amount. The primary factor
resulting in the impairment losses on long-lived assets of the chemicals
segment was due to higher operating and production costs caused by the
increase in the prices of raw materials that are not expected to be
recovered through an increase in selling price.
Impairment losses recognised on long-lived assets of the marketing and
distribution segment of RMB 5 million (2004: RMB 623 million) for the
six-month period ended 30 June 2005 primarily relate to certain service
stations that were closed during the period. In measuring the amounts of
impairment charges, the carrying amounts of these assets were compared to
the present value of the expected future cash flows of the assets, as well
as information about sales and purchases of similar properties in the same
geographic area.
10 INTEREST EXPENSE
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Interest expense incurred 3,399 2,665
----------------------------------------------------------------------------
Less: Interest expense capitalised* (554) (393)
----------------------------------------------------------------------------
INTEREST EXPENSE 2,845 2,272
----------------------------------------------------------------------------
* Interest rates per annum at which
borrowing costs were capitalised
for construction in progress 3.4% to 6.1% 3.1% to 6.0%
----------------------------------------------------------------------------
86
11 TAXATION
Taxation in the consolidated income statement represents:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Provision for PRC income tax
---------------------------------------------------------------------------
-- the Group 9,915 8,463
---------------------------------------------------------------------------
-- associates 170 152
---------------------------------------------------------------------------
Deferred taxation (140) (598)
---------------------------------------------------------------------------
9,945 8,017
===========================================================================
A reconciliation of the expected tax with the actual tax expense is as
follows:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Profit before taxation 31,714 26,938
----------------------------------------------------------------------------
Expected PRC income tax expense
at a statutory tax rate of 33% 10,466 8,890
----------------------------------------------------------------------------
Non-deductible expenses 234 123
----------------------------------------------------------------------------
Non-taxable income (222) (155)
Differential tax rate on
subsidiaries' income (Note) (870) (1,193)
----------------------------------------------------------------------------
Tax losses not recognised for
deferred tax 15 360
----------------------------------------------------------------------------
Under-provision in prior years 477 91
----------------------------------------------------------------------------
Tax credit for domestic
equipment purchases (155) (99)
----------------------------------------------------------------------------
9,945 8,017
===========================================================================
Substantially all income before income tax and related tax expense is from
PRC sources.
Note:
The provision for PRC current income tax is based on a statutory rate of
33% of the assessable income of the Group as determined in accordance with
the relevant income tax rules and regulations of the PRC, except for
certain subsidiaries of the Company, which are taxed at a preferential rate
of 15%.
12 BASIC EARNINGS PER SHARE
The calculation of basic earnings per share for the six-month period ended
30 June 2005 is based on the profit attributable to equity holders of the
parent of RMB 19,653 million (2004: RMB 16,746 million) and the weighted
average number of shares of 86,702,439,000 (2004: 86,702,439,000) during
the period.
The amount of diluted earnings per share is not presented as there were no
dilutive potential ordinary shares in existence during the periods
presented.
13 DIVIDENDS
Dividends attributable to the period represent:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Interim dividends declared after the balance sheet date of RMB 0.04 per share
(2004: RMB 0.04 per share) 3,468 3,468
-----------------------------------------------------------------------------------------------------------------------------------
Pursuant to the Company's Articles of Association and a resolution passed
at the Directors' meeting on 26 August 2005, the directors authorised to
declare the interim dividends for the year ending 31 December 2005 of RMB
0.04 (2004: RMB 0.04) per share totalling RMB 3,468 million (2004: RMB
3,468 million). Interim dividend of RMB 3,468 million (2004: RMB 3,468
million) declared after the balance sheet date has not been recognised as a
liability at the balance sheet date.
Dividends attributable to the previous financial year, approved and paid
during the period represent:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Final dividends in respect of the previous financial year, approved and
paid during the period of RMB 0.08 per share (2004: RMB 0.06 per share) 6,936 5,202
--------------------------------------------------------------------------------------------------------------
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2005, a final dividend of RMB 0.08 per share totalling RMB 6,936
million in respect of the year ended 31 December 2004 was declared and paid
on 27 June 2005.
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2004, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2003 was declared and paid
on 28 June 2004.
87
14 PROPERTY, PLANT AND EQUIPMENT
By segment:
Exploration Marketing Corporate
and and and
production Refining distribution Chemicals others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
COST/VALUATION:
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 177,962 105,237 54,482 160,289 3,788 501,758
-------------------------------------------------------------------------------------------------------------------------------
Additions 442 203 803 160 19 1,627
-------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 3,706 4,010 3,443 752 123 12,034
-------------------------------------------------------------------------------------------------------------------------------
Disposals (641) (1,669) (1,282) (1,970) (8) (5,570)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 181,469 107,781 57,446 159,231 3,922 509,849
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 192,076 116,910 65,345 163,222 4,092 541,645
-------------------------------------------------------------------------------------------------------------------------------
Additions 8 85 77 96 147 413
-------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 3,386 3,173 5,918 15,420 95 27,992
-------------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity -- -- -- 1,028 -- 1,028
-------------------------------------------------------------------------------------------------------------------------------
Disposals (97) (84) (220) (102) (18) (521)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 195,373 120,084 71,120 179,664 4,316 570,557
-------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 84,604 50,901 10,014 84,285 1,223 231,027
-------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 5,357 3,687 1,276 4,616 143 15,079
-------------------------------------------------------------------------------------------------------------------------------
Impairment losses for the period -- -- 623 2,140 -- 2,763
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposals (502) (1,362) (728) (1,204) (5) (3,801)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 89,459 53,226 11,185 89,837 1,361 245,068
===============================================================================================================================
Balance at 1 January 2005 94,028 56,580 13,465 92,042 1,407 257,522
-------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 5,233 3,296 1,372 4,872 134 14,907
-------------------------------------------------------------------------------------------------------------------------------
Impairment losses for the period -- -- 5 392 -- 397
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposals (87) (58) (95) (54) (6) (300)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 99,174 59,818 14,747 97,252 1,535 272,526
===============================================================================================================================
NET BOOK VALUE:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 93,358 54,336 44,468 76,004 2,565 270,731
-------------------------------------------------------------------------------------------------------------------------------
AT 30 JUNE 2004 92,010 54,555 46,261 69,394 2,561 264,781
===============================================================================================================================
At 1 January 2005 98,048 60,330 51,880 71,180 2,685 284,123
-------------------------------------------------------------------------------------------------------------------------------
AT 30 JUNE 2005 96,199 60,266 56,373 82,412 2,781 298,031
===============================================================================================================================
By asset class:
Oil depots, Plant,
storage tanks machinery,
Oil and gas and service equipment
Buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
COST/VALUATION:
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 44,728 158,634 46,337 252,059 501,758
-------------------------------------------------------------------------------------------------------------------------------
Additions 103 1 623 900 1,627
-------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 174 3,667 5,390 2,803 12,034
-------------------------------------------------------------------------------------------------------------------------------
Disposals (899) (239) (985) (3,447) (5,570)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 44,106 162,063 51,365 252,315 509,849
===============================================================================================================================
Balance at 1 January 2005 44,854 173,564 60,533 262,694 541,645
-------------------------------------------------------------------------------------------------------------------------------
Additions 43 1 63 306 413
-------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 1,222 3,130 5,219 18,421 27,992
-------------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new
jointly controlled entity 182 -- -- 846 1,028
-------------------------------------------------------------------------------------------------------------------------------
Disposals (117) (59) (156) (189) (521)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 46,184 176,636 65,659 282,078 570,557
===============================================================================================================================
ACCUMULATED DEPRECIATION:
-------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 18,975 77,582 8,785 125,685 231,027
-------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 862 4,575 1,061 8,581 15,079
-------------------------------------------------------------------------------------------------------------------------------
Impairment losses for the period 325 -- 623 1,815 2,763
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposals (434) (205) (491) (2,671) (3,801)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 19,728 81,952 9,978 133,410 245,068
===============================================================================================================================
Balance at 1 January 2005 20,308 85,143 11,781 140,290 257,522
-------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 761 4,902 1,209 8,035 14,907
-------------------------------------------------------------------------------------------------------------------------------
Impairment losses for the period -- -- 5 392 397
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposals (42) (50) (60) (148) (300)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 21,027 89,995 12,935 148,569 272,526
===============================================================================================================================
NET BOOK VALUE:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 25,753 81,052 37,552 126,374 270,731
-------------------------------------------------------------------------------------------------------------------------------
AT 30 JUNE 2004 24,378 80,111 41,387 118,905 264,781
===============================================================================================================================
At 1 January 2005 24,546 88,421 48,752 122,404 284,123
-------------------------------------------------------------------------------------------------------------------------------
AT 30 JUNE 2005 25,157 86,641 52,724 133,509 298,031
===============================================================================================================================
88
14 PROPERTY, PLANT AND EQUIPMENT (Continued)
The Group's proportionate share of the jointly controlled entities' net
book value of property, plant and equipment at 30 June 2005 in the
exploration and production and the chemicals segments were RMB 392 million
(2004: RMB 412 million) and RMB 15,584 million (2004: RMB 17 million),
respectively.
As required by the relevant PRC regulations with respect to the
Reorganisation, the property, plant and equipment of the Group at 30
September 1999 were valued for each asset class by China United Assets
Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets
Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation, independent valuers registered in the PRC, on a depreciated
replacement cost basis. The value of property, plant and equipment was
determined at RMB 159,788 million. The surplus on revaluation of RMB 32,320
million, net of amounts allocated to minority interests, was incorporated
in the financial statements of the Group at 31 December 1999.
In connection with the Acquisition of Sinopec National Star, the property,
plant and equipment of Sinopec National Star were revalued at 31 December
2000, by a firm of independent valuers and approved by the Ministry of
Finance. The value of property, plant and equipment of Sinopec National
Star pursuant to the valuation, based on a depreciated replacement cost
basis, was determined at RMB 4,373 million, resulting in a surplus on
revaluation of RMB 1,136 million, net of amounts allocated to minority
interest.
In connection with the Acquisition of Ethylene Assets, the property, plant
and equipment of Sinopec Maoming were revalued at 30 June 2003, by a firm
of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of Sinopec Maoming
pursuant to the valuation, based on a depreciated replacement cost basis,
was determined at RMB 5,100 million, which approximated the net historical
carrying value of the assets.
In connection with the Acquisition of Refining Assets, the property, plant
and equipment of the Refining Assets were revalued at 31 October 2003, by a
firm of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of the Refining
Assets pursuant to the valuation, based on a depreciated replacement cost
basis, was determined at RMB 461 million, which approximated the net
historical carrying value of the assets.
In connection with the Acquisition of Petrochemical and Catalyst Assets,
the property, plant and equipment of the Petrochemical and Catalyst Assets
were revalued at 30 June 2004, by a firm of independent valuers in
accordance with the relevant rules and regulations. The value of property,
plant and equipment of the Petrochemical and Catalyst Assets pursuant to
the valuation, based on a depreciated replacement cost basis, was
determined at RMB 11,895 million, which approximated the net historical
carrying value of the assets.
In accordance with IAS 16, subsequent to these revaluations, which was
based on depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and impairment
losses. Revaluation is performed periodically to ensure that the carrying
amount does not differ materially from that which would be determined using
fair value at the balance sheet date. Based on a revaluation performed as
of 31 December 2004, which was based on depreciated replacement costs, the
carrying value of property, plant and equipment did not differ materially
from their fair value.
15 CONSTRUCTION IN PROGRESS
Exploration Marketing
and and Corporate
production Refining distribution Chemicals and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2004 5,535 8,470 7,941 6,957 451 29,354
-------------------------------------------------------------------------------------------------------------------------------
Additions 10,394 3,914 7,808 3,029 96 25,241
-------------------------------------------------------------------------------------------------------------------------------
Additions by jointly controlled entities 702 -- -- 2,666 -- 3,368
-------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (764) -- -- -- -- (764)
-------------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and equipment (3,706) (4,010) (3,443) (752) (123) (12,034)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2004 12,161 8,374 12,306 11,900 424 45,165
===============================================================================================================================
Balance at 1 January 2005 9,262 8,459 13,781 13,170 1,513 46,185
-------------------------------------------------------------------------------------------------------------------------------
Additions 11,352 3,366 6,307 2,146 249 23,420
-------------------------------------------------------------------------------------------------------------------------------
Additions by jointly controlled entities 396 -- -- 1,500 -- 1,896
-------------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity -- -- -- 5,461 -- 5,461
-------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (1,325) -- -- -- -- (1,325)
-------------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and equipment (3,386) (3,173) (5,918) (15,420) (95) (27,992)
-------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 30 JUNE 2005 16,299 8,652 14,170 6,857 1,667 47,645
===============================================================================================================================
The Group's proportionate share of the jointly controlled entities'
construction in progress at 30 June 2005 in the exploration and production
and the chemicals segments were RMB 2,449 million (2004: RMB 2,053 million)
and RMB 321 million (2004: RMB 8,171 million), respectively.
16 INVESTMENTS
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Unlisted investments, at cost 2,804 2,891
----------------------------------------------------------------------------
Less: Provision for impairment losses (370) (353)
----------------------------------------------------------------------------
2,434 2,538
============================================================================
Unlisted investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas activities and
operations. The Group has no significant investments in marketable
securities.
89
17 INTERESTS IN ASSOCIATES
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Share of net assets 7,521 10,222
------------------------------------------------------------------------------
The Group's investments in associates are with companies primarily engaged
in the oil and gas and chemical operations in the PRC. These investments
are individually and in the aggregate not material to the Group's financial
condition or results of operations for all periods presented. The principal
investments in associates, all of which are incorporated in the PRC, are as
follows:
Percentage
Percentage of equity
Form of of equity held by the
business Particulars of issued held by the Company's
Name of company structure and paid up capital Company subsidiaries Principal activities
% %
Shengli Oil Field Dynamic Incorporated 364,027,608 ordinary 26.33 -- Exploration of crude oil
Company Limited ("Dynamic")* shares of RMB 1.00 each and distribution of
petrochemical products
----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Taishan Incorporated 480,793,320 ordinary 38.68 -- Trading of petroleum
Petroleum Company Limited shares of RMB 1.00 each products and decoration
("Taishan")* of service gas stations
----------------------------------------------------------------------------------------------------------------------------------
Sinopec Finance Company Incorporated Registered capital 32.00 8.22 Provision of non-banking
Limited RMB 2,500,000,000 financial services
----------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum National Incorporated Registered capital 30.00 -- Exploration and
Gas Corporation RMB 900,000,000 production of crude
oil and natural gas
----------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical Industry Park Incorporated Registered capital -- 38.26 Planning, development
Development Company Limited RMB 2,372,439,000 and operation of the
Chemical Industry Park
in Shanghai, the PRC
----------------------------------------------------------------------------------------------------------------------------------
China Shipping & Sinopec Incorporated Registered capital -- 50.00 Transportation of
Suppliers Company Limited RMB 876,660,000 petroleum products
----------------------------------------------------------------------------------------------------------------------------------
* Shares of Dynamic and Taishan are listed on the Shenzhen Stock Exchange.
Shares held by the Company are domestic state-owned A shares which are not
admitted for trading in any stock exchange in the PRC. The market value of
the Company's investments in Dynamic and Taishan based on the quoted market
price are RMB 471 million (2004: RMB 479 million) and RMB 524 million
(2004: RMB 1,516 million) respectively at 30 June 2005.
18 INTERESTS IN JOINTLY CONTROLLED ENTITIES
The Group's principal interests in jointly controlled entities are as follows:
Percentage
Percentage of equity
Form of of equity held by the
business Particulars of issued held by the Company's
Name of company structure and paid up capital Company subsidiaries Principal activities
% %
Shanghai Secco Petrochemical Incorporated Registered capital 30.00 20.00 Manufacturing and
Company Limited USD 901,440,964 distribution of
petrochemical products
------------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited Incorporated Registered capital 30.00 10.00 Manufacturing and
RMB 8,793,000,000 distribution of
petrochemical products
------------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Incorporated Registered capital 50.00 -- Manufacturing and
Gasification Company Limited USD 45,588,700 distribution of
industrial gas
------------------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western Unincorporated -- -- 43.00 Exploration and production
Area Chengda in Bohai Bay of crude oil and
natural gas
------------------------------------------------------------------------------------------------------------------------------------
Included in the interim financial statements are the following items that
represent the Group's proportionate share of the jointly controlled
entities' financial condition and results of operations.
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
--------------------------------------------------------------------------------
Results of operations:
--------------------------------------------------------------------------------
Operating revenue 2,421 138
Expenses 2,745 166
--------------------------------------------------------------------------------
Net losses (324) (28)
--------------------------------------------------------------------------------
At 30 June At 31 December
2005 2004
RMB millions RMB millions
--------------------------------------------------------------------------------
Financial conditions:
--------------------------------------------------------------------------------
Current assets 2,280 520
--------------------------------------------------------------------------------
Non-current assets 19,642 10,913
--------------------------------------------------------------------------------
Current liabilities 2,956 1,699
Non-current liabilities 10,192 4,463
--------------------------------------------------------------------------------
Net assets 8,774 5,271
--------------------------------------------------------------------------------
90
19 LONG-TERM PREPAYMENTS AND OTHER ASSETS
Long term prepayments and other assets primarily represent prepaid rental
expenses over one year, computer software and catalysts.
20 TRADE ACCOUNTS AND BILLS RECEIVABLES
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Amounts due from third parties 15,127 10,989
---------------------------------------------------------------------------
Amounts due from Sinopec Group
Company and fellow subsidiaries 2,705 2,349
---------------------------------------------------------------------------
Amounts due from associates 563 89
---------------------------------------------------------------------------
Amounts due from jointly
controlled entities 404 --
---------------------------------------------------------------------------
18,799 13,427
---------------------------------------------------------------------------
Less: Allowance for doubtful accounts (3,552) (3,671)
---------------------------------------------------------------------------
15,247 9,756
---------------------------------------------------------------------------
Bills receivable 8,356 7,812
---------------------------------------------------------------------------
23,603 17,568
===========================================================================
The ageing analysis of trade accounts and bills receivables (net of
allowance for doubtful accounts) is as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Within one year 23,119 16,968
---------------------------------------------------------------------------
Between one and two years 226 225
---------------------------------------------------------------------------
Between two and three years 135 166
---------------------------------------------------------------------------
Over three years 123 209
---------------------------------------------------------------------------
23,603 17,568
===========================================================================
Sales are generally on a cash term. Credit is generally only available for
major customers with well-established trading records. Amounts due from
Sinopec Group Company and fellow subsidiaries are repayable under the same
terms.
21 INVENTORIES
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Crude oil and other raw materials 45,094 32,562
---------------------------------------------------------------------------
Work in progress 11,598 8,341
---------------------------------------------------------------------------
Finished goods 19,248 20,804
---------------------------------------------------------------------------
Spare parts and consumables 4,429 3,528
---------------------------------------------------------------------------
80,369 65,235
---------------------------------------------------------------------------
Less: Allowance for diminution
in value of inventories (936) (906)
---------------------------------------------------------------------------
79,433 64,329
===========================================================================
At 30 June 2005, the carrying amount of the Group's inventories carried at
fair value less costs to sell amounted to RMB 2,229 million (2004: RMB
1,624 million).
The cost of inventories recognised as an expense in the consolidated income
statement amounted to RMB 293,438 million for the six-month period ended 30
June 2005 (2004: RMB 213,257 million).
22 PREPAID EXPENSES AND OTHER CURRENT ASSETS
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Advances to third parties 1,633 1,600
---------------------------------------------------------------------------
Amounts due from Sinopec
Group Company and fellow subsidiaries 5,192 5,585
---------------------------------------------------------------------------
Other receivables 1,908 2,161
---------------------------------------------------------------------------
Purchase deposits 3,388 2,547
---------------------------------------------------------------------------
Prepayments in connection with
construction work and equipment purchases 4,838 4,727
--------------------------------------------
Prepaid value-added tax and customs duty 3,228 3,166
---------------------------------------------------------------------------
Amounts due from associates 559 308
---------------------------------------------------------------------------
20,746 20,094
===========================================================================
91
23 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and deferred tax liabilities are attributable to the
items detailed in the table below:
Assets Liabilities Net balance
At 30 At 31 At 30 At 31 At 30 At 31
June December June December June December
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
----------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables
and inventories 2,923 2,528 -- -- 2,923 2,528
----------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,580 1,566 (1,569) (1,704) 11 (138)
----------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation -- -- (4,078) (3,932) (4,078) (3,932)
----------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of
valuation allowances 200 66 -- -- 200 66
----------------------------------------------------------------------------------------------------------------------------
Lease prepayments 362 366 -- -- 362 366
----------------------------------------------------------------------------------------------------------------------------
Others 26 32 (382) -- (356) 32
----------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS/(LIABILITIES) 5,091 4,558 (6,029) (5,636) (938) (1,078)
============================================================================================================================
A valuation allowance on deferred tax assets is recorded if it is more
likely than not that some portion or all of the deferred tax assets will
not be realised through the recovery of taxes previously paid and/or future
taxable income. The allowance is subject to ongoing adjustments based on
changes in circumstances that affect the Group's assessment of the
realisability of the deferred tax assets. The Group has reviewed its
deferred tax assets at the balance sheet date. Based on this review,
valuation allowances of RMB 15 million (2004: RMB 360 million) were
provided for the six-month period ended 30 June 2005. The Group determined
the valuation allowance based on management's assessment of the probability
that taxable profit will be available over the period which the deferred
tax assets can be realised or utilised. In assessing the probability, both
positive and negative evidence was considered, including whether it is more
likely than not that the operations will have future taxable profits over
the periods which the deferred tax assets are deductible or utilised and
whether the tax losses result from identifiable causes which are unlikely
to recur. Based on this assessment, a valuation allowance was provided to
reduce the deferred tax asset to the amount that is more likely than not to
be realised.
24 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND
FELLOW SUBSIDIARIES
Short-term debts represent:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Third parties' debts
-------------------------------------------------------------------------------------------------------
Short-term bank loans 32,129 20,009
-------------------------------------------------------------------------------------------------------
Current portion of long-term bank loans 7,201 12,177
-------------------------------------------------------------------------------------------------------
Current portion of long-term other loans 44 121
-------------------------------------------------------------------------------------------------------
7,245 12,298
.......................................................................................................
=======================================================================================================
39,374 32,307
-------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries
-------------------------------------------------------------------------------------------------------
Short-term loans 2,290 6,714
-------------------------------------------------------------------------------------------------------
Current portion of long-term loans -- 2,000
-------------------------------------------------------------------------------------------------------
2,290 8,714
.......................................................................................................
=======================================================================================================
41,664 41,021
=======================================================================================================
The Group's weighted average interest rate on short-term loans was 4.3% at
30 June 2005 (2004: 3.9%).
92
24 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND
FELLOW SUBSIDIARIES (Continued)
Long-term debts comprise:
At 30 June At 31 December
Interest rate and final maturity 2005 2004
RMB millions RMB millions
THIRD PARTIES' DEBTS
-------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS
-------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from interest free to 5.8% per annum
at 30 June 2005 with maturities through 2013 57,013 52,227
-------------------------------------------------------------------------------------------------------------------------------
Japanese Yen denominated Interest rates ranging from 2.6% to 5.8% per annum
at 30 June 2005 with maturities through 2024 4,029 4,562
-------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from interest free to 7.4% per annum
at 30 June 2005 with maturities through 2031 6,140 7,729
-------------------------------------------------------------------------------------------------------------------------------
Euro denominated Fixed interest rate at 6.7% per annum
at 30 June 2005 with maturities through 2010 147 165
-------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Floating rate at Hong Kong Prime Rate plus 0.3% per annum
denominated at 30 June 2005 with maturities through 2006 3 5
-------------------------------------------------------------------------------------------------------------------------------
67,332 64,688
-------------------------------------------------------------------------------------------------------------------------------
LONG-TERM OTHER LOANS
-------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from interest free to 5.0% per annum
at 30 June 2005 with maturities through 2008 156 359
-------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from interest free to 4.0% per annum
at 30 June 2005 with maturities through 2015 80 110
-------------------------------------------------------------------------------------------------------------------------------
236 469
-------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
-------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Fixed interest rate at 4.61% per annum
at 30 June 2005 with maturity in February 2014 (a) 3,500 3,500
...............................................................................................................................
===============================================================================================================================
71,068 68,657
...............................................................................................................................
LONG-TERM BANK LOANS OF JOINTLY CONTROLLED ENTITIES
-------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Floating rate at 90% of PBOC's base lending rate per annum
at 30 June 2005 with maturities through 2021 5,570 2,415
-------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Floating rate at London Interbank Offer Rate plus 0.4% to 0.7% per
annum at 30 June 2005 with maturities through 2021 4,342 2,048
-------------------------------------------------------------------------------------------------------------------------------
9,912 4,463
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Total third parties' long-term debts 80,980 73,120
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion (7,245) (12,298)
-------------------------------------------------------------------------------------------------------------------------------
73,735 60,822
...............................................................................................................................
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES
-------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest free with maturity in 2020 35,561 35,561
-------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from 4.8% to 5.2% per annum
at 30 June 2005 with maturities through 2009 4,303 3,204
-------------------------------------------------------------------------------------------------------------------------------
39,864 38,765
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion -- (2,000)
-------------------------------------------------------------------------------------------------------------------------------
39,864 36,765
...............................................................................................................................
===============================================================================================================================
113,599 97,587
-------------------------------------------------------------------------------------------------------------------------------
(a) The Company issued ten years corporate bonds of RMB 3.5 billion to PRC
citizens as well as PRC legal and non-legal persons on 24 February 2004
with a fixed interest rate at 4.61% per annum.
Third parties' loans of RMB 35 million of the Group at 30 June 2005 (2004:
RMB 40 million) were secured by certain of the Group's property, plant and
equipment. The net book value of property, plant and equipment of the Group
pledged as security amounted to RMB 100 million at 30 June 2005 (2004: RMB
123 million).
The aggregate maturities of long-term debts and loans from Sinopec Group
Company and fellow subsidiaries are as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Within one year 7,245 14,298
---------------------------------------------------------------------------
Between one and two years 22,046 15,886
---------------------------------------------------------------------------
Between two and five years 40,764 36,041
---------------------------------------------------------------------------
After five years 50,789 45,660
---------------------------------------------------------------------------
120,844 111,885
===========================================================================
93
25 TRADE ACCOUNTS AND BILLS PAYABLES
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Amounts due to third parties 32,136 22,265
-------------------------------------------------------------------------------------------------------------------------------
Amounts due to Sinopec Group Company and fellow subsidiaries 1,868 1,527
-------------------------------------------------------------------------------------------------------------------------------
Amounts due to associates 148 --
-------------------------------------------------------------------------------------------------------------------------------
34,152 23,792
-------------------------------------------------------------------------------------------------------------------------------
Bills payable 26,893 30,797
-------------------------------------------------------------------------------------------------------------------------------
61,045 54,589
===============================================================================================================================
Amounts due to Sinopec Group Company and fellow subsidiaries are repayable
in accordance with normal commercial terms.
The ageing analysis of trade accounts and bills payables is as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Due within 1 month or on demand 27,555 25,444
-------------------------------------------------------------------------------------------------------------------------------
Due after 1 month but within 6 months 33,346 28,877
-------------------------------------------------------------------------------------------------------------------------------
Due after 6 months 144 268
-------------------------------------------------------------------------------------------------------------------------------
61,045 54,589
===============================================================================================================================
26 ACCRUED EXPENSES AND OTHER PAYABLES
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Amounts due to Sinopec Group Company and fellow subsidiaries 11,201 10,897
-------------------------------------------------------------------------------------------------------------------------------
Accrued expenditures 20,966 17,213
-------------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax 3,008 3,717
-------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 7,701 7,387
-------------------------------------------------------------------------------------------------------------------------------
Advances from third parties 847 1,009
-------------------------------------------------------------------------------------------------------------------------------
Others 4,770 5,053
-------------------------------------------------------------------------------------------------------------------------------
48,493 45,276
===============================================================================================================================
27 SHARE CAPITAL
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Registered, issued and fully paid
-------------------------------------------------------------------------------------------------------------------------------
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
-------------------------------------------------------------------------------------------------------------------------------
16,780,488,000 overseas listed H shares of RMB 1.00 each 16,780 16,780
-------------------------------------------------------------------------------------------------------------------------------
2,800,000,000 domestic listed A shares of RMB 1.00 each 2,800 2,800
-------------------------------------------------------------------------------------------------------------------------------
86,702 86,702
===============================================================================================================================
The Company was established on 25 February 2000 with a registered capital
of 68.8 billion domestic state-owned shares with a par value of RMB 1.00
each. Such shares were issued to Sinopec Group Company in consideration for
the assets and liabilities of the Predecessor Operations transferred to the
Company (Note 1).
Pursuant to the resolutions passed at an Extraordinary General Meeting held
on 25 July 2000 and approvals from relevant government authorities, the
Company is authorised to increase its share capital to a maximum of 88.3
billion shares with a par value of RMB 1.00 each and offer not more than
19.5 billion shares with a par value of RMB 1.00 each to investors outside
the PRC. Sinopec Group Company is authorised to offer not more than 3.5
billion shares of its shareholdings in the Company to investors outside the
PRC. The shares sold by Sinopec Group Company to investors outside the PRC
would be converted into H shares.
In October 2000, the Company issued 15,102,439,000 H shares with a par
value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750
American Depositary Shares ("ADSs", each representing 100 H shares), at
prices of HK$ 1.59 per H share and US$ 20.645 per ADS, respectively, by way
of a global initial public offering to Hong Kong and overseas investors. As
part of the global initial public offering, 1,678,049,000 domestic
state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company
were converted into H shares and sold to Hong Kong and overseas investors.
In July 2001, the Company issued 2.8 billion domestic listed A shares with
a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to
natural persons and institutional investors in the PRC.
All A shares and H shares rank pari passu in all material aspects.
94
28 COMMITMENTS AND CONTINGENT LIABILITIES
Operating lease commitments
The Group leases service stations and other equipment through
non-cancellable operating leases. These operating leases do not contain
provisions for contingent lease rentals. None of the rental agreements
contain escalation provisions that may require higher future rental
payments.
At 30 June 2005 and 31 December 2004, the future minimum lease payments
under operating leases are as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Within one year 3,504 3,452
---------------------------------------------------------------------------
Between one and two years 3,404 3,343
---------------------------------------------------------------------------
Between two and three years 3,328 3,278
---------------------------------------------------------------------------
Between three and four years 3,295 3,245
---------------------------------------------------------------------------
Between four and five years 3,263 3,225
---------------------------------------------------------------------------
Thereafter 96,634 97,527
---------------------------------------------------------------------------
113,428 114,070
===========================================================================
Capital commitments
At 30 June 2005 and 31 December 2004, capital commitments are as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
The Group
---------------------------------------------------------------------------
Authorised and contracted for 40,475 43,001
---------------------------------------------------------------------------
Authorised but not contracted for 40,809 60,173
---------------------------------------------------------------------------
81,284 103,174
---------------------------------------------------------------------------
Jointly controlled entities
---------------------------------------------------------------------------
Authorised and contracted for 2,399 3,157
---------------------------------------------------------------------------
Authorised but not contracted for 8 2,088
---------------------------------------------------------------------------
2,407 5,245
===========================================================================
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interests in associates.
Exploration and production licenses
Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the
license is issued. The Ministry of Land and Resources also issues
production licenses to the Group on the basis of the reserve reports
approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation was given by the State
Council. The maximum term of production licenses issued to the Group is 55
years as a special dispensation was given to the Group by the State
Council. The Group's production license is renewable upon application by
the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB 25
million for the six-month period ended 30 June 2005 (2004: RMB 101
million).
Estimated future annual payments are as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Within one year 138 90
---------------------------------------------------------------------------
Between one and two years 103 120
---------------------------------------------------------------------------
Between two and three years 64 75
---------------------------------------------------------------------------
Between three and four years 70 67
---------------------------------------------------------------------------
Between four and five years 70 74
---------------------------------------------------------------------------
Thereafter 246 279
---------------------------------------------------------------------------
691 705
===========================================================================
95
28 COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Contingent liabilities
(a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the business
assumed by the Company in the Reorganisation, no other liabilities were
assumed by the Company, and the Company is not jointly and severally
liable for other debts and obligations incurred by Sinopec Group
Company prior to the Reorganisation.
(b) At 30 June 2005 and 31 December 2004, guarantees given to banks in
respect of banking facilities granted to the parties below were as
follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Associates 109 4,828
-----------------------------------------------------------------------
The Group monitors the conditions that are subject to the guarantees to
identify whether it is probable that a loss has occurred, and recognise any
such losses under guarantees when those losses are estimable. At 30 June
2005 and 31 December 2004, it is not probable that the Group will be
required to make payments under the guarantees. Thus no liability has been
accrued for a loss related to the Group's obligation under these guarantee
arrangements.
Environmental contingencies
To date, the Group has not incurred any significant expenditures for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC
government, however, has moved, and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to
considerable uncertainties which affect the Group's ability to estimate the
ultimate cost of remediation efforts. These uncertainties include i) the
exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold, ii) the extent
of required cleanup efforts, iii) varying costs of alternative remediation
strategies, iv) changes in environmental remediation requirements, and v)
the identification of new remediation sites. The amount of such future cost
is indeterminable due to such factors as the unknown magnitude of possible
contamination and the unknown timing and extent of the corrective actions
that may be required. Accordingly, the outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. The Group paid normal routine
pollutant discharge fees of approximately RMB 107 million for the six-month
period ended 30 June 2005 (2004: RMB 113 million).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities
will not have a material adverse effect on the financial position or
operating results of the Group.
29 RELATED PARTY TRANSACTIONS
Companies are considered to be related if one company has the ability,
directly or indirectly, to control or jointly control the other company or
exercise significant influence over the other company in making financial
and operating decisions. Companies are also considered to be related if
they are subject to common control or common significant influence.
(a) Transactions with Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities The Group is part of a
larger group of companies under Sinopec Group Company, which is owned
by the PRC government, and has significant transactions and
relationships with Sinopec Group Company and fellow subsidiaries.
Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from
transactions among wholly unrelated parties.
The principal related party transactions with Sinopec Group Company and
fellow subsidiaries, associates and jointly controlled entities, which
were carried out in the ordinary course of business, are as follows:
Six-month periods
ended 30 June
Note 2005 2004
RMB millions RMB millions
Sales of goods (i) 36,976 27,104
----------------------------------------------------------------------------------------------------------------------
Purchases (ii) 20,134 16,956
----------------------------------------------------------------------------------------------------------------------
Transportation and storage (iii) 893 981
----------------------------------------------------------------------------------------------------------------------
Exploration and development services (iv) 7,692 7,101
----------------------------------------------------------------------------------------------------------------------
Production related services (v) 3,757 3,776
----------------------------------------------------------------------------------------------------------------------
Ancillary and social services (vi) 912 889
----------------------------------------------------------------------------------------------------------------------
Operating lease charges (vii) 1,565 1,612
----------------------------------------------------------------------------------------------------------------------
Agency commission income (viii) 29 31
----------------------------------------------------------------------------------------------------------------------
Intellectual property license fee paid (ix) 9 5
----------------------------------------------------------------------------------------------------------------------
Interest received (x) 21 25
----------------------------------------------------------------------------------------------------------------------
Interest paid (xi) 507 349
----------------------------------------------------------------------------------------------------------------------
Net deposits withdrawn from related parties (xii) 2,874 1,537
----------------------------------------------------------------------------------------------------------------------
Net loans (repaid to) / obtained from related parties (xiii) (3,325) 429
----------------------------------------------------------------------------------------------------------------------
96
29 RELATED PARTY TRANSACTIONS (Continued)
(a) Transactions with Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities (Continued) The amounts set
out in the table above in respect of the six-month periods ended 30
June 2005 and 2004 represent the relevant costs to the Group as
determined by the corresponding contracts with the related parties.
At 30 June 2005 and 31 December 2004, there were no guarantees given to
banks by the Group in respect of banking facilities to Sinopec Group
Company and fellow subsidiaries. Guarantees given to banks by the Group
in respect of banking facilities to associates are disclosed in Note
28.
The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course
of business and on normal commercial terms or in accordance with the
agreements governing such transactions.
Notes:
(i) Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary
materials.
(ii) Purchases represent the purchase of materials and utility supplies
directly related to the Group's operations such as the procurement
of raw and ancillary materials and related services, supply of
water, electricity and gas.
(iii) Transportation and storage represent the cost for the use of
railway, road and marine transportation services, pipelines,
loading, unloading and storage facilities.
(iv) Exploration and development services comprise direct costs
incurred in the exploration and development such as geophysical,
drilling, well testing and well measurement services.
(v) Production related services represent ancillary services rendered
in relation to the Group's operations such as equipment repair and
general maintenance, insurance premium, technical research,
communications, fire fighting, security, product quality testing
and analysis, information technology, design and engineering,
construction which includes the construction of oilfield ground
facilities, refineries and chemical plants, manufacture of
replacement parts and machinery, installation, project management
and environmental protection.
(vi) Ancillary and social services represent expenditures for social
welfare and support services such as educational facilities, media
communication services, sanitation, accommodation, canteens,
property maintenance and management services.
(vii) Operating lease charges represent the rental paid to Sinopec Group
Company for operating leases in respect of land, buildings and
service stations.
(viii)Agency commission income represents commission earned for acting
as an agent in respect of sales of products of and purchase of
materials for certain entities owned by Sinopec Group Company.
(ix) Intellectual property license fee represents reimbursement paid to
Sinopec Group Company for fees required to maintain the validity
of certain licenses, trademarks, patents, technology and computer
software.
(x) Interest received represents interest received from deposits
placed with Sinopec Finance Company Limited, a finance company
controlled by Sinopec Group Company. The applicable interest rate
is determined in accordance with the prevailing saving deposit
rate. The balance of deposits at 30 June 2005 was RMB 1,797
million (2004: RMB 4,671 million).
(xi) Interest paid represents interest charges on the loans and
advances obtained from Sinopec Group Company and Sinopec Finance
Company Limited.
(xii) Deposits were placed with / withdrawn from Sinopec Finance Company
Limited.
(xiii)The Group obtained / repaid loans from / to Sinopec Group Company
and Sinopec Finance Company Limited.
In connection with the Reorganisation, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social
and supporting services to the Group and 2) the Group will sell certain
goods to Sinopec Group Company. The terms of these agreements are
summarised as follows:
(a)The Company has entered into a non-exclusive Agreement for Mutual
Provision of Products and Ancillary Services ("Mutual Provision
Agreement") with Sinopec Group Company effective from 1 January 2000
in which Sinopec Group Company has agreed to provide the Group with
certain ancillary production services, construction services,
information advisory services, supply services and other services and
products. While each of Sinopec Group Company and the Company is
permitted to terminate the Mutual Provision Agreement upon at least
six months notice, Sinopec Group Company has agreed not to terminate
the agreement if the Group is unable to obtain comparable services
from a third party. The pricing policy for these services and
products provided by Sinopec Group Company to the Group is as
follows:
- the government-prescribed price;
- where there is no government-prescribed price, the
government-guidance price;
- where there is neither a government-prescribed price nor a
government-guidance price, the market price; or
- where none of the above is applicable, the price to be agreed
between the parties, which shall be based on a reasonable cost
incurred in providing such services plus a profit margin not
exceeding 6%.
(b)The Company has entered into a non-exclusive Agreement for Provision
of Cultural and Educational, Health Care and Community Services with
Sinopec Group Company effective from 1 January 2000 in which Sinopec
Group Company has agreed to provide the Group with certain cultural,
educational, health care and community services on the same pricing
terms and termination conditions as agreed to in the above Mutual
Provision Agreement.
(c)The Company has entered into a series of lease agreements with
Sinopec Group Company to lease certain land and buildings at a rental
of approximately RMB 2,557 million and RMB 568 million, respectively,
per annum. The Company and Sinopec Group Company can renegotiate the
rental amount every three years for land and every year for
buildings, such amount not to exceed the market price as determined
by an independent third party. The Group has the option to terminate
these leases upon six months notice to Sinopec Group Company.
97
29 RELATED PARTY TRANSACTIONS (Continued)
(a)Transactions with Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities (Continued)
(d)The Company has entered into agreements with Sinopec Group Company
effective from 1 January 2000 under which the Group has been granted
the right to use certain trademarks, patents, technology and computer
software developed by Sinopec Group Company. The Group will reimburse
Sinopec Group Company for fees required to maintain the validity of
these licenses.
(e)The Company has entered into agency agreements effective from 1
January 2000 with certain entities owned by Sinopec Group Company
under which the Group acts as a sole agent in respect of the sale of
all the products of these entities. In exchange for the Group's sales
agency services, Sinopec Group Company has agreed to pay the Group a
commission of between 0.2% and 1.0% of actual sales receipts
depending on the products and to reimburse the Group for reasonable
costs incurred in the capacity as its sales agent.
(f)The Company has entered into a service stations franchise agreement
with Sinopec Group Company effective from 1 January 2000 under which
its service stations and retail stores would exclusively sell the
refined products supplied by the Group.
Amounts due from / to Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities included in respective
accounts caption are summarised as follows:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Trade accounts receivable 3,672 2,438
----------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 5,751 5,893
----------------------------------------------------------------------------------------------------------------------
Total amounts due from Sinopec Group Company and fellow subsidiaries,
----------------------------------------------------------------------------------------------------------------------
associates and jointly controlled entities 9,423 8,331
----------------------------------------------------------------------------------------------------------------------
Trade accounts payable 2,016 1,527
----------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 11,201 10,897
Short-term loans from Sinopec Group Company and fellow subsidiaries 2,290 8,714
----------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company and fellow subsidiaries 39,864 36,765
----------------------------------------------------------------------------------------------------------------------
Total amounts due to Sinopec Group Company and fellow subsidiaries and associates 55,371 57,903
----------------------------------------------------------------------------------------------------------------------
Amounts due from / to Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities, other than short-term loans
and long-term loans, bear no interest, are unsecured and are repayable
in accordance with normal commercial terms. The terms and conditions
associated with short-term loans and long-term loans payable to Sinopec
Group Company and fellow subsidiaries are set out in Note 24.
As at and for the six-month period ended 30 June 2005, no material
allowance for doubtful accounts was recorded in respect of amounts due
from Sinopec Group Company and fellow subsidiaries, associates and
jointly controlled entities.
(b)Transactions with key management personnel Key management personnel are
those persons having authority and responsibility for planning,
directing and controlling the activities of the Group, directly or
indirectly, including directors and supervisors of the Group. The key
management personnel compensations are as follows:
Six-month periods
ended 30 June
2005 2004
RMB'000 RMB'000
Short-term employee benefits 2,247 1,708
---------------------------------------------------------------------------------------------------------------------
Retirement scheme contributions 103 102
Key management personnel also participate in the Group's plan of share
appreciation rights (Note 30).
(c)Contributions to defined contribution retirement plans
The Group participates in various defined contribution retirement plans
organised by municipal and provincial governments for its staff. The
details of the Group's employee benefits plan are disclosed in Note 30.
As at 30 June 2005, there was no material outstanding contribution to
post-employment benefit plans.
(d)Transactions with other state-controlled entities in the PRC
The Group operates in an economic regime currently predominated by
state-controlled entities. Apart from transactions with Sinopec Group
Company and fellow subsidiaries, the Group conducts a majority of its
business activities with entities directly or indirectly owned or
controlled by the PRC government and numerous government authorities and
agencies (collectively referred to as "state-controlled entities") in
the ordinary course of business. These transactions include sales and
purchase of goods and ancillary materials, rendering and receiving
services, lease of assets, purchase of property, plant and equipment and
obtaining finance and are carried out at terms similar to those that
would be entered into with non-state-controlled entities. Although the
majority of the Group's activities are with the PRC government
authorities and affiliates and other state-controlled enterprises, the
Group believes that it has provided meaningful disclosure of related
party transactions in Note 29 (a).
98
30 EMPLOYEE BENEFITS PLAN
As stipulated by the regulations of the PRC, the Group participates in
various defined contribution retirement plans organised by municipal and
provincial governments for its staff. The Group is required to make
contributions to the retirement plans at rates ranging from 17.0% to 30.0%
of the salaries, bonuses and certain allowances of its staff. A member of
the plan is entitled to a pension equal to a fixed proportion of the salary
prevailing at his or her retirement date. The Group has no other material
obligation for the payment of pension benefits associated with these plans
beyond the annual contributions described above. The Group's contributions
for the six-month period ended 30 June 2005 were RMB 930 million (2004: RMB
992 million).
The Company implemented a plan of share appreciation rights for members of
its management, including the key management personnel, in order to provide
further incentives to these employees. Under this plan, share appreciation
rights were granted in units with each unit representing one H share. No
shares will be issued under the share appreciation rights plan.
Under the plan, all share appreciation rights have an exercise period of
five years. A recipient of share appreciation rights may not exercise the
rights in the first 3 years after the date of grant. As at each of the
third, fourth and fifth anniversary of the date of grant, the total number
of share appreciation rights exercisable may not in aggregate exceed 30%,
70% and 100%, respectively, of the total share appreciation rights granted
to such person.
During 2003, the Company granted 258.6 million share appreciation right
units to eligible employees accordingly.
The exercise price of share appreciation rights initially granted is the
initial public offering price of the Company's H shares. Upon exercise of
the share appreciation rights, a recipient will receive, subject to any
applicable withholding tax, a cash payment in RMB, translated from the Hong
Kong dollar amount equal to the product of the number of share appreciation
rights exercised and the difference between the exercise price and average
market price of the Company's H shares for the exercise period based on the
applicable exchange rate between RMB and Hong Kong dollar at the date of
the exercise.
The Company recognises compensation expense of the share appreciation
rights over the applicable vesting period. For the six-month period ended
30 June 2005, compensation expense recognised was RMB 4 million (2004: RMB
144 million).
31 SEGMENTAL REPORTING
The Group has five operating segments as follows:
(i) Exploration and production, which explores and develops oil fields,
produces crude oil and natural gas and sells such products to the
refining segment of the Group and external customers.
(ii) Refining, which processes and purifies crude oil, which is sourced
from the exploration and production segment of the Group and external
suppliers, and manufactures and sells petroleum products to the
chemicals and marketing and distribution segments of the Group and
external customers.
(iii) Marketing and distribution, which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals, which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products mainly
to external customers.
(v) Corporate and others, which largely comprise the trading activities
of the import and export companies of the Group and research and
development undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production, refining, marketing and distribution,
chemicals, and corporate and others businesses separately. The reportable
segments are each managed separately because they manufacture and/or
distribute distinct products with different production processes and due to
their distinct operating and gross margin characteristics. In view of the
fact that the Company and its subsidiaries operate mainly in the PRC, no
geographical segment information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of
the Group's segments are the same as those described in the principal
accounting policies (see Note 2). Corporate administrative costs and assets
are not allocated to the operating segments; instead, operating segments
are billed for direct corporate services. Inter-segment transfer pricing is
based on cost plus an appropriate margin, as specified by the Group's
policy.
99
31 SEGMENTAL REPORTING (Continued)
Reportable information on the Group's business segments is as follows:
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Turnover
--------------------------------------------------------------------------------------------------------------------------
Exploration and production
External sales 8,651 7,376
-----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 35,745 26,316
-----------------------------------------------------------------------------------------------------------------------
44,396 33,692
--------------------------------------------------------------------------------------------------------------------------
Refining
--------------------------------------------------------------------------------------------------------------------------
External sales 37,083 28,545
-----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 172,035 130,319
-----------------------------------------------------------------------------------------------------------------------
209,118 158,864
--------------------------------------------------------------------------------------------------------------------------
Marketing and distribution
--------------------------------------------------------------------------------------------------------------------------
External sales 206,763 156,539
-----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 1,320 1,334
-----------------------------------------------------------------------------------------------------------------------
208,083 157,873
--------------------------------------------------------------------------------------------------------------------------
Chemicals
--------------------------------------------------------------------------------------------------------------------------
External sales 74,731 57,692
-----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 8,335 4,794
-----------------------------------------------------------------------------------------------------------------------
83,066 62,486
--------------------------------------------------------------------------------------------------------------------------
Corporate and others
--------------------------------------------------------------------------------------------------------------------------
External sales 32,020 19,449
-----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 21,228 16,552
-----------------------------------------------------------------------------------------------------------------------
53,248 36,001
--------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (238,663) (179,315)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Turnover 359,248 269,601
--------------------------------------------------------------------------------------------------------------------------
Other operating revenues
--------------------------------------------------------------------------------------------------------------------------
Exploration and production 3,627 3,544
--------------------------------------------------------------------------------------------------------------------------
Refining 1,851 2,370
--------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 533 362
--------------------------------------------------------------------------------------------------------------------------
Chemicals 2,950 2,742
--------------------------------------------------------------------------------------------------------------------------
Corporate and others 245 826
--------------------------------------------------------------------------------------------------------------------------
Other operating revenues 9,206 9,844
--------------------------------------------------------------------------------------------------------------------------
Turnover and other operating revenues 368,454 279,445
==========================================================================================================================
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Result
--------------------------------------------------------------------------------------------------------------------------
Operating profit
--------------------------------------------------------------------------------------------------------------------------
By segment
--------------------------------------------------------------------------------------------------------------------------
-- Exploration and production 17,795 10,520
-----------------------------------------------------------------------------------------------------------------------
-- Refining (1,296) 4,287
-----------------------------------------------------------------------------------------------------------------------
-- Marketing and distribution 6,643 8,569
-----------------------------------------------------------------------------------------------------------------------
-- Chemicals 10,815 6,005
-----------------------------------------------------------------------------------------------------------------------
-- Corporate and others (275) (819)
-----------------------------------------------------------------------------------------------------------------------
Total operating profit 33,682 28,562
--------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates
--------------------------------------------------------------------------------------------------------------------------
-- Exploration and production 238 223
-----------------------------------------------------------------------------------------------------------------------
-- Refining 8 29
-----------------------------------------------------------------------------------------------------------------------
-- Marketing and distribution 168 177
-----------------------------------------------------------------------------------------------------------------------
-- Chemicals 15 (33)
-----------------------------------------------------------------------------------------------------------------------
-- Corporate and others 107 59
-----------------------------------------------------------------------------------------------------------------------
Aggregate share of profits less losses from associates 536 455
--------------------------------------------------------------------------------------------------------------------------
Finance costs
--------------------------------------------------------------------------------------------------------------------------
Interest expense (2,845) (2,272)
-----------------------------------------------------------------------------------------------------------------------
Interest income 168 179
-----------------------------------------------------------------------------------------------------------------------
Foreign exchange losses (40) (29)
-----------------------------------------------------------------------------------------------------------------------
Foreign exchange gains 151 43
-----------------------------------------------------------------------------------------------------------------------
Net finance costs (2,566) (2,079)
--------------------------------------------------------------------------------------------------------------------------
Investment income 62 --
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities before taxation 31,714 26,938
--------------------------------------------------------------------------------------------------------------------------
Taxation (9,945) (8,017)
--------------------------------------------------------------------------------------------------------------------------
Profit for the period 21,769 18,921
==========================================================================================================================
100
31 SEGMENTAL REPORTING (Continued)
Assets and liabilities dedicated to a particular segment's operations are
included in that segment's total assets and liabilities. Assets which
benefit more than one segment or are considered to be corporate assets are
not allocated. OOUnallocated assets'' consists primarily of cash and cash
equivalents, time deposits with financial institutions, investments and
deferred tax assets. OOUnallocated liabilities'' consists primarily of
short-term and long-term debts, loans from Sinopec Group Company and fellow
subsidiaries, income tax payable, deferred tax liabilities and other
liabilities.
Interests in and earnings from associates are included in the segments in
which the associates operate. Information on associates is included in Note
17. Additions to long-lived assets by operating segment are included in
Notes 14 and 15.
----------------------------------------------------------------------------------------------------------------------------
At 30 June At 31 December
----------------------------------------------------------------------------------------------------------------------------
2005 2004
----------------------------------------------------------------------------------------------------------------------------
RMB millions RMB millions
----------------------------------------------------------------------------------------------------------------------------
Assets
------------------------------------------------------------------------------------------------------------------------
Segment assets
------------------------------------------------------------------------------------------------------------------------
-- Exploration and production 117,896 110,509
---------------------------------------------------------------------------------------------------------------------
-- Refining 113,684 111,878
---------------------------------------------------------------------------------------------------------------------
-- Marketing and distribution 102,819 93,722
---------------------------------------------------------------------------------------------------------------------
-- Chemicals 109,271 105,032
---------------------------------------------------------------------------------------------------------------------
-- Corporate and others 30,677 17,574
---------------------------------------------------------------------------------------------------------------------
Total segment assets 474,347 438,715
------------------------------------------------------------------------------------------------------------------------
Interests in associates
------------------------------------------------------------------------------------------------------------------------
-- Exploration and production 1,299 1,396
---------------------------------------------------------------------------------------------------------------------
-- Refining 345 314
---------------------------------------------------------------------------------------------------------------------
-- Marketing and distribution 2,856 2,410
---------------------------------------------------------------------------------------------------------------------
-- Chemicals 1,141 4,315
---------------------------------------------------------------------------------------------------------------------
-- Corporate and others 1,879 1,787
---------------------------------------------------------------------------------------------------------------------
Aggregate interests in associates 7,520 10,222
------------------------------------------------------------------------------------------------------------------------
Unallocated assets 27,513 25,657
------------------------------------------------------------------------------------------------------------------------
Total assets 509,380 474,594
========================================================================================================================
Liabilities
------------------------------------------------------------------------------------------------------------------------
Segment liabilities
------------------------------------------------------------------------------------------------------------------------
-- Exploration and production 16,763 16,241
---------------------------------------------------------------------------------------------------------------------
-- Refining 30,763 28,130
---------------------------------------------------------------------------------------------------------------------
-- Marketing and distribution 22,539 23,419
---------------------------------------------------------------------------------------------------------------------
-- Chemicals 12,838 16,528
---------------------------------------------------------------------------------------------------------------------
-- Corporate and others 26,636 15,547
---------------------------------------------------------------------------------------------------------------------
Total segment liabilities 109,539 99,865
------------------------------------------------------------------------------------------------------------------------
Unallocated liabilities 165,065 150,643
------------------------------------------------------------------------------------------------------------------------
Total liabilities 274,604 250,508
========================================================================================================================
Segment capital expenditure is the total cost incurred during the period to
acquire segment assets that are expecte used for more than one year.
Six-month periods
ended 30 June
2005 2004
RMB millions RMB millions
Capital expenditure
------------------------------------------------------------------------------------------------------------------------
Exploration and production 10,077 10,072
------------------------------------------------------------------------------------------------------------------------
Refining 3,451 4,117
------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 6,384 8,611
------------------------------------------------------------------------------------------------------------------------
Chemicals 2,242 3,189
------------------------------------------------------------------------------------------------------------------------
Corporate and others 396 115
------------------------------------------------------------------------------------------------------------------------
22,550 26,104
========================================================================================================================
Capital expenditure of jointly controlled entities
------------------------------------------------------------------------------------------------------------------------
Exploration and production 354 702
------------------------------------------------------------------------------------------------------------------------
Chemicals 1,500 2,666
1,854 3,368
------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation
------------------------------------------------------------------------------------------------------------------------
Exploration and production 5,247 5,372
------------------------------------------------------------------------------------------------------------------------
Refining 3,320 3,695
------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 1,382 1,358
------------------------------------------------------------------------------------------------------------------------
Chemicals 5,026 4,820
------------------------------------------------------------------------------------------------------------------------
Corporate and others 180 154
------------------------------------------------------------------------------------------------------------------------
15,155 15,399
========================================================================================================================
Impairment losses on long-lived assets recognised in income statement
------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 5 623
------------------------------------------------------------------------------------------------------------------------
Chemicals 392 1,701
------------------------------------------------------------------------------------------------------------------------
397 2,324
========================================================================================================================
Impairment losses on revalued long-lived assets recognised
in equity attributable to equity holders of the parent
------------------------------------------------------------------------------------------------------------------------
Chemicals -- 439
========================================================================================================================
101
32 PRINCIPAL SUBSIDIARIES
At 30 June 2005, the following list contains the particulars of
subsidiaries which principally affected the results or assets of the Group.
Particulars Percentage of equity
of issued Type of held by the held by
Name of company capital legal entity CompanySubsidiary Principal activities
(millions) % %
China Petrochemical International RMB 1,400 Limited 100.00 -- Trading of crude oil and
Company Limited company petrochemical products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanhua Petrochemical RMB 3,374 Limited 100.00 -- Manufacturing of chemical
Company Limited ("Beijing Yanhua") (i) company products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited RMB 1,700 Limited 100.00 -- Marketing and distribution of
refined company petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company RMB 29,000 Limited 100.00 -- Exploration and production of
Limited company crude oil and natural gas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical RMB 2,253 Limited 50.00 -- Manufacturing of plastics,
Company intermediate company petrochemical products and
Limited (ii) petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical Company RMB 1,950 Limited 82.05 -- Manufacturing of intermediate
Limited company petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical RMB 7,200 Limited 55.56 -- Manufacturing of synthetic fibres,
Company Limited company resin and plastics, intermediate
petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining- RMB 1,154 Limited 79.73 -- Manufacturing of intermediate
Chemical Company Limited company petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings Limited HK$ 104 Limited -- 72.40 Trading of crude oil and
company petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum Group RMB 147 Limited 46.25 -- Marketing and distribution of
Company Limited (ii) company refined petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix Company RMB 519 Limited 40.72 -- Manufacturing of petrochemical
Limited (ii) company products and petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical RMB 2,330 Limited 84.98 -- Manufacturing of intermediate
Company Limited company petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre RMB 4,000 Limited 42.00 -- Production and sale
Company Limited (ii) company of polyester chips and polyester
fibres
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and RMB 2,524 Limited 71.32 -- Manufacturing of intermediate
Chemical Company Limited company petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum RMB 875 Limited 70.85 -- Exploration and production of
Company Limited company crude oil and natural gas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petrochemical RMB 2,400 Limited 93.51 -- Manufacturing of chemical
Company Limited company products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) Petroleum RMB 455 Limited 60.00 -- Marketing and distribution of
refined Marketing Company Limited company petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) Petroleum RMB 647 Limited 60.00 -- Marketing and distribution of
refined Company Limited company petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qingdao Refining and Chemical RMB 800 Limited 85.00 -- Manufacturing of intermediate
Company Limited company petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Except for Sinopec Kantons Holdings Limited, which is incorporated in
Bermuda, all of the above principal subsidiaries are incorporated in the
PRC.
(i) During the period, the Group acquired the entire 1,012,000,000 H
shares, representing approximately 29.99% of the issued share capital
of Beijing Yanhua from minority interests at HK$ 3.80 per share. The
total consideration paid by the Group was approximately RMB 4,088
million which was settled in cash. The excess of the cost of purchase
over the fair value of the underlying assets, liabilities and
contingent liabilities acquired was recorded as goodwill, which is
included in long-term prepayments and other assets.
(ii) The Group consolidated the results of the entity because the Group
controlled the board of this entity and had the power to govern its
financial and operating policies.
102
33 FINANCIAL INSTRUMENTS
Financial assets of the Group include cash and cash equivalents, time
deposits with financial institutions, investments, trade accounts
receivable, bills receivable, amounts due from Sinopec Group Company and
fellow subsidiaries, advances to third parties, amounts due from
associates, and other receivables. Financial liabilities of the Group
include bank and other loans, loans from Sinopec Group Company and fellow
subsidiaries, trade accounts payable, bills payable, amounts due to Sinopec
Group Company and fellow subsidiaries, receipts in advance, and advances
from third parties. The Group has no derivative instruments that are
designated and qualified as hedging instruments at 30 June 2005 and 31
December 2004.
Credit risk
The carrying amounts of cash and cash equivalents, time deposits with
financial institutions, trade accounts and bills receivables, and other
current assets, except for prepayments and deposits, represent the Group's
maximum exposure to credit risk in relation to financial assets.
The majority of the Group's trade accounts receivable relate to sales of
petroleum and chemical products to related parties and third parties
operating in the petroleum and chemical industries. The Group performs
ongoing credit evaluations of its customers' financial condition and
generally does not require collateral on trade accounts receivable. The
Group maintains an allowance for doubtful accounts and actual losses have
been within management's expectations. No single customer accounted for
greater than 10% of total revenues.
No other financial assets carry a significant exposure to credit risk.
Currency risk
Substantially all of the revenue-generating operations of the Group are
transacted in Renminbi, which is not fully convertible into foreign
currencies. On 1 January 1994, the PRC government abolished the dual rate
system and introduced a single rate of exchange as quoted by the People's
Bank of China. However, the unification of the exchange rate does not imply
convertibility of Renminbi into United States dollars or other foreign
currencies. All foreign exchange transactions continue to take place either
through the People's Bank of China or other banks authorised to buy and
sell foreign currencies at the exchange rates quoted by the People's Bank
of China. Approval of foreign currency payments by the People's Bank of
China or other institutions requires submitting a payment application form
together with suppliers' invoices, shipping documents and signed contracts.
On 21 July 2005, the PRC government reformed the exchange rate regime. The
details of this reform and impact on the Group's financial position as at
30 June 2005 are disclosed in Note 37.
Interest rate risk
The interest rates and terms of repayment of short-term and long-term debts
of the Group are disclosed in Note 24.
The disclosures of the fair value estimates, methods and assumptions, set
forth below for the Group's financial instruments, are made to comply with
the requirements of IAS 32 and IAS 39 and should be read in conjunction
with the Group's consolidated financial statements and related notes. The
estimated fair value amounts have been determined by the Group using market
information and valuation methodologies considered appropriate. However,
considerable judgement is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Group could realise in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The Group has not developed an internal valuation model necessary to make
the estimate of the fair value of loans from Sinopec Group Company and
fellow subsidiaries as it is not considered practicable to estimate their
fair value because the cost of obtaining discount and borrowing rates for
comparable borrowings would be excessive based on the Reorganisation of the
Group, its existing capital structure, and the terms of the borrowings.
The following table presents the carrying amount and fair value of the
Group's long-term indebtedness other than loans from Sinopec Group Company
and fellow subsidiaries at 30 June 2005 and 31 December 2004:
At 30 June At 31 December
2005 2004
RMB millions RMB millions
Carrying amount 80,980 73,120
------------------------------------------------------------------------------------------------------------------------
Fair value 81,285 73,263
------------------------------------------------------------------------------------------------------------------------
The fair value of long-term indebtedness is estimated by discounting future
cash flows thereon using current market interest rates offered to the Group
for debts with substantially the same characteristics and maturities.
Investments in unlisted equity securities have no quoted market prices in
the PRC. Accordingly, a reasonable estimate of fair value could not be made
without incurring excessive costs.
The fair values of all other financial instruments approximate their
carrying amounts due to the nature or short-term maturity of these
instruments.
103
34 ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group's financial condition and results of operations are sensitive to
accounting methods, assumptions and estimates that underlie the preparation
of the interim financial statements. The Group bases the assumptions and
estimates on historical experience and on various other assumptions that
the Group believes to be reasonable and which form the basis for making
judgements about matters that are not readily apparent from other sources.
On an on-going basis, management evaluates its estimates. Actual results
may differ from those estimates as facts, circumstances and conditions
change.
The selection of critical accounting policies, the judgements and other
uncertainties affecting application of those policies and the sensitivity
of reported results to changes in conditions and assumptions are factors to
be considered when reviewing the interim financial statements. The
principal accounting policies are set forth in Note 2. The Group believes
the following critical accounting policies involve the most significant
judgements and estimates used in the preparation of the interim financial
statements.
Oil and gas properties and reserves
The accounting for the exploration and production's oil and gas activities
is subject to accounting rules that are unique to the oil and gas business.
There are two methods to account for oil and gas business activities, the
successful efforts method and the full cost method. The Group has elected
to use the successful efforts method. The successful efforts method
reflects the volatility that is inherent in exploring for mineral resources
in that costs of unsuccessful exploratory efforts are charged to expense as
they are incurred. These costs primarily include dry hole costs, seismic
costs and other exploratory costs. Under the full cost method, these costs
are capitalised and written-off or depreciated over time.
Engineering estimates of the Group's oil and gas reserves are inherently
imprecise and represent only approximate amounts because of the subjective
judgements involved in developing such information. There are authoritative
guidelines regarding the engineering criteria that have to be met before
estimated oil and gas reserves can be designated as "proved". Proved and
proved developed reserves estimates are updated at least annually and take
into account recent production and technical information about each field.
In addition, as prices and cost levels change from year to year, the
estimate of proved and proved developed reserves also changes. This change
is considered a change in estimate for accounting purposes and is reflected
on a prospective basis in related depreciation rates.
Despite the inherent imprecision in these engineering estimates, these
estimates are used in determining depreciation expense and impairment
expense. Depreciation rates are determined based on estimated proved
developed reserve quantities (the denominator) and capitalised costs of
producing properties (the numerator). Producing properties' capitalised
costs are amortised based on the units of oil or gas produced.
Impairments
If circumstances indicate that the net book value of a long-lived asset may
not be recoverable, this asset may be considered "impaired", and an
impairment loss may be recognised in accordance with IAS 36 "Impairment of
Assets". The carrying amounts of long-lived assets are reviewed
periodically in order to assess whether the recoverable amounts have
declined below the carrying amounts. These assets are tested for impairment
whenever events or changes in circumstances indicate that their recorded
carrying amounts may not be recoverable. When such a decline has occurred,
the carrying amount is reduced to recoverable amount. The recoverable
amount is the greater of the net selling price and the value in use. It is
difficult to precisely estimate selling price because quoted market prices
for the Group's assets are not readily available. In determining the value
in use, expected cash flows generated by the asset are discounted to their
present value, which requires significant judgement relating to level of
sale volume, selling price and amount of operating costs. The Group uses
all readily available information in determining an amount that is a
reasonable approximation of recoverable amount, including estimates based
on reasonable and supportable assumptions and projections of sale volume,
selling price and amount of operating costs.
Depreciation
Property, plant and equipment are depreciated on a straight-line basis over
the estimated useful lives of the assets, after taking into account the
estimated residual value. The Group reviews the estimated useful lives of
the assets regularly in order to determine the amount of depreciation
expense to be recorded during any reporting period. The useful lives are
based on the Group's historical experience with similar assets and taking
into account anticipated technological changes. The depreciation expense
for future periods is adjusted if there are significant changes from
previous estimates.
Provision for doubtful debts
The Group maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of the customers to make the required
payments. The Group bases the estimates on the aging of the accounts
receivable balance, customer credit-worthiness, and historical write-off
experience. If the financial condition of the customers were to
deteriorate, actual write-offs would be higher than estimated.
35 RECENTLY ISSUED ACCOUNTING STANDARDS
IFRS 6, "Exploration for and Evaluation of Mineral Resources"
In December 2004, the IASB issued IFRS 6, "Exploration for and Evaluation
of Mineral Resources". The statement addresses the accounting for the costs
incurred in exploration for and evaluation of mineral resources. Under IFRS
6, for each type of exploration and evaluation ("E&E") expenditure, an
entity is permitted to adopt a policy either of immediate expense or of
capitalisation as an E&E asset. An entity is also allowed to continue its
existing policy, subject to certain limitations. Those limitations include
requiring that an entity should segregate E&E assets into tangible and
intangible items based on the nature of the assets, and an entity should
apply IAS 36, "Impairment of assets" in measuring the impairment of E&E
assets when there are indications that the carrying amount of an E&E asset
may exceed its recoverable amount. IFRS 6 is effective for fiscal years
beginning on or after 1 January 2006. Currently, the Group does not expect
the application of this statement will have a material impact on its
consolidated financial statements.
104
36 CHANGES IN PRINCIPAL ACCOUNTING POLICIES
The IASB has issued a number of new and revised IFRS and IAS ("new IFRS")
which are effective for accounting periods beginning on or after 1 January
2005. The Group has adopted these new IFRS in the interim financial
statement for the six-month period ended 30 June 2005. The relevant changes
in and impact on the Group's principal accounting policies as a result of
the adoption of these new IFRS are set out below.
(a)IAS 16
IAS 16, "Property, Plant and Equipment", replaces IAS 16 (revised 1998)
and related Interpretations. IAS 16 requires an entity to determine
cost, useful life and depreciation charge separately for each
significant part of an item of property, plant and equipment, and
derecognize the carrying amount of a part of an item of property, plant
and equipment if that part has been replaced. IAS 16 also requires an
entity to include the costs of dismantlement, removal or restoration,
the obligation for which an entity incurs as a consequence of installing
the item in the cost of that item of property, plant and equipment. The
adoption of IAS 16 did not have a material impact on the Group's interim
financial statements.
(b)IAS 21
IAS 21, "The Effects of Changes in Foreign Exchange Rates", replaces IAS
21 (revised 1993) and related Interpretations. IAS 21 defines two
notions, functional currency and presentation currency, to replace the
notion, reporting currency, in IAS 21 (revised 1993). The adoption of
IAS 21 did not have a material impact on the Group's interim financial
statements.
(c)IAS 27
In prior years, minority interests at the balance sheet date were
presented in the consolidated balance sheet separately from liabilities
and as deduction from net assets. Minority interests in the results of
the Group for the period were also separately presented in the
consolidated statement of income as deduction before arriving at the
profit attributable to shareholders.
IAS 27, "Consolidated and Separate Financial Statements", replaces IAS
27 (revised 2000) and related Interpretations. IAS 27 requires minority
interests at the balance sheet date to be presented in the consolidated
balance sheet within equity, separately from the equity attributable to
the equity holders of the parent, and minority interests in the results
of the Group for the period to be presented on the face of the
consolidated income statement as an allocation of the total profit or
loss for the period between the minority interests and the equity
holders of the parent. The presentations of minority interests in the
consolidated balance sheet, consolidated income statement and
consolidated statement of changes in equity for the comparative period
have been restated accordingly. Except for the changes in presentation,
the adoption of IAS 27 did not have a material impact on the Group's
interim financial statements.
37 POST BALANCE SHEET EVENT
With the authorisation from the PRC government, the People's Bank of China
announced that the PRC government reformed the exchange rate regime by
moving into a managed floating exchange rate regime based on market supply
and demand with reference to a basket of currencies on 21 July 2005. The
exchange rate of US dollars against RMB was adjusted to RMB 8.11 per US
dollar with effect from the time of 19:00 hours on 21 July 2005. The Group
does not expect this reform had a material impact on the Group's financial
position as at 30 June 2005.
38 ULTIMATE HOLDING COMPANY
The directors consider the ultimate holding company of the Group at 30 June
2005 to be Sinopec Group Company, a state-owned enterprise established in
the PRC.
105
(C) DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC
ACCOUNTING RULES AND REGULATIONS AND IFRS
Other than the differences in the classifications of certain financial
statements captions and the accounting for the items described below, there are
no material differences between the Group's financial statements prepared under
the PRC Accounting Rules and Regulations and IFRS. The reconciliation presented
below is included as supplemental information, is not required as part of the
basic financial statements and does not include differences related to
classification, display or disclosures. Such information has not been subject
to independent audit or review. The major differences are:
(i) Equity investment differences
Under the PRC Accounting Rules and Regulations, equity investment
difference, being the excess of the initial investment cost over the
investor's share of equity of the investee enterprise, is amortised on a
straight-line basis. The amortisation period is determined according to the
investment period as stipulated in the relevant agreement, or less than ten
years if the investment period is not specified in the agreement.
Under IFRS, goodwill, being the excess of the cost of the business
combination over the investor's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities, is not
amortised. Instead, goodwill is tested for impairment annually, or more
frequently if events or changes in circumstance indicate that it might be
impaired.
(ii) Pre-operating expenditures
Under the PRC Accounting Rules and Regulations, expenditures incurred
during the start-up period are aggregated in long-term deferred expenses
and charged to the income statement when operations commence. Under IFRS,
expenditures on start-up activities are recognised as an expense when
they are incurred.
(iii) Depreciation of oil and gas properties
Under the PRC Accounting Rules and Regulations, oil and gas properties
are depreciated on a straight-line basis. Under IFRS, oil and gas
properties are depreciated on the unit of production method.
(iv) Capitalisation of general borrowing costs
Under the PRC Accounting Rules and Regulations, only borrowing costs on
funds that are specifically borrowed for construction are capitalised as
part of the cost of property, plant and equipment. Under IFRS, to the
extent that funds are borrowed generally and used for the purpose of
obtaining a qualifying asset, the borrowing costs should be capitalised
as part of the cost of that asset.
(v) Unrecognised losses of subsidiaries
Under the PRC Accounting Rules and Regulations, the results of
subsidiaries are included in the Group's consolidated income statement to
the extent that the subsidiaries' accumulated losses do not result in
their carrying amount being reduced below zero. Further losses are
debited to a separate reserve in the shareholders' funds.
Under IFRS, the results of subsidiaries are included in the Group's
consolidated income statement from the date that control effectively
commences until the date that control effectively ceases.
(vi) Acquisitions of Sinopec National Star, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants
Under the PRC Accounting Rules and Regulations, the acquisitions of
Sinopec National Star, Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants (the "Acquisitions") are
accounted for by the acquisition method. Under the acquisition method,
the income of an acquiring enterprise includes the operations of the
acquired enterprise subsequent to the acquisition. The difference between
the cost of acquiring Sinopec National Star and the fair value of the net
assets acquired is capitalised as an exploration and production right,
which is amortised over 27 years. The costs of acquiring Tianjin
Petrochemical, Luoyang Petrochemical, Zhongyuan Petrochemical and
Catalyst Plants approximated the fair value of the net assets acquired.
Under IFRS, as the Group, Sinopec National Star, Tianjin Petrochemical,
Luoyang Petrochemical, Zhongyuan Petrochemical and Catalyst Plants are
under the common control of Sinopec Group Company, the Acquisitions are
considered "combination of entities under common control" which are
accounted in a manner similar to a pooling-of-interests ("as-if
pooling-of-interests accounting"). Accordingly, the assets and
liabilities of Sinopec National Star, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants acquired have
been accounted for at historical cost and the financial statements of the
Group for periods prior to the Acquisitions have been restated to include
the financial condition and results of operations of Sinopec National
Star, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical and Catalyst Plants on a combined basis. The considerations
paid by the Group are treated as equity transactions.
(vii) Revaluation of land use rights
Under the PRC Accounting Rules and Regulations, land use rights are
carried at revalued amount. Under IFRS, land use rights are carried at
historical cost less amortisation. Accordingly, the surplus on the
revaluation of land use rights, credited to revaluation reserve, was
eliminated.
(viii)Government grants
Under the PRC Accounting Rules and Regulations, government grants should
be credited to capital reserve. Under IFRS, government grants relating to
the purchase of equipment used for technology improvements are initially
recorded as long-term liabilities and are offset against the cost of
assets to which the grants related when construction commences. Upon
transfer to property, plant and equipment, the grants are recognised as
an income over the useful life of the property, plant and equipment by
way of reduced depreciation charge.
(ix) Impairment losses on revalued assets
Under the PRC Accounting Rules and Regulations, impairment losses on
property, plant and equipment are recognised as an expense in the income
statement. Under IFRS, impairment loss on a revalued asset is recognised
directly against any related revaluation reserve to the extent that the
impairment loss does not exceed the amount held in the revaluation
reserve for that same asset.
106
(x) Disposal of oil and gas properties
Under the PRC Accounting Rules and Regulations, gains and losses arising
from the retirement or disposal of an individual item of oil and gas
properties are recognised as an income or expense in the income statement
and are measured as the difference between the estimated net disposal
proceeds and the carrying amount of the asset.
Under IFRS, gains and losses on the retirement or disposal of an
individual item of proved oil and gas properties are not recognised
unless the retirement or disposal encompasses an entire property. The
costs of the asset abandoned or retired are charged to accumulated
depreciation with the proceeds received on disposals credited to the
carrying amounts of oil and gas properties.
(xi) Impairment losses on long-lived assets
Under the PRC Accounting Rules and Regulations and IFRS, impairment
charges are recognised when the carrying value of long-lived assets
exceeds the higher of their net selling price and the value in use which
incorporates discounting the asset's estimated future cash flows. Due to
the difference in the depreciation method of oil and gas properties
discussed in (iii) above, the provision for impairment losses and
reversal of impairment loss under the PRC Accounting Rules and
Regulations are measured differently from the amounts recorded under
IFRS.
(xii) Minority interests
Under the PRC Accounting Rules and Regulations, minority interests at the
balance sheet date are presented in the consolidated balance sheet
separately from liabilities and as deduction from the shareholders'
funds. Minority interests in the results of the Group for the period are
also separately presented in the consolidated income statement as
deduction before arriving at the net profit.
Under IFRS, minority interests at the balance sheet date are presented in
the consolidated balance sheet within equity, separately from the equity
attributable to the equity holders of the parent, and minority interests
in the results of the Group for the period are presented on the face of
the consolidated income statement as an allocation of the total profit or
loss for the period between the minority interests and the equity holders
of the parent.
Effects of major differences between the net profit under the PRC
Accounting Rules and Regulations and the profit for the period under IFRS
are analysed as follows:
Six-month periods ended 30 June
Note 2005 2004
RMB millions RMB millions
Net profit under the PRC Accounting Rules and Regulations 18,044 15,039
------------------------------------------------------------------------------------------------------------------------
Adjustments:
------------------------------------------------------------------------------------------------------------------------
Equity investment differences (i) 1,169 --
---------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (ii) 442 (95)
---------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties (iii) 417 370
---------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs, net of depreciation effect (iv) 216 247
---------------------------------------------------------------------------------------------------------------------
Unrecognised losses of subsidiaries (v) 113 (236)
---------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (vi) 58 58
---------------------------------------------------------------------------------------------------------------------
Acquisitions of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants (vi) -- 899
---------------------------------------------------------------------------------------------------------------------
Reduced amortisation on revaluation of land use rights (vii) 9 9
---------------------------------------------------------------------------------------------------------------------
Reduced depreciation on government grants (viii) 1 --
---------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets (ix) -- 439
---------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties, net of depreciation effect (x) (209) 879
---------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (607) (863)
---------------------------------------------------------------------------------------------------------------------
Minority interests (xii) 2,116 2,175
---------------------------------------------------------------------------------------------------------------------
Profit for the period under IFRS* 21,769 18,921
------------------------------------------------------------------------------------------------------------------------
Effects of major differences between the shareholders' funds under the PRC
Accounting Rules and Regulations and the total equity under IFRS are
analysed as follows:
At 30 June At 31 December
Note 2005 2004
RMB millions RMB millions
Shareholders' funds under the PRC Accounting Rules and Regulations 197,571 186,350
------------------------------------------------------------------------------------------------------------------------
Adjustments:
------------------------------------------------------------------------------------------------------------------------
Equity investment differences (i) 1,169 --
---------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (ii) (15) (457)
---------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties (iii) 12,012 11,595
---------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs (iv) 1,821 1,605
---------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (vi) (2,637) (2,695)
---------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (vii) (968) (977)
---------------------------------------------------------------------------------------------------------------------
Government grants (viii) (591) (592)
---------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties (x) 3,161 3,370
---------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (xi) (113) (113)
---------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (5,653) (5,046)
---------------------------------------------------------------------------------------------------------------------
Minority interests (xii) 29,019 31,046
---------------------------------------------------------------------------------------------------------------------
Total equity under IFRS* 234,776 224,086
------------------------------------------------------------------------------------------------------------------------
* The above figure is extracted from the financial statements prepared in
accordance with IFRS which have been audited by KPMG.
107
(D) SUPPLEMENTAL INFORMATION FOR NORTH AMERICAN SHAREHOLDERS
The Group's accounting policies conform with IFRS which differ in certain
significant respects from accounting principles generally accepted in the
United States of America ("US GAAP"). Information relating to the nature and
effect of such differences are set out below. The US GAAP reconciliation
presented below is included as supplemental information, is not required as
part of the basic financial statements and does not include differences related
to classification, display or disclosures. Such information has not been
subject to independent audit or review.
(a) Foreign exchange gains and losses
In accordance with IFRS, foreign exchange differences on funds borrowed for
construction are capitalised as property, plant and equipment to the extent
that they are regarded as an adjustment to interest costs during the
construction period. Under US GAAP, all foreign exchange gains and losses
on foreign currency debts are included in current earnings. Accordingly,
the US GAAP adjustments represent the amortisation effect of such
originating adjustments described above.
(b) Capitalisation of property, plant and equipment
In the periods prior to those presented herein, certain adjustments arose
between IFRS and US GAAP with regard to the capitalisation of interest and
pre-production results under IFRS that were reversed and expensed under US
GAAP. For the periods presented herein, there were no adjustments related
to the capitalisation of interest and pre-production results. Accordingly,
the US GAAP adjustments represent the amortisation effect of such
originating adjustments described above.
(c) Revaluation of property, plant and equipment
As required by the relevant PRC regulations with respect to the
Reorganisation, the property, plant and equipment of the Group were
revalued at 30 September 1999. In addition, the property, plant and
equipment of Sinopec National Star, Sinopec Maoming, Refining Assets, and
Petrochemical and Catalyst Assets were revalued at 31 December 2000, 30
June 2003, 31 October 2003 and 30 June 2004, respectively, in connection
with the Acquisitions. Under IFRS, such revaluations result in an increase
in equity with respect to the increase in carrying amount of certain
property, plant and equipment above their historical cost bases and a
charge to income with respect to the reduction in carrying amount of
certain property, plant and equipment below their historical cost bases.
Under US GAAP, property, plant and equipment are stated at their historical
cost less accumulated depreciation. However, as a result of the tax
deductibility of the net revaluation surplus, a deferred tax asset related
to the reversal of the revaluation surplus is created under US GAAP with a
corresponding increase in equity.
In addition, under IFRS, on disposal of a revalued asset, the related
revaluation surplus is transferred from the revaluation reserve to retained
earnings. Under US GAAP, the gain and loss on disposal of an asset is
determined with reference to the asset's historical carrying amount and
included in current earnings.
(d) Exchange of assets
During 2002, the Company and Sinopec Group Company entered into an asset
swap transaction. Under IFRS, the cost of property, plant and equipment
acquired in an exchange for a dissimilar item of property, plant and
equipment is measured at fair value. Under US GAAP, as the exchange of
assets was between entities under common control, the assets received from
Sinopec Group Company are measured at historical cost. The difference
between the historical cost of the net assets transferred and the net
assets received is accounted for as an equity transaction. Accordingly, the
US GAAP adjustments represent the amortisation effect of such originating
adjustments described above.
(e) Impairment of long-lived assets
Under IFRS, impairment charges are recognised when a long-lived asset's
carrying amount exceeds the higher of an asset's net selling price and
value in use, which incorporates discounting the asset's estimated future
cash flows.
Under US GAAP, determination of the recoverability of a long-lived asset is
based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an
impairment loss is recognised. Measurement of an impairment loss for a
long-lived asset is based on the fair value of the asset.
In addition, under IFRS, a subsequent increase in the recoverable amount of
an asset is reversed to the consolidated income statement to the extent
that an impairment loss on the same asset was previously recognised as an
expense when the circumstances and events that led to the write-down or
write-off cease to exist. The reversal is reduced by the amount that would
have been recognised as depreciation had the write-off not occurred. Under
US GAAP, an impairment loss establishes a new cost basis for the impaired
asset and the new cost basis should not be adjusted subsequently other than
for further impairment losses.
The US GAAP adjustment represents the effect of reversing the recovery of
previous impairment charges recorded under IFRS.
(f) Capitalised interest on investment in associates
Under IFRS, investment accounted for by the equity method is not considered
a qualifying asset for which interest is capitalised. Under US GAAP, an
investment accounted for by the equity method while the investee has
activities in progress necessary to commence its planned principal
operations, provided that the investee's activities include the use of
funds to acquire qualifying assets for its operations, is a qualifying
asset for which interest is initially capitalised and subsequent amortised
when the operation of the qualifying assets begin.
108
(g) Goodwill amortisation
Under IFRS, with reference to IFRS 3, "Business Combination", goodwill
arising from a business combination for which the agreement date is on or
after 31 March 2004 is not amortised, or goodwill arising from a business
combination for which the agreement date was before 31 March 2004 is no
longer amortised from the first annual reporting period beginning on or
after 31 March 2004. Instead, goodwill is tested for impairment annually,
or more frequently if events or changes in circumstances indicate that it
might be impaired.
Under US GAAP, with reference to Statement of Financial Accounting
Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS No.142"),
goodwill is no longer amortised beginning 1 January 2002. Instead, goodwill
is reviewed for impairment upon adoption of SFAS No.142 and annually
thereafter.
The effect on profit attributable to equity holders of the parent of
significant differences between IFRS and US GAAP is as follows:
Reference Six-month periods ended 30 June
in note 2005 2005 2004
above US$ millions RMB millions RMB millions
Profit attributable to equity holders of the parent
under IFRS 2,375 19,653 16,746
------------------------------------------------------------------------------------------------------------------------
US GAAP adjustments:
------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains and losses (a) 3 27 29
---------------------------------------------------------------------------------------------------------------------
Capitalisation of property, plant and equipment (b) -- -- 6
---------------------------------------------------------------------------------------------------------------------
Depreciation on revalued property, plant and equipment (c) 214 1,771 1,909
---------------------------------------------------------------------------------------------------------------------
Disposal of property, plant and equipment (c) 7 60 627
---------------------------------------------------------------------------------------------------------------------
Exchange of assets (d) 1 12 12
---------------------------------------------------------------------------------------------------------------------
Reversal of impairment of long-lived assets,
net of depreciation effect (e) 5 43 21
---------------------------------------------------------------------------------------------------------------------
Capitalised interest on investments in associates,
net of amortisation effect (f) (2) (20) 108
---------------------------------------------------------------------------------------------------------------------
Goodwill amortisation for the period (g) -- -- 4
--------------------------------------------------------------------------------------------------------------------
Deferred tax effect of US GAAP adjustments (72) (597) (892)
---------------------------------------------------------------------------------------------------------------------
Profit attributable to equity holders of the parent under US GAAP 2,531 20,949 18,570
========================================================================================================================
Basic and diluted earnings per share under US GAAP US$0.03 RMB0.24 RMB0.21
========================================================================================================================
Basic and diluted earnings per ADS under US GAAP* US$2.92 RMB24.16 RMB21.42
========================================================================================================================
* Basic and diluted earnings per ADS is calculated on the basis that one
ADS is equivalent to 100 shares.
The effect on the total equity attributable to equity holders of the parent
of significant differences between IFRS and US GAAP is as follows:
Reference At 30 June At 31 December
in note 2005 2005 2004
above US$ millions RMB millions RMB millions
Total equity attributable to equity holders
of the parent under IFRS 24,860 205,757 193,040
------------------------------------------------------------------------------------------------------------------------
US GAAP adjustments:
Foreign exchange gains and losses (a) (32) (268) (295)
------------------------------------------------------------------------------------------------------------------------
Revaluation of property, plant and equipment (c) (598) (4,952) (6,783)
---------------------------------------------------------------------------------------------------------------------
Deferred tax adjustments on revaluation (c) 184 1,524 2,101
---------------------------------------------------------------------------------------------------------------------
Exchange of assets (d) (63) (520) (532)
---------------------------------------------------------------------------------------------------------------------
Reversal of impairment of long-lived assets (e) (59) (489) (532)
---------------------------------------------------------------------------------------------------------------------
Capitalised interest on investments in associates (f) 61 506 526
---------------------------------------------------------------------------------------------------------------------
Goodwill (g) 3 24 24
---------------------------------------------------------------------------------------------------------------------
Deferred tax effect of US GAAP adjustments 34 281 301
---------------------------------------------------------------------------------------------------------------------
Total equity attributable to equity holders of
the parent under US GAAP 24,390 201,863 187,850
========================================================================================================================
Note:United States dollar equivalents
For the convenience of readers, amounts in Renminbi have been
translated into United States dollars at the rate of US$1.00 = RMB
8.2765 being the noon buying rate in New York City on 30 June 2005 for
cable transfers in Renminbi as certified for customs purposes by the
Federal Reserve Bank of New York. No representation is made that the
Renminbi amounts could have been, or could be, converted into United
States dollars at that rate.
109
DOCUMENTS FOR INSPECTION
The following documents will be available for inspection during normal business
hours at the legal address of Sinopec Corp. from Friday, 26 August 2005 by the
relevant regulatory authorities and shareholders in accordance with the
Articles of Association of Sinopec Corp. and the laws and regulations of the
PRC:
1 The original interim report for the first half of 2005 signed by the
Chairman of Sinopec Corp.;
2 The original audited financial statements and audited consolidated
financial statements of Sinopec Corp. prepared in accordance with IFRS and
the PRC Accounting Rules and Regulations for the six-month period ended 30
June 2005 signed by Mr. Chen Tonghai (Chairman of Sinopec Corp.), Mr. Wang
Tianpu (President of Sinopec Corp.), Mr. Zhang Jiaren (Director, Senior
Vice President and Chief Financial Officer of Sinopec Corp.) and Mr. Liu
Yun (Head of the Accounting Department of Sinopec Corp.);
3 The original auditors' reports on the above financial statements signed by
the auditors; and
4 All original documents and announcements published by Sinopec Corp. in the
newspapers specified by the China Securities Regulatory Commission during
the reporting period.
By Order of the Board
Chen Tonghai
Chairman
Beijing, PRC, 26 August 2005
This annual report is published in both English and Chinese languages. The
Chinese version shall prevail.
110
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
China Petroleum & Chemical Corporation
By: /s/ Chen Ge
-------------
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: August 26, 2005