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, 2004
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:
An interim report for the year 2004 made on August 27, 2004, in
English of China Petroleum & Chemical Corporation (the "Registrant").
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
under signed, thereunto duly authorized.
China Petroleum & Chemical Corporation
By: /s/ Chen Ge
------------
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: August 27, 2004
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 29
Financial Statements 38
Documents for Inspection 108
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 27 August 2004 and, unless otherwise required by the relevant
regulatory authorities, undertakes no obligation to update these statements.
IMPORTANT NOTICE: THE BOARD OF DIRECTORS OF CHINA PETROLEUM & CHEMICAL
CORPORATION ("SINOPEC CORP.") AND THE DIRECTORS WARRANT THAT THERE ARE NO
MATERIAL OMISSIONS FROM, 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, HO TSU KWOK CHARLES, SHI WANPENG AND ZHANG YOUCAI, DIRECTORS OF
SINOPEC CORP., COULD NOT ATTEND THE TENTH MEETING OF THE SECOND SESSION OF THE
BOARD FOR REASONS OF OFFICIAL DUTIES. MR. MOU SHULING, DIRECTOR OF SINOPEC
CORP., AUTHORISED MR. CAO XIANGHONG; MR. GAO JIAN, DIRECTOR OF SINOPEC CORP.,
AUTHORISED MR. CHEN TONGHAI, CHAIRMAN; MR. FAN YIFEI, DIRECTOR OF SINOPEC
CORP., AUTHORISED MR. WANG JIMING, VICE CHAIRMAN; AND MESSRS. HO TSU KWOK
CHARLES, SHI WANPENG AND ZHANG YOUCAI, DIRECTORS OF SINOPEC CORP., AUTHORISED
MR. CHEN QINGTAI, RESPECTIVELY, TO VOTE ON THEIR BEHALF IN RESPECT OF THE
RESOLUTIONS PUT FORWARD IN THE TENTH MEETING OF THE SECOND SESSION OF THE
BOARD. MR. CHEN TONGHAI, CHAIRMAN OF THE BOARD, MR. WANG JIMING, VICE CHAIRMAN
AND 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
2004 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
Sinopec Corp. is the first company in China listed on the stock exchanges in
Hong Kong, New York, London and Shanghai, and is also an integrated energy and
chemical company with upstream, midstream and downstream operations. The
principal operations of the Company include: exploring for and developing,
producing and trading crude oil and natural gas; processing crude oil,
producing petroleum products and trading, transporting, distributing and
marketing petroleum products; producing, distributing and trading petrochemical
products. Sinopec Corp.'s basic information is as follows:
LEGAL NAME
[Name in Chinese characters]
CHINESE ABBREVIATION
[Abbreviation in Chinese characters]
ENGLISH NAME
China Petroleum & Chemical Corporation
ENGLISH ABBREVIATION
Sinopec Corp.
LEGAL REPRESENTATIVE
Mr. Chen Tonghai
AUTHORISED REPRESENTATIVES
Mr. Wang Jiming, Mr. Chen Ge
SECRETARY TO THE BOARD OF
DIRECTORS
Mr. Chen Ge
REPRESENTATIVE ON SECURITIES
MATTERS
Mr. Huang Wensheng
REGISTERED ADDRESS, PLACE OF BUSINESS AND CORRESPONDENCE ADDRESS
6A Huixindong Street
Chaoyang District
Beijing, PRC
Postcode: 100029
Tel: 86-10-64990060
Fax: 86-10-64990022
Website: http://www.sinopec.com.cn
Email: ir@sinopec.com.cn
media@sinopec.com.cn
PLACE OF BUSINESS IN HONG KONG
12th Floor, Office Tower, Convention Plaza
1 Harbour Road, Wanchai, Hong Kong
NEWSPAPERS FOR INFORMATION DISCLOSURE
Mainland China:
China Securities News
Shanghai Securities News
Securities Times
Hong Kong:
Hong Kong Economic Times
South China Morning Post (English)
INTERNET WEBSITE PUBLISHING INTERIM REPORT DESIGNATED BY THE CHINA SECURITIES
REGULATORY COMMISSION http://www.sse.com.cn
PLACES WHERE THE INTERIM REPORT IS AVAILABLE FOR INSPECTION
China: Board Secretariat
China Petroleum & Chemical Corporation
6A Huixindong Street,
Chaoyang District, Beijing, PRC
USA: Citibank, N.A.
388 Greenwich St., 14th floor
New York, NY 10013 USA
UK: Citibank N. A.
Citigroup Centre
Canada Square
Canary Wharf
London E14 5LB UK
PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES
A Shares: Shanghai Stock Exchange
Stock name: **(degree)e(Y)U*AE
Stock code: 600028
H Shares: Hong Kong Stock Exchange
Stock name: SINOPEC CORP
Stock code: 0386
ADSs: New York Stock Exchange
Stock name: SINOPEC CORP
Stock code: SNP
London Stock Exchange
Stock name: SINOPEC CORP
Stock code: SNP
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 2004
At 30 June At 31 December
Item 2004 2003
RMB millions RMB millions
Current assets 117,062 96,918
---------------------------------------------------------------------------------------------------
Current liabilities 136,314 120,792
---------------------------------------------------------------------------------------------------
Total assets 422,925 390,213
---------------------------------------------------------------------------------------------------
Shareholders' funds (excluding minority interests) 172,276 162,946
---------------------------------------------------------------------------------------------------
Net assets per share (RMB/share) (Fully diluted) 1.987 1.879
Adjusted net assets per share (RMB/share) 1.961 1.850
---------------------------------------------------------------------------------------------------
Six-month periods ended 30 June
Item 2004 2003
RMB millions RMB millions
Net profit 15,039 9,765
---------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 16,332 10,221
---------------------------------------------------------------------------------------------------
Return on net assets (%) (Fully diluted) 8.73 6.25
---------------------------------------------------------------------------------------------------
Return on net assets (%) (Weighted average) 8.82 6.24
---------------------------------------------------------------------------------------------------
Earnings per share (RMB/share) (Fully diluted) 0.173 0.113
---------------------------------------------------------------------------------------------------
Earnings per share (RMB/share) (Weighted average) 0.173 0.113
---------------------------------------------------------------------------------------------------
Net cash flow from operating activities 21,694 29,982
---------------------------------------------------------------------------------------------------
Six-month period
Items under non-operating profits/losses: ended 30 June 2004
RMB millions
Loss on disposal of long-term equity investments 2
---------------------------------------------------------------------------------------------------
Written back of provisions for impairment losses in previous years (80)
Non-operating expenses:
(excluding normal provisions on assets provided in accordance
with the Accounting Regulations for Business Enterprises) 2,189
---------------------------------------------------------------------------------------------------
Of which: Loss on disposal of fixed assets 1,405
---------------------------------------------------------------------------------------------------
Employee reduction expenses 412
---------------------------------------------------------------------------------------------------
Donations 49
---------------------------------------------------------------------------------------------------
Non-operating income (181)
---------------------------------------------------------------------------------------------------
Tax effect (637)
---------------------------------------------------------------------------------------------------
Total 1,293
---------------------------------------------------------------------------------------------------
(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 2004 30 June 2003
Return on net assets (%) Return on net assets (%)
Item Fully Weighted Fully Weighted
diluted average diluted average
Profit from principal operations 30.09 30.41 23.29 23.24
------------------------------------------------------------------------------------------------------------------------------
Operating profit 16.46 16.63 10.00 9.98
------------------------------------------------------------------------------------------------------------------------------
Net profit 8.73 8.82 6.25 6.24
------------------------------------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 9.48 9.58 6.54 6.53
Six-month period ended Six-month period ended
30 June 2004 30 June 2003
Earnings per share RMB Earnings per share RMB
Item Fully Weighted Fully Weighted
diluted average diluted average
Profit from principal operations 0.598 0.598 0.420 0.420
------------------------------------------------------------------------------------------------------------------------------
Operating profit 0.327 0.327 0.180 0.180
------------------------------------------------------------------------------------------------------------------------------
Net profit 0.173 0.173 0.113 0.113
------------------------------------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 0.188 0.188 0.118 0.118
------------------------------------------------------------------------------------------------------------------------------
(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
is 5% or more of the total assets or more than 10% of the profit before
tax:
At 30 At 31 Changes
June December Amount of Percentage of
Item 2004 2003 increase increase Analysis of Changes
RMB millions RMB millions RMB millions (%)
Bills receivable 8,009 5,953 2,056 34.54 Mainly due to the increase in
income from principal operations
-----------------------------------------------------------------------------------------------------------------------------------
Accounts receivable 13,621 9,284 4,337 46.71 Mainly due to the increase in
income from principal operations
-----------------------------------------------------------------------------------------------------------------------------------
Advance payments 7,248 3,904 3,344 85.66 Mainly due to the increase in
contracted amounts
-----------------------------------------------------------------------------------------------------------------------------------
Inventories 58,990 44,915 14,075 31.34 Mainly due to the increase in
inventories of crude oil and refined
oil products
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment 4,094 1,331 2,763 207.59 Mainly due to provisions based on recoverable
losses on fixed assets amount after the amendments of production and
operation plans
-----------------------------------------------------------------------------------------------------------------------------------
Construction materials 1,659 1,226 433 35.32 Since more construction projects were
expected to commence after the end of the
period, purchase of construction material
increased
-----------------------------------------------------------------------------------------------------------------------------------
Construction in progress 44,498 28,513 15,985 56.06 Please refer to Note 13 of the financial
statements prepared under the PRC
Accounting Rules and Regulations for details.
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 3,115 1,752 1,363 77.80 Please refer to Note 15 of the
financial statements prepared under the PRC
Accounting Rules and Regulations for details.
-----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 2,151 303 1,848 609.90 Mainly due to the increase in accrued and
unpaid production and operation costs
-----------------------------------------------------------------------------------------------------------------------------------
Current portion of 10,895 8,175 2,720 33.27 Mainly due to the increase in loans with
long-term liabilities maturity within one year
-----------------------------------------------------------------------------------------------------------------------------------
Bonds payable 3,500 -- 3,500 -- Please refer to Note 26 of the financial
statements prepared under the PRC
Accounting Rules and Regulations
for details
-----------------------------------------------------------------------------------------------------------------------------------
(3) Significant changes of items in the financial statements (Continued)
At 30 At 31 Changes
June December Amount of Percentage of
Item 2004 2003 increase increase Analysis of Changes
RMB millions RMB millions RMB millions (%)
Income from principal 265,709 194,842 70,867 36.37 Please refer to Management's Discussion
operations and Analysis
-----------------------------------------------------------------------------------------------------------------------------------
Cost of sales 206,098 152,303 53,795 35.32 Please refer to Management's Discussion and
Analysis
-----------------------------------------------------------------------------------------------------------------------------------
Investment income 516 341 175 51.32 Mainly due to the increase in
net profit from associates
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating expenses 4,952 768 4,184 544.79 Please refer to Note 36 of the
financial statements prepared under
the PRC Accounting Rules and Regulations
for details.
-----------------------------------------------------------------------------------------------------------------------------------
Taxation 7,154 4,762 2,392 50.23 Mainly due to the increase in
profit before taxation
-----------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,412 759 1,653 217.79 Mainly due to the increase in
net profit from subsidiaries
-----------------------------------------------------------------------------------------------------------------------------------
Unrecognized investment 507 -- 507 -- Mainly due to unrecognized investment
losses losses exceeding the carrying value
of long-term equity investment
-----------------------------------------------------------------------------------------------------------------------------------
(4) Details of provisions for assets in the consolidated financial statements Unit: RMB millions
Decrease in the period
Written
back due
At the Increase to increase At the
beginning in the in assets' Other end of
Item Lines of the period period valuation reasons Total the period
Allowance for doubtful accounts 1 5,533 543 38 31 69 6,007
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Allowance for doubtful accounts
for accounts receivable 3,185 271 15 2 17 3,439
-----------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
for other receivable 2,348 272 23 29 52 2,568
-----------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value
of short-term investments 2 Nil Nil
-----------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value
of inventories 3 519 184 39 1 40 663
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses
on long-term investments 4 271 42 3 5 8 305
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Long-term equity investments 271 42 3 5 8 305
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses
on fixed assets 5 1,331 2,763 4,094
-----------------------------------------------------------------------------------------------------------------------------------
Of which: Buildings 8 325 333
-----------------------------------------------------------------------------------------------------------------------------------
Machinery and equipment 559 1,815 2,374
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment
losses on intangible assets 6 Nil Nil
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses
on construction in progress 7 Nil Nil
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses
on entrusted loans 8 Nil Nil
-----------------------------------------------------------------------------------------------------------------------------------
Total 7,654 3,532 80 37 117 11,069
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2 FINANCIAL DATA AND INDICATORS OF THE COMPANY FOR THE FIRST HALF OF 2004 PREPARED IN ACCORDANCE
WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS
Six-month periods
ended 30 June
Item 2004 2003
RMB millions RMB millions
Operating profit 27,339 18,569
-----------------------------------------------------------------------------------------------------------------------------------
Net profit 16,151 10,727
-----------------------------------------------------------------------------------------------------------------------------------
Return on capital employed (%)* 6.17 4.47
-----------------------------------------------------------------------------------------------------------------------------------
Earnings per share (RMB/share) 0.186 0.124
-----------------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 19,291 28,649
-----------------------------------------------------------------------------------------------------------------------------------
* Return on capital employed = operating profit x (1 - income tax
rate)/capital employed
At 30 June At 31 December
Item 2004 2003
RMB millions RMB millions
Current assets 120,102 99,328
-----------------------------------------------------------------------------------------------------------------------------------
Current liabilities 137,713 122,005
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 434,937 400,818
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds (excluding minority interests) 178,409 167,899
-----------------------------------------------------------------------------------------------------------------------------------
Net assets per share (RMB/share) 2.058 1.937
-----------------------------------------------------------------------------------------------------------------------------------
Adjusted net assets per share (RMB/share) 2.033 1.908
-----------------------------------------------------------------------------------------------------------------------------------
3 DIFFERENCES BETWEEN THE PRC ACCOUNTING RULES AND REGULATIONS AND IFRS ON NET PROFIT AND
SHAREHOLDERS' FUNDS FOR THE FIRST HALF OF 2004
(1) Analysis of the effects of major differences between the PRC Accounting
Rules and Regulations and IFRS on net profit:
Six-month periods
ended 30 June
Item 2004 2003
RMB millions RMB millions
Net profit under the PRC Accounting Rules and Regulations 15,039 9,765
-----------------------------------------------------------------------------------------------------------------------------------
Adjustments:
Disposal of oil and gas properties (net of depreciation effect) 879 --
-----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revaluated assets 439 --
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties 370 1,270
-----------------------------------------------------------------------------------------------------------------------------------
Capitalization of general borrowing costs 247 203
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star 58 58
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec Maoming, Xi'an Petrochemical and Tahe Petrochemical -- 26
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights 9 9
-----------------------------------------------------------------------------------------------------------------------------------
Unrecognized losses of subsidiaries (236) --
-----------------------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (95) (100)
-----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets -- (5)
-----------------------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (559) (499)
-----------------------------------------------------------------------------------------------------------------------------------
Net profit under IFRS 16,151 10,727
===================================================================================================================================
(2) Analysis of the effects of major differences between the PRC Accounting
Rules and Regulations and IFRS on shareholders' funds:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Shareholders' funds under the PRC Accounting Rules and Regulations 172,276 162,946
-----------------------------------------------------------------------------------------------------------------------------------
Adjustments:
-----------------------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties 2,139 1,260
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties 11,255 10,885
-----------------------------------------------------------------------------------------------------------------------------------
Capitalization of general borrowing costs 1,372 1,125
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (2,754) (2,812)
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (861) (870)
-----------------------------------------------------------------------------------------------------------------------------------
Effect of minority interests on unrecognized losses of subsidiaries 332 61
-----------------------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (264) (169)
-----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (113) (113)
-----------------------------------------------------------------------------------------------------------------------------------
Government grants (326) (326)
-----------------------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (4,647) (4,088)
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds under IFRS 178,409 167,899
-----------------------------------------------------------------------------------------------------------------------------------
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 2004, there were a total of 302,856 shareholders of Sinopec
Corp., of which 291,585 were domestic holders of A Shares and 11,271 were
overseas holders of H Shares.
(1) Top ten shareholders as at 30 June 2004
Increase/
decrease Percentage at the end Number of
during the of the reporting period pledges,
reporting Number of Among total Among the lock-ups or
period shares held share- type of trusts
(1,000 (1,000 holdings shares held Nature of Type of (1,000
Name of shareholders shares) shares) (%) (%) Shareholders Shares held shares)
China Petrochemical Corporation 0 47,742,561 55.06 71.13 State-owned Non tradable 0
("Sinopec Group Company") shares
-----------------------------------------------------------------------------------------------------------------------------------
HKSCC (Nominees) Limited 5,036,626 16,676,244 19.23 99.38 H shares Tradable Unknown
-----------------------------------------------------------------------------------------------------------------------------------
China Development Bank 0 8,775,570 10.12 13.07 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
China Cinda Asset Management Corp. 0 8,720,650 10.06 12.99 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
China Orient Asset Management Corp. 0 1,296,410 1.50 1.93 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
Guo Tai Jun An Corp. (10,428)* 586,760 0.68 0.87 State-owned Non tradable 293,380
shares (pledged)
-----------------------------------------------------------------------------------------------------------------------------------
Qingdao Port Authority 0 60,000 0.07 2.14 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
EFUND 50 Securities Investment Fund 51,906 51,906 0.06 1.85 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Xinghua Securities Investment Fund 33,190 48,190 0.06 1.72 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Xinghe Securities Investment Fund (15,799) 46,149 0.05 1.65 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
CITIC Securities Co.,Ltd. 40,985 44,485 0.05 1.59 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Explanation for the relationships Except for Xinghua Securities Investment Fund and Xinghe Securities Investment Fund
among the above shareholders or both of which belong to Huaxia Fund Management Co.,Ltd., Sinopec Corp. is not
activities in concert: aware of any connections among other corporate shareholders. Sinopec Corp. is not
aware of any connections or activities in concert between other holders of shares
in circulation and is not aware of any pledges, lock-ups or trust of shareholdings
of holders of H Shares.
-----------------------------------------------------------------------------------------------------------------------------------
* The shares sold by Guo Tai Jun An Corp. were A shares previously purchased on the stock exchanges by Guo Tai Jun An Corp.
(2) Top ten shareholders with tradable shares as at 30 June 2004
Increase/
decrease Percentage at the end Number of
during the of the reporting period pledges,
reporting Number of Among total Among the lock-ups or
period shares held share- type of trusts
(1,000 (1,000 holdings shares held Nature of Type of (1,000
Name of shareholders shares) shares) (%) (%) Shareholders Shares held shares)
HKSCC (Nominees) Limited 5,036,626 16,676,244 19.23 99.38 H shares Tradable Unknown
-----------------------------------------------------------------------------------------------------------------------------------
Qingdao Port Authority 0 60,000 0.07 2.14 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
EFUND 50 Securities Investment Fund 51,906 51,906 0.06 1.85 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Xinghua Securities Investment Fund 33,190 48,190 0.06 1.72 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Xinghe Securities Investment Fund (15,799) 46,149 0.05 1.65 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
CITIC Securities Co.,Ltd. 40,985 44,485 0.05 1.59 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
China Southern Principal Protected
Fund 28,652 40,144 0.05 1.43 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
China Southern Sustaining Growth
Fund 36,153 39,153 0.05 1.40 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Harvest Service Sector Fund 39,087 39,087 0.05 1.40 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Tian Yuan Securities Investment
Fund 928 37,030 0.04 1.32 A shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Explanation for the relationships among Except for Xinghua Securities Investment Fund and Xinghe Securities
the above shareholders or activities Investment Fund both of which belong to Huaxia Fund Management Co.,Ltd.
in concert: and China Southern Principal Protected Fund, China Southern Sustaining
Growth Fund and Tian Yuan Securities Investment Fund which belong to
China Southern Fund Management Co., Ltd., Sinopec Corp. is not aware of
any connections among other corporate shareholders. Sinopec Corp. is
not aware of any connections or activities in concert between other holders
of shares in circulation 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 share according
to the Securities and Futures Ordinance
Approximate
percentage
Number of share of Sinopec Corp's
Name of shareholders interests held interests
Nature or regarded as held (H share) (%)
Exxon Mobil Corporation Corporate 3,168,529,000 (L) 18.88 (L)
-----------------------------------------------------------------------------------------------------------------------------------
Exxonmobil Far East Holdings Ltd. Beneficial 3,168,529,000 (L) 18.88 (L)
-----------------------------------------------------------------------------------------------------------------------------------
Exxonmobil International Holdings Inc. Corporate 3,168,529,000 (L) 18.88 (L)
-----------------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. Beneficial, Investment
manager, Trustee,
Physically settled
derivatives 1,095,132,880 (L) 6.53 (L)
-----------------------------------------------------------------------------------------------------------------------------------
N/A 610,911,725 (P) 3.64 (P)
-----------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Corporate 932,527,786 (L) 5.56 (L)
Corporate 478,305,000 (S) 2.85 (S)
-----------------------------------------------------------------------------------------------------------------------------------
Note: (L): Long position, (S): Short position (P): Lending pool
3 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE ACTUAL BENEFICIAL OWNERS
There was no change in the controlling shareholders or the actual
beneficial owners during the reporting period.
BUSINESS REVIEW AND PROSPECTS
BUSINESS REVIEW
In the first half of 2004, the Chinese government adopted a series of
macro-economic control measures, and achieved good results. The national
economy maintained an upward momentum of steady growth and GDP rose by 9.7%.
Demands for petroleum and petrochemical products continued to grow accordingly.
According to the Company's statistics, the apparent domestic consumption of
refined oil products (gasoline, diesel and kerosene including jet fuel) in the
first half of this year increased by 24.6% over the same period last year
whilst the apparent consumption of petrochemical products (in terms of
ethylene) increased by 15.59%.
In the first half of 2004, prices of international crude oil fluctuated at a
high level. Refining margin was improved and the chemical industries were in
the rising trend of a new cycle. The Company closely monitored the changes in
the domestic and overseas market of crude oil and petrochemical products, and
responsively adopted effective operation measures, actively explored the
market, optimised resources, rationalised structures, and maximised operation
volume. As a result, the oil and gas production increased steadily, oil
refining and petrochemical facilities operated at a high utilisation rate, the
sales of refined oil products increased significantly and marketing structures
were further optimised. At the same time, the Company further enhanced its
internal reform, streamlined the assets and reinforced internal control. As a
result of the joint efforts made by all the employees together with the
Company, the Company achieved remarkable operating results.
According to the PRC Accounting Rules and Regulations, the Company's income
from principal operations was RMB 265.71billion, up by 36.4% over the first
half of 2003. The Company's net profit was RMB 15.04 billion, up by 54.0% over
the first half of 2003. Based on the number of shares outstanding at the end of
the reporting period, earnings per share were RMB 0.17. According to the
International Financial Reporting Standards, turnover and other operating
revenues amounted to RMB 275.44 billion, up by 34.1% over the first half of
2003. Profit attributable to shareholders was RMB 16.15 billion, up by 50.6%
over the first half of 2003. Based on the number of shares outstanding at the
end of the reporting period, earnings per share were RMB 0.19.
The Board of Directors has decided to distribute an interim dividend of RMB
0.04 per share for the first half of 2004, which is equivalent to RMB 4.00 per
ADS.
1 PRODUCTION AND OPERATION
(1) Exploration and Production Segment
In the first half of 2004, the average international crude oil price
increased significantly compared with the same period last year. The
Platt's global Brent spot price averaged USD 33.65 per barrel, up by 16.9%
over the first half of 2003. Domestic prices of crude oil generally
followed the trend in the international market. However, as there is a
one-month time lag of domestic crude oil prices behind the international
crude oil prices and the increase in international benchmarked prices for
the Company's self-produced oil was not significant, the average crude
price realised by the Company during the first half of 2004 was USD 29.62
per barrel, up by 2.5% over the same period last year.
[GRAPHIC OMITTED]
In the first half of 2004, the Company achieved good results in
exploration, development and production of crude oil and natural gas.
In exploration, the Company optimised exploration plan and profile of oil
and gas reserves by taking the zone exploration as the main objective and
the discovery of qualified proven reserves as the primary goal. New blocks
in Tahe oilfield and deep layers in Jiyang trough demonstrated good
indications of oil and gas reserves, and sound results were achieved in
exploration in mature fields in eastern China. Important progress was
achieved in the natural gas exploration blocks such as in northeastern
Sichuan. Exploration wells in 6 key blocks in Ordos, Shengli, Zhongyuan,
etc. obtained commercial oil and gas flow. In addition, oil and gas were
discovered in a number of major exploration wells in the new blocks in
western China. In the first half of 2004, the newly added proved geological
reserves of crude oil amounted to approximately 133 million tonnes, whilst
the newly added geological reserves of natural gas was approximately 62.3
billion cubic meters.
In development, the Company aimed to optimise its development plans and
improve the quality of production capacity build-up. In the first half of
2004, newly developed production capacity of crude oil and natural gas
reached 2.29 million tonnes per year and 415 million cubic meters per year,
respectively.
In production, the Company seized the opportunity of high crude oil prices
and carefully arranged oil and gas production. The Company exercised
comprehensive management over its existing oilfields and consolidated its
foundation for stable output, and the production of oil and gas increased
steadily.
Summary of Operations of Exploration and Production Segment
Six-month periods
ended 30 June Changes
2004 2003 (%)
Crude oil production (million barrels) 135.85 133.72 1.59
-----------------------------------------------------------------------------------------------------------------------------------
Natural gas production (billion cubic feet) 100.06 90.71 10.31
-----------------------------------------------------------------------------------------------------------------------------------
Newly added proved oil reserves (million barrels) 124.40 115.80 7.43
-----------------------------------------------------------------------------------------------------------------------------------
Newly added proved gas reserves (billion cubic feet) 872.74 276.80 215.30
-----------------------------------------------------------------------------------------------------------------------------------
Proved oil reserves at the end of the reporting period (million barrels) 3,245.73 3,302.00 (1.70)
-----------------------------------------------------------------------------------------------------------------------------------
Proved gas reserves at the end of the reporting period (billion cubic feet) 3,660.30 3,515.00 4.13
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 2004, in response to the significant growth of demand
in the domestic market, the Company made careful arrangement so as to
ensure a safe, stable, sustained, optimal and full load operation of its
facilities. The Company also made serious effects in increasing the
processing volume of crude oil. In addition, the Company optimised the
allocation of crude oil resources, further increased the processing volume
of sour crude, optimised logistics and reduced production costs. The
Company also optimised product mix, increased production of diesel and high
value-added products and improved profitability. Furthermore, the Company
enhanced its management over the operation of production facilities, and
further improved major economic and technical indicators for oil refining,
such as light product yield and refining yield.
Summary of Operations of Refining Segment
Six-month periods
ended 30 June Changes
2004 2003 (%)
Crude processing volume (million tonnes) 64.98 54.70 18.79
----------------------------------------------------------------------------------------------------------------------------------
Of which: Sour crude processing volume (million tonnes) 13.39 10.64 25.85
----------------------------------------------------------------------------------------------------------------------------------
Refinery utilisation (%) 91.57 83.30 8.27 percentage
points
----------------------------------------------------------------------------------------------------------------------------------
Gasoline, diesel oil and kerosene (including jet fuel) production
(million tonnes) 39.17 32.59 20.19
----------------------------------------------------------------------------------------------------------------------------------
Of which: Gasoline (million tonnes) 11.42 10.25 11.41
----------------------------------------------------------------------------------------------------------------------------------
Diesel oil (million tonnes) 24.72 19.89 24.28
----------------------------------------------------------------------------------------------------------------------------------
Kerosene (including jet fuel) (million tonnes) 3.03 2.45 23.67
----------------------------------------------------------------------------------------------------------------------------------
Chemical feedstock (million tonnes) 8.92 8.23 8.38
----------------------------------------------------------------------------------------------------------------------------------
Light product yield (%) 74.06 73.97 0.09 percentage
point
----------------------------------------------------------------------------------------------------------------------------------
Refining yield (%) 93.10 93.07 0.03 percentage
point
----------------------------------------------------------------------------------------------------------------------------------
Notes:
1. The data of the first half of 2003 and the first half of 2004 in this
table includes that of Xi'an Petrochemical and Tahe Petrochemical
2. Crude processing volume is converted at 1 tonne = 7.35 barrels.
(3) Marketing and Distribution Segment
In the first half of 2004, the Company closely monitored the changes of the
market, optimised logistics and marketing structure. Sales volume of
refined oil products increased significantly together with a steady
expansion of market share. The Company actively expanded and optimised the
marketing network of refined oil products, and rationalised network layout
and product logistics. In the first half of 2004, the Company's total
domestic sales volume of refined oil products was up by 29.09% over the
same period last year, and the volumes of retail and direct sales were up
by 40.89% and 38.15%, respectively, over the same period last year. Retail
and direct sales volume, as a percentage of the Company's total domestic
sales volume of refined oil products increased to 76.2% from 70.2% in the
same period last year. In order to meet the domestic demand for refined oil
products and to maintain a balance in product mix, the Company reduced the
export volume of its refined oil products. In the first half of 2004, total
export volume of refined oil products was 1.85 million tonnes, representing
a decrease of 43.5% from the first half of 2003.
Summary of Operations of Marketing and Distribution Segment
Six-month periods
ended 30 June Changes
2004 2003 (%)
Total domestic sales of refined oil products
(million tonnes) 45.49 35.24 29.09
-----------------------------------------------------------------------------------------------
Of which: Retail volume (million tonnes) 25.12 17.83 40.89
-----------------------------------------------------------------------------------------------
Direct sales volume (million tonnes) 9.56 6.92 38.15
--------------------------------------------------------------------------------
Wholesale volume (million tonnes) 10.81 10.49 3.05
--------------------------------------------------------------------------------
Average annual throughput per petrol station
(tonne/station) 1,986 1,612 23.20
-----------------------------------------------------------------------------------------------
Total number of petrol stations 30,682 29,425 4.27
-----------------------------------------------------------------------------------------------
Of which: Number of self-operated
petrol stations 25,306 24,128 4.88
--------------------------------------------------------------------------------
Number of franchised petrol stations 5,376 5,297 1.49
--------------------------------------------------------------------------------
In March 2004, Sinopec won the exclusive entitlement of Sinopec Formula 1
Grand Prix China, which is another initiative of the Company's
international branding strategy. The Company will make the best use of the
cooperation with Formula 1 to promote the overall value of Sinopec's
branding.
(4) Chemicals Segment
In the first half of 2004, the global chemicals sector was in a new round
of an upturn cycle. Prices of chemical products increased significantly,
and demand in the domestic chemical market continued to grow. The Company's
average price of synthetic resin, synthetic rubber, synthetic fiber, and
monomers and polymers for synthetic fiber increased by 27.7%, 15.9%, 16.2%
and 21.3% respectively over the first half of 2003. The Company seized the
favorable opportunities and maintained operation of its chemical facilities
at full load. As a result, production of major chemical products increased
significantly, among which, production of synthetic resin, synthetic fiber,
and synthetic rubber were up by 10.95%, 7.19%, and 13.79% respectively over
the first half of 2003. In addition, the chemical product mix was improved
and the portion of high value-added products such as performance compound
of synthetic resin and differential fiber was further increased. The
marketing model of the newly established Acrylic Fibre Sales Company
achieved good results.
Production of Major Petrochemical Products Unit: thousand tonnes
Six-month periods
ended 30 June Changes
2004 2003 (%)
Ethylene 1,863 1,724 8.06
----------------------------------------------------------------------------------
Synthetic resin 2,806 2,529 10.95
----------------------------------------------------------------------------------
Of which: Performance compound resins 1,478 1,246 18.62
---------------------------------------------------------------------------
Synthetic fiber 641 598 7.19
----------------------------------------------------------------------------------
Of which: Differential fiber 289 241 19.92
---------------------------------------------------------------------------
Synthetic fiber monomers and polymers 2,443 2,133 14.53
----------------------------------------------------------------------------------
Synthetic rubber 297 261 13.79
----------------------------------------------------------------------------------
Urea 1,322 1,154 14.56
----------------------------------------------------------------------------------
Note:The production of chemical products in the first half of 2003 and the
first half of 2004 includes that of Maoming Ethylene.
2 COST-reduction
In the first half of 2004, the Company adopted a series of measures to
reduce costs: optimising the allocation of resources and logistics to
reduce transportation costs, increasing the processing volume of sour crude
to reduce procurement costs of crude oil, and further optimising the
operation of facilities to cut down material and energy consumption. In the
first half of 2004, the Company reduced its costs by a total of RMB 1.43
billion. The breakdown is as follows: RMB 250 million from the Exploration
and Production Segment, RMB 380 million from the Refining Segment, RMB 400
million from the Marketing and Distribution Segment and RMB 400 million
from the Chemicals Segment. In addition, the Company further carried out
measures aiming at improving efficiencies through staff reduction during
the first half of this year, and a total of 8,000 employees were
voluntarily terminated.
3 CAPITAL EXPENDITURE
In the first half of 2004, the Company's total capital expenditure was RMB
25.82 billion. The capital expenditure in the Exploration and Production
Segment totaled RMB 10.07 billion. The layout of the addition of oil and
gas reserves and production and the profile of oil and gas has been
adjusted, and the sequence structure of the three class reserves of crude
oil and gas was improved. The newly added production capacity of crude oil
was 2.29 million tonnes per year, while the newly added production capacity
of natural gas reached 415 million cubic meters per year. The capital
expenditure in the Refining Segment was RMB 4.10 billion. A number of major
projects were ahead of schedule: Ningbo-Shanghai-Nanjing crude oil pipeline
and Tianjin-Yanshan crude oil pipeline were put into operation, revamping
projects in Gaoqiao Petrochemical, Jinling Petrochemical, Yangzi
Petrochemical, Xi'an Petrochemical and Tahe Petrochemical proceeded
smoothly. The capital expenditure for the Chemicals Segment was RMB 2.94
billion, the second round of ethylene facility revamping project in Qilu
Petrochemical will be commissioned in the second half of this year. The
capital expenditure for the Marketing and Distribution Segment was RMB 8.61
billion, the construction of refined oil product pipeline in southwest
China is progressing smoothly, the construction and acquisition of petrol
stations in key areas achieved remarkable results, which consolidated the
Company's marketing and distribution network. The capital expenditure for
Corporate and Others amounted to RMB 94 million.
In addition, the joint venture projects such as Shanghai Secco proceeded
smoothly and the total capital expenditure incurred by the Company for
these joint ventures was RMB 3.37 billion.
BUSINESS PROSPECTS
Looking into the second half of 2004 for the international market, the global
economy continues to maintain a good momentum of recovery. Asia will maintain
its position as the most robust economy in the world, and its economy will keep
growing at a high rate. The Company expects that global demand for crude oil
will continue to grow in the second half of this year, with crude oil prices
fluctuating at a relatively high level. Refining business will remain in a good
shape and chemical industries will remain in a new round of upturn cycle. In
the domestic market, as the Chinese government takes measures to adjust and
optimise economic structure, the national economy will continue to grow rapidly
driving the growth of the demand for petroleum and petrochemical products.
At the same time, according to the undertakings made by the Chinese government
for entering the World Trade Organization, the retail market of refined oil
products will open to foreign players by the end of this year, and the domestic
competition in the marketing of refined oil products may be more severe.
By following the changes in the market, the Company will take a proactive
approach, in production and management and minimize operational risks. In
addition, the Company will capture the opportunities in the market and invest
in and expedite the construction of major projects. Additionally, the Company
will deepen reform, reinforce internal management, expand resources and market,
improve efficiencies through staff reduction and ensure sustainable and
effective growth.
In Exploration and Production Segment, the Company intends to implement its
resources strategy to accelerate the exploration and development, to seek for
the addition of oil reserves in mature blocks in eastern China, breakthrough in
new exploration blocks in western China and discoveries in marine phase blocks
in southern China, as well as to speed up the construction of oil and gas
production capacity through developing newly found reserve in the existing
mature blocks and building auxilary facilities for production capacity in the
new blocks while reinforcing the production and operation management to reduce
the production costs of oil and gas. In the second half of 2004, the Company
plans to produce 138.2 million barrels of crude oil and 104.9 billion cubic
feet of natural gas.
In Refining Segment, the Company will closely monitor the changes of
international oil market, continue to optimise allocation of crude oil
resources, increase the processing volume of sour crude to reduce the
purchasing costs of crude oil. The Company intends to fully leverage the
Ningbo-Shanghai-Nanjing crude oil pipeline, optimise the allocation of crude
oil to reduce transportation costs. The Company will timely adjust product mix
in accordance with the market demand, reinforce operation management and ensure
safe, stable, sustainable, optimal and full-load operations. In addition, the
Company will proactively implement reform of marketing system of refined oil
products other than gasoline, diesel and jet fuel. The Company plans to process
67.46 million tonnes of crude oil in the second half of this year.
In Marketing and Distribution Segment, the Company intends to enhance the
distribution network of refined oil products by accelerating the construction
of refined oil product pipeline, optimising and adjusting the layout of oil
depots, as well as expanding the retail network. Following the principle of
achieving regional and professional management and flattening of the management
hierarchy, the Company intends to further carry out reform of its marketing
system of refined oil products. The Company will further improve service
quality and its corporate image. In the second half of 2004, the Company will
target its total domestic sales volume of refined oil products at 45.5 million
tonnes, including a retail volume of 25.37 million tonnes and a direct sales
volume of 9.5 million tonnes.
In Chemicals Segment, the Company will focus on the full load operation of
major chemical facilities and revamping of some facilities as well as
optimisation of feedstock and resources allocation to reduce the material and
energy consumption and increase product yield. The Company will rationalise its
product mix and increase the output of high value-added products. The Company
will continue to carry out the reform of marketing system of chemical products.
The Company plans to produce 1.7 million tonnes of ethylene in the second half
of this year.
In respect of capital expenditure, the original planned capital expenditure for
2004 was RMB 50.2 billion. According to the current market supply-demand
situation and the projected market analysis in the future, the Company decided
to seize the opportunities, increase investment and accelerate the construction
progress of key projects. The Company intends to increase the capital
expenditure by RMB 6.12 billion to RMB 56.32 billion. The breakdown of
increases by segments is as follows: the expenditure for Exploration and
Production Segment is RMB 1.24 billion, Refining Segment RMB 1.68 billion,
Chemicals Segment RMB 1.15 billion, Marketing and Distribution Segment RMB 1.95
billion. The expenditure will be mainly used for the construction of natural
gas and crude oil pipelines and the speeding up of the refining renovation in
Guangzhou Petrochemical, Yanshan Petrochemical, Shanghai Petrochemical,
chemical renovation of PTA in Yangzi Petrochemical, polyester project in
Yizheng Chemical Fiber, and the construction and acquisition of petrol
stations, etc.
In the second half of 2004, by following the operating guidelines featuring
"reform, rationalisation, innovation and development", the Company will
actively adopt flexible operating tactics, realise the production and operation
objectives for 2004, and continue to maintain sound operation results.
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 2004, the Company's turnover and other operating
revenues were RMB 275.4 billion and operating profit was RMB 27.3 billion,
respectively, representing an increase of 34.1% and 47.2%, respectively,
over those in the first half of 2003. These changes are mainly attributable
to the fact that the Company timely took the apportunities of the rapid
growth of domestic GDP and high prices of petrochemical products, further
expanded resources and market, increased processing volume of crude oil and
production of ethylene, reinforced management, deepened corporate reforms,
rationalised asset portfolio, and realised satisfactory results.
The following table lists the major items in the consolidated income
statement of the Company for the indicated periods:
Six-month periods
ended 30 June
2004 2003 Changes
RMB millions (%)
Turnover and other operating revenues 275,442 205,335 34.1
-------------------------------------------------------------------------------------------------------------------------------
Of which: Turnover 265,709 197,614 34.5
-------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 9,733 7,721 26.1
-------------------------------------------------------------------------------------------------------------------------------
Operating expenses (248,103) (186,766) 32.8
-------------------------------------------------------------------------------------------------------------------------------
Of which: Purchased crude oil, products, and operating supplies
and expenses (197,123) (144,365) 36.5
------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses (14,212) (11,428) 24.4
---------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization (14,773) (12,947) 14.1
---------------------------------------------------------------------------------------------------------------
Exploration expenses (including dry holes) (2,475) (2,784) (11.1)
---------------------------------------------------------------------------------------------------------------
Personnel expenses (8,346) (8,338) 0.1
---------------------------------------------------------------------------------------------------------------
Employee reduction expenses (412) -- N/A
---------------------------------------------------------------------------------------------------------------
Taxes other than income tax (7,776) (6,190) 25.6
---------------------------------------------------------------------------------------------------------------
Other operating expenses, net (2,986) (714) 318.2
---------------------------------------------------------------------------------------------------------------
Operating profit 27,339 18,569 47.2
-------------------------------------------------------------------------------------------------------------------------------
Net finance costs (1,803) (2,074) (13.1)
-------------------------------------------------------------------------------------------------------------------------------
Investment income and share of profits less losses from associates 481 270 78.1
-------------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities before taxation 26,017 16,765 55.2
-------------------------------------------------------------------------------------------------------------------------------
Taxation (7,713) (5,264) 46.5
-------------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities after taxation 18,304 11,501 59.2
-------------------------------------------------------------------------------------------------------------------------------
Minority interests (2,153) (774) 178.2
-------------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders 16,151 10,727 50.6
-------------------------------------------------------------------------------------------------------------------------------
(1) Turnover and other operating revenues
In the first half of 2004, the Company's turnover and other operating
revenues were RMB 275.4 billion. Of which, turnover was RMB 265.7
billion, up by 34.5% over the first half of 2003. This was mainly due to
the fact that in the first half of 2004, prices of crude oil, petroleum
products and chemical products all increased in the global market, and
the Company seized the market opportunity to increase its refining
throughput and sales volume of its refined products. As a result, the
Company's sales volume of major petrochemical products increased
significantly. The Company's other operating revenues was RMB 9.7
billion, up by 26.1% over the first half of 2003. This was mainly due to
the increase of sales revenue from its sale of raw and auxiliary
materials and other products and services to China Petrochemical
Corporation and its subsidiaries (excluding the Company) ("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 2004, external sales revenues of
crude oil and natural gas amounted to RMB 7.4 billion, up by 4.1% over
the first half of 2003, accounting for 2.7% of the Company's turnover
and other operating revenues.
The Company's Refining Segment and Marketing and Distribution Segment
sell petroleum products (mainly consisting of refined oil products and
other refined petroleum products) to third parties. In the first half of
2004, the aggregate external sales revenues of petroleum products by
these two segments were RMB 188.5 billion, up by 38.1% over the first
half of 2003 and accounting for 68.4% of the Company's turnover and
other operating revenues. The sales revenues of gasoline and diesel
increased by 39.0% from that in the first half of 2003 to RMB 136.1
billion, accounting for 72.2% of the total sales revenues of petroleum
products.
In the first half of 2004, the Company's external sales revenues of
chemical products were RMB 50.9 billion, up by 33.6% over the first half
of 2003, accounting for 18.4% of its turnover and other operating
revenues.
(2) Operating expenses
In the first half of 2004, the Company's operating expenses were RMB
248.1 billion, up by 32.8% over the first half of 2003. 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 197.1 billion, up by 36.5% over the first half of
2003, accounting for 79.5% of the operating expenses, of which:
Purchase of crude oil was RMB 102.8 billion, up by 35.1% over the first
half of 2003, accounting for 41.5% of the total operating expenses.
The following table lists the Company's principal external sales volume and
average realised prices, and changes between the first half of 2004 and the
first half of 2003:
Sales Volume Average Realised Prices
(thousand tonnes) (RMB/tonne, RMB/thousand cubic meters)
Six-month periods Six-month periods
ended 30 June Changes ended 30 June Changes
2004 2003 (%) 2004 2003 (%)
Crude oil 3,019 3,304 (8.6) 1,679 1,559 7.7
------------------------------------------------------------------------------------------------------------------------------
Natural gas (million cubic
meters) 1,767 1,617 9.3 601 596 0.8
------------------------------------------------------------------------------------------------------------------------------
Gasoline 13,266 10,779 23.1 3,580 3,318 7.9
------------------------------------------------------------------------------------------------------------------------------
Diesel 29,096 22,025 32.1 3,044 2,823 7.8
------------------------------------------------------------------------------------------------------------------------------
Kerosene 2,633 2,118 24.3 2,710 2,495 8.6
------------------------------------------------------------------------------------------------------------------------------
Synthetic fiber monomer and
polymer 1,203 1,038 15.9 7,489 6,172 21.3
------------------------------------------------------------------------------------------------------------------------------
Synthetic resin 2,376 2,238 6.2 7,360 5,764 27.7
------------------------------------------------------------------------------------------------------------------------------
Synthetic fiber 679 629 7.9 10,728 9,231 16.2
------------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 299 261 14.6 9,301 8,024 15.9
------------------------------------------------------------------------------------------------------------------------------
Chemical fertilizer 1,287 1,040 23.8 1,327 1,185 12.0
------------------------------------------------------------------------------------------------------------------------------
To meet the increasing demands resulting from the rapid growth of the
Chinese economy, the Company increased its refining throughput. In the
first half of 2004, the Company's refining throughput was 63.26 million
tonnes (excluding amounts processed for third parties), representing an
increase of 15.67%, compared with that in the first half of 2003. The
Company's average cost for crude oil was RMB 2,098 per tonne,
representing an increase of 10.8% compared with that in the first half
of 2003.
In the first half of 2004, the Company's other purchasing expenses were
RMB 94.3 billion, up by 38.1% over the first half of 2003, accounting
for 38.0% 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 2004, the Company's selling, general and
administrative expenses were RMB 14.2 billion, up by 24.4% over the
first half of 2003. This increase was mainly due to:
o Sales expenses, such as the costs of transportation, and other
service charges etc. increased by RMB 1.2 billion, as a result of
the increase in the sales volume of refined oil products and the
increased proportion of retail and direct sales in total sales
volume of refined oil products.
o Expenses in maintenance increased by RMB 400 million.
o Operating lease rentals increased by (inclusive land lease expenses)
RMB 400 million.
o Expenses in advertising increased by RMB 300 million.
o Expenses in research and development increased by RMB 200 million.
Depreciation, depletion and amortization
In the first half of 2004, the Company's depreciation, depletion and
amortization were RMB 14.8 billion, up by 14.1% over the first half of
2003. The increase was mainly due to the addition of property, plant and
equipment as a result of capital expenditure.
Exploration expenses
In the first half of 2004, the Company's exploration expenses were RMB
2.5 billion, representing a decrease of 11.1% compared with that in the
first half of 2003.
Personnel expenses
In the first half of 2004, the Company's personnel expenses were RMB 8.3
billion, which was flat with that in the first half of 2003.
Employee reduction expenses
The Company incurred approximately RMB 412 million of staff reduction
expenses for approximately 8,000 employees who voluntarily left the
Company in the first half of 2004.
Taxes other than income tax
In the first half of 2004, the Company's taxes other than income tax
were RMB 7.8 billion, up by 25.6% over the first half of 2003. 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, net
In the first half of 2004, the Company's other operating expenses (net)
were RMB 3.0 billion, up by RMB 2.3 billion over the first half of 2003.
The increase was mainly due to the fact that in order to allocate its
internal resources more efficiently, the Company adjusted the production
and operation plans for certain less efficient facilities in Chemicals
and Marketing and Distribution segments, and accordingly made a
provision for impairment of long-lived assets of RMB 2.3 billion
representing the difference between the expected recoverable value and
the net book value of these assets, up by RMB 2.1 billion over the first
half of 2003.
(3) Operating profit
In the first half of 2004, the Company's operating profit was
RMB 27.3 billion, up by 47.2% over the first half of 2003.
(4) Net finance costs
In the first half of 2004, the Company's net finance costs were
RMB 1.8 billion, down by 13.1% compared with that in the first
half of 2003.
(5) Profit from ordinary activities before taxation
In the first half of 2004, the Company's profit from ordinary
activities before taxation was RMB 26.0 billion, up by 55.2% over
the first half of 2003.
(6) Taxation
In the first half of 2004, the Company's income tax was RMB 7.7
billion, up by 46.5% over the first half of 2003.
(7) Minority interests
In the first half of 2004, the Company's minority interests were
RMB 2.2 billion, up by 178.2% over the first half of 2003, mainly
due to the significant increase in the profits from the Company's
subsidiaries.
(8) Profit attributable to shareholders
In the first half of 2004, the Company's profit attributable to
shareholders was RMB 16.2 billion, up by 50.6% over the first half
of 2003.
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.
As a percentage of As a percentage of
consolidated operating consolidated operating
revenues before elimination revenues after elimination
Operating revenues of inter-segment sales of inter-segment sales
Six-month periods Six-month periods Six-month periods
ended 30 June ended 30 June ended 30 June
2004 2003 2004 2003 2004 2003
RMB millions (%) (%)
Exploration and Production Segment
---------------------------------------------------------------------------------------------------------------------------------
External sales* 10,920 10,035 2.4 2.8 4.0 4.9
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 26,316 24,980 5.8 7.1
-----------------------------------------------------------------------------------------------------------------------------
Operating revenues 37,236 35,015 8.2 9.9
=============================================================================================================================
Refining Segment
---------------------------------------------------------------------------------------------------------------------------------
External sales* 34,353 28,320 7.6 8.0 12.5 13.8
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 126,904 102,765 28.1 29.2
-----------------------------------------------------------------------------------------------------------------------------
Operating revenues 161,257 131,085 35.7 37.2
=============================================================================================================================
Marketing and Distribution Segment
---------------------------------------------------------------------------------------------------------------------------------
External sales* 156,901 110,433 34.8 31.4 57.0 53.8
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 1,334 1,630 0.3 0.5
-----------------------------------------------------------------------------------------------------------------------------
Operating revenues 158,235 112,063 35.1 31.9
=============================================================================================================================
Chemicals Segment
---------------------------------------------------------------------------------------------------------------------------------
External sales* 53,591 40,146 11.9 11.4 19.4 19.5
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 4,794 3,923 1.1 1.1
-----------------------------------------------------------------------------------------------------------------------------
Operating revenues 58,385 44,069 13.0 12.5
=============================================================================================================================
Corporate and others segment
---------------------------------------------------------------------------------------------------------------------------------
External sales* 19,677 16,401 4.4 4.7 7.1 8.0
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 16,246 13,419 3.6 3.8
-----------------------------------------------------------------------------------------------------------------------------
Operating revenues 35,923 29,820 8.0 8.5
=============================================================================================================================
Operating revenues before
elimination of inter-segment
sales 451,036 352,052 100.0 100.0
=================================================================================================================================
Elimination of inter-segment sales (175,594) (146,717)
=================================================================================================================================
Consolidated operating revenues 275,442 205,335 100.0 100.0
=================================================================================================================================
* including other operating revenues.
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 2003 to the first half of 2004:
Six-month periods
ended 30 June
2004 2003 Changes
RMB millions (%)
Exploration and Production Segment
-------------------------------------------------------------------------------
Operating revenue 37,236 35,015 6.3
---------------------------------------------------------------------------
Operating expenses 26,716 24,717 8.1
---------------------------------------------------------------------------
Operating profit 10,520 10,298 2.2
===========================================================================
Refining Segment
-------------------------------------------------------------------------------
Operating revenue 161,257 131,085 23.0
---------------------------------------------------------------------------
Operating expenses 157,006 128,441 22.2
---------------------------------------------------------------------------
Operating profit 4,251 2,644 60.8
===========================================================================
Marketing and Distribution Segment
-------------------------------------------------------------------------------
Operating revenue 158,235 112,063 41.2
---------------------------------------------------------------------------
Operating expenses 149,666 106,602 40.4
---------------------------------------------------------------------------
Operating profit 8,569 5,461 56.9
===========================================================================
Chemicals Segment
-------------------------------------------------------------------------------
Operating revenue 58,385 44,069 32.5
---------------------------------------------------------------------------
Operating expenses 53,461 43,211 23.7
---------------------------------------------------------------------------
Operating profit 4,924 858 473.9
===========================================================================
Corporate and others segment
-------------------------------------------------------------------------------
Operating revenue 35,923 29,820 20.5
---------------------------------------------------------------------------
Operating expenses 36,848 30,512 20.8
---------------------------------------------------------------------------
Operating profit (925) (692) 33.7
===========================================================================
(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 2004, the operating revenues of this segment were RMB
37.2 billion, up by 6.3% over the first half of 2003, which was mainly due
to the increase of sales volume and the realised price of crude oil over
that in the first half of 2003.
In the first half of 2004, this segment sold 17.96 million tonnes of crude
oil, up by 1.5% over the first half of 2003. 1.814 billion cubic meters of
natural gas were sold, up by 10.2% over the first half of 2003. The average
realised price of crude oil increased by 2.5% over the first half of 2003
to RMB 1,742 per tonne (approximately USD 29.6/barrel); the average
realised price of natural gas increased by 1.0% over the first half of 2003
to RMB 607 per thousand cubic meters.
In the first half of 2004, the operating expenses of this segment were RMB
26.7 billion, up by 8.1% over the first half of 2003. This was mainly due
to the increase of the oil and gas properties caused by the capital
expenditure incurred in this segment. In the first half of 2004, the
depreciation, depletion and amortization of the segment increased by
approximately RMB 1 billion over the first half of 2003; other operating
expenses increased by RMB 600 million over the first half of 2003; and the
expenditure on land lease rentals and research and development increased by
approximately RMB 200 million over the first half of 2003.
In the first half of 2004, the Company's lifting cost for crude oil and
natural gas was USD 6.28 per barrel, a slight increase from USD 6.26 per
barrel recorded in the first half of 2003.
In the first half of 2004, operating profit for the Exploration and
Production Segment was RMB 10.5 billion, up by 2.2% over the first half of
2003.
(2) Refining Segment
The business activities of the Refining Segment consist of purchasing crude
oil from the Company's Exploration and Production Segment and from third
parties, processing crude oil into refined oil products, selling gasoline,
diesel and kerosene to the Company's Marketing and Distribution Segment,
selling other refined oil products externally to domestic and overseas
customers by the Refining Segment.
In the first half of 2004, operating revenues of the Refining Segment were
RMB 161.3 billion, up by 23.0% over the first half of 2003, mainly because
of increased sales volume of products and increase in the realised prices.
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 2003 and the first half of 2004:
Sales Volume (thousand tonnes) Average realised prices (RMB/tonne)
Six-month periods Six-month periods
ended 30 June Change ended 30 June Changes
2004 2003 (%) 2004 2003 (%)
Gasoline 10,167 9,896 2.7 2,771 2,635 5.2
------------------------------------------------------------------------------------------------------------------------------
Diesel 24,210 19,550 23.8 2,711 2,455 10.4
------------------------------------------------------------------------------------------------------------------------------
Chemical feedstock 11,580 10,847 6.8 2,439 2,317 5.3
------------------------------------------------------------------------------------------------------------------------------
Other refined petroleum products 15,520 13,793 12.5 2,373 2,164 9.7
------------------------------------------------------------------------------------------------------------------------------
In the first half of 2004, the sales revenues of gasoline realised by the
segment were RMB 28.2 billion, up by 8.1% over the first half of 2003 and
accounting for 17.5% of this segment's operating revenues.
In the first half of 2004, the sales revenue of diesel realised by the
segment were RMB 65.6 billion, representing an increase of 36.8 % over the
first half of 2003 and accounting for 40.6% of this segment's operating
revenues.
In the first half of 2004, the sales revenues of chemical feedstock
realised by the segment were RMB 28.2 billion, representing an increase of
12.4 % over the first half of 2003, and accounting for 17.5% of this
segment's operating revenues.
In the first half of 2004, the sales revenues of refined petroleum products
other than gasoline, diesel and chemical feedstock were RMB 36.9 billion,
representing an increase of 23.4% compared with that in the first half of
2003, and accounting for 22.8% of this segment's operating revenues.
In the first half of 2004, the segment's operating expenses were RMB 157
billion, up by 22.2% over the first half of 2003, principally due to the
increase of processing volume of crude oil and the high price of crude oil.
In the first half of 2004, the average cost of crude oil was RMB 2,036 per
tonne, representing an increase by 9.0% compared with that in the first
half of 2003. Refining throughput was 63.26 million tonnes (excluding
amounts processed for third parties), representing an increase of 15.67%
compared with that in the first half of 2003. In the first half of 2004,
the total crude oil costs were RMB 128.8 billion, accounting for 82.0% of
the segment's operating expenses, representing an increase of 26.0%
compared with that in the first half of 2003.
In the first half of 2004, refining margin was USD 4.07 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), up by USD 0.11 per barrel compared with USD 3.96 per
barrel in the first half of 2003, representing an increase of 2.8%.
In the first half of 2004, the unit refining cash operating cost (defined
as operating expenses less the purchasing costs of crude oil and refining
feedstock, depreciation and amortization, taxes other than income tax,
other operating expenses; and divided by the throughput of crude oil and
refining feedstock) was USD 1.98 per barrel, down by USD 0.04 per barrel
compared with USD 2.02 per barrel in the first half of 2003, representing a
decrease of 2.0%.
In the first half of 2004, operating profit of the Refining Segment was RMB
4.3 billion, representing an increase of 60.8% compared with that in the
first half of 2003.
(3) Marketing and Distribution Segment
The business of Marketing and Distribution Segment includes purchasing
refined products from the Refining Segment and third parities, conducting
wholesale and direct sale to domestic users, and retailing, distributing
refined products through the segment's retail and distribution network, as
well as providing services related to refined product sales. In the first
half of 2004, the operating revenues of this segment was RMB 158.2 billion,
up by 41.2% over the first half of 2003, mainly due to the increase of
sales volume and prices of refined products and the rationalization of
marketing structure.
In the first half of 2004, the sales of gasoline and diesel were RMB 137.2
billion, which accounted for 86.7% of the operating revenues of this
segment.
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 2003 and 2004, including detailed information of different
sales channels for gasoline and diesel.
Sales Volumes (thousand tonnes) Average Realised Prices (RMB/tonne)
Six-month periods Six-month periods
ended 30 June Changes ended 30 June Changes
2004 2003 (%) 2004 2003 (%)
Gasoline 13,356 10,875 22.8 3,577 3,314 7.9
----------------------------------------------------------------------------------------------------------------------------
Of which: Retail 8,783 6,581 33.5 3,733 3,493 6.9
-------------------------------------------------------------------------------------------------------------------------
Direct sales 1,454 709 105.2 3,347 3,143 6.5
----------------------------------------------------------------------------------------------------------------
Wholesale 3,119 3,585 (13.0) 3,245 3,021 7.4
----------------------------------------------------------------------------------------------------------------
Diesel 29,428 22,368 31.6 3,039 2,817 7.9
----------------------------------------------------------------------------------------------------------------------------
Of which: Retail 13,999 8,861 58.0 3,164 3,001 5.4
-------------------------------------------------------------------------------------------------------------------------
Direct sales 7,541 3,595 109.8 3,045 2,774 9.8
----------------------------------------------------------------------------------------------------------------
Wholesale 7,888 9,912 (20.4) 2,811 2,667 5.4
----------------------------------------------------------------------------------------------------------------
Kerosene including jet fuel 2,597 2,084 24.6 2,706 2,495 8.5
----------------------------------------------------------------------------------------------------------------------------
Fuel oil 4,973 2,268 119.3 1,715 1,673 2.5
----------------------------------------------------------------------------------------------------------------------------
In the first half of 2004, this segment's operating expenses were RMB 149.7
billion, up by 40.4% compared with that in the first half of 2003, mainly
due to the increase of procurement costs, of which purchasing costs of
gasoline and diesel were RMB 118.1 billion, constituting 78.9% of the
segment's operating expenses, up by 37.0% over that in the first half of
2003. In the first half of 2004, average purchased prices of gasoline and
diesel went up by 0.8% and 9.6%, respectively, compared with that in the
first half of 2003, to RMB 2,806 per tonne and RMB 2,741 per tonne,
respectively. The purchasing volume of gasoline and diesel went up by 22.8%
and 31.6%, respectively, compared with that in the first half of 2003, to
13.36 million tonnes and 29.43 million tonnes, respectively.
In the first half of 2004, 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 amortization, and
divided by the sales volume) was RMB 153.4 per tonne, down by 6.0% compared
with that in the first half of 2003. This decrease was primarily
attributable to diluted expenses caused by increased total sales volume and
decreased expenses as a result of flattened management hierarchy.
In the first half of 2004, the Marketing and Distribution Segment's
operating profit was RMB 8.6 billion, up by 56.9% over the first half of
2003.
(4) Chemicals Segment
The business activities of the Chemicals Segment include purchasing
chemical feedstock from the Refining Segment and third parties, producing,
marketing and distribution of petrochemical products.
In the first half of 2004, operating revenues of the Chemicals Segment were
RMB 58.4 billion, up by 32.5% over the first half of 2003, mainly because
of increased sales volume of major chemical products and an increase in
realised prices.
The sales revenue from the Company's six categories of chemical products
(i.e. basic organic chemicals, synthetic resin, synthetic rubber, synthetic
fiber, synthetic fiber monomer and polymer and chemical fertilizer) totaled
RMB 51.8 billion, accounting for 88.7% of the operating revenues of this
segment, up by 34.3% over the first half of 2003.
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 2003 and 2004.
Sales Volumes (thousand tonnes) Average Realised Prices (RMB/tonne)
Six-month periods Six-month periods
ended 30 June Changes ended 30 June Changes
2004 2003 (%) 2004 2003 (%)
Basic organic chemicals 3,905 3,459 12.9 3,458 2,930 18.0
---------------------------------------------------------------------------------------------------------------------------
Synthetic resin 2,377 2,238 6.2 7,360 5,764 27.7
---------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 299 261 14.6 9,301 8,024 15.9
---------------------------------------------------------------------------------------------------------------------------
Synthetic fiber 679 629 7.9 10,728 9,231 16.2
---------------------------------------------------------------------------------------------------------------------------
Synthetic fiber monomer and
polymer 1,203 1,038 15.9 7,489 6,172 21.3
---------------------------------------------------------------------------------------------------------------------------
Chemical fertilizer 1,314 1,050 25.1 1,326 1,185 12.0
---------------------------------------------------------------------------------------------------------------------------
In the first half of 2004, operating expenses of the Chemicals Segment were
RMB 53.5 billion, up by 23.7% over the first half of 2003. This was
primarily because that in line with the increase in price of the 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 Purchased crude oil, products, and operating supplies and expenses were
up by RMB 6.8 billion, due to the increase in consumption and unit costs
of feedstock and auxiliary materials.
o Provision for the impairment losses on assets was RMB 1.7 billion.
o Selling expenses were up by RMB 200 million, due to the significant
increases in sales volumes.
o Depreciation and amortization were up by RMB 300 million.
o The increase of other business expenses were RMB 600 million.
In the first half of 2004, operating profit for chemical segment was RMB
4.9 billion, representing an increase of RMB 4.1 billion over the first
half of 2003.
(5) Corporate and Others
The business activities of Corporate and Others mainly consist of import
and export business activities of its subsidiaries, research and
development activities of the Company, and managerial activities of its
headquarters.
In the first half of 2004, the operating revenues from corporate and others
were RMB 35.9 billion, up by 20.5% over the first half of 2003. The
increase was largely because China Petrochemical International Company
Limited and its subsidiaries increased their trading volume of crude oil
and refined oil products and proprietary business as well as their
revenues.
In the first half of 2004, the operating expenses were RMB 36.8 billion, up
by 20.8% over the first half of 2003. This increase was largely because the
purchasing costs of subsidiaries increased in line with its increased
revenue.
In the first half of 2004, the operating losses were RMB 900 million,
representing an increase in losses of RMB 200 million compared with that in
the first half of 2003, mainly due to the increase in advertising expenses,
which amounted to RMB 300 million.
3 ASSETS, LIABILITIES, SHAREHOLDERS' FUNDS, AND Cash Flow
(1) Assets, liabilities and shareholders' funds Unit: RMB millions
At 30 June At 31 December
2004 2003 Changes
Current assets 120,102 99,328 20,774
---------------------------------------------------------------------------
Non-current assets 314,835 301,490 13,345
---------------------------------------------------------------------------
Total assets 434,937 400,818 34,119
-------------------------------------------------------------------------------
Current liabilities 137,713 122,005 15,708
---------------------------------------------------------------------------
Non-current liabilities 91,375 85,048 6,327
---------------------------------------------------------------------------
Total liabilities 229,088 207,053 22,035
-------------------------------------------------------------------------------
Minority interests 27,440 25,866 1,574
-------------------------------------------------------------------------------
Shareholders' funds 178,409 167,899 10,510
-------------------------------------------------------------------------------
Share capital 86,702 86,702 --
---------------------------------------------------------------------------
Reserves 91,707 81,197 10,510
---------------------------------------------------------------------------
As at 30 June 2004, the Company's total assets were RMB 434.9 billion, up
by RMB 34.1 billion compared with those at the beginning of the period, of
which:
o Current assets were RMB 120.1 billion, increase by RMB 20.8 billion
compared with those at the beginning of the period. The change was
mainly because in the first half of 2004, the Company's inventories
increased by RMB 14.5 billion, of which, crude oil and other feedstock
increased by RMB 8.4 billion, the inventory of refined oil products and
other finished products increased by RMB 4.5 billion. Accounts
receivable and bills receivable increased by RMB 6.4 billion.
o Non-current assets were RMB 314.8 billion, increase by RMB 13.3 billion
compared with those at the beginning of the period, mainly due to the
increase in the construction in progress, which amounted to RMB 15.7
billion.
As at 30 June 2004, the Company's total liabilities were RMB 229.1 billion,
up by RMB 22.0 billion from that at the beginning of the period, of which:
o Current liabilities were RMB 137.7 billion, up by RMB 15.7 billion
compared with that at the beginning of the period. These increases were
mainly due to the increase of short-term debt and loan from Sinopec
Group, which amounted to RMB 8.3 billion, and the increase of trade
accounts payable and bills payable which amounted to RMB 8.1 billion.
o Non-current liabilities were RMB 91.4 billion, increased by RMB 6.3
billion compared with those at the beginning of the period. This was
mainly due to the issuance of corporte bonds and increase in long-term
loans.
As at 30 June 2004, the Company's shareholder's funds were RMB 178.4
billion, up by RMB 10.5 billion from those at the beginning of the period,
which was due to the increase of the reserves.
(2) Cash flow
In the first half of 2004, cash and cash equivalents decreased by a net
amount of RMB 947 million from RMB 15.2 billion as at 31 December 2003 to
RMB 14.3 billion as at 30 June 2004. The following table lists the major
items in the consolidated cash flow statements of the Company for the first
half of 2004 and the first half of 2003.
Unit: RMB millions
Six-month periods
ended 30 June
Major items of cash flows 2004 2003 Changes
Net cash inflow from operating activities 19,291 28,649 (9,358)
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,659) (21,553) (9,106)
-------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from/(used in) financing activities 10,421 (5,074) 15,495
-------------------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (947) 2,022 (2,969)
-------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities was RMB 19.3 billion.
o Major sources: Profit from ordinary activities before taxation for the
first half of 2004 was RMB 26.0 billion. The operating expenses items
that have no cash flow effect were: depreciation, depletion and
amortisation of RMB 14.8 billion; impairment losses on long-lived assets
and the dry holes costs of RMB 2.3 billion and RMB 800 million,
respectively.
o Major uses: the addition of inventory of crude oil and refined oil
products led to an increase by RMB 14.5 billion in terms of cash
outflow, and increase in other assets results in RMB 800 million of cash
outflow. The increased cash outflow from changes in operating
receivables and payables was RMB 900 million.
In addition, deducting the cash outflow caused by payment for income tax
totaling RMB 8.3 billion, the net cash flow from operating activities was
RMB 19.3 billion.
Net cash used in investing activities was RMB 30.7 billion, which was
mainly used at:
o The Company had cash outflow for capital expenditure of RMB 26.1
billion;
o The Company's jointly controlled entities had cash outflow for capital
expenditure of RMB 3.4 billion;
o Cash outflow for acquisition of investments and associates of RMB 800
million.
Net cash inflow from financing activities was RMB 10.4 billion. This was
mainly from the issuance of corporate bonds by the Company and bank loans.
(3) Contingent liabilities
At 30 June 2004, the amount of guarantees given by the Company in respect
of banking facilities granted to associates amounted to approximately RMB
4.897 billion, the main guarantees, which amounted to RMB 4.68 billion,
were granted to BASF-YPC Co., Ltd.
4 CAPITAL EXPENDITURE
Please refer to the descriptions under "Capital Expenditure" in the section
entitled "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 the section C of the financial statements of the Company
on page 104 to page 105 of this report.
(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 periods ended June 30
2004 2003
RMB millions RMB millions
Income from principal operations
-------------------------------------------------------------------------------------------------------------------------------
Exploration and Production Segment 33,692 32,063
---------------------------------------------------------------------------------------------------------------------------
Refining Segment 158,890 127,599
---------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 157,873 111,861
---------------------------------------------------------------------------------------------------------------------------
Chemicals Segment 55,740 39,144
---------------------------------------------------------------------------------------------------------------------------
Corporate and Others 35,108 28,465
---------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (175,594) (144,290)
---------------------------------------------------------------------------------------------------------------------------
Consolidated income from principal operations 265,709 194,842
-------------------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges
-------------------------------------------------------------------------------------------------------------------------------
Exploration and Production Segment 16,165 16,345
---------------------------------------------------------------------------------------------------------------------------
Refining Segment 151,772 123,141
---------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 138,914 98,271
---------------------------------------------------------------------------------------------------------------------------
Chemical Segment 45,685 35,713
---------------------------------------------------------------------------------------------------------------------------
Corporate and Others 34,769 28,249
---------------------------------------------------------------------------------------------------------------------------
Elimination of the cost of inter-segment sales (173,431) (143,275)
-----------------------------------------------------------------------------------------------------
Consolidated cost of sales, sales taxes and surcharges 213,874 158,444
-------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations
Exploration and Production Segment 15,568 14,784
-------------------------------------------------------------------------------------------------------------------------------
Refining Segment 6,914 4,377
---------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 18,959 13,590
---------------------------------------------------------------------------------------------------------------------------
Chemicals Segment 10,055 3,431
---------------------------------------------------------------------------------------------------------------------------
Corporate and Others 339 216
---------------------------------------------------------------------------------------------------------------------------
Consolidated profit from principal operations 51,835 36,398
-------------------------------------------------------------------------------------------------------------------------------
Consolidated net profit 15,039 9,765
-------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations: In the first half of 2004, the profit
from principal operations realised by the Company was RMB 51.8 billion,
representing an increase of 42.4% over the first half of 2003. This was
mainly due to the increase of the prices of crude oil, refined oil products
and chemical products and the increase of sales volume.
Net profit: In the first half of 2004, the Company's realised net profit
was RMB 15.0 billion, representing an increase of 54.01% over the first
half of 2003. This was mainly due to the increase in profit from principal
operations.
(3) Financial data prepared in accordance with the PRC Accounting Rules and
Regulations:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Total assets 422,925 390,213
---------------------------------------------------------------------------
Long-term liabilities 86,187 80,109
---------------------------------------------------------------------------
Sharehoders' funds 172,276 162,946
Analysis of changes
Total assets: At 30 June 2004, the Company's total assets were RMB 422.9
billion, up by RMB 32.7 billion from that at the beginning of the period,
representing an increase of 8.38%. Of which, current assets were RMB 117.1
billion, up by RMB 20.2 billion over the beginning of the period. The
change was mainly due to the increment of the Company's inventory by RMB
14.1 billion, among others, the increase in crude oil and other feedstock
amounted to RMB 8.4 billion, the inventory of refined oil products and
other products RMB 4.5 billion, accounts receivable and bills receivable
RMB 6.4 billion, which was mainly because sales revenue increased
significantly compared with that in the first half of 2003. Non-current
assets were RMB 305.9 billion, increased by RMB 12.6 billion over the
beginning of the period. This was mainly due to the increase of RMB 16.0
billion in construction in progress.
Long-term liabilities: At 30 June 2004, the Company's long-term liabilities
were RMB 86.2 billion, up by RMB 6.1 billion from that at the beginning of
the period, representing an increase by 7.62%. This was mainly due to the
issuance of corporate bonds and long-term loans.
Shareholders' funds: At 30 June 2004, the shareholders' funds of the
Company were RMB 172.3 billion, up by RMB 9.3 billion from that at the
beginning of the period, representing an increase of 5.71%.
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 the
Section D of the financial statements of the Company on page 106 to page
107 of this report.
SIGNIFICANT EVENTS
1 CORPORATE GOVERNANCE
In strict compliance with the requirements of the domestic and overseas
regulatory authorities, the Company has constantly improved the corporate
governance.
According 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
promulgated by the China Securities Regulatory Commission (CSRC) and the
State-owned Assets Supervision and Administration Commission of the State
Council (SASAC), and the newly amended Listing Rules of the Hong Kong Stock
Exchange, Sinopec Corp. held its Annual General Meeting for the Year 2003
on 18 May 2004 and approved the amendment of Articles of Association and
its schedules including "Rules and Procedures for the Shareholders' General
Meetings" and "Rules and Procedures for the Board of Directors' Meetings".
The above documents were approved by SASAC on 30 July 2004. The Company's
internal control system has been improving continuously.
The directors, supervisors and other members of the senior management
studied newly promulgated laws and regulations. Independent directors
actively participated in Sinopec Corp.'s important decision-making and
manifested the independent opinions on the issues including connected
transactions, appointment and removal of directors, external guarantees,
etc.
The Company actively and positively disclosed information and continued to
strengthen its daily communication with the investors so as to realise a
positive interaction with investors and to further improve company's
transparency.
2 CHANGES OF THE MEMBERS OF THE SECOND SESSION OF THE BOARD OF DIRECTORS
Since Mr. Liu Kegu, the previous director of Sinopec Corp., resigned from
the Board of Directors of Sinopec Corp., the China Development Bank, which
held 10.12% of Sinopec Corp.'s total issued share capital, nominated Mr.
Gao Jian as the candidate of Sinopec Corp.'s director on 29 April 2004. At
the Annual General Meeting for the Year 2003 held on 18 May 2004, Mr. Gao
Jian was elected as the member of the Second Session of the Board of
Directors of Sinopec Corp.
3 DIVIDEND DISTRIBUTION FOR THE YEAR ENDED 31 DECEMBER 2003 AND INTERIM
DIVIDEND DISTRIBUTION PLAN FOR THE PERIOD ENDED 30 JUNE 2004
(1) Dividend Distribution for the year ended 31 December 2003 As approved at
the Annual General Meeting for the Year 2003 of Sinopec Corp., a final
cash dividend of RMB 0.06 (inclusive of tax) per share for the year
ended 31 December 2003 was distributed, with a total amount of RMB 5.202
billion. Shareholders whose names appeared on the register of members of
Sinopec Corp. on 4 June 2004 had already received the final dividend on
28 June 2004.
For the year of 2003, the annual cash dividend of RMB 0.09 (inclusive of
tax) per share was distributed and the total cash dividend amounted to
RMB 7.803 billion.
(2) Interim Dividend Distribution Plan for the six-month period ended 30
June 2004 According to the provision of the Articles of Association of
Sinopec Corp., the Board approved the Interim Dividend Distribution Plan
for the period ended 30 June 2004 at the tenth meeting of the Second
Session of the Board of Directors. An interim cash dividend of RMB 0.04
(inclusive of tax) per share is to be distributed, based on the total
number of shares of 86,702.439 million as at 30 June 2004, which amounts
to a total cash dividend of approximately RMB 3.468 billion.
The interim dividend will be distributed on or before 30 September 2004
(Thursday) to the shareholders whose names appear on the register of
members of Sinopec Corp. on Monday, 20 September 2004.
To be entitled to the interim dividend, holders of H shares shall lodge
their share certificate(s) and transfer materials 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 Monday, 13 September 2004. The register of members
of the H shares of Sinopec Corp. will be closed from Tuesday, 14
September 2004 to Monday, 20 September 2004 (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 dollar. 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 Bank of China during
the calendar week (from 16 August 2004 to 20 August 2004) prior to the
date of declaration of dividends, being Friday, 27 August 2004.
4 THE COMPANY HAS NOT BEEN INVOLVED IN ANY MATERIAL LITIGATIONS AND
ARBITRATIONS IN THE REPORTING PERIOD
5 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 63.841 billion, of which, incoming trade amounted to RMB 33.07
billion, and outgoing trade amounted to RMB 30.771 billion (including
RMB 30.715 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 categorized by business
segments and the details of the connected transactions, including income from
principal operations and cost of principal operations for each business segment
which are extracted from Sinopec Corp.'s financial statements prepared under
the PRC Accounting Rules and Regulations:
Increase/decrease Increase/decrease
of income of cost
from principal of principal
operations operations Increase/decrease
compared to compared to of gross profit
Income from the same the same ratio compared to
Categorised by principal Cost of principal Gross profit period of period of the same period
business segments operations operations ratio* preceding year preceding year of preceding year
RMB millions RMB millions (%) (%) (%) (percentage point)
Exploration and production 33,692 15,574 47.96 5.08 (1.31) 0.09
-----------------------------------------------------------------------------------------------------------------------------------
Refining 158,890 145,154 8.52 24.52 23.05 1.03
-----------------------------------------------------------------------------------------------------------------------------------
Chemicals 55,740 45,398 18.55 42.40 27.76 9.33
-----------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 157,873 138,640 12.18 41.13 41.39 (0.16)
-----------------------------------------------------------------------------------------------------------------------------------
Others 35,108 34,763 0.98 23.34 23.08 0.21
-----------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (175,594) (173,431) N/A N/A N/A N/A
-----------------------------------------------------------------------------------------------------------------------------------
Total 265,709 206,098 22.43 36.37 35.32 0.60
-----------------------------------------------------------------------------------------------------------------------------------
Of which: connected transactions 22,001 19,525 11.25 71.77 80.83 (4.45)
-----------------------------------------------------------------------------------------------------------------------------------
Pricing policy for (1) Government-prescribed prices and government-guided prices are adopted for products or projects
connected transactions if such prices are available;
(2) Where there is no government-prescribed price or government-guided price for products or
projects, 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 principal products sold by the Company
to Sinopec Group was RMB 12.878 billion.
* Gross profit ratio = profit from principal operations/income from principal operations
Provision of fund to and fund provided by connected party Unit: RMB millions
Funds provided by
Connected party Provision of funds to connected party to
connected party the Company
Net occurrence Balance Net occurrence Balance
Sinopec Group and other principal connected parties (2,063) 7,162 (3,723) 10,792
----------------------------------------------------------------------------------------------------------------------------
Total (2,063) 7,162 (3,723) 10,792
----------------------------------------------------------------------------------------------------------------------------
Of which: during the reporting period, the net occurrence of the fund provided
by the Company for Sinopec Group amounted to a negative amount of RMB 2.026
billion, and the balance was RMB 6.868 billion.
(2) Acquisition of shares of Jinzhi Company
Net profits contributed
to the Company during the Whether it constituted
The other party to the period from the purchase to connected transaction
transaction and its assets Date of Transaction day to the end of the (if yes, explain the
acquired or invested purchase price reporting day pricing principle)
-------------------------- -------- ----------- ------------------------- ------------------------
100% of the shares of 30 June 2004 RMB 230 million Nil Yes.
Tianjian Lubricant & Grease
consideration of
Company Limited held by
Sinopec Group
Principle of Pricing: The
the acquisition was
determined by negotiations
between the two parties
according to the valuation
of the Target Shares, the
market conditions,
profitability and
development potential, and
the valuation methods
commonly used
internationally.
--------------------------------------------------------------------------------------------------------------------------------
At the seventh meeting of the Second Session of the Board of Directors of Sinopec Corp. held on 26 March 2004, the Board
reviewed and approved to acquire 100% of the shares of Yanhua Group Tianjin Lubricant & Grease Company Limited (Jinzhi
Company) (which was owned by Sinpec Group Beijing Yanshan Petrochemical Company Limited which is, in turn, a wholly-owned
subsidiary of Sinopec Group) at a consideration for RMB 230 million in cash. The two parties signed the acquisition
agreement. For details, please refer to Sinopec Corp.'s relevant 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
29 March 2004. The acquisition was completed on 30 June 2004.
6 SIGNIFICANT TRUSTEESHIP, CONTRACT AND LEASE
In 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.
7 In this reporting period, Sinopec Corp. did not entrust any other party to
carry out cash assets management for it.
8 SIGNIFICANT GUARANTEE
Date of
occurrence
(date of Amount Whether Whether for
execution of RMB completed a connected
Obligors 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
--------------------------------------------------------------------------------------------------------------------------------
Others N/A 315 Joint and several liability N/A No Yes
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee provided
during the reporting period Nil
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee outstanding* RMB 12,191 million
--------------------------------------------------------------------------------------------------------------------------------
Of which: total outstanding amount of guarantee
provided to connected parties RMB 12,191 million
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee provided by Sinopec Corp.
for its controlling subsidiaries RMB 173 million
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee provided by Sinopec Corp.
not in compliance with the requirements of
(Zheng Jian Fa [2003] No.56)** RMB 184 million
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee as a percentage
of the Company's net assets 7.18%
--------------------------------------------------------------------------------------------------------------------------------
* Pursuant to "Notice on the Preparation of Interim Report of 2004 of the Listed Company" issued by Shanghai Stock Exchange,
"the total amount of guarantee outstanding" and "the total outstanding amount of guarantee provided to connected parties"
do not include the guarantee provided by Sinopec Corp. to its controlling subsidiaries.
** These guarantees were granted to subsidiaries and associates of Sinopec Corp. and were formally approved by the Board of
Directors according to relative procedures. Pursuant to "Notice on Certain Issues Relating to Regulating Fund Transfers
between a Listed Company and Connected Parties and External Guarantees of List Company" (Zheng Jian Fa [2003] No.56)
promulgated by the China Securities Regulatory Commission (CSRC) and the State-owned Assets Supervision and Administration
Commission of the State Council (SASAC) published on 28 March 2003, as the total liabilities to total assets ratios of this
subsidiary and associate were over 70%, the provision of these guarantees is subject to restrictions.
Material Items of Guarantee 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 guarantee with
conditions in both domestic and foreign currency for Shanghai Secco project
loan, and the amount of guarantee was RMB 6.992 billion. For relevant details,
please refer to Sinopec Corp.'s 2001 annual results 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 2
April 2002.
At the twenty-second meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board approved the proposal concerning 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. The Board also approved
the proposal concerning Sinopec Corp.'s provision of guarantee for Yueyang
Sinopec Shell Coal Gasification Co., Ltd., of an amount of RMB 377 million.
On 7 March 2003, Sinopec Corp. signed a "Guarantee Agreement for Completion of
Construction" with domestic and foreign banks, whereby it guaranteed 40% of a
domestic and foreign currencies denominated loan equivalent to around RMB 11.7
billion provided by such banks to BASF-YPC Co., Ltd. for completion of
construction.
The independent directors presented special explanations and independent
opinions on the external guarantees According to the requirements in "Notice on
the Preparation of Interim Report of 2004 of the Listed Company", a listed
company shall, pursuant to the regulations in the "Notice on Certain Issues
Relating to Regulating Fund Transfers between a Listed Company and Connected
Parties and External Guarantees of List Company" ("Zheng Jian Fa [2003] No.
56"), publish in "the significant events section" of the Interim Report of 2004
the independent directors' special explanations and independent opinions on the
accumulative and current external guarantees of the listed company, any
guarantees provided by the listed company which are not in compliance with the
requirements of Zheng Jian Fa [2003] No.56 as well as execution of the above
stipulations. 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 2004
(ended 30 June 2004) are described below:
In the first half of 2004, no new external guarantees was incurred by Sinopec
Corp. The accumulative guarantees were approximately RMB 12.191 billion
(exclusive of the guarantees provided for its controlling subsidiaries amounted
to approximately RMB 173 million), decreased by approximately RMB 43 million
compared with that at the end of 2003, and the total amount of guarantees
accounted for 7.18% of the net assets. The total amount of the guarantees which
is not in compliance with the requirements of Zheng Jian Fa [2003] No. 56 is
about RMB 184 million. Information related to the external guarantees incurred
before 2003 or in 2003 has been disclosed in details in Sinopec Corp.'s 2003
Annual Report.
We present our independent opinions as follows:
(1) Sinopec Corp. has carefully carried out self-inspection with respect to the
accumulative and current external guarantees incurred in the first half of
2004. The result shows that there was no new external guarantees incurred
in the first half year of 2004 and the amount of accumulative guarantees
decreased approximately RMB 43 million compared with that at the end of
2003.
(2) In compliance with the requirements by Zheng Jian Fa [2003] No. 56, Sinopec
Corp. amended in a timely manner the Articles of Association and its
schedules including "Rules and Procedures of the Shareholders' General
Meetings" and "Rules and Procedures of the Board of Directors' Meetings",
thereby playing an active role in strengthening management and controlling
the relevant risks in association with the guarantees.
(3) Sinopec Corp. shall, pursuant to the newly amended Articles of Association
and other related provisions, continue to straighten out existing
guarantees which are not in compliance with Zheng Jian Fa [2003] No. 56, so
as to safeguard the legitimate interests of Sinopec Corp.
9 SUMMARY OF THE USE OF FUNDS BY THE CONTROLLING SHAREHOLDERS AND OTHER CONNECTED PARTIES FOR THE FIRST HALF OF 2004
Unit: RMB millions
Beginning Increase Decrease Ending
Nature of the Name of Account balance of during during balance of
use of funds connected parties Relationship name the period the period the period the period
------------- ----------------- ------------ ------- ---------- ---------- ---------- ----------
Borrowings -- -- -- Nil Nil Nil Nil
--------------------------------------------------------------------------------------------------------------------------------
Entrusted loans -- -- -- Nil Nil Nil Nil
Entrusted investment -- -- -- Nil Nil Nil Nil
--------------------------------------------------------------------------------------------------------------------------------
Issuing commercial
bills without genuine
business transaction -- -- -- Nil Nil Nil Nil
--------------------------------------------------------------------------------------------------------------------------------
Accounts receivable and Sinopec Group Controlling Other 3,111 Nil 109 3,002
other receivables aged Company shareholder receivables/
over one year as at accounts
30 June 2004 receivable
--------------------------------------------------------------------------------------------------------------------------------
Fellow Fellow Other 3,706 1,383 2,407 2,682
subsidiaries subsidiaries receivables/
controlled by controlled by accounts
Sinopec Group controlling receivable
Company shareholder
--------------------------------------------------------------------------------------------------------------------------------
Total 6,817 1,383 2,516 5,684
--------------------------------------------------------------------------------------------------------------------------------
10 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 reorganization 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
Stock Exchange of Hong Kong Limited (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 Reorganization 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 preliminary
prospectus for the issuance of A shares published by Sinopec Corp. in China
Securities, Shanghai Securities, and Securities Times on 22 June 2001.
In the period of the report, Sinopec Corp. did not breach and was not aware
of itself or the above principal shareholders having breached the
commitments.
11 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 products 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 oil products pipeline project and
RMB 650 million to build the Ningbo-Shanghai-Nanjing crude oil pipeline. In
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 products
pipeline project. In this reporting period, RMB 190 million was used for
the southwest refining oil products pipeline project. As at 30 June 2004,
the remaining balance of the proceeds from the issuance of A shares was RMB
1.482 billion.
12 AUDITORS
At the Company's Annual General Meeting for the Year 2003 held on 18 May
2004, KPMG Huazhen and KPMG were reappointed respectively as the domestic
and international auditors of the Company for the year of 2004 and the
Board of Directors was authorized to determine the remunerations for them.
The financial statements for the first half of 2004 have been audited by
KPMG Huazhen and KPMG. The audit fee accrued for the first half of 2004 was
RMB 29 million. The certified public accountants of KPMG Huazhen are Wu Wei
and Song Chenyang.
13 TRANSFER of STATE-OWNED LEGAL PERSON SHARES IN CHINA PHOENIX HELD BY
Sinopec Corp. At the ninth meeting of the Second Session of the Board of
Directors of Sinopec Corp. held on 6 July 2004, the Board reviewed and
approved to transfer 211,423,651 state-owned legal person shares held by
Sinopec Corp. in Sinopec Wuhan Phoenix Company Limited ("China Phoenix")
(representing 40.72% of the total issued share capital of China Phoenix) to
Hubei Qingjiang Water Power Investment Limited ("Qingjiang Investment") and
China Guodian (Group) Corporation ("Guodian Group") . The total
consideration payable was RMB 620,954,100. The Board also approved the
Share Transfer Agreement and its related documents to be entered into
between Sinopec Corp., Qingjiang Investment and Guodian Group. On 6 July
2004, Sinopec Corp. signed the Share Transfer Agreement with Qiangjiang
Investment and Guodian Group. Meanwhile, the Board reviewed and approved
the proposed acquisition by Sinopec Corp. from Qingjiang Investment and
Guodian Group of petrochemical assets (including production facilities,
inventories and corresponding accounts receivables) which they had obtained
by way of assets swap from China Phoenix (the Petrochemical Assets). The
total consideration payable in respect of the acquisition was RMB
548,040,500 in cash. The Board of Directors authorized the Chairman, Mr.
Chen Tonghai, to sign the Asset Acquisition Agreement and related documents
on behalf of Sinopec Corp. after SASAC approved the share transfer and CSRC
approved the Petrochemical Assets swap. For relevant 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 6 July 2004.
14 THE PAYMENT OF INTEREST, REDEMPTION AND DELIST OF MAO LIAN CONVERTIBLE
BONDS FOR 2004 Approved by CSRC (refer to Zheng Jian Fa [1999] No.90),
Sinopec Mao Ming Refining and Chemical Company Limited (Maoming Oil
Refinery) issued RMB 1.5 billion convertible bonds ("Mao Lian Convertible
Bonds") with 5-year term through Shenzhen Stock Exchange on 28 July 1999
and listed on Shenzhen Stock Exchange on 17 August 1999. In accordance with
Provisional Rules on the Management of Convertible Corporate Bonds,
Convertible Corporate Bonds Prospectus prepared by Maoming Oil Refinery,
the resolution of its Board of Directors on 7 July 2003 and the resolution
of its General Meeting of Shareholders on 23 March 2004, trading of Mao
Lian Convertible Bonds had been terminated on 28 July 2004, and on the same
day they were delisted. For those convertible bonds which were not yet sold
to Maoming Oil Refinery, they were redeemed with the redemption price of
RMB 118.5/piece (tax exempted).
15 QINGDAO REFINING PROJECT
On 22 July 2004, the Report of Feasibility study on Qingdao Refining
Project was approved by National Development and Reform Commission
("NDRC"). The capacity of the refinery is expected to be 10 million tonnes
per year. Total investment of the project is estimated to be RMB 9.7
million. Construction of the project is expected to be completed at the
beginning of 2007.
16 THE ESTABLISHMENT OF SINOPEC-SHELL (JIANG SU) PETROLEUM SALES LTD.
On 13 July 2004, Ministry of Commerce approved the establishment of
Sinpec-Shell (Jiangsu) Petroleum Sales Co. Ltd. jointly invested by Sinopec
Corp., Royal Dutch/Shell (China) Holding BV and Shell (China) Ltd. and
granted the joint venture contract and the Articles of Association signed
by each party on 11 May 2004. The total investment amounts to RMB 1.55154
billion and the registered capital amounts to RMB 0.83 billion. The
investment proportion is 60%, 30% and 10% by Sinopec Corp., Royal
Dutch/Shell (China) Holding BV and Shell (China) Ltd. respectively.
17 ISSUANCE OF CORPORATE BONDS
At Sinopec Corp.'s second Extraordinary General Meeting of Shareholders for
Year 2003 held on 15 Oct. 2003, the shareholders considered and approved
"the Proposal Concerning the Issuance of Domestic Corporate Bonds Amounting
to RMB 3.5 billion". On 16 January 2004, Sinopec Corp. obtained the
approval from the NDRC to issue 10-year term domestic corporate bonds of
RMB 3.5 billion. On 23 February 2004, the sixth meeting of Sinopec Corp.'s
Second Session of the Board of Directors and the NDRC determined the coupon
rate of the corporate bonds to be 4.61%. As of the date of 8 March 2004,
the corporate bonds of Sinopec Corp. have been issued mainland
successfully. For relevant 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, respectively on 25 August 2003, 16
October 2003, 30 January 2004, 9 February 2004, and 24 February 2004.
18 COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Board of Directors of Sinopec Corp. is not aware of any information
which reasonably indicates that Sinopec Corp. fails/has failed to,
currently or at any time within the six-month period ended 30 June 2004,
comply with those requirements as set out under the Code of Best Practice
in Appendix 14 to the Listing Rules stipulated by Hong Kong Stock Exchange.
19 APPLICATION OF THE MODEL CODE
In 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 Hong Kong Stock
Exchange.
20 REPURCHASE, SALE AND REDEMPTION OF SHARES
In the first half of 2004, Sinopec Corp. or any of its subsidiaries, has
not repurchased, sold or redeemed any securities of Sinopec Corp.
21 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 at 30 June 2004, none of the
directors, supervisors or senior management of Sinopec Corp. had any
interest in any shares of Sinopec Corp.
As at 30 June 2004, none of the directors, supervisors and senior
management of Sinopec Corp. had any interests or short positions in the
shares, underlying shares of the Sinopec Corp. or any associated
corporations (as defined in Part XV of the Securities and Futures
Ordinance) which was recorded in the register required to be kept under
section 352 of the SFO or otherwise notified to Sinopec Corp. and the
Stock Exchange pursuant to the Model Code for Securities Transactions
by Directors of Listed Companies.
(2) The engagement or dismissal of Directors, Supervisors and Other Members
of the Senior Management
Please refer to item 2 in "Changes of members of the Second Session of
the Board of Directors".
22 OTHER SIGNIFICANT EVENTS
In 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.
Report of the PRC Auditors
[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 2004, 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 period then
ended. 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 2004, and the consolidated results of operations, results of
operations, consolidated cash flows and cash flows for the period then ended.
KPMG Huazhen Certified Public
Accountants
Registered in
the People's Republic of China
8/F, Office Tower E2 Wu Wei
Oriental Plaza Song Chenyang
No.1, East Chang An Ave.
Beijing, The People's Republic of China 27 August 2004
Post Code: 100738
(A) FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS
Consolidated
Balance Sheet
at 30 June 2004
At 30 June At 31 December
Note 2004 2003
RMB millions RMB millions
Assets
------------------------------------------------------------------------------------------------------------------------------
Current assets
Cash at bank and in hand 4 17,028 17,405
------------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 8,009 5,953
------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 13,621 9,284
Other receivables 7 12,166 15,457
------------------------------------------------------------------------------------------------------------------------------
Advance payments 8 7,248 3,904
Inventories 9 58,990 44,915
------------------------------------------------------------------------------------------------------------------------------
Total current assets 117,062 96,918
------------------------------------------------------------------------------------------------------------------------------
Long-term equity investments (Including equity investment
differences of RMB 425 million (2003: RMB 400 million)) 10 12,106 11,150
------------------------------------------------------------------------------------------------------------------------------
Fixed assets
------------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 466,212 461,128
------------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 222,732 213,804
------------------------------------------------------------------------------------------------------------------------------
11 243,480 247,324
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 4,094 1,331
------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 239,386 245,993
------------------------------------------------------------------------------------------------------------------------------
Construction materials 12 1,659 1,226
------------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 44,498 28,513
------------------------------------------------------------------------------------------------------------------------------
Total fixed assets 285,543 275,732
------------------------------------------------------------------------------------------------------------------------------
Intangible assets and other assets
------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 4,526 4,564
------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 573 97
------------------------------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 5,099 4,661
------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 15 3,115 1,752
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total assets 422,925 390,213
------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term loans 16 26,445 20,904
------------------------------------------------------------------------------------------------------------------------------
Bills payable 17 28,531 23,958
------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 18 26,277 22,704
Receipts in advance 19 5,610 5,908
------------------------------------------------------------------------------------------------------------------------------
Wages payable 2,463 1,850
------------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 1,093 1,230
------------------------------------------------------------------------------------------------------------------------------
Taxes payable 20 6,025 6,986
Other payables 21 1,490 1,237
------------------------------------------------------------------------------------------------------------------------------
Other creditors 22 25,334 27,537
------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 23 2,151 303
Current portion of long-term liabilities 24 10,895 8,175
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 136,314 120,792
------------------------------------------------------------------------------------------------------------------------------
Long-term liabilities
------------------------------------------------------------------------------------------------------------------------------
Long-term loans 25 82,038 79,221
------------------------------------------------------------------------------------------------------------------------------
Bonds payable 26 3,500 --
Other long-term payables 27 649 888
------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 86,187 80,109
------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 15 238 289
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 222,739 201,190
------------------------------------------------------------------------------------------------------------------------------
Minority interests 27,910 26,077
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
------------------------------------------------------------------------------------------------------------------------------
Share capital 28 86,702 86,702
------------------------------------------------------------------------------------------------------------------------------
Capital reserve 29 36,852 36,852
------------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public
welfare fund of RMB 7,834 million
(2003: RMB 6,330 million)) 30 22,668 19,660
------------------------------------------------------------------------------------------------------------------------------
Unrecognised investment losses (750) (243)
------------------------------------------------------------------------------------------------------------------------------
Undistributed profits (Including dividend
declared after the balance sheet date of
RMB 3,468 million (2003: RMB 5,202 million)) 38 26,804 19,975
------------------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 172,276 162,946
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' funds 422,925 390,213
------------------------------------------------------------------------------------------------------------------------------
Approved by the Board of Directors on 27 August 2004.
Chen Tonghai Wang Jiming Zhang Jiaren Liu Yun
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
The notes on pages 47 to 75 form part of these financial statements.
Balance Sheet
at 30 June 2004
At 30 June At 31 December
Note 2004 2003
RMB millions RMB millions
Assets
Current assets
Cash at bank and in hand 4 7,328 6,581
------------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 2,070 1,282
------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 9,678 7,080
Other receivables 7 19,418 24,861
------------------------------------------------------------------------------------------------------------------------------
Advance payments 8 5,486 2,990
------------------------------------------------------------------------------------------------------------------------------
Inventories 9 31,864 22,793
------------------------------------------------------------------------------------------------------------------------------
Total current assets 75,844 65,587
------------------------------------------------------------------------------------------------------------------------------
Long-term equity investments (Including equity investment differences of
RMB 415 million (2003: RMB 395 million)) 10 106,673 98,334
------------------------------------------------------------------------------------------------------------------------------
Fixed assets
------------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 226,100 223,015
------------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 95,673 94,138
------------------------------------------------------------------------------------------------------------------------------
11 130,427 128,877
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 2,505 764
------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 127,922 128,113
------------------------------------------------------------------------------------------------------------------------------
Construction materials 12 603 263
Construction in progress 13 27,124 19,858
------------------------------------------------------------------------------------------------------------------------------
Total fixed assets 155,649 148,234
------------------------------------------------------------------------------------------------------------------------------
Intangible assets and other assets
------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 3,701 3,712
------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 154 --
------------------------------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 3,855 3,712
------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 15 2,391 1,510
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total assets 344,412 317,377
------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Short-term loans 16 14,277 9,787
------------------------------------------------------------------------------------------------------------------------------
Bills payable 17 21,630 18,006
------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 18 21,656 18,117
Receipts in advance 19 4,275 4,077
------------------------------------------------------------------------------------------------------------------------------
Wages payable 920 643
------------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 442 583
Taxes payable 20 1,482 2,975
------------------------------------------------------------------------------------------------------------------------------
Other payables 21 470 380
------------------------------------------------------------------------------------------------------------------------------
Other creditors 22 24,080 26,102
------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 23 850 133
------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term liabilities 24 6,268 4,428
Total current liabilities 96,350 85,231
------------------------------------------------------------------------------------------------------------------------------
Long-term liabilities
------------------------------------------------------------------------------------------------------------------------------
Long-term loans 25 71,300 68,723
------------------------------------------------------------------------------------------------------------------------------
Bonds payable 26 3,500 --
Other long-term payables 27 220 461
------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 75,020 69,184
------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 15 16 16
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total liabilities 171,386 154,431
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
------------------------------------------------------------------------------------------------------------------------------
Share capital 28 86,702 86,702
------------------------------------------------------------------------------------------------------------------------------
Capital reserve 29 36,852 36,852
Surplus reserves (Including statutory public
welfare fund of RMB 7,834 million
(2003: RMB 6,330 million)) 30 22,668 19,660
------------------------------------------------------------------------------------------------------------------------------
Undistributed profits (Including dividend
declared after the balance sheet date of
RMB 3,468 million (2003: RMB 5,202 million)) 38 26,804 19,732
------------------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 173,026 162,946
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' funds 344,412 317,377
------------------------------------------------------------------------------------------------------------------------------
Approved by the Board of Directors on 27 August 2004.
Chen Tonghai Wang Jiming Zhang Jiaren Liu Yun
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
The notes on pages 47 to 75 form part of these financial statements.
Consolidated Income Statement and Profit Appropriation Statement for the six-month period ended 30 June 2004
Six-month periods
ended 30 June
Note 2004 2003
RMB millions RMB millions
Income from principal operations 31 265,709 194,842
------------------------------------------------------------------------------------------------------------------------------
Less:Cost of sales 206,098 152,303
Sales taxes and surcharges 32 7,776 6,141
------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 51,835 36,398
------------------------------------------------------------------------------------------------------------------------------
Add:Profit from other operations 616 583
------------------------------------------------------------------------------------------------------------------------------
Less:Selling expenses 8,664 6,692
------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 10,865 9,646
------------------------------------------------------------------------------------------------------------------------------
Financial expenses 33 2,094 2,234
------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 34 2,475 2,784
------------------------------------------------------------------------------------------------------------------------------
Operating profit 28,353 15,625
------------------------------------------------------------------------------------------------------------------------------
Add:Investment income 35 516 341
------------------------------------------------------------------------------------------------------------------------------
Non-operating income 181 88
------------------------------------------------------------------------------------------------------------------------------
Less:Non-operating expenses 36 4,952 768
------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 24,098 15,286
------------------------------------------------------------------------------------------------------------------------------
Less:Taxation 37 7,154 4,762
Minority interests 2,412 759
------------------------------------------------------------------------------------------------------------------------------
Add:Unrecognised investment losses 507 --
------------------------------------------------------------------------------------------------------------------------------
Net profit 15,039 9,765
------------------------------------------------------------------------------------------------------------------------------
Add:Undistributed profits at the beginning of the period 19,975 12,569
------------------------------------------------------------------------------------------------------------------------------
Distributable profits 35,014 22,334
------------------------------------------------------------------------------------------------------------------------------
Less:Transfer to statutory surplus reserve 30 1,504 977
------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 30 1,504 977
------------------------------------------------------------------------------------------------------------------------------
Distributable profits to shareholders 32,006 20,380
------------------------------------------------------------------------------------------------------------------------------
Less:Distribution of ordinary shares' dividends 38 5,202 5,202
------------------------------------------------------------------------------------------------------------------------------
Undistributed profits at the end of the period
(Including dividend distributed after
the balance sheet date of RMB 3,468 million (2003: RMB 2,601 million)) 38 26,804 15,178
------------------------------------------------------------------------------------------------------------------------------
The notes on pages 47 to 75 form part of these financial statements.
Income Statement and Profit Appropriation Statement
for the six-month period ended 30 June 2004
Six-month periods
ended 30 June
Note 2004 2003
RMB millions RMB millions
Income from principal operations 31 183,836 132,267
------------------------------------------------------------------------------------------------------------------------------
Less:Cost of sales 154,678 111,788
------------------------------------------------------------------------------------------------------------------------------
Sales taxes and surcharges 32 4,661 3,855
------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 24,497 16,624
------------------------------------------------------------------------------------------------------------------------------
Add:Profit from other operations 29 77
Less:Selling expenses 5,590 4,448
------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 7,204 6,173
------------------------------------------------------------------------------------------------------------------------------
Financial expenses 33 1,287 1,200
Exploration expenses, including dry holes 34 1,831 1,966
------------------------------------------------------------------------------------------------------------------------------
Operating profit 8,614 2,914
------------------------------------------------------------------------------------------------------------------------------
Add:Investment income 35 16,640 11,949
Non-operating income 112 29
------------------------------------------------------------------------------------------------------------------------------
Less:Non-operating expenses 36 3,552 568
------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 21,814 14,324
------------------------------------------------------------------------------------------------------------------------------
Less:Taxation 37 6,532 4,559
------------------------------------------------------------------------------------------------------------------------------
Net profit 15,282 9,765
------------------------------------------------------------------------------------------------------------------------------
Add:Undistributed profits at the beginning of the period 19,732 12,569
------------------------------------------------------------------------------------------------------------------------------
Distributable profits 35,014 22,334
------------------------------------------------------------------------------------------------------------------------------
Less:Transfer to statutory surplus reserve 30 1,504 977
------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 30 1,504 977
------------------------------------------------------------------------------------------------------------------------------
Distributable profits to shareholders 32,006 20,380
------------------------------------------------------------------------------------------------------------------------------
Less:Distribution of ordinary shares' dividends 38 5,202 5,202
------------------------------------------------------------------------------------------------------------------------------
Undistributed profits at the end of the period
(Including dividend distributed after the
balance sheet date of RMB 3,468 million (2003: RMB 2,601 million)) 38 26,804 15,178
------------------------------------------------------------------------------------------------------------------------------
The notes on pages 47 to 75 form part of these financial statements.
Consolidated Cash Flow Statement
for the six-month period ended 30 June 2004
Six-month periods
ended 30 June
Note 2004 2003
RMB millions RMB millions
Cash flows from operating activities
------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 313,412 233,461
------------------------------------------------------------------------------------------------------------------------------
Rentals received 202 108
------------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 1,105 548
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 314,719 234,117
------------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (246,030) (169,367)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (2,122) (1,786)
------------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (8,282) (6,491)
------------------------------------------------------------------------------------------------------------------------------
Value added tax paid (12,672) (8,189)
Income tax paid (8,347) (5,061)
------------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (8,456) (6,415)
------------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (7,116) (6,826)
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (293,025) (204,135)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities (a) 21,694 29,982
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of investments 31 95
------------------------------------------------------------------------------------------------------------------------------
Dividends received 222 231
------------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 187 279
------------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 800 442
Other cash received relating to investing activities 170 140
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 1,410 1,187
------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets (26,424) (18,872)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets of
jointly controlled entities (3,368) (1,942)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Cash paid for purchases of investments (919) (89)
------------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (1,371) (1,804)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of Sinopec Maoming,
Xi'an Petrochemical and Tahe Petrochemical (1,828) --
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (33,910) (22,707)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash outflow from investing activities (32,500) (21,520)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
------------------------------------------------------------------------------------------------------------------------------
Proceeds from contribution from minority interests 92 12
------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of bonds, net of issuing expenses 3,472 --
Proceeds from borrowings 160,356 102,590
------------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings of jointly controlled entities 1,621 1,132
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 165,541 103,734
------------------------------------------------------------------------------------------------------------------------------
Repayments of borrowings (150,838) (102,642)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, appropriation of profit or interest (4,703) (7,635)
Dividends paid to minority interests by subsidiaries (141) (149)
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (155,682) (110,426)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash inflow / (outflow) from financing activities 9,859 (6,692)
------------------------------------------------------------------------------------------------------------------------------
Effects of foreign exchange rate (1) --
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net (decrease) / increase in cash and cash equivalents (c) (948) 1,770
------------------------------------------------------------------------------------------------------------------------------
The notes on pages 47 to 75 form part of these financial statements.
Notes to the consolidated cash flow statement
for the six-month period ended 30 June 2004
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
(a) Reconciliation of net profit to cash flows from operating activities
------------------------------------------------------------------------------------------------------------------------------
Net profit 15,039 9,765
------------------------------------------------------------------------------------------------------------------------------
Add:Allowance for doubtful accounts 505 677
------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 145 62
------------------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 14,749 13,542
Amortisation of intangible assets 287 153
------------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 2,763 264
------------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 39 40
Net loss on disposal of fixed assets and intangible assets 1,376 234
------------------------------------------------------------------------------------------------------------------------------
Financial expenses 2,094 2,234
------------------------------------------------------------------------------------------------------------------------------
Dry hole costs 764 1,238
------------------------------------------------------------------------------------------------------------------------------
Investment income (403) (308)
------------------------------------------------------------------------------------------------------------------------------
Deferred tax (1,414) (427)
(Increase) / decrease in inventories (14,653) 67
------------------------------------------------------------------------------------------------------------------------------
Increase in operating receivables (6,681) (3,071)
------------------------------------------------------------------------------------------------------------------------------
Increase in operating payables 4,672 4,753
Minority interests 2,412 759
------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities 21,694 29,982
------------------------------------------------------------------------------------------------------------------------------
(b) Financing activities not requiring the use of cash or cash equivalents
------------------------------------------------------------------------------------------------------------------------------
Current portion of convertible bonds 1,500 --
------------------------------------------------------------------------------------------------------------------------------
(c) Net (decrease) / increase in cash and cash equivalents
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period 14,273 19,469
------------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the period 15,221 17,699
------------------------------------------------------------------------------------------------------------------------------
Net (decrease) / increase in cash and cash equivalents (948) 1,770
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
The notes on pages 47 to 75 form part of these financial statements.
Cash Flow Statement
for the six-month period ended 30 June 2004
Six-month periods
ended 30 June
Note 2004 2003
RMB millions RMB millions
Cash flows from operating activities
------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 217,649 158,651
------------------------------------------------------------------------------------------------------------------------------
Rentals received 106 32
------------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 820 150
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 218,575 158,833
------------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (181,662) (124,520)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (1,472) (1,185)
------------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (4,314) (3,599)
------------------------------------------------------------------------------------------------------------------------------
Value added tax paid (7,122) (5,928)
Income tax paid (3,265) (922)
------------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (5,193) (3,970)
------------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (6,924) (5,280)
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (209,952) (145,404)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash inflow from operating activities (a) 8,623 13,429
------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of investments 62 111
------------------------------------------------------------------------------------------------------------------------------
Dividends received 4,908 3,404
------------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 98 142
------------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 422 202
Other cash received relating to investing activities 74 66
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 5,564 3,925
------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets (18,628) (10,880)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for purchases of investments (1,240) (48)
Increase in time deposits with financial institutions (395) (233)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of Sinopec Maoming,
Xi'an Petrochemical and Tahe Petrochemical (1,828) --
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (22,091) (11,161)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash outflow from investing activities (16,527) (7,236)
------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of bonds, net of issuing expenses 3,472 --
------------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings 73,745 67,457
------------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 77,217 67,457
------------------------------------------------------------------------------------------------------------------------------
Repayments of borrowings (64,779) (66,952)
------------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, distribution of profit or interest (3,760) (6,413)
Sub-total of cash outflows (68,539) (73,365)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net cash inflow / (outflow) from financing activities 8,678 (5,908)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (b) 774 285
------------------------------------------------------------------------------------------------------------------------------
The notes on pages 47 to 75 form part of these financial statements.
Notes to the cash flow statement
for the six-month period ended 30 June 2004
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
(a) Reconciliation of net profit to cash flow from operating activities
------------------------------------------------------------------------------------------------------------------------------
Net profit 15,282 9,765
------------------------------------------------------------------------------------------------------------------------------
Add: Allowance for doubtful accounts 613 575
------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 87 32
------------------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 6,201 6,029
Amortisation of intangible assets 173 123
------------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 1,741 264
------------------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 1,207 107
------------------------------------------------------------------------------------------------------------------------------
Financial expenses 1,287 1,200
------------------------------------------------------------------------------------------------------------------------------
Dry hole costs 408 758
Investment income (12,103) (8,181)
------------------------------------------------------------------------------------------------------------------------------
Deferred tax (881) (417)
------------------------------------------------------------------------------------------------------------------------------
Increase in inventories (9,158) (800)
(Increase)/decrease in operating receivables (1,009) 1,572
------------------------------------------------------------------------------------------------------------------------------
Increase in operating payables 4,775 2,402
Net cash inflow from operating activities 8,623 13,429
------------------------------------------------------------------------------------------------------------------------------
(b) Net increase in cash and cash equivalents
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period 7,119 8,492
------------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the period 6,345 8,207
------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 774 285
------------------------------------------------------------------------------------------------------------------------------
The notes on pages 47 to 75 form part of these financial statements.
Notes on the Financial Statements
for the six-month period ended 30 June 2004
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 ("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 2003, the Company acquired the principal assets and
liabilities related to the 380 Kiloton ethylene production and distribution
equipments 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 2003, the Company acquired the entire operating assets and
liabilities of 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").
2 Significant accounting policies
The significant accounting policies adopted by 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 made up to 31
December each year. 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 consolidated income
statement of the Company only includes the results of the subsidiaries
during the period when such control effectively commences until the date
that control effectively ceases. The effect of minority interests on
equity and profit/loss attributable to minority shareholders are
separately shown in the consolidated financial statements.
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 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 includes in the long-term equity
investments.
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.
(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.
2 Significant accounting policies (Continued)
(d) Reporting currency and translation of foreign currencies The Group's
financial statements are prepared in Renminbi. Foreign currency
transactions during the period are translated into Renminbi at exchange
rates quoted by the People's Bank of China ("PBOC 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 arising from foreign
currency loans used to finance the construction of fixed assets before
they are ready for their intended use are capitalised, are recognised as
income or expenses in the income statement.
The results of overseas subsidiaries are translated into Renminbi at the
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. Difference between the cost and
net realisable value of each category of inventories is recognised as
provision for diminution in value of inventories. 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 material, work in progress and finished goods
include direct labour and appropriate proportion of production
overheads, also computed using the weighted average method. Net
realisable value is the estimated selling price in the ordinary course
of business less the estimated costs of completion and the estimated
costs 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
The investment income and long-term equity investments related to the
Group's investments in the associates and the Company's investments in
subsidiaries, jointly controlled entities and associates are accounted
for using the equity method. Equity investment difference, which is the
difference between the initial investment cost and the Company's share
of investors' equity 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 is amortised on a straight-line
basis. The amortisation period is determined according to the investment
period as stipulated in the relevant agreement, or 10 years if the
investment period is not specified in the agreement. The amortisation is
recognised as investment loss in the income statement in the relevant
period.
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. Such shortfall is amortised on a
straight-line basis over 10 years 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)" on 7 April 2003.
An associate is a company in which the Group holds, for long-term
purposes, not less than 20% but not more than 50% of its equity
interests and exercises significant influence in its management. A
jointly controlled entity is an entity over which the Group can exercise
joint control with other venturers.
Long-term investments in entities in which the Group does not hold more
than 20% of their equity interests or those in which the Group holds
more than 20% of their equity interests but does not exercise
significant influence in their management are stated at cost. Investment
income is recognised when an 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.
Long-term equity investments are valued at the lower of the carrying
amount and the recoverable amount. A provision for impairment of loss is
made when the recoverable amount is lower than the carrying amount.
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. Construction in
progress is stated in the balance sheet at cost or revalued amount less
impairment losses. Valuation is carried out in accordance with the
relevant rules and regulations and fixed assets and construction in
progress are adjusted to the revalued amounts accordingly.
All direct and indirect costs related to the purchase or construction of
fixed assets, incurred before the assets are ready for its intended use,
are capitalised as construction in progress. Those costs included
borrowing costs, which include foreign exchange gains or losses 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.
Depreciation is provided to write off the cost of fixed assets over
their estimated useful lives on a straight-line basis, after taking into
account their estimated residual values.
The respective estimated useful lives, residual values and annual
depreciation rates on fixed assets are as follows:
Depreciation Annual
life Residual value depreciation rate
Land and buildings 15-45 years 3%-5% 2.1%-6.5%
-----------------------------------------------------------------------------------------------------
Oil and gas properties 10-14 years 0%-3% 6.9%-10.0%
Plant, machinery, equipment and vehicles 4-18 years 3% 5.4%-24.3%
-----------------------------------------------------------------------------------------------------
Oil depots and storage tanks 8-14 years 3% 6.9%-12.1%
Service stations 25 years 3%-5% 3.8%-3.9%
No depreciation is provided in respect of construction in progress.
(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 impaired and charged to expense.
All other exploration costs, including geological and geophysical costs,
are charged to the income statement in the period 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.
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 aggregated in long-term
deferred expenses and then fully charged to the income statement in the
month operations commence.
(m) Bonds payable
Bonds payable is stated in the balance sheet based on the proceeds
received upon issuance. Interest expenses are calculated using actual
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.
When the outcome of a 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.
When the outcome of the transaction involving the rendering of services
cannot be estimated reliably, revenues recognised only to the extent
that costs incurred are expected to be recoverable.
Interest income is recognised on a time apportioned basis by reference
to the principal outstanding and the rate applicable.
2 Significant accounting policies (Continued)
(o) Income tax
Income tax is the provision for income tax recognised in the income
statement for the period using the tax effect accounting method. It
comprises current and deferred tax.
Deferred tax is provided using the liability method, for timing
differences between accounting profit before tax and the taxable income
arising from the differences in the tax and accounting treatment of
income and expenses or loss.
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 incurred on specific borrowings for the construction of
fixed assets are capitalised into the cost of the fixed assets during
the construction period which brings the assets to 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
expensed as incurred.
(r) Environmental expenditures
Environmental expenditures that relate to current ongoing operations or
to conditions caused by past operations are expensed as incurred.
(s) Research and development costs
Research and development costs are recognised as expenses in the period
in which they are 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 appropriated to shareholders are recognised in the profit
appropriation statement when approved. 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 on balance sheet.
(v) Retirement benefits
The contributions payable under the Group's retirement plans are charged
to the income statement when the contribution becomes due in accordance
with the terms of the plan.
(w) Impairment loss
The carrying amounts of long-lived assets are reviewed by the Group
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 net selling price
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.
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. The provision for impairment loss is reversed
if there has been a change in the estimates used to determine the
recoverable amount by which the impairment loss is reduced. The reversed
amount is recognised as income in the period in the income statement.
(x) Related parties
Parties are considered to be related to the Group if the Group has the
ability, directly or indirectly, to control the party or exercise
significant influence over the party in making financial and operating
decisions, or vice versa, or where the Group and the party are subject
to common control or common significant influence. Related parties may
be individuals or entities.
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 subsidiaries granted with tax concession are set out below:
Name of subsidiaries Preferential tax rate Reasons for granting concession
Sinopec Shanghai Petrochemical Company Limited 15% Among the first batch of joint stock enterprises which
successfully launched their overseas listings
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre Company Limited 15% Among the first batch of joint stock enterprises which
successfully launched their overseas listings
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical Company Limited 15% Hi-tech enterprise
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 15% Hi-tech enterprise
Sinopec Zhongyuan Petroleum Company Limited 15% Hi-tech enterprise
-----------------------------------------------------------------------------------------------------------------------------------
Petro-CyberWorks Information Technology Company Limited 15% Hi-tech enterprise
-----------------------------------------------------------------------------------------------------------------------------------
4 Cash at bank and in hand
The Group
At 30 June 2004 At 31 December 2003
Original Original
currency Exchange RMB currency Exchange RMB
millions rates millions millions rates millions
Cash in hand
------------------------------------------------------------------------------------------------------------------------------
Renminbi 92 101
------------------------------------------------------------------------------------------------------------------------------
Cash at bank
------------------------------------------------------------------------------------------------------------------------------
Renminbi 13,603 11,959
------------------------------------------------------------------------------------------------------------------------------
US Dollars 63 8.2766 522 118 8.2767 973
Hong Kong Dollars 45 1.0609 48 70 1.0657 75
------------------------------------------------------------------------------------------------------------------------------
Japanese Yen 236 0.0764 18 207 0.0773 16
------------------------------------------------------------------------------------------------------------------------------
Euro 1 10.0738 13 2 10.3380 17
------------------------------------------------------------------------------------------------------------------------------
14,296 13,141
------------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
Renminbi 2,678 4,210
------------------------------------------------------------------------------------------------------------------------------
US Dollars 7 8.2766 54 7 8.2767 54
------------------------------------------------------------------------------------------------------------------------------
Total cash at bank and in hand 17,028 17,405
------------------------------------------------------------------------------------------------------------------------------
The Company
At 30 June 2004 At 31 December 2003
Original Original
currency Exchange RMB currency Exchange RMB
millions rates millions millions rates millions
Cash in hand
------------------------------------------------------------------------------------------------------------------------------
Renminbi 25 64
------------------------------------------------------------------------------------------------------------------------------
Cash at bank
------------------------------------------------------------------------------------------------------------------------------
Renminbi 6,459 4,752
------------------------------------------------------------------------------------------------------------------------------
US Dollars 3 8.2766 21 6 8.2767 53
------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollars - 26 1.0657 28
------------------------------------------------------------------------------------------------------------------------------
Japanese Yen - 7 0.0773 1
------------------------------------------------------------------------------------------------------------------------------
6,505 4,898
------------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
Renminbi 769 1,629
------------------------------------------------------------------------------------------------------------------------------
US Dollars 7 8.2766 54 7 8.2767 54
Total cash at bank and in hand 7,328 6,581
------------------------------------------------------------------------------------------------------------------------------
Deposits at related parties represent deposits placed at Sinopec Finance
Company Limited. Deposits interest 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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Subsidiaries - - 4,151 2,920
------------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow subsidiaries 3,600 3,044 1,797 1,623
------------------------------------------------------------------------------------------------------------------------------
Associates 42 81 15 23
------------------------------------------------------------------------------------------------------------------------------
Others 13,418 9,344 6,087 4,813
------------------------------------------------------------------------------------------------------------------------------
17,060 12,469 12,050 9,379
------------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,439 3,185 2,372 2,299
------------------------------------------------------------------------------------------------------------------------------
13,621 9,284 9,678 7,080
------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts are analysed as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 3,185 2,666 2,299 1,867
------------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 271 910 80 763
------------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (15) (46) (5) (20)
------------------------------------------------------------------------------------------------------------------------------
Written off for the period/year (2) (345) (2) (311)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 3,439 3,185 2,372 2,299
------------------------------------------------------------------------------------------------------------------------------
Ageing analysis on trade accounts receivable are as follows:
The Group
At 30 June 2004 At 31 December 2003
Amount Allowance Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 12,699 74.4 62 0.5 8,229 66.0 64 0.8
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 480 2.8 170 35.4 770 6.2 309 40.1
------------------------------------------------------------------------------------------------------------------------------
Between two and three years 530 3.1 321 60.6 497 4.0 246 49.5
------------------------------------------------------------------------------------------------------------------------------
Over three years 3,351 19.7 2,886 86.1 2,973 23.8 2,566 86.3
------------------------------------------------------------------------------------------------------------------------------
17,060 100.0 3,439 12,469 100.0 3,185
------------------------------------------------------------------------------------------------------------------------------
The Company
At 30 June 2004 At 31 December 2003
Amount Allowance Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 9,037 75.0 33 0.4 6,466 68.9 15 0.2
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 336 2.8 107 31.8 373 4.0 157 42.1
------------------------------------------------------------------------------------------------------------------------------
Between two and three years 341 2.8 208 61.0 350 3.7 180 51.4
------------------------------------------------------------------------------------------------------------------------------
Over three years 2,336 19.4 2,024 86.6 2,190 23.4 1,947 88.9
------------------------------------------------------------------------------------------------------------------------------
12,050 100.0 2,372 9,379 100.0 2,299
------------------------------------------------------------------------------------------------------------------------------
6 Trade accounts receivable (Continued)
Major trade accounts receivable of the Group at 30 June 2004 are set out below:
Percentage of
trade accounts
Name of entity Balance receivable
RMB millions %
Maoming Petrochemical Shihua Corporation 291 1.7
------------------------------------------------------------------------------------------------------------------------------
Jinan Petrochemical Plant 142 0.8
Luoyang Petrochemical Plant 130 0.8
------------------------------------------------------------------------------------------------------------------------------
The Second Thermoelectricity Plant of Beijing 124 0.7
------------------------------------------------------------------------------------------------------------------------------
Jiujiang Fertilizer Plant of Agriculture Material-Supply Company of Jiangxi 97 0.6
Major trade accounts receivable of the Group at 31 December 2003 are set
out below:
Percentage of
trade accounts
Name of entity Balance receivable
RMB millions %
Hinchest (HK) Limited 256 2.1
------------------------------------------------------------------------------------------------------------------------------
Trafigura Pte Limited 179 1.4
Pertamina Divisi Perbendaharaa 145 1.2
------------------------------------------------------------------------------------------------------------------------------
Jinan Petrochemical Plant 141 1.1
------------------------------------------------------------------------------------------------------------------------------
COSMO Oil 124 1.0
------------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 39, 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 2004, the Group and the Company had no individually significant trade accounts
receivable been fully or substantially provided for.
During the six-month period ended 30 June 2004, 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 2004 and 31 December 2003, 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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Subsidiaries - - 10,255 12,434
------------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow subsidiaries 6,868 8,894 6,383 8,104
Associates 294 331 294 331
------------------------------------------------------------------------------------------------------------------------------
Others 7,572 8,580 4,982 5,959
------------------------------------------------------------------------------------------------------------------------------
14,734 17,805 21,914 26,828
------------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 2,568 2,348 2,496 1,967
------------------------------------------------------------------------------------------------------------------------------
12,166 15,457 19,418 24,861
------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts are analysed as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2,348 1,872 1,967 1,193
------------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 272 1,098 550 1,258
Written back for the period/year (23) (61) (12) (45)
------------------------------------------------------------------------------------------------------------------------------
Written off for the period/year (29) (561) (9) (439)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 2,568 2,348 2,496 1,967
------------------------------------------------------------------------------------------------------------------------------
7 Other receivables (Continued)
Ageing analysis of other receivables are as follows:
The Group
At 30 June 2004 At 31 December 2003
Amount Allowance Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 6,763 45.9 119 1.8 8,191 46.0 14 0.2
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 1,159 7.9 346 29.9 4,256 23.9 321 7.5
------------------------------------------------------------------------------------------------------------------------------
Between two and three years 3,554 24.1 92 2.6 1,367 7.7 65 4.8
------------------------------------------------------------------------------------------------------------------------------
Over three years 3,258 22.1 2,011 61.7 3,991 22.4 1,948 48.8
------------------------------------------------------------------------------------------------------------------------------
14,734 100.0 2,568 17,805 100.0 2,348
------------------------------------------------------------------------------------------------------------------------------
The Company
At 30 June 2004 At 31 December 2003
Amount Allowance Amount Allowance
RMB RMB RMB RMB
millions % millions % millions % millions %
Within one year 14,364 65.5 537 3.7 18,585 69.3 257 1.4
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 814 3.7 77 9.5 3,777 14.1 21 0.6
Between two and three years 3,503 16.0 79 2.3 1,062 3.9 35 3.3
------------------------------------------------------------------------------------------------------------------------------
Over three years 3,233 14.8 1,803 55.8 3,404 12.7 1,654 48.6
------------------------------------------------------------------------------------------------------------------------------
21,914 100.0 2,496 26,828 100.0 1,967
------------------------------------------------------------------------------------------------------------------------------
Major other receivables of the Group at 30 June 2004 are set out below:
Percentage of
Name of entity Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 3,188 21.6
------------------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 369 2.5
------------------------------------------------------------------------------------------------------------------------------
Qingdao Qirun Petrochemical Co., Ltd. Current Account 154 1.0
------------------------------------------------------------------------------------------------------------------------------
Sinopec Petrochemical Shengli Bureau Current Account 88 0.6
------------------------------------------------------------------------------------------------------------------------------
Shanghai Gaoqiao Petrochemical Company Current Account 64 0.4
------------------------------------------------------------------------------------------------------------------------------
Major other receivables of the Group at 31 December 2003 are set out below:
Percentage of
Name of entity Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 3,201 18.0
------------------------------------------------------------------------------------------------------------------------------
Baling Petrochemical Company Limited Current Account 967 5.4
------------------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 367 2.1
------------------------------------------------------------------------------------------------------------------------------
Changling Petrochemical Company Limited Current Account 300 1.7
------------------------------------------------------------------------------------------------------------------------------
Guangzhou Petrochemical Plant Current Account 141 0.8
------------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 39, 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 2004, the Group and the Company
had no individually significant other receivables been fully or
substantially provided for.
During the six-month period ended 30 June 2004, the Group and the Company
had no individually significant write off of other receivables.
At 30 June 2004 and 31 December 2003, 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 39, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of advance payments.
9 Inventories
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Raw materials 31,947 23,570 15,904 10,200
------------------------------------------------------------------------------------------------------------------------------
Work in progress 8,045 6,805 3,351 3,308
------------------------------------------------------------------------------------------------------------------------------
Finished goods 16,729 12,268 11,961 8,741
------------------------------------------------------------------------------------------------------------------------------
Spare parts and consumables 2,932 2,791 961 770
------------------------------------------------------------------------------------------------------------------------------
59,653 45,434 32,177 23,019
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for diminution in value of inventories 663 519 313 226
------------------------------------------------------------------------------------------------------------------------------
58,990 44,915 31,864 22,793
------------------------------------------------------------------------------------------------------------------------------
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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 519 486 226 224
------------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 184 196 94 72
------------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (39) (82) (7) (42)
------------------------------------------------------------------------------------------------------------------------------
Written off for the period/year (1) (81) - (28)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 663 519 313 226
------------------------------------------------------------------------------------------------------------------------------
The cost of inventories recognised as costs and expenses by the Group and
the Company amounted to RMB 211,880 million (2003: RMB 156,878 million) and
RMB 158,638 million (2003: RMB 114,468 million) for the six-month period
ended 30 June 2004.
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 2004 736 10,285 400 (271) 11,150
------------------------------------------------------------------------------------------------------------------------------
Addition for the period -- 799 115 -- 914
------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 28 306 -- -- 334
------------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received -- (156) -- -- (156)
------------------------------------------------------------------------------------------------------------------------------
Disposal for the period -- (12) -- -- (12)
Amortisation for the period -- -- (90) -- (90)
------------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- (34) (34)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 764 11,222 425 (305) 12,106
------------------------------------------------------------------------------------------------------------------------------
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 2004 43,459 54,640 395 (160) 98,334
------------------------------------------------------------------------------------------------------------------------------
Addition for the period -- 1,127 108 -- 1,235
------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 5,630 6,456 -- -- 12,086
------------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received (1,693) (3,198) -- -- (4,891)
------------------------------------------------------------------------------------------------------------------------------
Disposal for the period -- (8) -- -- (8)
------------------------------------------------------------------------------------------------------------------------------
Amortisation for the period -- -- (88) -- (88)
Movement of provision for impairment losses -- -- -- 5 5
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 47,396 59,017 415 (155) 106,673
------------------------------------------------------------------------------------------------------------------------------
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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 271 184 160 149
------------------------------------------------------------------------------------------------------------------------------
Provision for the period/year 42 131 -- 21
------------------------------------------------------------------------------------------------------------------------------
Written back for the period/year (3) (16) -- --
Written off for the period/year (5) (28) (5) (10)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 305 271 155 160
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 and 31 December 2003, the Group and the Company had no
individually significant provision for impairment losses on long-term
equity investments.
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 investments 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 investment
of the Company represents investment in subsidiaries and associates.
Details of the Company's principal subsidiaries are set out in Note 40.
At 30 June 2004, details of listed stock investment of the Group are as follows:
Shares of
Percentage profits Market
of equity Balance accounted Balance value as
Type of interest Initial at 1 for under at 30 at 30
Type of No. of held by investment January the equity June June
Name of investee enterprise equity shares the cost 2004 method 2004 2004*
interest millions Group ---------------------RMB millions----------------------
Sinopec Shengli Oil
Field Dynamic Co., Ltd. Legal person shares 96 26.33% 223 425 21 446 693
------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Taishan
Petroleum Co., Ltd. Legal person shares1 86 38.68% 124 311 7 318 2,085
------------------------------------------------------------------------------------------------------------------------------
736 28 764
------------------------------------------------------------------------------------------------------------------------------
* Information of market price is sourced from Shenzhen Stock Exchange.
At 30 June 2004, details of principal unlisted stock and other equity investment of the Group are as follows:
Share of
profits/
(losses)
Percentage Balance accounted
Initial of equity at 1 Addition for under Dividends Balance at
investment Investment interest held January for the the equity receivable/ 30 June
Name of investee enterprise cost period by the Group 2004 period method received 2004
RMB millions -------------------RMB millions---------------------------
BASF-YPC Company Limited (i) 3,254 -- 40% 2,814 440 -- -- 3,254
------------------------------------------------------------------------------------------------------------------------------
Sinopec Finance Company Limited 1,205 -- 40% 1,288 -- 50 (60) 1,278
------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical Industry Park
Development Company Limited 608 30 years 38% 652 -- 5 (11) 646
------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum
National Gas Corporation 300 -- 30% 754 -- 153 (90) 817
------------------------------------------------------------------------------------------------------------------------------
China Shipping & Sinopec
Suppliers Company Limited 438 -- 50% 438 -- 16 -- 454
------------------------------------------------------------------------------------------------------------------------------
Sinopec Changjiang
Fuel Company Limited 190 20 years 50% 217 -- 48 (28) 237
------------------------------------------------------------------------------------------------------------------------------
Hunan Highway Industrial
Development Company Limited 110 -- 49% 106 7 2 -- 115
------------------------------------------------------------------------------------------------------------------------------
Shanghai Jinpu Packaging
Material Company Limited 102 30 years 50% 104 -- (6) -- 98
------------------------------------------------------------------------------------------------------------------------------
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.
(i)Due to the fact that the project in the company is still under
construction, there is no income statement for the company. Accordingly,
the Group did not have any share of profit or loss of the company for
the six-month period ended 30 June 2004.
At 30 June 2004, the Group's and the Company's proportion of the total
investments to the net assets was 6.1% (2003: 6.8%) and 61.7% (2003: 60.3%)
respectively.
11 Fixed assets
The Group - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 166,603 104,432 54,212 133,374 2,507 461,128
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 442 200 803 99 9 1,553
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 3,706 3,977 3,143 668 123 11,617
------------------------------------------------------------------------------------------------------------------------------
Disposals (4,029) (1,667) (1,282) (1,102) (6) (8,086)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 166,722 106,942 56,876 133,039 2,633 466,212
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 84,662 50,335 10,000 68,235 572 213,804
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 5,664 3,656 1,264 4,075 90 14,749
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (2,954) (1,360) (728) (775) (4) (5,821)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 87,372 52,631 10,536 71,535 658 222,732
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 79,350 54,311 46,340 61,504 1,975 243,480
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 81,941 54,097 44,212 65,139 1,935 247,324
------------------------------------------------------------------------------------------------------------------------------
The Company - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 59,647 71,414 52,729 37,698 1,527 223,015
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 42 131 426 9 -- 608
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 2,635 3,413 2,879 107 122 9,156
------------------------------------------------------------------------------------------------------------------------------
Disposals (3,423) (1,407) (1,244) (599) (6) (6,679)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 58,901 73,551 54,790 37,215 1,643 226,100
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 27,651 36,047 9,627 20,509 304 94,138
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 1,990 2,049 1,216 918 28 6,201
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (2,482) (1,120) (720) (340) (4) (4,666)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 27,159 36,976 10,123 21,087 328 95,673
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 31,742 36,575 44,667 16,128 1,315 130,427
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 31,996 35,367 43,102 17,189 1,223 128,877
------------------------------------------------------------------------------------------------------------------------------
11 Fixed assets (Continued)
The Group - by asset class
Oil
depots, Plant,
storage machinery,
Oil tanks and equipment
Land and and gas service and
buildings properties stations others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 41,648 147,275 46,067 226,138 461,128
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 85 1 623 844 1,553
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 144 3,667 5,090 2,716 11,617
------------------------------------------------------------------------------------------------------------------------------
Disposals (618) (3,627) (985) (2,856) (8,086)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 41,259 147,316 50,795 226,842 466,212
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 16,978 77,640 8,771 110,415 213,804
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 809 4,882 1,049 8,009 14,749
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (321) (2,657) (491) (2,352) (5,821)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 17,466 79,865 9,329 116,072 222,732
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 23,793 67,451 41,466 110,770 243,480
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 24,670 69,635 37,296 115,723 247,324
------------------------------------------------------------------------------------------------------------------------------
The Company - by asset class
Oil
depots, Plant,
storage machinery,
Oil tanks and equipment
Land and and gas service and
buildings properties stations others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 21,267 51,380 44,703 105,665 223,015
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 43 1 150 414 608
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 89 2,598 4,845 1,624 9,156
------------------------------------------------------------------------------------------------------------------------------
Disposals (462) (3,389) (978) (1,850) (6,679)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 20,937 50,590 48,720 105,853 226,100
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 7,682 25,631 8,505 52,320 94,138
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 483 1,725 997 2,996 6,201
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (250) (2,452) (488) (1,476) (4,666)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 7,915 24,904 9,014 53,840 95,673
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 13,022 25,686 39,706 52,013 130,427
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 13,585 25,749 36,198 53,345 128,877
------------------------------------------------------------------------------------------------------------------------------
The fixed assets and construction in progress of the Group at 30 September
1999 were valued by registered valuers in the PRC. 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, the fixed assets and construction in
progress of Sinopec National Star have been valued by a firm of independent
valuers in the PRC. 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 (Note 1), the fixed assets and construction
in progress of Sinopec Maoming have been revalued by a firm of independent
valuers in PRC. 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 (Note 1), the fixed assets and construction
in progress of the Refining Assets have been revalued by a firm of
independent valuers in PRC. Surplus on revaluation of RMB 82 million has
been incorporated in the Group's financial statements since the year ended
31 December 2003.
At 30 June 2004, the carrying amounts of fixed assets that were pledged by
the Group and the Company were RMB 120 million (2003: RMB 519 million) and
RMB 10 million (2003: RMB 14 million) respectively.
11 Fixed assets (Continued)
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 2004 764 114 -- 453 1,331
------------------------------------------------------------------------------------------------------------------------------
Addition for the period -- -- 623 2,140 2,763
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 764 114 623 2,593 4,094
------------------------------------------------------------------------------------------------------------------------------
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 2004 701 63 -- -- 764
------------------------------------------------------------------------------------------------------------------------------
Addition for the period -- -- 623 1,118 1,741
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 701 63 623 1,118 2,505
------------------------------------------------------------------------------------------------------------------------------
The Group - by asset class
Oil depots, Plant,
storage 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 2004 8 764 -- 559 1,331
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 325 -- 623 1,815 2,763
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 333 764 623 2,374 4,094
------------------------------------------------------------------------------------------------------------------------------
The Company - by asset class
Oil depots, Plant,
storage 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 2004 -- 701 -- 63 764
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 173 -- 623 945 1,741
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 173 701 623 1,008 2,505
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 and 31 December 2003, the Group and the Company had no
individually significant fixed assets which were temporarily idle or
pending for disposal.
At 30 June 2004 and 31 December 2003, the Group and the Company had no
individually significant fully depreciated fixed assets which were still in
use.
12 Construction materials
At 30 June 2004 and 31 December 2003, 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 millions RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 5,535 8,355 7,641 6,581 401 28,513
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 10,394 3,834 7,638 3,047 85 24,998
------------------------------------------------------------------------------------------------------------------------------
Addition for the period
of jointly controlled entities 702 -- -- 2,666 -- 3,368
------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (764) -- -- -- -- (764)
------------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (3,706) (3,977) (3,143) (668) (123) (11,617)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 12,161 8,212 12,136 11,626 363 44,498
------------------------------------------------------------------------------------------------------------------------------
The interest rates per annum at which borrowing costs were capitalised
during the period by the Group ranged from 3.1% to 5.8% (2003: 3.1% to
6.1%).
The Group's proportionate share of the jointly controlled entities'
construction in progress at 30 June 2004 in the exploration and production
and the chemicals segments were RMB 7,180 million (2003: RMB 3,812 million)
and RMB 5,659 million (2003: RMB 2,993 million), respectively.
13 Construction in progress (Continued)
At 30 June 2004, major projects of the Group are as follows:
Accumulated
At Addition Transfer AtPercentage interest
Budgeted 1 January for the out for 30 June of Source of capitalised at 30
Project name amount 2004 period the period 2004 completion funding June 2004
RMB millions RMB millions RMB millions RMB millions RMB millions
RMB millions
The Group
------------------------------------------------------------------------------------------------------------------------------
Ningbo - Shanghai -
Nanjing Pipeline Project 3,261 3,049 743 (2,163) 1,629 50% Bank loans & 14
self-financing
------------------------------------------------------------------------------------------------------------------------------
Ethylene Reconstruction Project II 4,667 1,392 1,217 -- 2,609 56% Bank loans & 61
self-financing
------------------------------------------------------------------------------------------------------------------------------
8,000,000 tonnes per annum 1,397 304 185 -- 489 35% Self-financing 1
Crude Oil Plant Improvement Project
------------------------------------------------------------------------------------------------------------------------------
South-west Fuel Oil Pipeline Project 3,526 787 734 -- 1,521 43% Bank loans & --
self-financing
------------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities
900,000 tonnes Ethylene Project 8,895 2,975 3,231 -- 6,206 70% Bank loans & 179
self-financing
------------------------------------------------------------------------------------------------------------------------------
The Company
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 4,501 7,311 6,380 1,284 382 19,858
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 6,814 2,798 6,313 827 78 16,830
------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (408) -- -- -- -- (408)
------------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (2,635) (3,413) (2,879) (107) (122) (9,156)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 8,272 6,696 9,814 2,004 338 27,124
------------------------------------------------------------------------------------------------------------------------------
The interest rates per annum at which borrowing costs were capitalised for the six-month period ended 30 June 2004 by the
Company ranged from 3.1% to 5.8% (2003: 3.1% to 6.1%).
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 2004 554 1,797 3,163 198 5,712
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 136 13 -- 141 290
------------------------------------------------------------------------------------------------------------------------------
Disposals -- -- -- (50) (50)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 690 1,810 3,163 289 5,952
------------------------------------------------------------------------------------------------------------------------------
Accumulated Amortisation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 90 634 351 73 1,148
------------------------------------------------------------------------------------------------------------------------------
Amortisation charge for the period 52 147 58 30 287
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal -- -- -- (9) (9)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 142 781 409 94 1,426
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 548 1,029 2,754 195 4,526
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 464 1,163 2,812 125 4,564
------------------------------------------------------------------------------------------------------------------------------
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 2004, the remaining amortisation period of the exploration and production
right was 23.5 years.
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 2004 379 1,036 3,163 129 4,707
------------------------------------------------------------------------------------------------------------------------------
Addition for the period 125 6 -- 61 192
------------------------------------------------------------------------------------------------------------------------------
Disposals -- -- -- (37) (37)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 504 1,042 3,163 153 4,862
------------------------------------------------------------------------------------------------------------------------------
Accumulated Amortisation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 48 554 351 42 995
------------------------------------------------------------------------------------------------------------------------------
Amortisation charge for the period 38 60 58 17 173
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal -- -- -- (7) (7)
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 86 614 409 52 1,161
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 418 428 2,754 101 3,701
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 331 482 2,812 87 3,712
------------------------------------------------------------------------------------------------------------------------------
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 2004, the remaining amortisation period of the exploration and production
right was 23.5 years.
15 Deferred tax assets and liabilities
The Group
Deferred tax assets Deferred tax liabilities Net balance
At 30 At 31 At 30 At 31 At 30 At 31
June December June December June December
2004 2003 2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
------------------------------------------------------------------------------------------------------------------------------
Provision primarily for
receivables and inventories 2,243 1,436 -- -- 2,243 1,436
------------------------------------------------------------------------------------------------------------------------------
Non-current
------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 845 272 (238) (289) 607 (17)
------------------------------------------------------------------------------------------------------------------------------
Others 27 44 -- -- 27 44
------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 3,115 1,752 (238) (289) 2,877 1,463
------------------------------------------------------------------------------------------------------------------------------
The Company
Deferred tax assets Deferred tax liabilities Net balance
At 30 At 31 At 30 At 31 At 30 At 31
June December June December June December
2004 2003 2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
------------------------------------------------------------------------------------------------------------------------------
Provision primarily for
receivables and inventories 2,011 1,249 -- -- 2,011 1,249
------------------------------------------------------------------------------------------------------------------------------
Non-current
------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 367 226 (16) (16) 351 210
------------------------------------------------------------------------------------------------------------------------------
Others 13 35 -- -- 13 35
------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 2,391 1,510 (16) (16) 2,375 1,494
------------------------------------------------------------------------------------------------------------------------------
16 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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Short-term bank loans 22,298 16,979 11,055 7,466
------------------------------------------------------------------------------------------------------------------------------
Short-term other loans -- 29 -- 25
------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 4,147 3,896 3,222 2,296
------------------------------------------------------------------------------------------------------------------------------
26,445 20,904 14,277 9,787
------------------------------------------------------------------------------------------------------------------------------
The Group's and the Company's weighted average interest rates per annum on short-term loans were
3.3% (2003: 3.2%) and 3.7% (2003: 3.1%) respectively at 30 June 2004. The majority of the above
loans are unsecured.
At 30 June 2004 and 31 December 2003, the Group and the Company had no
significant overdue short-term loan.
17 Bills payable
Bills payable primarily represented the bank accepted bills for the
purchase of material, goods and products. The repayment term is normally
from three to six months.
18 Trade accounts payable
The ageing analysis of trade accounts payable are as follows:
The Group
At 30 June 2004 At 31 December 2003
RMB millions % RMB millions %
Within 3 months 15,776 60.0 16,311 71.8
------------------------------------------------------------------------------------------------------------------------------
Between 3 and 6 months 8,785 33.5 5,140 22.6
------------------------------------------------------------------------------------------------------------------------------
Over 6 months 1,716 6.5 1,253 5.6
------------------------------------------------------------------------------------------------------------------------------
26,277 100.0 22,704 100.0
------------------------------------------------------------------------------------------------------------------------------
The Company
At 30 June 2004 At 31 December 2003
RMB millions % RMB millions %
Within 3 months 15,947 73.6 15,143 83.6
------------------------------------------------------------------------------------------------------------------------------
Between 3 and 6 months 4,395 20.3 2,130 11.8
------------------------------------------------------------------------------------------------------------------------------
Over 6 months 1,314 6.1 844 4.6
------------------------------------------------------------------------------------------------------------------------------
21,656 100.0 18,117 100.0
------------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 39, 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 2004 and 31 December 2003, the Group and the Company had no individually significant trade accounts payable
aged over three years.
19 Receipts in advance
Except for the balances disclosed in Note 39, 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 2004 and 31 December 2003, the Group and the Company had no
individually significant receipts in advance aged over one year.
20 Taxes payable
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Value added tax 32 459 (998) (389)
------------------------------------------------------------------------------------------------------------------------------
Consumption tax 1,028 1,547 690 1,184
------------------------------------------------------------------------------------------------------------------------------
Income tax 4,146 4,077 1,623 2,012
------------------------------------------------------------------------------------------------------------------------------
Business tax 62 52 30 24
------------------------------------------------------------------------------------------------------------------------------
Other taxes 757 851 137 144
------------------------------------------------------------------------------------------------------------------------------
6,025 6,986 1,482 2,975
------------------------------------------------------------------------------------------------------------------------------
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 periods ended 30 June 2004 and 2003, except for certain
subsidiaries of the Company, which are taxed at a preferential rate of 15%.
21 Other payables
At 30 June 2004 and 31 December 2003, the Group's and the Company's other
payables primarily represented payables for resources compensation fee and
education surcharge.
22 Other creditors
At 30 June 2004 and 31 December 2003, the Group's and the Company's other
creditors primarily represented payables for constructions.
Except for the balances disclosed in Note 39, 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 2004 and 31 December 2003, the Group and the Company had no
individually significant other creditors aged over three years.
23 Accrued expenses
At 30 June 2004 and 31 December 2003, the Group's and the Company's accrued
expenses primarily represented accrued interest expenses, repair and
maintenance expenses, research and development expenses and other
production expenses.
24 Current portion of long-term loans
The Group's and the Company's current portion of long-term loans represent:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Long-term bank loans
------------------------------------------------------------------------------------------------------------------------------
- Renminbi loans 5,621 5,363 3,015 3,437
------------------------------------------------------------------------------------------------------------------------------
- Japanese Yen loans 485 533 485 498
------------------------------------------------------------------------------------------------------------------------------
- US Dollar loans 1,173 623 699 408
------------------------------------------------------------------------------------------------------------------------------
- Hong Kong Dollar loans -- 4 -- --
------------------------------------------------------------------------------------------------------------------------------
7,279 6,523 4,199 4,343
------------------------------------------------------------------------------------------------------------------------------
Long-term other loans
------------------------------------------------------------------------------------------------------------------------------
- Renminbi loans 78 65 34 30
------------------------------------------------------------------------------------------------------------------------------
- US Dollar loans 32 62 29 30
------------------------------------------------------------------------------------------------------------------------------
110 127 63 60
------------------------------------------------------------------------------------------------------------------------------
Bonds payable
------------------------------------------------------------------------------------------------------------------------------
- Renminbi loans (Note 26) 1,500 1,500 -- --
------------------------------------------------------------------------------------------------------------------------------
Long-term loans from
Sinopec Group Company and fellow subsidiaries
------------------------------------------------------------------------------------------------------------------------------
- Renminbi loans 2,000 19 2,000 19
------------------------------------------------------------------------------------------------------------------------------
- US Dollar loans 6 6 6 6
------------------------------------------------------------------------------------------------------------------------------
2,006 25 2,006 25
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total current portion of long-term loans 10,895 8,175 6,268 4,428
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 and 31 December 2003, the Group and the Company had no significant overdue long-term loan.
25 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 2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Third parties debts
------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from interest
free to 6.2% per annum at 30 June 2004 with
maturities through 2013 42,268 38,863 34,219 29,577
------------------------------------------------------------------------------------------------------------------------------
Japanese Yen loans Interest rates ranging from 2.6% to
5.8% per annum at 30 June 2004
with maturities through 2024 2,586 2,909 2,586 2,866
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from
interest free to 7.4% per annum at
30 June 2004 with
maturities through 2031 4,793 4,340 2,832 2,676
------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar loans Floating rate at Hong Kong
Prime Rate plus 0.3% per annum at
30 June 2004 with
maturities through 2006 6 7 -- --
------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 7,279 6,523 4,199 4,343
------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans 42,374 39,596 35,438 30,776
------------------------------------------------------------------------------------------------------------------------------
Other long-term loans
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from interest free
to 5.0% per annum at 30 June 2004
with maturities through 2008 226 359 56 182
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from interest free
to 4.0% per annum at 30 June 2004
with maturities through 2015 124 151 103 118
------------------------------------------------------------------------------------------------------------------------------
Euro loans Interest rates ranging from 1.8% to
8.1% per annum at 31 December 2003
with maturities through 2025. Paid off
as at 30 June 2004 -- 21 -- 21
------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 110 127 63 60
------------------------------------------------------------------------------------------------------------------------------
Other long-term loans 240 404 96 261
------------------------------------------------------------------------------------------------------------------------------
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 2004
with maturities through 2021 1,350 705 -- --
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Floating rate at London Interbank Offer
Rate plus 0.7% per annum at 30 June
2004 with maturities through 2013 1,614 745 -- --
------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans of jointly controlled entities 2,964 1,450 -- --
------------------------------------------------------------------------------------------------------------------------------
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 interest free
to 5.2% per annum at 30 June 2004
with maturities through 2009 2,896 2,223 2,202 2,138
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Floating rate at London Interbank Offer
Rate plus 1.4% per annum at 30 June
2004 with maturities through 2005 9 12 9 12
------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 2,006 25 2,006 25
------------------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company
and fellow subsidiaries 36,460 37,771 35,766 37,686
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
82,038 79,221 71,300 68,723
------------------------------------------------------------------------------------------------------------------------------
25 Long-term loans (Continued)
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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Between one and two years 9,635 13,145 6,195 9,346
------------------------------------------------------------------------------------------------------------------------------
Between two and five years 31,234 26,591 27,118 21,526
------------------------------------------------------------------------------------------------------------------------------
After five years 41,169 39,485 37,987 37,851
------------------------------------------------------------------------------------------------------------------------------
Total long-term loans 82,038 79,221 71,300 68,723
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004, the Group and the Company had secured loans from third parties amounting to RMB 55 million (2003: RMB 103
million) and RMB 2 million (2003: RMB 9 million) respectively. All long-term other loans are unsecured.
Except for the balances disclosed in Note 39, 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.
26 Bonds payable
The Group The Company
At 30 June At 31 December At 30 June At 31 December
Interest rate and final maturity 2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Corporate bonds Fixed rate at 4.6% per annum,
redeemable in February 2014 (i) 3,500 -- 3,500 --
--------------------------------------------------------------------------------------------------------------------------------
Convertible bonds Fixed rate at 2.5% per annum
at 30 June 2004 and redeemable
in July 2004 (ii) 1,500 1,500 -- --
--------------------------------------------------------------------------------------------------------------------------------
Less: current portion 1,500 1,500 -- --
--------------------------------------------------------------------------------------------------------------------------------
3,500 -- 3,500 --
--------------------------------------------------------------------------------------------------------------------------------
(i) 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 4.6% per annum and annual interest payment schedule. Interest payable
for the current period was included in accrued expenses.
(ii) Convertible bonds amounting to RMB 1,500 million were issued by a subsidiary of the Group on 28 July 1999. Pursuant to
the subsidiary's shareholders' approval at the Annual General Meeting held on 23 March 2004, the subsidiary decided not to
undergo an initial public offering. The bonds were repaid in July 2004.
27 Other long-term payables
Other long-term payables primarily represent provision for future
dismantlement of oil and gas properties, the costs arising from
environmental restoration and specific research and development projects.
28 Share capital
The Group and the Company
At 30 June At 31 December
2004 2003
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 an 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.
According to Sinopec Group Company's debt-to-equity arrangement, some of
the Company's shares held by Sinopec Group Company were transferred to the
following bank and asset management companies. Pursuant to the notice Cai
Qi [2000] No. 261 issued by MOF, the Company, having made its global offer
of H shares, adjusted the price of shares to be transferred to the
following entities, based on the issue price of the H shares, in connection
with the debt-to-equity arrangement and the proportion of its shares. As a
result, shares of the Company held by the State Development Bank of China,
China Cinda Asset Management Corporation, China Orient Asset Management
Corporation, China Huarong Asset Management Corporation are 8,775,570,000
shares, 8,720,650,000 shares, 1,296,410,000 shares and 586,760,000 shares
respectively. Shares of the Company held by Sinopec Group Company was
adjusted to 47,742,600,000 shares accordingly. Such arrangement was
approved by MOF in Cai Qi [2000] No. 754 "Comments on the issues relating
to the management of the equity in China Petroleum and Chemical
Corporation".
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.
29 Capital reserve
The movements in capital reserve are as follows:
The Group and the Company
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Balance at 1 January 36,852 36,588
------------------------------------------------------------------------------------------------------------------------------
Government grants (i) -- 35
------------------------------------------------------------------------------------------------------------------------------
Premium from issuance of shares by a subsidiary (ii) -- 147
------------------------------------------------------------------------------------------------------------------------------
Gain from debt restructuring by a subsidiary (iii) -- 82
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June/31 December 36,852 36,852
------------------------------------------------------------------------------------------------------------------------------
(i) For the year ended 31 December 2003, the Group received subsidy on investments amounted to RMB 35 million, pursuant to Guo
Jing Mao Tou Zi [2002] No. 847 "Notice on the State's Key Technology Reform on Project Fund Plan regarding the Third
Batch of State Debt's Special Fund in 2002" issued by MOF. This fund is used for technology improvement projects.
(ii) For the year ended 31 December 2003, a subsidiary of the Group issued additional shares in the PRC. Independent
investors used cash to subscribe for shares. The increase in the Group's consolidated net assets due to the share
premium was reflected as an increase of capital reserve.
(iii) During the year ended 31 December 2003, a subsidiary of the Group carried out debt restructuring with a bank and obtained
a waiver of interest payable. The gain in connection with the debt restructuring was reflected as an increase of
capital reserve.
30 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 2003 4,429 4,429 7,000 15,858
------------------------------------------------------------------------------------------------------------------------------
Appropriation of net profit 1,901 1,901 -- 3,802
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 6,330 6,330 7,000 19,660
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 6,330 6,330 7,000 19,660
------------------------------------------------------------------------------------------------------------------------------
Appropriation of net profit 1,504 1,504 -- 3,008
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 7,834 7,834 7,000 22,668
------------------------------------------------------------------------------------------------------------------------------
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 transfer to the statutory surplus reserve, a transfer to
discretionary surplus reserve can be made upon the passing of a
resolution at the shareholders' meeting.
31 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 44.
For the six-month period ended 30 June 2004, revenue from sales to top five
customers amounted to RMB 27,300 million (2003: RMB 26,700 million) which
accounted for 10% (2003: 14%) of income from principal operations of the
Group.
32 Sales taxes and surcharges
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Consumption tax 5,671 4,511 3,683 3,075
------------------------------------------------------------------------------------------------------------------------------
City construction tax 1,214 913 579 465
------------------------------------------------------------------------------------------------------------------------------
Education surcharge 591 433 289 223
------------------------------------------------------------------------------------------------------------------------------
Resources tax 221 221 55 54
------------------------------------------------------------------------------------------------------------------------------
Business tax 79 63 55 38
------------------------------------------------------------------------------------------------------------------------------
7,776 6,141 4,661 3,855
------------------------------------------------------------------------------------------------------------------------------
33 Financial expenses
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Interest expenses incurred 2,379 2,482 1,447 1,323
------------------------------------------------------------------------------------------------------------------------------
Less: Capitalised interest expenses (102) (130) (65) (77)
------------------------------------------------------------------------------------------------------------------------------
Net interest expenses 2,277 2,352 1,382 1,246
------------------------------------------------------------------------------------------------------------------------------
Interest income (169) (142) (74) (66)
------------------------------------------------------------------------------------------------------------------------------
Foreign exchange losses 29 38 12 22
------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains (43) (14) (33) (2)
------------------------------------------------------------------------------------------------------------------------------
2,094 2,234 1,287 1,200
------------------------------------------------------------------------------------------------------------------------------
34 Exploration expenses
Exploration expenses include geological and geophysical expenses and
written off of dry hole costs.
35 Investment income
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Investment income accounted for under the cost method 30 28 17 54
------------------------------------------------------------------------------------------------------------------------------
Investment income accounted for under the equity method 486 313 16,623 11,895
------------------------------------------------------------------------------------------------------------------------------
516 341 16,640 11,949
------------------------------------------------------------------------------------------------------------------------------
36 Non-operating expenses
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Loss on disposal of fixed assets 1,405 246 1,230 110
------------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 2,763 264 1,741 264
------------------------------------------------------------------------------------------------------------------------------
Donations 49 56 35 33
------------------------------------------------------------------------------------------------------------------------------
Fines, penalties and compensation 33 20 31 20
------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses (i) 412 -- 325 --
------------------------------------------------------------------------------------------------------------------------------
Others 290 182 190 141
------------------------------------------------------------------------------------------------------------------------------
4,952 768 3,552 568
------------------------------------------------------------------------------------------------------------------------------
(i) In accordance with the Group's voluntary employee reduction plan, the Group recorded employee reduction expenses of RMB
412 million during the period ended 30 June 2004 (2003: RMB nil) in respect of the voluntary termination totally
approximately 8,000 employees.
37 Income Tax
The Group The Company
Six-month periods Six-month periods
ended 30 June ended 30 June
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Provision for PRC income tax 8,568 5,189 7,413 4,976
------------------------------------------------------------------------------------------------------------------------------
Deferred taxation (1,414) (427) (881) (417)
------------------------------------------------------------------------------------------------------------------------------
7,154 4,762 6,532 4,559
------------------------------------------------------------------------------------------------------------------------------
38 Dividends
(a) Dividends of ordinary shares proposed after the balance sheet date
Pursuant to the shareholders' approval at the Annual General Meeting on
18 May 2004, the Board of Directors was authorised to declare the
interim dividends for the year ending 31 December 2004. According to the
resolution passed at the Directors' meeting on 27 August 2004, an
interim dividend of RMB 0.04 (2003: RMB 0.03) per share totalling RMB
3,468 million (2003: RMB 2,601 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 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.
Pursuant to the shareholders' approval at the Annual General Meeting on
10 June 2003, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2002 was declared and
paid on 30 June 2003.
39 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 ("Sinopec Group
Company")
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 2004.
As at 30 June 2004, Sinopec Group Company held 55.1% 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 Zhongyuan Petrochemical Company Sichuan Vinylon Company
Nanjing Petrochemical Company Qingjiang Petrochemical Limited Liability
Company Baoding Petrochemical Company Luoyang Petrochemical
Polypropylene Industrial Company Baling Petrochemical Yueyang
Petrochemical Company Tianjin United Chemical Company Zhanjiang Dongxing
Petroleum Corporation 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 2004 2003
RMB millions RMB millions
Sales of goods (i) 30,715 19,861
------------------------------------------------------------------------------------------------------------------------------
Purchases (ii) 18,253 15,170
------------------------------------------------------------------------------------------------------------------------------
Transportation and storage (iii) 979 789
------------------------------------------------------------------------------------------------------------------------------
Exploration and development services (iv) 7,101 6,849
Production related services (v) 3,831 3,921
------------------------------------------------------------------------------------------------------------------------------
Ancillary and social services (vi) 906 940
------------------------------------------------------------------------------------------------------------------------------
Operating lease charges (vii) 1,646 1,424
------------------------------------------------------------------------------------------------------------------------------
Agency commission income (viii) 31 22
------------------------------------------------------------------------------------------------------------------------------
Intellectual property license fee paid (ix) 5 5
------------------------------------------------------------------------------------------------------------------------------
Interest received (x) 25 34
------------------------------------------------------------------------------------------------------------------------------
Interest paid (xi) 349 318
------------------------------------------------------------------------------------------------------------------------------
Net deposits (withdrawn from) / placed with related parties (xii) (1,532) 1,063
------------------------------------------------------------------------------------------------------------------------------
Net loans obtained from related parties (xiii) 921 2,323
------------------------------------------------------------------------------------------------------------------------------
The amounts set out in the table above in respect of the periods ended
30 June 2004 and 2003 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 2004 and 31 December 2003, 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.
39 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 material 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 of crude oil 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 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 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. The balances of
deposits at 30 June 2004 and 31 December 2003 were RMB 2,732 million
and RMB 4,264 million respectively.
(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.
(xiii) The Group obtained/repaid loans from/to Sinopec Group Company and
Sinopec Finance Company Limited. The calculated periodic balance of
average loan for the six-month period ended 30 June 2004, which is
based on monthly average balances, was RMB 41,884 million (2003: RMB
42,051 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 2004. The
terms of these agreements are summarised as follows:
(a) The Company entered into an Agreement for Mutual Provision of Products
and Ancillary Services ("Mutual Provision Agreement") with Sinopec
Group Company 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 agrees 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 an 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 2,447 million and RMB 482 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.
39 Related parties and related party transactions (Continued)
(f) The Company has entered into a service station franchise agreement with
Sinopec Group Company under which its service station and retail stores
would exclusively sell the refined products supplied by the Group.
(d) Balances with related parties
The balances with the Group's related parties at 30 June 2004 and 31 December 2003 are as follows:
The ultimate holding company Other related companies
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Trade accounts receivable -- -- 3,642 3,125
--------------------------------------------------------------------------------------------------------------------------------
Advance payments -- -- 1,338 463
--------------------------------------------------------------------------------------------------------------------------------
Other receivables 3,188 3,201 3,974 6,024
--------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable -- -- 2,095 1,028
--------------------------------------------------------------------------------------------------------------------------------
Receipts in advance -- -- 981 539
--------------------------------------------------------------------------------------------------------------------------------
Other creditors 5,934 4,588 4,858 9,927
--------------------------------------------------------------------------------------------------------------------------------
Short-term loans -- -- 4,147 3,896
--------------------------------------------------------------------------------------------------------------------------------
Long-term loans (including current portion) (Note) -- -- 38,466 37,796
--------------------------------------------------------------------------------------------------------------------------------
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.
40 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 2004. Except for Sinopec Kantons Holdings
Limited, which is incorporated in Bermuda, the companies below are
incorporated in the PRC. The following list contains only 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 70.01 Manufacturing of chemical products
Company Limited
------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited 1,700 100.00 Marketing and distribution of refined petroleum
products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company Limited 30,028 100.00 Exploration and production of crude oil and
natural gas
------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical Company Limited 2,253 (i) 50.00 Manufacturing of plastics, intermediate
petrochemical products and petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Maoming Refining and 1,064 and 99.81 Manufacturing of intermediate petrochemical
Chemical Company Limited 1,500 products and petroleum products
convertible bonds
------------------------------------------------------------------------------------------------------------------------------
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 plastics,
Company Limited 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 (i) 46.25 Marketing and distribution of refined petroleum
Group Company Limited products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix Company Limited 519 (i) 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 (i) 42.00 Production and sale of polyester chips and
Fibre Company Limited 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
------------------------------------------------------------------------------------------------------------------------------
(i) 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.
41 Principal jointly controlled entities
At 30 June 2004, the Group's principal interests in jointly controlled entities are as follows:
Percentage of
Name of jointly Registered capital/ equity interest
controlled entities paid-up capitalheld by the Group Principal activities
%
Shanghai Secco Petrochemical Registered capital 50.00 Manufacturing and distribution of petrochemical
Company Limited USD 901,440,964 products
------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Registered capital 50.00 Manufacturing and distribution of industrial gas
Gasification Company Limited USD 45,588,700
------------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western -- 43.00 Exploration and production of crude
Area Chenda in Bohai Bay oil and natural gas
------------------------------------------------------------------------------------------------------------------------------
42 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 2004, 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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 3,247 3,276 3,150 3,175
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 3,217 3,229 3,128 3,133
------------------------------------------------------------------------------------------------------------------------------
Between two and three years 3,204 3,200 3,114 3,114
------------------------------------------------------------------------------------------------------------------------------
Between three and four years 3,186 3,175 3,100 3,095
------------------------------------------------------------------------------------------------------------------------------
Between four and five years 3,164 3,162 3,084 3,087
------------------------------------------------------------------------------------------------------------------------------
After five years 98,565 99,619 96,933 98,253
------------------------------------------------------------------------------------------------------------------------------
114,583 115,661 112,509 113,857
------------------------------------------------------------------------------------------------------------------------------
Capital commitments
At 30 June 2004, the capital commitments are as follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
The Group
------------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 26,750 48,107
------------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 41,835 47,716
------------------------------------------------------------------------------------------------------------------------------
68,585 95,823
------------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities
------------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 4,966 6,923
------------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 1,752 3,432
------------------------------------------------------------------------------------------------------------------------------
6,718 10,355
------------------------------------------------------------------------------------------------------------------------------
The Company
------------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 19,353 32,210
------------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 30,386 36,029
------------------------------------------------------------------------------------------------------------------------------
49,739 68,239
------------------------------------------------------------------------------------------------------------------------------
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.
42 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 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
101 million for the six-month period ended 30 June 2004 (2003: RMB 17
million).
Estimated future annual payments are as follows:
The Group The Company
At 30 June At 31 December At 30 June At 31 December
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 78 87 51 69
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 98 117 68 88
------------------------------------------------------------------------------------------------------------------------------
Between two and three years 82 87 45 54
------------------------------------------------------------------------------------------------------------------------------
Between three and four years 65 72 49 42
------------------------------------------------------------------------------------------------------------------------------
Between four and five years 73 65 61 52
------------------------------------------------------------------------------------------------------------------------------
After five years 313 361 173 212
------------------------------------------------------------------------------------------------------------------------------
709 789 447 517
------------------------------------------------------------------------------------------------------------------------------
43 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 2004, 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
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 173 173
------------------------------------------------------------------------------------------------------------------------------
Associates and jointly controlled entities 4,897 4,955 12,074 12,084
------------------------------------------------------------------------------------------------------------------------------
4,897 4,955 12,247 12,257
------------------------------------------------------------------------------------------------------------------------------
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 2004 and 31 December 2003, it is not probable that
the Company will be required to make payments under the guarantees. Thus
no liability has been accrued for a loss related to the Company's
obligation under the guarantees arrangement.
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 113 million for the six-month
period ended 30 June 2004 (2003: RMB 85 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 is of the opinion that any resulting
liabilities will not have a material adverse effect on the financial
position or operating results of the Group.
44 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 Company 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 Company 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 operating segments is as follows:
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Income from principal operations
------------------------------------------------------------------------------------------------------------------------------
Exploration and production
------------------------------------------------------------------------------------------------------------------------------
External sales 7,376 7,083
------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 26,316 24,980
------------------------------------------------------------------------------------------------------------------------------
33,692 32,063
------------------------------------------------------------------------------------------------------------------------------
Refining
------------------------------------------------------------------------------------------------------------------------------
External sales 31,986 26,909
------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 126,904 100,690
------------------------------------------------------------------------------------------------------------------------------
158,890 127,599
------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution
------------------------------------------------------------------------------------------------------------------------------
External sales 156,539 110,231
------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 1,334 1,630
------------------------------------------------------------------------------------------------------------------------------
157,873 111,861
------------------------------------------------------------------------------------------------------------------------------
Chemicals
------------------------------------------------------------------------------------------------------------------------------
External sales 50,946 35,554
------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 4,794 3,590
------------------------------------------------------------------------------------------------------------------------------
55,740 39,144
------------------------------------------------------------------------------------------------------------------------------
Others
------------------------------------------------------------------------------------------------------------------------------
External sales 18,862 15,065
------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 16,246 13,400
------------------------------------------------------------------------------------------------------------------------------
35,108 28,465
------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (175,594) (144,290)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Income from principal operations 265,709 194,842
------------------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges
------------------------------------------------------------------------------------------------------------------------------
Exploration and production 16,165 16,345
------------------------------------------------------------------------------------------------------------------------------
Refining 151,772 123,141
------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 138,914 98,271
------------------------------------------------------------------------------------------------------------------------------
Chemicals 45,685 35,713
------------------------------------------------------------------------------------------------------------------------------
Others 34,769 28,249
------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment cost of sales (173,431) (143,275)
------------------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges 213,874 158,444
------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations
------------------------------------------------------------------------------------------------------------------------------
Exploration and production 15,568 14,784
------------------------------------------------------------------------------------------------------------------------------
Refining 6,914 4,377
------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 18,959 13,590
------------------------------------------------------------------------------------------------------------------------------
Chemicals 10,055 3,431
------------------------------------------------------------------------------------------------------------------------------
Others 339 216
------------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 51,835 36,398
------------------------------------------------------------------------------------------------------------------------------
45 Post balance sheet events
Except for disclosed in Note 38, the Board declared interim dividends for
the year ending 2004 on 27 August 2004, the Group and the Company had no
other post balance sheet event at 30 June 2004.
46 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 gain and loss of the Group are as
follows:
Six-month period
ended 30 June
2004
RMB millions
Items under non-operating profits/losses for the period:
------------------------------------------------------------------------------------------------------------------------------
Loss on disposal of fixed assets 1,405
------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses 412
------------------------------------------------------------------------------------------------------------------------------
Donations 49
------------------------------------------------------------------------------------------------------------------------------
Loss on disposal of long-term equity investments 2
------------------------------------------------------------------------------------------------------------------------------
Other non-operating income and expenses, excluding impairment losses on long-lived assets 142
------------------------------------------------------------------------------------------------------------------------------
Written back of provisions for impairment losses in previous years (80)
------------------------------------------------------------------------------------------------------------------------------
Tax effect (637)
------------------------------------------------------------------------------------------------------------------------------
Total 1,293
------------------------------------------------------------------------------------------------------------------------------
47 Other significant events
The Group had no any other significant event required to disclose as at the
approval date of these financial statements.
Report of the International Auditors
[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 77 to 103 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 Statements of Auditing Standards
issued by the Hong Kong Society of 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 2004 and of the Group's profit
and cash flows for the six-month period ended 30 June 2004 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, 27 August 2004
(B) INTERIM FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL
REPORTING STANDARDS ("IFRS")
CONSOLIDATED INCOME STATEMENT for the
six-month period ended 30 June 2004
(Amounts in millions except per share data)
Six-month periods
ended 30 June
Note 2004 2003
RMB RMB
Turnover and other operating revenues
-------------------------------------------------------------------------------------------------------------------------------
Turnover 3 265,709 197,614
-------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 4 9,733 7,721
-------------------------------------------------------------------------------------------------------------------------------
275,442 205,335
-------------------------------------------------------------------------------------------------------------------------------
Operating expenses
-------------------------------------------------------------------------------------------------------------------------------
Purchased crude oil, products and operating supplies and expenses (197,123) (144,365)
-------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 5 (14,212) (11,428)
-------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation (14,773) (12,947)
-------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes (2,475) (2,784)
-------------------------------------------------------------------------------------------------------------------------------
Personnel expenses 6 (8,346) (8,338)
-------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses 7 (412) --
-------------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax 8 (7,776) (6,190)
-------------------------------------------------------------------------------------------------------------------------------
Other operating expenses, net 9 (2,986) (714)
-------------------------------------------------------------------------------------------------------------------------------
Total operating expenses (248,103) (186,766)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Operating profit 27,339 18,569
-------------------------------------------------------------------------------------------------------------------------------
Finance costs
-------------------------------------------------------------------------------------------------------------------------------
Interest expense 10 (1,986) (2,194)
-------------------------------------------------------------------------------------------------------------------------------
Interest income 169 145
-------------------------------------------------------------------------------------------------------------------------------
Foreign exchange losses (29) (39)
-------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains 43 14
-------------------------------------------------------------------------------------------------------------------------------
Net finance costs (1,803) (2,074)
-------------------------------------------------------------------------------------------------------------------------------
Investment income/(losses) 30 (2)
-------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates 451 272
-------------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities before taxation 26,017 16,765
-------------------------------------------------------------------------------------------------------------------------------
Taxation 11 (7,713) (5,264)
-------------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities after taxation 18,304 11,501
-------------------------------------------------------------------------------------------------------------------------------
Minority interests (2,153) (774)
-------------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders 16,151 10,727
-------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share 12 0.19 0.12
-------------------------------------------------------------------------------------------------------------------------------
Dividends attributable to the period:
-------------------------------------------------------------------------------------------------------------------------------
Interim dividend declared after the balance sheet date 13 3,468 2,601
-------------------------------------------------------------------------------------------------------------------------------
The notes on pages 82 to 103 form part of these interim financial statements.
CONSOLIDATED Balance sheet
at 30 June 2004
(Amounts in millions)
At 30 June At 31 December
Note 2004 2003
RMB RMB
Non-current assets
-------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 14 251,704 256,748
-------------------------------------------------------------------------------------------------------------------------------
Construction in progress 15 44,659 28,973
-------------------------------------------------------------------------------------------------------------------------------
Investments 16 2,711 2,582
-------------------------------------------------------------------------------------------------------------------------------
Interests in associates 17 8,849 8,081
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 22 3,506 2,144
-------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 794 810
-------------------------------------------------------------------------------------------------------------------------------
Other assets 2,612 2,152
-------------------------------------------------------------------------------------------------------------------------------
Total non-current assets 314,835 301,490
-------------------------------------------------------------------------------------------------------------------------------
Current assets
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 14,273 15,221
-------------------------------------------------------------------------------------------------------------------------------
Time deposits with financial institutions 2,755 2,184
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 19 13,621 9,284
-------------------------------------------------------------------------------------------------------------------------------
Bills receivable 19 8,009 5,953
-------------------------------------------------------------------------------------------------------------------------------
Inventories 20 60,631 46,112
-------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 21 20,813 20,574
-------------------------------------------------------------------------------------------------------------------------------
Total current assets 120,102 99,328
-------------------------------------------------------------------------------------------------------------------------------
Current liabilities
-------------------------------------------------------------------------------------------------------------------------------
Short-term debts 23 31,187 25,158
-------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 23 6,153 3,921
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 24 26,277 22,704
-------------------------------------------------------------------------------------------------------------------------------
Bills payable 24 28,531 23,958
-------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 25 41,419 42,187
-------------------------------------------------------------------------------------------------------------------------------
Income tax payable 4,146 4,077
-------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 137,713 122,005
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net current liabilities (17,611) (22,677)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 297,224 278,813
-------------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
-------------------------------------------------------------------------------------------------------------------------------
Long-term debts 23 49,078 41,450
-------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 23 36,460 37,771
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 22 5,106 4,599
-------------------------------------------------------------------------------------------------------------------------------
Other liabilities 731 1,228
-------------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 91,375 85,048
-------------------------------------------------------------------------------------------------------------------------------
Minority interests 27,440 25,866
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net assets 178,409 167,899
-------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
-------------------------------------------------------------------------------------------------------------------------------
Share capital 26 86,702 86,702
-------------------------------------------------------------------------------------------------------------------------------
Reserves 91,707 81,197
-------------------------------------------------------------------------------------------------------------------------------
178,409 167,899
-------------------------------------------------------------------------------------------------------------------------------
Approved and authorised for issue by the board of directors on 27 August 2004
Chen Tonghai Wang Jiming Zhang Jiaren
Chairman Vice Chairman and President Director, Senior
Vice President and
Chief Financial Officer
The notes on pages 82 to 103 form part of these interim financial statements.
CONSOLIDATED Cash Flow STATEMENT
for the six-month period ended 30 June 2004
(Amounts in millions)
Six-month periods
ended 30 June
Note 2004 2003
RMB RMB
Cash flows from operating activities (a) 19,291 28,649
-------------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities
-------------------------------------------------------------------------------------------------------------------------------
Capital expenditure (26,134) (19,156)
-------------------------------------------------------------------------------------------------------------------------------
Capital expenditure of jointly controlled entities (3,368) (1,942)
-------------------------------------------------------------------------------------------------------------------------------
Purchase of investments and investments in associates (804) (81)
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of investments and investments in associates 31 697
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of property, plant and equipment 187 291
-------------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (1,371) (1,804)
-------------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 800 442
-------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (30,659) (21,553)
-------------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans 160,356 101,970
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans of jointly controlled entities 1,621 1,132
-------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of corporate bonds, net of issuing expenses 3,472 --
-------------------------------------------------------------------------------------------------------------------------------
Repayments of bank and other loans (150,838) (102,837)
-------------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests (141) (149)
-------------------------------------------------------------------------------------------------------------------------------
Contributions from minority interests 92 12
-------------------------------------------------------------------------------------------------------------------------------
Dividend paid (2,313) (5,202)
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents distributed to Sinopec Group Company (1,828) --
-------------------------------------------------------------------------------------------------------------------------------
Net cash generated from/ (used in) financing activities 10,421 (5,074)
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (947) 2,022
-------------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate (1) --
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 15,221 18,161
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 14,273 20,183
-------------------------------------------------------------------------------------------------------------------------------
The notes on pages 82 to 103 form part of these interim financial statements.
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the six-month period ended 30
June 2004 (Amounts in millions)
(a) Reconciliation of profit from ordinary activities before taxation to cash flows from operating activities
Six-month periods
ended 30 June
2004 2003
RMB RMB
Profit from ordinary activities before taxation 26,017 16,765
-------------------------------------------------------------------------------------------------------------------------------
Adjustments for:
-------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation 14,773 12,947
-------------------------------------------------------------------------------------------------------------------------------
Dry hole costs 764 1,238
-------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates (451) (272)
-------------------------------------------------------------------------------------------------------------------------------
Investment (income)/losses (30) 2
-------------------------------------------------------------------------------------------------------------------------------
Interest income (169) (145)
-------------------------------------------------------------------------------------------------------------------------------
Interest expense 1,986 2,194
-------------------------------------------------------------------------------------------------------------------------------
Unrealised foreign exchange (gains)/losses (32) 7
-------------------------------------------------------------------------------------------------------------------------------
Loss on disposal of property, plant and equipment, net 399 259
-------------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets 2,324 269
-------------------------------------------------------------------------------------------------------------------------------
Increase in trade accounts receivable (4,337) (1,257)
-------------------------------------------------------------------------------------------------------------------------------
Increase in bills receivable (2,056) (234)
-------------------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in inventories (14,519) 146
-------------------------------------------------------------------------------------------------------------------------------
Decrease/(increase) in prepaid expenses and other current assets 506 (909)
-------------------------------------------------------------------------------------------------------------------------------
Decrease in lease prepayments 16 12
-------------------------------------------------------------------------------------------------------------------------------
Increase in other assets (779) (64)
-------------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in trade accounts payable 3,573 (2,081)
-------------------------------------------------------------------------------------------------------------------------------
Increase in bills payable 4,573 2,437
-------------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in accrued expenses and other payables (2,425) 4,308
-------------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in other liabilities (497) 174
-------------------------------------------------------------------------------------------------------------------------------
Cash generated from operations 29,636 35,796
-------------------------------------------------------------------------------------------------------------------------------
Interest received 170 143
-------------------------------------------------------------------------------------------------------------------------------
Interest paid (2,390) (2,497)
-------------------------------------------------------------------------------------------------------------------------------
Investment and dividend income received 222 274
-------------------------------------------------------------------------------------------------------------------------------
Income tax paid (8,347) (5,067)
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 19,291 28,649
-------------------------------------------------------------------------------------------------------------------------------
The notes on pages 82 to 103 form part of these interim financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
for the six-month
period ended 30 June 2004 (Amounts in millions except per share data)
Statutory
Statutory public Discretionary
Share Capital Share Revaluation surplus welfare surplus Other Retained
capital reserve premium reserve reserve fund reserve reserves earnings Total
RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB
Shareholders' funds
at 1 January 2003,
as previously reported 86,702 (18,878) 18,072 31,641 4,429 4,429 7,000 241 20,849 154,485
------------------------------------------------------------------------------------------------------------------------------
Adjusted for acquisition
of the Acquired Group-- -- -- -- -- -- -- -- 9,338 -- 9,338
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
at 1 January 2003,
as adjusted 86,702 (18,878) 18,072 31,641 4,429 4,429 7,000 9,579 20,849 163,823
------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2002
(Note 13) -- -- -- -- -- -- -- -- (5,202) (5,202)
------------------------------------------------------------------------------------------------------------------------------
Profit attributable
to shareholders -- -- -- -- -- -- -- -- 10,727 10,727
------------------------------------------------------------------------------------------------------------------------------
Appropriation
(Note (a) and (b)) -- -- -- -- 977 977 -- -- (1,954) --
------------------------------------------------------------------------------------------------------------------------------
Revaluation
surplus realised -- -- -- (250) -- -- -- -- 250 --
------------------------------------------------------------------------------------------------------------------------------
Realisation of
deferred tax on
land use rights -- -- -- -- -- -- -- (2) 2 --
------------------------------------------------------------------------------------------------------------------------------
Transfer from retained
earnings to other reserves -- -- -- -- -- -- -- 26 (26) --
------------------------------------------------------------------------------------------------------------------------------
Net assets contributed
from Sinopec Group Company -- -- -- -- -- -- -- 8 -- 8
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
at 30 June 2003 86,702 (18,878) 18,072 31,391 5,406 5,406 7,000 9,611 24,646 169,356
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
at 1 January 2004 86,702 (18,960) 18,072 30,341 6,330 6,330 7,000 252 31,832 167,899
------------------------------------------------------------------------------------------------------------------------------
Final dividend
for 2003 (Note 13) -- -- -- -- -- -- -- -- (5,202) (5,202)
------------------------------------------------------------------------------------------------------------------------------
Profit attributable
to shareholders -- -- -- -- -- -- -- -- 16,151 16,151
------------------------------------------------------------------------------------------------------------------------------
Appropriation
(Note (a) and (b)) -- -- -- -- 1,504 1,504 -- -- (3,008) --
------------------------------------------------------------------------------------------------------------------------------
Revaluation
surplus realised -- -- -- (627) -- -- -- -- 627 --
------------------------------------------------------------------------------------------------------------------------------
Realisation of
deferred tax on
land use rights -- -- -- -- -- -- -- (2) 2 --
------------------------------------------------------------------------------------------------------------------------------
Impairment losses
on revalued assets -- -- -- (439) -- -- -- -- -- (439)
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
at 30 June 2004 86,702 (18,960) 18,072 29,275 7,834 7,834 7,000 250 40,402 178,409
------------------------------------------------------------------------------------------------------------------------------
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 2004, the Company transferred RMB 1,504 million (2003: RMB
977 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 shareholders' approval at the Annual General Meeting on 18 May 2004, the Board of Directors was
authorised to determine the amount of the transfer for the six-month period ended 30 June 2004. The directors authorised
the transfer of RMB 1,504 million (2003: RMB 977 million), 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
shareholders of the Company 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 2004, the amount of retained profits available
for distribution was RMB 26,804 million, being the amount determined in accordance with the PRC Accounting Rules and
Regulations. Interim dividend of RMB 3,468 million (2003: RMB 2,601 million) proposed 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 and Tahe Petrochemical.
(f) The application of the share premium account is governed by Sections 178 and 179 of the PRC Company Law.
The notes on pages 82 to 103 form part of these interim financial statements.
NOTES ON THE INTERIM FINANCIAL STATEMENTS for the six-month period ended 30
June 2004
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 ("Sinopec 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 (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 (hereinafter referred to
as the "Acquisition of Refining Assets").
As the Group, Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical
and Tahe Petrochemical are under the common control of Sinopec Group
Company, the Acquisition of Sinopec National Star, the Acquisition of
Ethylene Assets and the Acquisition of Refining 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 and Tahe Petrochemical
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 and Tahe Petrochemical 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 shareholders' funds. The considerations for these
acquisitions were treated as an equity transaction.
The results of operations previously reported by the Group for the
six-month period ended 30 June 2003 have been restated to include the
results of Sinopec Maoming, Xi'an Petrochemical and Tahe Petrochemical
(collectively the "Acquired Group") as set out below.
The Group
(as previously The Acquired
reported) Group Combined
RMB RMB RMB
millions millions millions
Results of operation:
---------------------------------------------------------------------------------------------------------------------------
Operating revenue 202,474 2,861 205,335
---------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders 10,701 26 10,727
---------------------------------------------------------------------------------------------------------------------------
Basic earnings per share (RMB) 0.12 -- 0.12
---------------------------------------------------------------------------------------------------------------------------
For the period presented, all significant transactions between the Group and the Acquired Group have been eliminated.
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION (Continued)
The accompanying interim financial statements have been prepared in
accordance with IFRS promulgated by the International Accounting Standards
Board. 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.
The preparation of the interim financial statements in accordance with IFRS
requires management to make estimates and assumptions that affect the
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. Actual
results could differ from those estimates.
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 share attributable to
minority interests is deducted from or added to profit from ordinary
activities after taxation. 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 31.
(b)Translation of foreign currencies
The functional and reporting 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
("PBOC 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.
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 and any directly attributable costs
of bringing the asset to working condition and location for its intended
use. 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. Expenditure incurred after
the asset has been put into operation is capitalised only when it
increases the future economic benefits embodied in the item of property,
plant and equipment. All other expenditure is charged to 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
asset, 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
(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. Cost comprises direct
costs of construction 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.
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.
The Group's interests 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 expenses 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.
(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 charged
to the income statement as incurred and according to the contribution
determined by the plans. Further information is set out in Note 29.
(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 net selling price 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 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 income. The reversal
is reduced by the amount that would have been recognised as depreciation
had the write-down or write-off not occurred.
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
2004 2003
RMB millions RMB millions
Sale of materials, service and others 9,532 7,610
------------------------------------------------------------------------------------------------------------------------------
Rental income 201 111
------------------------------------------------------------------------------------------------------------------------------
9,733 7,721
------------------------------------------------------------------------------------------------------------------------------
5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following items are included in selling, general and administrative expenses:
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Research and development costs 1,024 884
------------------------------------------------------------------------------------------------------------------------------
Operating lease charges 1,972 1,620
------------------------------------------------------------------------------------------------------------------------------
6 PERSONNEL EXPENSES
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Wages and salaries 6,112 6,191
------------------------------------------------------------------------------------------------------------------------------
Staff welfare 809 799
------------------------------------------------------------------------------------------------------------------------------
Contributions to retirement schemes 959 896
------------------------------------------------------------------------------------------------------------------------------
Social security contributions 466 452
------------------------------------------------------------------------------------------------------------------------------
8,346 8,338
------------------------------------------------------------------------------------------------------------------------------
7 EMPLOYEE REDUCTION EXPENSES
In accordance with the Group's voluntary employee reduction plan, the Group
recorded employee reduction expenses of RMB 412 million (2003: RMB nil)
during the six-month period ended 30 June 2004 in respect of the voluntary
termination of approximately 8,000 employees.
8 TAXES OTHER THAN INCOME TAX
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Consumption tax 5,671 4,529
------------------------------------------------------------------------------------------------------------------------------
City construction tax 1,214 925
------------------------------------------------------------------------------------------------------------------------------
Education surcharge 591 437
------------------------------------------------------------------------------------------------------------------------------
Resources tax 221 221
------------------------------------------------------------------------------------------------------------------------------
Business tax 79 78
------------------------------------------------------------------------------------------------------------------------------
7,776 6,190
------------------------------------------------------------------------------------------------------------------------------
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
2004 2003
RMB millions RMB millions
Fines, penalties and compensations 31 18
------------------------------------------------------------------------------------------------------------------------------
Donations 49 56
------------------------------------------------------------------------------------------------------------------------------
Loss on disposal of property, plant and equipment, net 399 259
------------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (Note) 2,324 269
------------------------------------------------------------------------------------------------------------------------------
Others 183 112
------------------------------------------------------------------------------------------------------------------------------
2,986 714
------------------------------------------------------------------------------------------------------------------------------
Note:
In accordance with IAS 36, the carrying amounts of impaired oil and gas properties and long-lived assets are written down
to a recoverable value.
Impairment losses recognised on long-lived assets of the chemicals segment of RMB 2,140 million (2003: RMB nil) for the
six-month period ended 30 June 2004 primarily 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 of
the chemicals segment was due to higher operating and production costs caused by the increase in the prices of raw
materials during the period.
Impairment losses recognised on long-lived assets of the marketing and distribution segment of RMB 623 million (2003: RMB
nil) for the six-month period ended 30 June 2004 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.
The factors resulting in the exploration and production ("E&P") segment impairment losses of RMB 269 million for the
six-month period ended 30 June 2003 were unsuccessful development drilling and high operating and development costs for
certain oil fields. The carrying values of these E&P properties were written down to a recoverable value which was
determined based on the present values of the expected future cash flows of the assets. The oil and gas pricing was a
factor used in the determination of the present values of the expected future cash flows of the assets and had an impact
on the recognition of the asset impairment.
10 INTEREST EXPENSE
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Interest expense incurred 2,379 2,557
------------------------------------------------------------------------------------------------------------------------------
Less: Interest expense capitalised* (393) (363)
------------------------------------------------------------------------------------------------------------------------------
Interest expense 1,986 2,194
------------------------------------------------------------------------------------------------------------------------------
* Interest rates per annum at which borrowing costs were capitalised
for construction in progress 3.1% to 5.8% 3.1% to 6.1%
------------------------------------------------------------------------------------------------------------------------------
11 TAXATION
Taxation in the consolidated income statement represents:
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Provision for PRC income tax
------------------------------------------------------------------------------------------------------------------------------
- the Group 8,416 5,120
------------------------------------------------------------------------------------------------------------------------------
- associates 152 68
------------------------------------------------------------------------------------------------------------------------------
Deferred taxation (855) 76
------------------------------------------------------------------------------------------------------------------------------
7,713 5,264
------------------------------------------------------------------------------------------------------------------------------
A reconciliation of the expected tax with the actual tax expense is as
follows:
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Profit from ordinary activities before taxation 26,017 16,765
------------------------------------------------------------------------------------------------------------------------------
Expected PRC income tax expense at a statutory tax rate of 33% 8,586 5,532
------------------------------------------------------------------------------------------------------------------------------
Non-deductible expenses 192 134
------------------------------------------------------------------------------------------------------------------------------
Non-taxable income (232) (107)
------------------------------------------------------------------------------------------------------------------------------
Differential tax rate on subsidiaries' income (Note) (1,193) (361)
------------------------------------------------------------------------------------------------------------------------------
Tax losses not recognised for deferred tax 360 66
------------------------------------------------------------------------------------------------------------------------------
7,713 5,264
------------------------------------------------------------------------------------------------------------------------------
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 2004 is based on the profit attributable to shareholders of RMB
16,151 million (2003: RMB 10,727 million) and the weighted average number
of shares of 86,702,439,000 (2003: 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 for the period represent:
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Interim dividends declared after the balance sheet date of RMB 0.04 per share
(2003: RMB 0.03 per share) 3,468 2,601
------------------------------------------------------------------------------------------------------------------------------
Pursuant to the shareholders' approval at the Annual General Meeting on 18 May 2004, the Board of Directors was
authorised to declare the interim dividends for the year ending 31 December 2004. According to the resolution passed at
the Directors' meeting on 27 August 2004, an interim dividend of RMB 0.04 (2003: RMB 0.03) per share totalling RMB 3,468
million (2003: RMB 2,601 million) was declared. Interim dividend of RMB 3,468 million (2003: RMB 2,601 million) proposed
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
2004 2003
RMB millions RMB millions
Final dividends in respect of the previous financial year, approved and
paid during the period of RMB 0.06 per share (2003: RMB 0.06 per share) 5,202 5,202
------------------------------------------------------------------------------------------------------------------------------
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.
Pursuant to the shareholders' approval at the Annual General Meeting on 10 June 2003, a final dividend of RMB 0.06 per
share totalling RMB 5,202 million in respect of the year ended 31 December 2002 was declared and paid on 30 June 2003.
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 177,962 104,295 54,482 133,475 2,508 472,722
------------------------------------------------------------------------------------------------------------------------------
Additions 442 200 803 99 9 1,553
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 3,706 4,000 3,443 677 123 11,949
------------------------------------------------------------------------------------------------------------------------------
Disposals (641) (1,667) (1,282) (1,102) (6) (4,698)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 181,469 106,828 57,446 133,149 2,634 481,526
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 84,604 50,439 10,014 70,344 573 215,974
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 5,357 3,661 1,276 4,070 90 14,454
------------------------------------------------------------------------------------------------------------------------------
Impairment losses for the period -- -- 623 2,140 -- 2,763
------------------------------------------------------------------------------------------------------------------------------
Written back on disposals (502) (1,360) (728) (775) (4) (3,369)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 89,459 52,740 11,185 75,779 659 229,822
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 92,010 54,088 46,261 57,370 1,975 251,704
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 93,358 53,856 44,468 63,131 1,935 256,748
------------------------------------------------------------------------------------------------------------------------------
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 39,392 158,634 46,337 228,359 472,722
------------------------------------------------------------------------------------------------------------------------------
Additions 85 1 623 844 1,553
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 144 3,667 5,390 2,748 11,949
------------------------------------------------------------------------------------------------------------------------------
Disposals (618) (239) (985) (2,856) (4,698)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 39,003 162,063 51,365 229,095 481,526
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 16,877 77,582 8,785 112,730 215,974
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the period 779 4,575 1,061 8,039 14,454
------------------------------------------------------------------------------------------------------------------------------
Impairment losses for the period 325 -- 623 1,815 2,763
------------------------------------------------------------------------------------------------------------------------------
Written back on disposals (321) (205) (491) (2,352) (3,369)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 17,660 81,952 9,978 120,232 229,822
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 30 June 2004 21,343 80,111 41,387 108,863 251,704
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 22,515 81,052 37,552 115,629 256,748
------------------------------------------------------------------------------------------------------------------------------
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.
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 8,459 7,941 6,637 401 28,973
------------------------------------------------------------------------------------------------------------------------------
Additions 10,394 3,904 7,808 2,840 85 25,031
------------------------------------------------------------------------------------------------------------------------------
Additions of jointly controlled entities 702 -- -- 2,666 -- 3,368
------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (764) -- -- -- -- (764)
------------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and equipment (3,706) (4,000) (3,443) (677) (123) (11,949)
------------------------------------------------------------------------------------------------------------------------------
Balance at 30 June 2004 12,161 8,363 12,306 11,466 363 44,659
------------------------------------------------------------------------------------------------------------------------------
The Group's proportionate share of the jointly controlled entities' construction in progress at 30 June 2004 in the E&P
and the chemicals segments were RMB 7,180 million (2003: RMB 3,812 million) and RMB 5,659 million (2003: RMB 2,993
million), respectively.
16 INVESTMENTS
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Unlisted investments, at cost 3,016 2,853
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses (305) (271)
------------------------------------------------------------------------------------------------------------------------------
2,711 2,582
------------------------------------------------------------------------------------------------------------------------------
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.
17 INTERESTS IN ASSOCIATES
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Share of net assets 8,849 8,081
------------------------------------------------------------------------------------------------------------------------------
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 issuedheld 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 and
Company Limited ("Dynamic")* shares of RMB 1.00 each distribution of petrochemical
products
----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Taishan Incorporated 480,793,320 ordinary 38.68 -- Trading of petroleum products and
Petroleum Company Limited shares of RMB 1.00 each decoration of service gas stations
("Taishan")*
----------------------------------------------------------------------------------------------------------------------------------
Sinopec Finance Company Incorporated Registered capital 32.00 8.22 Provision of non-banking financial
Limited RMB 2,500,000,000 services
----------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum
National Incorporated Registered capital 30.00 -- Exploration and production of crude
Gas Corporation RMB 900,000,000 oil and natural gas
----------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited Incorporated Registered capital 30.00 10.00 Manufacturing and distribution of
RMB 8,793,000,000 petrochemical products
----------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical
Industry Park Incorporated Registered capital -- 38.26 Planning, development and
Development RMB 2,372,439,000 operation of the Chemical
Company Limited 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 693 million (2003: RMB 783 million)
and RMB 2,085 million (2003: RMB 1,971 million) respectively at 30 June 2004.
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 Incorporated Registered capital 30.00 20.00 Manufacturing and
Petrochemical Company USD 901,440,964 distribution of
Limited Petrochemical products
-----------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Incorporated Registered capital 50.00 -- Manufacturing and
Shell Coal USD 45,588,700 distribution of
Gasification Company industrial gas
Limited
-----------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in Unincorporated -- -- 43.00 Exploration and production
the Western Area of crude oil and natural
Chengda in Bohai Bay gas
-----------------------------------------------------------------------------------------------------------------------------
The Group's proportionate share of the jointly controlled entities' current and non-current assets, current and
non-current liabilities, and turnover and expenses is not material to the Group's financial condition or results
of operations for all periods presented.
19 TRADE ACCOUNTS AND BILLS RECEIVABLES
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Third parties 13,418 9,344
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow subsidiaries 3,600 3,044
-----------------------------------------------------------------------------------------------------------------------------
Associates 42 81
-----------------------------------------------------------------------------------------------------------------------------
17,060 12,469
-----------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts (3,439) (3,185)
-----------------------------------------------------------------------------------------------------------------------------
13,621 9,284
-----------------------------------------------------------------------------------------------------------------------------
Bills receivable 8,009 5,953
-----------------------------------------------------------------------------------------------------------------------------
21,630 15,237
-----------------------------------------------------------------------------------------------------------------------------
The ageing analysis of trade accounts and bills receivables (net of allowance for doubtful accounts) are as follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Within one year 20,646 14,118
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 310 461
-----------------------------------------------------------------------------------------------------------------------------
Between two and three years 209 251
-----------------------------------------------------------------------------------------------------------------------------
Over three years 465 407
-----------------------------------------------------------------------------------------------------------------------------
21,630 15,237
-----------------------------------------------------------------------------------------------------------------------------
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.
20 INVENTORIES
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Crude oil and other raw materials 31,929 23,541
-----------------------------------------------------------------------------------------------------------------------------
Work in progress 8,045 6,805
-----------------------------------------------------------------------------------------------------------------------------
Finished goods 16,729 12,268
-----------------------------------------------------------------------------------------------------------------------------
Spare parts and consumables 4,591 4,017
-----------------------------------------------------------------------------------------------------------------------------
61,294 46,631
-----------------------------------------------------------------------------------------------------------------------------
Less: Allowance for diminution in value of inventories (663) (519)
-----------------------------------------------------------------------------------------------------------------------------
60,631 46,112
-----------------------------------------------------------------------------------------------------------------------------
At 30 June 2004, the carrying amount of the Group's inventories carried at net realisable value amounted to RMB 1,434
million (2003: RMB 1,551 million).
The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 211,548 million
for the six-month period ended 30 June 2004 (2003: RMB 157,853 million).
21 PREPAID EXPENSES AND OTHER CURRENT ASSETS
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Advances to third parties 2,002 2,726
-----------------------------------------------------------------------------------------------------------------------------
Amounts due from Sinopec Group Company and fellow subsidiaries 8,206 9,357
-----------------------------------------------------------------------------------------------------------------------------
Other receivables 1,774 1,679
-----------------------------------------------------------------------------------------------------------------------------
Purchase deposits 4,089 2,451
-----------------------------------------------------------------------------------------------------------------------------
Prepayments in connection with construction work and equipment purchases 2,057 2,675
-----------------------------------------------------------------------------------------------------------------------------
Prepaid value-added tax and customs duty 2,391 1,355
-----------------------------------------------------------------------------------------------------------------------------
Amounts due from associates 294 331
-----------------------------------------------------------------------------------------------------------------------------
20,813 20,574
-----------------------------------------------------------------------------------------------------------------------------
22 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
2004 2003 2004 2003 2004 2003
RMB millions RMB millions RMBmillions RMB millions RMB millions RMB millions
Current
-----------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables
and inventories 2,247 1,446 -- -- 2,247 1,446
-----------------------------------------------------------------------------------------------------------------------------
Non-current
Property, plant and equipment 845 272 (1,306) (981) (461) (709)
Accelerated depreciation -- -- (3,800) (3,618) (3,800) (3,618)
-----------------------------------------------------------------------------------------------------------------------------
Land use rights 371 373 -- -- 371 373
Others 43 53 -- -- 43 53
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 3,506 2,144 (5,106) (4,599) (1,600) (2,455)
-----------------------------------------------------------------------------------------------------------------------------
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 360 million (2003: RMB 66 million) were
provided for the six-month period ended 30 June 2004. 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.
23 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
2004 2003
RMB millions RMB millions
Third parties' debts
-----------------------------------------------------------------------------------------------------------------------------
Short-term bank loans 22,298 16,979
-----------------------------------------------------------------------------------------------------------------------------
Short-term other loans -- 29
-----------------------------------------------------------------------------------------------------------------------------
22,298 17,008
-----------------------------------------------------------------------------------------------------------------------------
Current portion of long-term bank loans 7,279 6,523
-----------------------------------------------------------------------------------------------------------------------------
Current portion of long-term other loans 110 127
Current portion of convertible bonds 1,500 1,500
-----------------------------------------------------------------------------------------------------------------------------
8,889 8,150
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
31,187 25,158
-----------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries
-----------------------------------------------------------------------------------------------------------------------------
Short-term loans 4,147 3,896
-----------------------------------------------------------------------------------------------------------------------------
Current portion of long-term loans 2,006 25
-----------------------------------------------------------------------------------------------------------------------------
6,153 3,921
-----------------------------------------------------------------------------------------------------------------------------
37,340 29,079
-----------------------------------------------------------------------------------------------------------------------------
The Group's weighted average interest rate on short-term loans was 3.3% at
30 June 2004 (2003: 3.2%).
23 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 2004 2003
RMB millions RMB millions
Third parties' debts
-----------------------------------------------------------------------------------------------------------------------------
Long-term bank loans
-----------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from interest free to 6.2% per annum
at 30 June 2004 with maturities through 2013 42,268 38,863
-----------------------------------------------------------------------------------------------------------------------------
Japanese Yen denominated Interest rates ranging from 2.6% to 5.8% per annum
at 30 June 2004 with maturities through 2024 2,586 2,909
-----------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from interest free to 7.4% per annum
at 30 June 2004 with maturities through 2031 4,793 4,340
-----------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Floating rate at Hong Kong Prime Rate plus 0.3% per annum
denominated at 30 June 2004 with maturities through 2006 6 7
-----------------------------------------------------------------------------------------------------------------------------
49,653 46,119
-----------------------------------------------------------------------------------------------------------------------------
Long-term other loans
-----------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from interest free to 5.0% per annum
at 30 June 2004 with maturities through 2008 226 359
-----------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from interest free to 4.0% per annum
at 30 June 2004 with maturities through 2015 124 151
-----------------------------------------------------------------------------------------------------------------------------
Euro denominated Interest rates ranging from 1.8%
to 8.1% per annum at 31 December 2003 with
maturities through 2025.
Paid off as at 30 June 2004 -- 21
-----------------------------------------------------------------------------------------------------------------------------
350 531
-----------------------------------------------------------------------------------------------------------------------------
Convertible bonds
-----------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rate at 2.5% per annum
at 30 June 2004 with maturity in July 2004 (a) 1,500 1,500
-----------------------------------------------------------------------------------------------------------------------------
Corporate bonds
-----------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Fixed interest rate at 4.6% per annum
at 30 June 2004 with maturity in February 2014 (b) 3,500 --
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
55,003 48,150
-----------------------------------------------------------------------------------------------------------------------------
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 2004 with maturities through 2021 1,350 705
-----------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Floating rate at London Interbank Offer Rate plus 0.7% per annum
at 30 June 2004 with maturities through 2013 1,614 745
-----------------------------------------------------------------------------------------------------------------------------
2,964 1,450
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total third parties' long-term debts 57,967 49,600
-----------------------------------------------------------------------------------------------------------------------------
Less: Current portion (8,889) (8,150)
49,078 41,450
-----------------------------------------------------------------------------------------------------------------------------
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 interest free to 5.2% per annum
at 30 June 2004 with maturities through 2009 2,896 2,223
-----------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Floating rate at London Interbank Offer Rate plus 1.4%
per annum at 30 June 2004 with maturities through 2005 9 12
-----------------------------------------------------------------------------------------------------------------------------
38,466 37,796
-----------------------------------------------------------------------------------------------------------------------------
Less: Current portion (2,006) (25)
-----------------------------------------------------------------------------------------------------------------------------
36,460 37,771
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
85,538 79,221
-----------------------------------------------------------------------------------------------------------------------------
(a) Convertible bonds amounting to RMB 1,500 million were issued by a subsidiary on 28 July 1999. Pursuant to the
subsidiary's shareholders' approval at the Annual General Meeting held on 23 March 2004, the subsidiary decided not to
undergo an initial public offering. The bonds were repaid in July 2004.
(b) 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 4.6% per annum.
Third parties' loans of RMB 55 million of the Group at 30 June 2004 (2003: RMB 103 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 120 million at 30 June 2004 (2003: RMB 519 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
2004 2003
RMB millions RMB millions
Within one year 10,895 8,175
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 9,635 13,145
-----------------------------------------------------------------------------------------------------------------------------
Between two and five years 31,234 26,591
-----------------------------------------------------------------------------------------------------------------------------
After five years 44,669 39,485
-----------------------------------------------------------------------------------------------------------------------------
96,433 87,396
-----------------------------------------------------------------------------------------------------------------------------
24 TRADE ACCOUNTS AND BILLS PAYABLES
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Third parties 24,182 21,676
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow subsidiaries 1,973 984
-----------------------------------------------------------------------------------------------------------------------------
Associates 122 44
-----------------------------------------------------------------------------------------------------------------------------
26,277 22,704
-----------------------------------------------------------------------------------------------------------------------------
Bills payable 28,531 23,958
-----------------------------------------------------------------------------------------------------------------------------
54,808 46,662
-----------------------------------------------------------------------------------------------------------------------------
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 are as follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Due within 1 month or on demand 29,404 20,616
-----------------------------------------------------------------------------------------------------------------------------
Due after 1 month but within 6 months 25,240 25,792
-----------------------------------------------------------------------------------------------------------------------------
Due after 6 months 164 254
-----------------------------------------------------------------------------------------------------------------------------
54,808 46,662
-----------------------------------------------------------------------------------------------------------------------------
25 ACCRUED EXPENSES AND OTHER PAYABLES
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Amounts due to Sinopec Group Company and fellow subsidiaries 11,773 15,054
-----------------------------------------------------------------------------------------------------------------------------
Accrued expenditure 15,652 12,204
Taxes other than income tax 3,278 4,122
-----------------------------------------------------------------------------------------------------------------------------
Receipts in advance 4,629 5,369
-----------------------------------------------------------------------------------------------------------------------------
Advances from third parties 907 979
-----------------------------------------------------------------------------------------------------------------------------
Others 5,180 4,459
-----------------------------------------------------------------------------------------------------------------------------
41,419 42,187
-----------------------------------------------------------------------------------------------------------------------------
26 SHARE CAPITAL
At 30 June At 31 December
2004 2003
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.
27 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 2004 and 31 December 2003, the future minimum lease payments
under operating leases are as follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Within one year 3,247 3,276
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 3,217 3,229
-----------------------------------------------------------------------------------------------------------------------------
Between two and three years 3,204 3,200
-----------------------------------------------------------------------------------------------------------------------------
Between three and four years 3,186 3,175
-----------------------------------------------------------------------------------------------------------------------------
Between four and five years 3,164 3,162
-----------------------------------------------------------------------------------------------------------------------------
Thereafter 98,565 99,619
-----------------------------------------------------------------------------------------------------------------------------
114,583 115,661
-----------------------------------------------------------------------------------------------------------------------------
Capital commitments
At 30 June 2004 and 31 December 2003, capital commitments are as follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
The Group
-----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 26,750 48,107
-----------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 41,835 47,716
-----------------------------------------------------------------------------------------------------------------------------
68,585 95,823
-----------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities
-----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 4,966 6,923
-----------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 1,752 3,432
-----------------------------------------------------------------------------------------------------------------------------
6,718 10,355
-----------------------------------------------------------------------------------------------------------------------------
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
101 million for the six-month period ended 30 June 2004 (2003: RMB 17
million).
Estimated future annual payments are as follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Within one year 78 87
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 98 117
-----------------------------------------------------------------------------------------------------------------------------
Between two and three years 82 87
-----------------------------------------------------------------------------------------------------------------------------
Between three and four years 65 72
-----------------------------------------------------------------------------------------------------------------------------
Between four and five years 73 65
-----------------------------------------------------------------------------------------------------------------------------
Thereafter 313 361
-----------------------------------------------------------------------------------------------------------------------------
Total payments 709 789
-----------------------------------------------------------------------------------------------------------------------------
27 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 2004 and 31 December 2003, guarantees given to banks in
respect of banking facilities granted to the parties below were as
follows:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Associates 4,897 4,955
-----------------------------------------------------------------------------------------------------------------------------
The Company 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
2004 and 31 December 2003, it is not probable that the Company will be
required to make payments under the guarantees. Thus no liability has been
accrued for a loss related to the Company'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 113 million for the six-month
period ended 30 June 2004 (2003: RMB 85 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.
28 RELATED PARTY TRANSACTIONS
Companies are considered to be related if one company has the ability,
directly or indirectly, to 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.
The Group is part of a larger group of companies under Sinopec Group
Company and has significant transactions and relationships with the 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. Sinopec
Group Company itself is owned by the PRC government. There are also many
other enterprises directly or indirectly owned or controlled by the PRC
government ("state-owned enterprises"). Under IFRS, state-owned
enterprises, other than Sinopec Group Company and fellow subsidiaries, are
not considered related parties. Related parties refer to enterprises over
which Sinopec Group Company is able to exercise significant influence.
The Group conducts business with state-owned enterprises. Furthermore, the
PRC government itself represents a significant customer of the Group both
directly through its numerous authorities and indirectly through its
numerous affiliates and other organisations. Sales of certain products to
PRC government authorities and affiliates and other state-owned enterprises
may be at regulated prices, which differ from market prices. The Group
considers that these sales are activities in the ordinary course of
business in the PRC and has not disclosed such sales as related party
transactions.
28 RELATED PARTY TRANSACTIONS (Continued)
The principal related party transactions with Sinopec Group Company, which
were carried out in the ordinary course of business, are as follows:
Six-month periods
ended 30 June
Note 2004 2003
RMB millions RMB millions
Sales of goods (i) 30,715 17,958
-----------------------------------------------------------------------------------------------------------------------------
Purchases (ii) 18,253 15,061
-----------------------------------------------------------------------------------------------------------------------------
Transportation and storage (iii) 979 661
-----------------------------------------------------------------------------------------------------------------------------
Exploration and development services (iv) 7,101 6,849
-----------------------------------------------------------------------------------------------------------------------------
Production related services (v) 3,831 3,838
-----------------------------------------------------------------------------------------------------------------------------
Ancillary and social services (vi) 906 918
-----------------------------------------------------------------------------------------------------------------------------
Operating lease charges (vii) 1,646 1,357
-----------------------------------------------------------------------------------------------------------------------------
Agency commission income (viii) 31 22
-----------------------------------------------------------------------------------------------------------------------------
Intellectual property license fee paid (ix) 5 5
-----------------------------------------------------------------------------------------------------------------------------
Interest received (x) 25 46
-----------------------------------------------------------------------------------------------------------------------------
Interest paid (xi) 349 318
-----------------------------------------------------------------------------------------------------------------------------
Net deposits (withdrawn from)/placed with related parties (xii) (1,532) 960
-----------------------------------------------------------------------------------------------------------------------------
Net loans obtained from related parties (xiii) 921 2,923
-----------------------------------------------------------------------------------------------------------------------------
The amounts set out in the table above in respect of the six-month periods
ended 30 June 2004 and 2003 represent the relevant costs to the Group as
determined by the corresponding contracts with the related parties.
At 30 June 2004 and 31 December 2003, 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.
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 material 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 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 2004 was RMB 2,732 million
(2003: RMB 4,264 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.
28 RELATED PARTY TRANSACTIONS (Continued)
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:
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 series of lease agreements with Sinopec
Group Company to lease certain land and buildings at a rental of
approximately RMB 2,447 million and RMB 482 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 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.
29 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 2004 were RMB 959 million (2003: RMB
896 million).
The Company implemented a plan of share appreciation rights for members of
its senior management 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 2004, compensation expense recognised was RMB 144 million.
30 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.
Reportable information on the Group's business segments is as follows:
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Turnover
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production
External sales 7,376 7,083
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 26,316 24,980
-----------------------------------------------------------------------------------------------------------------------------
33,692 32,063
-----------------------------------------------------------------------------------------------------------------------------
Refining
-----------------------------------------------------------------------------------------------------------------------------
External sales 31,986 26,287
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 126,904 102,765
-----------------------------------------------------------------------------------------------------------------------------
158,890 129,052
-----------------------------------------------------------------------------------------------------------------------------
Marketing and distribution
-----------------------------------------------------------------------------------------------------------------------------
External sales 156,539 110,231
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 1,334 1,630
-----------------------------------------------------------------------------------------------------------------------------
157,873 111,861
-----------------------------------------------------------------------------------------------------------------------------
Chemicals
-----------------------------------------------------------------------------------------------------------------------------
External sales 50,946 38,133
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 4,794 3,923
-----------------------------------------------------------------------------------------------------------------------------
55,740 42,056
-----------------------------------------------------------------------------------------------------------------------------
Corporate and others
-----------------------------------------------------------------------------------------------------------------------------
External sales 18,862 15,880
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 16,246 13,419
-----------------------------------------------------------------------------------------------------------------------------
35,108 29,299
-----------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (175,594) (146,717)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Turnover 265,709 197,614
-----------------------------------------------------------------------------------------------------------------------------
Other operating revenues
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 3,544 2,952
-----------------------------------------------------------------------------------------------------------------------------
Refining 2,367 2,033
-----------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 362 202
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 2,645 2,013
-----------------------------------------------------------------------------------------------------------------------------
Corporate and others 815 521
-----------------------------------------------------------------------------------------------------------------------------
Other operating revenues 9,733 7,721
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Turnover and other operating revenues 275,442 205,335
-----------------------------------------------------------------------------------------------------------------------------
30 SEGMENTAL REPORTING (Continued)
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Result
-----------------------------------------------------------------------------------------------------------------------------
Operating profit
-----------------------------------------------------------------------------------------------------------------------------
By segment
-----------------------------------------------------------------------------------------------------------------------------
- Exploration and production 10,520 10,298
-----------------------------------------------------------------------------------------------------------------------------
- Refining 4,251 2,644
-----------------------------------------------------------------------------------------------------------------------------
- Marketing and distribution 8,569 5,461
-----------------------------------------------------------------------------------------------------------------------------
- Chemicals 4,924 858
-----------------------------------------------------------------------------------------------------------------------------
- Corporate and others (925) (692)
-----------------------------------------------------------------------------------------------------------------------------
Total operating profit 27,339 18,569
-----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates
-----------------------------------------------------------------------------------------------------------------------------
- Exploration and production 223 181
-----------------------------------------------------------------------------------------------------------------------------
- Refining 29 4
-----------------------------------------------------------------------------------------------------------------------------
- Marketing and distribution 177 40
-----------------------------------------------------------------------------------------------------------------------------
- Chemicals (37) (26)
-----------------------------------------------------------------------------------------------------------------------------
- Corporate and others 59 73
-----------------------------------------------------------------------------------------------------------------------------
Aggregate share of profits less losses from associates 451 272
-----------------------------------------------------------------------------------------------------------------------------
Finance costs
-----------------------------------------------------------------------------------------------------------------------------
Interest expense (1,986) (2,194)
-----------------------------------------------------------------------------------------------------------------------------
Interest income 169 145
-----------------------------------------------------------------------------------------------------------------------------
Foreign exchange losses (29) (39)
-----------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains 43 14
-----------------------------------------------------------------------------------------------------------------------------
Net finance costs (1,803) (2,074)
-----------------------------------------------------------------------------------------------------------------------------
Investment income/(losses) 30 (2)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities before taxation 26,017 16,765
-----------------------------------------------------------------------------------------------------------------------------
Taxation (7,713) (5,264)
-----------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities after taxation 18,304 11,501
-----------------------------------------------------------------------------------------------------------------------------
Minority interests (2,153) (774)
-----------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders 16,151 10,727
-----------------------------------------------------------------------------------------------------------------------------
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. "Unallocated assets" consists primarily of cash and cash
equivalents, time deposits with financial institutions, investments and
deferred tax assets. "Unallocated 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.
30 SEGMENTAL REPORTING (Continued)
At 30 At 31
June December
2004 2003
RMB millions RMB millions
Assets
-----------------------------------------------------------------------------------------------------------------------------
Segment assets
-----------------------------------------------------------------------------------------------------------------------------
- Exploration and production 107,179 101,303
-----------------------------------------------------------------------------------------------------------------------------
- Refining 106,227 96,460
-----------------------------------------------------------------------------------------------------------------------------
- Marketing and distribution 83,388 73,942
-----------------------------------------------------------------------------------------------------------------------------
- Chemicals 89,235 85,740
-----------------------------------------------------------------------------------------------------------------------------
- Corporate and others 15,458 12,980
-----------------------------------------------------------------------------------------------------------------------------
Total segment assets 401,487 370,425
-----------------------------------------------------------------------------------------------------------------------------
Interests in associates
-----------------------------------------------------------------------------------------------------------------------------
- Exploration and production 1,274 1,233
-----------------------------------------------------------------------------------------------------------------------------
- Refining 139 136
-----------------------------------------------------------------------------------------------------------------------------
- Marketing and distribution 1,970 1,815
-----------------------------------------------------------------------------------------------------------------------------
- Chemicals 3,904 3,477
-----------------------------------------------------------------------------------------------------------------------------
- Corporate and others 1,562 1,420
-----------------------------------------------------------------------------------------------------------------------------
Aggregate interests in associates 8,849 8,081
-----------------------------------------------------------------------------------------------------------------------------
Unallocated assets 24,601 22,312
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total assets 434,937 400,818
-----------------------------------------------------------------------------------------------------------------------------
Liabilities
-----------------------------------------------------------------------------------------------------------------------------
Segment liabilities
-----------------------------------------------------------------------------------------------------------------------------
- Exploration and production 15,134 15,773
-----------------------------------------------------------------------------------------------------------------------------
- Refining 29,182 25,743
-----------------------------------------------------------------------------------------------------------------------------
- Marketing and distribution 21,405 21,091
-----------------------------------------------------------------------------------------------------------------------------
- Chemicals 17,821 16,857
-----------------------------------------------------------------------------------------------------------------------------
- Corporate and others 12,685 9,384
-----------------------------------------------------------------------------------------------------------------------------
Total segment liabilities 96,227 88,848
-----------------------------------------------------------------------------------------------------------------------------
Unallocated liabilities 132,861 118,205
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 229,088 207,053
-----------------------------------------------------------------------------------------------------------------------------
Segment capital expenditure is the total cost incurred during the period to
acquire segment assets that are expected to be used for more than one
period.
Six-month periods
ended 30 June
2004 2003
RMB millions RMB millions
Capital expenditure
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 10,072 8,645
-----------------------------------------------------------------------------------------------------------------------------
Refining 4,104 4,763
-----------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 8,611 2,732
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 2,939 2,361
-----------------------------------------------------------------------------------------------------------------------------
Corporate and others 94 222
-----------------------------------------------------------------------------------------------------------------------------
25,820 18,723
-----------------------------------------------------------------------------------------------------------------------------
Capital expenditure of jointly controlled entities
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 702 --
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 2,666 2,068
-----------------------------------------------------------------------------------------------------------------------------
3,368 2,068
-----------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 5,372 4,392
-----------------------------------------------------------------------------------------------------------------------------
Refining 3,669 3,196
-----------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 1,358 1,180
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 4,273 4,006
-----------------------------------------------------------------------------------------------------------------------------
Corporate and others 101 173
-----------------------------------------------------------------------------------------------------------------------------
14,773 12,947
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets recognised in income statement
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production -- 269
-----------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 623 --
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 1,701 --
-----------------------------------------------------------------------------------------------------------------------------
2,324 269
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets recognised in shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 439 --
-----------------------------------------------------------------------------------------------------------------------------
31 PRINCIPAL SUBSIDIARIES
At 30 June 2004, the following list contains the particulars of
subsidiaries which principally affected the results or assets of the Group.
Particulars
of issued Percentage of equity
capital and Type of held by the held by
Name of company debt securities legal entity Company Subsidiary 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 70.01 -- Manufacturing of chemical
Company Limited company products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited RMB 1,700 Limited 100.00 -- Marketing and distribution of
company refined petroleum products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company RMB 30,028 Limited 100.00 -- Exploration and production of
Limited company crude oil and natural gas
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical Company RMB 2,253 Limited 50.00 -- Manufacturing of plastics,
Limited (i) company intermediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Maoming Refining and RMB 1,064 and Limited 99.81 -- Manufacturing of intermediate
Chemical Company Limited RMB 1,500 company petrochemical products and
convertible bonds petroleum products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical RMB 1,950 Limited 82.05 -- Manufacturing of intermediate
Company Limited company petrochemical products
and petroleum products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical RMB 7,200 Limited 55.56 -- Manufacturing of synthetic
Company Limited company fibres, 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 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 (i) company refined petroleum products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix Company RMB 519 Limited 40.72 -- Manufacturing of petrochemical
Limited (i) 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 of
Company Limited (i) company 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
-----------------------------------------------------------------------------------------------------------------------------
Except for Sinopec Kantons Holdings Limited, which is incorporated in
Bermuda, all of the above principal subsidiaries are incorporated in the
PRC.
(i) 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.
32 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 2004 and 31
December 2003.
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.
Interest rate risk
The interest rates and terms of repayment of short-term and long-term debts
of the Group are disclosed in Note 23.
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 judgment 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 2004 and 31 December 2003:
At 30 June At 31 December
2004 2003
RMB millions RMB millions
Carrying amount 57,967 49,600
-----------------------------------------------------------------------------------------------------------------------------
Fair value 58,082 49,698
-----------------------------------------------------------------------------------------------------------------------------
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.
33 ULTIMATE HOLDING COMPANY
The directors consider the ultimate holding company of the Group at 30 June
2004 to be Sinopec Group Company, a state-owned enterprise established in
the PRC.
(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 major differences are:
(i) 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 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.
(ii) Impairment losses on revalued assets
Under the PRC Accounting Rules and Regulations, impairment losses on fixed
assets are recognised as 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.
(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 fixed assets. 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) Acquisition of Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical
and Tahe Petrochemical Under the PRC Accounting Rules and Regulations, the
acquisition of Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical
and Tahe Petrochemical (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 Sinopec Maoming, Xi'an Petrochemical and
Tahe Petrochemical approximated the fair value of the net assets acquired.
Under IFRS, as the Group, Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical and Tahe Petrochemical 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, Sinopec
Maoming, Xi'an Petrochemical and Tahe Petrochemical 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,
Sinopec Maoming, Xi'an Petrochemical and Tahe Petrochemical on a combined
basis. The considerations paid by the Group are treated as an equity
transaction.
(vi) 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.
(vii) 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 to zero, without the effect of minority interests.
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.
(viii) 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.
(ix) 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 different from the
amounts recorded under IFRS.
(x) Government grxants
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.
Effects of major differences between the PRC Accounting Rules and
Regulations and IFRS on net profit are analysed as follows:
Six-month periods ended 30 June
Note 2004 2003
RMB millions RMB millions
Net profit under the PRC Accounting Rules and Regulations 15,039 9,765
-----------------------------------------------------------------------------------------------------------------------------
Adjustments:
-----------------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties, net of depreciation effect (i) 879 --
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets (ii) 439 --
-----------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties (iii) 370 1,270
-----------------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs (iv) 247 203
-----------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (v) 58 58
-----------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec Maoming, Xi'an Petrochemical and Tahe Petrochemical (v) -- 26
-----------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (vi) 9 9
-----------------------------------------------------------------------------------------------------------------------------
Unrecognised losses of subsidiaries (vii) (236) --
-----------------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (viii) (95) (100)
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (ix) -- (5)
-----------------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (559) (499)
-----------------------------------------------------------------------------------------------------------------------------
Net profit under IFRS* 16,151 10,727
-----------------------------------------------------------------------------------------------------------------------------
Effects of major differences between the PRC Accounting Rules and
Regulations and IFRS on shareholders' funds are analysed as follows:
At 30 June At 31 December
Note 2004 2003
RMB millions RMB millions
Shareholders' funds under the PRC Accounting Rules and Regulations 172,276 162,946
-----------------------------------------------------------------------------------------------------------------------------
Adjustments:
Disposal of oil and gas properties (i) 2,139 1,260
-----------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties (iii) 11,255 10,885
-----------------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs (iv) 1,372 1,125
-----------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (v) (2,754) (2,812)
-----------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (vi) (861) (870)
-----------------------------------------------------------------------------------------------------------------------------
Effect of minority interests on unrecognised losses of subsidiaries (vii) 332 61
Pre-operating expenditures (viii) (264) (169)
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (ix) (113) (113)
-----------------------------------------------------------------------------------------------------------------------------
Government grants (x) (326) (326)
-----------------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (4,647) (4,088)
-----------------------------------------------------------------------------------------------------------------------------
Shareholders' funds under IFRS * 178,409 167,899
-----------------------------------------------------------------------------------------------------------------------------
* The above figure is extracted from the financial statements prepared in
accordance with IFRS which have been audited by KPMG.
(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 and
Refining Assets were revalued at 31 December 2000, 30 June 2003 and 31
October 2003 respectively in connection with the Acquisitions. Under IFRS,
such revaluations result in an increase in shareholders' funds 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 shareholders' funds.
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 capitalised.
(g) Goodwill amortisation
Under IFRS, goodwill and negative goodwill are amortised on a systematic
basis over their useful lives.
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 shareholders of significant
differences between IFRS and US GAAP is as follows:
Reference Six-month periods ended 30 June
in note 2004 2004 2003
above US$ millions RMB millions RMB millions
Profit attributable to shareholders under IFRS 1,951 16,151 10,727
-----------------------------------------------------------------------------------------------------------------------------
US GAAP adjustments:
-----------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains and losses (a) 4 29 38
-----------------------------------------------------------------------------------------------------------------------------
Capitalisation of property, plant and equipment (b) 1 6 6
-----------------------------------------------------------------------------------------------------------------------------
Reversal of deficit on revaluation of property,
plant and equipment, net of depreciation effect (c) (1) (4) --
-----------------------------------------------------------------------------------------------------------------------------
Depreciation on revalued property, plant and equipment (c) 231 1,913 2,007
Disposal of property, plant and equipment (c) 76 627 250
-----------------------------------------------------------------------------------------------------------------------------
Exchange of assets (d) 1 12 12
-----------------------------------------------------------------------------------------------------------------------------
Reversal of impairment of long-lived assets,
net of depreciation effect (e) 3 21 28
-----------------------------------------------------------------------------------------------------------------------------
Capitalised interest on investments in associates (f) 13 108 129
Goodwill amortisation for the period (g) 1 4 (3)
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax effect of US GAAP adjustments (108) (892) (756)
-----------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders under US GAAP 2,172 17,975 12,438
-----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share under US GAAP US$0.03 RMB0.21 RMB0.14
-----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per ADS under US GAAP* US$2.51 RMB20.73 RMB14.35
-----------------------------------------------------------------------------------------------------------------------------
* Basic and diluted earnings per ADS is calculated on the basis that one
ADS is equivalent to 100 shares.
The effect on shareholders' funds of significant differences between IFRS
and US GAAP is as follows:
Reference At 30 June At 31 December
in note 2004 2004 2003
above US$ millions RMB millions RMB millions
Shareholders' funds under IFRS 21,556 178,409 167,899
-----------------------------------------------------------------------------------------------------------------------------
US GAAP adjustments:
-----------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains and losses (a) (39) (323) (352)
-----------------------------------------------------------------------------------------------------------------------------
Capitalisation of property, plant and equipment (b) (1) (6) (12)
-----------------------------------------------------------------------------------------------------------------------------
Revaluation of property, plant and equipment (c) (1,204) (9,968) (12,943)
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax adjustments on revaluation (c) 365 3,020 4,004
-----------------------------------------------------------------------------------------------------------------------------
Exchange of assets (d) (66) (543) (555)
-----------------------------------------------------------------------------------------------------------------------------
Reversal of impairment of long-lived assets (e) (65) (540) (561)
-----------------------------------------------------------------------------------------------------------------------------
Capitalised interest on investments in associates (f) 52 429 321
-----------------------------------------------------------------------------------------------------------------------------
Goodwill (g) 3 21 17
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax effect of US GAAP adjustments 42 345 398
-----------------------------------------------------------------------------------------------------------------------------
Shareholders' funds under US GAAP 20,643 170,844 158,216
-----------------------------------------------------------------------------------------------------------------------------
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
8.2766 being the noon buying rate in New York City on 30 June 2004 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.
DOCUMENTS FOR INSPECTION
The following documents will be available for inspection during normal business
hours at the legal address of Sinopec Corp. from Friday, 27 August 2004 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 2004 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 2004 signed by Mr. Chen Tonghai (Chairman), Mr. Wang Jiming (Vice
Chairman and President), Mr. Zhang Jiaren (Director, Senior Vice President
and Chief Financial Officer), 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;
4 All original documents and announcements published by Sinopec Corp. in the
newspapers specified by the China Securities Regulatory Commission during
the reporting period;
5 The latest Articles of Association of Sinopec Corp. and its appendices
which were amended at the General Meeting of Sharehoders held on 18 May
2004.
By Order of the Board
Chen Tonghai
Chairman
Beijing, PRC, 27 April 2004
This annual report is published in both English and Chinese languages. The
Chinese version shall prevail.