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China Petroleum & Chemical Corporation

The Third Quarterly Report for 2017

30 October 2017

Beijing, China

1	Important notice

1.1

The Board of Directors, the Supervisory Board of China Petroleum & Chemical Corporation (“Sinopec Corp.” or the “Company”) and its directors, supervisors and senior management warrant that there are no material omissions, misrepresentations or misleading statements contained in this report and severally and jointly accept full responsibility for the authenticity, accuracy and completeness of the information contained in this report.

1.2	The third quarterly report for 2017 (the “Quarterly Report”) was approved at the 15th meeting of the Sixth Session of the Board of Directors of Sinopec Corp. All the directors attended this meeting.

1.3	Mr. Dai Houliang, Vice Chairman of the Board of Directors and President, Mr. Wang Dehua, Chief Financial Officer and Head of the Corporate Financial Department of Sinopec Corp. warrant the authenticity, accuracy and completeness of the financial statements contained in the Quarterly Report.

1.4	The financial statements in the Quarterly Report were not audited.

 

 

2	Basic information of Sinopec Corp.

2.1	Principal Financial Data And Indicators

2.1.1

Principal Financial Data and Indicators Prepared in Accordance with PRC Accounting Standards for Business Enterprises (“ASBE”)

RMB million

 

 

Extraordinary (gain)/loss items	Third Quarter 2017 RMB million	Nine Months 2017 RMB million
Loss on disposal of non-current assets	132	230
Donations	83	96
Gain on holding and disposal of various investments	(96)	(257)
Other extraordinary income and expenses, net	(980)	(2,429)
Subtotal	(861)	(2,360)
Tax effect	203	590
Total	(658)	(1,770)
Equity shareholders of the Company	(662)	(1,655)
Minority interests	4	(115)

2.1.2

Principal financial data and indicators prepared in accordance with International Financial Reporting standards (“IFRS”)

RMB million

	As of 30 September 2017	As of 31 December 2016	Changes from the end of the preceding year to the end of the reporting period (%)
Total assets	1,476,655	1,498,609	(1.5)
Equity attributable to owners of the Company	715,347	710,994	0.6

	Nine Months		Changes over the same period of the preceding year (%)
	2017	2016
Operating profit	55,757	51,430	8.4
Net profit attributable to equity shareholders of the Company	39,404	30,107	30.9
Basic earnings per share (RMB)	0.325	0.249	30.5
Diluted earnings per share (RMB)	0.325	0.249	30.5
Return on net assets (%)	5.51	4.35	1.16 percentage points
Net cash generated from operating activities	111,193	131,700	(15.6)

 

2.2	Total number of shareholders and top ten shareholders at the end of the reporting period

Note 1:

Sinopec Century Bright Capital Investment Limited, overseas wholly-owned subsidiary of China Petrochemical Corporation, holds 553,150,000 H shares, which is included in the total number of the shares held by HKSCC Nominees Limited.

 

2.3	Review of operating results

In the first three quarters of 2017, global economy recorded moderate recovery and Chinese economy maintained steady growth with gross domestic product (GDP) up by 6.9% year on year. With abundant supply, domestic refined oil products market witnessed strong competition. According to the statistics, domestic consumption of refined oil products increased by 6.6% compared with same period last year, among which gasoline and kerosene consumption maintained strong growth momentum. Domestic demand for natural gas accelerated, up by 15.9% compared with same period last year. Domestic consumption of major chemicals grew significantly with consumption of ethylene equivalent up by 11.3% year on year, and gross margin for chemical products remained strong.

By taking full advantage of integrated business, tapping potentials and enhancing efficiency, as well as reducing cost, the Company endeavoured to coordinate all aspects of work and realised outstanding results. In accordance with ASBE，operating income of the Company was RMB 1,744.955 billion, up by 27.9% over the same period last year; net profit attributable to equity shareholders of the Company was RMB 38.373 billion, up by 31.6% over the same period last year. In accordance with IFRS, net profit attributable to equity shareholders of the Company was RMB 39.404 billion, up by 30.9% over the same period last year.

Exploration and Production: We focused on reserve increase and development returns through the operation and production with superior results achieved. In exploration, we continued to focus on discovery of high quality, large scale and low cost reserves. New oil discoveries were made in Tahe Basin of Xinjiang, Junggar Basin, Shengli Oilfield and North Jiangsu Basin, and new natural gas discoveries were made in Sichuan Basin and Ordos Basin. In production, we arranged crude oil production in a flexible manner and resumed production of some shut-down wells amid upward trend of crude oil price. Importance was attached to natural gas development, through expediting natural gas capacity construction in Hangjinqi area of Ordos and fully promoting Phase II of Fuling Shale Gas development project. In the first three quarters, oil and gas production of the Company was 332.63 million barrels of oil equivalent, down by 3.2% over the same period last year, of which crude oil production dropped by 4.0% while natural gas grew by 21.0%. The Exploration and Production Segment had an operating loss of RMB 26.523 billion with reduction of RMB 3.893 billion compared with same period last year.

Refining: Our refined oil products mix has been optimised to address market demand changes, more high value-added products were produced and diesel-to-gasoline ratio was 1.16. We actively promoted refined oil products quality upgrading, and the GB VI quality upgrading plan for “2+26” cities in North China completed ahead of schedule. We optimised crude oil sourcing and allocation, as well as adjusting procurement strategy according to changes of crude oil price, to lower our feedstock cost and transportation fee, and increased export of refined oil products to help maintain high utilisation rates of refining facilities. The advantages of centralised marketing took full play, and profitability of asphalt, lubricant and LPG was maintained. In the first three quarters, refinery throughput and refined oil products production increased by 1.3% and 1.1% respectively, among which gasoline up by 1.5%, jet fuel up by 6.3% and diesel down by 1.3% over the same period last year. The Refining Segment realised an operating profit of RMB 43.854 billion, up by 3.4% over the same period last year.

 

Marketing and Distribution: We took full advantages of our integrated business and distribution network, as well as further enhancing the synergy between fuel and non-fuel businesses, to actively respond to more competitive market conditions, and achieved good operational results. We optimised internal and external resources, put all efforts to expand market, and realised sustained growth in total sales volume of refined oil products. We flexibly adjusted our marketing strategies, promoted branding gasoline and increased retail volume of premium gasoline. We innovated operational models and optimised layout of service stations, and expedited revamping of storage and transportation facilities of refined oil products to further improve our distribution network. By means of “Internet+” and other marketing measures, we put more efforts on cultivation of major products and self-owned brand products and promoted rapid growth of non-fuel business. We proactively promoted vehicle natural gas business, expediting the construction and operation of CNG/LNG stations. In the first three quarters, total sales volume of refined oil products was 150 million tonnes, up by 3.1% over the same period last year. Total domestic sales volume of refined oil products was 133 million tonnes, up by 2.8%. Vehicle natural gas sales volume increased by 32.9% over the same period last year. Transaction of non-fuel business reached RMB 41 billion, up by 52.3% compared with the same period last year. The Marketing and Distribution Segment realised an operating profit of RMB 23.482 billion, down by 3.3% over the same period last year.

Chemicals: We continued the “basic and high-end” chemical business development concept to promote effective supply. In the first three quarters, we optimised operations based on marginal contribution and gross margin of chemical facilities to promote profitability. We deepened adjustments of feedstock mix to reduce chemical feedstock cost, and pressed ahead optimisation of product slate, producing more market-oriented and high value-added products. We put advantages of marketing network into full play and conducted differentiated and tailor-made measures to expand sales scale. We strengthened the integration among production, sales, R&D and application, and intensified efforts on R&D, production and promotion of new products, with the ratio of performance compound reaching 62.5% and the differential ratio of synthetic fiber reaching 89.1%. In the first three quarters, ethylene production reached 8.534million tonnes, up by 5.2% and chemical sales volume was 57.58 million tonnes, up by 14.1% over the same period last year. The Chemicals Segment realised an operating profit of RMB 16.727 billion, up by 8.3% over the same period last year.

Summary of Principal Operating Results for the First Three Quarters

 

 

Note:

1.	Conversion: in the first three quarters of 2017, for domestic production of crude oil, 1 tonne = 7.10 barrels; for overseas production of crude oil, 1 tonne=7.21barrels; for production of natural gas, 1 cubic meter = 35.31 cubic feet.

2.	Including 100% production of domestic joint ventures.

3.	The number of service stations in 2016 was as of 31 December 2016.

4.	Throughput per service station was annualised.

Capital expenditure: Focusing on quality and returns of investment, the Company continuously optimised its investment projects. In the first three quarters, total capital expenditures were RMB 29.101 billion. Capital expenditures for the exploration and production segment were RMB 10.896 billion, mainly for Fuling Shale Gas and Hangjinqi Natural Gas capacity construction, Shengli oilfield and Xibei oilfield crude oil capacity construction, Guangxi LNG Terminal Project, Tianjin LNG Terminal Project, Wen 23 Gas Storage Project, boosting project of Sichuan-to-East

 

China Pipeline as well as overseas projects. Capital expenditures for the refining segment were RMB 8.522 billion, mainly for Zhongke integrated refining and chemical project, product mix adjustments of Zhenhai and Maoming refineries, and GB VI gasoline and diesel quality upgrading projects. Capital expenditures for the marketing and distribution segment were RMB 5.254 billion, mainly for constructing refined oil products depots, pipelines and service stations. Capital expenditures for the chemicals segment were RMB 3.735 billion, mainly for Zhongke integrated refining and chemical project, Hainan aromatics project, capital injection of Gulei integrated refining and chemical project, Zhongan and other coal chemical projects, as well as feedstock optimisation projects and product mix adjustment projects of Jinling and Maoming. Capital expenditures for corporate and others were RMB 694 million, mainly for R&D facilities and information technology application projects.

Focusing on transformation of growth pattern and structural adjustments, as well as improvement of quality and efficiency and upgrading of operation, the Company optimises capital expenditure arrangement for 2017 which is adjusted from RMB 110.2 billion to RMB 98.5 billion, of which, capital expenditure for the exploration and production segment is RMB 42.7 billion, for the refining segment is RMB 21.3 billion, for the chemicals segment is 12.5 billion, for corporate and others is RMB 4.0 billion and for the marketing and distribution segment maintains at RMB 18.0 billion.

 

3	Significant events

3.1	Significant changes in major items contained in the consolidated financial statements prepared in accordance with ASBE and the reasons for such changes.

 

3.2	This quarterly results announcement is published in both Chinese and English languages. In the event of any discrepancies, the Chinese version shall prevail.

By Order of the Board

Vice Chairman

Dai Houliang

30 October 2017

 

 

4.

Appendix

4.1	Quarterly financial statements prepared under China Accounting Standards for Business Enterprises (“ASBE”)

Consolidated Balance Sheet

as at 30 September 2017

 Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

Balance Sheet

as at 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

Consolidated Income Statement

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

Income Statement

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

Consolidated Cash Flow Statement

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

Cash Flow Statement

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

Segment Reporting

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

4.2	Quarterly financial statements prepared under International Financial Reporting Standards (“IFRS”)

Consolidated Income Statement

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

Consolidated Statement of Comprehensive Income

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

Consolidated Balance Sheet

as at 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

Consolidated Statement of Cash Flow

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

Note to consolidated statement of Cash Flow

(a)

Reconciliation of profit before taxation to net cash generated from operating activities

 

Segment Reporting

for the nine-month periods ended 30 September 2017

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

 

4.3	Differences between Financial Statements prepared in accordance with the accounting policies complying with ASBE and IFRS (unaudited)

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 consolidated financial statements prepared in accordance with the accounting policies complying with ASBE and IFRS. The reconciliation presented below is included as supplemental information, is not required as part of the basic financial statements and does not include differences related to classification, presentation or disclosures. Such information has not been subject to independent audit or review. The major differences are:

(i) Government Grants

Under ASBE, grants from the government are credited to capital reserve if required by relevant governmental regulations. Under IFRS, government grants relating to the purchase of fixed assets are recognised as deferred income and are transferred to the income statement over the useful life of these assets.

(ii) Safety Production Fund

Under ASBE, safety production fund should be recognised in profit or loss with a corresponding increase in reserve according to PRC regulations. Such reserve is reduced for expenses incurred for safety production purposes or, when safety production related fixed assets are purchased, is reduced by the purchased cost with a corresponding increase in the accumulated depreciation. Such fixed assets are not depreciated thereafter. Under IFRS, payments are expensed as incurred, or capitalised as fixed assets and depreciated according to applicable depreciation methods.

Effects of major differences between the net profit under ASBE and the profit for the period under IFRS are analysed as follows:

Prepared by: China Petroleum & Chemical Corporation

Units: million   Currency: RMB   Type: unaudited

Effects of major differences between the shareholders’ equity under ASBE and the total equity under IFRS are analysed as follows:

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