-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I9SwJWwaf2w/E4c+GuSXV5MVzwxbHnI3d0PtPShqbiOwJ+P8Ttvo68knFDzeqMl7 VEJqml49RGWGqh0l7FRsUw== 0001341004-06-002350.txt : 20060829 0001341004-06-002350.hdr.sgml : 20060829 20060829062310 ACCESSION NUMBER: 0001341004-06-002350 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20060821 FILED AS OF DATE: 20060829 DATE AS OF CHANGE: 20060829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHINA PETROLEUM & CHEMICAL CORP CENTRAL INDEX KEY: 0001123658 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15138 FILM NUMBER: 061060322 BUSINESS ADDRESS: STREET 1: #6A HUIXIN EAST ST STREET 2: CHAOYANG DISTRICT CITY: BEIJING STATE: F4 ZIP: 00000 BUSINESS PHONE: 861064990060 MAIL ADDRESS: STREET 1: #6A HUIXIN EAST STREET STREET 2: CHAOYANG DISTRICT CITY: BEIJING CHINA STATE: F4 ZIP: 00000 6-K 1 bei32047_48.txt REPORT OF FOREIGN PRIVATE ISSUER 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, 2006 CHINA PETROLEUM & CHEMICAL CORPORATION A6, Huixindong Street, Chaoyang District Beijing, 100029 People's Republic of China Tel: (8610) 6499-0060 (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.) Form 20-F __X__ Form 40-F _____ (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes ____ No __X__ (If "Yes" is marked, indicate below the file number assigned to registrant in connection with Rule 12g3-2(b): 82-__________.) N/A This Form 6-K consists of: The announcement of the 2006 Interim Results of China Petroleum & Chemical Corporation (the "Registrant"), made by the Registrant in English on August 25, 2006. [GRAPHIC OMITTED] (a joint stock limited company incorporated in the People's Republic of China) (Stock Code: 386) Announcement of the 2006 Interim Results - ------------------------------------------------------------------------------- Section 1 Important Notice 1.1 The Board of Directors of China Petroleum & Chemical Corporation ("Sinopec Corp.") and the Directors warrant that there are no material omissions, or misrepresentations or misleading statements contained in this announcement and severally and jointly accept full responsibility for the authenticity, accuracy and completeness of the information contained in this announcement. This announcement is a summary of the interim report. The entire report is also contained in the website of the Shanghai Stock Exchange (www.sse.com.cn) and Sinopec Corp. (www.sinopec.com). The investors should read the interim report for more details. 1.2 No Director has any doubt as to, or the inability to warrant, the truthfulness, accuracy and completeness of the interim report. 1.3 Messrs. Yao Zhongmin and Fan Yifei, Directors of Sinopec Corp., could not attend the third meeting of the third session of the Board for reasons of official duties. Mr. Yao Zhongmin, Director of Sinopec Corp., authorised Mr. Chen Tonghai, Chairman of Sinopec Corp., Mr. Fan Yifei, Director of Sinopec Corp., authorised Mr. Wang Tianpu, Director of Sinopec Corp., to vote on their behalf in respect of the resolutions put forward in the meeting of the Board. 1.4 The financial statements for the six-month period ended 30 June 2006 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. 1.5 Mr. Chen Tonghai (Chairman of the Board), Mr. Wang Tianpu (President), Mr. Dai Houliang (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 announcement. *2 Basic Information of Sinopec Corp. 2.1 Basic Information of Sinopec Corp.
SINOPEC SINOPEC SINOPEC Stock name CORP CORP CORP Stock code 0386 SNP SNP 600028 Place of listing Hong Kong New York Stock London Stock Shanghai Stock Stock Exchange Exchange Exchange Exchange Authorized Secretary to the Representative Representatives Board of on Securities Directors Matters Name Mr. Wang Mr. Chen Ge Mr. Chen Ge Mr. Huang Tianpu Wensheng Address 6A Huixindong Street, Chaoyang District, Beijing, PRC Tel 64990060 64990060 64990060 64990060 Fax 64990022 64990022 64990022 64990022 E-mail ir@sinopec.com/media@sinopec.com
2.2 Principal accounting data and financial indicators 2.2.1 Principal accounting data and financial indicators for the first half of 2006 prepared in accordance with the PRC Accounting Rules and Regulations 2.2.1.1 Principal accounting data and financial indicators
At 30 June At 31 December Changes from the 2006 2005 end of last year Items RMB millions RMB millions (%) Current assets 161,351 141,896 13.71 Current liabilities 211,744 167,792 26.19 Total assets 568,888 520,572 9.28 Shareholders' funds (excluding minority interests) 228,510 215,623 5.98 Net assets per share (RMB/share) (Fully diluted) 2.636 2.487 5.98 Adjusted net assets per share (RMB/share) 2.570 2.426 5.94 ============== ============= =============== Changes over the Six-month periods ended 30 June same period of 2006 2005 the preceding year Items RMB millions RMB millions (%) Net profit 20,679 18,044 14.60 Net profit before extraordinary gains and losses 20,776 18,087 14.87 Return on net assets (%) 9.05 9.13 (0.08) (Fully diluted) percentage point Return on net assets (%) 9.20 9.29 (0.09) (Weighted average) percentage point Earnings per share (RMB/share) (Fully diluted) 0.239 0.208 14.60 Earnings per share (RMB/share) (Weighted average) 0.239 0.208 14.60 Net cash flow from operating activities 25,166 25,044 0.49 ============== ============= ===============
2.2.1.2 Items and amounts under extraordinary gains and losses __X__ applicable _____ inapplicable
Six-month period ended 30 June 2006 (Income)/Expense Items RMB millions Gain on disposal of long-term equity investments (24) Written back of provisions for impairment losses in previous years (339) Non-operating expenses: (excluding impairment losses on assets provided in accordance with the Accounting Regulations for Business Enterprises) 640 Of which: Loss on disposal of fixed assets 43 Employee reduction expenses 48 Donations 40 Non-operating income (132) Tax effect (48) --------------- Total 97 ===============
2.2.2 Principal accounting data and financial indicators of the Company for the first half of 2006 from the financial statements prepared in accordance with IFRS
Changes over the same period Six-month periods ended 30 June of the preceding 2006 2005 year (%) Items RMB millions RMB millions Operating profit 34,238 33,682 1.65 Profit attributable to equity shareholders of the Company 21,406 19,653 8.92 Return on capital employed (%) note 5.46 6.17 (0.71) percentage point Basic earnings per share (RMB/share) 0.247 0.227 8.92 Net cash flow from operating activities 21,478 21,082 1.88 ============== ============= =============== Note: Return on capital employed = operating profit x (1 - income tax rate)/capital employed At 30 June At 31 December Changes from the 2006 2005 end of last year Items RMB millions RMB millions (%) Current assets 165,170 145,291 13.68 Current liabilities 215,165 170,649 26.09 Total assets 586,915 537,321 9.23 Total equity attributable to equity shareholders of the Company 237,159 223,556 6.08 Net assets per share (RMB/share) 2.735 2.578 6.08 Adjusted net assets per share (RMB/share) 2.670 2.518 6.04 ============== ============= ===============
2.2.3 Differences between financial statements prepared under the PRC Accounting Rules and Regulations and IFRS __X__ applicable _____ inapplicable 2.2.3.1 Analysis of the effects of major differences between the net profit under PRC Accounting Rules and Regulations and the profit for the period under IFRS:
Six-month periods ended 30 June 2006 2005 Items RMB millions RMB millions Net profit under the PRC Accounting Rules and Regulations 20,679 18,044 Adjustments: Equity investment differences 394 1,169 Capitalisation of general borrowing costs, net of depreciation effect 294 216 Depreciation of oil and gas properties 290 417 Acquisition of Sinopec National Star 58 58 Reduced amortisation on revaluation of land use rights 13 9 Unrecognised losses of subsidiaries 11 113 Reduced depreciation on government grants 6 1 Pre-operating expenditures (16) 442 Disposal of oil and gas properties, net of depreciation effect (177) (209) Effects of the above adjustments on taxation (146) (607) Minority interests 158 2,116 ------------- --------------- Profit for the period under IFRS 21,564 21,769 ============= =============== 2.2.3.2 Analysis of the effects of major differences between the shareholders' funds under the PRC Accounting Rules and Regulations and the total equity under IFRS: At 30 June At 31 December 2006 2005 Items RMB millions RMB millions Shareholders' funds under the PRC Accounting Rules and Regulations 228,510 215,623 Adjustments: Equity investment differences 594 200 Capitalisation of general borrowing costs 2,406 2,112 Depreciation of oil and gas properties 12,523 12,233 Acquisition of Sinopec National Star (2,520) (2,578) Revaluation of land use rights (940) (953) Government grants (582) (588) Pre-operating expenditures (38) (22) Disposal of oil and gas properties 2,883 3,060 Effects of the above adjustments on taxation (5,677) (5,531) Minority interests 20,027 29,440 ------------- --------------- Total equity under IFRS 257,186 252,996 ============= ===============
Section 3 Changes in share capital and shareholdings of the principal shareholders 3.1 Statement of changes in share capital ? applicable iiinapplicable 3.2 Top ten shareholders and holders of tradable shares As at 30 June 2006, there were a total of 227,849 shareholders of Sinopec Corp., of which 219,385 were holders of domestic A Shares and 8,464 were holders of overseas H Shares.
Top ten shareholders as at 30 June 2006 Unit: 1,000 shares Number of shares held at the end of the reporting Percentage Nature of Non-tradable Pledges, lock-ups Name of shareholders period of shares held shareholders shares held or trusts China Petrochemical Corporation 61,757,325 71.23% State-owned 61,757,325 Nil HKSCC (Nominees) Limited 16,684,625 19.24% Foreign Nil Unknown China Cinda Asset Management Corp. note 2,848,886 3.29% State-owned 2,848,886 Nil China Orient Asset Management Corp. note 1,296,410 1.50% State-owned 1,296,410 Nil China Development Bank note 632,570 0.73% State-owned 632,570 Nil GuoTai JunAn Corp. 590,821 0.68% State-owned 586,760 255,150 (pledged)/ 38,230 (locked up) China Life Corp.,-Participating- Individual Participating-005L-FH002 Shanghai 98,021 0.11% State-owned Nil Nil China Life (Group) - Conventional -Ordinary Insurance Product 57,340 0.07% State-owned Nil Nil Guangfa Stratrgic Selected Mixed Securities Fund 52,891 0.06% State-owned Nil Nil International Finance-Standard Chartered - CITIGROUP GLOBAL MARKETS LIMITED 39,284 0.05% Foreign Nil Nil Explanation for the relationships among the above shareholders or any actions in concert: Among the top ten shareholders, except that China Life Corp.,-Participating-Individual Participating-005L- FH002 Shanghai and China Life (Group) - Conventional -Ordinary Insurance Product are both subordinates to China Life Insurance (Group) Company, Sinopec Corp. is not aware of any connection or actions in concert among the above shareholders. Note: According to the Equity Transfer Agreements between China Petrochemical Corporation ("Sinopec Group Company") and each of China Cinda Asset Management Corp, China Orient Asset Management Corp. and China Development Bank respectively, China Cinda Asset Management Corp., China Orient Asset Management Corp. and China Development Bank shall each transfer their entire shareholdings of Sinopec Corp. to Sinopec Group Company. For detailed information, please refer to Significant Events in this report.
Top ten shareholders with tradable shares as at 30 June 2006 Unit: 1,000 shares Number of tradable shares held at end of the Nature of Name of shareholders reporting period shares HKSCC (Nominees) Limited 16,684,625 H share China Life Corp.,-Participating-Individual Participating -005L-FH002 Shanghai 98,021 A share China Life (Group) - Conventional-Ordinary Insurance Product 57,340 A share Guangfa Stratrgic Selected Mixed Securities Fund 52,891 A share International Finance-Standard Chartered - CITIGROUP GLOBAL MARKETS LIMITED 39,284 A share CIFM China Balanced Fund 37,138 A share Jinghong Securities Investment Fund 36,607 A share BOCI Sustained Growth Equity Securities Investment Fund 32,203 A share Tongsheng Securities Investment Fund 31,532 A share Yinfeng Securities Investment Fund 31,388 A share Explanation for the relationships or any actions in concert: Among the top ten shareholders, except that China Life among the above shareholders Corp., -Participating-Individual Participating-005L-FH002 Shanghai and China Life (Group) - Conventional-Ordinary Insurance Product are both subordinates to China Life Insurance (Group) Company, Sinopec Corp. is not aware of any connection or actions in concert among the above shareholders.
Information disclosed by the shareholders of H Shares according to the Securities and Futures Ordinance as at 30 June 2006 Approximate Number of share percentage of interests held or Sinopec Corp's regarded as interests Name of shareholders Nature held (share) (H share) (%) J.P. Morgan Chase & Co. Beneficial owner 137,949,210 0.82(L) Investment manager 805,357,086 4.80(L) Custodian corporation 771,990,035 4.60(L)(P) Credit Suisse Group Corporate 997,124,580 5.94(L) 754,104,300 4.49(S) 48,538,200 0.29(P) Alliance Bernstein L.P. Corporate 986,511,840 5.88(L) UBS AG Beneficial owner 478,366,173 2.85(L) 109,468,745 0.65(S) Warrant equity 38,308,000 0.23(L) 5,597,900 0.03(S) Corporate 335,375,700 2.00(L) 10,000,000 0.06(S) Templetonne Asset Investment manager 848,691,395 5.06(L) Management L.P.
Note: (L): Long position, (S): Short position, (P): Lending pool 3.3 Changes in the controlling shareholders and the effective controllers in the reporting period _____ applicable __X__ inapplicable *4. Information about the directors, supervisors and senior management 4.1 The engagement or dismissal of Directors, Supervisors and Other Members of the Senior Management The Annual General Meeting of Sinopec Corp. for the year 2005 was held on 24 May 2006. Messrs Chen Tonghai, Zhou Yuan, Wang Tianpu, Zhang Jianhua, Wang Zhigang, Dai Houliang, Fan Yifei, Yao Zhongming, Liu Zhongli, Shi Wanpeng, and Li Deshui were elected as Directors of the Third Session of the Board of Sinopec Corp. Messrs Wang Zuoran, Zhang Youcai, Kang Xianzhang, Zou Huiping, Li Yonggui were elected as Supervisors of the Third Session of the Supervisory Committee of Sinopec Corp. (Messrs Su Wensheng, Zhang Jitian, Cui Guoqi, and Li Zhonghua were elected by the employees as the employees' representative Supervisors of the Third Session of the Supervisory Committee of Sinopec Corp.) The First Meeting of the Third Session of Board of Directors of Sinopec Corp was held on 24 May 2006. Mr. Chen Tonghai was elected as Chairman of the Board of Directors and Mr. Zhou Yuan was elected as Vice-Chairman. Mr. Wang Tianpu was appointed as President, Messrs Zhang Jianhua, Wang Zhigang, Cai Xiyou and Dai Houliang were appointed as Senior Vice Presidents. Mr. Dai Houliang was appointed as CFO (amongst other positions held), Messrs Zhang Kehua and Zhang Haichao were appointed as Vice Presidents. Mr. Chen Ge was appointed as Secretary to the Board of Directors. The First Meeting of the Third Session of Supervisory Committee of Sinopec Corp. was held on 24 May 2006. Mr. Wang Zuoran was elected as Chairman of the Third Session of Supervisory Committee and Mr. Zhang Youcai was appointed as Vice Chairman of the Third Session of Supervisory Committee. 4.2 Information about the changes in the shares held by the directors, supervisors and senior management _____ applicable __X__ inapplicable As of 30 June 2006, none of the directors, supervisors or senior management of Sinopec Corp. had any interest in any shares of Sinopec Corp. During the reporting period, none of the directors, supervisors or senior management or any of their respective associates had any interests and short positions in any shares, debentures or related shares of Sinopec Corp. or its associated corporations (as defined in Part XV of the Securities and Futures Ordinance) which were required to be notified to Sinopec Corp. and the Hong Kong Stock Exchange pursuant to Division 7 and 8 of Part XV of the Securities and Futures Ordinance or which were required pursuant to section 352 of the Securities and Futures Ordinance to be entered in the register referred to therein, or which were required to be notified to Sinopec Corp. and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions Entered by Directors of Listed Companies as specified in the Listing Rules of The Stock Exchange of Hong Kong Limited (including those interests and short positions that are deemed to be such, or are regarded to be owned in accordance with the relative provisions under the Securities and Futures Ordinance). Section 5. Business Review and Prospects and Management's Discussion and Analysis 5.1 Business Review In the first half of 2006, the Chinese economy continued to grow at a rapid rate, with a GDP growth rate of 10.9%, and demand for petroleum and petrochemical products kept increasing. According to the Company's statistics, apparent domestic consumption of refined oil products (i.e. gasoline, diesel and kerosene) and consumption of ethylene equivalent increased by 7.1% and 6.3% respectively over that of the same period last year. During the reporting period, international oil prices kept increasing, and the price of chemical products maintained at high level. Due to the tight control on domestic prices of refined oil products, the price gap between domestic and overseas markets remain wide, despite two upward adjustments on the domestic price. The Company responded flexibly to the changing markets by fully leveraging advantage of integrated business structure, extensively expanding oil & gas resources, accelerating structural adjustments, strengthening the linkage between production and sales, optimising resource allocation and consolidating its dominant position in market. As a result, both the production volume and financial returns maintained stable growth. 5.1.1 Production and Operation (1) Exploration and Production Segment In the first half of 2006, the international crude oil prices kept increasing. The average Brent crude price was USD 66.56 per barrel, representing an increase of 29.49% over that of the first half of 2005. The average crude price realised by the Company during the first half of 2006 was RMB 3,309.71 per tonne, representing an increase of 42.88% over that of the same period last year. In the first half of 2006, the Company strengthened its innovation in oil & gas exploration theory and technology, in particular, in the marine facies sedimentation theory and technology, and accelerated exploration. It resulted in a series of important discoveries, represented by the discovery of Puguang Gas Field. [GRAPHIC OMITTED] Trend of International Crude Prices In oilfield development and production, by seizing the opportunities of increasing crude oil price, the Company optimised and accelerated construction of new production capacity. A series of major capacity building projects were put into operation. Efforts are also made to stabilise production in mature oil fields by restoring marginal wells and conducting specialised water treatments. As a result, the overall production in mature oilfield improved. In respect of natural gas development, more efforts were made in Daniudi Gas Field in Erdos basin in North China. The preparations for development of Puguang Gas Field in northeast Sichuan Province were accelerated. In the first half of 2006, the Company achieved a new record in both oil and gas production, with 140.89 million barrels of crude oil and 126.2 billion cubic feet of natural gas produced, representing a year on year increase of 3.07% and 20.42% respectively.
Summary of Operations of Exploration and Production Segment Six-month periods ended June 30 Changes 2006 2005 (%) Crude oil production (mmbbls) note (1) 140.89 136.69 3.07 Natural gas production (bcf) 126.2 104.8 20.42 Newly added proved reserve of crude oil (mmbbls) 143.89 85.69 67.92 Newly added proved reserve of natural gas note 2 (bcf) 175.5 518.1 (66.13) At June 30 At December 31 Changes 2006 2005 (%) Proved reserve of crude oil at the end of the reporting period (mmbbls) 3,297 3,294 0.09 Proved reserve of natural gas at the end of the reporting period note (2) (bcf) 3,001.0 2,951.7 1.67
Note 1: 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. Note 2: Natural gas reserve of Puguang Gas Field is not included. (2) Refining Segment In the first half of 2006, the Company continued to run the refining facilities at full-load and increased refined oil production along with improvement on the overall quality of refined oil products to meet market demands. By fully leveraging on the Ningbo-Shanghai-Nanjing crude oil pipeline and the newly operated Yizheng-Changling crude oil pipeline and optimising resource allocation, the Company achieved cost savings in both crude oil transportation and storage. The Company increased the refining throughput of sour and heavy crude oil in order to reduce purchase cost of crude oil. In addition, the Company strived to increase the production volume of high value-added products through optimised production plan and product mix which resulted in further improvement in both light products yield and overall refining yield.
Summary of Operations of Refining Segment Six-month periods ended June 30 Changes 2006 2005 (%) Crude oil throughput (million tonnes) 71.68 68.08 5.29 of which: sour crude oil throughput (million tonnes) 17.60 16.87 4.33 Gasoline, diesel and kerosene output (million tonnes) 42.73 41.02 4.17 of which: Gasoline (million tonnes) 11.23 11.32 (0.80) Diesel (million tonnes) 28.32 26.31 7.64 Kerosene including jet fuel (million tonnes) 3.18 3.39 (6.19) Light chemical feedstock (million tonnes) 11.47 10.16 12.89 Light products yield (%) 74.81 74.24 0.57 percentage point Overall refining yield (%) 93.73 93.11 0.62 percentage point
Note: Crude oil throughput is converted at 1 tonne = 7.35 barrels. (3) Marketing and Distribution In the first half of year 2006, the Company proactively took measures to maintain its position in the market by organising and mobilising resources, making structural adjustments, fully leveraging transportation and storage facilities such as the southwest refined oil pipeline. As a result of improved service-oriented awareness and service quality, both proportion of sales to end customers and annual throughput per station further improved. As a result, the Company's position in the refined oil market continually strengthened. The Company was also active in developing non-fuel businesses, including establishment of a strategic partnership with McDonald's. The customer base for IC fueling cards continued to grow, with an aggregate of over 11 million petrol IC cards issued. Summary of Operations of Marketing and Distribution Segment
Six-month periods ended June 30 Changes 2006 2005 (%) Total domestic sales volume of refined oil products (million tonnes) 54.32 50.77 6.99 of which: retail volume (million tonnes) 35.33 29.56 19.52 direct sales volume (million tonnes) 9.69 10.39 (6.74) wholesale volume (million tonnes) 9.30 10.82 (14.05) Total No. of service stations 29,198 30,352 (3.80) of which: No. of self-operated service stations 27,628 26,870 2.82 No. of franchised service stations 1,570 3,482 (54.91) Average annual throughput per station (tonne) 2,558 2,200 16.27
(4) Chemicals In the first half of 2006, the Company fully leveraged the newly built production capacity and strengthened operation management on facilities to ensure safe, stable, sustained, full-load and optimal operation of major facilities. The production of ethylene and other major chemical products, such as synthetic resins, etc., significantly increased. The Company continued to reinforce product mix improvement, with more high value-added products. In the first half of 2006, the intensive operations of the Chemical Sales Company and its improved adaptabily to market conditions resulted in a steady growth in the Company's proportion of direct sales, which laid a solid foundation for maximisation of the overall returns of the Chemicals Segment.
Summary of Production of Major Production of Chemical Operation Unit: thousand tonnes Six-month periods ended June 30 Changes 2006 2005 (%) Ethylene Note 3,031 2,434 24.53 Synthetic Resin 4,184 3,528 18.59 Synthetic fiber monomers and polymers 3,577 3,152 13.48 Synthetic fiber 770 756 1.85 Synthetic rubber 318 308 3.25 Urea 906 998 (9.22)
Note: 100% production of two ethylene joint ventures, namely BASF-YPC and Shanghai Secco were included. 5.1.2 Cost reduction In the first half of 2006, the Company took various measures to reduce costs, such as optimising resource allocation and fully leveraging the modern logistics system to reduce transportation costs, further increasing the throughtput of sour and heavy crude oil to reduce procurement costs, optimising the operation of facilities to reduce material and energy consumption, improving utilisation of oil and water wells and intensifying treatment of heavy viscous oils. In the first half of 2006, the Company effectively saved RMB 1.382 billion in cost. Of the total cost saved, the Exploration and Production Segment, the Refining Segment, the Marketing and Distribution Segment and the Chemicals Segment achieved cost saving of RMB 396 million, RMB 348 million, RMB 287 million and RMB 351 million respectively. 5.1.3 Capital Expenditure In the first half of 2006, the Company's total capital expenditure was RMB 30.452 billion. Among which, the capital expenditure for Exploration and Production segment was RMB 11.676 billion. With the investment, the Company achieved a number of important exploration results through strengthening progressive exploration and preliminary exploration in new blocks. The newly built production capacity of crude oil and natural gas was 2.95 million tonnes per year and 758 million cubic metres per year respectively. The capital expenditure for Refining Segment was RMB 5.121 billion. With the investment, the construction of Yizheng-Changling crude oil pipeline was completed; the refinery projects including Guangzhou, Yanshan and Qingdao Projects made smooth progress. The capital expenditure in Chemicals Segment was RMB 5.93 billion. With the Investment, Sinopec Yangzi PX and PTA expansion and revamping project was completed and has commenced production; the second round of Maoming Ethylene revamping project, Fujian Integrated Project and Tianjin ethylene project as well as the fertiliser coal gasification projects were proceeding as planned. The capital expenditure in Marketing and Distribution Segment was RMB 6.685 billion. With the investment, the construction and acquisition of service stations in key areas started to turn in an initial pay-off; with the newly added 353 service stations, the marketing network was further improved. The capital expenditure for Corporate and Others amounted to RMB 1.04 billion. In addition, the total capital expenditure for joint ventures amounted to RMB 179 million. 5.2 Principal Operations categorised by business segments and the status of the connected transactions The following table sets out the principal operations categorised by business segments and the details of the connected transactions, including income from principal operations and cost of sales for each business segment, extracted from the Company's financial statements prepared under the PRC Accounting Rules and Regulations:
Increase/ decrease of income from principal Increase/decrease operations of cost of sales Gross compared to of compared to the Increase/ profit same period same period of decrease of Categorised by ratio preceding year preceding year gross profit ratio (RMB million) (RMB million) (%) note(1) (%) (%) (percentage point) Exploration and Production 65,497 19,596 60.53 47.53 13.83 7.06 Refining 268,982 276,547 (5.33) 28.63 37.37 (6.00) Chemicals 97,944 86,849 11.13 17.91 27.90 (6.67) Marketing and Distribution 275,115 252,663 8.03 32.21 32.64 (0.30) Others 93,681 92,198 1.56 75.93 75.27 0.38 Elimination of inter-segment sales (319,231) (318,556) -- -- -- -- Total 481,988 409,297 12.40 34.17 39.61 (3.71) Of which: connected transactions note (2) 47,194 44,163 5.40 48.43 53.47 (3.67)
Pricing policy for (1) Government-prescribed prices and connected transactions government-guided prices are adopted for products or items if such prices are available; (2) Where there is no government-prescribed price or government-guided price for products or items, the market price (inclusive of bidding price) will apply; (3) Where none of the above is applicable, the price will be decided based on the reasonable cost incurred plus sales taxes and reasonable profit. Reasonable cost means the average production cost of products by the same type of enterprises within regions with proximity using the same kind of raw materials. Reasonable profit means profit margin of not more than 6% of the cost incurred based on the current interest rate level set by the government. Note 1: Gross profit ratio = profit from principal operations/income from principal operations. Note 2: During the reporting period, the total amount of connected transactions of the products sold and the services provided by the Company to Sinopec Group Company was RMB 29.853 billion. 5.3 Principal operations in different regions _____ applicable __X__ inapplicable 5.4 Other operating activities with major influences on net profit _____ applicable __X__ inapplicable 5.5 Operations of associated companies (applicable to circumstances when the return on investment is more than 10% of the listed company's net profit) _____ applicable __X__ inapplicable 5.6 Reasons of material changes in the principal operations and their structure _____ applicable __X__ inapplicable 5.7 Reasons of material changes in the principal operations' earning power (gross profit ratio) as compared to the preceding year _____ applicable __X__ inapplicable 5.8 Reasons of changes in profit composition as compared to that in the preceding year __X__ applicable _____ inapplicable The financial information presented in this section are derived from the Company's audited financial statements that have been prepared in accordance with IFRS. In the first half of 2006, the Company's turnover and other operating revenues were RMB 493.1 billion and the operating profit was RMB 34.2 billion, representing an increase of 33.8% and 1.7% over the same period of 2005 respectively. These results were largely attributable to the significant increase in international crude price and the fact that by seizing the favourable opportunities of steady growth of the domestic economy, the Company proactively developed the market, increased oil and gas production, optimised crude oil processing structure, and increased the production of chemical products and sales of refined oil products. 5.8.1 Turnover and other operating revenues In the first half of 2006, the Company's turnover and other operating revenues were RMB 493.1 billion, of which turnover was RMB 482.0 billion, representing an increase of 34.2% over the first half of 2005. These results were largely attributable to the increase in international crude oil price, and the Company's effort in expanding sales volume of our petroleum and petrochemical products and optimising our sales and marketing structure. In the first half of 2006, the Company's other operating revenue was RMB 11.1 billion, representing an increase of 21.0% over the first half of 2005. This was mainly due to the increase of raw materials sales to Sinopec Group Company and to third parties during the period. The following table lists the Company's external sales volume, average realised prices and the respective rate of changes between the first half of 2006 and the first half of 2005 for the Company's major products:
Average realised price Sales Volume (RMB/tonne, RMB/ (thousand tonnes) thousand cubic meters) Six-month periods Rate of Six-month periods Rate of ended June 30 changes ended June 30 changes 2006 2005 (%) 2006 2005 (%) Crude oil 2,710 2,569 5.5 3,290 2,367 39.0 Natural gas (million cubic meters) 2,600 1,962 32.5 745 658 13.2 Gasoline 15,986 14,609 9.4 4,968 4,151 19.7 Diesel 35,109 32,571 7.8 4,259 3,514 21.2 Kerosene, including jet fuel 2,702 3,086 (12.4) 4,301 3,414 26.0 Basic chemical feedstock 4,941 3,836 28.8 5,336 4,948 7.8 Synthetic fiber monomers and polymer 1,704 1,412 20.7 8,602 9,026 (4.7) Synthetic resin 3,523 2,898 21.6 9,485 9,144 3.7 Synthetic fiber 825 784 5.2 10,723 11,499 (6.7) Synthetic rubber 382 303 26.1 13,911 12,394 12.2 Chemical fertiliser 928 1,004 (7.6) 1,699 1,463 16.1
Most of crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production and the remaining were sold to the refineries owned by Sinopec Group Company and other customers. In the first half of 2006, turnover from crude oil and natural gas that were sold externally by the Exploration and Production Segment amounted to RMB 12.1 billion, representing an increase of 40.3% over the first half of 2005, accounting for 2.5% of the Company's total turnover and other operating revenues. The increase was mainly due to significant increases in crude oil prices as well as the increase in price and sales volume of natural gas. The Company's Refining Segment and Marketing and Distribution Segment sell refined oil products (mainly consisting of gasoline, diesel, jet fuel, kerosene and other refined oil products) to third parties. In the first half of 2006, the external sales revenue of refined oil products by these two segments were RMB 321.8 billion, accounting for 65.3% of the Company's turnover and other operating revenues, representing an increase of 32.0% compared with that in the first half of 2005. The increase was mainly due to the increased prices of refined oil products and our proactive efforts in increasing sales volume, optimisng sales and marketing structure and expanding the markets of other refined oil products. The sales revenue of gasoline, diesel and kerosene was RMB 240.6 billion, accounting for 74.8% of the total turnover of refined oil products, representing an increase of 29.6% over the same period in 2005. The turnover of other refined oil products was RMB 81.2 billion, accounting for 25.2% of the total turnover of refined oil products, representing an increase of 39.6% compared with the first half of 2005. The Company's external turnover of chemical products was RMB 92.7 billion, accounting for 18.8% of its turnover and other operating revenues, representing an increase of 24.0% compared with the first half of 2005. The increase was mainly due to the fact that the Company utilitised the new production capacity resulting in higher sales volume. 5.8.2 Operating expenses In the first half of 2006, the Company's operating expenses were RMB 458.9 billion, representing an increase of 37.1% over the first half of 2005. 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 400.2 billion, representing an increase of 41.4% over the first half of 2005, accounting for 87.2% of the total operating expenses, of which: Purchased crude oil expenses was RMB 207.7 billion, representing an increase of 40.1% over the first half of 2005, accounting for 45.3% of the total operating expenses, up by 1.0 percentage point over the first half of 2005. To meet the increasing demands in the fast growing Chinese economy, the Company increased its throughput of crude oil purchased externally. In the first half of 2006, the throughput of the Company's crude oil purchased externally was 56.05 million tonnes (excluding amounts processed for third parties), representing an increase of 6.9% compared with the same period in 2005. Average cost for crude oil processed which were purchased externally in the first half of 2006 was RMB 3,706 per tonne (equivalent to USD 62.8 per barrel), representing an increase of 31.1% compared with the first half of 2005. In the first half of 2006, the Company's other purchase expenses were RMB 192.5 billion, representing an increase of 42.8% over the first half of 2005, accounting for 42.0% of the total operating expenses. The increase was mainly due to the increased costs of purchased refined oil products and chemical feedstock externally. Selling, general and administrative expenses In the first half of 2006, the Company's selling, general and administrative expenses totalled RMB 16.4 billion, representing an increase of 5.9% over the first half of 2005. This increase was mainly due to the increased operating leases charges, research and development costs, natural resources compensation fees, and costs of supporting units. Depreciation, depletion and amortisation In the first half of 2006, the Company's depreciation, depletion and amortisation were RMB 16.5 billion, representing an increase of 8.9% compared with the first half of 2005. The increase was mainly due to the additions of fixed assets. Exploration expenses In the first half of 2006, the Company's exploration expenses were RMB 3.1 billion, representing a decrease of 8.0% compared with the first half of 2005. This was mainly due to the decrease of geological and geophysical exploration expenses. Personnel expenses In the first half of 2006, the Company's personnel expenses were RMB 9.2 billion, representing an increase of 7.7% compared with the first half of 2005. The increase was largely due to the remuneration reforms initiated by the Company in the second half of 2005. Employee reduction expenses In the first half of 2006, in accordance with the Company's voluntary employee reduction plan, the Company recorded employee reduction expenses of approximately RMB 50 million relating to the reduction of approximately 1,000 employees. Taxes other than income tax In the first half of 2006, the Company's taxes other than income tax were RMB 12.9 billion, representing an increase of 57.5% over the first half of 2005. The increase was mainly attributable to the accrual of RMB 3.7 billion as special oil income levy imposed by the Chinese government effect from 26 March 2006, and an increase of RMB 740 million in consumption tax as a result of the increase in sales volume of gasoline and diesel and the increase in the number of items subject to consumption taxes. Other operating expenses, net In the first half of 2006, the Company's other operating expenses, net were RMB 0.5 billion, representing a decrease of 43.6% compared with the first half of 2005. This was mainly due to the decrease in the impairment losses on long-lived assets. 5.8.3 Operating profit In the first half of 2006, the Company's operating profit was RMB 34.2 billion, representing an increase of 1.7% over the first half of 2005. 5.8.4 Net finance costs In the first half of 2006, the Company's net finance costs were RMB 3.1 billion, representing an increase of 22.4% compared with the first half of 2005, which was mainly due to the increase of crude oil price and expanded scale of operation, leading to an increase in short term loan as a result of more capital being employed by operating activities such as purchase of inventories. 5.8.5 Profit before taxation In the first half of 2006, the Company's profit before tax was RMB 31.7 billion, representing a decrease of 0.1% over the first half of 2005. 5.8.6 Taxation In the first half of 2006, the Company's income tax was RMB 10.1 billion, representing an increase of 1.7% over the first half of 2005. 5.8.7 Profit attributable to minority interests In the first half of 2006, the Company's profit attributable to minority interests were RMB 0.2 billion, representing a decrease of 92.5% compared with the first half of 2005. The decrease was mainly as a result of acquisition of minority interests of the five subsidiaries by the Company. 5.8.8 Profit attributable to equity holders of the parent In the first half of 2006, the Company's profit attributable to equity shareholders of the Company was RMB 21.4 billion, representing an increase of 8.9% over the first half of 2005. 5.9 During this reporting period, there was no significant difference in terms of cash flow, source of funds and capital structure compared with the same period last year. 5.10 Use of the proceeds from share issue 5.10.1 Use of the proceeds from share issue _____ applicable __X__ inapplicable 5.10.2 Change of projects _____ applicable __X__ inapplicable 5.11 Business prospects and operating plan for the second half __X__ applicable _____ inapplicable Looking into the second half of 2006, China's economy will continue to grow rapidly and demands for petroleum and petrochemical products will increase steadily, while international crude price is expected to remain high. Domestic refineries will face considerable operations pressure, and due to the effects of high raw materials price and other factors, the price of chemical products is expected to remain high. In addition, under China's WTO accession commitment, China will fully open its domestic wholesale market for refined oil products by the end of 2006, which will result in intensified market competition. Confronted with the complicated market situation, the Company will adopt flexible operating strategies, deepen reforms, strengthen management, optimise resources and make structural adjustments while organising various production and operation activities in the following manner: In Exploration and Production Segment, the Company will continue to stick to the strategy of resources and endeavor to increase oil and gas production. The Company intends to focus on building production capacity in Tahe Oilfield in western China and Erdos blocks, while taking actions to improve management with an aim of stabilising production and comprehensive adjustment in the mature oilfields, so as to stabilise and increase reserves. The preparation for gas exploration in northeast Sichuan will be accelerated. In the second half of 2006, the Company plans to produce 20.16 million tonnes of crude oil and 3.5 billion cubic metres of natural gas. In Refining Segment, the Company will adhere to the strategy of diversified sources of crude oil, strive to increase the refining throughput of sour and heavy crude to reduce the procurement cost of crude oil. In addition, the Company will optimise its product mix by increasing the production of value added products such as BTX products to reduce losses and improve returns. In the second half of 2006, the Company plans to process 73.30 million tonnes of crude oil. In Marketing and Distribution Segment, the Company will closely monitor the market trend, make timely adjustments to operation while making appropriate resource deployment. The modern logistics system will be brought into full play by optimising resource allocation. Operational management will also be strengthened, and sales structure optimized to improve economic returns. In the second half of 2006, the Company will target its total domestic sales volume of refined oil products at 56.0 million tonnes. In Chemicals Segment, the Company will focus on successful start-up new facilities and maintain safe and stable operation of the existing facilities. The product mix will also be optimised, and the linkage between production and sales will be strengthened to produce more profitable products to meet robust demand so as to increase profitability. In addition, the Company will fully leverage the specialised operation of the newly established chemical sales company to improve its overall competitiveness. In the second half of 2006, the Company plans to produce 3.03 million tonnes of ethylene. In the second half of 2006, the Company will continue to adhere to the operation guidelines featuring "reform, adjustment, innovation and development", work hard and aggressively, endeavoring to fulfill the annual production and operation targets, and maintain its good performance. 5.12 Caution and explanation as to the anticipated loss of accumulated net profits from the beginning of the year to the end of the next reporting period or significant changes over the same period of last year _____ applicable __X__ inapplicable 5.13 Explanation of the management about the auditors' "non-standard opinion" for the reporting period _____ applicable __X__ inapplicable 5.14 Explanation of the management about the subsequent changes and the follow up actions of the matters in connection with the auditors' "non-standard opinion" in the last financial year _____ applicable __X__ inapplicable *6 Significant events 6.1 Acquisition, sale of assets and assets reorganisation 6.1.1 Acquisition and purchase of assets During this reporting period, apart from the acquisition of the four A share subsidiaries (see item 6.5.10) and the restructuring of China Phoenix (item 6.5.8), there was no material acquisition, disposal or restructuring of assets. 6.1.2 Disposition and sale of assets _____ applicable __X__ inapplicable 6.1.3 Progress and impact on financial positon and operating results of the relevant event after the issue of asset reorgansation report or announcement of acquition and sale of assets _____ applicable __X__ inapplicable 6.2 Material guarantee contracts and status of implementation External guarantees provided by the Company (not including guarantees provided to its controlled subsidiaries)
Date of Occurrence Amount Whether Whether for (Date of RMB completed a connected Obligor Execution) millions Type of guarantee Term or not party (note1) Shanghai Secco Petrochemical 9 February 2002 2,830 Joint and 9 February 2002 No Yes Co., Ltd. several liability - 20 December 2021 Shanghai Secco Petrochemical 9 February 2002 4,062 Joint and 9 February 2002 No Yes Co., Ltd. several liability - 20 December 2013 BASF-YPC Co., Ltd. 7 March 2003 4,680 Joint and 7 March 2003 No Yes several liability - 31 December 2008 Yueyang Sinopec Shell Coal 10 December 2003 377 Joint and 10 December 2003 No Yes Gasification Co., Ltd. several liability - 10 December 2017 Fujian Zhangzhao Expressway 21 January 2003 10 Joint and 21 January 2003 No Yes Service Company Limited several liability - 31 October 2007 Total amount of guarantee provided during the reporting period note(2) RMB 20 million Total amount of guarantee outstanding at the end of the reporting period note (2) RMB 12,015 million Guarantees provided by Sinopec Corp. for its controlled subsidiaries Total amount of guarantee provided for its controlled subsidiaries during the reporting period None Total amount of guarantee for its controlled subsidiaries outstanding at the end of the reporting period RMB 2,561 million Total amount of guarantee provided by Sinopec Corp. (including those provided for its controlled subsidiaries) Total guarantee amount note (3) RMB 14,576 million Total amount of guarantee as a percentage of the Sinopec Corp. net assets 6.3% Of which: Amount of guarantee provided for shareholders, effective controlling parties or their connected parties None Amount of debt guarantee provided directly or indirectly for the companies with liabilities to assets ratio of over 70% RMB 179 million The amount of guarantee in excess of 50% of the net assets None Sum of the above three guaranteed items note (4) RMB 179 million Note 1: As defined in the Listing Rules of the Shanghai Stock Exchange. Note 2: Total amount of guarantee provided during the reporting period and total amount of guarantee outstanding at the end of the reporting period include the external guarantees provided by controlled subsidiaries. The amount assumed by Sinopec Corp. is the aggregate of total amount of the external guarantees provided by each controlled subsidiary multiplied by Sinopec Corp. respective shareholdings in the controlled subsidiary. Note 3: Total guarantee amount is the sum of the amount of guarantee outstanding at the end of the reporting period (excluding the guarantees provided for controlled subsidiaries) and the total amount of guarantees for controlled subsidiaries outstanding at the end of the reporting period. Note 4: "Sum of the above three guaranteed amounts" is the aggregate of "amount of guarantee provided for shareholders, effective controlling parties or their connected parties", "amount of debt guarantee provided directly or indirectly for the companies with liabilities to asset ratio of over 70%" and "the amount of guarantee in excess of 50% of the net asset". Any guarantee qualifying under all three of the above shall be counted once only.
6.3 Fund provided between connected parties __X__ applicable _____ inapplicable
Unit: RMB millions Relation with Connected Parties the Company Fund to connected parties Fund from connected parties Net fund Net fund provided Balance provided Balance Sinopec Group Company Controlling shareholder 420 2,908 5,243 10,661 and its controlled entity Other Connected Parties Associates (11) 506 -- -- ---------- --------- --------- --------- Total 409 3,414 5,243 10,661 ========== ========= ========= =========
Of which: RMB 420 million fund (net) was provided by the Company to China Petrochemical Corporation ("Sinopec Group Company") during the reporting period, and the balance at the end of the reporting period is RMB 2.91 billion. 6.4 Material litigation and arbitration _____ applicable __X__ inapplicable 6.5 Explanations of other significant events, their impact and proposed solutions __X__ applicable _____ inapplicable 6.5.1 The discovery of large-scale marine facies gas field -- Puguang Gas Field The Company discovered the largest and most abundant marine facies natural gas field - Puguang Gas Field -- in northeast Sichuan Province. According to the appraisal undertaken by the Mineral Resource Reserve Evaluation Center under the Ministry of Land and Resources, reserve in Puguang Gas Field is estimated to be 251.071 billion cubic metres, with technically recoverable reserve of 188.304 billion cubic metres. Puguang Gas Field meets the conditions for commercial development. 6.5.2 The transfer of state owned shares to Sinopec Group Company from China Orient Asset Management Corporation, China Cinda Asset Management Corporation and China Development Bank During the reporting period, China Orient Asset Management Corporation ("China Orient"), China Cinda Asset Management Corporation ("Cinda") and China Development Bank ("CDB"), all of which are shareholders of Sinopec Corp., entered into equity transfer agreements with Sinopec Group Company on 29 April 2006, 6 June 2006 and 17 August 2006 respectively, pursuant to which China Orient, Cinda and CDB respectively transferred 1,296.41 million (approximately 1.5% of the total shares of Sinopec Corp.), 2,848,886,224 (approximately 3.3% of the total shares of Sinopec Corp.) and 632.57 million (approximately 0.7% of the total shares of Sinopec Corp.) state-owned shares to Sinopec Group Company. The respective total cash considerations of RMB 3,150,276,300.00, RMB 7,207,682,100.00, and RMB 1,537,145,100.00 will be paid to China Orient, Cinda and CDB by Sinopec Group Company. The equity transfer agreement with China Orient has been approved by the State-owned Assets Supervision and Administration Commission ("SASAC") and the Ministry of Finance. The equity transfer agreement with Cinda has been approved by SASAC but is pending approval by the Ministry of Finance while the equity transfer agreement with CDB is pending approval by SASAC and the Ministry of Finance. 6.5.3 Increase of equity investment in Sinopec Finance Company Limited On 31 March 2006, Sinopec Corp. and Sinopec Group Company entered into an arrangement ("Arrangement") with Sinopec Finance Co., Ltd. ("Sinopec Finance"), under which, the registered capital of Sinopec Finance increased to RMB 6 billion from RMB 2.5 billion. Sinopec Corp. and Sinopec Group Company injected RMB 1,602.3 million and RMB897.7 million respectively into Sinopec Finance. Upon completion of the Arrangement, the equity holding of Sinopec Corp. in Sinopec Finance increased to 49% from 38.22%, while the equity holding of Sinopec Group Company in Sinopec Finance will decrease to 51% from 61.78%. Please refer to the relevant announcements published in the China Securities Journal, Shanghai Securities News and Securities Times in Mainland China and Hong Kong Economic Times and South China Morning Post in Hong Kong on 3 April 2006 for details. 6.5.4 Continuing connected transactions When listed in 2000, Sinopec Corp. and Sinopec Group Company executed a series of agreements regarding continuing connected transactions, including the Mutual Supply Agreement, the Community Service Agreement, the Land Use Right Leasing Agreement, Property Leasing Agreement, the Intellectual Property License Agreement, the Agency Agreement and the SPI Fund Document. On 24 December 2003, the Stock Exchange of Hong Kong Limited granted a conditional waiver of three years (from 2004 to 2006) to Sinopec Corp. from strict compliance with relevant requirements of the Hong Kong Listing Rules in relation to the continuing connected transactions. The waiver will expire on 31 December 2006. It is expected that Sinopec Corp. will continue to conduct the relevant continuing connected transactions after the expiry of the waiver period. Sinopec Corp. has entered into supplemental agreements in relation to the connected transactions with Sinopec Group Company on 31 March 2006. The relevant supplemental agreements will apply to the continuing connected transactions of the Company to be conducted after 1 January 2007. The proposal regarding continuing connected transactions for the three-year period from 2007 to 2009 was approved at the 2005 Annual General Meeting held on 24 May 2006. For further details, please refer to Sinopec Corp.'s announcements published in China Securities Journal, Shanghai Securities News and Securities Times in Mainland China and Hong Kong Economic Times and South China Morning Post in Hong Kong on 3 April 2006. 6.5.5 Domestic share reform on non-tradable shares Sinopec Corp. initiated domestic A share reform of non-tradable shares on 21 August, 2006. All the shareholders holding non-tradable shares intend to grant 2.8 shares for every ten tradable shares held by the shareholders as consideration. All shareholders holding non-tradable shares of Sinopec Corp. have made commitments of not trading their shares which have acquired the trading rights within the legal lock up period. The above domestic A share reform is to be submitted to A share shareholders' general meeting for approval. Please refer to the announcement on A Share Reform of Sinopec Corp. published on 28 August, 2006. 6.5.6 Special oil income levy The Chinese government imposed a special oil income levy on the revenue derived from the sales of domestically produced crude oil by any company engaged in oil exploration and production at a price which exceeds a certain level starting from 26 March 2006. The special oil income levy system consists of 5 levels and will be calculated and charged according to the progressive ad valorem rates on the excess amounts. The levy will be calculated on a monthly basis and charged and collected on a quarterly basis. The applicable level of the special oil income levy will be determined based on the weighted average price of the crude oil sold in a particular month. The level of levy will be determined based on US dollar per barrel which starts at US$ 40 per barrel. Please refer to the relevant announcements published in the China Securities Journal, Shanghai Securities News and Securities Times in Mainland China and Hong Kong Economic Times and South China Morning Post in Hong Kong on 4 April 2006 for details. 6.5.7 Issuance of short-term commerical paper On 19 September 2005, Sinopec Corp. convened the first extraordinary general meeting of shareholders for 2005, at which a special resolution was passed for issuance of short-term commercial paper. For details, please refer to Sinopec Corp.'s announcements published in China Securities Journal, Shanghai Securities News, and Securities Times in Mainland China, and Hong Kong Economic Times and South China Morning Post in Hong Kong on 20 September 2005. 2006 first tranche of commercial paper with a term of 183 days, carrying a rate of 2.668% was issued on 16 May 2006 to institutional investors in China's inter-bank commercial paper market, totaling RMB 10 billion at face value. 6.5.8 The transfer of state-owned legal person shares of China Phoenix held by Sinopec Corp. On 18 October 2005, Sinopec Corp. and China Changjiang National Shipping (Group) Corporation ("Changhang Group") entered into a equity transfer agreement, under which, Sinopec Corp. agreed to transfer to Changhang Group a total of 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) and repurchase the operating assets of China Phoenix. For further details, please refer to the "Report on Changes of Shareholdings in Sinopec Wuhan Phoenix Company Limited" dated 20 October 2005 published by Sinopec Corp. on the website of the Shanghai Stock Exchange. The proposed asset restructuring of China Phoenix was approved by the China Securities Regulatory Commission ("CSRC") on 29 April 2006. The relevant equity transfer procedures were completed by Sinopec Corp. and Changhang Group on 10 July 2006. 6.5.9 Merger by absorption of Zhenhai Refinery and Chemicals Pursuant to the agreement entered into between Ningbo Yonglian Co., Ltd. ("Ningbo Yonglian") and Sinopec Zhenhai Refining and Chemicals Company Limited ("ZRCC") on 12 November 2005, Ningbo Yonglian purchased the listed H shares of ZRCC from its shareholders at a unit price of HK$ 10.60 per share in cash, amounting to a total consideration of HK$ 7.672 billion. For further details, please refer to Sinopec Corp.'s announcements published in China Securities Journal, Shanghai Securities News and Securities Times in Mainland China and Hong Kong Economic Times and South China Morning Post in Hong Kong on 14 November 2005. The proposed merger had been approved on 12 January 2006 at the general meeting of shareholders and the general meeting of independent shareholders of ZRCC and approved by the shareholders of Ningbo Yonglian, as well as by domestic and overseas securities regulatory authorities. ZRCC was delisted on 24 March 2006. 6.5.10 Tender offer by Sinopec Corp. to four A-share subsidiaries On 25 February 2006, the 24th meeting of the Second Session of the Board of Directors of Sinopec Corp. approved its voluntary tender offers to acquire all the tradable shares of Sinopec Qilu Petrochemical Co., Ltd. ("Sinopec Oilu") at a price of RMB 10.18 per share, all the tradable shares of Sinopec Yangzi Petrochemical Co., Ltd. ("Sinopec Yangzi") at a price of RMB 13.95 per share, all the tradable shares of Sinopec Zhongyuan Oil & Gas Hi-tech Co., Ltd. ("Sinopec Zhongyuan Oil & Gas") at a price of RMB 12.12 per share, and all the tradable shares of Sinopec Shengli Oil Field Dynamic (Group) Co., Ltd. at a price of RMB 10.30 per share and all the non-tradable shares (including non-tradable shares held by investors other than Sinopec Corp.) of Sinopec Shengli Oil Field Dynamic (Group) Co., Ltd. at a price of RMB 5.60 per share. Sinopec Qilu was delisted on 24 April 2006, and Sinopec Yangzi, Zhongyuan Oil & Gas and Sinopec Shengli Oil Field Dynamic (Group) Co., Ltd. were delisted on 21 April 2006. For further details, please refer to relevant announcements published in China Securities Journal, Shanghai Securities News and Securities Times in Mainland China on 16 February and 6 March 2006 (Sinopec Shengli Oil Field Dynamic (Group) Co., Ltd.'s announcement was only published in China Securities Journal and Securities Times). 6.5.11 Construction of Tianjin one million tonnes per annum ethylene project Construction of Sinopec Tianjin one million tonnes per annum ("tpa") ethylene and associated facilities project started on 26 June 2006. This project comprises three parts, which are respectively ethylene project, revamping of refinery and thermal power generation facilities, at a total investment of about RMB 20.8 billion. 6.5.12 ZRCC one million tpa ethylene project ZRCC one million tpa ethylene and associated facilities project was approved by the State Council in March 2006. The total investment is approximately RMB 21.9 billion. The Project consists of the ethylene project and the expansion of thermal power generation facilities. Initial preparatory work has commenced. 6.5.13 De-registration of Sinopec Shengli Oil Field Company Limited Sinopec Corp. de-registered Sinopec Shengli Oilfield Co., Ltd. and on 16 January 2006 established Shengli Oilfield Company. Prior to the de-registration, Sinopec Shengli Oilfield Co., Ltd. was a wholly owned subsidiary of Sinopec. Corp. 6.6 Dividend distribution for the year ended 31 December 2005 As approved at the 2005 Annual General Meeting of Sinopec Corp, a final cash dividend of RMB 0.09 (inclusive of tax) per share for the year ended 31 December 2005 was distributed, which amounted to an aggregate of RMB 7.803 billion. On 30 June 2006, Sinopec Corp. distributed the 2005 year end dividend to shareholders whose names appeared on the register of members of Sinopec Corp. on 16 June 2006. For the year 2005, total cash dividend of RMB 0.13 (inclusive of tax) per share was distributed, and the total cash dividend amounted to RMB 11.271 billion. 6.7 Interim dividend distribution plan for the six-month period ended 30 June 2006 According to the provisions of the Articles of Association of Sinopec Corp., the interim dividend distribution plan for the six-month period ended 30 June 2006 was approved at the third meeting of the Third Session of the Board of Directors. An interim cash dividend of RMB 0.04 (inclusive of tax) per share will be distributed based on the total number of shares of 86,702.439 million as at 30 June 2006. The total cash dividend amounts to RMB 3.468 billion. The interim dividend will be distributed on or before Thursday, 28 September 2006 to the shareholders whose names appear on the register of members of Sinopec Corp. on Wednesday, 13 September 2006. To be entitled to the interim dividend, holders of H shares shall lodge their share certificate(s) and transfer documents with Hong Kong Registrars Limited at Shops 1712-1716, 17/F., Hopewell Center, 183 Queen's Road East, Wanchai, Hong Kong for registration of transfer, no later than 4:00pm on Tuesday, 12 September 2006. The register of members of the H shares of Sinopec Corp. will be closed from Wednesday, 13 September 2006 to Tuesday, 19 September 2006 (both dates inclusive). Dividends will be denominated and declared in Renminbi. Dividends for domestic shares will be paid in Renminbi and dividends for foreign shares will be paid in Hong Kong dollars. The exchange rate for dividends to be paid in Hong Kong dollars is the average of the basic exchange rate of Hong Kong dollar to Renminbi published by the People's Bank of China during the week prior to the date of declaration of dividends, being Friday, 25 August 2006. *7 Financial Statements The followings are the financial statements of China Petroleum & Chemical Corporation ("the Company") and its subsidiaries ("the Group"), which are extracted from the audited interim financial statements prepared in accordance with the PRC Accounting Rules and Regulations and International Financial Reporting Standards ("IFRS") with 2005 comparatives. 7.1 Auditors' opinion Financial statements _____ Unaudited __X__ Audited Auditors' opinion __X__ Standard unqualified opinion _____ Not Standard opinion 7.2 The Group's and the Company's financial statements with comparatives
7.2.1 Financial statements prepared in accordance with the PRC Accounting Rules and Regulations (1) Balance sheets At 30 June 2006 At 31 December 2005 The Group The Company The Group The Company RMB millions RMB millions RMB millions RMB millions Assets Current assets Cash at bank and in hand 10,777 3,993 14,747 5,124 Bills receivable 7,825 1,948 7,143 1,334 Trade accounts receivable 17,449 11,198 14,532 8,826 Other receivables 12,491 15,882 11,487 9,604 Advance payments 7,313 7,268 5,051 4,118 Inventories 105,496 56,488 88,936 49,862 --------- --------- --------- ---------- Total current assets 161,351 96,777 141,896 78,868 --------- --------- --------- ---------- Long-term equity investments (Including the Group's and the Company's equity investment differences of RMB13,549 million and RMB13,549 million (2005: RMB2,003 million and 2,017 million)) 27,392 109,926 14,146 133,203 --------- --------- --------- ---------- Fixed assets Fixed assets, at cost 589,872 431,592 572,465 294,206 Less: Accumulated depreciation 282,226 206,560 265,611 123,747 --------- --------- --------- ---------- Net book value of fixed assets before impairment losses 307,646 225,032 306,854 170,459 Less: Provision for impairment losses on fixed assets 6,267 4,195 6,234 4,191 --------- --------- --------- ---------- Net book value of fixed assets 301,379 220,837 300,620 166,268 Construction materials 419 419 555 555 Construction in progress 62,628 52,586 48,073 38,937 --------- --------- --------- ---------- Total fixed assets 364,426 273,842 349,248 205,760 --------- --------- --------- ---------- Intangible assets and other assets Intangible assets 5,835 4,307 5,924 4,238 Long-term deferred expenses 4,088 2,879 3,657 2,656 --------- --------- --------- ---------- Total intangible assets and other assets 9,923 7,186 9,581 6,894 --------- --------- --------- ---------- Deferred tax assets 5,796 5,408 5,701 3,203 --------- --------- --------- ---------- --------- --------- --------- ---------- Total assets 568,888 493,139 520,572 427,928 ========= ========= ========= ========== Liabilities and shareholders' funds Current liabilities Short-term loans 46,785 35,699 16,124 6,940 Bills payable 27,198 20,389 23,243 19,077 Trade accounts payable 50,636 34,565 52,967 28,833 Receipts in advance 14,624 11,430 14,086 12,491 Wages payable 3,369 2,710 3,436 2,525 Staff welfare payable 1,074 686 1,052 514 Taxes payable 4,105 2,062 5,262 2,075 Other payables 6,105 5,823 1,830 527 Other creditors 30,656 30,800 24,161 22,914 Accrued expenses 1,483 994 512 173 Short-term debentures payable 10,891 9,900 9,921 9,921 Current portion of long-term loans 14,818 12,958 15,198 12,144 --------- --------- --------- ---------- Total current liabilities 211,744 168,016 167,792 118,134 --------- --------- --------- ---------- Long-term liabilities Long-term loans 104,232 91,167 103,492 89,113 Debentures payable 3,500 3,500 3,500 3,500 Other long-term liabilities 784 727 782 315 --------- --------- --------- ---------- Total long-term liabilities 108,516 95,394 107,774 92,928 --------- --------- --------- ---------- --------- --------- --------- ---------- Total liabilities 320,260 263,410 275,566 211,062 --------- --------- --------- ---------- Minority interests 20,118 -- 29,383 -- --------- --------- --------- ---------- Shareholders' funds Share capital 86,702 86,702 86,702 86,702 Capital reserve 37,121 37,797 37,121 37,797 Surplus reserves 36,096 36,096 34,028 34,028 Unrecognised investment losses (583) -- (594) -- Retained profits (Including cash dividend declared after the balance sheet date of RMB 3,468 million (2005: Proposed cash dividend of RMB 7,803 million)) 69,174 69,134 58,366 58,339 --------- --------- --------- ---------- Total shareholders' funds 228,510 229,729 215,623 216,866 --------- --------- --------- ---------- --------- --------- --------- ---------- Total liabilities and shareholders' funds 568,888 493,139 520,572 427,928 ========= ========= ========= =========
(2) Income statements and profit appropriation statements Six-month periods Six-month periods ended 30 June 2006 ended 30 June 2005 The Group The Company The Group The Company RMB millions RMB millions RMB millions RMB millions Income from principal operations 481,988 331,021 359,248 241,340 Less: Cost of sales 409,298 274,683 293,181 212,726 Sales taxes and surcharges 12,918 10,626 8,204 5,386 --------- --------- --------- ---------- Profit from principal operations 59,772 45,712 57,863 23,228 Add: Profit from other operations 490 167 447 175 Less: Selling expenses10,711 6,557 10,359 6,609 Administrative expenses 11,771 9,530 10,600 6,141 Financial expenses 3,522 2,542 2,852 1,852 Exploration expenses, including dry holes 3,085 3,063 3,355 2,678 --------- --------- --------- ---------- Operating profit 31,173 24,187 31,144 6,123 Add: Investment income/(loss) 184 6,845 (742) 20,934 Non-operating income 132 54 133 99 Less: Non-operating expenses 674 468 1,109 432 --------- --------- --------- ---------- Profit before taxation 30,815 30,618 29,426 26,724 Less: Income tax 9,964 9,952 9,168 8,694 Minority interests 161 -- 2,101 -- Add: Reversal of unrecognised investment losses (11) -- (113) -- --------- --------- --------- ---------- Net profit 20,679 20,666 18,044 18,030 Add: Retained profits at the beginning of the period 58,366 58,339 37,124 37,124 --------- --------- --------- ---------- Distributable profits 79,045 79,005 55,168 55,154 Less: Transfer to statutory surplus reserve 2,068 2,068 1,804 1,804 Transfer to statutory public welfare fund -- -- 1,804 1,804 --------- --------- --------- ---------- Distributable profits to shareholders 76,977 76,937 51,560 51,546 Less: Distribution of ordinary shares' dividend 7,803 7,803 6,936 6,936 --------- --------- --------- ---------- Retained profits at the end of the period (Including cash dividend declared after the balance sheet date of RMB 3,468 million (2005: RMB 3,468 million)) 69,174 69,134 44,624 44,610 ========= ========= ========= =========
7.2.2 Financial statements prepared in accordance with IFRS (1) Consolidated income statement
Six-month periods ended 30 June 2006 2005 RMB millions RMB millions Turnover and other operating revenues Turnover 481,988 359,248 Other operating revenues 11,140 9,206 ------------ --------------- 493,128 368,454 ------------ --------------- Operating expenses Purchased crude oil, products and operating supplies and expenses (400,215) (283,036) Selling, general and administrative expenses (16,429) (15,510) Depreciation, depletion and amortisation (16,504) (15,155) Exploration expenses, including dry holes (3,085) (3,355) Personnel expenses (9,197) (8,536) Employee reduction expenses (48) (100) Taxes other than income tax (12,918) (8,204) Other operating expenses, net (494) (876) ------------ --------------- Total operating expenses (458,890) (334,772) ------------ --------------- ------------ --------------- Operating profit 34,238 33,682 ------------ --------------- Finance costs Interest expense (3,542) (2,845) Interest income 250 168 Foreign exchange losses (52) (40) Foreign exchange gains 202 151 ------------ --------------- Net finance costs (3,142) (2,566) ------------ --------------- Investment income 131 62 ------------ --------------- Share of profits less losses from associates 447 536 ------------ --------------- ------------ --------------- Profit before taxation 31,674 31,714 Taxation (10,110) (9,945) ------------ --------------- Profit for the period 21,564 21,769 ============ =============== Attributable to: Equity shareholders of the Company 21,406 19,653 Minority interests 158 2,116 ------------ --------------- Profit for the period 21,564 21,769 ============ =============== Dividend payable to equity shareholders of the Company attributable to the period: Interim dividend declared after the balance sheet date 3,468 3,468 ============ =============== Basic earnings per share (RMB) 0.25 0.23 ============ =============== (2) Consolidated balance sheet At 30 June At 31 December 2006 2005 RMB millions RMB millions Non-current assets Property, plant and equipment 315,737 314,573 Construction in progress 62,879 48,267 Goodwill 13,934 2,203 Investments 3,150 2,926 Interest in associates 10,693 9,217 Deferred tax assets 6,167 6,072 Lease prepayments 1,935 1,908 Long-term prepayments and other assets 7,250 6,864 ------------ --------------- Total non-current assets 421,745 392,030 ------------ --------------- Current assets Cash and cash equivalents 9,939 13,745 Time deposits with financial institutions 838 1,002 Trade accounts receivable 17,449 14,532 Bills receivable 7,825 7,143 Inventories 105,894 89,474 Prepaid expenses and other current assets 23,225 19,395 ------------ --------------- Total current assets 165,170 145,291 ------------ --------------- Current liabilities Short-term debts 65,199 40,411 Loans from Sinopec Group Company and fellow subsidiaries 7,295 832 Trade accounts payable 50,636 52,967 Bills payable 27,198 23,243 Accrued expenses and other payables 60,903 48,167 Income tax payable 3,934 5,029 ------------ --------------- Total current liabilities 215,165 170,649 ------------ --------------- ------------ --------------- Net current liabilities (49,995) (25,358) ------------ --------------- ------------ --------------- Total assets less current liabilities 371,750 366,672 ------------ --------------- Non-current liabilities Long-term debts 68,279 67,059 Loans from Sinopec Group Company and fellow subsidiaries 39,453 39,933 Deferred tax liabilities 6,048 5,902 Other liabilities 784 782 ------------ --------------- Total non-current liabilities 114,564 113,676 ------------ --------------- ------------ --------------- 257,186 252,996 ============ =============== Equity Share capital 86,702 86,702 Reserves 150,457 136,854 ------------ --------------- Total equity attributable to equity shareholders of the Company 237,159 223,556 Minority interests 20,027 29,440 ------------ --------------- Total equity 257,186 252,996 ============ ===============
7.3 Notes on the financial statements prepared under IFRS 7.3.1 Turnover Turnover represents revenue from the sales of crude oil, natural gas, petroleum and chemical products, net of value-added tax. 7.3.2 Taxation Taxation in the consolidated income statement represents:
Six-month periods ended 30 June 2006 2005 RMB millions RMB millions Current tax - Provision for the period 9,819 9,608 - Under-provision in prior years 240 477 Deferred taxation 51 (140) ------------ --------------- 10,110 9,945 ============ =============== A reconciliation between actual tax expense and accounting profit at applicable tax rates is as follows: Six-month periods ended 30 June 2006 2005 RMB millions RMB millions Profit before taxation 31,674 31,714 ------------ --------------- Expected PRC income tax expense at a statutory tax rate of 33% 10,453 10,466 Tax effect of non-deductible expenses 379 234 Tax effect of non-taxable income (400) (222) Tax effect of differential tax rate on subsidiaries' income (Note) (1,161) (870) Tax effect of tax losses not recognised for deferred tax 600 15 Under-provision in prior years 240 477 Tax credit for domestic equipment purchases (1) (155) ------------ --------------- Actual tax expense 10,110 9,945 ============ ===============
Substantially all income before income tax and related tax expense is from PRC sources. Note: The provision for PRC current income tax is based on a statutory rate of 33% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group, which are taxed at a preferential rate of 15%. 7.3.3 Basic earnings per share The calculation of basic earnings per share for the six-month period ended 30 June 2006 is based on the profit attributable to equity shareholders of the Company of RMB 21,406 million (2005: RMB 19,653 million) and the weighted average number of shares of 86,702,439,000 (2005: 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. 7.3.4 Dividends Dividends payable to equity shareholders of the Company attributable to the period represent:
Six-month periods ended 30 June 2006 2005 RMB millions RMB millions Interim dividends declared after the balance sheet date of RMB 0.04 per share (2005: RMB 0.04 per share) 3,468 3,468 ============ ===============
Pursuant to the Company's Articles of Association and a resolution passed at the Directors' meeting on 25 August 2006, the directors authorised to declare the interim dividends for the year ending 31 December 2006 of RMB 0.04 (2005: RMB 0.04) per share totalling RMB 3,468 million (2005: RMB 3,468 million). Interim dividend of RMB 3,468 million (2005: RMB 3,468 million) proposed after the balance sheet date has not been recognised as a liability at the balance sheet date. Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the period represent:
Six-month periods ended 30 June 2006 2005 RMB millions RMB millions Final dividends in respect of the previous financial year, approved and paid during the period of RMB 0.09 per share (2005: RMB 0.08 per share) 7,803 6,936 ============ ===============
Pursuant to the shareholders' approval at the Annual General Meeting on 24 May 2006, a final dividend of RMB 0.09 per share totalling RMB 7,803 million in respect of the year ended 31 December 2005 was declared and paid on 30 June 2006. Pursuant to the shareholders' approval at the Annual General Meeting on 18 May 2005, a final dividend of RMB 0.08 per share totalling RMB 6,936 million in respect of the year ended 31 December 2004 was declared and paid on 27 June 2005. *8 Repurchase, Sales and Redemption of shares During this reporting period, the Company did not repurchase, sell or redeem any securities of Sinopec Corp. *9 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. *10 A detailed results announcement containing all the information required by paragraphs 46(1) to (9) of Appendix 16 to the Listing Rules of the Stock Exchange will be published on the website of the Hong Kong Stock Exchange in due course. This announcement is published in both English and Chinese languages. The chinese version shall prevail. By Order of the Board Chen Tonghai Chairman Beijing, the PRC, 25 August 2006 As at the date of this announcement, the executive directors of Sinopec Corp. are Messrs. Wang Tianpu, Zhang Jianhua, Wang Zhigang, Dai Houliang; the non-executive directors are Messrs. Chen Tonghai, Zhou Yuan, Fan Yifei and Yao Zhongmin; the independent non-executive directors are Messrs. Liu Zhongli, Shi Wanpeng and Li Deshui. - ------------------------------------------------------------------------------- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. China Petroleum & Chemical Corporation By: /s/ Chen Ge ----------- Name: Chen Ge Title: Secretary to the Board of Directors Date: August 28, 2006 -----END PRIVACY-ENHANCED MESSAGE-----