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 March, 2005
China Petroleum & Chemical Corporation
A6, Huixindong Street,
Chaoyang District Beijing, 100029
People's Republic of China
Tel: (8610) 6499-0060
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934. )
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to
registrant in connection with Rule 12g3-2(b):
82-__________. )
N/A
This Form 6-K consists of:
An Announcement on the results for the year ended December 31, 2004 made by
China Petroleum & Chemical Corporation ("Registrant") in English on March 25,
2005.
[GRAPHIC OMITTED]
(a joint stock limited company incorporated in the People's Republic
of China with limited liability)
(Stock Code : 0386)
Results for the Year Ended 31 December 2004
ss.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 from, or misrepresentations or misleading
statements contained in this announcement, and jointly and severally
accept full responsibility for the authenticity, accuracy and
completeness of the information contained in this announcement.
This announcement is a summary of the annual report. The entire
report can be downloaded from the websites of the Shanghai Stock
Exchange (www.sse.com.cn) and Sinopec Corp. (www.sinopec.com).
Investors should read the annual report for the year 2004 for more
details.
1.2 The annual report for this year has been approved unanimously at the
fifteenth meeting of the Second Session of the Board. No Director
has any doubt as to, or the inability to warrant, the truthfulness,
accuracy and completeness of the annual report.
1.3 Messrs. Mou Shuling, Gao Jian, Fan Yifei, Ho Tsu Kwok, Charles and
Zhang Youcai, Directors of Sinopec Corp., could not attend the
fifteenth meeting of the Second Session of the Board for reasons of
official duties. Mr. Mou Shuling, Director of Sinopec Corp.,
authorised Mr. Cao Xianghong, Mr. Fan Yifei, Director of Sinopec
Corp., authorised Mr. Wang Jiming, Vice Chairman and President and
Messrs. Gao Jian, Ho Tsu Kwok, Charles and Zhang Youcai, Directors
of Sinopec Corp., authorised Mr. Chen Qingtai, respectively, to vote
on their behalf in respect of the resolutions put forward in the
fifteenth meeting of the Second Session of the Board.
1.4 The financial statements for the year ended 31 December 2004 of
Sinopec Corp. and its subsidiaries ("the Company") prepared in
accordance with the PRC Accounting Rules and Regulations and
International Financial Reporting Standards ("IFRS") have been
audited by KPMG Huazhen and KPMG, respectively, and both firms have
issued unqualified opinions on the financial statements.
1
1.5 Mr. Chen Tonghai (Chairman of the Board), Mr. Wang Jiming (Vice
Chairman and President), Mr. Zhang Jiaren (Director, Senior Vice
President and Chief Financial Officer) and Mr. Liu Yun (Head of the
Accounting Department) warrant the authenticity and completeness of
the financial statements contained in the annual report for the year
ended 31 December 2004.
ss.2. Basic Information about Sinopec Corp.
2.1 Basic information
Stock name SINOPEC CORP SINOPEC CORP SINOPEC CORP SINOPEC CORP
Stock code 0386 SNP SNP 600028
Place of listing Hong Kong New York London Shanghai
Stock Exchange Stock Exchange Stock Exchange Stock Exchange
Registered 6A Huixindong Street, Chaoyang District, Beijing, China
address and
office address
Postcode 100029
Website http://www.sinopec.com
E-mail ir@sinopec.com.cn / media@sinopec.com.cn
2.2 Contact persons of Sinopec Corp. and means of communication
Secretary Representative on
Authorised representatives to the Board Securities Matters
Name Mr. Wang Jiming Mr. Chen Ge Mr. Chen Ge Mr. Huang Wensheng
Address 6A Huixindong Street, Chaoyang District, Beijing, China
Tel 86-10-6499 0060 86-10-6499 0060 86-10-6499 0060 86-10-6499 0060
Fax 86-10-6499 0022 86-10-6499 0022 86-10-6499 0022 86-10-6499 0022
E-mail ir@sinopec.com.cn / media@sinopec.com.cn
2
ss.3. Summary of Accounting Data and Financial Indicators
3.1 Principal accounting data and financial indicators prepared under
the PRC Accounting Rules and Regulations for the year 2004
3.1.1 Principal accounting data
For the For the For the year ended
year ended year ended 31 December 2002
31 December 31 December Increase/ After Before
Item 2004 2003 decrease (%) Adjustment* Adjustment
Income from principal
operations (RMB million) 590,632 417,191 41.57 324,184 324,184
Profit before taxation
(RMB million) 53,535 30,015 78.36 22,012 22,012
Net Profit (RMB million) 32,275 19,011 69.77 14,121 14,121
Net profit before non-operating
profits/losses (RMB million) 35,996 22,307 61.37 14,582 14,582
Net cash flow from operating
activities (RMB million) 70,139 64,448 8.83 60,069 60,069
At At At 31 December 2002
31 December 31 December Increase/ After Before
Item 2004 2003 decrease (%) Adjustment* Adjustment
Total assets (RMB million) 460,081 390,213 17.91 368,375 368,375
Shareholders' funds
(excluding minority interests)
(RMB million) 186,350 162,946 14.36 151,717 146,515
3
3.1.2 Principal financial indicators
For the For the For the year ended
year ended year ended 31 December 2002
31 December 31 December Increase/ After Before
Item 2004 2003 decrease (%) Adjustment* Adjustment
Earnings per share (RMB)
(Fully diluted) 0.372 0.219 69.77 0.163 0.163
Return on net assets (%)
(Fully diluted) 17.320 11.667 5.653 9.307 9.638
percentage
points
Return (adjusted for non-operating
profits/losses) on net assets (%)
Fully diluted 19.316 13.690 5.626 9.611 9.953
percentage
points
Weighted average 20.524 14.137 6.387 9.787 10.040
percentage
points
Net cash flow from operating
activities per share (RMB) 0.809 0.743 8.83 0.693 0.693
For the For the For the year ended
year ended year ended 31 December 2002
31 December 31 December Increase/ After Before
Item 2004 2003 decrease (%) Adjustment* Adjustment
Net assets per share (RMB)
(Fully diluted) 2.149 1.879 14.36 1.750 1.690
Adjusted net assets per share
(RMB) 2.102 1.850 13.62 1.736 1.676
* The Company adopted the revised "Accounting Standard for Business
Enterprises - Post Balance Sheet Events" that resulted in a
change in accounting policy which has been applied
retrospectively.
4
3.1.3 Items under non-operating profits/losses and corresponding amounts:
For the year ended
31 December 2004
(Income)/expense
(RMB million)
Gain on disposal of long-term equity investments (2)
Written back of provisions for impairment losses
in previons years (322)
Non-operating expenses (excluding normal provisions
on assets provided in accordance with the Accounting
Regulations for Business Enterprises) 6,543
Of which: Loss on disposal of fixed assets 4,304
Employee reduction expenses 919
Donations 275
Non-operating income (665)
Tax effect (1,833)
Total 3,721
3.2 Principal accounting data and financial indicators prepared under International Financial Reporting Standards
("IFRS") for the year 2004
For the For the For the
year ended year ended year ended
31 December 31 December Increase/ 31 December
Item 2004 2003 decrease (%) 2002
Operating profit (RMB million) 63,069 38,883 62.20 29,301
Profit attributable to shareholders
(RMB million) 36,019 22,424 60.63 16,296
Return on capital employed* (%) 12.84 9.01 3.83 6.90
percentage
points
Basic earnings per share (RMB) 0.415 0.259 60.63 0.188
Net cash flow from operating activities
per share (RMB) 0.797 0.716 11.31 0.655
* Return on capital employed = operating profit x (1-income tax rate)/capital employed
5
As at As at As at
31 December 31 December Increase/ 31 December
Item 2004 2003 decrease (%) 2002
Current assets (RMB million) 120,271 103,039 16.72 106,666
Current liabilities (RMB million) 146,277 129,272 13.15 125,425
Total assets (RMB million) 474,594 420,184 12.95 408,280
Shareholders' funds (excluding
minority interests) (RMB million) 193,040 171,515 12.55 166,777
Net assets per share (RMB) 2.226 1.978 12.55 1.924
Adjusted net assets per share (RMB) 2.187 1.950 12.15 1.910
3.3 Material differences between the PRC Accounting Rules and Regulations and IFRS
X Applicable |_| Not applicable
The PRC
Accounting Rules and Regulations IFRS
Net profit (RMB million) 32,275 36,019
Explanation on the differences See Subsection 9.2.3
ss.4. Changes in Share Capital and Shareholdings of the Principal Shareholders
4.1 Statement of changes in structure of share capital
X Applicable |_| Not applicable
Unit: 1,000 shares
Increase/ Decrease
Capitalization
Opening of surplus Sub- Ending
balance Placing Bonus reserves IPO Others total balance
1 Shares not listed
(i) Promoter shares 47,742,561 -- -- -- -- 11,143,000 11,143,000 58,885,561
Of which: State-owned
shares 47,742,561 -- -- -- -- 11,143,000 11,143,000 58,885,561
(ii) Others 19,379,390 -- -- -- --(11,143,000)(11,143,000) 8,236,390
Total number of shares
not in circulation 67,121,951 -- -- -- -- -- -- 67,121,951
2 Shares listed and in circulation
(i) Publicly listed domestic
shares ("A Shares") 2,800,000 -- -- -- -- -- -- 2,800,000
(ii) Overseas listed foreign
shares ("H Shares") 16,780,488 -- -- -- -- -- -- 16,780,488
Total number of shares
listed and in circulation 19,580,488 -- -- -- -- -- -- 19,580,488
3 Total number of shares 86,702,439 -- -- -- -- -- -- 86,702,439
6
4.2 Shareholding of top ten shareholders and top ten shareholders with
tradable shares
Number of shareholders of Sinopec Corp. as at 31 December 2004:
282,724, including 272,125 holders of A Shares and 10,599 holders
of H Shares.
Top ten shareholders as at 31 December 2004
Number of
shares Percentage
Increase/ held at the at the end of
Decrease end of the reporting period Type of Number
during the reporting Among total shares held of pledges, Nature of
Name of shareholders reporting period period shares held or trusts lock-ups shareholders
(1,000 shares) (1,000 shares) (%) (1,000 shares)
China Petrochemical Corporation 11,143,000 58,885,561 67.92 Non tradable 0 State-owned shares
HKSCC (Nominees) Limited 5,039,172 16,678,790 19.24 Tradable Unknown H Shares
China Cinda Asset Management
Corp. (5,000,000) 3,720,650 4.29 Non tradable 0 State-owned shares
China Development Bank (6,143,000) 2,632,570 3.04 Non tradable 0 State-owned shares
China Orient Asset Management
Corp. 0 1,296,410 1.50 Non tradable 0 State-owned shares
Guo Tai Jun An Corp. (10,428)* 586,760 0.68 Non tradable 293,380 State-owned
(pledged) legal person shares
EFUND 50 Securities Investment Fund 73,105 73,109 0.08 Tradable 0 A Shares
Xinghe Securities Investment Fund 24,390 64,387 0.07 Tradable 0 A Shares
Qingdao Port Authority 0 60,000 0.07 Tradable 0 A Shares
Harvest Service Sector Fund 59,745 59,749 0.07 Tradable 0 A Shares
Explanation for the relationships There are no connections among
among the above shareholders or corporate shareholders. The Company
other holders of shares in is not aware of any connection or
activities in concert activities in concert among
circulation and is not aware of any
pledges, lock-ups or trust of
shareholdings of holders of H Shares
* The shares sold by Guo Tai Jun An Corp. were tradable A shares
previously purchased on the secondary market by Guo Tai Jun An
Corp..
7
Top ten shareholders with tradable shares
Number of
Type of shares held at Among total
Name of shareholders shares held the end of 2004 shares held
(10,000 shares) (%)
HKSCC (Nominees) Limited H Shares 1,667,879.0 19.24
EFUND 50 Securities Investment Fund A Shares 7,310.9 0.08
Xinghe Securities Investment Fund A Shares 6,438.7 0.07
Qingdao Port (Group) Co., Ltd. A Shares 6,000.0 0.07
Harvest Service Sector Fund A Shares 5,974.9 0.07
CITIC Classic Securities Co., Ltd. A Shares 5,870.5 0.07
Xinghua Securities Investment Fund A Shares 5,061.0 0.06
China Southern Sustaining Growth Fund A Shares 4,300.0 0.05
Haifutong Profits Securities A Shares 4,298.0 0.05
Tai He Securities Investment Fund A Shares 4,100.0 0.05
Explanation for the Except for Xinghe Securities Investment
relationships among Fund and Xinghua Securities Investment
the above shareholders Fund, both of which belong to China
or activities in concert Asset Management Co., Ltd., and Harvest
Service Sector Fund and Tai He Fund,
both of which belong to Harvest Fund
Management Co., Ltd., Sinopec Corp. is
not aware of any connections among the
top 10 holders of shares in
circulation. Sinopec Corp. is not aware
of any connection or activities in
concert among other holders of shares
in circulation and is not aware of any
pledges, lock-ups or trust of
shareholdings of holders of H Shares.
4.3 Information about the controlling shareholder and the effective
controller
4.3.1 Changes of the controlling shareholder and the effective controller
in the reporting period
|_| Applicable X Not applicable
8
4.3.2 Basic information about the controlling shareholder and the other
effective controller
(1) Controlling shareholder
The controlling shareholder of Sinopec Corp. is China
Petrochemical Corporation ("Sinopec Group Company").
Established in July 1998, Sinopec Group Company is a State
authorized investment organization and a principally
State-owned company. Its registered capital is RMB 104.9
billion, and the legal representative is Mr. Chen Tonghai.
Through reorganization in 2000, Sinopec Group Company injected
its principal petroleum and petrochemical operations into
Sinopec Corp. and retained certain petrochemical facilities and
small-scale refineries. It provides well-drilling services, oil
testing services, downhole operation services, services in
connection with manufacturing and maintenance of production
equipment, engineering construction, utility services and
social services.
(2) Basic information of other legal person shareholders holding
10% or more of shares of Sinopec Corp. other than HKSCC
(Nominees) Limited
Not Applicable.
(3) Basic information of the effective controller
China Petrochemical Corporation is the effective controller of
Sinopec Corp.
4.3.3 Diagram of the equity and controlling relationship between
Sinopec Corp and the effective controller
[GRAPHIC OMITTED]
9
ss.5. Directors, Supervisors and Senior Management and Employees
5.1 Information on the changes in the shares held by the directors,
supervisors and senior management and employees
|_| Applicable X Not applicable
5.1.1 Information of Directors
Sinopec Corp.'s
Name Gender Age Position with Sinopec Corp. Term of Office Shares Held Reason of
(as at 31st December) change
2004 2003
Chen Tonghai Male 56 Chairman Apr. 2003-Apr. 2006 0 0 --
Wang Jiming Male 62 Vice Chairman, President Apr. 2003-Apr. 2006 0 0 --
Mou Shuling Male 60 Director, Senior Vice President Apr. 2003-Apr. 2006 0 0 --
Zhang Jiaren Male 60 Director, Senior Vice President and Apr. 2003-Apr. 2006 0 0 --
Chief Financial Officer
Cao Xianghong Male 59 Director, Senior Vice President Apr. 2003-Apr. 2006 0 0 --
Liu Genyuan Male 59 Director Jun. 2003-Apr. 2006 0 0 --
Gao Jian Male 55 Director May 2004-Apr. 2006 0 0 --
Liu Kegu Male 57 Director Jun. 2003-May 2004 0 0 --
Fan Yifei Male 41 Director Apr. 2003-Apr. 2006 0 0 --
Chen Qingtai Male 67 Independent Non-executive Director Apr. 2003-Apr. 2006 0 0 --
Ho Tsu Kwok,
Charles Male 55 Independent Non-executive Director Apr. 2003-Apr. 2006 0 0 --
Shi Wanpeng Male 67 Independent Non-executive Director Apr. 2003-Apr. 2006 0 0 --
Zhang Youcai Male 63 Independent Non-executive Director Apr. 2003-Apr. 2006 0 0 --
Cao Yaofeng Male 51 Employee Representative Director Apr. 2003-Apr. 2006 0 0 --
10
5.1.2 Information of Supervisors
Sinopec Corp.'s
Name Gender Age Position with Sinopec Corp. Term of Office Shares Held Reason of
(as at 31st December) change
2004 2003
Wang Zuoran Male 54 Chairman of the Supervisory Apr. 2003-Apr. 2006 0 0 --
Committee
Zhang Chongqing Male 60 Supervisor Apr. 2003-Apr. 2006 0 0 --
Wang Peijun Male 59 Supervisor Apr. 2003-Apr. 2006 0 0 --
Wang Xianwen Male 60 Supervisor Apr. 2003-Apr. 2006 0 0 --
Zhang Baojian Male 60 Supervisor Apr. 2003-Apr. 2006 0 0 --
Kang Xianzhang Male 56 Supervisor Apr. 2003-Apr. 2006 0 0 --
Cui Jianmin Male 72 Independent Supervisor Apr. 2003-Apr. 2006 0 0 --
Li Yonggui Male 64 Independent Supervisor Apr. 2003-Apr. 2006 0 0 --
Su Wensheng Male 48 Employee Representative
Supervisor Apr. 2003-Apr. 2006 0 0 --
Cui Guoqi Male 51 Employee Representative
Supervisor Apr. 2003-Apr. 2006 0 0 --
Zhang Xianglin Male 58 Employee Representative
Supervisor Apr. 2003-Apr. 2006 0 0 --
Zhang Haichao Male 47 Employee Representative
Supervisor Apr. 2003-Apr. 2006 0 0 --
5.1.3 Other Members of the Senior Management
Sinopec Corp.'s
Name Gender Age Position with Sinopec Corp. Term of Office Shares Held Reason of
(as at 31st December) change
2004 2003
Wang Tianpu Male 42 Senior Vice President Apr. 2003- 0 0 --
Wang Zhigang Male 48 Vice President Apr. 2003- 0 0 --
Zhang Jianhua Male 41 Vice President Apr. 2003- 0 0 --
Cai Xiyou Male 43 Vice President Apr. 2003- 0 0 --
Li Chunguang Male 49 Vice President Apr. 2003- 0 0 --
Chen Ge Male 43 Secretary to the
Board of Directors Apr. 2003-Apr. 2006 0 0 --
11
5.2 Information about the directors and supervisors that are also
employed by any shareholder unit
Applicable |_| Not applicable
Whether
they receive
remunerations
Position with and allowances
Name of employing employing from shareholder
Name shareholder shareholder unit Term of office unit (Yes/No)
Chen Tonghai Sinopec Group Company President Apr.2003-Apr.2006 No
Liu Genyuan Sinopec Group Company Managing Vice President Jun.2003-Apr.2006 No
Gao Jian China Development Bank Vice President May.2004-Apr.2006 Yes
Liu Kegu China Development Bank Vice President Jun.2003-May.2004 No
Fan Yifei China Cinda Asset
Management Corp. Assistant to the Governor
of China Construction Bank Apr.2003-Apr.2006 Yes
Wang Zuoran Sinopec Group Company Director of Disciplinary
Supervisory Committee Apr.2003-Apr.2006 No
Zhang Chongqing Sinopec Group Company
Director of General
Administrative Office Apr.2003-Apr.2006 No
Wang Peijun Sinopec Group Company Director of Human Resources
Department Apr.2003-Apr.2006 No
Zhang Baojian Sinopec Group Company Deputy Chief Accountant Apr.2003-Apr.2006 No
5.3 Annual remunerations for the directors, supervisors and senior
management and employees
Total annual remuneration RMB5,777,234
Total annual remuneration for the three highest paid directors RMB847,834
Total annual remuneration for the three highest paid
senior management and employees RMB1,009,620
Total allowances for independent directors RMB93,000
Other benefits for independent directors Nil
Names of the directors and supervisors who do not receive
any remuneration and allowance from Sinopec Corp. Liu Genyuan,
Liu Kegu,
Gao Jian,
Fan Yifei,
Levels of remunerations Number of persons
Above RMB300 thousand 4
RMB200 to 300 thousand 18
12
5.4 Information on new appointment or removal of directors, supervisors
and senior management and employees
Since Mr. Liu Kegu, an ex-director of Sinopec Corp., resigned from
the Board of Directors of Sinopec Corp., the China Development Bank
nominated Mr. Gao Jian as a candidate to the Board on 29 April 2004.
At the Annual General Meeting for the year 2003 held on 18 May 2004,
Mr. Gao Jian was elected as a member of the Second Session of the
Board of Directors of Sinopec Corp.
ss.6. Report of the Board of Directors
6.1 Business review in the reporting period
6.1.1 Business Review
The global economy witnessed sound growth in 2004. Stable and rapid
growth was also experienced in the domestic economy. In 2004,
international oil prices continued its climb, the domestic demand
for petrochemical products increased significantly, the
petrochemical industry was on the rising trend in a new cycle. All
of these factors provided favourable conditions for the Company to
increase its market shares and profitability. The controlled prices
of refined oil products set by the government as a result of the
macro-economy control measures, however, posed higher requirements
on our efforts and abilities to enhance operating profit. Facing the
complex and ever-changing market situations, the Company closely
monitored the changes to the international and domestic markets,
adjusted its production and operation strategies accordingly,
reinforced safety in production, carefully organized and arranged
for production and operation, increased production efficiency and
expanded market shares. Meanwhile, the Company reinforced its
internal management, pushed forward reform implementations and
accelerated structural adjustments. With the joint efforts made by
all the staff, the operating results once again reached a new high
level.
13
6.1.1.1 Review of Market Environment
(1) Crude oil market
In 2004, the international crude oil prices continued its climb
to a higher level, and the price spread between sweet and sour
crude oil widened. The Platts Global Brent spot price averaged
USD 38.27 per barrel, up by 32.73% over 2003. The trend of
domestic crude oil prices basically followed the trend in the
international market. However, as the increase in international
benchmark prices for some of the Company's self-produced oil
was not significant, in 2004, the average realized price of
crude oil produced by the Company was USD 33.28 per barrel, up
by 20.74% over 2003.
[GRAPHIC OMITTED]
Price Trend of International Crude Oil
(2) Refined oil products market
In 2004, domestic demand for refined oil products surged
dramatically as a result of China's rapid economic growth,
increase in the number of automobiles and power supply shortage
in certain parts of the country. According to the Company's
estimation, the apparent domestic consumption of refined oil
products (inclusive of gasoline, diesel and kerosene) in 2004
was 157.06 million tonnes, up by 19.0% over last year. The
trend of domestic refined oil product prices in principle
followed the rising trend of international refined oil product
prices, however, due to the control imposed by the government
over prices of refined oil products as a result of the
macro-economy control measures, the increase in domestic prices
was less than the international prices.
14
(3) Chemicals market
In 2004, China's domestic demands for chemical products
continued to grow significantly. The total apparent consumption
of synthetic resins, synthetic fibres and synthetic rubber was
48.24 million tonnes, representing an increase of 11% over
2003. Domestic consumption of ethylene equivalent was 16.38
million tones, up by 5.8% over 2003. With the gradual recovery
of the global chemical industry, the margin of chemical
production increased remarkably and new price records of most
chemical products were repeatedly achieved.
6.1.1.2 Production and Operation
(1) Exploration and Production Segment
In 2004, by seizing the opportunity of high oil prices, the
Company made great efforts in exploration and achieved
relatively good results in exploration, development and
production of crude oil and natural gas.
In connection with exploration activities, the Company
completed a two dimensional seismic study of 31,750 kilometers,
a three-dimensional seismic study of 7,030 square kilometers
and drilled 590 test wells with a drilling footage of 1,484
kilometers. The proved oil and gas reserves in new exploration
blocks in western China increased significantly, a breakthrough
was made in southern marine phase sedimentary blocks and
remarkable results were attained in terms of exploration in
mature blocks and new areas in eastern China. At the end of
2004, the Company's proved reserves of crude oil were 3,267
million barrels and natural gas were 3,033 billion cubic feet,
up by 0.31% and 5.04%, respectively, compared with 2003. In
terms of development, the Company continually reinforced the
comprehensive management in mature oil fields and development
in new blocks in western China. In 2004, the Company drilled
2,365 development wells, with a drilling footage of 5,125.2
kilometers and newly built crude oil and natural gas production
capacity were 6.09 million tonnes per year and 1.015 billion
cubic meters per year, respectively. In 2004, the Company's
production of crude oil and natural gas reached 274.15 million
barrels and 207.0 billion cubic feet, respectively,
representing an increase of 1.18% and 10.29%, respectively,
over 2003.
15
Summary of Operations of the Exploration and Production Segment
Changes
from 2003
2004 2003 2002 to 2004 (%)
Crude oil production (mmbbls) 274.15 270.96 269.80 1.18
Natural gas production (bcf) 207.0 187.7 178.8 10.29
Newly added proved reserves of crude oil (mmbbls) 284 208 375 36.54
Newly added proved reserves of natural gas (bcf) 352.0 (254.3) 20.2 N/A
Year end proved reserves of crude oil (mmbbls) 3,267 3,257 3,320 0.31
Year end proved reserves of natural gas (bcf) 3,033.0 2,887.6 3,329.4 5.04
Year end proved reserves of crude oil
and natural gas (mmboe) 3,773 3,738 3,875 0.94
(2) Refining Segment
In 2004, according to the international market condition of
widened price spread between sweet and sour crude oil, the
Company strived to reduce crude oil procurement costs by
raising sour crude processing volume and optimising crude oil
mix and transportation costs. Meanwhile, the Company enhanced
operational performance of its facilities and brought their
production capacity into full play, thus setting a new
throughput record of crude oil and production record of refined
oil products and light chemical feedstock. The Company
processed 132.95 million tonnes of crude oil in 2004, an
increase of 14.36% over 2003. The Company actively adjusted its
product mix, increased the production of diesel and high
value-added products to meet market demands. The Company put
emphasis on market analysis and marketing management and, as a
result, both the prices and volume of refined petroleum
products sold by this segment had risen. The Company made
efforts to revamp its existing oil refining facilities and
improve product quality so that the production of high-grade
gasoline amounted to 12.39 million tonnes, up by 34.2% over
2003. In addition, with enhanced management and scientific and
technological advancement, all major economic and technical
indicators of the Refining Segment were improved. The light
products yield reached 74.02%, up by 0.22 percentage point over
2003, and the refining yield reached 93.09%, up by 0.46
percentage point over 2003.
16
Summary of Production of the Refining Segment
Except 2002, the following operation data of 2003 and 2004 both
include those of Xi'an Petrochemical and Tahe Petrochemical.
Changes
from 2003
2004 2003 2002 to 2004 (%)
Crude throughput (mbbls/day) 2,677.2 2,350.0 2,114.6 13.92
of which: sour crude throughput (mbbls/day) 551.1 478.7 402.8 15.12
Refinery utilization rate (%) 93.43 88.10 79.3 5.33
percentage
points
Gasoline, diesel and kerosene (million tonnes) 80.83 69.01 62.42 17.13
of which: Gasoline (million tonnes) 23.58 21.79 19.62 8.21
Diesel (million tonnes) 50.89 41.91 37.74 21.43
Kerosene including jet fuel
(million tonnes) 6.36 5.31 5.06 19.77
Light chemical feedstock (million tonnes) 17.70 16.46 15.04 7.53
Light products yield (%) 74.02 73.80 73.22 0.22
percentage
points
Refining yield (%) 93.09 92.63 92.50 0.46
percentage
points
Notes: Crude oil processing volume is converted at 1 tonne = 7.35 barrels.
17
(3) Marketing and Distribution Segment
In 2004, the Company paid close attention to the changes of the
market, balanced resources allocation, reinforced and improved
construction of marketing network. The net increase in the
number of company-owned and company-operated (COCO) petrol
stations in 2004 was 2,075, of which, we have won the bid to
establish 5 petrol stations in Hong Kong Special Administrative
Region. The Company strengthened service awareness and improved
service quality to expand both retail and direct sales volume,
which had resulted in an increase in sales volume, and
optimised structure of refined oil products. In 2004, the total
domestic sales volume of refined oil products reached 94.59
million tonnes, representing an increase of 24.59% over 2003,
of which the retail volume achieved an increase of 37.07% over
the previous year. The efficiency of petrol stations continued
to improve with the annual throughput per petrol station
exceeding 2,000 tonnes, up by 18.8% compared with that in the
previous year. The retail sales volume together with direct
distribution volume of refined oil products accounted for
77.07% of the total domestic sales volume, up by 5.67
percentage points over 2003. In 2004, the Company reasonably
adjusted its export volume to keep in line with market demand
with a total export volume of 3.5156 million tonnes of refined
oil products, down by 12% compared with that in 2003.
18
Summary of Operations of Marketing and Distribution Segment
Changes
from 2003
2004 2003 2002 to 2004 (%)
Total domestic sales of refined oil products
(million tonnes) 94.59 75.92 70.09 24.59
of which:
Retail volume (million tonnes) 53.25 38.85 34.73 37.07
Direct sales volume (million tonnes) 19.65 15.33 12.63 28.18
Wholesale volume (million tonnes) 21.69 21.74 22.73 (0.23)
Average annual throughput per petrol station
(tonne/station) 2,003 1,686 1,560 18.80
Total number of petrol stations under
SINOPEC brand 30,063 30,242 28,127 (0.59)
Of which:
Number of COCO petrol stations 26,581 24,506 24,000 8.47
Number of franchised petrol stations 3,482 5,736 4,127 (39.30)
Retail volume/total domestic sales volume (%) 56.3 51.2 49.6 5.1
percentage
points
(4) Chemicals Segment
In 2004, the Company strengthened the management of its
chemicals operation to ensure safe, stable, sustained,
full-load and optimal operations. It also optimised allocation
of resources, such as chemical feedstock resources, to ensure
the timely supply of raw materials and increased utilisation
rate. As a result, the production of most chemical products
increased significantly. In 2004, the Company produced 3.637
million tones of ethylene, up by 14.77% over 2003. The
production of major chemical products, such as synthetic
resins, synthetic fibres, monomers and polymers for synthetic
fibres and synthetic rubbers, all increased significantly. As a
result of the Company's endeavors to improve product mix and
increase the production of market-adapted and high value-added
products, ratio of performance compound of synthetic resin and
differential fibre were increased significantly. Furtherm ore,
the Company actively tapped the market and accomplished the
targeted production and sales volumes. In addition, the Company
achieved remarkable results in improving the marketing network
of acrylic fibre, optimising allocation of resources and
customers, improving the quality of customer services and
unifying marketing mode. This enabled the Company to collect
valuable experiences for the future reform of its chemical
marketing system.
19
Production of Major Chemicals
The operating data of 2003 and 2004 listed in the table below
include the data of Maoming Ethylene and the chemical assets
acquired from Sinopec Group in 2004, while those of 2002 do
not.
Unit: 1,000 tonnes
Changes
from 2003
2004 2003 2002 to 2004 (%)
Ethylene 4,074 3,982 2,716 2.31
Synthetic resins 6,221 5,805 4,005 7.17
of which: performance compound resins 3,034 2,707 1,847 12.08
Synthetic rubbers 561 553 458 1.45
Monomers and polymers for Synthetic fibres 6,021 5,633 3,834 6.89
Synthetic fibres 1,654 1,659 1,153 (0.30)
of which: differential fibres 753 623 402 20.87
Urea 2,630 2,028 2,666 29.68
(5) Research and development
In 2004, the Company proactively developed core technology and
proprietary technology for its principal operations and
achieved fruitful results of 639 domestic patents and 48
foreign patents being authorised. Breakthrough was achieved in
exploration in marine phase sedimentary structure in southern
China. Additionally, the Company successfully developed
technologies to improve recovery rate in oil fields with
complex faultage, flexible and diversified FCC technology
(FDFCC), sulfur removal and olefin content reduction technology
through selective hydrofining of catalytic gasoline (RIDOS),
and 150 thousand tonnes per year three-reactor PET technology.
New progress was made in the construction of information
system. The ERP system was deployed at 23 entities and its
integrated advantage became more prominent. The comprehensive
oil field management system and the Ningbo-Shanghai-Nanjing
crude oil pipeline transportation and distribution management
system were completed and put into operation. Moreover, the
application of IC cards at petrol stations achieved remarkable
progress with total number of customers exceeded 2 million.
Over 10,000 COCO petrol stations have been equipped with IC
card facilities and the vision of "One card in hand, fueling
nationwide" becomes more accessible.
20
(6) Cost saving
In 2004, the Company adopted a series of measures to reduce
costs: optimising the allocation of resources and logistics
system to reduce the transportation costs, increasing
processing volume of sour crude to reduce procurement cost of
crude oil and optimising the operation of facilities to cut
down material and energy consumption. In 2004, the Company's
cost reduction totalled RMB 2.951 billion, which is RMB 451
million more than the original target of RMB 2.5 billion. The
breakdown is as follows: RMB 660 million from the Exploration
and Production Segment, RMB 660 million from the Refining
Segment, RMB 731 million from the Chemicals Segment and RMB 900
million from the Marketing and Distribution Segment.
(7) Capital expenditure
In 2004, according to the prevailing market conditions and our
continued focus on our development strategies and core
business, the Company adjusted and improved its investment
structure, strictly followed investment decision making
procedures and management methods and strengthened management
of key construction projects. As a result of the above efforts,
projects construction was accelerated. In 2004, the Company's
total capital expenditure was RMB 64.759 billion, among which
the capital expenditure of the Exploration and Production
Segment was RMB 21.234 billion. The Company enhanced oil
reserves as well as production of crude oil and natural gas,
and further improved its profile of the possible, probable and
proved reserves. As a result, remarkable achievements were made
in the exploration and development projects in the matured
fields in eastern China, newly developed fields in western
China and marine phase blocks in southern China. In addition,
the Company's proved reserves of crude oil increased by 284
million barrels, and natural gas increased by 352 billion cubic
feet. The capital expenditure of the Refining Segment was RMB
14.272 billion. The newly added primary refining capacity was
8.3 million tonnes/year, the newly added hydro-refining
capacity was 4 million tonnes/year, and the newly added delayed
coking capacity was 3.9 million tonnes/year. The upgrading
projects for improving oil product quality were progressing
smoothly and the Ningbo-Shanghai-Nanjing crude oil pipeline was
completed and put into operation. The capital expenditure of
the Marketing and Distribution Segment was RMB16.678 billion,
which was principally used for the construction of pipelines
for refined oil products and further optimising marketing
networks for refined oil products by acquiring, building and
upgrading petrol stations. As a result, in 2004, the number of
COCO petrol stations was up by 2,075, securing the Company's
leading position in its principal market and raising brand
awareness and customer loyalty. The capital expenditure of the
Chemicals Segment was RMB 11.025 billion. With the investment,
our ethylene capacity was increased by 270,000 tonnes/year,
synthetic resin capacity increased by 700,000 tonnes/year, and
capacity of monomers and polymers for synthetic fibres
increased by 360,000 tonnes/year. The coal gasification
21
projects for chemical fertiliser facilities progressed
smoothly. The capital expenditure of the Company's headquarters
and others totalled RMB 1.55 billion, with which the
construction of information system achieved new progress.
In addition, such joint venture projects as Shanghai Secco
progressed smoothly, capital expenditure was RMB 6.5 billion in
total.
(8) Cooperation with foreign partners
In 2004, the Company's major joint ventures progressed
smoothly. The ethylene joint venture with BP in Shanghai has
been successfully commissioned, and that with BASF in Nanjing
is currently in the commissioning phase. The joint venture with
Shell for coal gasification in Hunan province is under
construction and estimated to be completed by the end of 2005.
The joint venture with ExxonMobil and Saudi Aromco for an
integrated oil refining and chemical project in Fujian is under
preparation. The joint ventures for the retail of refined oil
products with BP and Shell in Jiangsu and Zhejiang,
respectively, were formally put into operation.
6.1.2 Management's Discussion And Analysis
The financial information presented in the following discussion and
analysis is derived from the Company's audited financial statements
that have been prepared in accordance with International Financial
Reporting Standard ("IFRS").
6.1.2.1 Consolidated Results of Operations
In 2004, the Company's turnover and other operating revenues were
RMB 619.8 billion and the operating profit was RMB 63.1 billion,
representing an increase of 38.0% and 62.2% over those in the
previous year respectively. These results are largely attributable
to a number of factors. First, the international crude oil prices
continued to be volatile and remained at a high level, the chemical
industry was on the up trend cycle, and the domestic economy
consistently maintained fast growth, all of which resulted in strong
demand for chemical products and high prices of chemical products,
which, in turn, provided favorable conditions for the Company to
maximise its returns. Second, by taking the advantage of the
favorable opportunities, the Company proactively developed the
market, increased the sales of refined oil products, maintained
steady growth in oil and gas production and increased the throughput
of crude oil and production of chemical products. In addition, the
Company continued to strive for better operating results through
strengthening internal management, furthering corporate reforms and
improving asset structure.
22
The following table sets forth the major items in the consolidated
income statement of the Company for the indicated periods.
Year ended 31 December
2004 2003 Change
RMB millions RMB millions (%)
Turnover and other operating revenues 619,783 449,001 38.0
Of which: Turnover 597,197 429,949 38.9
Other operating revenues 22,586 19,052 18.5
Operating expenses (556,714) (410,118) 35.7
Of which:
Purchased crude oil, products and
operating supplies and expenses (443,590) (313,238) 41.6
Selling, general and administrative expenses (31,843) (27,228) 16.9
Depreciation, depletion and amortization (32,342) (27,951) 15.7
Exploration expenses (including dry holes) (6,396) (6,133) 4.3
Personnel expenses (18,634) (16,972) 9.8
Employee reduction expenses (919) (1,040) (11.6)
Taxes other than income tax (16,324) (13,581) 20.2
Other operating expenses, net (6,666) (3,975) 67.7
Operating profit 63,069 38,883 62.2
Net finance costs (4,371) (4,463) (2.1)
Investment income, share of profit less
losses from associates and gain from
issuance of shares by a subsidiary 908 621 46.2
Profit from ordinary activities before taxation 59,606 35,041 70.1
Taxation (17,815) (10,645) 67.4
Profit from ordinary activities after taxation 41,791 24,396 71.3
Minority interests (5,772) (1,972) 192.7
Profit attributable to shareholders 36,019 22,424 60.6
23
(1) Turnover and other operating revenues
In 2004, the Company's turnover and other operating revenues
were RMB 619.8 billion, of which, the turnover was RMB 597.2
billion, representing an increase of 38.9% compared with 2003.
In 2004, the Company captured the opportunity of the increased
prices of crude oil and petrochemical products in the
international market, expanded the sales volume of its major
petrochemical products and optimized marketing structure. In
2004, the Company's other operating revenues went up to RMB
22.6 billion, representing an increase of 18.5% compared with
2003. The increase in "other operating revenues" were mainly
due to the increase in sales revenue from its sale of raw and
auxiliary materials to Sinopec Group Company and third parties.
The following table sets forth the Company's external sales
volume, average realized prices and their changes in percentage
from 2003 to 2004.
Averaged realized
prices (RMB/tonne,
Sales volume RMB/thousand
(thousand tonnes) cubic meters)
2004 2003 Changes 2004 2003 Changes
(%) (%)
Crude oil 6,012 7,219 (16.7) 1,872 1,493 25.4
Natural gas (million cubic meters) 3,775 3,405 10.9 609 591 3.0
Gasoline 27,353 23,356 17.1 3,765 3,298 14.2
Diesel 60,419 47,290 27.8 3,221 2,794 15.3
Kerosene 5,680 4,810 18.1 2,923 2,361 23.8
Basic chemical feedstock 6,664 5,712 16.7 4,429 3,642 21.6
Synthetic resin 5,401 5,097 6.0 7,986 6,017 32.7
Synthetic fibre 556 555 0.2 10,238 8,513 20.3
Synthetic rubber 1,741 1,720 1.2 10,818 9,300 16.3
Monomers and polymers
for synthetic fibre 2,704 2,622 3.1 8,022 5,791 38.5
Chemical fertilizer 2,622 2,001 31.0 1,355 1,165 16.3
24
Most of the crude oil and a small portion of the natural gas
produced by the Company were internally used for refining and
chemicals production. The remaining was sold to the refineries
of Sinopec Group Company and other customers. In 2004, the
turnover from crude oil and natural gas that were sold
externally amounted to RMB 16.0 billion, accounting for 2.6% of
the Company's turnover and other operating revenues,
representing an increase of 6.9% compared with that in 2003.
The increase was mainly due to the increase in crude oil price
and expansion of natural gas business.
The Company's Refining Segment and Marketing and Distribution
Segment sell petroleum products (mainly consisting of gasoline,
diesel, jet fuel, kerosene and other refined petroleum
products) to third parties. In 2004, the external sales revenue
of petroleum products by these two segments were RMB 406.2
billion, accounting for 65.5% of the Company's turnover and
other operating revenues, representing an increase of 40.2%
compared with that in 2003. The increase was mainly due to the
rise of gasoline and diesel prices and also due to the
Company's proactive efforts in increasing sales volume,
optimising marketing structure and expanding the market of
other refined petroleum products. The sales revenue of
gasoline, diesel and kerosene was RMB 314.2 billion, accounting
for 77.4% of the total sales revenue of petroleum products,
representing an increase of 42.5% over that in 2003. The sales
revenue of other refined petroleum products was RMB 92 billion,
accounting for 22.6% of the total sales revenue of petroleum
products, representing an increase of 33.2% compared with 2003.
The Company's external sales revenue of chemical products was
RMB 126 billion, accounting for 20.3% of its turnover and other
operating revenues, representing an increase of 37% compared
with that in 2003. The increase was mainly due to the fact that
the Company captured the opportunity of the significant
increase of chemical product prices and the increase of sales
volume by the Company.
25
(2) Operating expenses
In 2004, the Company's operating expenses amounted to RMB 556.7
billion, representing an increase of 35.7% compared with 2003.
The operating expenses mainly consisted of the following:
Purchased Crude Oil, Products, and Operating Supplies and
Expenses
In 2004, the Company's costs for purchased crude oil, products
and operating supplies and expenses were RMB 443.6 billion,
accounting for 79.7% of the total operating expenses,
representing an increase of 41.6% compared with 2003. The costs
of pruchased crude oil was RMB 232.6 billion, accounting for
41.8% of the total operating expenses, representing an increase
of 41.5% compared with 2003. To meet the increasing demands in
the market associated with the rapid growth of the Chinese
economy, the Company increased its throughput of crude oil
purchased from third parties. In 2004, the throughput of the
Company's crude oil purchased externally was RMB 100.62 million
tonnes (excluding amounts processed for third parties),
representing an increase of 13.6% compared with 2003. Average
cost for crude oil purchased externally in 2004 was RMB 2,312
per tonne, representing an increase of 24.6% compared with
2003.
In 2004, the Company's other purchase expenses were RMB 211
billion, accounting for 37.9% of the total operating expenses,
up by 41.7% compared with 2003. This increase was mainly due to
the increase in costs of refined oil products and chemical
feedstock purchased externally.
Selling, general and administrative expenses
In 2004, the Company's selling, general and administrative
expenses totalled RMB 31.8 billion, representing an increase of
16.9% compared with 2003. Such an increase was largely due to:
o An increase in the total sales volume of refined oil
products and an increase of sales through retail and
direct distribution. The increase in sales volume resulted
in an increase of selling expenses, such as transportation
cost, by RMB 1.9 billion compared with 2003.
o An increase in repairing and maintenance expenses by RMB
1.1 billion compared with 2003 due to the additions of
property, plant and equipment and the increase in
maintenance activities related to petrol stations.
26
o An increase in operating lease rentals by RMB 700 million
compared with that in 2003. The increase was mainly due to
the increase in rental of operating facilities such as
petrol stations from third parties and rental of land and
buildings from related parties.
o Active promotion of Sinopec's overall image, which
resulted in increased advertising expenses by RMB 700
million compared with 2003.
Depreciation, depletion and amortization
In 2004, the Company's depreciation, depletion and amortization
were RMB 32.3 billion, up by 15.7% over 2003. The increase was
mainly because of the additions of property, plant and
equipment as a result of capital expenditure.
Exploration expenses
In 2004, the Company's exploration expenses were RMB 6.4
billion, representing an increase of 4.3% compared with 2003.
The increase was principally due to the increase by the Company
of its investment in exploration activities in major new blocks
in the western and southern parts of China.
Personnel expenses
In 2004, the Company's personnel expenses were RMB 18.6
billion, representing an increase of 9.8% compared with 2003.
The increase was largely due to the implementing by the Company
of the market-rate based employee compensation system resulting
in increased employee wages and salaries. The new compensation
system also resulted in an increase of contribution to staff
retirement plans accordingly.
Employee reduction expenses
In 2004, in accordance with the Company's voluntary employee
reduction plan, and in connection with the acquisition of
petrochemical and catalyst assets from and the disposal of
downhole assets to Sinopec Group Company, the Company recorded
employee reduction expenses of approximately RMB 0.9 billion
relating to the reduction of approximately 24,000 employees,
down by RMB 0.1 billion compared with that in 2003.
27
Taxes other than income tax
In 2004, the Company's taxes other than income tax were RMB
16.3 billion, representing an increase of 20.2% compared with
2003. The increase was largely due to the increase of
consumption tax and associated city construction taxes and
education surcharges as a result of the increased sales volume
of gasoline and diesel of the Company.
Other operating expenses, net
In 2004, the Company's other operating expenses, net were RMB
6.7 billion, representing an increase of 67.7% compared with
2003. The increase was largely due to the following reason: In
order to allocate its internal resources more efficiently, the
Company revised the production plans in 2004, and accordingly
made a provision for impairment loss on certain less efficient
chemical facilities, petrol stations and depots on the
difference between the estimated recoverable value and the net
book value of these assets amounting RMB 3.9 billion,
representing an increase of RMB 3 billion compared with 2003.
Meanwhile, disposals of assets decreased in 2004.
(3) Operating profit
In 2004, the Company's operating profit was RMB 63.1 billion,
representing an increase of 62.2% compared with 2003.
(4) Net finance costs
In 2004, the Company's net finance costs were RMB 4.4 billion,
down by 2.1% compared with 2003.
(5) Profit from ordinary activities before taxation
In 2004, the Company's profit from ordinary activities before
taxation was RMB 59.6 billion, representing an increase of
70.1% compared with 2003.
(6) Taxation
In 2004, the Company's taxation was RMB 17.8 billion,
representing an increase of 67.4% compared with 2003.
28
(7) Minority interests
In 2004, the Company's minority interests were RMB 5.8 billion,
representing an increase of 192.7% compared with 2003. The
increase was mainly due to the return of the subsidiaries of
the Company increased as compared with 2003.
(8) Profit attributable to shareholders
In 2004, the Company's profit attributable to shareholders was
RMB 36 billion, representing an increase of 60.6% compared with
2003.
6.1.2.2 Assets, Liabilities, Shareholders' Funds, and Working Capital
The Company's primary sources of funding were from operating
activities, short-term and long-term borrowings, and primary uses of
funds were for operating expenses, capital expenditures and
repayments for short-term and long-term loans.
(1) Assets, liabilities and shareholders' funds
Unit: RMB millions
As at 31 December
2004 2003 Changes
Total assets 474,594 420,184 54,410
Current assets 120,271 103,039 17,232
Non-current assets 354,323 317,145 37,178
Total liabilities 250,508 222,618 27,890
Current liabilities 146,277 129,272 17,005
Non-current liabilities 104,231 93,346 10,885
Minority interests 31,046 26,051 4,995
Net assets 193,040 171,515 21,525
Shareholders' fund 193,040 171,515 21,525
Share capital 86,702 86,702 --
Reserves 106,338 84,813 21,525
29
The Company's total assets were RMB 474.594 billion, up by RMB
54.41 billion compared with those at the end of 2003, of which
the current assets were RMB 120.271 billion, up by RMB 17.232
billion compared with those at the end of 2003. The change was
mainly due to the increase in inventories as a result of price
and volume increase of crude oil and petrochemical products.
The Company's non-current assets were RMB 354.323 billion, up
by RMB 37.178 billion compared with those at the end of 2003.
The change was primarily attributable to the additions of
property, plant and equipment which were up by RMB 13.392
billion in value, while the construction in progress were up by
RMB 16.831 billion in value.
Total liabilities were RMB 250.508 billion, up by RMB 27.89
billion compared with those at the end of 2003, of which the
current liabilities were RMB 146.277 billion, up by RMB 17.005
billion compared with those at the end of 2003. The change was
mainly due to the increase in accounts payable and bills
payable in total by RMB 7.003 billion to cope with increased
production volume, and the increase of the Company's short-term
debt by RMB 6.975 billion. Non-current liabilities were RMB
104.231 billion at the end of 2004, up by RMB 10.885 billion
compared with those at the end of 2003. The change was mainly
due to the fact that long-term loans of the Company were up by
RMB 10.291 billion compared with those at the end of 2003.
Shareholders' funds were RMB 193.04 billion at the end of 2004,
up by RMB 21.525 billion compared with that at the end of 2003,
representing an increase in the reserves by RMB 21.525 billion.
(2) Cash flow
In 2004, net increase in cash and cash equivalent was RMB 117
million (i.e. an increase from RMB 16,263 billion as at 31
December 2003 to RMB 16.381 billion as at 31 December 2004).
The following table shows the major items on the consolidated
cash flow statements.
30
(Unit: RMB millions)
Years ended
31 December
Major items of cash flows 2004 2003
Net cash flow from operating activities 69,081 62,097
Net cash flow from investing activities (73,992) (50,690)
Net cash flow from financing activities 5,028 (14,473)
Net increase/(decrease) in cash and cash equivalents 117 (3,066)
o Net cash inflow from operating activities was RMB 69.081
billion.
In 2004, profit from ordinary activities before taxation was
RMB 59.606 billion; depreciation, depletion and amortization
were RMB 32.342 billion; after adjusting the non-cash
expense items, the adjusted cash flow from operating
activities was RMB 100.529 billion. Major non-cash expense
items were: costs of dry holes of RMB 2.976 billion, losses
from disposals of properties, plants and equipment of RMB
1.686 billion, and impairment losses on long-lived assets of
RMB 3.919 billion.
The changes in operating-related account receivable and
payable items reduced cash inflow by RMB 14.565 billion. In
order to meet the market demand, the Company expanded
production and operation, as a result, the working capital
required by the ordinary business increased, of which, the
increase of inventory led to a decreased cash inflow of RMB
16.526 billion, the increase of bill receivable, accounts
receivable and other current assets contributed to a
decreased cash inflow of RMB 7.855 billion. Due to the
expanded business activities and increased purchasing costs,
cash inflow of accounts payable and bill payable increased
by RMB 7.129 billion, and other operating-related account
receivables and payables increased the cash inflow by RMB
2.687 billion.
After adjusting the non-cash expense items and account
receivable and payable items with regard to the profit from
ordinary activities before taxation, and deducting the cash
outflow for payment of income tax totaling RMB 16.883
billion, the net cash flow from operating activities was RMB
69.081 billion.
o Net cash flow for investing activities was RMB 73.992
billion.
The net cash outflow for investing activities mainly
represented the cash outflow for capital expenditure by the
Company of RMB 67.583 billion and by the Company's joint
ventures of RMB 6.035 billion.
31
o Net cash flow from financing activities was RMB 5.028
billion.
The net cash inflow from financing activities increased
because the amount of newly added bank loans and other loans
by the Company and its joint ventures was larger than the
amount of repayments of bank loans and other loans,
resulting in a cash inflow of RMB 13.645 billion. However,
the effect was partly offset by the final dividend for 2003
and interim dividend for 2004 distributed by the Company,
which resulted in a cash outflow of RMB 8.67 billion.
During 2004 the Company captured the opportunity of robust
market demand resulting in such a remarkable increase in
cash flow from operating activities. At the same time, in
order to enhance its market-leading position, the Company
increased its capital expenditure. In addition, the Company
tightened its control on cash management and strictly
controlled the scale of cash and cash equivalent, as a
result, the overall efficiency of the Company improved.
(3) Contingent liabilities
Refer to the descriptions under paragraph 7.3 "Major
Guarantees" in the section headed "Significant Events".
(4) Capital expenditure
Refer to the descriptions under paragraph 6.1.1 "Business
Review" in the section headed "Report of the Board of
Directors".
(5) Research and development expenses and environmental expenses
Research and development expenses refer to the expenses that
have been recognized during the period in which they incurred.
In 2004, the Company's research and development expenses were
RMB 1.518 billion.
Environmental expenses refer to the normal routine pollutant
discharge fees paid by the Company, excluding any capitalised
costs of pollutant discharge facilities. In 2004, the Company's
environmental expenses were RMB 248 million.
(6) Analysis of financial statements prepared under the PRC
Accounting Rules and Regulations
The following table sets forth each of its segments' income and
profit from principal operations, costs of principal
operations, taxes and surcharges, as prepared under the PRC
Accounting Rules and Regulations.
32
Years ended
December 31
2004 2003
RMB millions RMB millions
Income from principal operations
Exploration and Production Segment 76,023 62,223
Refining Segment 352,548 266,253
Marketing and Distribution Segment 345,671 240,812
Chemicals Segment 122,118 82,334
Others 79,145 60,600
Elimination of inter-segment sales (384,873) (295,031)
Income from principal operations 590,632 417,191
Cost of sales, sales taxes and surcharges
Exploration and Production Segment 36,073 31,596
Refining Segment 340,360 254,360
Marketing and Distribution Segment 306,309 210,456
Chemicals Segment 96,994 73,116
Corporate and Others 78,410 59,984
Elimination of the cost of inter-segment sales (382,736) (293,037)
Cost of sales, sales taxes and surcharges 475,410 336,475
Profit from principal operations
Exploration and Production Segment 37,997 28,785
Refining Segment 12,005 11,741
Marketing and Distribution Segment 39,362 30,356
Chemicals Segment 25,123 9,218
Corporate and Others 735 616
Profit from principal operations 115,222 80,716
Financial data prepared under the PRC Accounting Rules and
Regulations:
33
Unit: RMB millions
As at 31 December /
Years ended 31 December
2004 2003 Changes %
Total assets 460,081 390,213 17.91
Long-term liabilities 98,407 80,109 22.84
Shareholders' fund 186,350 162,946 14.36
Profit from principal operations 115,222 80,716 42.75
Net profit 32,275 19,011 69.77
Reason for changes
Total assets: At the end of 2004, the Company's total assets
were RMB 460.081 billion, up by RMB 69.868 billion compared
with 2003. This change was mainly due to the increase of
investments in fixed assets by the Company during 2004 in order
to meet the market demands. As a result, fixed assets increased
by RMB 40.81 billion. Current assets were up by RMB 20.138
billion, which was mainly due to the increased prices and
quantity of crude oil and petrochemical products which, in
turn, contributed to the increase in the value of inventory of
RMB 19.003 billion. Other non-current assets were up by RMB
8.92 billion, which was mainly due to the increase in deferred
tax assets and long-term deferred expenses.
Long-term liabilities: At the end of 2004, the Company's
long-term liabilities were RMB 98.407 billion, up by RMB 18.298
billion compared with 2003. This change was largely due to the
issuance of RMB 3.5 billion corporate bonds and the increase of
RMB 14.866 billion in long-term loans pursuant to the Company's
investment plans for various projects.
Shareholders' funds: At the end of 2004, shareholders' funds of
the Company was RMB 186.35 billion, up by RMB 23.404 billion
compared with 2003. This increase was principally due to:
firstly, the realized net profit in 2004 reached RMB 32.275
billion; secondly, in 2004 the distribution of its final
dividend for the second half of 2003 amounted to RMB 5.202
billion and the interim dividend for 2004 totalled RMB 3.468
billion.
34
Profit from principal operations: In 2004, the realised profit
from principal operations was RMB 115.222 billion, up by RMB
34.506 billion, representing a growth of 42.75% compared with
2003. This increase was mainly because in 2004, with the robust
market demand and the rising prices of crude oil and
petrochemical products, the Company captured market
opportunities, expanded the total volume of production and
sales, optimized marketing structure and managed to improve its
operating results at a steady pace.
Net profit: In 2004, the net profit realized by the Company was
RMB 32.275 billion, up by RMB 13.264 billion, representing a
growth of 69.77% compared with 2003. The increase was mainly
due to the increase in the Company's profit from its principal
operations.
(7) Significant differences between the financial statements
prepared under IFRS and U.S. GAAP
The major differences between the Company's financial
statements prepared under IFRS and US GAAP are set out in the
annual report of Sinopec Corp. for the year ended 31 December
2004.
6.2 The Principal Operations Categorized by Business Segments and the
Status of the Connected Transactions
The following data are extracted from the financial statements
prepared under the PRC Accounting Rules and Regulations.
Increase/ Increase/ Increase/
Increase/ Increase/ Increase/
decrease decrease decrease
of income of cost of gross profit
from from margin
principal principal ratio
operations operations compared
Income compared compared with the same
from Cost of with the with the period of
Categorized principal principal same period same period preceding year
by business operations operations Gross of preceding of preceding (percentage
segments (RMB millions) (RMB millions)profit (%) * year (%) year (%)
points)
Exploration and production 76,023 34,929 49.98% 22.18% 14.05% 3.72
Refining 352,548 326,590 3.41% 32.41% 34.44% (1.00)
Marketing and distribution 345,671 305,690 11.39% 43.54% 45.60% (1.22)
Chemicals 122,118 96,339 20.57% 48.32% 32.55% 9.37
Others 79,145 78,395 0.93% 30.60% 30.72% (0.09)
Elimination of inter-segment
sales (384,873) (382,736) N/A N/A N/A N/A
Total 590,632 459,207 19.51% 41.57% 42.12% 0.16
Of which: Connected transactions 58,732 54,197 7.35% 85.58% 92.91% (3.32)
35
Details of connected
transactions Refer to descriptions under paragraph
7.4 "Connected Transactions Entered
into by the Company during the Year" in
the section headed "Significant Events"
Principle of pricing for (1) Government-prescribed prices and
connected transactions government-guided prices are adopted
for products or projects if such prices
are available; (2) Where there is no
government-prescribed price or
government-guided price for products or
projects, the market price (inclusive
of bidding price) will apply; (3) Where
none of the above is applicable, the
price will be decided based on the cost
incurred plus a reasonable profit of
not more than 6% of the price
Of which: During the period of the annual report,
Sinopec Corp. provided goods and
services to its controlling
shareholder, and to its own
subsidiaries, which constituted
connected transactions amounted to RMB
51.279 billion
* Gross profit = Profit from principal operations/income from
principal operations
6.3 Principal operations in different regions
|_| Applicable X Not applicable
6.4 Information about suppliers and customers
Total amount of purchase from the top 80,600 Percentage in Sinopec Corp.'s 37.82%
five suppliers (RMB million) total amount of purchase
Total amount of sales to the top five 58,700 Percentage in Sinopec Corp.'s 9.94%
customers (RMB million) total amount of sales
6.5 Operations of equity subsidiaries (applicable to the circumstance
when the return on investment is more than 10% of the listed
company's net profit)
|_| Applicable X Not applicable
6.6 Explain the reason of material changes in the principal operations
and their structure
|_| Applicable X Not applicable
6.7 Explain the reason of material changes in the principal operations'
earning power (gross profit ratio) as compared to the preceding year
|_| Applicable X Not applicable
36
6.8 Analyze the reason of material changes in operating result and profit
composition as compared to the preceding year
|_| Applicable X Not applicable
See 6.1.1 "Business Review" and 6.1.2 "Management's Discussion And
Analysis" under the section headed "Report of the Board of
Directors".
Analyze the reason of material changes in the overall financial
position as compared to the preceding year
X Applicable |_| Not applicable
See 6.1.1 "Business Reveiw" and 6.1.2 "Management's Discussion And
Analysis" under the section headed "Report of the Board of
Directors".
6.9 Explanation of the material changes in operating environment and
macro policies and rules and regulations that have produced, are
producing or will produce significant influences on the company's
financial conditions and operating result
|_| Applicable X Not applicable
6.10 Fulfillment of the predicted profit
|_| Applicable X Not applicable
6.11 Fulfillment of the operating plan
|_| Applicable X Not applicable
The Company has not disclosed the Operating Plan for year 2004 (e.g.
revenue, cost and expenses etc), and therefore it is not applicable.
37
6.12 Use of the proceeds from share issue
X Applicable |_| Not applicable
6.12.1 Use of the proceeds from A share issue
Unit: RMB billion
Total proceeds from share issue after deducting the issurance expenses 11.648
Total amount of proceeds used in this year 1.061
Total amount of proceeds already used 11.037
Whether Whether
Projects Proposed the planned the expected
under investment Any Actual progress is return is
commitment in this year change investment Yield satisfied satisfied
Southwest refined oil product
pipeline project 1.061 No 1.061 -- Yes --
Reason of failure to satisfy the planned Southwest retained oil product pipeline is expected to be put into
operation in 2005. The project is on schedule.
progress and expected return
Reason and procedure of change No
6.12.2 Change of projects
|_| Applicable X Not applicable
38
6.13 Projects not funded by proceeds from share issue
X Applicable |_| Not applicable
Capital
investment
Project name in project Project progress Profit from project
(RMB billion)
Exploration and production segment:
Development in Shengli Oilfields and 21.234 progressing smoothly Realized optimization of reserves and
capacity building in Xinjiang Tahe oilfield growth of oil and gas production,
reinforced the foundation of its
resources, and rationalized the
possible, probable and proved reserves
Refining segment:
Expansion of refining capacity and 14.272 a batch of upgrading Newly added 8.3mmta crude-run capacity,
projects for improving product quality projects, which aimed 4mmta hydra-fining capacity and 3.9mmta
to improve the product delayed coking capacity
quality, have been built
and put into production
Marketing and distribution segment:
Mainly for construction of new pipeline for 15.617 Net increase in number Further optimized the marketing
refined oil products and acquisition, of petrol stations networks and secured our leading
construction and renovation of petrol is 2,075 position in the principal market
stations and raised brand awareness and
further enhanced customer loyalty
Chemicals segment:
Revamping of Qilu Ethylene Plant 11.025 Qilu Ethylene is expected Newly added 270mta of ethylene
and fertilizers facilities to commence operation in capacity, 370mta of PVC capacity and
the third quarter of 2004; 360mta synthetic fibre monomer and
fertilizer facilities polymer capacity
revamping progressing
smoothly
Corporate and others segment:
Mainly for construction of the Company's 1.55 progressing smoothly The efficiency of management
information system was increased
Total 63.698 -- --
Construction of joint ventures such as 6.500 progressing smoothly Mechanical completion
BASF-YPC and Secco realised for
BASD-YPC and Secco
6.14 Explanation of the board of directors about the accounting firm's "non-standard comments"
|_| Applicable X Not applicable
39
6.15 Operating plan for the new fiscal year formulated by the Board of
Directors
Business Prospect
6.15.1 Market Outlook
In 2005, it is estimated that the global economy will remain in
stable growth. International crude oil prices will remain high and
is expected to be at a fluctuating state, and the global chemical
industry will still stay at a cyclical upturn. China's economy is
expected to continue to grow rapidly, which will in turn drive the
growth of the domestic demands for refined oil products and
petrochemical products, creating rooms for the development of
petroleum and petrochemical industries. Meanwhile, the openness of
domestic retail market for refined oil products and the decrease of
the import duty for chemical products will give rise to competitions
in the domestic market.
6.15.2 Production and Operation
Faced with the opportunities and challenges in 2005, the Company
intends to adopt a flexible operating strategy and focus on the
following areas:
Exploration and Production Segment The Company will make further
efforts in exploration and development and increasing types of
supplemental resources to ensure the stable growth of oil and gas
production. Moreover, the Company will strive hard to increase
production and efficiency by enhancing the recovery rate and
commodity rate of oil and gas. In 2005, the Company plans to produce
39 million tonnes of crude oil and 6.07 billion cubic meters of
natural gas. The Company also intends to increase its production
capacity of crude oil by 6.05 million tonnes per year and natural
gas by 2.3 billion cubic meters per year.
Refining Segment The Company will reinforce management and ensure
safe, stable, sustained, full-load and optimal operation of its
facilities. The projected processing volume of crude oil in 2005 is
143 million tonnes. The Company will strive to increase production
of refined oil products and light chemical feedstock. Optimisation
of resource allocation, adjustment to structure and improvement of
quality will be our main focus in 2005. The Company also proposes to
raise production of LPG, propylene, aromatics and high-grade road
asphalt. The Company will further increase the major techno-economic
indicators of oil refining with target for light products yield at
74.1% and refining yield at 92.9%.
40
Marketing and Distribution Segment The Company will further improve
marketing networks and optimise marketing structure. Meanwhile, the
Company will adjust its marketing strategies, make efforts to expand
its total sales volume based on the market demands, and optimise
resource allocation and logistics network. In 2005, the Company
plans to achieve a total domestic sales of refined oil products of
102 million tonnes, including retail sales of 57.50 million tones
and direct distribution of 22.50 million tonnes.
Chemicals Segment Efforts will be made to ensure safe, stable,
sustained, full-load and optimal operation of facilities and put the
two ethylene joint venture projects into operation. The Company will
speed up the reform of the chemical marketing system to improve the
competitiveness of chemical products. The Company will resort to
scientific and technological advancement to increase the production
of high value-added products, performance compound resins and
differential fibres. In 2005, the Company plans to produce 5.19
million tonnes of ethylene, 7.47 million tonnes of synthetic resins,
0.55 million tones of synthetic rubbers, 1.61 million tones of
synthetic fibre and 6.69 million tones of synthetic fibre monomers
and polymers.
Scientific and Technological Development The Company will accelerate
the development of core technology and proprietary technology and
further build up technological advantages for core businesses
development. The Company will carefully arrange for the development
of key technologies, involving increase in reserves and stable
production in oil fields in eastern China, exploration and
development of new oil fields, natural gas development in Ordors and
Sichuan, upgrading of oil product quality, construction of Qingdao
Refinery and the second round revamping of Maoming Ethylene. In
addition, the Company will attach great importance to the
development of new high value-added products and the promotion of
scientific and technological research results to serve as the
technological support for reduction of costs and sharpening of
products competitive edge.
Cost Saving In 2005, the Company will, depending on scientific and
technological advancement, reinforce management practices, deepen
reforms and enhance operating efficiency. It plans to achieve a cost
saving of RMB 2.5 billion, among which Exploration and Production
Segment plans to achieve a cost saving by RMB 600 million, Refining
Segment RMB 600 million, Chemicals Segment RMB 700 million, and
Marketing and Distribution Segment RMB 600 million.
41
Capital Expenditure In 2005, the Company's capital expenditure is
planned to be RMB 62 billion. The projected expenditure for
Exploration and Production Segment is RMB 22.9 billion, Refining
Segment is RMB 16.127 billion, Chemicals Segment is RMB 10.373
billion, Marketing and Distribution Segment is RMB 11 billion,
Corporate and Others is RMB 1.6 billion. In 2005, capital
expenditure will be engaged in the following areas: In Exploration
and Production Segment, the Company will carry out the operation
notion of oil reserves and strive to expand qualified resources,
improve the profile of oil and gas reserves and increase production
of oil and gas. In Refining Segment, the Company intends to complete
the second-phase of Ningbo-Shanghai-Nanjing crude oil pipeline,
construct the crude oil pipeline along the Yangtze River, and speed
up the revamping of selected refining projects. In Chemicals
Segment, the Company will focus on the revamping and construction of
large-scale ethylene, aromatics and PTA facilities and accelerate
the coal gasification projects. In Marketing and Distribution
Segment, the Company will improve the marketing networks
continually, build, acquire and upgrade petrol stations, optimise
layout of depots, promote pipeline transportation, improve operating
efficiency, and put the southwest refined oil product pipeline into
operation in the first half of 2005. Moreover, the Company will
speed up the application of petrol IC cards to increase marketing
level based on information technologies.
Workforce downsize The company plans to reduce the number of
employees by more than 15,000 in 2005 (including the downhole
operation workers). By the end of 2005, the workforce size is
expected to be around 370,000. In this case, the accumulative number
of persons laid-off by the end of 2005 will amount to 140,000.
In addition, the Company will continue to improve foreign
cooperation. The two ethylene joint ventures with BASF and BP will
be put into commercial operation in the first half of 2005 and
progress of Fujian integrated project will be accelerated. The
Company will, according to the schedule and scale of construction
determined by the board of directors of the two joint ventures and
the Company's percentage of shareholdings in the joint ventures,
inject investment in a timely manner. These investments will be
accounted for as the Company's investment in associates as
appropriate.
With the practical and down-to-earth efforts made by our employees,
we are confident that, in the forthcoming year, the Company will
improve its production and operating results, deepen corporate
reform, strengthen structural adjustment and realize the sustained
and effective development.
Profit forecast for the new fiscal year
|_| Applicable X Not applicable
42
6.16 Plan of the board of directors for profit appropriation or transfer
of statutory surplus reserve to capital for this year
According to the consolidated income statement prepared pursuant to
the PRC Accounting Rules and Regulations and the consolidated income
statement prepared pursuant to IFRS, the Company's audited net
profit in 2004 was RMB 32.275 billion and RMB 36.019 billion
respectively. In accordance with the provisions of the Sinopec
Corp.'s Articles of Association, the appropriation of the profit
after tax for the relevant fiscal year would be conducted on the
basis of the net profit as determined in accordance with the PRC
Accounting Rules and Regulations or under IFRS, whichever is lower.
Thus, on the basis of the net profit of Sinopec Corp. of RMB 32.275
billion, after the transfer of 10% to the statutory surplus reserve
(RMB 3.228 billion) and 10% to the statutory public welfare fund
(RMB 3.228 billion) from Sinopec Corp.'s net profit, adding the
undistributed profit brought forward from the preceding year from
and the deduction of the final dividend for year 2003 (RMB 5.202
billion) and the interim dividend for 2004 (RMB 3.468 billion)
distributed in 2004, the amount of distributable profit of Sinopec
Corp. of 2004 was RMB 37.124 billion. On the basis of the total
number of 86,702,439,000 issued shares at the end of 2004, the
proposed dividends to be distributed in cash would be RMB 0.12 per
share (including tax) or RMB 10.404 billion in total. After the
deduction of the cash dividends of RMB 0.04 per share distributed in
the interim of 2004 (totalled RMB 3.468 billion), the final cash
dividends for year 2004, declared after the balance sheet date,
would be RMB 0.08 per share (totalled RMB 6.936 billion). This
preliminary plan for profit appropriation will be subject to the
consideration and approval at the Annual General Meeting of
Shareholders for year 2004 to be convened on Wednesday, 18 May 2005.
The proposed final dividend will be distributed on or before Monday,
27 June 2005 to those shareholders whose names appear on the
register of members of Sinopec Corp. at the close of business on
Friday, 3 June 2005. The register of members of Sinopec Corp.'s H
shares will be closed from Monday, 30 May 2005 to Friday 3 June 2005
(both dates are inclusive). In order to qualify for the year end
dividend for H shares, the shareholders must lodge all share
certificates accompanied by the transfer materials with Hong Kong
Registrars Limited, at Shops 1712 to 1716, 17th Floor, Hopewell
Centre, 183 Queen's Road East, Hong Kong before 4:00 p.m. on Friday,
27 May 2005 for registration.
Dividend will be denominated and declared in Renminbi. The dividend
for holders of domestic shares will be paid in Renminbi and the
dividend for holders of foreign shares will be paid in Hong Kong
dollars. The exchange rate for the dividend to be paid in Hong Kong
dollars will be the mean of the exchange rates of Hong Kong dollars
to Renminbi as announced by the People's Bank of China during the
week prior to the date of declaration of dividend.
43
The Company recorded profit during the period of the annual report
but no profit appropriation proposal has been declared.
|_| Applicable X Not applicable
ss.7. Significant events
7.1 Acquisition of assets
X Applicable |_| Not applicable
Net profit
contributed to the
listed company
in the period Connected Whether Whether
from the date transaction or not the ownership liabilities of
Counterpart of of acquisition (If yes, explain assets has been assets has been
transaction and Date of Acquisition to the end the principal price transferred transferred
the assets acquired Acquisition price of this year of determination) or not or not
1. Acquisition of 100% Jun. 30, 2004 RMB0.23 billion RMB0.027 billion Yes Yes Yes
shares of Yanhua Appraised price
Group Tianjin Lubricant
& Grease Company
Limited (Jinzhi Company)
2. Acquisition of Dec. 31, 2004 RMB4.578 billion* -- Yes Yes Yes
petrochemicals, catalyst, Appraised price
petrol station assets from
the parent company
* The consideration in acquisition agreement was RMB 4,578
billion, RMB 5.36 million was paid on the completion date. The
amount of RMB 782 million represents the profits/losses of such
assets for the period between the evaluation date and completion
date.
44
7.2 Sales of assets
X Applicable |_| Not applicable
Net profit Connected
contributed to transaction
the listed or not (If yes,
company in the explain the
period from the All assets All
Counterpart of date of settlement principle right liabilities
transaction and Date of to the end of Profit or loss of price transferred transferred
the assets sold settlement Sales price this year from Sales determination) or not or not
Yes, appraised
Sales of downhole Dec. 31 2004 RMB1.748bn* N/A 0 price Yes Yes
operation assets to
the parent company
*Note: The consideration in sales agreement was RMB 1.748 billion.
RMB 1.712 billion was paid on the completion date. The
amount of RMB 36 million represents the profits/losses of
such assets for the period between the evaluation date and
completion date.
The above do not have a significant impact on the continuity of
operation and the management stability of Sinopec Corp.
45
7.3 Material guarantees
X Applicable |_| Not applicable
Guarantees provided by the Company (excluding the guarantee provided for subsidiaries)
Date of Whether
occurrence for a
(date of Guaranteed Whether connected
execution of amount completed party
Obligors agreement) (RMB million) Type Term or not (Yes or No)
Shanghai Secco
Petrochemical Co., Ltd. 2002.2.9 2,930 Joint and 2002.2.9 No Yes
several liability D2021.12.20
guarantee
Shanghai Secco
Petrochemical Co., Ltd. 2002.2.9 4,062 Joint and 2002.2.9 No Yes
several liability D2013.12.20
guarantee
BASF-YPC Co., Ltd. 2003.3.7 4,680 Joint and 2003.3.7 No Yes
several liability D2008.12.31
guarantee
Yueyang Sinopec Shell 2003.12.10 377 Joint and 2003.12.10 No Yes
Coal Gasification Co., Ltd. several liability D2017.12.10
guarantee
Fujian Zhangzhao Expressway2003.1.21 10 Joint and 2003.1.21 No Yes
Service Company Limited several liability D2007.10.31
guarantee
Others 2 84
Total amount of guarantee provided during the reporting period 3 RMB
29 million Total amount of guarantee outstanding at the end of the
reporting period 3 RMB 12,143 million
Guarantees for subsidiaries
Total amount of guarantee provided for subsidiaries during the
reporting period RMB 2,483 million Total amount of guarantee for
subsidiaries outstanding
at the end of the reporting period RMB 2,656 million
Total amount of guarantee (including those provided for subsidiaries)
Total guarantee amount 4 RMB 14,799 million
Total amount of guarantee as a percentage of the Sinopec Corp. net assets 7.9%
46
Guarantees not in compliance with the requirements of Document Zheng
Jian Fa [2003] No. 56 5
Amount of guarantee provided for the holding shareholder
or the other connected parties of which less than 50%
(not include 50%) shares are owned by Sinopec Corp. None
Amount of debt guarantee provided directly or indirectly
for the companies with liabilities to assets ratio of over 70% RMB 184 million
Whether the total guaranteed amount is over 50% of the net assets No
Total amount of guarantee not in compliance with the
requirements of Document Zheng Jian Fa [2003] No. 56 RMB 184 million
Note 1: All the guarantees listed above fulfilled the specified
review procedures.
Note 2: It is the guarantee sum provided by the Company's
subsidiaries in the indicated period multiplying the
shareholdings held by Sinopec Corp. in the respective
subsidiaries.
Note 3: 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 the subsidiaries and associates. The amount of
the guarantee provided by these subsidiaries and associates
is the aggregate of guaranteed amount provided by these
subsidiaries and associates multiplied by the respective
shareholdings held by Sinopec Corp.
Note 4: Total guarantee amount is the sum of the amount of
guarantee outstanding at the end of the reporting period
(excluding the guarantee provided for subsidiaries) and the
total amount of guarantee for subsidiaries outstanding at
the end of the reporting period.
Note 5: It refers to Notice on Certain Issues Relating to
Regulating Fund Transfers between a Listed Company and
Connected Parties and the External Guarantees of Listed
Company (Zheng Jian Fa [2003] No.56) promulgated by CSRC
and SASAC.
Performing Material Guarantees
At the fourteenth meeting of the First Session of the Board of
Directors of Sinopec Corp., the Board approved Sinopec Corp. to
provide conditional guarantee in both domestic and foreign currency
for the Shanghai Secco project loan, and the amount of guarantee
equals to RMB 6.992 billion. For further details, please refer to
Sinopec Corp.'s announcement published in China Securities, Shanghai
Securities and Securities Times in Mainland China on 2 April 2002
and the results announcement for the year 2001 published in South
China Morning Post and Hong Kong Economic Times in Hong Kong.
47
At the fourteenth meeting of the First Session of the Board of
Directors of Sinopec Corp., the Board approved the proposal
regarding Sinopec Corp.'s provision of guarantee for the BASF-YPC
projects. On 7 March 2003, Sinopec Corp. entered into guarantee
agreements for the completion of construction of the BASF-YPC
project with domestic and foreign banks, whereby it guaranteed 40%
of a domestic and foreign currencies denominated loan equivalent to
around RMB 11.7 billion provided by these banks to BASF-YPC Co.,
Ltd. for completion of construction.
At the twenty-second meeting of the First Session of the Board of
Directors of Sinopec Corp., the Board approved the proposal
regarding Sinopec Corp.'s provision of equity pledge for the
BASF-YPC project loan on the condition that BASF should provide
equity pledge on the same terms. On 12 August 2004, Sinopec Corp.
officially entered into the equity pledge agreement.
At the twenty-second meeting of the First Session of the Board of
Directors of Sinopec Corp., the Board also approved the proposal
regarding Sinopec Corp.'s provision of guarantee for Yueyang Sinopec
Shell Coal Gasification Co., Ltd., in the amount of RMB 377 million.
At the thirteenth meeting of the Second Session of the Board of
Directors of Sinopec Corp, the Board approved Sinopec Corp. in
providing China International United Petroleum & Chemical Co., Ltd.
with credit line guarantee equivalent to RMB 2.483 billion.
7.4 Connected Transactions Entered into by the Company during the Year
The aggregate amount of connected transactions actually occurred in
relation to the Company during the year was RMB 131.589 billion, of
which, incoming trade amounted to RMB 67.982 billion, and outgoing
trade amounted to RMB 63.603 billion (including, RMB 63.507 billion
of sales of products and services, RMB 59 million of interest
earned, RMB 41 million of income from agency fee). All of these
transactions satisfied the conditions of waiver imposed by the Hong
Kong Stock Exchange. In 2004, the products and services provided by
Sinopec Group Company (purchase, storage and transportation,
exploration and production services and production-related services)
to the Company amounted to RMB 62.313 billion, representing 11.19%
of the Company's annual operating expenses, a decrease of 2.42%
compared with those in 2003, which were within the cap of 18% for
waiver. The auxiliary and community services provided by Sinopec
Group Company to the Company amounted to RMB 1.740 billion,
representing 0.31% of operating expenses, with a slight decrease
compared with 0.43% in the preceding year, which were within the cap
of 2% for waiver. In 2004, the product sales from the Company to
Sinopec Group Company amounted to RMB 63.507 billion, representing
10.25% of the Company's operating revenue, which were within the cap
of 14% for waiver. With regard to the Leasing Agreement of Land Use
Rights, the amount of rent paid by the Company for the year ended 31
December 2004 was approximately RMB 2.146 billion. With regard to
the premium payable under the SPI Fund Document, the amount of fund
paid by the Company in 2004 was not less than the amount specified
in the SPI Fund Document.
48
Other Material Connected Transactions during The Year
(1) Connected transactions for new leasing of Sinopec Group
Company's land use rights
At the third meeting of the Second Session of the Board of
Directors of Sinopec Corp., the Board approved the Proposal
Regarding the New Leasing of Land Use Rights from Sinopec Group
Company, and approved the lease of the land use rights by
Sinopec Corp. of an area of 51.71 million square meters from
Sinopec Group Company. The parties entered into an Agreement on
Lease of Land Use Rights in August 2003. The amount of rent
under the leasing agreement incurred in this reporting period
was approximately RMB 300 million.
(2) Acquisition of shares of Jinzhi Company
Please refer to the section headed "Disclosure of Significant
Events" in the Annual Report.
(3) Acquisition of petrochemical, catalyst and petrol stations
assets from parent company and the disposal of downhole
operation assets
Please refer to the section headed "Disclosure of Significant
Events" in the Annual Report.
7.4.1 Connected sales and purchases
|X| Applicable |_| Not applicable
Unit: RMB million
Sales of goods and provision of Purchase of goods and
services to connected party services from connected party
Percentage of Percentage of
the total amount the total amount
Transaction of the type of Transaction of the type of
Connected party amount transaction amount transaction
Sinopec Group Company and
its subsidiaries 51,279 8.7% 68,259 7.4%
Other connected parties 20,736 3.5% 0 0
Total 72,015 12.2% 68,259 7.4%
49
7.4.2 Connected obligatory rights and debts
|X| Applicable |_| Not applicable
Unit: RMB million
Funds provided to Fund provided to the
Connected party connected party Company by connected party
Occurrence Occurrence
amount Balance amount Balance
Sinopec Group Company and
its subsidiaries (2,759) 6,135 (4,836) 9,679
Other connected parties (23) 308 0 0
Total (2,782) 6,443 (4,836) 9,679
7.5 Entrusted Money Management
|X| Applicable |_| Not applicable
7.6 Performance of commitments
|X| Applicable |_| Not applicable
(1) At the end of the reporting period, the undertakings made by
Sinopec Corp. include:
i Carrying out the reorganization of its three wholly-owned
subsidiaries, namely, Sinopec Shengli Oilfield Company
Limited, Sinopec Sales Company Limited and China
Petrochemical International Company Limited in accordance
with the PRC Company Law within a specified period of
time;
ii Changing the logo currently used by the petrol stations
within a specified period of time;
iii Setting up separate office buildings for Sinopec Group
Company and Sinopec Corp. within a specified period
of time; and
iv Complying with the relevant applicable provisions and
rules of the Stock Exchange of Hong Kong Limited (the
"Hong Kong Stock Exchange") regarding the waiver of
continuing connected transactions.
50
(2) At the end of the reporting period, the major undertakings given
by Sinopec Group Company to the Company include:
i Complying with the agreements concerning continuing
connected transactions;
ii Solving the issues arising from the land use rights
certificates and property ownership rights certificates
within a specified period of time;
iii Implementing the Reorganization Agreement (as defined in
the Prospectus for the Issuance of H Shares);
iv Granting licenses for intellectual property rights;
v Avoiding competition within the industry; and
vi Withdrawing from the business competition and conflict of
interests with Sinopec Corp.
Details of the above commitments were included in the
Prospectus for the Issuance of A Shares published by Sinopec
Corp. in China Securities, Shanghai Securities and Securities
Times on 22 June 2001.
During the reporting period, Sinopec Corp. was not aware of any
beach of above commitments by itself or the above principal
shareholder.
7.7 Litigation and arbitration of significant importance
|_| Applicable |X} Not applicable
51
7.8 Independent directors' performance of their duties
Presence of Independent Directors at Board of Directors Meetings
Number of meetings
Counts of
Name of the held during the Counts of commissioned
independent director reporting period presence presence
(times) (times)
Chen Qingtai 9 9 0
Ho Tsu Kwok, Charles 9 6 3
Shi Wanpeng 9 8 1
Zhang Youcai 9 8 1
Independent director's adverse opinions on matters related to
Sinopec Corp.
|X| Applicable |X| Not applicable
7.9 Other significant events
7.9.1 Issuance and Listing of Corporate Bonds
On 8 March 2004, Sinopec Corp. successfully issued domestic 10-year
term corporate bonds which amounted to RMB 3.5 billion with a fixed
coupon rate of 4.61%. On 28 September 2004, the said corporate bonds
were listed on the Shanghai Stock Exchange. For further details,
please refer to Sinopec Corp.'s announcement published in China
Securities, Shanghai Securities, and Securities Times in Mainland
China, and South China Morning Post and Hong Kong Economic Times in
Hong Kong on 24 February 2004 and 28 September 2004. As at 31
December 2004, the outstanding principal balance of the said
corporate bonds was RMB 3.5 billion. On 24 February 2005, Sinopec
Corp. repaid coupon interests for the first year in full.
52
7.9.2 The transfer of state-owned shares from CDB and Cinda to
Sinopec Group Company
China Development Bank ("CDB") and China Cinda Asset Management
Corporation ("Cinda"), entered into a share transfer agreement with
Sinopec Group Company during the reporting period pursuant to which
Cinda transferred 5 billion state-owned shares of Sinopec Corp.
(representing 5.767% of the total issued shares of Sinopec Corp.) to
Sinopec Group Company and CBD transfered 6.143 billion state-owned
shares of Sinopec Corp. (representing 7.085% of the total issued
shares of Sinopec Corp.) to Sinopec Group Company. The total cash
considerations of RMB 9 billion and RMB 11.0574 billion were paid to
Cinda and CDB respectively by Sinopec Group Company. The said share
transfers were completed on 29 December 2004. Please refer to the
announcement published in China Securities, Shanghai Securities, and
Securities Times in Mainland China, and South China Morning Post and
Hong Kong Economic Times in Hong Kong on 15 October 2004 for further
details.
7.9.3 Major Cooperation Projects
(1) Establishment of Sinopec-Shell (Jiangsu) Petroleum Marketing Co.,
Ltd.
On 13 July 2004, the Ministry of Commerce approved the
establishment of Sinopec-Shell (Jiangsu) Petroleum Sales Co.,
Ltd., a Sino-foreign joint venture by Sinopec Corp., Royal
Dutch/Shell (China) Holding BV and Shell (China) Ltd. The total
investment in the said joint venture was RMB 1.55 billion and
the registered capital was RMB 830 million. The parties
contributed to the registered capital of the said joint venture
in the proportion of 60%, 30% and 10% respectively. On 28
August 2004, Sinopec Shell (Jiangsu) Petroleum Marketing Co.,
Ltd was officially established in Nanjing.
(2) Establishment of BP Sinopec (Zhejiang) Petroleum Co., Ltd.
On 3 September 2004, the Ministry of Commerce approved the
establishment of a Sino-foreign joint venture, Sinopec BP
(Zhejiang) Petroleum Co. Ltd., by Sinopec Corp. and BP Global
Investments Limited. The total investments of the said joint
venture amounted to RMB 2.188 billion and its registered
capital was RMB 800 million. Sinopec Corp. and BP Global
Investments Limited contributed 60% and 40% of the registered
capital of the said joint venture respectively. Sinopec BP
(Zhejiang) Petroleum Co., Ltd. was officially established on 4
November 2004.
53
(3) Foreign Partners Exits the Natural Gas Project in East China Sea
On 19 August 2003, Sinopec Corp., CNOOC, Shell and Unocal
reached an agreement to jointly explore for, develop and sales
natural gas, oil and condensate in the East China Sea. Pursuant
to the terms of the agreement, the foreign partners were
required to reach a formal decision on whether to continue to
participate in the said project after 12 months from the date
of signing of the agreement. On 24 September 2004, Shell and
Unocal made an announcement of their decision to end their
involvement in the exploration, production and sales of
products in five different areas of the Xihu district and to
exit the said project based on commercial reasons.
7.9.4 The Transfer of State-Owned legal person shares of China
Phoenix held by Sinopec Corp.
At the ninth meeting of the Second Session of the Board of Directors
of Sinopec Corp. held on 6 July 2004, the proposal to transfer
211,423,651 state-owned legal person shares held by Sinopec Corp. in
Sinopec Wuhan Phoenix Company Limited ("China Phoenix")
(representing 40.72% of the total issued share capital of China
Phoenix) to Hubei Qingjiang Water Power Investment Limited
("Qingjiang Investment") and China Guodian (Group) Corporation
("Guodian Group") was approved. The total consideration for the said
transfer was approximately RMB 621 million. The proposed acquisition
of petrochemicals assets of China Phoenix (including production
facilities, inventories and corresponding accounts receivables) from
Qingjiang Investment and Guodian Group which they would acquire
through asset swaps with China Phoenix was also approved by the
Board of Directors of Sinopec Corp. at the same meeting. The total
consideration payable for the acquisition was RMB 548 million.
Please refer to Sinopec Corp.'s announcement published in China
Securities, Shanghai Securities, and Securities Times in Mainland
China, and South China Morning Post and Hong Kong Economic Times in
Hong Kong on 7 July 2004 for further details. The proposed asset
swaps are pending the approval of China Securities Regulatory
Commission (CSRC) and such acquisition and asset swaps are being
modified to satisfy the requirements of CSRC.
7.9.5 Acquisition of 40.5% shares held by Hong Kong Huarun in
Qingdao Qirun
Qingdao Qirun Petrochemical Company Limited (Qingdao Qirun) is a
Sino-foreign joint venture established by Qingdao Petroleum General
Company Limited, Qilu Petrochemical Company Limited and Hong Kong
Huarun Petrochemical (Group) Company Limited (Hong Kong Huarun) on
27 April 1993. The parties contributed 21%, 38.5% and 40.5%
respectively to the total registered capital of USD 27.38 million.
Qingdao Qirun is mainly engaged in storing, transporting and
transferring crude oil and refined oil and is equipped with 500,000
cubic meters of crude/refined oil storage tanks, four pipelines
linking to Qingdao oil terminal, dedicated railways connecting to
the Jiaoji railway and road delivery and transport system for
crude/refined oil.
54
To facilitate oil products storage and transportation for Qingdao
Refining Project, Sinopec Corp. and Hong Kong Huarun entered into a
share transfer agreement on 17 November 2004, pursuant to which
Sinopec Corp. acquired 30% interest in Qingdao Qirun from Hong Kong
Huarun. On 21 January 2005, the parties entered into another share
transfer agreement, pursuant to which Sinopec Corp. acquired the
remaining 10.5% interest in Qingdao Qirun from Hong Kong Huarun. The
shares transfer represented an aggregate of 40.5% interest in
Qingdao Qirun and the total consideration for the transfer amounted
to RMB 480 million.
7.9.6 Purchasing Stake in China Gas
Sinopec Corp. and China Gas Holdings Ltd. ("China Gas") entered into
a strategic cooperation agreement on 1 November 2004 in Beijing.
Pursuant to the agreement, Sinopec Corp. subscribed for 210 million
newly issued shares of China Gas at the price of HK$ 0.61 per share.
Sinopec Corp. undertakes not to sell the shares within 12 months
since the completion date of such shares subscription.
7.9.7 Merger by Absorption of Beijing Yanhua
Sinopec Corp. plans to privatise Beijing Yanhua Petrochemical
Company Limited (Beijing Yanhua) by way of merger by absorption
through Beijing Feitian Petrochemical Company Limited (Beijing
Feitian), a wholly-owned subsidiary of Sinopec Corp. established for
the purpose of such merger. Pursuant to the agreement entered into
between Beijing Feitian and Beijing Yanhua on 29 December 2004,
Beijing Feitian will purchase the listed shares of Beijing Yanhua
from shareholders at a unit price of HK$ 3.80 per share in cash, the
total consideration involved amounts to approximately HK$ 3.846
billion. The proposed merger has been approved by relevant
shareholders at the general meeting or independent shareholders at
the general meeting of independent shareholders of Beijing Yanhua
and the general meeting of shareholders of Beijing Feitian, but is
subject to the approvals of domestic and overseas regulators of
securities markets. Please refer to Sinopec Corp.'s announcement
published in China Securities, Shanghai Securities and Securities
Times in Mainland China and South China Morning Post and Hong Kong
Economic Times in Hong Kong on 30 December 2004 and 7 March 2005 for
details.
7.9.8 Reduction of Employees
Sinopec Corp. plans to reduce the number of employees by 100,000
persons through retirement, voluntary resignation and/or redundancy
within the period of 5 years from 2001 to 2005 to enhance its
efficiency and operating profit. By the end of 2004, the
accumulative net reduction during the past four years had amounted
to 119,000 persons. In 2004, the Company has recorded employees
reduction expenses of approximately RMB 920 million for about 24,000
employees (including 13,000 downhole operation staff to be reduced
in 2005). The net reduction of number of employees in 2004 was
11,000.
55
7.9.9 Changes in senior management
At the sixteenth meeting of the Second Session of the Board of
Directors of Sinopec Corp., the Board approved the resignation
applications of Mr. Wang Jiming from the President position and Mr.
Mou Shuling from the Senior Vice President position. The Board of
Directors also approved the appointment of Mr. Wang Tianpu as
President and Mr. Zhang Jianhua and Mr. Wang Zhigang as Senior Vice
President of Sinopec Corp.
ss.8. Report of the Supervisory Committee
The Supervisory Committee considers that Sinopec Corp. has complied with
relevant regulations. There were no irregularities identified in Sinopec
Corp.'s financial conditions, use of proceeds from issuance of A shares,
acquisitions and disposal of assets or connected transactions.
ss.9. Financial statements
9.1 Auditors' opinion
Financial Statements |_| Unaudited |X| Audited
Auditor's opinion |X| Standard unqualified |_| Not standard
opinion opinion
9.2 The Group's and the Company's balance sheets and income statements
with comparatives, and cash flow statements for the year
9.2.1 Financial statements prepared in accordance with the PRC
Accounting Rules and Regulations
(1) Balance Sheet
At 31 December 2004 At 31 December 2003
The Group The Company The Group The Company
RMB millions RMB millions RMB millions RMB millions
Current assets:
Cash at bank and in hand 18,280 6,299 17,405 6,581
Bills receivable 7,812 1,597 5,953 1,282
Trade accounts receivable 9,756 8,245 9,284 7,080
Other receivables 12,462 19,625 15,457 24,861
Advance payments 4,828 4,358 3,904 2,990
Inventories 63,918 33,951 44,915 22,793
Total current assets 117,056 74,075 96,918 65,587
56
Long-term equity investment:
(Including the Group's and the
Company's equity investment
differences of RMB 383 million
and RMB 400 million respectively
(2003: RMB 400 million and
395 million)) 13,409 124,211 11,150 98,334
Fixed assets:
Fixed assets, at cost 519,462 271,120 461,128 223,015
Less: Accumulated depreciation 243,510 113,572 213,804 94,138
Net book value of fixed assets
before impairment losses 275,952 157,548 247,324 128,877
Less: Provision for impairment
losses on fixed assets 5,816 4,038 1,331 764
Net book value of fixed assets 270,136 153,510 245,993 128,113
Construction materials 430 93 1,226 263
Construction in progress 45,976 28,779 28,513 19,858
Total fixed assets 316,542 182,382 275,732 148,234
Intangible assets and other assets:
Intangible assets 5,345 4,261 4,564 3,712
Long-term deferred expenses 3,563 2,530 97 --
Total intangible assets and
other assets 8,908 6,791 4,661 3,712
Deferred taxation:
Deferred tax assets 4,166 3,708 1,752 1,510
Total assets 460,081 391,167 390,213 317,377
57
Current liabilities:
Short-term loans 26,723 16,254 20,904 9,787
Bills payable 30,797 21,589 23,958 18,006
Trade accounts payable 23,792 21,137 22,704 18,117
Receipts in advance 8,605 6,106 5,908 4,077
Wages payable 3,223 1,854 1,850 643
Staff welfare payable 1,101 498 1,230 583
Taxes payable 6,741 3,170 6,986 2,975
Other payables 1,519 442 1,237 380
Other creditors 26,459 34,156 27,537 26,102
Accrued expenses 652 430 303 133
Current portion of
long-term liabilities 14,298 11,506 8,175 4,428
Total current liabilities 143,910 117,142 120,792 85,231
Long-term liabilities:
Long-term loans 94,087 82,332 79,221 68,723
Debentures payable 3,500 3,500 -- --
Other long-term payables 820 438 888 461
Total long-term liabilities 98,407 86,270 80,109 69,184
Deferred taxation:
Deferred tax liabilities 198 16 289 16
Total liabilities 242,515 203,428 201,190 154,431
Minority interests 31,216 -- 26,077 --
58
Shareholders' funds:
Share capital 86,702 86,702 86,702 86,702
Capital reserve 37,121 37,797 36,852 36,852
Surplus reserves
(Including statutory public
welfare fund of
RMB 9,558 million
(2003: RMB 6,330 million)) 26,116 26,116 19,660 19,660
Unrecognised investment losses (713) -- (243) --
Undistributed profits
(Including dividend declared
after the balance sheet date in
respect of the year 2004 of
RMB 6,936 million
(2003: RMB 5,202 million)) 37,124 37,124 19,975 19,732
Total shareholders' funds 186,350 187,739 162,946 162,946
Total liabilities and
shareholders' funds 460,081 391,167 390,213 317,377
(2) Income statement and profit appropriation statement
For the year ended For the year ended
31 December 2004 31 December 2003
The Group The Company The Group The Company
RMB millions RMB millions RMB millions RMB millions
Income from principal
operations 590,632 397,789 417,191 275,426
Less: Cost of sales 459,207 336,089 323,104 228,387
Sales taxes and surcharges 16,203 10,094 13,371 8,413
59
Profit from principal
operations 115,222 51,606 80,716 38,626
Add: Profit from other operations 1,102 108 856 146
Less: Selling expenses 19,477 13,055 14,582 9,591
Administrative expenses 23,167 15,523 21,219 14,038
Financial expenses 4,331 2,770 4,129 2,337
Exploration expenses,
including dry holes 6,396 4,951 6,133 4,483
Operating profit 62,953 15,415 35,509 8,323
Add: Investment income 1,088 39,374 548 22,844
Non-operating income 665 377 292 104
Less: Non-operating expenses 11,171 7,879 6,334 3,599
Profit before taxation 53,535 47,287 30,015 27,672
Less: Taxation 16,060 14,769 9,361 8,904
Minority interests 5,670 -- 1,886 --
Add: Unrecognised investment
losses 470 -- 243 --
Net profit 32,275 32,518 19,011 18,768
Add: Undistributed profits
at the beginning of year 19,975 19,732 12,569 12,569
Distributable profits 52,250 52,250 31,580 31,337
Less: Transfer to statutory
surplus reserve 3,228 3,228 1,901 1,901
Transfer to statutory
public welfare fund 3,228 3,228 1,901 1,901
Distributable profits to shareholders 45,794 45,794 27,778 27,535
Less: Ordinary shares'
final dividend 5,202 5,202 5,202 5,202
Ordinary shares'
interim dividend 3,468 3,468 2,601 2,601
60
Undistributed profits
at the end of the year
(Including dividend declared
after the balance sheet date in
respect of the
year 2004 of
RMB 6,936 million
(2003: RMB 5,202 million)) 37,124 37,124 19,975 19,732
(3) Cash Flow Statement
For the year ended
31 December 2004
The Group The Company
Note RMB millions RMB millions
Cash flows from operating activities
Cash received from sale of goods and
rendering of services 712,682 474,149
Rentals received 368 201
Other cash received relating to operating activities 3,640 2,760
Sub-total of cash inflows 716,690 477,110
Cash paid for goods and services (549,408) (382,856)
Cash paid for operating leases (6,871) (5,391)
Cash paid to and on behalf of employees (16,304) (8,539)
Value added tax paid (25,961) (13,460)
Income tax paid (16,858) (4,474)
Taxes paid other than value added tax and
income tax (16,045) (10,319)
Other cash paid relating to operating activities (15,104) (17,851)
Sub-total of cash outflows (646,551) (442,890)
Net cash flows from operating activities (a) 70,139 34,220
61
Cash flows from investing activities
Cash received from sales of investments 186 62
Dividend received 322 6,379
Net cash received from sales of fixed assets and
intangible assets 315 178
Maturity of time deposits with financial institutions 2,217 605
Other cash received relating to investing activities 359 144
Sub-total of cash inflows 3,399 7,368
Cash paid for acquisition of fixed assets and
intangible assets (66,693) (41,477)
Cash paid for acquisition of fixed assets and
intangible assets of jointly controlled entities (6,035) --
Cash paid for purchases of investments (1,225) (3,156)
Increase in time deposits with financial institutions (1,932) (617)
Cash paid for acquisition of Sinopec Maoming,
Xi'an Petrochemical and Tahe Petrochemical (3,652) (3,652)
Sub-total of cash outflows (79,537) (48,902)
Net cash flows from investing activities (76,138) (41,534)
Cash flows from financing activities
Proceeds from contribution
from minority shareholders 1,008 --
Proceeds from issuance of corporate bonds,
net of issuing expenses 3,472 3,472
Proceeds from borrowings 391,832 255,218
Proceeds from borrowings of
jointly controlled entities 3,014 --
Sub-total of cash inflows 399,326 258,690
Repayments of borrowings (377,855) (239,933)
Cash paid for dividends, distribution of
profit or interest (13,538) (11,737)
Dividend paid to minority
shareholders by subsidiaries (775) --
Sub-total of cash outflows (392,168) (251,670)
62
Net cash flows from financing activities 7,158 7,020
Effect of foreign exchange rate 1 --
Net increase/(decrease) in cash and
cash equivalents (b) 1,160 (294)
Note to the cash flow statement
For the year ended
31 December 2004
The Group The Company
RMB millions RMB millions
(a) Reconciliation of net profit to cash flows from operating activities
Net profit 32,275 32,518
Add: Allowance for doubtful accounts 2,050 2,159
Provision for diminution in value of inventories 433 190
Depreciation of fixed assets 30,766 13,349
Amortisation of intangible assets 476 346
Impairment losses on fixed assets 4,628 3,417
Impairment losses on long-term investments 88 --
Net loss on disposal of fixed assets and intangible assets 3,989 2,555
Financial expenses 4,331 2,770
Dry hole costs 2,976 2,184
Investment income (843) (27,948)
Deferred tax liabilities (less: assets) (2,439) (2,198)
Increase in inventories (16,927) (6,523)
Increase in operating receivables (4,245) (756)
Increase in operating payables 6,911 12,157
Minority interests 5,670 --
Net cash inflow from operating activities 70,139 34,220
(b) Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the end of the year 16,381 6,051
Less: Cash and cash equivalents at the beginning of the year 15,221 6,345
Net increase/(decrease) in cash and cash equivalents 1,160 (294)
63
9.2.2 Financial statements prepared in accordance with IFRS
Consolidated income statements
For the For the
year ended year ended
31 December 31 December
2004 2003
RMB millions RMB millions
Turnover and other operating revenues
Turnover 597,197 429,949
Other operating revenues 22,586 19,052
619,783 449,001
Operating expenses
Purchased crude oil, products and operating supplies and expenses (443,590) (313,238)
Selling, general and administrative expenses (31,843) (27,228)
Depreciation, depletion and amortisation (32,342) (27,951)
Exploration expenses, including dry holes (6,396) (6,133)
Personnel expenses (18,634) (16,972)
Employee reduction expenses (919) (1,040)
Taxes other than income tax (16,324) (13,581)
Other operating expenses, net (6,666) (3,975)
Total operating expenses (556,714) (410,118)
Operating profit 63,069 38,883
Finance costs
Interest expense (4,583) (4,365)
Interest income 374 322
Foreign exchange losses (223) (450)
Foreign exchange gains 61 30
Net finance costs (4,371) (4,463)
Gain from issuance of shares by a subsidiary -- 136
Investment income 111 89
Share of profits less losses from associates 797 396
64
Profit from ordinary activities before taxation 59,606 35,041
Taxation (17,815) (10,645)
Profit from ordinary activities after taxation 41,791 24,396
Minority interests (5,772) (1,972)
Profit attributable to shareholders 36,019 22,424
Basic earnings per share (RMB) 0.42 0.26
Dividends attributable to the year:
Interim dividend declared during the year 3,468 2,601
Final dividend proposed after the balance sheet date 6,936 5,202
10,404 7,803
Balance Sheet
At 31 December 2004 At 31 December 2003
The Group The Company The Group The Company
RMB millions RMB millions RMB millions RMB millions
Non-current assets
Property, plant and equipment 284,123 158,011 270,731 143,274
Construction in progress 46,185 28,948 29,354 20,631
Interest in subsidiaries -- 118,451 -- 96,707
Investments 2,538 158 2,709 605
Interests in associates 10,222 7,540 8,121 5,983
Interests in jointly
controlled entities -- 3,568 -- 1,043
Deferred tax assets 4,558 3,724 3,067 2,196
Lease prepayments 750 -- 810 --
Long-term prepayments and
other assets 5,947 3,660 2,353 1,519
Total non-current assets 354,323 324,060 317,145 271,958
65
Current assets
Cash and cash equivalents 16,381 6,051 16,263 7,259
Time deposits with
financial institutions 1,899 248 2,184 236
Trade accounts receivable 9,756 8,245 9,479 7,311
Bills receivable 7,812 1,597 6,283 1,612
Inventories 64,329 34,044 47,916 24,736
Prepaid expenses and
other current assets 20,094 26,471 20,914 29,407
Total current assets 120,271 76,656 103,039 70,561
Current liabilities
Short-term debts 32,307 20,033 29,181 15,071
Loans from Sinopec
Group Company and
fellow subsidiaries 8,714 7,727 4,865 3,265
Trade accounts payable 23,792 21,137 23,319 18,646
Bills payable 30,797 21,589 24,267 18,170
Accured expenses and
other payables 45,276 45,565 43,561 35,337
Income tax payable 5,391 3,142 4,079 2,014
Total current liabilities 146,277 119,193 129,272 92,503
Net current liabilities (26,006) (42,537) (26,233) (21,942)
Total assets less current liabilities 328,317 281,523 290,912 250,016
Non-current liabilities
Long-term debts 60,822 49,515 48,257 37,169
Loans from Sinopec
Group Company and
fellow subsidiaries 36,765 36,317 39,039 38,954
Deferred tax liabilities 5,636 2,025 4,599 1,425
Other liabilities 1,008 626 1,451 953
Total non-current liabilities 104,231 88,483 93,346 78,501
Minority interests 31,046 -- 26,051 --
Net assets 193,040 193,040 171,515 171,515
66
Shareholders' funds
Share capital 86,702 86,702 86,702 86,702
Reserves 106,338 106,338 84,813 84,813
Total shareholders' funds 193,040 193,040 171,515 171,515
Consolidated cash flow statement
For the year ended
31 December 2004
Note RMB millions
Cash flows from operating activities (a) 69,081
Cash flow from investing activities
Capital expenditure (67,583)
Capital expenditure of jointly controlled entities (6,035)
Purchase of investments and investments in associates (1,162)
Proceeds from disposal of investments and
investments in associates 186
Proceeds from disposal of property, plant and equipment 317
Increase in time deposits with financial institutions (1,932)
Maturity of time deposits with financial institutions 2,217
Net cash used in investing activities (73,992)
Cash flow from financing activities
Proceeds from bank and other loans 399,440
Proceeds from bank and other loans
of jointly controlled entities 3,014
Proceeds from issuance of corporate bonds,
net of issuing expenses 3,472
Repayments of bank and other loans (388,809)
Distributions to minority interests (775)
Contributions from minority interests 1,008
Dividend paid (8,670)
Cash and cash equivalent distributed to
Sinopec Group Company (3,652)
Net cash from financing activities 5,028
67
Net increase in cash and cash equivalents 117
Effect of foreign exchange rate 1
Cash and cash equivalents at beginning of the year 16,263
Cash and cash equivalents at end of the year 16,381
(a) Reconciliation of profit from ordinary activities before
taxation to cash flows from operating activities
For the year ended
31 December 2004
RMB millions
Profit from ordinary activities before taxation 59,606
Adjustments for:
Depreciation, depletion and amortisation 32,342
Dry hole costs 2,976
Share of profits less losses from associates (797)
Investment income (111)
Interest income (374)
Interest expense 4,583
Unrealised foreign exchange losses 150
Loss on disposal of property, plant and equipment, net 1,686
Impairment losses on long-lived assets 3,919
Increase in trade accounts receivable (494)
Increase in bills receivable (1,529)
Increase in inventories (16,526)
Decrease in prepaid expenses and other current assets 3,022
Decrease in lease prepayments 60
Increase in long-term prepayments and other assets (4,199)
Increase in trade accounts payable 599
Increase in bills payable 6,530
Decrease in accrued expenses and other payables (391)
Decrease in other liabilities (334)
Cash generated from operations 90,718
Interest received 374
Interest paid (5,450)
Investment and dividend income received 322
Income tax paid (16,883)
Cash flows from operating activities 69,081
68
9.2.3 Major differences between the financial statements prepared under the
PRC Accounting Rules and Regulations and IFRS
Other than the differences in the classifications of certain
financial statements captions and the accounting for the items
described below, there are no material differences between the
Group's financial statements prepared under the PRC Accounting Rules
and Regulations and IFRS. The major differences are:
(1) Effects of major differences between the PRC Accounting Rules
and Regulations and IFRS on net profit are analysed as follows:
For the year ended For the year ended
31 December 2004 31 December 2003
RMB millions RMB millions
Net profit under the PRC
Accounting Rules and Regulations 32,275 19,011
Adjustments:
Disposal of oil and gas properties,
net of depreciation effect 2,110 1,260
Acquisitions of Sinopec
Maoming, Xi'an Petrochemical,
Tahe Petrochemical,
Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and
Catalyst Plants 1,499 1,157
Acquisition of Sinopec National Star 117 117
Depreciation of oil and gas properties 761 1,784
Impairment losses on revalued assets 709 --
Capitalisation of general borrowing costs 480 389
Revaluation of land use rights 19 18
Government grants 3 --
Unrecognised losses of subsidiaries (531) (182)
Pre-operating expenditures (288) (169)
Gain from issuance of shares by a subsidiary -- 136
Gain from debt restructuring -- 82
Effects of the above adjustments on taxation (1,135) (1,179)
Net profit under IFRS* 36,019 22,424
69
(2) Effects of major differences between the PRC Accounting Rules
and Regulations and IFRS on shareholders' funds are analysed as
follows:
At At
31 December 2004 31 December 2003
RMB millions RMB millions
Shareholders' funds under the
PRC Accounting Rules and Regulations 186,350 162,946
Adjustments:
Disposal of oil and gas properties 3,370 1,260
Acquisitions of Tianjin Petrochemical,
Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants -- 3,616
Acquisition of Sinopec National Star (2,695) (2,812)
Depreciation of oil and gas properties 11,646 10,885
Capitalisation of general borrowing costs 1,605 1,125
Revaluation of land use rights (851) (870)
Government grants (592) (326)
Effect of minority interests on
unrecognised losses of subsidiaries -- 61
Pre-operating expenditures (457) (169)
Impairment losses on long-lived assets (113) (113)
Effects of the above adjustments on taxation (5,223) (4,088)
Shareholders' funds under IFRS * 193,040 171,515
* The above figure is extracted from the financial statements
prepared in accordance with IFRS which have been audited by
KPMG.
9.2.4 Supplemental information for North American Shareholders
The Group's accounting policies conform with IFRS which differ in
certain significant respects from accounting principles generally
accepted in the United States of America ("US GAAP"). See the text
of the Annual Report for details.
70
The effect on profit attributable to shareholders of significant
differences between IFRS and US GAAP is as follows:
For the years ended 31 December
2004 2004 2003
US$ millions RMB millions RMB millions
Profit attributable to shareholders under IFRS 4,352 36,019 22,424
US GAAP adjustments:
Foreign exchange gains and losses 7 57 76
Capitalisation of property, plant and equipment 1 12 12
Reversal of deficit on revaluation of property,
plant and equipment,
net of depreciation effect (1) (8) 86
Depreciation on revalued property,
plant and equipment 462 3,825 3,998
Disposal of property, plant and equipment 228 1,891 1,316
Exchange of assets 3 23 23
Reversal of impairment of long-lived assets,
net of depreciation effect 4 29 47
Capitalised interest on investments in associates 25 205 141
Goodwill amortisation for the year 1 7 --
Deferred tax effect of US GAAP adjustments (252) (2,085) (1,715)
Profit attributable to shareholders under US GAAP 4,830 39,975 26,408
Basic and diluted earnings
per share under US GAAP US$0.06 RMB0.46 RMB0.30
Basic and diluted earnings
per ADS under US GAAP* US$5.57 RMB46.11 RMB30.46
* Basic and diluted earnings per ADS is calculated on the basis that one ADS is equivalent to 100 shares.
71
The effect on shareholders' funds of significant differences between
IFRS and US GAAP is as follows:
At 31 December
2004 2004 2003
US$ millions RMB millions RMB millions
Shareholders' funds under IFRS 23,324 193,040 171,515
US GAAP adjustments:
Foreign exchange gains and losses (36) (295) (352)
Capitalisation of property, plant and equipment -- -- (12)
Revaluation of property, plant and equipment (820) (6,783) (12,943)
Deferred tax adjustments on revaluation 254 2,101 4,004
Exchange of assets (64) (532) (555)
Reversal of impairment of long-lived assets (64) (532) (561)
Capitalised interest on investments in associates 64 526 321
Goodwill 3 24 17
Deferred tax effect of US GAAP adjustments 36 301 398
Shareholders' funds under US GAAP 22,697 187,850 161,832
Note: United States dollar equivalents
For the convenience of readers, amounts in Renminbi have been
translated into United States dollars at the rate of US$1.00
= RMB8.2765 being the noon buying rate in New York City on 31
December 2004 for cable transfers in Renminbi as certified
for customs purposes by the Federal Reserve Bank of New York.
No representation is made that the Renminbi amounts could
have been, or could be, converted into United States dollars
at that rate.
9.3 Change in Accounting Policy
|_| Applicable |X| Not applicable
9.4 As compared to the last annual report, there are no changes in the
scope of consolidation.
|_| Applicable |X| Not applicable
72
Section 10. Repurchase, Sales and Redemption of Shares
|_| Applicable Not applicable
Section 11. Compliance with the Code of Best Practice
The Board of Directors believes that, during this reporting period,
Sinopec Corp. complied with the Code of Best Practice as set out in
Appendix 14 of the Listing Rules of the Hong Kong Stock Exchange.
Section 12. Application of the Model Code
During this reporting period, none of the directors had breached the
requirements set out in the Model Code for Securities Transactions by
Directors of Listed Issuers, Appendix 10 to the Listing Rules stipulated
by the Hong Kong Stock Exchange. .
ss.13. A detailed results announcement containing all the information required
by Paragraphs 45 (1) to (3) 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, China, 25 March 2005
73
NOTICE OF ANNUAL GENERAL MEETING FOR THE YEAR 2004
NOTICE IS HEREBY GIVEN that the annual general meeting ("Annual General
Meeting") of China Petroleum & Chemical Corporation ("Sinopec Corp.") for the
year 2004 will be held at Crowne Plaza Beijing -D Park View Wuzhou, No. 8
North Si Huan Zhong Road, Chaoyang District, Beijing, China on Wednesday, 18
May 2005 at 9:00 a.m. for the following purposes:
By way of ordinary resolutions:
1. To consider and approve the report of the Board of Directors of Sinopec
Corp. for the year ended 31 December 2004.
2. To consider and approve the report of the Supervisory Committee of Sinopec
Corp. for the year ended 31 December 2004.
3. To consider and approve the audited accounts and audited consolidated
accounts of Sinopec Corp. for the year ended 31 December 2004.
4. To consider and approve Plan for Profit Appropriation and the Final
Dividend of Sinopec Corp. for the year ended 31 December 2004.
5. To appoint the PRC and international auditors, respectively, of Sinopec
Corp. for the year 2005 and to authorise the Board of Directors to fix
their remuneration.
6. To consider and approve the proposal regarding Sinopec Corp. Tianjin 1
million tonnes per annum ethylene and auxillary facilities project.
To improve the overall competitiveness and profitability of Sinopec Corp.
in accordance with its overall strategic development and current market
condition, the Board approved the feasibility study report of Tianjin 1
million tonnes per annum ethylene and auxillary facilities project and
will submit the report for approval at the Annual General Meeting. This
project includes an ethylene project with a capacity of 1 million tonnes
per annum, a refining revamping project and an auxillary thermo power
revamping project. The total investment of the project is estimated to be
RMB20.1 billion.
By Order of the Board
Chen Ge
Secretary to the Board of Directors
Beijing, PRC, 25 March 2005
74
Notes:
1. Eligibility for attending the Annual General Meeting
Holders of Sinopec Corp.'s H Shares whose names appear on the register of
members maintained by Hong Kong Registrars Limited and holders of
domestic shares whose names appear on the domestic shares register
maintained by China Securities Registration and Clearing Company Limited
Shanghai Branch Company at the close of business Monday, 25 April 2005
are eligible to attend the Annual General Meeting.
In order to be eligible to attend and vote at the Annual General Meeting
to be held on Wednesday, 18 May 2005, all transfers accompanied by the
relevant share certificates must be lodged with share registrars for H
Shares of Sinopec Corp. in Hong Kong, Hong Kong Registrars Limited, Rooms
1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong,
not later than 4:00 p.m. on Monday, 18 April 2005.
2. Proxy
(1) A member eligible to attend and vote at the Annual General Meeting
is entitled to appoint, in written form, one or more proxies to
attend and vote on its behalf. A proxy need not be a shareholder of
Sinopec Corp.
(2) A proxy should be appointed by a written instrument signed by the
appointor or its attorney duly authorised in writing. If the form of
proxy is signed by the attorney of the appointor, the power of
attorney authorising that attorney to sign or the authorisation
document(s) must be notarised.
(3) To be valid, the power of attorney or other authorisation
document(s) which have been notarised together with the completed
form of proxy must be delivered, in the case of holders of domestic
shares, to the registered address of Sinopec Corp. and, in the case
of holder of H Shares, to Hong Kong Registrars Limited, not less
than 24 hours before the time designated for holding of the Annual
General Meeting.
(4) A proxy may exercise the right to vote by a show of hands or by
poll. However, if more than one proxy is appointed by a shareholder,
such proxies shall only exercise the right to vote by poll.
3. Registration procedures for attending the Annual General Meeting
(1) A shareholder or his proxy shall produce proof of identity when
attending the meeting. If a shareholder is a legal person, its legal
representative or other persons authorised by the board of directors
or other governing body of such shareholder may attend the Annual
General Meeting by producing a copy of the resolution of the board
of directors or other governing body of such shareholder appointing
such persons to attend the meeting.
(2) Holders of H Shares and domestic shares intending to attend the
Annual General Meeting should return the reply slip for attending
the Annual General Meeting to Sinopec Corp. on or before Thursday,
28 April 2005.
(3) Shareholder may send the above reply slip to Sinopec Corp. in
person, by post or by fax.
4. Closure of Register of Members
The register of members of Sinopec Corp. will be closed from Tuesday, 19
April 2005 to Wednesday, 18 May 2005 (both days inclusive).
75
5. Procedures for demanding a poll to vote on resolutions
Subject to the rules of the stock exchanges to which the shares of
Sinopec Corp. are listed, the following persons may demand a resolution
to be decided on a poll, before or after a vote is carried out by a show
of hands:
(1) the chairman of the meeting;
(2) at least two shareholders present in person or by proxy entitled to
vote thereat; or
(3) one or more shareholders present in person or by proxy and
representing 10% or more of all shares carrying the right to vote at
the meeting singly or in aggregate.
Unless a poll is demanded, a declaration shall be made by the
chairman that a resolution has been passed on a show of hands. The
demand for a poll may be withdrawn by the person who demands the
same.
6. Other Business
(1) The Annual General Meeting will not last for more than one working
day. Shareholders who attend shall bear their own travelling and
accommodation expenses.
(2) The address of the Share Registrar of H Shares of Sinopec Corp., Hong
Kong Registrars Limited is at:
Rooms 1712-1716, 17th Floor
Hopewell Centre
183 Queen's Road East
Hong Kong
(3) The address of the Share Registrar for A Shares of Sinopec Corp.,
China Securities Registration and Clearing Company Limited Shanghai
Branch Company is at:
72 Pu Jian Road
Pudong District
Shanghai
(4) The registered address of Sinopec Corp. is at:
A6 Huixindong Street
Chaoyang District
Beijing 100029
The People's Republic of China
Telephone No.: (+86) 10 6499 0060
Facsimile No.: (+86) 10 6499 0022
As at the date of this announcement, the directors of Sinopec Corp. are Messrs.
Chen Tonghai, Wang Jiming, Mou Shuling, Zhang Jiaren, Cao Xianghong, Liu
Cenyuan, Gao Jian and Fan Yifei; the independent non-executive directors of the
Company are Messrs. Chen Qingtai, Ho Tsu Kwok Charles, Shi Wanpeng and Zhang
Youcai; and the employee representative director of the Company is Mr. Cao
Yaofeng.
76
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: March 25, 2005