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 2004 annual report by China Petroleum & Chemical Corporation
("Registrant") on March 25, 2005.
CONTENTS
Company Profile 2
Principal Financial Data and Indicators 3
Changes in Share Capital and Shareholdings of Principal Shareholders 11
Chairman's Statement 14
Business Review and Prospects 16
Health, Safety and Environment 32
Management's Discussion and Analysis 33
Disclosure of Significant Events 45
Connected Transactions 53
Corporate Governance 57
Summary of Shareholders' Meetings 62
Report of the Board of Directors 63
Report of the Supervisory Committee 68
Directors, Supervisors, Senior Management and Employees 70
Principal Wholly-owned and Non Wholly-owned Subsidiaries 81
Notice of Annual General Meeting 83
Financial Statements 85
Corporate Information 166
Documents for Inspection 168
This annual report includes forward-looking statements.
All statements, other than statements of historical
facts, that address activities, events or developments
that the Company expects or anticipates will or may
occur in the future (including but not limited to
projections, targets, estimates and business plans)
are forward-looking statements. The Company's actual
results or developments may differ materially from
those indicated by these forward-looking statements as
a result of various factors and uncertainties. The
Company makes the forward-looking statements referred
to herein as at 25 March 2005 and undertakes no
obligation to update these statements.
IMPORTANT: THE BOARD OF CHINA PETROLEUM & CHEMICAL CORPORATION ("SINOPEC
CORP.") AND ITS DIRECTORS WARRANT THAT THERE ARE NO MATERIAL OMISSIONS FROM, OR
MISREPRESENTATIONS OR MISLEADING STATEMENTS CONTAINED IN THIS ANNUAL REPORT,
AND JOINTLY AND SEVERALLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY,
ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS REPORT. MR. MOU
SHULING, MR. GAO JIAN, MR. FAN YIFEI, MR. HO TSU KWOK, CHARLES AND MR. ZHANG
YOUCAI, DIRECTORS OF SINOPEC CORP., COULD NOT ATTEND THE FIFTEENTH MEETING OF
THE SECOND SESSION OF THE BOARD FOR REASON 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, AND MR. GAO JIAN, MR. HO
TSU KWOK, CHARLES AND MR. ZHANG YOUCAI, DIRECTORS OF SINOPEC CORP., ALL
AUTHORISED MR. CHEN QINGTAI TO VOTE ON THEIR BEHALF IN RESPECT OF THE
RESOLUTIONS PUT FORWARD IN THE MEETING OF THE BOARD. MR. CHEN TONGHAI, CHAIRMAN
OF THE BOARD, MR. WANG JIMING, VICE CHAIRMAN AND PRESIDENT OF SINOPEC CORP.,
MR. ZHANG JIAREN, DIRECTOR, SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER OF
SINOPEC CORP. AND MR. LIU YUN, HEAD OF THE ACCOUNTING DIVISION OF SINOPEC
CORP., HEREBY WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL
STATEMENTS CONTAINED IN THIS ANNUAL REPORT.
COMPANY PROFILE
Sinopec Corp. is the first company in China listed in Hong Kong, New York,
London and Shanghai, and is also an integrated energy and chemical company with
upstream, midstream and downstream operations. The principal operations of
Sinopec Corp. and its subsidiaries (the "Company") include:
o exploring for and developing, producing and trading crude oil and natural
gas
o processing crude oil into refined oil products, producing refined oil
products and trading, transporting, distributing and marketing refined oil
products
o producing, distributing and trading petrochemical products
Based on the turnover in 2004, Sinopec Corp. is the largest listed company in
China. The Company is also:
o one of the largest petroleum and petrochemical companies in China and Asia
o one of the largest producers and distributors of gasoline, diesel, jet
fuel and other major refined oil products in China and Asia
o the second largest producer of crude oil and natural gas in China
The Company's competitive strengths are mainly reflected in:
o its leading market position in the production and sales of refined oil
products in China
o its status as the largest petrochemical producer in China
o its strategic market position in China's highest economic growth areas
o its well-established, highly efficient and cost effective sales and
distribution network
o its integrated operation structure with strong resistance against industry
cyclical risks
o its well-recognized brand and excellent reputation
The Company has been focusing on capturing profit growth and expanding
opportunities, optimising capital allocation and investment activities,
developing and effectively deploying technologies and human resources,
promoting the efficient use of resources, seeking to improve its overall
competitiveness and strengths, and pursuing a higher return on capital employed
and sustained development and thereby increasing shareholders' value and
returns.
2
PRINCIPAL FINANCIAL DATA AND INDICATORS
1 FINANCIAL DATA AND OPERATING DATA PREPARED IN ACCORDANCE WITH THE PRC
ACCOUNTING RULES AND REGULATIONS
(1) SUMMARY OF PRINCIPAL FINANCIAL DATA AND OPERATING DATA OF THE COMPANY
FOR THE YEAR 2004
Profit before taxation : RMB 53,535 million
Net profit : RMB 32,275 million
Net profit before non-operating profits/losses : RMB 35,996 million
Profit from principal operations : RMB 115,222 million
Profit from other operations : RMB 1,102 million
Operating profit : RMB 62,953 million
Investment income : RMB 1,088 million
Subsidy income : Nil
Net non-operating income/expenses : RMB 10,506 million
(net expense)
Net cash flow from operating activities : RMB 70,139 million
Net increase in cash and cash equivalents : RMB 1,160 million
Items under non-operating profits/losses and corresponding amounts:
(Income)/Expense
Gain on disposal of long-term equity investments : RMB (2) million
Written back of provisions on assets provided
in previous years : RMB (322) million
Non-operating expenses (excluding normal
provisions on assets provided in accordance
with the Accounting Regulations for Business
Enterprises) : RMB 6,543 million
Of which: Loss on disposal of fixed assets : RMB 4,304 million
Employee reduction expenses : RMB 919 million
Donations : RMB 275 million
Non-operating income : RMB (665) million
Tax effect : RMB (1,833) million
Total : RMB 3,721 million
3
(2) PRINCIPAL FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH THE
PRC ACCOUNTING RULES AND REGULATIONS
FOR THE YEAR For the year
ENDED 31 ended 31 For the year
DECEMBER December ended 31
2004 2003 December 2002
Note RMB MILLIONS RMB millions RMB millions
After Before
adjustment adjustment
(i)
Income from principal operations 590,632 417,191 324,184 324,184
-----------------------------------------------------------------------------------------
Net profit 32,275 19,011 14,121 14,121
-----------------------------------------------------------------------------------------
Earnings per share (RMB)
Fully diluted (ii) 0.372 0.219 0.163 0.163
-----------------------------------------------------------------------------------------
Weighted average (iii) 0.372 0.219 0.163 0.163
-----------------------------------------------------------------------------------------
Net cash flow from operating
activities per share (RMB) 0.809 0.743 0.693 0.693
-----------------------------------------------------------------------------------------
Return on net assets (%)
Fully diluted (iv) 17.320 11.667 9.307 9.638
--------------------------------------------------------------------------------------
Weighted average (v) 18.403 12.048 9.478 9.723
--------------------------------------------------------------------------------------
Return (adjusted for
non-operating
profits/losses) on
net assets (%)
Fully diluted 19.316 13.690 9.611 9.953
--------------------------------------------------------------------------------------
Weighted average 20.524 14.137 9.787 10.040
--------------------------------------------------------------------------------------
AT 31 At 31
DECEMBER December At 31
2004 2003 December 2002
RMB MILLIONS RMB millions RMB millions
After Before
adjustment adjustment
(i)
Total assets 460,081 390,213 368,375 368,375
-----------------------------------------------------------------------------------------
Shareholders' funds (excluding
minority interests) 186,350 162,946 151,717 146,515
-----------------------------------------------------------------------------------------
Net assets per share (RMB) 2.149 1.879 1.750 1.690
-----------------------------------------------------------------------------------------
Adjusted net assets per share (RMB) 2.102 1.850 1.736 1.676
-----------------------------------------------------------------------------------------
4
Notes:
(i) 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.
(ii) Fully diluted earnings per share = net profit for the year / total
number of shares in issue at the end of the year
(iii) Weighted average earnings per share = net profit for the year /
(number of shares at the beginning of the year + number of shares
increased due to the transfer from surplus reserves to capital or
share dividend distributed+ (increase in number of shares during the
year due to issuance of new shares or capitalization of debt x number
of months from the month following the increase of shares to the end
of the year / number of months in the year) - (number of shares
decreased due to share repurchases or reduction in share capital x
number of months from the month following the decrease of shares to
the end of the year / number of months for the year))
(iv) Fully diluted return on net assets basis = (net profit for the year /
shareholders' funds at the end of the year) x 100%
(v) Weighted average return on net assets basis = net profit for the year
/ (shareholders' funds at the beginning of the year + net profit for
the year / 2 + (shareholders' funds increased due to issuance of new
shares or capitalization of debt during the year x number of months
from the month following the increase of shareholders' funds to the
end of the year / number of months in the year) - (shareholders' funds
decreased due to share repurchases or cash dividends during the year x
number of months from the month following the decrease of
shareholders' funds to the end of the year / number of months in the
year)) x 100%
(3) APPENDIX TO INCOME STATEMENT PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING
RULES AND REGULATIONS
FOR THE YEAR ENDED For the year ended
31 DECEMBER 2004 31 December 2003
RETURN ON NET ASSETS Return on net assets
FULLY WEIGHTED Fully Weighted
DILUTED AVERAGE diluted average
(%) (%) (%) (%)
Profit from principal operations 61.83 65.70 49.54 51.15
--------------------------------------------------------------------------------
Operating profit 33.78 35.90 21.79 22.50
--------------------------------------------------------------------------------
Net profit 17.32 18.40 11.67 12.05
--------------------------------------------------------------------------------
Net profit before non-operating
profits/losses 19.32 20.52 13.69 14.14
FOR THE YEAR ENDED For the year ended
31 DECEMBER 2004 31 December 2003
EARNINGS PER SHARE Earnings per share
FULLY WEIGHTED Fully Weighted
DILUTED AVERAGE diluted average
RMB RMB RMB RMB
Profit from principal operations 1.329 1.329 0.931 0.931
--------------------------------------------------------------------------------
Operating profit 0.726 0.726 0.410 0.410
--------------------------------------------------------------------------------
Net profit 0.372 0.372 0.219 0.219
--------------------------------------------------------------------------------
Net profit before non-operating
profits/losses 0.415 0.415 0.257 0.257
--------------------------------------------------------------------------------
5
(4) CHANGES TO THE CONSOLIDATED SHAREHOLDERS' FUNDS AND THE REASONS FOR CHANGES FOR THE YEAR
Unit: RMB millions
Statutory Discre-
Statutory public tionary Unrecognized Total
Share Capital surplus welfare surplus investment Undistributed shareholders'
Items capital reserve reserve fund reserve losses profits funds
Beginning of the year 86,702 36,852 6,330 6,330 7,000 (243) 19,975 162,946
--------------------------------------------------------------------------------------------------------------------------
Increase in the year -- 269 3,228 3,228 -- (470) 32,275 38,530
-------------------------------------------------------------------------------------------------------------------------
Decrease in the year -- -- -- -- -- -- (15,126) (15,126)
-------------------------------------------------------------------------------------------------------------------------
End of the year 86,702 37,121 9,558 9,558 7,000 (713) 37,124 186,350
-------------------------------------------------------------------------------------------------------------------------
The reasons for the changes are as follows:
i Capital reserve at the end of 2004 was RMB 37,121 million, an increase by
RMB 269 million compared with RMB 36,852 million at the beginning of the
year. The increase was due to the received government grants on
investments. For further information, please refer to note 30 to the
financial statements prepared in accordance with the PRC Accounting Rules
and Regulations;
ii Statutory surplus reserve at the end of 2004 was RMB 9,558 million, an
increase by RMB 3,228 million compared with that at the beginning of the
year. The increase was mainly due to the transfer by Sinopec Corp. of 10%
of its consolidated net profit for 2004 in accordance with the PRC
Accounting Rules and Regulations of RMB 32,275 million to the statutory
surplus reserve;
iii Statutory public welfare fund at the end of 2004 was RMB 9,558 million, an
increase by RMB 3,228 million compared with that at the beginning of the
year. The increase was mainly due to the transfer by Sinopec Corp. of 10%
of its consolidated net profit for 2004 in accordance with the PRC
Accounting Rules and Regulations of RMB 32,275 million to the statutory
public welfare fund;
iv Discretionary surplus reserve at the end of 2004 was RMB 7,000 million,
which amount remained unchanged from that at the beginning of the year;
v Unrecognized investment losses at the end of 2004 was RMB 713 million, an
increase by RMB 470 million compared with RMB 243 million at the beginning
of the year. The increase represents unrecognized investment losses which
exceeded the carrying value of long-term equity investment;
6
vi Consolidated undistributed profits at the end of 2004 was RMB 37,124
million, an increase by RMB 17,149 million compared with that at the
beginning of the year. The increase was attributable to the realization by
Sinopec Corp. of a consolidated net profit for 2004 in accordance with the
PRC Accounting Rules and Regulations of RMB 32,275 million, and taking
into account of the deduction of RMB 6,456 million for the appropriation
of statutory surplus reserve and statutory public welfare fund, and RMB
8,670 million declared as interim dividend for 2004 and final dividend for
2003; and
vii Total shareholders' funds at the end of 2004 was RMB 186,350 million, an
increase by RMB 23,404 million compared with that at the beginning of the
year.
(5) DETAILS OF PROVISIONS FOR ASSETS Unit: RMB millions
Beginning of Provisions Written back Written off End of the
Items the year for the year for the year for the year year
1 Allowance for doubtful accounts 5,533 2,176 (126) (416) 7,167
-------------------------------------------------------------------------------------------------------------
Of which: Allowance for doubtful
accounts for accounts
receivable 3,185 931 (85) (360) 3,671
-------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts for other
receivables 2,348 1,245 (41) (56) 3,496
-------------------------------------------------------------------------------------------------------------
2 Provision for impairment losses on
short-term investments -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
3 Provision for diminution in value
of inventories 519 621 (188) (46) 906
-------------------------------------------------------------------------------------------------------------
4 Provision for impairment losses
on long-term equity investments 271 96 (8) (6) 353
-------------------------------------------------------------------------------------------------------------
5 Provision for impairment losses
on fixed assets 1,331 4,628 (79) (64) 5,816
-------------------------------------------------------------------------------------------------------------
6 Provision for impairment losses
on intangible assets -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
7 Provision for impairment losses
on construction in progress -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
8 Provision for impairment losses
on entrusted loans -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
7
(6) SIGNIFICANT CHANGES OF ITEMS IN THE FINANCIAL STATEMENTS
Reasons for the changes of data during the reporting period where the
fluctuation is more than 30%, or such fluctuation is 5% or above of the
total assets at the balance sheet date or more than 10% of the profit
before taxation:
Changes
At 31 At 31 Amount Percentage
December December increased/ increased/
Items 2004 2003 (decreased) (decreased) Reasons of changes
RMB MILLIONS RMB millions (%)
Bills receivable 7,812 5,953 1,859 31.23 Mainly due to the increase in income from
principal operations
-----------------------------------------------------------------------------------------------------------------------------------
Inventories 63,918 44,915 19,003 42.31 Due to the increase in inventories of crude
oil and refined oil products
-----------------------------------------------------------------------------------------------------------------------------------
Provision for impairment 5,816 1,331 4,485 336.96 Due to the provisions based on recoverable
losses on fixed assets amount after the amendments of production
and operation plans
-----------------------------------------------------------------------------------------------------------------------------------
Construction materials 430 1,226 (796) (64.93) Mainly due to the utilisation of construction
materials for certain significant construction
in progress projects according to construction
work schedules
-----------------------------------------------------------------------------------------------------------------------------------
Construction in progress 45,976 28,513 17,463 61.25 Please refer to note 13 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 4,166 1,752 2,414 137.79 Please refer to note 16 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 3,563 97 3,466 3,573.20 Mainly due to the increase in the prepaid
long-term rental expenses
-----------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 8,605 5,908 2,697 45.65 Due to the Company raised the level of deposit
required from customers
-----------------------------------------------------------------------------------------------------------------------------------
Wages payable 3,223 1,850 1,373 74.22 Due to the increase in staff wages
-----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 652 303 349 115.18 Mainly due to the increase in accrued and
unpaid production and operation costs
-----------------------------------------------------------------------------------------------------------------------------------
Current portion of 14,298 8,175 6,123 74.90 Mainly due to the increase in portion of long
long-term liabilities term loans repayable within one year in
accordance with loan contracts
-----------------------------------------------------------------------------------------------------------------------------------
Debentures payable 3,500 -- 3,500 -- Please refer to note 27 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 198 289 (91) (31.49) Please refer to note 16 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-----------------------------------------------------------------------------------------------------------------------------------
FOR THE For the
YEAR year
ENDED 31 ended 31 Changes
DECEMBER December Amount Percentage
Items 2004 2003 increased increased Reasons of changes
RMB MILLIONS RMB millions (%)
Income from principal 590,632 417,191 173,441 41.57 Please refer to Management's Discussion and
operations Analysis
------------------------------------------------------------------------------------------------------------------------------------
Cost of sales 459,207 323,104 136,103 42.12 Please refer to Management's Discussion and
Analysis
------------------------------------------------------------------------------------------------------------------------------------
Selling expenses 19,477 14,582 4,895 33.57 Mainly due to the increase in selling
expenses for refined oil products
------------------------------------------------------------------------------------------------------------------------------------
Investment income 1,088 548 540 98.54 Mainly due to the increase in net profit from
associates
------------------------------------------------------------------------------------------------------------------------------------
Non-operating income 665 292 373 127.74 Mainly due to the increase in net gains from
disposal of fixed assets
------------------------------------------------------------------------------------------------------------------------------------
Non-operating expenses 11,171 6,334 4,837 76.37 Please refer to note 37 to thE financial
statements prepared in accordance with the
PRC Accounting Rules and Regulations
------------------------------------------------------------------------------------------------------------------------------------
Taxation 16,060 9,361 6,699 71.56 Mainly due to the increase in profit before
taxation
------------------------------------------------------------------------------------------------------------------------------------
Minority interests 5,670 1,886 3,784 200.64 Mainly due to the increase in net profit
from subsidiaries
------------------------------------------------------------------------------------------------------------------------------------
Unrecognized investment 470 243 227 93.42 Mainly due to unrecognized investment losses
losses which exceeded the carrying value of
long-term equity investment
------------------------------------------------------------------------------------------------------------------------------------
8
2 FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS PREPARED IN
ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
Unit: RMB millions
FOR THE YEARS ENDED 31 DECEMBER
2004 2003 2002 2001 2000
Turnover and other operating revenues 619,783 449,001 350,078 326,424 341,576
-----------------------------------------------------------------------------------------------------------------------------
Operating profit 63,069 38,883 29,301 27,311 38,356
-----------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities before taxation 59,606 35,041 24,916 23,930 33,020
-----------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders 36,019 22,424 16,296 15,503 21,732
-----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share (RMB) 0.415 0.259 0.188 0.182 0.302
-----------------------------------------------------------------------------------------------------------------------------
Earnings per share (Based on the total number
of shares in issue at the year end) (RMB) 0.415 0.259 0.188 0.179 0.259
-----------------------------------------------------------------------------------------------------------------------------
Return on capital employed (%) 12.84 9.01 6.90 6.26 9.90
-----------------------------------------------------------------------------------------------------------------------------
Return on net assets (%) 18.66 13.07 9.77 9.72 15.00
-----------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities
per share (RMB) 0.797 0.716 0.655 0.663 0.360
-----------------------------------------------------------------------------------------------------------------------------
Unit: RMB millions
AT 31 DECEMBER
2004 2003 2002 2001 2000
Non-current assets 354,323 317,145 301,614 286,093 247,695
-----------------------------------------------------------------------------------------------------------------------------
Net current (liabilities)/assets (26,006) (26,233) (18,759) (16,574) 11,380
-----------------------------------------------------------------------------------------------------------------------------
Non-current liabilities (104,231) (93,346) (91,927) (86,309) (90,682)
-----------------------------------------------------------------------------------------------------------------------------
Minority interests (31,046) (26,051) (24,151) (23,652) (23,472)
-----------------------------------------------------------------------------------------------------------------------------
Net assets 193,040 171,515 166,777 159,558 144,921
-----------------------------------------------------------------------------------------------------------------------------
Net assets per share (RMB) 2.226 1.978 1.924 1.840 1.727
-----------------------------------------------------------------------------------------------------------------------------
Adjusted net assets per share (RMB) 2.187 1.950 1.910 1.820 1.717
-----------------------------------------------------------------------------------------------------------------------------
Debt/equity ratio*(%) 33.58 33.73 34.25 34.03 37.85
-----------------------------------------------------------------------------------------------------------------------------
* Debt/equity ratio = long-term loans / (shareholders' funds + long-term loans) x 100%
9
3 MAJOR DIFFERENCES BETWEEN THE PRC ACCOUNTING RULES AND REGULATIONS AND
IFRS ON NET PROFIT FOR THE YEAR 2004 AND SHAREHOLDERS' FUNDS AT THE END OF
THE REPORTING PERIOD
(1) Analysis of the effects of major differences between the PRC
Accounting Rules and Regulations and IFRS on net income
FOR THE YEARS
ENDED 31 DECEMBER
2004 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
----------------------------------------------------------------------------------
Acquisition 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 --
----------------------------------------------------------------------------------
Capitalization of general borrowing costs 480 389
----------------------------------------------------------------------------------
Revaluation of land use rights 19 18
----------------------------------------------------------------------------------
Government grants 3 --
----------------------------------------------------------------------------------
Unrecognized 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
-------------------------------------------------------------------------------------
(2) Analysis of the effects of major differences between the PRC Accounting
Rules and Regulations and IFRS on shareholders'funds
AT 31 DECEMBER
2004 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, net of
depreciation effect 3,370 1,260
------------------------------------------------------------------------------------
Acquisition 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
------------------------------------------------------------------------------------
Capitalization of general borrowing costs 1,605 1,125
------------------------------------------------------------------------------------
Revaluation of land use rights (851) (870)
------------------------------------------------------------------------------------
Government grants (592) (326)
------------------------------------------------------------------------------------
Effect of minority interests on unrecognized 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.
10
CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
1 CHANGES IN THE SHARE CAPITAL OF SINOPEC CORP. UNIT: 1,000 SHARES
Increase/ Decrease
Capitalization
Opening of surplus Ending
balance Placings Bonus reserves IPO Others Sub-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
----------------------------------------------------------------------------------------------------------------------------------
2 SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
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.
(1) TOP TEN SHAREHOLDERS
Number of Percentage at the Number
Increase/ shares end of reporting period of
Decrease held at the Among total Among the type pledges,
during the end of the shares of share- Nature of Type of lock-up
Name of shareholders reporting period reporting period held holdings shareholders shares held or trusts
-----------------------------------------------------------------------------------------------------------------------------------
(1,000 shares) (1,000 shares) (%) (%) (1,000 shares)
-----------------------------------------------------------------------------------------------------------------------------------
China Petrochemical Corporation 11,143,000 58,885,561 67.92 87.73 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
HKSCC (Nominees) Limited 5,039,172 16,678,790 19.24 99.39 H Shares Tradable Unknown
-----------------------------------------------------------------------------------------------------------------------------------
China Cinda Asset Management Corp. (5,000,000) 3,720,650 4.29 5.54 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
China Development Bank (6,143,000) 2,632,570 3.04 3.92 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
China Orient Asset Management Corp. 0 1,296,410 1.50 1.93 State-owned Non tradable 0
shares
-----------------------------------------------------------------------------------------------------------------------------------
Guo Tai Jun An Corp. (10,428)* 586,760 0.68 0.87 State-owned Non tradable 293,380
legal person (pledged)
shares
-----------------------------------------------------------------------------------------------------------------------------------
EFUND 50 Securities Investment Fund 73,109 73,109 0.08 2.61 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Xinghe Securities Investment Fund 2,439 64,387 0.07 2.30 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Qingdao Port Authority 0 60,000 0.07 2.14 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Harvest Service Sector Fund 59,745 59,749 0.07 2.13 A Shares Tradable 0
-----------------------------------------------------------------------------------------------------------------------------------
Explanation for the relationships among There are no connections among corporate shareholders. The Company is not
above shareholders or activities aware of any connection or activities in concert among other holders of
in concert shares in circulation and is not aware of any pledges, lock-ups or
trust of shareholdings of holders of H Shares
-------------------------------------------------------------------------------------------------------------------------------
* The shares sold by Guo Tai Jun An Corp. were tradable A shares previously
purchased on the secondary market by Guo Tai Jun An Corp.
11
(2) TOP TEN SHAREHOLDERS WITH TRADABLE SHARES
Number of shares held Type of
Name of shareholders at the end of 2004 shares held
(1,000 shares)
HKSCC (Nominees) Limited 16,678,790 H Shares
---------------------------------------------------------------------------------------------------------------------
EFUND 50 Securities Investment Fund 73,109 A Shares
---------------------------------------------------------------------------------------------------------------------
Xinghe Securities Investment Fund 64,387 A Shares
---------------------------------------------------------------------------------------------------------------------
Qingdao Port (Group) Co., Ltd. 60,000 A Shares
---------------------------------------------------------------------------------------------------------------------
Harvest Service Sector Fund 59,749 A Shares
---------------------------------------------------------------------------------------------------------------------
CITIC Classic Securities Co., Ltd. 58,705 A Shares
---------------------------------------------------------------------------------------------------------------------
Xinghua Securities Investment Fund 50,610 A Shares
---------------------------------------------------------------------------------------------------------------------
China Southern Sustaining Growth Fund 43,000 A Shares
---------------------------------------------------------------------------------------------------------------------
Haifutong Profits Securities 42,980 A Shares
---------------------------------------------------------------------------------------------------------------------
Tai He Securities Investment Fund 41,000 A Shares
---------------------------------------------------------------------------------------------------------------------
Explanation for the relationships among the Except for Xinghe Securities Investment Fund and Xinghua Securities
above shareholders or activities in concert Investment Fund, both of which belong to China 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.
-----------------------------------------------------------------------------------------------------------------------------------
(3) INFORMATION DISCLOSED BY THE SHAREHOLDERS OF H SHARES ACCORDING TO THE SECURITIES AND FUTURES ORDINANCE
Approximate
percentage of
Number of share Sinopec Corp.'s
interests held or interests
Name of shareholders Nature regarded as held (H Share) (%)
Exxon Mobil Corporation Corporate 3,168,529,000(L) 18.88(L)
----------------------------------------------------------------------------------------------------------------------
Exxonmobil Far East Holdings Ltd. Beneficial owner 3,168,529,000(L) 18.88(L)
----------------------------------------------------------------------------------------------------------------------
Exxonmobil International Holdings Inc. Corporate 3,168,529,000(L) 18.88(L)
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. Beneficial owner 62,821,250(L) 0.37(L)
Investment manager 425,568,905(L) 2.54(L)
Custodian 614,188,138(P) 3.66(P)
----------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. Beneficial owner 46,454,000(L) 0.28(L)
Investment manager 634,707,194(L) 3.78(L)
Others 347,184,277(P) 2.07(P)
----------------------------------------------------------------------------------------------------------------------
Wellington Management Company, LLP Corporate 845,269,200(L) 5.04(L)
----------------------------------------------------------------------------------------------------------------------
Note 1: (L): Long position, (S): Short position, (P): Lending pool
Note 2: On 1 March 2005, Exxonmobil sold out all the shares of Sinopec Corp. it held.
12
3 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE EFFECTIVE CONTROLLER
There was no change in the controlling shareholders or the effective
controller during the reporting period.
(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 Petroleum Corporation is the effective controller of Sinopec
Corp.
(4) Diagram of the equity and controlling relationship between Sinopec
Corp. and its effective controller
----------------------------
| China Petroleum Corporation|
| |
----------------------------
|
| 67.92%
|
\ /
--------------------------
| China Petroleum & |
| Chemical Corporation |
--------------------------
13
CHAIRMAN'S STATEMENT
To all shareholders,
On behalf of the Board of Directors of Sinopec Corp., I would like to extend my
sincere gratitude for your continuous attention and support for the Company.
The year 2004 witnessed impressive progress in Sinopec Corp.'s reform and
development. Looking back at 2004, the Company adjusted its operating strategy
and carefully organized its production operations in response to the complex
and ever-changing domestic and international market situations. In addition, by
means of reform, structural adjustment and restructuring, the Company improved
its internal management system and optimized its asset structure. These
measures have laid a solid foundation for the Company's sustainable and
effective growth. The Company's total production volume, profit and asset
efficiency all increased significantly in 2004. According to the PRC Accounting
Rules and Regulations, the Company's net profit was RMB 32.275 billion in 2004,
up by 69.8% compared with that in 2003. According to International Financial
Reporting Standards (IFRS), the Company's net profit was RMB 36.019 billion,
representing an increase of 60.6% compared with that in 2003, and the return on
capital employed rose to 12.84% after years of successive increases, up by 383
basis points over that in 2003. Looking at the Company's integrated operations,
all business segments experienced growth scenario. The Chemical Segment has, in
particular, achieved record high results. Such results were achieved through
facility expansion and structural adjustments during the trough of the business
cycle in the past few years and capturing the increase of margin in the global
chemical business during the last year. This achievement has made the overall
advantage of having an integrated operation more prominent.
The rapid growth of the Chinese economy and the recovery of the market have
contributed to our sound performance. It was also a result of our persistence
in adhering to our development strategy, our ability to accurately evaluate
market trends and conditions, our responsiveness in capturing growth
opportunities and our perseverance in carrying out the policy of "reform,
adjustment, innovation and advancement". The hard-working, pioneering and
innovative spirits of the Company's management and all staff have no doubt
contributed towards our achievements. On behalf of the Board of Directors, I
would like to extend our sincere thanks to them for their consistent efforts.
Considering the Company's earnings in 2004 and the need for longer-term
sustainable development, the Board of Directors proposed a dividend
distribution of RMB 0.12 per share for the full year of 2004. After deducting
the interim dividend of RMB 0.04 per share that had been distributed, the final
dividend for the year 2004 will be RMB 0.08 per share, which is equivalent to
RMB 8.00 per ADS.
In 2004, Sinopec Corp. further strengthened its corporate governance. Pursuant
to the regulatory requirements and the Company's management practice, the
Company promptly made necessary amendments to the relevant provisions of its
Articles of Association with an aim to minimise operational risks and ensure
proper operation of the Company. In addition, the Company amended and improved
its internal control system after a year of trial operation. The internal
control system has been approved by the Board of Directors and will be
officially rolled out across the entire organisation in 2005.
14
In 2004, the Company steadily implemented various reforms. By continuing to
reduce the size of its work force through reassignments, flattening managerial
hierarchies, simplifying management systems and restructuring the
organisations, the Company has downsized its worked force by 11,000 persons
including 1,200 mid-level management personnel. To consolidate the value chain,
achieve integrated management and increase efficiency in resource allocation,
we have implemented a buy-back program for the Mao Lian Convertible Bonds. The
Board of Directors has approved the privatisation of Beijing Yanhua. The
privatization was also approved by the shareholders of Beijing Yanhua.
Moreover, the Company undertook to further reform its marketing system.
Following the formation of Acrylic Fibre Sales Company and Lubricate Oil
Company, another two professional companies for asphalt and catalysts were
established, making a good preparation for future larger reforms in the
chemical marketing system.
In 2004, structural adjustment of the Company was intensified. On the one hand,
in response to the changes in the market demand and considering the Company's
long-term development goals, the Company has promptly invested more capital in
the Refining and Marketing Segments. As a result, our market shares have
increased, and our ability to sustain risks and maintain sustainable growth has
been significantly enhanced. Such initiative has obtained recognition and
support from our shareholders. On the other hand, based on the principle of
"giving prominence to the core business", the Company has acquired certain
assets consisting of petrochemicals, catalysts and petrol stations from its
controlling shareholder, Sinopec Group Company and its subsidiaries (excluding
the Company) ("Sinopec Group"), and has disposed of the downhole operation
assets of the Company. Furthermore, the Company has disposed of, or made
provisions for impairment to losses on certain less competitive and efficient
assets and as a result, the Company's overall asset quality has improved.
In 2004, the Company made great efforts on promoting the overall "Sinopec"
corporate image. By landing the exclusive naming right of F1 Sinopec Chinese
Grand Prix race and acting as the petrochemical partner of Beijing 2008 Olympic
Games, the Company has greatly promoted the value of the Sinopec brand.
Whilst upholding the operation tenet of "maximizing profits of the company as
well as returns to shareholders", the Company also attached great importance to
the fulfillment of its social responsibilities, including saving resources and
protecting environment. By upgrading existing production facilities, the
Company has improved the quality of its products. In addition, the Company took
great initiative to participate in public welfare undertakings by sponsoring
educational projects financing the education of girls in the areas of poverty,
and by providing support for constructions in those disaster-striken areas such
as those Southeastern Asia countries affected by the recent tsunami and
Xinjiang Autonomy Region struck by the snow storm.
Talents are the primary resource for corporate development. Sinopec Corp. has
made great efforts to develop a talented work force and has established
long-term incentive measures to bring out the vigor, creativity and loyalty of
its talents. The Company has also introduced a market-rate mechanism in order
to further its compensation system reform to motivate staff's initiative spirit
and creativity.
Looking to the future in 2005, Sinopec Corp. will still be at its strategic
development stage, facing precious opportunities as well as huge challenges and
hardships for its effective development. Guided by its belief in pursuing a
practical and scientific development approach and adhering to the Company's
principle of "Reform, Adjustment, Innovation and Advancement", the Company
strives to assess its market environment accurately and make scientifically
sound decisions. Great efforts will be put into the following action items:
first of all, reinforce safe production and keep up with the growth trend of
its production and operation; second, further and deepen the reforms in various
areas, including accelerating the reform of the chemicals marketing system to
capture the growth opportunities in the chemical industry, advancing the
integration of the Company's various operations, improving of the refined oil
product marketing system and the foreign trade system, flattening the
management hierarchy, downsizing the workforce and optimizating of the internal
compensation system; third, reinforce structure adjustment starting from the
investment structure and use new investments to optimise the existing assets
structure; fourth, better the internal control system to improve corporate
governance and safeguard the Company's and shareholders' interests; finally,
build up a capable workforce consisting of management personnel, professional
personnel of various types and technicians of various types, and encourage
their initiative spirit and creativity.
In 2005, the Board of Directors, corporate management and all the staff,
despite of potential difficulties, are determined to capture various
opportunities, act in unity and be endeavored to achieve more splendid results
in order to reward our shareholders, employees, customers and the society with
the long-term and sustainable growth of the Company.
/s/ Chen Tonghai
Chen Tonghai
Chairman
Beijing, PRC 25 March 2005
15
BUSINESS REVIEW AND PROSPECTS
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.
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.
(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.
(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.
16
[GRAPHIC OMITTED]
Price Trend of International Crude Oil
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.
17
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
---------------------------------------------------------------------------------------------
SUMMARY OF PRODUCTION AND OPERATIONS OF SHENGLI OIL FIELD
Changes
from 2003
2004 2003 2002 to 2004 (%)
Crude oil production (mmbbls) 189.88 189.25 189.68 0.33
----------------------------------------------------------------------------------------------
Natural gas production (bcf) 31.8 28.6 26.5 11.19
----------------------------------------------------------------------------------------------
Newly added proved reserves of crude oil (mmbbls) 225 196 240 14.80
----------------------------------------------------------------------------------------------
Newly added proved reserves of natural gas (bcf) 79.9 70.1 (5.1) 13.98
----------------------------------------------------------------------------------------------
Year end proved reserves of crude oil (mmbbls) 2,306 2,271 2,264 1.54
----------------------------------------------------------------------------------------------
Year end proved reserves of natural gas (bcf) 357.1 308.9 267.4 15.60
----------------------------------------------------------------------------------------------
Year end proved reserves of crude oil
and natural gas (mmboe) 2,366 2,322 2,308 1.89
----------------------------------------------------------------------------------------------
(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.
18
SOURCES OF CRUDE OIL Unit: million tones
Changes
from 2003
2004 2003 2002 to 2004 (%)
Self-supply 28.14 28.20 28.90 (0.21)
-------------------------------------------------------------------------------
PetroChina Company Ltd. 10.31 13.08 14.57 (21.18)
-------------------------------------------------------------------------------
CNOOC 6.69 5.57 6.22 20.11
-------------------------------------------------------------------------------
Imported 89.03 71.14 56.68 25.15
-------------------------------------------------------------------------------
Total 134.17 117.99 106.37 13.71
-------------------------------------------------------------------------------
SUMMARY OF PRODUCTION OF THE REFINING SEGMENT
Except for 2004, the following operation data for 2003 and 2002 do not include those of Xi'an Petrochemical
and Tahe Petrochemical.
Changes
from 2003
2004 2003 2002 to 2004 (%)
Crude throughput (mbbls/day) 2,677.2 2,341.0 2,114.6 14.36
------------------------------------------------------------------------------------------------------------------
of which: sour crude throughput (mbbls/day) 551.1 478.7 402.8 15.12
---------------------------------------------------------------------------------------------------------------
Refining utilization rate (%) 93.43 87.8 79.3 5.63
percentage
points
------------------------------------------------------------------------------------------------------------------
Gasoline, diesel and kerosene (million tonnes) 80.83 68.72 62.42 17.62
------------------------------------------------------------------------------------------------------------------
of which: Gasoline (million tonnes) 23.58 21.74 19.62 8.46
---------------------------------------------------------------------------------------------------------------
Diesel (million tonnes) 50.89 41.67 37.74 22.13
------------------------------------------------------------------------------------------------------------------
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
point
------------------------------------------------------------------------------------------------------------------
Refining yield (%) 93.09 92.63 92.50 0.46
percentage
point
------------------------------------------------------------------------------------------------------------------
Except for 2002, the following operation data for 2003 and 2004 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
-------------------------------------------------------------------------------------------------------------------
Refining 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
point
-------------------------------------------------------------------------------------------------------------------
Refining yield (%) 93.09 92.63 92.50 0.46
percentage
point
-------------------------------------------------------------------------------------------------------------------
Notes: Crude oil processing volume is converted at 1 tonne = 7.35 barrels.
19
(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.
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
-------------------------------------------------------------------------------------------------------------------------
20
(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.
Furthermore, 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.
PRODUCTION OF MAJOR CHEMICALS
The operation data of 2002 and 2003 listed below exclude the data of
Maoming Ethylene; the operation data of 2004 include those of Maoming
Ethylene but exclude those of chemical assets acquired from Sinopec Group
in 2004.
Unit: 1,000 tonnes
Changes
from 2003
2004 2003 2002 to 2004 (%)
Ethylene 3,637 3,169 2,716 14.77
------------------------------------------------------------------------------------------------------
Synthetic resins 5,534 4,691 4,005 17.97
------------------------------------------------------------------------------------------------------
of which: performance compound resins 2,894 2,305 1,847 25.55
--------------------------------------------------------------------------------------------------
Synthetic rubbers 561 502 458 11.75
------------------------------------------------------------------------------------------------------
Monomers and polymers for Synthetic fibres 5,049 4,418 3,834 14.28
-----------------------------------------------------------------------------------------------------
Synthetic fibres 1,295 1,280 1,153 1.17
------------------------------------------------------------------------------------------------------
of which: differential fibres 589 477 402 23.48
--------------------------------------------------------------------------------------------------
Urea 2,630 2,028 2,666 29.68
------------------------------------------------------------------------------------------------------
The operation 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.
21
(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 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.
BUSINESS PROSPECT
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.
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.
22
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%.
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.
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.
23
HEALTH, SAFETY AND ENVIRONMENT
Sinopec Corp. has been long dedicated to achieving a coordinated development
between Health, Safety and Environment (HSE) and economic growth, and
establishing a mechanism for long-term safe operations. The Company has
strictly adhere to its social responsibilities, and solemnly carried out its
operating motto featuring "safety first, preventative measures, full
participation, comprehensive governance, environment improvement, health
protection, scientific management, and sustainable development". In 2004, the
Company continued to maintain its safe and stable production, endeavored to
provide the society with safe, reliable, high-quality and environment-friendly
products, protected the environment, cared for the health of its employees,
continuously improved its relationship with the community, established a good
social image, and achieved even better performance in HSE.
1 STEADY IMPROVEMENT OF HSE MANAGEMENT
Since the announcement of HSE management system in 2001, the Company has
proactively promoted HSE management system in its subsidiaries. By the end
of 2004, each branch company and subsidiary of the Company has established
and put into operation a relatively complete HSE management system.
2 IMPLEMENTATION OF A PRECAUTION-ORIENTED POLICY AND SAFETY EVALUATION FOR
NEW PROJECTS
In 2004, the Company completed safety evaluations for a number of new
revamping projects, such as the construction of crude oil pipeline along
the Yangtz River and refined oil product pipeline in Zhujiang River Delta,
and the expansion of MTBE Unit in Sinopec Zhenhai Refining and Chemical
Co., Ltd. It also evaluated the risks, on a regular basis, arising from
those existing facilities and utilities systems. Moreover, core facilities
and critical parts were subject to dynamic monitoring and management by
designated operators. For any potential problems found during the
evaluation, the Company would monitor the entire trouble shooting process
to ensure the full elimination of problems and safe production.
3 ACTIVE PROMOTION OF CLEAN PRODUCTION TO SAVE WATER AND REDUCE EFFLUENTS
In 2004, on the basis of the clean production pilot program and in
accordance with the Standard of Clean Production for Enterprises, the
branch companies and subsidiaries of Sinopec Corp. carried out full-scale
"clean" production and further standardized environmental management
practices in line with the HSE management system so that effluents
discharged were continuously reduced. Besides, the Company reinforced its
control of water consumption, conducted a more intensive assessment on the
use of water, and actively developed practical water-saving techniques.
Compared with the year 2003, despite of a large increase in the production
volume, the water consumption for industrial purpose was still reduced by
2% in 2004.
4 PROVIDING CLEANER FUEL FOR THE SOCIETY
Since 1 July 2002, the Company fully complied with the new national
standard for light diesel. Under the new standard, sulphur content was
reduced from 1.0% to 0.2% (m/m). Since 1 July 2003, the Company has fully
complied with the new national standard of gasoline for motor vehicles and
sulphur content was reduced from 0.1% to 0.08% (m/m). Since 1 October 2004,
the Company started to supply gasoline and diesel which are in compliant
with the Euro II standard to the Beijing market.
The Company will fully apply the upcoming national standard of gasoline and
diesel for motor vehicles (equivalent to Euro II standard), which will be
effective from 1 July 2005. According to this standard, sulphur content in
gasoline for motor vehicles will be further reduced from 0.08% to 0.05%
(m/m), and sulphur content in diesel for motor vehicles will be further
reduced from 0.2% to 0.05% (m/m). At the same time, the Company will supply
gasoline and diesel products which are in compliant with Euro III standard
to the Beijing market.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PART OF THE
FINANCIAL INFORMATION PRESENTED IN THIS SECTION IS DERIVED FROM THE COMPANY'S
AUDITED FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS").
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.
The following table sets forth the major items in the consolidated income
statement of the Company for the indicated periods.
YEARS ENDED 31 DECEMBER
2004 2003 Changes
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
---------------------------------------------------------------------------------------------------
25
(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.
Sales volume Averaged realized prices
(thousand tonnes) (RMB/tonne)
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)
(RMB/thousand 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 rubber 556 555 0.2 10,238 8,513 20.3
----------------------------------------------------------------------------------------------------------------------------
Synthetic fibre 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
----------------------------------------------------------------------------------------------------------------------------
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.
(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 purchased 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.
26
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.
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.
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.
27
(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.
2 DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS
The Company divides its operations into four business segments (Exploration
and Production Segment, Refining Segment, Marketing and Distribution
Segment and Chemicals Segment) and Corporate and Others. Unless otherwise
specified, the financial data discussed in this section have not eliminated
the inter-segment transactions. In addition, the operating revenue data of
each segment have included the "other operating revenues" of the segment.
The following table shows the operating revenues by each segment, the
contribution of external sales and inter-segment sales as a percentage of
operating revenues before elimination of inter-segment sales, and the
contribution of external sales as a percentage of consolidated operating
revenues (i.e. after elimination of inter-segment sales) for the periods
indicated.
As a percentage of As a percentage of
consolidated operating consolidated operating
revenues before revenues after
elimination of elimination of
Years ended 31 December inter-segment sales inter-segment sales
2004 2003 2004 2003 2004 2003
Exploration and Production Segment RMB millions % %
----------------------------------------------------------------------------------------------------------------------------
External sales (1) 25,253 22,975 2.5 3.0 4.1 5.1
------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 60,053 47,287 5.9 6.3
------------------------------------------------------------------------------------------------------------------------
Operating revenues 85,306 70,262 8.4 9.3
----------------------------------------------------------------------------------------------------------------------------
Refining Segment
----------------------------------------------------------------------------------------------------------------------------
External sales (1) 68,574 56,018 6.7 7.4 11.1 12.5
------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 289,699 217,755 28.5 28.9
------------------------------------------------------------------------------------------------------------------------
Operating revenues 358,273 273,773 35.2 36.3
----------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment
----------------------------------------------------------------------------------------------------------------------------
External sales (1) 343,595 238,758 33.8 31.7 55.4 53.2
------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 2,831 2,602 0.3 0.3
------------------------------------------------------------------------------------------------------------------------
Operating revenues 346,426 241,360 34.1 32.0
------------------------------------------------------------------------------------------------------------------------
Chemicals Segment
----------------------------------------------------------------------------------------------------------------------------
External sales (1) 132,183 96,425 13.0 12.8 21.3 21.5
------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 12,510 7,415 1.2 1.0
------------------------------------------------------------------------------------------------------------------------
Operating revenues 144,693 103,840 14.2 13.8
------------------------------------------------------------------------------------------------------------------------
Corporate and others
----------------------------------------------------------------------------------------------------------------------------
External sales (1) 50,178 34,825 4.9 4.6 8.1 7.7
------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 32,046 30,371 3.2 4.0
------------------------------------------------------------------------------------------------------------------------
Operating revenues 82,224 65,196 8.1 8.6
------------------------------------------------------------------------------------------------------------------------
Operating revenues before elimination
of inter-segment sales 1,016,922 754,431 100.0 100.0
----------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sale (397,139) (305,430)
----------------------------------------------------------------------------------------------------------------------------
Consolidated operating revenues 619,783 449,001 100.0 100.0
----------------------------------------------------------------------------------------------------------------------------
Notes: (1) including other operating revenues.
28
The following table shows the operating revenues, operating expenses and
operating profit by each segment before elimination of the inter-segment
transactions for the periods indicated, and the percentage change from 2003 to
2004.
Years ended 31 December
2004 2003 Changes
RMB millions (%)
Exploration and Production Segment
-------------------------------------------------------------------------------------
Operating revenues 85,306 70,262 21.4
---------------------------------------------------------------------------------
Operating expenses 59,692 51,102 16.8
---------------------------------------------------------------------------------
Operating profit 25,614 19,160 33.7
=================================================================================
Refining Segment
-------------------------------------------------------------------------------------
Operating revenues 358,273 273,773 30.9
-------------------------------------------------------------------------------------
Operating expenses 352,330 267,700 31.6
-------------------------------------------------------------------------------------
Operating profit 5,943 6,073 (2.1)
-------------------------------------------------------------------------------------
Marketing and Distribution Segment
-------------------------------------------------------------------------------------
Operating revenues 346,426 241,360 43.5
---------------------------------------------------------------------------------
Operating expenses 331,710 229,417 44.6
---------------------------------------------------------------------------------
Operating profit 14,716 11,943 23.2
=================================================================================
Chemicals Segment
-------------------------------------------------------------------------------------
Operating revenues 144,693 103,840 39.3
---------------------------------------------------------------------------------
Operating expenses 125,972 100,297 25.6
---------------------------------------------------------------------------------
Operating profit 18,721 3,543 428.4
=================================================================================
Corporate and others
-------------------------------------------------------------------------------------
Operating revenues 82,224 65,196 26.1
---------------------------------------------------------------------------------
Operating expenses 84,149 67,032 25.5
---------------------------------------------------------------------------------
Operating profit (1,925) (1,836) 4.8
=================================================================================
(1) EXPLORATION AND PRODUCTION SEGMENT
Most of the crude oil and a small portion of the natural gas produced by
Exploration and Production Segment were used for the Company's refining and
chemical operations. Most of the natural gas and a small portion of crude
oil produced were sold to refineries owned by Sinopec Group Company and
third party customers.
In 2004, the operating revenues of this segment were RMB 85.3 billion, up
by 21.4% over 2003, largely due to the increase in sales volume and the
sales price of crude oil compared with those in 2003.
In 2004, this segment sold 36.26 million tonnes of crude oil, representing
an increase of 1.4% compared with 2003; 3.9 billion cubic meters of natural
gas were sold, up by 11.6% compared with that in 2003. The average realized
price of crude oil was RMB1,956 per tonne (approximately USD 33.3/barrel),
representing an increase of 20.7% compared with that in 2003; the average
realized price of natural gas was RMB 616 per thousand cubic meters, up by
3.3% compared with that in 2003.
In 2004, the operating expenses of this segment were RMB 59.7 billion, up
by 16.8% compared with that in 2003. This increase was mainly due to the
following reasons:
o The depreciation, depletion and amortization of the segment increased
by RMB 2.6 billion compared with 2003. This change was caused by the
additions of oil and gas properties as a result of an increase in
capital expenditure incurred in this segment;
o The rise of fuel cost as a result of the increase in oil and gas
production and fuel prices, resulting in an increase of the operating
expenses by approximately RMB 1 billion compared with 2003;
o Other operating expenses including expenses related to the sales of
materials were up by RMB 1.3 billion compared with 2003;
o Exploration expenses (including dry holes) were up by RMB 0.3 billion
compared with 2003;
o Due to the increase of sales revenues of crude oil, the natural
resources compensation fee increased accordingly. Land and building
rental increased due to the increase of leased land and buildings. In
addition, safety insurance fund also increased. The total of these
items was up by RMB 0.5 billion compared with 2003.
In 2004, in light of the high crude oil price, this segment increased its
workload of certain downhole operation. As a result, the lifting cost of
crude oil and natural gas increased by 3.9% from USD 6.47 per barrel in
2003 to USD 6.72 per barrel in 2004.
In 2004, this segment's operating profit was approximately RMB 25.6
billion, representing an increase of 33.7% compared with that in 2003.
29
(2) REFINING SEGMENT
The business activities of the Refining Segment consist of purchasing crude
oil from the Exploration and Production Segment and third parties,
processing crude oil into refined petroleum products, selling gasoline,
diesel and kerosene to the Marketing and Distribution Segment, and selling
other refined petroleum products to domestic and overseas customers.
In 2004, the segment's operating revenues were RMB 358.3 billion, up by
30.9% compared with 2003. The increase was mainly due to the increase in
the sales prices and sales volumes of various refined petroleum products.
The following table shows the sales volumes, average realized prices and
the percentage changes of various kinds of refined petroleum products of
the segment from 2003 to 2004.
Sales volume Average realized prices
(thousand tonnes) (RMB per tonne)
2004 2003 Changes 2004 2003 Changes
(%) (%)
Gasoline 21,420 21,255 0.8 2,977 2,624 13.5
------------------------------------------------------------------------------------------------------------------
Diesel 50,271 41,461 21.2 2,890 2,404 20.2
------------------------------------------------------------------------------------------------------------------
Chemical feedstock 23,165 21,914 5.7 2,682 2,277 17.8
------------------------------------------------------------------------------------------------------------------
Other refined petroleum products 31,710 29,639 7.0 2,583 2,155 19.9
------------------------------------------------------------------------------------------------------------------
In 2004, the sales revenues of gasoline realized by the segment were RMB
63.8 billion, representing an increase of 14.4% compared with 2003,
accounting for 17.8% of this segment's operating revenues, down by 2.6
percentage points compared with 2003.
In 2004, the sales revenues of diesel realized by the segment were RMB
145.3 billion, representing an increase of 45.7% compared with 2003,
accounting for 40.5% of this segment's operating revenues, up by 4.0
percentage points compared with 2003.
In 2004, the sales revenues of chemical feedstock realized by the segment
were RMB 62.1 billion, representing an increase of 24.5% compared with
2003, accounting for 17.3% of this segment's operating revenues, down by
0.9 percentage points compared with 2003.
In 2004, the sales revenues of refined petroleum products other than
gasoline, diesel and chemical feedstock were RMB 81.9 billion, representing
an increase of 28.3% compared with 2003, accounting for 22.8% of this
segment's operating revenues, down by 0.5 percentage points compared with
2003.
In 2004, the operating expenses of the segment were RMB 352.3 billion,
representing an increase of 31.6% compared with 2003. The increase was
principally due to the increase of processing volume and price of crude
oil.
In 2004, the average cost of crude oil was RMB 2,261 per tonne,
representing an increase by 24.0% compared with 2003. Refining throughput
was 128.84 million tonnes (excluding amounts processed for third parties),
representing an increase of 10.4% compared with 2003. In 2004, the total
crude oil costs were RMB 291.3 billion, representing an increase of 36.9%
compared with 2003, accounting for 82.7% of the segment's operating
expenses, up by 3.2 percentage points compared with 2003.
In 2004, with oil prices remaining at a high level, the Company strived to
minimize purchase cost of crude oil and transportation cost and increase
the revenue of refined oil products, and expanded the sales market of
refined petroleum products other than gasoline, diesel and kerosene.
However, the increase of refined oil price was less than that of crude oil.
The refining margin was USD 3.86 per barrel (defined as the sales revenues
less the crude oil costs and refining feedstock costs and taxes other than
income tax divided by the throughput of crude oil and refining feedstock),
down by USD 0.23 per barrel compared with USD 4.09 per barrel in 2003,
representing a decrease of 5.6%.
In 2004, the refining cash operating cost (defined as operating expenses
less the purchasing costs of crude oil and refining feedstock, depreciation
and amortization, taxes other than income tax, other business expenses and
adjustments; and divided by the throughput of crude oil and refining
feedstock) was USD 1.98 per barrel, down by USD 0.02 per barrel compared to
2003, representing a decrease of 1%. This change was mainly due to the
continued reduction in costs and increased throughput in this segment.
In 2004, the operating profit of the Refining Segment was RMB 5.9 billion,
similar to that in 2003.
(3) MARKETING AND DISTRIBUTION SEGMENT
The business activities of Marketing and Distribution Segment include
purchasing refined products from the Refining Segment and third parities,
wholesale of petroleum products to domestic customers, directly selling and
distributing the petroleum products through the retail network owned by
this segment and provision of related services.
In 2004, the operating revenues of this segment were RMB 346.4 billion, up
by 43.5% compared with 2003. The increase was due to the increase in sales
volume and prices of refined oil products and the sustained optimization of
marketing structure, which further increased the retail and distribution
ratios of gasoline and diesel.
30
In 2004, the operating revenues from retail of gasoline and diesel were RMB
299.9 billion, accounting for 86.6% of the operating revenues of this
segment. In 2004, the percentage of retail sales in the total sales volume
of gasoline and diesel increased from 48.9% in 2003 to 54.6% in 2004,
representing an increase of 5.7 percentage points. The percentage of sales
of gasoline and diesel by distribution in the total sales volume increased
from 13.3% in 2003 to 20.3% in 2004, up by 7 percentage points. The
percentage of wholesale sales in the total sales volume of gasoline and
diesel decreased from 37.8% in 2003 to 25.1% in 2004, down by 12.7
percentage points.
The following table shows the sales volumes, average realized prices and
respective percentage changes of the four product categories in 2003 and
2004 including break-down information of different sales channels for
gasoline and diesel.
Sales Volume Average realized prices
(thousand tonnes) (RMB per tonne)
2004 2003 Changes 2004 2003 Changes
(%) (%)
Gasoline 27,508 23,533 16.9 3,762 3,295 14.2
----------------------------------------------------------------------------------------------------------------
Of which: Retail 18,416 14,676 25.5 3,911 3,450 13.4
----------------------------------------------------------------------------------------------------------------
Distribution 2,890 1,621 78.3 3,536 3,152 12.2
-------------------------------------------------------------------------------------------------------
Wholesale 6,202 7,236 (14.3) 3,426 3,011 13.8
-------------------------------------------------------------------------------------------------------
Diesel 61,097 47,921 27.5 3,215 2,789 15.3
----------------------------------------------------------------------------------------------------------------
Of which: Retail 29,997 20,291 47.8 3,351 2,954 13.4
----------------------------------------------------------------------------------------------------------------
Distribution 15,123 7,880 91.9 3,211 2,772 15.8
-------------------------------------------------------------------------------------------------------
Wholesale 15,978 19,750 (19.1) 2,963 2,626 12.8
-------------------------------------------------------------------------------------------------------
Kerosene 5,623 4,573 23.0 2,923 2,350 24.4
-----------------------------------------------------------------------------------------------------------------
Fuel oil 9,685 6,370 52.0 1,793 1,670 7.4
-----------------------------------------------------------------------------------------------------------------
In 2004, this segment's operating expenses were RMB 331.7 billion, up by
44.6% compared with 2003. The increase was mainly due to the increase in
procurement expenses, of which, purchase costs for gasoline and diesel were
RMB 260.9 billion, representing an increase of 44.3% compared with 2003,
accounting for 78.7% of the segment's operating expenses. In 2004, average
purchased prices of gasoline and diesel went up by 12.1% and 18.8%
respectively compared with 2003, to RMB 3,019 per tonne and RMB 2,910 per
tonne. The purchase volume of gasoline and diesel went up by 16.9% and
27.5% respectively compared with 2003, to 27.51 million tonnes and 61.10
million tonnes.
In 2004, the unit segment's cash operating cost of petroleum products
(defined as the operating expenses less the purchasing costs, taxes other
than income tax, depreciation and amortization, and divided by the sales
volume) was RMB 167.11 per tonne, down by 4.48% compared with 2003. This
decrease was primarily due to the effect of increase in sales volume and
decrease in costs.
In 2004, the Marketing and Distribution Segment's operating profit was RMB
14.7 billion, up by 23.2% compared with 2003.
(4) CHEMICALS SEGMENT
The business activities of the Chemicals Segment include purchasing
chemical feedstock from the Refining Segment and third parities, producing,
marketing and distribution of petrochemical products and inorganic chemical
products.
In 2004, the operating revenues of the Chemicals Segment were RMB 144.7
billion, up by 39.3% compared with 2003. The increase was mainly due to an
increase in prices and sales volume of major chemical products.
31
In 2004, the sales revenues of the Company's six major chemical products
(i.e. basic organic chemicals, synthetic resin, synthetic rubber synthetic
fibre, synthetic fibre monomers and polymers and chemical fertilizer)
totalled approximately RMB 124.7 billion, up by 33.7% compared with 2003,
accounting for 86.2% of the total operating revenues of this segment.
The following table set forth the sales volume, average realized price and
percentage of changes for each of these six categories of chemical products
of this segment from 2003 to 2004.
Sales volumes Average realized prices
(thousand tonnes) (RMB per tonne)
2004 2003 Changes 2004 2003 Changes
% %
Basic organic chemicals 7,384 7,208 2.4 4,292 3,377 27.1
---------------------------------------------------------------------------------------------------------------------------------
Synthetic resin 5,402 5,097 6.0 7,986 6,017 32.7
---------------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 563 555 1.4 10,247 8,513 20.4
---------------------------------------------------------------------------------------------------------------------------------
Synthetic fibre 1,741 1,720 1.2 10,818 9,300 16.3
---------------------------------------------------------------------------------------------------------------------------------
Synthetic fibre monomer and polymer 2,704 2,622 3.1 8,022 5,791 38.5
---------------------------------------------------------------------------------------------------------------------------------
Chemical fertilizer 2,659 2,034 30.7 1,355 1,165 16.3
---------------------------------------------------------------------------------------------------------------------------------
In 2004, the operating expenses of the segment were RMB 126 billion, up by
25.6% compared with 2003. This change was primarily caused by the price
increase of various raw materials, the increased consumption of various raw
materials and auxiliary materials with the increase in the production of
this segment, as well as the increased variable expenses and fixed costs.
More specifically, the increase was due to the following reasons:
o Affected by the increase in the consumption of raw materials and
auxiliary materials and the increase in their unit prices, the
purchasing costs for raw materials, operating supplies and other
related expenses increased by approximately RMB 21.9 billion compared
with 2003.
o Materials sales and other business expenses were up by RMB 1.8 billion
compared with 2003.
o Provision for impairment losses on low efficient facilities for
fertilizer and caprolactam was RMB 2.0 billion, representing an
increase of RMB 1.6 billion.
In 2004, operating profit for the Chemicals Segment was RMB 18.7 billion,
representing an increase of RMB 15.2 billion compared with 2003. The
percentage of operating profit of the Chemicals Segment in the Company's
total operating profit increased from 9% in 2003 to 29.6% in 2004,
representing an increase of 20.6 percentage points.
(5) CORPORATE AND OTHERS
The business activities of Corporate and Others mainly consist of import
and export business of the subsidiaries, research and development
activities of the Company and managerial activities of its headquarters.
In 2004, the operating revenues of Corporate and Others were RMB 82.2
billion, representing an increase of 26.1% compared with 2003. The increase
was largely due to the fact that China Petrochemical International Co.,
Ltd. and its subsidiaries increased their trading volume in importing and
exporting crude oil and refined oil products and other business
transactions.
In 2004, the operating expenses were about RMB 84.1 billion, representing
an increase of 25.5% compared with 2003. This increase was largely due to
the fact that the purchase costs of China Petrochemical International Co.,
Ltd and its subsidiaries have increased to keep up with the increased
operating revenues.
The operating losses were about RMB 1.9 billion, representing an increase
of RMB 0.1 billion compared with 2003.
32
3 ASSETS, LIABILITIES, SHAREHOLDERS' FUNDS, AND WORKING CAPITAL
The Company's primary sources of funding were 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 Changes
2004 2003
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
-------------------------------------------------------------------------
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.
33
(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 December 31, 2003 to RMB
16.381 billion as at December 31, 2004).
The following table shows the major items on the consolidated cash flow
statements.
(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 flow 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.
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 Major Guarantees and Performance in the
section entitled Disclosure of Significant Events.
(4) CAPITAL EXPENDITURE
Refer to the descriptions under Capital Expenditure in the section
entitled Business Review and Prospects.
(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.
34
(6) ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING
RULES AND REGULATIONS
The major differences between the Company's financial statements prepared
under the PRC Accounting Rules and Regulations and those under IFRS are
set out in Section C of the financial statements of the Company on page
159 to page 160 of this report.
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.
Years ended 31 December
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
----------------------------------------------------------------------------
Corporate and 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:
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
--------------------------------------------------------------------------------
35
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.
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 Section D of the financial
statements of the Company on page 161 to page 163 of this report.
36
DISCLOSURE OF SIGNIFICANT EVENTS
1 PERFORMANCE OF THE COMMITMENTS BY SINOPEC CORP. AND ITS SHAREHOLDER HOLDING
5% OR MORE OF THE TOTAL ISSUED SHARE CAPITAL, NAMELY, SINOPEC GROUP COMPANY
(1) 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.
(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.
2 PRELIMINARY PLAN FOR PROFIT APPROPRIATION FOR 2004
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.
3 USE OF PROCEEDS FROM ISSUANCE OF A SHARES
In 2001, the proceeds from the issuance of A shares of Sinopec Corp.
amounted to RMB 11.816 billion. Excluding issuance expenses, the net
proceeds from the issuance of A shares amounted to RMB 11.648 billion, of
which RMB 7.766 billion was used in 2001, mainly to acquire National Star
from Sinopec Group and to supplement the Company's working capital. In
2002, RMB 696 million was used mainly to cover the initial preparation
costs of the southwest oil products pipeline project and to build the
Ningbo-Shanghai-Nanjing crude oil pipeline. In 2003, RMB 1.514 billion was
used, of which RMB 700 million was used for building the southwest oil
products pipeline project and RMB 814 million was used for building the
Ningbo-Shanghai-Nanjing crude oil pipeline. In 2004, RMB 1.061 billion was
used for building the southwest oil products pipeline project. Up to 31
December 2004, the remaining balance of the proceeds from the issuance of A
shares was RMB 611 million.
37
4 ISSUANCE AND LISTING OF CORPORATE BONDS
On 8 March 2004, Sinopec Corp. successfully issued domestic 10-year term
corporate bonds which amounted to RMB 3.5 billion with a fixed coupon rate
of 4.61%. On 28 September 2004, the said corporate bonds were listed on the
Shanghai Stock Exchange. For further details, please refer to Sinopec
Corp.'s announcement published in China Securities, Shanghai Securities,
and Securities Times in Mainland China, and South China Morning Post and
Hong Kong Economic Times in Hong Kong on 24 February 2004 and 28 September
2004. As of 31 December 2004, the outstanding principal balance of the said
corporate bonds was RMB 3.5 billion. On 24 February 2005, Sinopec Corp.
repaid coupon interests for the first year in full.
5 MAJOR COOPERATION PROJECTS
(1) QINGDAO REFINING PROJECT
On 22 June 2004, the National Development and Reform Commission (NDRC)
approved the feasibility study report with respect to the Qingdao
Refining Project which is to be funded by Sinopec Corp., Shandong
International Trust Investment Company and Qingdao International Trust
Investment Company. The capacity of the refinery is expected to be 10
million tonnes per year and the total investment in the project is RMB
9.7 billion, of which the said parties contributed 85%, 10% and 5%
respectively. The project is expected to commence production in 2007.
Sinopec Qingdao Refining and Chemical Company Limited ("Qingdao Oil
Refinery") was established in Qingdao on 18 November 2004.
(2) 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.
(3) 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.
(4) FOREIGN PARTNERS EXITED 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.
(5) LAUNCH OF FEL DESIGN FOR FUJIAN REFINERY INTEGRATED PROJECT
An agreement was reached on 26 August 2004 among Fujian Refinery Company
Limited ("Fujian Refinery"), a joint venture equally funded by Sinopec
Corp. and Fujian Province, ExxonMobil China Petroleum and Chemical
Company Limited and Aramco Overseas Company BV to commence the Front End
Loading (FEL) facility design for Fujian Refinery Integrated Project.
The FEL design includes completion of preliminary engineering, selection
of contractors, confirmation of budget and ordering equipment which have
a long-lead time. At the conclusion of the FEL design, the parties will
reach a final decision regarding the establishment of a join venture and
construction of the FEL facility.
The Fujian Refinery Integrated Project will increase the production
capacity of Fujian Refinery from 4 million tonnes per year to 12 million
tonnes per year. In addition, the said project involves the construction
of a 800,000 tonnes-per-year ethylene cracker, polyethylene and
polypropylene units, and a 700,000 tonnes-per-year paraxylene unit. The
said project is expected to commence production in the first half of
2008.
38
6 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 PAYMENT OF INTEREST, REDEMPTION AND DELISTING OF MAO LIAN CONVERTIBLE
BONDS IN 2004
Pursuant to the approval of CSRC (Document [1999] No.90), Sinopec Mao
Ming Refining and Chemical Company Limited ("Maoming Oil Refinery"), a
subsidiary of Sinopec Corp., issued convertible bonds ("Mao Lian
Convertible Bonds") in the total sum of RMB 1.5 billion with a 5-year
term through the Shenzhen Stock Exchange on 28 July 1999 and the Mao Lian
Convertible Bonds were listed on the Shenzhen Stock Exchange on 17 August
1999. In accordance with the Provisional Rules on the Management of
Convertible Corporate Bonds and the Convertible Corporate Bonds
Prospectus prepared by Maoming Oil Refinery, its shareholders approved
the cessation of the trading and delisting of Mao Lian Convertible Bonds
commencing from 28 July 2004 at the general meeting held on 23 March
2004. Maoming Oil Refinery has redeemed all convertible bonds which it
had not repurchased by the expiration date, at the price of RMB
118.5/piece (tax exempted).
8 THE TRANSFER OF STATE-OWNED SHARES FROM CDB AND CINDA TO SINOPEC GROUP
COMPANY
Former shareholders of Sinopec Corp., namely China Development Bank
("CDB") and China Cinda Asset Management Corporation ("Cinda"), entered
into a share transfer agreement with Sinopec Group Company 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.
9 ACQUISITIONS AND DISPOSALS OF ASSETS
(1) ACQUISITION OF SHARES IN JINZHI
At the seventh meeting of the Second Session of the Board of Directors of
Sinopec Corp. held on 26 March 2004, the Board of Sinopec Corp. approved
the use of internal funding to acquire 100% shares of Yanhua Group
Tianjin Lubricant & Grease Company Limited (Jinzhi Company) from Sinopec
Group Beijing Yanshan Petrochemical Company Limited (a wholly-owned
subsidiary of Sinopec Group Company) for a cash consideration of RMB 230
million. The parties entered into an acquisition agreement. 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 29 March 2004 for
further details.
(2) ACQUISITION OF PETROCHEMICALS, CATALYST, PETROL STATION ASSETS FROM
SINOPEC GROUP AND DISPOSAL OF DOWNHOLE OPERATION ASSETS
The proposals of the acquisition of petrochemical assets, catalyst assets
and petrol station assets from Sinopec Group and disposal of downhole
operation assets to Sinopec Group were approved by the shareholders of
Sinopec Corp. at the extraordinary general meeting held on 21 December
2004. The appraised aggregate value of the assets to be acquired was RMB
17.154 billion, total liabilities was RMB 12.734 billion, and after the
deduction of minority interests of RMB 205 million, the net asset value
amounted to RMB 4.215 billion. The appraised aggregate value of the
assets to be disposed of was RMB 2.147 billion, total liabilities was RMB
399 million, and the net asset value was RMB 1.748 billion. The
consideration for the acquired assets was RMB 4.578 billion and that for
the disposed assets was RMB 1.748 billion. After the offset of the two
items, the Company shall pay RMB 2.83 billion to Sinopec Group. In
accordance with the agreement, the Company shall also pay RMB 782
million, which represents the profits/losses of such assets for the
period between the valuation date and completion date.
39
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
1 November 2004 and the circular to shareholders dispatched on 6 November
2004 for further details.
(3) 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.
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.
10 PURCHASING STAKE IN CHINA GAS
Sinopec Corp. and China Gas Holdings Ltd. ("China Gas") entered into a
strategic cooperation agreement on 1 November 2004. 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. undertook
not to sell the shares within 12 months since the completion date of such
shares subscription.
11 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 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. 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.
12 REDUCTION OF EMPLOYEES
Sinopec Corp. plans to reduce the number of employees by 100,000 persons
through retirement, voluntary resignation and/or dismissal 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.
13 MATERIAL LITIGATION AND ARBITRATION EVENTS
The Company was not involved in any material litigation or arbitration
during the reporting period.
40
14 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE
GUARANTEES PROVIDED BY THE COMPANY (EXCLUDING THE GUARANTEES 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 2002.2.9 2,930 Joint and 2002.2.9 No Yes
Co., Ltd. several liability -2021.12.20
guarantee
-----------------------------------------------------------------------------------------------------------------------------------
Shanghai Secco Petrochemical 2002.2.9 4,062 Joint and 2002.2.9 No Yes
Co., Ltd. several liability -2013.12.20
guarantee
-----------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Co., Ltd. 2003.3.7 4,680 Joint and 2003.3.7 No Yes
several liability -2008.12.31
guarantee
-----------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec Shell 2003.12.10 377 Joint and 2003.12.10 No Yes
Coal Gasification Co., Ltd. several liability -2017.12.10
guarantee
-----------------------------------------------------------------------------------------------------------------------------------
Fujian Zhangzhao Expressway 2003.1.21 10 Joint and 2003.1.21 No Yes
Service Company Limited several liability -2007.10.31
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%
-----------------------------------------------------------------------------------------------------------------------------------
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 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.
41
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.
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.
15 ADDITION OF MEMBER TO THE SECOND SESSION OF THE BOARD OF DIRECTORS
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.
16 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.
17 AMENDMENTS TO THE ARTICLES OF ASSOCIATION
Please refer to the section headed "Summary of Shareholders' Meetings" on
page 62 of this Annual Report.
18 TRUSTEESHIP, SUB-CONTRACT AND LEASE
During this reporting period, Sinopec Corp. did not have any omittion in
disclosure for significant trusteeship, sub-contract or lease of any other
company's assets, nor placed its assets to or under any other company's
trusteeship, sub-contract or lease that is subject to disclosure.
19 OTHER SIGNIFICANT CONTRACTS
During this reporting period, Sinopec Corp. did not have any omittion in
disclosure for any significant contract that is subject to disclosure.
20 ENTRUSTED MONEY MANAGEMENT
During this reporting period, Sinopec Corp. did not entrust or continuously
entrust any outside party to carry out cash assets management on its
behalf.
42
21 ASSET SECURED
Details regarding the Company's secured assets as at 31 December 2004 are
disclosed in Note 28 to the financial statements prepared under IFRS in
this Annual Report.
22 AUDITORS
At the Annual General Meeting of Sinopec Corp. for the year 2003 held on 18
May 2004, KPMG Huazhen and KPMG were re-appointed as the domestic and
international auditors of Sinopec Corp. for the year 2004, respectively,
and the Board of Directors was authorized to determine their remunerations.
As approved at the twelfth meeting of the Second Session of the Board of
Directors of Sinopec Corp., the audit fees for 2004 was HK$ 50 million. The
financial statements for the year 2004 have been audited by KPMG Huazhen
and KPMG. The auditors' report on the financial statements issued by KPMG
Huazhen was signed by Wu Wei and Song Chenyang, Certified Public
Accountants registered in the People's Republic of China.
KPMG Huazhen and KPMG have provided auditing services to Sinopec Corp. for
a consecutive period of 4.5 years, since the second half of 2000.
-------------------------------------------------------------------------------------------------
Auditor appointed KPMG Huazhen (Domestic) KPMG (Overseas)
-------------------------------------------------------------------------------------------------
Audit fees of Sinopec Corp. for year 2004 HK$ 1,500,000 (unpaid) HK$ 21,500,000 (unpaid)
--------------------------------------------------------------------------------------------------
HK$ 1,500,000 (paid) HK$ 25,500,000 (paid)
--------------------------------------------------------------------------------------------------
Audit fees of Sinopec Corp. for year 2003 HK$ 3,000,000 (paid) HK$ 52,000,000 (paid)
--------------------------------------------------------------------------------------------------
Other fees and other audit fees for year 2003* HK$ 3,000,000 (paid) HK$ 2,000,000 (paid)
--------------------------------------------------------------------------------------------------
Audit fees of Sinopec Corp. for year 2002 HK$ 3,000,000 (paid) HK$ 52,000,000 (paid)
--------------------------------------------------------------------------------------------------
Travel and other expenses Borne by the firm Borne by the firm
--------------------------------------------------------------------------------------------------
Notes:
Most domestic and overseas listed subsidiaries of the Company appointed KPMG
Huazhen and KPMG as their auditors, and a few domestic listed subsidiaries
selected other firms as their auditors. Please refer to their respective annual
reports for details about such subsidiaries' appointments and dismissals of
auditing firms.
* In the opinion of the Board, the other fees and other audit fees for year
2003 would not affect independence of the auditors.
43
23 INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER MEMBERS OF THE SENIOR
MANAGEMENT IN THE SHARE CAPITAL
In 2004, none of the directors, supervisors or executive presidents or
senior management or any of their respective associates had any interests
and short positions in any shares or debentures or related shares of
Sinopec Corp. or its associated corporations (as defined in Part XV of the
Securities and Futures Ordinance) which are required to notify Sinopec
Corp. and the Hong Kong Stock Exchange pursuant to Division 7 and 8 of Part
XV of the Securities and Futures Ordinance or which are required pursuant
to section 352 of the Securities and Futures Ordinance to be entered in the
register referred to therein, or which are required to notify Sinopec Corp.
and the Hong Kong Stock Exchange pursuant to the Model Code for Securities
Transactions Entered by Directors of Listed Companies as specified in the
Listing Rules of the Hong Kong Stock Exchange (including those interests
and short positions that are deemed to be such, or are regarded to be owned
in accordance with the relative provisions under the Securities and Futures
Ordinance).
24 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. .
25 PURCHASE, SALES AND REDEMPTION OF SHARES
Save as disclosed above, during this reporting period, the Company has not
purchased, sold redeemed any listed securities of Sinopec Corp. or any of
its subsidiaries.
26 OTHER SIGNIFICANT EVENTS
During this reporting period, neither Sinopec Corp., the Board of Directors
of Sinopec Corp., nor the directors were subject to any investigation from
the CSRC, nor was there any administrative penalty or circular of criticism
issued by the CSRC, the Securities and Futures Commission of Hong Kong and
the Securities and Exchange Committee of the United States, nor any
reprimand published by the Shanghai Stock Exchange, the Hong Kong Stock
Exchange, the New York Stock Exchange or the London Stock Exchange.
44
CONNECTED TRANSACTIONS
1 AGREEMENTS CONCERNING CONNECTED TRANSACTIONS BETWEEN THE COMPANY AND
SINOPEC GROUP COMPANY
In order to ensure continuous normal operation of production and businesses
between the Company and Sinopec Group Company, the parties entered into a
number of agreements on connected transactions prior to Sinopec Corp.'s
overseas listings. Particulars of the connected transactions are set out
below:
(1) Agreement for mutual supply of ancillary services for products,
production and construction services ("Mutual Supply Agreement").
(2) Sinopec Group Company provides trademarks, patents and computer
software to the Company for use free of charge.
(3) Sinopec Group Company provides cultural and educational, hygienic and
community services to the Company.
(4) Sinopec Group Company provides leasing of land and certain properties
to the Company.
(5) Sinopec Group Company provides consolidated insurance to the Company.
(6) Sinopec Group Company provides shareholders' loan to the Company.
(7) The Company provides agency marketing services on products to Sinopec
Group Company.
(8) The Company provides petrol stations franchisee licenses to Sinopec
Group Company.
2 WAIVER OF THE CONNECTED TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC GROUP
COMPANY GRANTED BY THE HONG KONG STOCK EXCHANGE
Pursuant to the Listing Rules of the Hong Kong Stock Exchange, the above
connected transactions are subject to full disclosure, reporting and,
depending on their nature and value of transaction, with prior approvals
from independent directors and the Hong Kong Stock Exchange. At the time of
listing, Sinopec Corp. applied for waivers from the Hong Kong Stock
Exchange to exempt it from full compliance with the Listing Rules for the
transactions mentioned above. The Hong Kong Stock Exchange conditionally
exempted Sinopec Corp. from undertaking the obligations of continuous
disclosure.
At the Extraordinary General Meeting of Sinopec Corp. held on 24 August
2001, the Connected Transaction Adjustment Agreement was approved, and the
ongoing connected transactions were adjusted accordingly. On 29 June 2001,
the Hong Kong Stock Exchange conditionally agreed to grant new waivers of
continuous disclosure obligations to Sinopec Corp. and granted Sinopec
Corp. a waiver for a period of three financial years ended on 31 December
2003. Within such period of time, Sinopec Corp. is not required to comply
with the relevant Listing Rules of the Hong Kong Stock Exchange, providing
that it must satisfy the conditions for waivers on continuous disclosure
obligations which were set out in the eighth paragraph of the letter from
the Chairman incorporated in the circular concerning connected transactions
and ongoing connected transactions which was dispatched to the holders of H
shares on 30 June 2001, and published in Annex 3 to the announcement of the
Sinopec Corp.'s Extraordinary General Meeting of Shareholders of the year
2001 in China Securities News, Shanghai Securities News, and Securities
Times on 10 July 2001.
At the end of 2003, the above waiver conditionally granted by Hong Kong
Stock Exchange for disclosure requirements of ongoing connected
transactions, which had a term of three years (from 2001 to 2003), expired.
Sinopec Corp. readjusted the cap amount for waiver from disclosure
requirements of ongoing connected transactions, and re-applied for a new
3-year waiver from disclosure requirements of ongoing connected
transactions (from 2004 to 2006) with regard to the relevant major ongoing
connected transactions and the cap amount of ongoing connected transactions
(as defined in the announcement dated 28 October 2003) in accordance with
the Listing Rules of the Hong Kong Stock Exchange, which exempts Sinopec
Corp from strict compliance with the relevant disclosure requirements and
approval by shareholders with regard to the major ongoing connected
transactions and exempts Sinopec Corp. from strict compliance with rules of
relevant disclosure with regard to the cap amount of ongoing connected
transactions. Those major ongoing connected transactions and the cap amount
of ongoing connected transactions have been approved by the shareholders in
the General Meeting of Shareholders. On 16 January 2004, the Hong Kong
Stock Exchange conditionally agreed to grant the new waivers from ongoing
disclosure obligations to Sinopec Corp. and granted Sinopec Corp. a waiver
for a period of three financial years expiring on 31 December 2006. Within
such period of time, Sinopec Corp. is not required to comply with the
relative requirements of connected transactions under the Listing Rules,
but Sinopec Corp. must satisfy the conditions of waiver set out in the
letter from the Chairman incorporated in the circular concerning connected
transactions and ongoing connected transactions which was dispatched to the
holders of H shares by Sinopec Corp. on 29 October 2003, and were published
in the announcement of the Third Extraordinary General Meeting of
Shareholders for the year 2003 in China Securities News, Shanghai
Securities News, and Securities Times on 29 October 2003.
45
The above mentioned cap amount of land use rights rent of ongoing connected
transactions has been readjusted during the reporting period. At the
twelfth meeting of the Second Session of the Board of Directors of Sinopec
Corp. held on 31 October 2004, the Board approved the Proposal on
Acquisition and Disposal of Assets to China Sinopec Group Company (refer to
item 9 (2) in Disclosure of Significant Events) and the Proposal on
Adjusting Items of Connected Transaction
of Sinopec Group Company. After the completion of above transaction,
Sinopec Group Company approved the lease of the land use rights by Sinopec
Corp. of an area 8,888,498 square meters at an annual rent of RMB 110
million (equivalent to HK$104 million) and approved the Proposal Regarding
the Adjustment of the Cap Amount of Annual Land Rent according to the
Agreement on Lease of Land Use Rights. The board agreed to adjust the cap
amount of annual rent payable for the leasing of the land use rights from
Sinopec Group Company by Sinopec Corp from RMB 2.15 billion (equivalent to
HK$2.028 billion) to RMB 2.45 billion (equivalent to HK$2.311 billion) or
according to the cap amount agreed by the Hong Kong Stock Exchange which
approval was conditional upon completion of the transaction. The Hong Kong
Stock Exchange agreed the above cap amount of annual rent for the leasing
of land use rights to be adjusted to RMB 2.45 billion.
3 THE PROVISIONS ON WAIVER OF DISCLOSURE AND APPROVAL OF CONNECTED
TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC GROUP COMPANY UNDER THE
LISTING RULES OF THE SHANGHAI STOCK EXCHANGE
In the prospectus for the issue of A shares of Sinopec Corp., the above
connected transactions together with the agreements and arrangements
between the Company and Sinopec Group Company were fully disclosed. During
the reporting period, there was no significant change to the agreements
governing the above mentioned connected transactions. The reasonable
estimates of the amount of the accumulated connected transactions for the
year 2005 of Sinopec Corp. comply with the relative requirements under the
Listing Rules of the Shanghai Stock Exchange.
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.
Please refer to Note 33 to the financial statements prepared pursuant to
the IFRS in this annual report for details of the connected transactions
actually occurred during the year.
The above mentioned connected transactions in 2004 have been approved at
the fifteenth meeting of the Second Session of the Board of Directors of
Sinopec Corp.
The auditors of Sinopec Corp. have confirmed to the Board of Directors in
writing that:
(a) The transactions have been approved by the Board of Directors;
(b) The transactions have been entered into at considerations consistent
with the pricing policies as stated in the relevant agreements;
(c) The transactions have been entered into in accordance with the terms
of the respective agreements and documents governing the respective
transactions; and
(d) The relevant amount has not exceeded the relevant cap for waiver.
46
After reviewing the above relevant transactions, the independent directors
of Sinopec Corp. have confirmed that:
(a) The transactions have been entered into by Sinopec Corp. in its
ordinary course of business;
(b) The transactions have been concluded on any one of the following
terms:
i on normal commercial terms;
ii on terms not less favorable than those available from/to
independent third parties; or
iii on terms that are fair and reasonable as to the shareholders of
Sinopec Corp., where there is no available comparison to
determine whether item i or ii is satisfied; and
(c) The aggregate values of the transactions have not exceeded the
respective cap amounts.
5 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.
The auditors of Sinopec Corp. have confirmed to the Board of Directors
in writing that:
(a) The above leasing agreements have been approved by the Board of
Directors;
(b) The above leasing agreements have been entered according to
relevant terms; and
(c) The amounts of rent paid in accordance with the above leasing
agreements have not exceeded the cap amount.
After reviewing the connected transactions above, the independent
directors of Sinopec Corp. confirmed the following:
(a) The above leasing agreement:
i have been concluded by Sinopec Corp. or its subsidiaries in
the ordinary course of business;
ii have been concluded (a) on normal commercial terms (the
terminology shall be applied in reference to transactions
of similar nature, and shall be made by similar Chinese
entities) or (b) (where there is no available comparison)
on terms that are fair and reasonable to the independent
shareholders; and
iii have been concluded in accordance with the provisions of
the standard leasing agreement;
(b) The total amount of rent incurred in the fiscal year of Sinopec
Corp. under the above leasing agreements have not exceeded the
cap amount for the relevant fiscal year.
(2) ACQUISITION OF SHARES OF JINZHI COMPANY
Please refer to item 9(1) in Disclosure of Significant Events.
(3) ACQUISITION OF PETROCHEMICAL, CATALYST AND GAS STATIONS ASSETS FROM
PARENT COMPANY AND THE DISPOSAL OF DOWNHOLE OPERATION ASSETS
Please refer to item 9(2) in Disclosure of Significant Events.
47
6 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/
decrease decrease of decrease of
of income cost from gross profit
from principal principal margin 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)
-----------------------------------------------------------------------------------------------------------------------------------
Details of connected transactions Refer to the section 4 of Connected Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Principle of pricing for connected (1) Government-prescribed prices and government-guided prices are adopted for
transactions 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
-----------------------------------------------------------------------------------------------------------------------------------
* Gross profit = Profit from principal operations/income from principal operations
7 FUNDS PROVIDED BETWEEN CONNECTED PARTIES
UNIT: RMB MILLIONS
Connected party Funds provided Funds provided to the Company
to connected party 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 -- --
--------------------------------------------------------------------------------------------------------
Total (2,782) 6,443 (4,836) 9,679
---------------------------------------------------------------------------------------------------------
48
CORPORATE GOVERNANCE
1 IMPROVEMENT ON CORPORATE GOVERNANCE
In 2004, Sinopec Corp. continued to make effort to improve its corporate
operations and strengthen its corporate governance.
(1) In accordance with the Notice on Certain Issues Relating to Regulating
Fund Transfers between a Listed Company and Connected Parties and the
External Guarantees of Listed Company (Zheng Jian Fa [2003] No.56)
promulgated by CSRC and the State-owned Assets Supervision and
Administration Commission of the State Council (SASAC) and the new
Listing Rules introduced by Hong Kong Stock Exchange, the Company has
made prompt amendments to its corporate governance documents such as
Articles of Association, Rules and Procedures for the General Meeting
of Shareholders and Rules and Procedures for Board of Directors
Meeting and in particular, revised various provisions related to
corporate guarantee, voting on connected transactions and nomination
of directors.
(2) Based on the evaluation results in respect to the operation of the
internal control system during its implementation phase, the Company
revised and optimized the system by introducing two new procedures,
namely, Procedure for Importing Ordinary Equipment and Materials as an
Agent and Intangible Assets Management Procedure. The revised internal
control system comprises 13 broad categories which are sub-divided
into 43 individual procedures regarding production, operation and
management of the Company. The proposal of the revision of the system
was approved at the twelfth meeting of the Second Session of the Board
of Directors held on 31 October 2004, and the revised system has been
implemented in all operation and management areas of the Company since
January 2005.
(3) Pursuant to relevant domestic and overseas regulatory requirements and
Rules on Corporate Information Disclosure System and Rules on the Work
of Corporate Investor Relations of Sinopec Corp., the Company is
committed to enhancing information disclosure and to improving
investor relations.
In 2004, Sinopec Corp. was awarded the "Best Petrochemical Company in Asia"
by Euro Money and was selected by the sell-side analysts as "the Best
Investor Relations in the Oil and Natural Gas Industry" and "the Best
Investor Relations in China (Hong Kong Inclusive)" according to the
magazine Institutional Investor.
2 INDEPENDENT DIRECTORS' PERFORMANCE OF THEIR DUTIES
During the reporting period, the independent directors were very committed
to carrying out their duties and fulfilling the fiduciary obligations as
specified in the relevant laws, regulations and the Articles of
Association. They attended meetings of both the Board of Directors (please
refer to the following table) and professional committees, and put forth
many constructive comments and suggestions relating to the Company's
development strategy, corporate governance, internal reform and production
and operation. They were particularly concerned with the interests of
individual shareholders and minority shareholders. They reviewed material
connected transactions of the Company, including assets acquisition and
disposal from/to Sinopec Group Company and came up with valuable
independent suggestions. The independent directors also gave unbiased
comments on other major issues such as appointment or dismissal of
directors and significant guarantees provided by Sinopec Corp.. Their
valuable input effectively ensured fairness and protection to Sinopec Corp.
and its shareholders as a whole.
As required by Hong Kong Stock Exchange, the Company makes the following
affirmation statement concerning its independent directors: The Company has
received annual confirmations from all the independent non-executive
directors, acknowledging full compliance with the relevant requirements in
respect of their independence pursuant to Rule 3.13 of the Listing Rules.
The Company considers all independent non-executive directors independent.
49
Presence of Independent Directors at Board of Directors Meetings
Number of meetings
Counts of
Names of the held during the Counts of commissioned
independent directors 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
-------------------------------------------------------------------------------
3 SEPARATION BETWEEN SINOPEC CORP. AND ITS CONTROLLING SHAREHOLDER
Sinopec Corp.is independent from its controlling shareholder, Sinopec Group
Company, in respect of business, personnel, asset, organisational structure
and finance and has its own independent and comprehensive business
operations and management capability.
4 SENIOR MANAGEMENT EVALUATION AND INCENTIVE SCHEMES
Sinopec Corp. has established and is continuously improving the fairness
and transparency of its performance evaluation and incentive schemes for
the directors, supervisors and other senior management officers. Incentive
policies such as Performance Evaluation and Salary Incentive Plan for the
Senior Management of Sinopec Corp., Plan of Share Appreciation Rights for
the Senior Management of Sinopec Corp. and Measures on the First Granting
of Share Appreciation Rights to the Senior Management of Sinopec Corp. were
approved at the Fourth Extraordinary General Meeting of Shareholders held
on 7 September 2000, as well as Implementing Measures of Salary for Senior
Management of Sinopec Corp. (Tentative) and Supplementary Implementing
Measures of Salary for Senior Management of Sinopec Corp. (Tentative).
During the period of this report, the provision for the share appreciation
rights has been made according to the Measures on the First Granting of
Stock Appreciation Rights for the Senior Management of Sinopec Corp.
50
5 COMPARISON OF NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE RULES AND CHINA
CORPORATE GOVERNANCE RULES FOR LISTED COMPANIES
Under the amended Corporate Governance Rules of New York Stock Exchange
(NYSE), foreign issuers (including Sinopec Corp.) listed on the NYSE are
required to disclose a summary of the significant differences between their
domestic corporate governance rules and NYSE corporate governance rules
that would apply to a U.S. domestic issuer. A summary of such differences
is listed below:
Corporate governance rules applicable to the domestically
listed companies in China and the Company's governance
NYSE corporate govemance rules practices
DIRECTOR INDEPENDENCE
A listed company must have a majority of independent It is required in China that any listed company must
directors on its board of directors. No director qualifies establish an independent director system and set forth
as "independent" unless the board of directors affirmatively specific requirements for the qualification of
determines that the director has no material relationship independent directors. For example, an independent
with the listed company (either directly or as a partner, director shall not hold any other position in the listed
shareholder or officer of an organization that has a company other than being a director and shall not be
relationship with the company). In addition, a director must influenced by the main shareholders or the controlling
meet certain standards to be deemed independent. For persons of the listed company, or by any other entities
example, a director is not independent if the director is, or persons with whom the listed company has a significant
or has been within the last three years, an employee of the relationship. The Company has complied with the relevant
listed company, or if the director has received, during any Chinese corporate governance rules and has implemented
twelve-month period within the last three years, more than internal rules governing the independence and
US$100,000 in direct compensation from the listed company. responsibilities of independent directors. The Company
determines the independence of independent directors
every year.
To empower non-management directors to serve as a more No similar requirements.
effective No similar requirements. check on management, the
non-management directors of each listed company must meet at
regularly scheduled executive sessions without management.
----------------------------------------------------------------------------------------------------------------------------------
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
Listed companies must have a nominating/corporate governance The board of directors of a listed company may, through
The board of directors of a listed company may, through the the resolution of the shareholders' meeting, establish a
committee composed entirely of independent directors. nominating committee composed entirely of directors, of
which the independent directors shall be the majority and
the convener. Up to now, the Company has not set up any
nominating committee.
The nominating/corporate governance committee must have a Relevant responsibilities of the nominating/corporate
written charter that addresses the committee's purposes governance committee are similar to those stipulated by
and responsibilities which, at minimum, must be to: search the NYSE rules, but the main responsibilities do not
for eligible people for the board of directors, select and include the research and recommendation of corporate
nominate directors for the next session of the governance guidelines, the supervision of the evaluation
shareholders' annual meeting, study and propose corporate of the board of directors and management, or the annual
governance guidelines, supervise the evaluation of the evaluation of the committee.
board of directors and management, and evaluate the
performance of the committee every year.
---------------------------------------------------------------------------------------------------------------------------------
51
NYSE corporate govemance rules Corporate governance rules applicable to the domestically
listed companies in China and the Company's governance
practices
COMPENSATION COMMITTEE
Listed companies must have a compensation committee The board of directors of a listed company can, through
composed entirely of independent directors. the resolution of shareholders' meeting, have a
compensation and assessment committee composed entirely
The written charter of the compensation committee must of directors, of whom the independent directors are the
state, at least, the following purposes and majority and act as the convener.
responsibilities:
(1) review and approve the corporate goals associated The responsibilities are similar to those stipulated by
with CEO's compensation, evaluate the performance the NYSE rules, but the committee is not required to
of the CEO in fulfilling these goals, and based on produce a report on the executive compensation or make an
such evaluation determine and approve the CEO's annual performance evaluation of the committee. The board
compensation level; of directors of the Company has established a
compensation and assessment committee composed mainly of
(2) make recommendations to the board with respect to independent directors who act as the convener, and the
non-CEO executive officer compensation, and committee has a written charter.
incentive-compensation and equity-based plans that are
subject to board approval;
(3) produce a committee report on executive compensation
as required by the SEC to be included in the annual
proxy statement or annual report filed with the SEC.
The charter must also include the requirement for an
annual performance evaluation of the compensation
committee.
-----------------------------------------------------------------------------------------------------------------------------------
AUDIT COMMITTEE
Listed companies must have an audit committee that The board of directors of a listed company can, through
satisfies the requirements of Rule 10A-3 of Securities the resolution of the shareholders' meeting, establish an
Exchange Act of 1934 (the "Exchange Act"). It must have a audit committee composed entirely of directors, of which
minimum of three members, and all audit committee members the independent directors are the majority and act as the
must satisfy the requirements for independence set forth convener, and, at minimum, one independent director is an
in Section 303A.02 of NYSE Corporate Governance Rules as accounting professional.
well as the requirements of Rule 10A-3b (1) of the
Exchange Act.
The written charter of the audit committee must specify The responsibilities of the audit committee are similar
that the purpose of the audit committee is to assist the to those stipulated by the NYSE rules, but according to
board oversight of the integrity of financial statements, the domestic practices, the company is not required to
the company's compliance with legal and regulatory make an annual performance evaluation of the audit
requirements, qualifications and independence of committee, and the audit committee is not required to
independent auditors and the performance of the listed prepare an audit report to be included in the company's
company's internal audit function and independent annual proxy statement. The Board of Directors of the
auditors. Company has established an audit committee that satisfies
relevant domestic requirements and the audit committee
The written charter must also require the audit committee has a written charter.
to prepare an audit committee report as required by the
SEC to be included in the listed company's annual proxy
statement as well as an annual performance evaluation of
the audit committee.
52
NYSE corporate govemance rules Corporate governance rules applicable to the domestically
listed companies in China and the Company's governance
practices
AUDIT COMMITTEE (Continued)
Each listed company must have an internal audit China has a similar regulatory provision, and the Company
department. has an internal audit department.
Shareholders must be given the opportunity to vote on The relevant regulations of China require the board of
equity-compensation plans and material revisions thereto, directors propose plans on the amount and types of
except for employment incentive plans, certain awards and director compensation for the shareholders' meeting to
plans in the context of mergers and acquisitions. approve. The compensation plan of executive officers
shall be approved by the board and announced at the
shareholders' meeting and disclosed to the public upon
the approval of the board of directors.
CORPORATE GOVERNANCE GUIDELINES CSRS has issued the Corporate Governance Rules, to which
Listed companies must adopt and disclose corporate the Company has complied.
governance guidelines, involving director qualification
standards, director compensation, director continuing
education, annual performance evaluation of the board of
directors, etc.
CODE OF ETHICS FOR DIRECTORS, OFFICERS AND EMPLOYEES
Listed companies must adopt and disclose a code of China does not have such requirement for a code for
business conduct and ethics for directors, officers and ethics. But, since the directors and officers of the
employees, and promptly disclose any waivers of the code Company have all signed the Director Service Agreement,
for directors or executive officers. they are bound by their fiduciary duties to the Company.
In addition, the directors and officers must perform
their legal responsibilities in accordance with the
Company Law of PRC, relative requirements of CSRS and
Mandatory Provisions to the Charter of Companies Listed
Overseas.
Each listed company CEO must certify to the NYSE each year No similar requirements.
that he or she is not aware of any violation by the
company of NYSE corporate governance listing standards and
he or she must promptly notify the NYSE on writing of any
material non-compliance with any applicable provisions of
Section 303A.
53
SUMMARY OF SHAREHOLDERS' MEETINGS
During the reporting period, Sinopec Corp. held two shareholders' general
meetings in strict compliance with the procedures of notification, convening
and holding as stipulated in the relevant laws, rules and regulations and the
Articles of Association of Sinopec Corp. The details are as follows:
1 The General Meeting of Shareholders of Sinopec Corp for the year 2004 was
held at the International Meeting Center of Beijing Continental Grand Hotel
on 18 May 2004, at which the following resolutions were considered and
approved:
ORDINARY RESOLUTIONS:
a. The Work Report of the Board of Directors of Sinopec Corp. for the year
ended 31 December 2003.
b. The Work Report of the Supervisory Committee of Sinopec Corp. for the
year ended 31 December 2003.
c. The audited financial report and consolidated financial statement of
Sinopec Corp. for the year ended 31 December 2003.
d. Sinopec Corp.'s profit distribution plan and the appropriation of final
dividend for the year ended 31 December 2003.
e. Approved the re-appointment of KPMG Huazhen and KPMG respectively as
Sinopec Corp.'s domestic and international auditors in 2004, and
authorized the Board of Directors to decide their remunerations.
f. Elected Mr. Gao Jian as a member of the Second Session of the Board of
Directors of Sinopec Corp.
SPECIAL RESOLUTIONS:
a. The general mandate on authorizing the Board of Directors to appropriate
and issue new overseas listed shares.
b. The proposal on revising the Articles of Association of Sinopec Corp.
and its appendices.
For further details regarding the General Meeting of Shareholders for the
year 2003, please refer to the announcements of Sinopec Corp. published in
China Securities News, Shanghai Securities News and Securities Times in
Mainland China and Hong Kong Economic Times and South China Morning Post in
Hong Kong on 19 May 2004.
2 The Extraordinary General Meeting of Shareholders for Year 2004 of
Sinopec Corp was held at Beijing Crowne Plaza Park View Wuzhou on 21 Dec
2004, at which the following resolutions were considered and approved:
a. The proposal regarding the acquisition of certain petrochemical assets
from Sinopec Group Company.
b. The proposal regarding the acquisition of certain catalyst assets from
Sinopec Group Company.
c. The proposal regarding the acquisition of certain petrol stations assets
from Sinopec Group Company.
d. The proposal regarding the disposal of certain downhole operation assets
to Sinopec Group Company.
e. The proposal for the general meeting of Sinopec Corp to authorize the
board to perform all relevant matters in relation to the acquisition and
disposal.
f. The proposal regarding the adjustment to the capital expenditure plan
for the year 2004.
For further details regarding the Extraordinary General Meeting of Shareholder
for year 2004, see the relevant announcements of Sinopec Corp. published in
China Securities News, Shanghai Securities News and Securities Times in
mainland China and Hong Kong Economic Times and South China Morning Post in
Hong Kong on 22 December 2004.
54
REPORT OF THE BOARD OF DIRECTORS
The Board of Directors of Sinopec Corp. is pleased to present their report for
the year ended 31 December 2004 for review.
1 THE MEETINGS OF THE BOARD OF DIRECTORS
During the period of this report, nine Board meetings were held, details of
which are as follows:
(1) The sixth meeting of the Second Session of the Board of Directors was
held on 23 February 2004 by way of written resolutions. The Board
passed the resolution on Debenture Issuance Regulations of China
Petroleum & Chemical Corporation for 2004.
(2) The seventh meeting of the Second Session of the Board of Directors
was held on 26 March 2004 at the headquarters of Sinopec Corp. At the
meeting, the Board of Directors considered and approved the Report of
the Board of Directors for 2003, the Report of 2003 Operation
Performance and the 2004 Operation Plan, the resolution on eight
provisions for assets impairment losses in 2003 and the resolution on
ongoing connected transactions in 2003 and the resolution on audit
expenditure paid to KPMG Huazhen and KPMG in 2003. The Board also
approved the re-appointment of KPMG Huazhen and KPMG respectively as
the domestic and overseas auditors of Sinopec Corp. for the year 2004
and submitted to the Annual General Meeting for the year 2003 the
proposal that the Board of Directors be authorized to determine their
remunerations. In addition, the Board approved the Financial
Statements for the year 2003 audited by KPMG Huazhen and KPMG, the
profit appropriation solution of 2003, the 2003 Annual Report, the
summary of the Annual Report and Form 20-F, it also submitted to the
2003 Annual General Meeting the proposal to unconditionally mandate
the Board of Directors to decide on allotment and issuance of new
foreign shares listed overseas, the resolution on amending the
Articles of Association and its appendices, the resolution on
acquiring shares issued by Tianjin Lubricant & Grease Company Limited
from the Sinopec Group Company and the resolution on convening the
2003 Annual General Meeting.
(3) The eighth meeting of the Second Session of the Board of Directors was
held on 29 April 2004 by way of written resolutions. The Board of
Directors approved the First Quarterly Report of 2004, accepted the
resignation of Mr. Liu Kegu from the director position with Sinopec
Corp. and approved the submission to the 2003 Annual General Meeting
the proposal made by China Development Bank (holding 10.12% shares of
Sinopec Corp. at that time) to nominate Mr. Gao Jian as a candidate
for directorship of Sinopec Corp.
(4) The ninth meeting of the Second Session of the Board of Directors was
held on 6 July 2004 by way of written resolutions, whereby the
proposal for the transfer of the state-owned legal person shares in
China Phoenix by Sinopec Corp. to Qingjiang Investment and Guodian
Group and acquire petrochemical core business assets.
(5) The tenth meeting of the Second Session of the Board of Directors was
held on 27 August 2004 at the headquarters of Sinopec Corp. At the
meeting, the Board considered and approved the Report of Operations
for the First Half of 2004 and Operations Plans for the Second Half of
2004, the 2004 Interim Profit Distribution Plan, the Financial
Statements of Sinopec Corp. for the First Half of 2004 audited by KPMG
Huazhen and KPMG, the 2004 Interim Report of Sinopec Corp. and the
resolution on adjusting the investment plan in 2004.
(6) The eleventh meeting of the Second Session of the Board of Directors
held on 28 October 2004 by way of written resolutions. The Board of
Directors approved the Third Quarterly Report of 2004.
(7) The twelfth meeting of the Second Session of the Board of Directors
was held at Sinopec headquarters on 31 October 2004, whereby the
following resolutions were considered and approved:
a. Acquiring chemicals assets from Sinopec Group Company.
b. Acquiring catalyst assets from Sinopec Group Company.
c. Acquiring petrol station assets from Sinopec Group Company.
d. Disposing of downhole operation assets to Sinopec Group Company.
e. The submission of the above proposals for approval at the
extraordinary general meeting and the resolution for authorizing
the Board to do all actions relating to the above four
resolutions.
f. Adjusting connected transactions with Sinopec Group Company.
g. Adjusting the cap amount of the annual rent for leasing of land
use rights with Sinopec Group Company.
h. Determining 2004 audit fees for KPMG Huazhen and KPMG.
i. Amending the internal control system of Sinopec Corp.
j. Adjusting 2004 capital expenditure plan.
k. Convening 2004 Extraordinary General Meeting of Shareholders.
(8) The thirteenth meeting of the Second Session of the Board of Directors
held on 8 December 2004 by way of written resolutions. The Board
approved the resolution approving Sinopec to provide T/T payment
credit line guarantee for its subsidiary China International United
Petroleum & Chemicals Company Limited (Unionpec).
55
(9) The fourteenth meeting of the Second Session of the Board of Directors
held on 29 December 2004 by way of written resolutions. The Board
approved the resolution of privatizing Beijing Yanhua by way of merger
by absorption.
2 IMPLEMENTATION OF RESOLUTIONS PASSED AT SHAREHOLDERS' MEETING BY THE BOARD
OF DIRECTORS
During the period of this report, all members of the Board of Directors of
Sinopec Corp. carried out their duties diligently and responsibly in
accordance with the relevant laws and regulations and the Articles of
Association, duly implemented the resolutions passed at the shareholders'
meetings, and accomplished the various tasks entrusted to them at the
shareholders' meetings.
3 MEETINGS OF PROFESSIONAL COMMITTEES
During the period of this report, the Audit Committee under the Second
Session of the Board of Directors held two meetings.
(1) The first meeting of the Second Session of the Audit Committee was
held on 25 March 2004 by way of written resolutions, whereby the
Explanation on the Operating Business and Financial Position of Year
2003 and the Explanation on Audit by KPMG for Year 2003 were reviewed
and the Opinions on the Reviewing of the Financial Statements for the
Year 2003 was issued.
(2) The second meeting of the Second Session of the Audit Committee was
held on 26 August 2004 by way of written resolutions, whereby the
Explanation on the Operating Business and Financial Position of the
First Half of Year 2004 and the Explanation on Audit by KPMG for the
First Half of Year 2004 were reviewed and the 2004 Interim Opinions on
the Reviewing of the Financial Statements was issued.
4 OTHER DISCLOSEABLE EVENTS
(1) STATEMENT IN RELATION TO THE USE OF FUNDS BY THE CONTROLLING
SHAREHOLDER AND OTHER RELATED PARTIES
Pursuant to the provisions in the Notice on Certain Issues Relating to
Regulating Fund Transfers between a Listed Company and Connected
Parties and the External Guarantees of Listed Company (Zheng Jian Fa
[2003] No.56) issued by CSRC and SASAC, KPMG Huazhen has issued the
Statement in relation to the Use of Funds of China Petroleum &
Chemical Corporation by the Controlling Shareholder and Other Related
Parties for Year 2004, the details of which are set out below:
To the Board of Directors of China Petroleum & Chemical Corporation:
We have accepted the appointment and audited the Company's
consolidated balance sheet and balance sheet as at 31 December 2004,
and the consolidated income statement and profit appropriation
statement, income statement and profit appropriation statement,
consolidated cash flow statement and cash flow statement for the year
then ended (the "financial statements") in accordance with the China's
Independent Auditing Standards of the Certified Public Accountants. We
issued an auditors' report with an unqualified audit opinion on these
financial statements on 25 March 2005.
Pursuant to Document Zheng Jian Fa [2003] No. 56, the Company has
prepared the Summary of the Use of Funds of China Petroleum & Chemical
Corporation by the Controlling Shareholder and Other Related Parties
for year 2004 (the "Summary"), which is attached in the appendix to
this statement.
The Company is responsible for preparing and disclosing the Summary
and ensuring its truthfulness, legitimacy and completeness. We are not
aware of any inconsistency, in all material respects, when comparing
the information contained in the Summary with the financial
information verified in the course of our audit and the related
contents in the audited financial statements of the Company and its
subsidiaries (the "Group") for the year 2004. Except for the audit
procedures performed in the course of our audit of the financial
statements for the year 2004 on the Group's related party
transactions, we have not performed any additional audit and other
procedures on the information contained in the Summary.
In order to have a better understanding on the use of funds by the
Company's controlling shareholder and other related parties for the
year 2004, the summary should be read together with the audited
financial statements.
KPMG Huazhen Certified Public Accountants
Registered in the People's
Republic of China
Wu Wei and Song Chenyang
8/F, Office Tower E2,
Oriental Plaza
No.1, East Chang An Ave.
Beijing, The People's
Republic of China
Postal Code: 100738 25 March 2005
56
Appendix: Summary of the Use of Funds of China Petroleum & Chemical Corporation
by the Controlling Shareholder and Other Related Parties for the
year 2004
Unit: RMB millions
Beginning Increase Decrease Ending
Name of the balance during during balance
Nature of the use of funds related party Relationship Account name of the year the year the year of the year
Borrowings -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Entrusted loans BASF-YPC Ethylene Other related Long-term investment -- 60 -- 60
Company Limited party
-----------------------------------------------------------------------------------------------------------------------------------
Entrusted investments -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Issuing commercial bills
without genuine business
transactions
-----------------------------------------------------------------------------------------------------------------------------------
Business bills -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Settlement of liabilities on
behalf of related parties
-----------------------------------------------------------------------------------------------------------------------------------
Accounts receivable and other China Controlling Other receivables 3,111 -- 609 2,502
receivables aged over one Petrochemical shareholder
year as at 31 December 2004 Corporation
-----------------------------------------------------------------------------------------------------------------------------------
Fellow Other related Other receivables/ 3,706 1,517 3,527 1,696
subsidiaries parties accounts
controlled by receivable
China
Petrochemical
Corporation
-----------------------------------------------------------------------------------------------------------------------------------
Total 6,817 1,577 4,136 4,258
-----------------------------------------------------------------------------------------------------------------------------------
The summary was approved by the Board of Directors on 25 March 2005.
(2) THE INDEPENDENT DIRECTORS PRESENTED ITEMISED EXPLANATIONS AND
INDEPENDENT OPINIONS ON THE COMPANY'S ACCUMULATED AND CURRENT EXTERNAL
GUARANTEES FOR THE YEAR 2004:
Pursuant to Document Zheng Jian Fa [2003] No. 56, as independent
directors of Sinopec Corp., we have carefully reviewed the
accumulative and current external guarantees provided by Sinopec Corp.
in current year, which are described as below:
By 31 December 2004, the accumulated amount of external guarantees
provided by Sinopec Corp. was approximately RMB 14.799 billion, and
the current amount of external guarantees provided by Sinopec Corp. in
2004 was approximately RMB 2.512 billion. Among the guarantees, the
T/T payment credit line guarantee offered to Unionpec whose 70% shares
are owned by Sinopec Corp. accounted for a significant portion, which
amounted to an equivalent of RMB 2.483 billion. The external
guarantees occurring prior of 2004 had been disclosed in detail in the
2003 Annual Report.
We present our opinions as follows:
The net guarantee amount of Sinopec Corp. in 2004 was RMB 2.392
billion compared with that in 2003, of which T/T payment credit line
guarantee Sinopec Corp. provided for Unionpec accounted for a major
portion. This guarantee concerned the payment mode in the course of
transactions, which benefits Sinopec Corp. in cutting costs,
increasing efficiency with no risks of suffering from losses. In
strict compliance with Articles of Association and the internal
control procedures in respect of guarantees, Sinopec Corp. performed
relevant review procedures and obtained approval from the thirteenth
meeting of the Second Session of the Board of Directors on 8 December
2004.
5 FINANCIAL PERFORMANCE
The financial results of the Company for the year ended 31 December 2004
prepared in accordance with IFRS and its financial position as at that date
and its analysis are set out from page 127 to page 158 in this Annual
Report.
6 DIVIDEND
At the fifteenth meeting of the Second Session of the Board of Directors of
Sinopec Corp., the Board approved the proposal to declare a final dividend
of RMB 0.12 per share (including tax) in cash. After deducting the interim
cash dividend, the final cash dividend per share for distribution would be
RMB 0.08, and the total cash dividend for the full year would amount to RMB
10.404 billion. The distribution proposal will be effective after it is
submitted and approved at the 2004 Annual General Meeting of Sinopec Corp.
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.
57
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.
Generally, an individual shareholder of H shares or an individual holder of
American Depository Receipts (ADRs) who is resident and domiciled in the UK
will (subject to any available allowances or reliefs) be liable to UK
income tax on the dividend received from Sinopec Corp. Where an individual
shareholder of H shares receives a dividend from Sinopec Corp. without any
deduction of tax, the amount included as income for the purposes of
computing his or her UK tax liability is the gross amount of the dividend
and this is taxed at the appropriate rate (currently 10 % in the case of a
taxpayer subject to a basic rate or a lower rate, and 32.5 % in the case of
a taxpayer subject to a higher rate). Where tax is withheld from the
dividend, credit may be claimed (under tax self-assessments) against UK
income tax for any tax withheld from the dividend up to the amount of the
UK income tax liability. If such a withholding is required, Sinopec Corp.
will assume responsibility for withholding that tax regarding the income
with a source within the PRC. The current Chinese-UK Double Taxation
Agreement provides that the maximum withholding tax on dividend payable by
a Chinese-domiciled company to UK residents is generally limited to 10% of
the gross dividend.
For individual holders of H Shares or holders of ADRs who are UK resident
but are not domiciled in the UK (and have submitted a claim to that effect
to the UK Inland Revenue, they will generally only be liable to income tax
on any dividend received from Sinopec Corp. to the extent that it is
received in the UK.
Generally, a shareholder of H shares or a holder of ADRs which is a UK tax
resident and UK domiciled will be liable to UK income tax or corporation
tax (as appropriate and at the rates of tax applicable to the shareholder
or holder) on any dividend received from Sinopec Corp., with double tax
relief available for withholding tax imposed. In certain cases (not to be
discussed here), a shareholder of H shares or a holder of ADRs which is a
UK tax resident may be entitled to relief for "underlying" tax paid by
Sinopec Corp. or its subsidiaries.
7 MAJOR SUPPLIERS AND CUSTOMERS
During this reporting period, the total amount of purchase from five
largest suppliers represented 37.82% of the total amount of purchase of the
Company, of which the purchase from the largest supplier represented 14.39%
of the total purchase of the Company. The total amount of sales to the five
largest customers of the Company represented 9.94% of the total annual
sales of the Company.
During this reporting period, except for the connected transactions with
the controlling shareholder Sinopec Group Company and its subsidiaries, as
disclosed in Connected Transaction Section of this Annual Report, none of
the directors, supervisors of Sinopec Corp. and their associates or any
shareholders holding over 5% in Sinopec Corp. had any interest in any of
the abovementioned major suppliers and customers.
58
8 BANK LOANS AND OTHER BORROWINGS
Details of bank loans and other borrowings of the Company as of 31 December
2004 are set out in Note 28 of the Financial Statements prepared in
accordance with IFRS in this Annual Report.
9 FIXED ASSETS
During this reporting period, changes to the fixed assets of the Company
are set out in Note 17 of the Financial Statements prepared in accordance
with IFRS in this Annual Report.
10 RESERVES
During this reporting period, changes to the reserves of the Company are
set out in the Consolidated Statement of Changes in Shareholders' Equity in
the Financial Statements prepared in accordance with IFRS in this Annual
Report.
11 DONATIONS
During this reporting period, donations made for charitable purposes
amounted to approximately RMB 290 million (including Tianjin Ethylene,
Zhongyuan Ethylene, Guangzhou Ethylene and Luoyang Chemical Fibre and
Catalyst Company).
12 PRE-EMPTIVE RIGHTS
Pursuant to the Articles of Association of Sinopec Corp. and the laws of
the PRC, Sinopec Corp. is not subject to any pre-emptive rights requiring
it to offer new issue of its shares to its existing shareholders in
proportion to their shareholdings.
13 PURCHASE, SALES AND REDEMPTION OF SHARES
Refer to Disclosure of Significant Events 25.
14 COMPLIANCE WITH THE CODE OF BEST PRACTICE
The Board of Directors of Sinopec Corp. is not aware of any information
reasonably showing that Sinopec Corp. has breached the Code of Best
Practice of the Hong Kong Stock Exchange at any time during the reporting
period.
By Order of the Board
CHEN TONGHAI
Chairman
Beijing, PRC, 25 March 2005
59
REPORT OF THE SUPERVISORY COMMITTEE
To all shareholders:
During this reporting period, all members of the Supervisory Committee observed
the principle of good faith and duly fulfilled their supervising duties in
accordance with the Company Law of the PRC and the Articles of Association of
Sinopec Corp. to safeguard the rights of the shareholders and the interest of
the Company.
During this reporting period, the Supervisory Committee held two meetings.
At the third meeting of the Second Session of the Supervisory Committee held on
26 March 2004, the Committee heard the Report on the operating business and
financial position of Sinopec Corp. for the year 2003 prepared by the Finance
Department and the explanation note on the auditor's report prepared by KPMG.
It also considered and approved the Annual Financial Report of Sinopec Corp.
for the year 2003, the Annual Report of Sinopec Corp. for the year 2003 and its
relevant summary, the Proposal on profit appropriation for the year 2003 and
Resolutions on drawing and writing off eight impairment of assets for the year
of 2003. The Committee discussed and approved the Annual Report of the
Supervisory Committee for the year 2003 and the Working plan of the Supervisory
Committee for the year 2004 and notified in writing to certain supervisors that
they were to attend the premises of Guizhou Petroleum Company and Southwest
pipeline for investigations and inspections. The relevant resolutions were
passed in the meeting.
At the fourth meeting of the Second Session of the Supervisory Committee held
on 27 August 2004, the Committee considered and approved the Interim Financial
Report of Sinopec Corp. for the year 2004, the Interim Report of Sinopec Corp.
for the year 2004 and the Interim Proposal on profit appropriation for the year
2004.
The Committee also notified certain supervisors in writing to go overseas to
investigate the internal management of the Company, and resolved that some of
the supervisors to go to the Jinling branch company and Jiangsu Petroleum
branch company for inspection of the development of ERP systems. The relevant
resolutions were passed.
The Supervisory Committee, which has effectively performed its duties of
investigation and examination in 2004, opined that Sinopec Corp. has abided by
the principles of standardization, precision and integrity in its operation and
the operations were carried out according to the law. In view of the rapid
growth in the national economy of China, the robust market demand and the
sustained high international oil price, the Company seized the opportunities
and adopted a down-to-earth and flexible approach in its strategies, Sinopec
Corp. overcame problems of sourcing difficulties, transportation shortage and
controlled price of refined oil products. Basing on the principle of scientific
development, the Company insisted on the strategy of "increasing resources,
expanding market, reducing costs and disciplining investment". Due to the
above, the Company achieved a production and operating results of a
historically high level, with the stable moving steps in reforms, the
structural adjustment also progressed significantly. With the sustained
development in science and technology, the Company's earnings increased
significantly, and the Company has achieved the highest level of production and
operation since the Company's establishment.
60
Firstly, the Board of Directors duly observed the rights and obligations
stipulated by the Company Law of the PRC and the Articles of Association of
Sinopec Corp. The Directors made decisions on important issues concerning
capital operation, production and operating plans and development objectives in
a timely manner, and implemented the resolutions passed at general meetings of
Shareholders and meetings of the Board of Directors. The operation of the
Company was carried out in a legitimate and standardized manner. The Internal
Control Manual of Sinopec Corp (revised in 2004) was considered and approved by
the Board of Directors in the twelfth meeting of the Second Session of the
Board of Directors, and will be effective on 1 January 2005. The Directors,
President and other officers of senior management of Sinopec Corp. adhered to
the principles of diligence, integrity and good faith, and acted in the best
interests of the Company. During the reporting period, there was no
infringement by the above personnel of the relevant laws, regulations and the
Articles of Association, or any action(s) harming the shareholders' interests
in their discharge of duties.
Secondly, the financial statement for the year 2004 has been prepared in
accordance with the PRC Accounting Rules and Regulations and the IFRS
respectively. The principle of consistency has been adopted in preparing the
financial reports, and the reported data truly and fairly reflect the Company's
financial position and operating performance. According to the financial data
prepared in accordance with the PRC Accounting Rules and Regulations, the
income from the Company's principal operations and net profits were RMB 590.632
billion and RMB 32.275 billion respectively. According to the financial data
prepared in accordance with the IFRS, the turnover and other operating
revenues, and profit attributable to shareholders were RMB 619.783 billion and
RMB 36.019 billion respectively.
Thirdly, the Company utilized RMB 1.06 billion from funds of previous years'
financing activities, this is in conformity with the Company's undertakings for
projects. As of 31 December 2004, out of the RMB 11.648 billion aggregate of
financing funds from the proceeds of A share issuance, RMB 11.037 billion was
used. The balanced proceeds in the end of 2004 was RMB 611 million.
Fourthly, the Company's asset acquisition and swap transactions were in
conformity with the relevant regulations and laws. During the reporting period,
the Company acquired of chemical, catalyst and petrol stations assets from
China Petrochemical Corp., 100% shareholding of Jinzhi Company, 40.5%
shareholding of Qingdao Qirun and 10.61% shareholding of China Gas. Also, the
Company sold its downhole operation assets. In relation to the above, there
were no issues of insider dealings, and nothing in the transactions were found
to be detrimental to the shareholders' interests and/or led to a loss of assets
of the Company.
Fifthly, connected transactions were in conformity with the relevant
regulations. All connected transactions between the Company and the Sinopec
Group were in conformity with the relevant rules and regulations of the Hong
Kong Stock Exchange and the Shanghai Stock Exchange. The connected transaction
were conducted on the basis of fair and reasonable price and abided by the
principle of "fair, justified and open". Nothing in these transactions were
found to be detrimental to the non-connected shareholders and/or the Company's
benefits.
Sixthly, according to the financial data prepared in accordance with the PRC
Accounting Rules and Regulations, the aggregate profit was RMB 53.535 billion,
there was an increase of 78.36% compared with RMB 30.015 billion in 2003.
According to the financial data prepared in accordance with the IFRS, the
profit before taxation was RMB 59.606 billion, there was an increase of 70.10%
compared with RMB 35.041 billion in 2003. The principal reasons for the
increase were the rapid growth of the economy of China, the rising cyclical
trend in the industry in which the Company is operating, the robust demand in
domestic market, the flexible adjustment of operating strategies, the expansion
of capacity, strengthening of corporate governance, reduction of costs, and the
efforts of implementing the policies of "Reform, Adjustment, Innovation, and
Development" over the years.
In the year ahead, the Supervisory Committee will further develop its focus on
operation, carry out scientific development comprehensively with a focus on the
improvement and implementation of internal control rules. In addition, the
Committee will work on aspects including the execution of the fixed asset
investment plan, asset acquisition or swap connected transactions, and
financial budget. The Committee will strengthen its supervision and
investigation of the Company based on the principle of honesty and good faith.
The Committee will perform its supervisory functions thoroughly to promote the
growth of the Company's profit in 2005 and to safeguard the shareholders'
interests.
WANG ZUORAN
Chairman of the Supervisory Committee
Beijing, PRC, 25 March 2005
61
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
1 GENERAL INFORMATION ON DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(1) DIRECTORS
CHEN TONGHAI, 56, Chairman of the Board of Directors of Sinopec Corp.
Mr. Chen is also President of China Petrochemical Corporation. Mr.
Chen graduated from Northeast Petroleum Institute in September 1976
specializing in petroleum production engineering. Mr. Chen is a
professor level senior economist. He has extensive experience in
petrochemical industry administration and macro-economic management.
From March 1983 to December 1986, Mr. Chen was Deputy Head and then
Head of Zhenhai Petroleum and Petrochemical Plant under former China
Petrochemical Corporation. From December 1986 to July 1989, Mr. Chen
served as Managing Deputy Mayor of Ningbo City, Zhejiang Province.
From July 1989 to June 1991, Mr. Chen served as Managing Deputy
Director of the Planning and Economic Committee of Zhejiang Province.
From June 1991 to February 1992, Mr. Chen served as Acting Mayor of
Ningbo City. From February 1992 to January 1994, Mr. Chen served as
Mayor of Ningbo City. From January 1994 to April 1998, Mr. Chen served
as Vice Minister of the State Planning Commission. Mr. Chen served as
Vice President of China Petrochemical Corporation from April 1998 to
March 2003. Mr. Chen has been President of China Petrochemical
Corporation since March 2003. Mr. Chen served as Director and Vice
Chairman of the first session of the Board of Directors of Sinopec
Corp. from February 2000 to April 2003. Mr. Chen was elected as
Director and Chairman of the Second Session of the Board of Directors
of Sinopec Corp. in April 2003.
WANG JIMING, 62, Vice Chairman of the Board of Directors and President
of Sinopec Corp. Mr. Wang graduated from East China Chemical Institute
in September 1964 specialising in petroleum refining. Mr. Wang is a
professor level senior engineer with over 30 years' management
experience in China's petroleum and petrochemical industry. From
November 1984 to June 1993, Mr. Wang served as Vice President, Acting
President and President of Shanghai Petrochemical Plant under former
China Petrochemical Corporation. Mr. Wang served as Chairman and
President of Shanghai Petrochemical Company Limited from June 1993 to
February 1994. He served as Vice President of China Petrochemical
Corporation (before reorganization) and Chairman of Shanghai
Petrochemical Company from February 1994 to April 1998. Mr. Wang
served as Vice President of China Petrochemical Corporation from April
1998 to February 2000. Mr. Wang has also served as Chairman of
Shanghai SECCO Petrochemical Company Limited from December 2001 to
July 2003. Mr. Wang served as Director of the first session of the
Board of Directors and President of Sinopec Corp. from February 2000
to April 2003. In April 2003, Mr. Wang was elected as Director and
Vice Chairman of the Second Session of the Board of Directors of
Sinopec Corp. and was appointed as President of Sinopec Corp.
MOU SHULING, 60, Director and Senior Vice President of Sinopec Corp.
Mr. Mou graduated from Beijing Petroleum Institute in July 1968
specialising in petroleum production engineering. Mr. Mou is a
professor level senior engineer and has over 30 years' management
experience in China's petroleum industry. From February 1990 to April
1997, Mr. Mou served as Deputy Director and Director of Jiangsu
Petroleum Exploration Bureau. From April 1997 to April 1998, Mr. Mou
served as Director of Shengli Petroleum Administration Bureau. Mr. Mou
served as Vice President of China Petrochemical Corporation from April
1998 to February 2000. Mr. Mou served as Director of the first session
of the Board of Directors and Vice President of Sinopec Corp. from
February 2000 to April 2003. In April 2003, Mr. Mou was elected as
Director of the Second Session of the Board of Directors of Sinopec
Corp. and was appointed as Senior Vice President of Sinopec Corp.
ZHANG JIAREN, 60, Director, Senior Vice President and Chief Financial
Officer of Sinopec Corp. Mr. Zhang graduated from Hefei Industrial
University in July 1966 specialising in electrical engineering. Mr.
Zhang is a professor level senior economist with over 30 years'
management experience in China's petrochemical industry. From August
1987 to July 1994, Mr. Zhang served as Vice President and President of
Zhenhai Petroleum and Petrochemical Plant under former China
Petrochemical Corporation. From July 1994 to April 1998, Mr. Zhang
served as Chairman and President of Zhenhai Refining and Chemical
Company. Mr. Zhang served as Vice President of China Petrochemical
Corporation from April 1998 to February 2000. Mr. Zhang served as
Director of the first session of the Board of Directors and Vice
President of Sinopec Corp. from February 2000 to April 2003. Mr. Zhang
has been Chief Financial Officer of Sinopec Corp. since March 2000. In
April 2003, Mr. Zhang was elected as Director of the Second Session of
the Board of Directors of Sinopec Corp. and was appointed as Senior
Vice President and Chief Financial Officer of Sinopec Corp.
62
CAO XIANGHONG, 59, Director and Senior Vice President of Sinopec Corp.
Mr. Cao graduated from Nanjing Chemical Institute in July 1967
specialising in macro molecular chemistry. Mr. Cao is an academician
of the China Academy of Engineering and a professor level senior
engineer. Mr. Cao has over 30 years' management experience in China's
petrochemical industry. From July 1984 to August 1997, Mr. Cao served
as Vice President and Chief Engineer of Beijing Yanshan Petrochemical
Company under former China Petrochemical Corporation. From August 1997
to February 2000, Mr. Cao served as President, Vice Chairman and
Chairman of Beijing Yanshan Petrochemical Company Limited and Chairman
of Beijing Yanhua Petrochemical Company Limited. Mr. Cao served as
Director of the first session of the Board of Directors and Vice
President of Sinopec Corp. from February 2000 to April 2003. In April
2003, Mr. Cao was elected as Director of the Second Session of the
Board of Directors of Sinopec Corp. and was appointed as Senior Vice
President of Sinopec Corp.
LIU GENYUAN, 59, is a Director of Sinopec Corp. Mr. Liu is Vice
President of China Petrochemical Corporation. Mr. Liu graduated from
Shanghai Science and Technology University in July 1968 specialising
in radiation chemistry. He is a professor level senior economist and
has over 30 years' extensive management experience in China's
petrochemical industry. From May 1995 to July 2001, he served as
President of Shanghai Gaoqiao Petrochemical Company under former China
Petrochemical Corporation. Mr. Liu has been Vice President of China
Petrochemical Corporation since July 2001. Mr. Liu was elected as
Director of the Second Session of the Board of Directors of Sinopec
Corp. in June 2003.
GAO JIAN, 55, Director of Sinopec Corp. In September 1982, Mr. Gao
graduated from the Beijing Institute of Political Science and Law as a
postgraduate specialising in politics and economics. In July 1992, he
graduated from the Finance and Science Research Institute of the
Ministry of Finance of the State with a Ph.D. degree specialising in
finance. From November 1997 to June 1998, he conducted postdoctoral
researches at the Faculty of Economics at Harvard University, USA and
is a Senior Economist. Mr. Gao has been engaged in researches in
economic theories and financial management for a long period of time
and has extensive experience in economics and financial management.
From January 1989 to April 1994, he had been the Deputy Head of the
Department of Treaty and Law of the Ministry of Finance and the Deputy
Head of the State Liabilities Management Department. From April 1994
to October 1998, he was the Head of the State Liabilities Department
and the Head of the Department of Treaty and Law of the Ministry of
Finance. From October 1998 to April 2001, he was the Chief Economist,
the Head of the Funds Bureau and, concurrently, the Chief
Representative of the Hong Kong Representative Office of the State
Development Bank. From April 2001 to July 2003, he was the Assistant
to the Governor, Head of the Funds Bureau and, concurrently, the Chief
Representative of the Hong Kong Representative Office of the State
Development Bank. Since July 2003, he is the Deputy Governor of the
State Development Bank. He was elected as Director of the Second
Session of the Board of Directors of Sinopec Corp. in May 2004.
LIU KEGU, 57, is a Director of Sinopec Corp. Mr. Liu graduated from
the Renmin University of China in February 1982 specializing in
politics and economics. He then obtained a doctorate degree from
Northeast Finance University in July 2000 specializing in finance. Mr.
Liu was engaged in economic management over a long period of time, and
has accumulated extensive experience in macro-economic management.
From September 1986 to March 1990, he was Vice President of Beijing
Public Transportation Company. From March 1990 to October 1996, he
served as Deputy Director of Financial Structure and Tax System Reform
Bureau, and then as Director of Taxation Administration Bureau, of
State Ministry of Finance. From October 1996 to May 1999, he was the
assistant to Governor of Liaoning Province. From May 1999 to September
2002, he served as Vice Governor of Liaoning Province. Mr. Liu has
been Deputy Governor of China Development Bank since September 2002.
From June 2003 to May 2004, Mr. Liu served as Director of the Second
Session of the Board of Directors of Sinopec Corp.
63
FAN YIFEI, 41, is a Director of Sinopec Corp. Mr. Fan graduated from
Changzhou Financial and Economic School in July 1982 specialising in
infrastructure finance and credit. He obtained a master's degree in
finance from the Financial Science Research Institute of the Ministry
of Finance in September 1990. In July 1993, he obtained a doctoral
degree in finance from the Renmin University of China. He is a senior
accountant. He has long engaged in financial management work, and has
relatively extensive experience in financial management. From February
1994 to September 1994, he was the Assistant to the General Manager
and Manager of the Planning and Finance Department of the Trust
Investment Company of China Construction Bank. From September 1994 to
July 1996, he served as Deputy Director of the Capital Planning
Department of China Construction Bank. He was the General Manager of
the Finance and Accounting Department of China Construction Bank from
July 1996 to January 1998. He was the General Manager of the Planning
and Finance Department of China Construction Bank from January 1998 to
February 2000. He has been the Assistant to the Governor of China
Construction Bank since February 2000. Mr. Fan was elected as Director
of the Second Session of the Board of Directors of Sinopec Corp. in
April 2003.
CHEN QINGTAI, 67, Independent Non-executive Director of Sinopec Corp.
Mr. Chen graduated from Tsinghua University in February 1964
specialising in power and dynamics engineering. Mr. Chen is a
researcher and professor. Mr. Chen was engaged in business
administration and macro-economic management over a long period of
time, and has accumulated extensive experience in business
administration and macro-economic management over a long period of
time. From October 1982 to July 1992, Mr. Chen was Chief Engineer,
President and Chairman of China No. 2 Automobile Works and Chairman of
Shenlong Automobile Co., Ltd. From July 1992 to April 1993, Mr. Chen
served as Deputy Director of the State Council Economic and Trade
Office. From April 1993 to March 1998, Mr. Chen served as Deputy
Director of State Economic and Trade Commission. From March 1998 to
November 2004, Mr. Chen served as Vice Minister of the Development
Research Center of the State Council (DRC) of PRC. Since July 2000, he
has been Director of the Public Management College under Tsinghua
University. Mr. Chen has been a member of the Standing Committee of
the tenth session of Chinese People's Political Consultative
Conference since March, 2003. From November 2004, Mr. Chen has been
the senior research fellow of the DRC. Mr. Chen served as Independent
Non-executive Director of the first session of the Board of Directors
of Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr.
Cao was elected as Independent Non-executive Director of the Second
Session of the Board of Directors of Sinopec Corp.
HO TSU KWOK CHARLES, 55, Independent Non-executive Director of Sinopec
Corp. Mr. Ho is Chairman of Hong Kong Tobacco Company Limited, a
cigarette manufacturer and distributor in the Asia Pacific. Mr. Ho is
also Chairman and Director of Global China Investments Limited, a
joint venture between a Canadian provincial government pension fund
and the Ontario Municipal Employees Retirement System. He is
responsible for devising investment and management strategies for
Global China Investments Limited. Mr. Ho is Chairman of Global China
Investments Holdings Limited and Non-executive Director of China
National Aviation Company Limited, each listed on the Hong Kong Stock
Exchange. Mr. Ho is also a member of the Standing Committee of the
Chinese People's Political Consultative Conference and an economic
consultative advisor to Shandong provincial government. He is a member
of the Board of Trustees of the University of International Business
and Economics of China and an honorary member of the Board of Trustees
of Peking University. Mr. Ho served as Independent Non-executive
Director of the first session of the Board of Directors of Sinopec
Corp. from June 2000 to April 2003. In April 2003, Mr. Ho was elected
as Independent Non-executive Director of the Second Session of the
Board of Directors of Sinopec Corp.
64
SHI WANPENG, 67, is an Independent Non-executive Director of Sinopec
Corp. Mr. Shi graduated from Northern Jiaotong University in August
1960 specialising in railway transportation administration. He is a
professor level senior engineer. He has long engaged in economic
management work, and has extensive experience in macro-economic
management. From January 1983 to January 1987, he served as a Deputy
Director of the Transport Bureau of the State Economic Commission.
From January 1987 to May 1988, he was the Director of the Economic and
Technical Co-operation Bureau of the State Economic Commission. From
May 1988 to July 1991, he was the Director of the Production and
Dispatch Bureau of the State Planning Commission. From July 1991 to
July 1992, he served as Deputy Secretary General of the Production
Office of the State Council. From July 1992 to April 1993, he served
as a Deputy Director of the Economic and Trade Office of the State
Council. From April 1993 to July 1997, he was a Vice Minister of the
State Economic and Trade Commission. From July 1997 to March 1998, he
was the Chairman (minister level) of the China Textiles Association.
From March 1998 to February 2002, he served as a Vice Minister of the
State Economic and Trade Commission. He has been a member of the
Standing Committee of the National Committee of the tenth session of
the Chinese People's Political Consultative Conference and Deputy
Director of its Economic Committee since March 2003. Mr. Shi was
elected as Independent Non-executive Director of the Second Session of
the Board of Directors of Sinopec Corp. in April 2003.
ZHANG YOUCAI, 63, is an Independent Non-executive Director of Sinopec
Corp. Mr. Zhang graduated from Nanjing Industrial University in August
1965 specialising in inorganic chemistry. He is a professor. He has
long engaged in business administration, financial management and
government work, and has extensive experience in industrial, economic,
financial and accounting management. From January 1968 to August 1980,
he served as a technician, Vice President, Deputy Secretary of the
Party Committee and President, respectively, of Nantong Chemical
Fertilizer Plant. From August 1980 to January 1982, he was a Deputy
Director and a member of the Leading Party Group of the Industrial
Bureau of Nantong Region. From January 1982 to February 1983, he
served as a Deputy Director of the Planning Commission of Nantong
Region. From February 1983 to November 1989, he served as a Deputy
Mayor, Deputy Secretary of the Party Committee and Mayor,
respectively, of Nantong City. He was a Vice Minister and a member of
the Leading Party Group of the Ministry of Finance from December 1989
to July 2002 (from May 1994 to March 1998 of this period, he served
concurrently as the Director of the State-owned Assets Administration
Bureau). He has been the Chairman of The Chinese Institute of Chief
Accountants since November 2002. He has also been the member of the
standing committee of the tenth session of the National People's
Congress and Deputy Director of its Financial and Economic Committee
since March 2003. Mr. Zhang was elected as Independent Non-executive
Director of the Second Session of the Board of Directors of Sinopec
Corp. in April 2003.
CAO YAOFENG, 51, is an Employee Representative Director of Sinopec
Corp. Mr. Cao graduated from the General Section of East China
Petroleum Institute in September 1977 specialising in mining
machinery. He obtained a master's degree in mechanical design and
theories from the Petroleum University (East China) in June 2001. He
is a professor level senior engineer. From April 1997 to December
2001, he was a Deputy Director of Shengli Petroleum Administration
Bureau under China Petrochemical Corporation. He acted concurrently as
a Vice-Chairman of the Board of Directors of Sinopec Shengli Oilfield
Company Limited from May 2000 to December 2001. From December 2001 to
December 2002, he was a Director and the General Manager of Sinopec
Shengli Oilfield Company Limited. He has been the Chairman of the
Board of Directors of Sinopec Shengli Oilfield Company Limited since
December 2002. From October 2004, he has been the assistant for the
president of the China Petrochemical Corporation. Mr. Cao was elected
as Employee Representative Director of the Second Session of the Board
of Directors of Sinopec Corp. in April 2003.
65
INFORMATION OF DIRECTORS
Position with Paid (P) or Sinopec Corp.'s
Name Gender Age Sinopec Corp. Term of Office Unpaid (U) Shares Held
by the (as at 31 December)
Company 2004 2003
Chen Tonghai M 56 Chairman 2003.4-2006.4 P 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Wang Jiming M 62 Vice Chairman, President 2003.4-2006.4 P 0 0
Mou Shuling M 60 Director, Senior Vice President 2003.4-2006.4 P 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Zhang Jiaren M 60 Director, Senior Vice President 2003.4-2006.4 P 0 0
and Chief Financial Officer
-----------------------------------------------------------------------------------------------------------------------------------
Cao Xianghong M 59 Director, Senior Vice President 2003.4-2006.4 P 0 0
Liu Genyuan M 59 Director 2003.6-2006.4 U 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Gao Jian M 55 Director 2004.5-2006.4 U 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Liu Kegu M 57 Director 2003.6-2004.5 U 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Fan Yifei M 41 Director 2003.4-2006.4 U 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Chen Qingtai M 67 Independent Non-executive Director 2003.4-2006.4 U 0 0
Ho Tsu Kwok Charles M 55 Independent Non-executive Director 2003.4-2006.4 U 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Shi Wanpeng M 67 Independent Non-executive Director 2003.4-2006.4 U 0 0
Zhang Youcai M 63 Independent Non-executive Director 2003.4-2006.4 U 0 0
Cao Yaofeng M 51 Employee Representative Director 2003.4-2006.4 P 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Note: Mr. Liu Genyuan, Mr. Gao Jian, Mr. Liu Kegu and Mr. Fan Yifei receive salary from China
Petrochemical Corporation, State Development Bank and China Construction Bank, respectively.
(2) SUPERVISORS
WANG ZUORAN, 54, Chairman of the Supervisory Committee of Sinopec Corp.
Mr. Wang graduated from Shandong Economic Administration Institute in
September 1994 specialising in economic administration. Mr. Wang is a
professor level senior economist and he has extensive experience in the
management of petroleum industry. From October 1994 to February 2000,
Mr. Wang served as Deputy Director and Party Secretary of Shengli
Petroleum Administration Bureau. From February 2000 to July 2001, Mr.
Wang was the Assistant to President of China Petrochemical Corporation.
Mr. Wang has been Director of Disciplinary Supervision Committee of
China Petrochemical Corporation since July 2001. Mr. Wang served as
Supervisor of the first session of the Supervisory Committee of Sinopec
Corp. from February 2000 to April 2003. In April 2003, Mr. Wang was
elected as Supervisor and Chairman of the Second Session of the
Supervisory Committee of Sinopec Corp.
ZHANG CHONGQING, 60, Supervisor of Sinopec Corp. Mr. Zhang graduated
from China University of Science and Technology in July 1967
specialising in macro molecular chemistry. He is a professor level
senior economist. From May 1991 to February 1993, Mr. Zhang served as
Deputy President of Planning Institute of former China Petrochemical
Corporation. From February 1993 to December 1998, Mr. Zhang served as
Deputy Director and Director of General Administrative Office of former
China Petrochemical Corporation. Mr. Zhang has been Director of General
Administrative Office of China Petrochemical Corporation since December
1998. Mr. Zhang served as Supervisor of the first session of the
Supervisory Committee of Sinopec Corp. from February 2000 to April 2003.
In April 2003, Mr. Zhang was elected as Supervisor of the Second Session
of the Supervisory Committee of Sinopec Corp.
WANG PEIJUN, 59, Supervisor of Sinopec Corp. Mr. Wang graduated from
Northeast Petroleum Institute in July 1970 specialising in oil and gas
field engineering. He is a professor level senior economist. From June
1989 to August 1991, Mr. Wang was Vice Party Secretary of Qilu Petroleum
and Petrochemical Company under former China Petrochemical Corporation.
From August 1991 to December 1998, he served as Deputy Director and
Director of Human Resources Department of former China Petrochemical
Corporation. Since December 1998, Mr. Wang has been Director of Human
Resources Department of China Petrochemical Corporation. Mr. Wang served
as Supervisor of the first session of the Supervisory Committee of
Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr. Wang
was elected as Supervisor of the Second Session of the Supervisory
Committee of Sinopec Corp.
66
WANG XIANWEN, 60, Supervisor of Sinopec Corp. Mr. Wang graduated from
Jilin University in July 1968 specialising in chemistry. He is a
professor level senior economist. From April 1984 to March 1990, Mr.
Wang served as Deputy Manager of Jinzhou Petrochemical Company of former
China Petrochemical Corporation. From March 1990 to December 1998, Mr.
Wang served as Deputy Director and Director of Auditing Bureau of former
China Petrochemical Corporation. Mr. Wang has been Head of China
Petrochemical Corporation's Auditing Bureau since December 1998. Mr.
Wang has been Director of Sinopec Corp.'s Auditing Bureau since February
2000. Mr. Wang served as Supervisor of the first session of the
Supervisory Committee of Sinopec Corp. from February 2000 to April 2003.
In April 2003, Mr. Wang was elected as Supervisor of the Second Session
of the Supervisory Committee of Sinopec Corp.
ZHANG BAOJIAN, 60, is a Supervisor of Sinopec Corp. Mr. Zhang graduated
from Shandong Financial and Economic College in July 1968 specialising
in industrial accounting. He is a professor level senior accountant.
From October 1985 to April 1989, he was the Chief Accountant of Yueyang
Petrochemical General Plant. From April 1989 to October 1995, he served
as the chief accountant and Deputy Director of the Finance Department of
former China Petrochemical Corporation. He acted concurrently as the
Vice Chairman of Sinopec Finance Company Limited from May 1993 to
October 1995. From October 1995 to February 2000, he served as the
Director of the Finance Department of former China Petrochemical
Corporation and China Petrochemical Corporation, and concurrently served
as Chairman of Sinopec Finance Company Limited. From February 2000 to
March 2003, Mr. Zhang served as Director of the Finance & Planning
Department of China Petrochemical Corporation and concurrently as Vice
Chairman of the Board of Directors of Sinopec Finance Company Limited.
From March 2003 to October 2004, he served as Deputy Chief Accountant
and concurrently the Director of the Finance & Planning Department of
China Petrochemical Corporation as well as Vice Chairman of the Board of
Directors of Sinopec Finance Company Limited. He has been Vice Chairman
of the Board of Directors of Sinopec Finance Company Limited since
October 2004. Mr. Zhang was elected as Supervisor of the Second Session
of the Supervisory Committee of Sinopec Corp. in April 2003.
KANG XIANZHANG, 56, is a Supervisor of Sinopec Corp. Mr. Kang graduated
from the Correspondence Teaching Department of the Party School of the
Beijing Municipal Party Committee in March 1988 specialising in ideology
politics (undergraduate course). He also graduated from the
Correspondence Teaching College of the Party School of the Central
Committee of the Communist Party of China in December 1992 specialising
in party and political affairs management (bachelor course). He is a
senior political worker. From June 1995 to August 1996, he was the
Deputy Director of the Organization Department of the Communist Party
Committee of the Tibet Autonomous Region. From August 1996 to May 1997,
he was a senior researcher of the deputy director level in the Cadre
Allocation Bureau of the Organization Department of the Central
Committee of the Communist Party of China. He acted as the Deputy
Secretary of the Communist Party Committee of the Coal Scientific
Research Institute of the Ministry of Coal Industry from May 1997 to
October 1998. From October 1998 to May 1999, he was a Supervisor of the
deputy director level in the Discipline Inspection Group and the
Supervisory Bureau of China Petrochemical Corporation, and acted as a
Deputy Director of the Supervisory Bureau of the same company from May
1999 to March 2001. He was the Deputy Director of the Supervisory
Department of Sinopec Corp. from February 2000 to March 2001. He has
been a Deputy Head of the Discipline Inspection Group of the Leading
Party Group and Director of the Supervisory Bureau of China
Petrochemical Corporation, as well as Director of the Supervisory
Department of Sinopec Corp. since March 2001. Mr. Kang was elected as
Supervisor of the Second Session of the Supervisory Committee of Sinopec
Corp. in April 2003.
67
CUI JIANMIN, 72, Independent Supervisor of Sinopec Corp. Mr. Cui
graduated from the Renmin University of China in October 1962
specialising in planning. Mr. Cui is a senior auditor, certified
accountant and has extensive management experience in audit and finance
fields. From June 1983 to January 1985, Mr. Cui served as Director of
Industry and Transportation Bureau of State Audit Administration. From
January 1985 to April 1995, Mr. Cui has been Deputy Auditor-General and
Managing Deputy Auditor-General of State Audit Administration. From
December 1995 to November 2004, Mr. Cui has been Chairman of the Chinese
Certified Public Accountants Association since October 2004. He has been
the consultant for the Chinese Certified Public Accountants Association.
Mr. Cui served as Independent Supervisor in the first session of
Supervisory Committee of Sinopec Corp. from April 2000 to April 2003 and
was elected Independent Supervisor of the Second Session of Supervisory
Committee of Sinopec Corp. in April 2003.
LI YONGGUI, 64, is an Independent Supervisor of Sinopec Corp. Mr. Li
graduated from Shandong Financial and Economic College in July 1965
specialising in finance. He is a senior economist and a certified public
accountant. He has long engaged in tax management work and has extensive
management experience in the field of taxation. From February 1985 to
December 1988, he was the Deputy Director of the Taxation Bureau of the
Ministry of Finance. He served as the Chief Economist of the State
Administration of Taxation from December 1988 to April 1991. From April
1991 to February 1995, he served as the Deputy Director of the State
Administration of Taxation. He was the Chief Economist of the State
Administration of Taxation of China from February 1995 to September
2001. Mr. Li has been the Chairman of the China Taxation Consulting
Association since April 2000. Mr. Li was elected as Independent
Supervisor of the Second Session of the Supervisory Committee of Sinopec
Corp. in April 2003.
SU WENSHENG, 48, is an Employee Representative Supervisor of Sinopec
Corp. Mr. Su graduated from Tsinghua University in December 1980
specialising in environmental engineering. He obtained a master's degree
in management science and engineering from Petroleum University
(Beijing) in June 2000. He is a senior engineer. From September 1986 to
November 1996, he was a Deputy Secretary of the Party Committee of the
Beijing Designing Institute under former China Petrochemical
Corporation, and acted concurrently as the Secretary of the Disciplinary
Committee of the same Institute. From November 1996 to December 1998, he
was the Secretary of the Party Committee of Beijing Designing Institute
of the former China Petrochemical Corporation. Mr. Su has been the
Director of the Ideology & Politics Department and a Deputy Secretary of
the Affiliated Party Committee of China Petrochemical Corporation since
December 1998. He has acted concurrently as the Managing Deputy
Secretary of the Party Working Committee of the Western New Region
Exploration Headquarter of Sinopec Corp. since December 2001. Mr. Su was
elected as Employee Representative Supervisor of the Second Session of
the Supervisory Committee of Sinopec Corp. in April 2003.
CUI GUOQI, 51, is an Employee Representative Supervisor of Sinopec Corp.
Mr. Cui graduated from the Correspondence Teaching College of Renmin
University of China in December 1985 specialising in industrial business
management. In January 1997, he obtained a master's degree in business
management from the Business Management School of Renmin University of
China. He is a senior economist. Mr. Cui has served as Director of
Sinopec Beijing Yanhua Petrochemical Company Limited and he has served
concurrently as Chairman of the Trade Union of Sinopec Beijing Yanshan
Company since February 2000. Mr. Cui has been a member of the Executive
Committee of the All China Federation of Trade Unions since December
2000, and a member of the Standing Committee of the National Committee
of the Union of Chinese Energy and Chemical Industries since December
2001. Mr. Zhang was elected Employee Representative Supervisor of the
Second Session of the Supervisory Committee of Sinopec Corp. in April
2003.
68
ZHANG XIANGLIN, 58, is an Employee Representative Supervisor of Sinopec
Corp. Mr. Zhang graduated from Beijing Machinery College in July 1970
specialising in precision machine tool. He is a professor level senior
political worker. From January 2000 to March 2004, he served as a
Director and Chairman of the Trade Union of Sinopec Yangzi Petrochemical
Company Limited. He has been deputy secretary of the Communist Party
Committee of Sinopec Yangzi Petrochemical Company Limited since July
2002. From March 2004, he has been the secretary of the Commission for
Discipline Inspection and concurrently the convener of the Supervisory
Committee of Sinopec Yangzi Petrochemical Company Limited. Mr. Zhang was
elected Employee Representative Supervisor of the Second Session of the
Supervisory Committee of Sinopec Corp. in April 2003.
ZHANG HAICHAO, 47, is an Employee Representative Supervisor of Sinopec
Corp. Mr. Zhang graduated from Zhoushan Commercial Technology School in
December 1979 specialising in oil storage and transportation. He also
graduated from Jilin Chemical Institute in July 1985 specialising in
lubricant oil reclaiming process. From January 2001 to June 2002, he
participated in the business administration programme at Macau Science &
Technology University. He is an economist. He served as Deputy General
Manager of Zhejiang Oil Products Company from March 1998 to September
1999. He has served as General Manager of Zhejiang Oil Products Company
since September 1999, and has served as Manager of Sinopec Zhejiang Oil
Products Company since February 2000. Since April 2004, he serves as
chairman of the BP Sinopec (Zhejiang) Petroleum Company Limited. He has
been secretary of the Communist Party Committee, vice chairman and
deputy president of the Sinopec Sales Company Limited since October
2004. Mr. Zhang was elected Employee Representative Supervisor of the
Second Session of the Supervisory Committee of Sinopec Corp. in April
2003.
INFORMATION OF SUPERVISORS
Position with Paid (P) or Sinopec Corp.'s
Name Gender Age Sinopec Corp. Term of Office Unpaid(U) Shares Held
by the (as at 31 December)
Company 2004 2003
Wang Zuoran M 54 Chairman of the 2003.4-2006.4 P 0 0
Supervisory
Committee
--------------------------------------------------------------------------------------------------------------------------------
Zhang Chongqing M 60 Supervisor 2003.4-2006.4 P 0 0
--------------------------------------------------------------------------------------------------------------------------------
Wang Peijun M 59 Supervisor 2003.4-2006.4 P 0 0
--------------------------------------------------------------------------------------------------------------------------------
Wang Xianwen M 60 Supervisor 2003.4-2006.4 P 0 0
--------------------------------------------------------------------------------------------------------------------------------
Zhang Baojian M 60 Supervisor 2003.4-2006.4 P 0 0
--------------------------------------------------------------------------------------------------------------------------------
Kang Xianzhang M 56 Supervisor 2003.4-2006.4 P 0 0
--------------------------------------------------------------------------------------------------------------------------------
Cui Jianmin M 72 Independent Supervisor 2003.4-2006.4 U 0 0
--------------------------------------------------------------------------------------------------------------------------------
Li Yonggui M 64 Independent Supervisor 2003.4-2006.4 U 0 0
--------------------------------------------------------------------------------------------------------------------------------
Su Wensheng M 48 Employee Representative 2003.4-2006.4 P 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
Cui Guoqi M 51 Employee Representative 2003.4-2006.4 P 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
Zhang Xianglin M 58 Employee Representative 2003.4-2006.4 P 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
Zhang Haichao M 47 Employee Representative 2003.4-2006.4 P 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
69
(3) OTHER MEMBERS OF THE SENIOR MANAGEMENT
WANG TIANPU, 42, Senior Vice President of Sinopec Corp. Mr. Wang
graduated from Qingdao Chemical Institute specialising in basic organic
chemistry in July 1985. He then graduated from Dalian Science and
Technology University in July 1996 and obtained a master's degree in
business administration. In August 2003, he graduated from Zhejiang
University specialising in Chemical Engineering and obtained a doctor
degree. He is a professor level senior engineer, and has accumulated
relatively extensive experience in production management in
petrochemical industry. From March 1999 to February 2000, he was Vice
President of Qilu Petrochemical Company under China Petrochemical
Corporation. From February 2000 to September 2000, he was Vice President
of Sinopec Qilu Company. From September 2000 to August 2001, he was
President of Sinopec Qilu Company. Mr. Wang was Vice President of
Sinopec Corp. from August 2001 to April 2003 and was appointed as Senior
Vice President of Sinopec Corp. in April 2003.
WANG ZHIGANG, 48, is a Vice President of Sinopec Corp. Mr. Wang
graduated from East China Petroleum Institute in January 1982
specialising in oil production, and then obtained a master degree from
China Petroleum University in June 2000 specialising in oil and gas
development engineering. In September 2003, he obtained a doctor degree
of from Institute of Geology and Geophysics of China Academy of Sciences
specialising in geology. He is a professor level senior engineer. From
February to June in 2000, he was Vice President of Sinopec Shengli Oil
Field Company Limited. From June 2000 to December 2001, Mr. Wang served
as Director and President of Sinopec Shengli Oil Field Company Limited.
He was appointed as Non-executive Vice Chairman of the Committee of
Economics and Trade of Ningxia Hui Autonomous Region from November 2001
to May 2003. From June 2003, he has acted as the Director of Exploration
and Production Department of Sinopec Corp. Mr. Wang was appointed Vice
President of Sinopec Corp. in April 2003.
ZHANG JIANHUA, 41, is a Vice President of Sinopec Corp. Mr. Zhang
graduated from East China Chemical Engineering Institute in July 1986
specialising in petroleum refining, and then obtained a master degree
from East China University to Science and Technology specialising in
chemical engineering in December 2000. He is a professor level senior
engineer. Mr. Zhang was appointed Vice-president of Shanghai Gaoqiao
Petrochemical Company under China Petrochemical Corporation from April
1999 to February 2000. From February to September in 2000, he was Vice
President of Sinopec Shanghai Gaoqiao Company. From September 2000 to
June 2003, he was the President of Sinopec Shanghai Gaoqiao Company. Mr.
Zhang has been Director of Sinopec Operation and Management Department
since November 2003. Mr. Zhang was appointed Vice President of Sinopec
Corp. in April 2003.
CAI XIYOU, 43, is a Vice President of Sinopec Corp. Mr. Cai graduated
from Fushun Petroleum Institute in August 1982 specialising in petroleum
processing automation, and then obtained an MBA degree from China
Industry and Science Administration Dalian Training Center in October
1990. He is a senior economist. From June 1995 to May 1996, Mr. Cai was
Vice President of Jinzhou Petrochemical Company under China
Petrochemical Corporation before the reorganization. From May 1996 to
December 1998, he was Vice President of Dalian West Pacific
Petrochemical Limited Company. From December 1998 to June 2001, he acted
as Vice President of Sinopec Sales Company Limited, and from June to
December in 2001, he acted as Managing Vice President of Sinopec Sales
Company Limited. He has been Director and President of China
International United Petroleum & Chemicals Company Limited since
December 2001. Mr. Cai was appointed as Vice President of Sinopec Corp.
in April 2003.
LI CHUNGUANG, 49, is a Vice President of Sinopec Corp. Mr. Li graduated
from Heilongjiang Business Institute in January 1982 specialising in
petroleum automatic storage and transportation. He is a senior engineer.
Mr. Li acted as Vice President of Sinopec Sales Company Limited from
October 1995 to June 2001. From June 2001 to December 2001, he was
President of Sinopec Sales Company limited, and has been Director of
Marketing and Distribution Department of Sinopec Corp. since December
2001. In April 2002, he was elected as chairman and president of Sinopec
Sales Company Limited. Mr. Li was appointed as Vice President of Sinopec
Corp. in April 2003.
CHEN GE, 43, is Secretary to the Board of Directors of Sinopec Corp. Mr.
Chen graduated from Daqing Petroleum Institute in July 1983 specialising
in petroleum refining, and then obtained an MBA degree from Dalian
University of Science and Technology in July 1996. He is a senior
economist. From July 1983 to February 2000, he worked in Beijing Yanshan
Petrochemical Company. From February 2000 to December 2001, he was a
Deputy Director of Sinopec Corp.'s Secretariat to the Board of
Directors. Mr. Chen has been the Director of Sinopec Corp.'s Secretariat
to the Board of Directors since December 2001. Mr. Chen was appointed as
Secretary to the Board of Directors of Sinopec Corp. since April 2003.
70
OTHER MEMBERS OF THE SENIOR MANAGEMENT
Position with Paid (P) or Sinopec Corp.'s
Name Gender Age Sinopec Corp. Term of Office Unpaid (U) Shares Held
by the (as at 31 December)
Company 2004 2003
Wang Tianpu M 42 Senior Vice President 2003.4- P 0 0
-------------------------------------------------------------------------------------------------------------------
Wang Zhigang M 48 Vice President 2003.4- P 0 0
-------------------------------------------------------------------------------------------------------------------
Zhang Jianhua M 41 Vice President 2003.4- P 0 0
-------------------------------------------------------------------------------------------------------------------
Cai Xiyou M 43 Vice President 2003.4- P 0 0
-------------------------------------------------------------------------------------------------------------------
Li Chunguang M 49 Vice President 2003.4- P 0 0
-------------------------------------------------------------------------------------------------------------------
Chen Ge M 43 Secretary to the 2003.4-2006.4 P 0 0
Board of Directors
-------------------------------------------------------------------------------------------------------------------
2 INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER MEMBERS OF THE SENIOR
MANAGEMENT IN THE SHARE CAPITAL OF SINOPEC CORP.
Please refer to item 23 in Disclosure of Significant Events of this report.
3 DIRECTORS' OR SUPERVISORS' INTERESTS IN CONTRACTS
None of the Directors nor the Supervisors of Sinopec Corp. had any
beneficial interests in any material contracts to which Sinopec Corp., its
holding company or any of its subsidiaries or fellow subsidiaries was a
party subsisted at 31 December 2004 or at any time during the year.
4 SALARIES OF DIRECTORS, SUPERVISORS AND MEMBERS OF THE SENIOR MANAGEMENT
Sinopec Corp. has established and continuously improved a fair and
transparent performance evaluation standard and an incentive and constraint
mechanism for the directors, supervisors and other senior management
officers. It has implemented such incentive policies as a the Performance
Evaluation and Salary Incentive Plan for the Senior Management of Sinopec
Corp., the Plan of Share Appreciation Rights for the Senior Management of
Sinopec Corp. and the Measures on the First Granting of Share Appreciation
Rights to the Senior Management of Sinopec Corp., all of which were
approved by the Fourth Extraordinary General Meeting of Shareholders of
Year 2000 held on 7 September 2000. In addition, Sinopec Corp. establishes
and implements incentive policies such as the Implementing Measures of
Salary for Senior Management of Sinopec Corp. (Tentative) and the
Supplementary Rules for Implementing Measures of Salary for Senior
Management of Sinopec Corp. (Tentative).
The directors, supervisors and other senior management officers of Sinopec
Corp. received their remuneration in the form of basic salary and
performance rewards, including the amount granted by Sinopec Corp. to the
directors, supervisors and other senior management according to the
retirement pension plan.
During the period of this report, the reserves for the Share appreciation
rights to be granted at the first time have already been prepared according
to the Measures on the First Granting of Share Appreciation Rights for the
Senior Management of Sinopec Corp.
During this reporting period, directors in office (excluding directors and
independent non-executive directors who do not hold any working post with
Sinopec Corp.), supervisors (excluding independent supervisors) and other
senior management officers were paid RMB 5,777,234 in total as annual
remuneration. The three highest paid directors and senior management
officers respectively received RMB 847,834 and RMB 1,009,620 remuneration
in total. The total annual fees for the independent non-executive directors
and independent supervisors were RMB 141,000. Mr. Liu Genyuan, Mr. Gao
Jian, Mr. Liu Kegu and Mr. Fan Yifei, who do not hold any working post with
Sinopec Corp., are not paid any remuneration by Sinopec Corp.
During this reporting period, amongst the 22 directors (excluding directors
and independent non-executive directors who do not hold any working post
with Sinopec Corp.), supervisors (excluding independent supervisors) and
other senior management officers who are in office, 4 of them received
annual remuneration for an amount of above RMB 300,000, 18 of them received
annual remuneration between RMB 200,000 and RMB 300,000.
71
5 THE COMPANY'S EMPLOYEES
As at 31 December 2004, the Company had a total of 389,451 employees,
details are shown as follows:
Breakdown according to operation department structures
Number of Percentage to
Employees Total Employees (%)
Exploration and Production 143,846 36.9
------------------------------------------------------------------------------
Refining 80,344 20.6
------------------------------------------------------------------------------
Marketing and Distribution 70,516 18.1
------------------------------------------------------------------------------
Chemicals 89,908 23.1
------------------------------------------------------------------------------
R&D and Others 4,837 1.3
------------------------------------------------------------------------------
TOTAL 389,451 100
------------------------------------------------------------------------------
Breakdown according to functions
Number of Percentage to
Employees Total Employees (%)
Production 187,126 48.0
-----------------------------------------------------------------------------
Sales 69,535 17.9
-----------------------------------------------------------------------------
Technical 45,146 11.6
-----------------------------------------------------------------------------
Finance 10,012 2.6
-----------------------------------------------------------------------------
Administration 32,448 8.3
-----------------------------------------------------------------------------
Others 45,184 11.6
-----------------------------------------------------------------------------
TOTAL 389,451 100
-----------------------------------------------------------------------------
Breakdown according to education level
Number of Percentage to
Employees Total Employees (%)
Master's degree or above 3,317 0.9
------------------------------------------------------------------------------
University 47,688 12.2
------------------------------------------------------------------------------
Tertiary education 70,420 18.1
------------------------------------------------------------------------------
Technical/polytechnic school 46,321 11.9
------------------------------------------------------------------------------
Secondary, technical/polytechnic
school or below 221,705 56.9
------------------------------------------------------------------------------
TOTAL 389,451 100
------------------------------------------------------------------------------
6 EMPLOYEES' RETIREMENT SCHEME
Details of the employees' retirement scheme of the Company are set out in
note 34 on the financial statements prepared under IFRS which are contained
in this annual report.
As at 31 December 2004, the Company had a total of 111,764 retired
employees, and all of them have participated in basic pension schemes
administered by provincial (autonomous regions and municipalities)
governments. Government-administered pension schemes are responsible for
the payments of basic pensions.
72
PRINCIPAL WHOLLY-OWNED AND NON WHOLLY-OWNED SUBSIDIARIES
At 31 December 2004, details of the principal wholly-owned and non wholly-owned
subsidiaries of the Company are as follows.
Percentage of
Registered shares held by Total
Name of company capital Sinopec Corp. assets Net profit Auditor Principal Activities
RMB millions (%) RMB millions RMB millions
China Petrochemical 1,400 100.00 10,928 415 Beijing Trading of crude oil
International Zhonglunxin and petrochemical
Company Limited CPA Company products
Limited
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanhua 3,374 70.01 10,200 2,867 KPMG Manufacturing of
Petrochemical Huazhen chemical products
Company Limited
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company 1,700 100.00 19,979 1,463 KPMG Marketing and
Limited distribution of Huazhen refined oil
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield 29,000 100.00 50,196 14,206 KPMG Exploration and produc-
Company Limited Huazhen tion of crude oil and
and natural gas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical 2,253 50.00 4,198 195 KPMG Manufacturing of plastics
Company Limited Huazhen intermediate petro-
chemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical 1,950 82.05 The results The results KPMG Manufacturing of inter-
Company Limited are yet to be are yet to be Huazhen mediate petrochemical
published published products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical 7,200 55.56 28,757 3,971 KPMG Manufacturing of
Company Limited Huazhen synthetic fibres, resin
and plastics,intermediate
petrochemical products
products and petro-
leum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining- 1,154 79.73 The results The results KPMG Manufacturing of inter-
Chemical Company Limited are yet to be are yet to be Huazhen mediate petrochemical
published published products amd petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings Limited HK$ 104 million 72.40 2,687 164 KPMG Trading of crude oil and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum Group 147 46.25 724 34 Wuhan Marketing and distribution
Company Limited Zhonghuan of refined oil products
CPA
Company
Limited
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix 519 40.72 The results The results KPMG Manufacturing of chemical
Company Limited are yet to be are yet to be Huazhen products and petroleum
published published products
-----------------------------------------------------------------------------------------------------------------------------------
73
Percentage of
Registered shares held by Total
Name of company capital Sinopec Corp. assets Net profit Auditor Principal Activities
RMB millions (%) RMB millions RMB millions
Sinopec Yangzi Petrochemical 2,330 84.98 The results The results KPMG Manufacturing of inter-
Company Limited are yet to be are yet to be Huazhen mediate petrochemical
published published products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical 4,000 42.00 The results The results KPMG Production and sale of
Fibre Company Limited are yet to be are yet to be Huazhen polyester chips and
published published polyester fibres
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and 2,524 71.32 The results The results KPMG Manufacturing of inter-
Chemical Company Limited are yet to be are yet to be Huazhen mediate petrochemical
published published products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum 875 70.85 The results The results Beijing Exploration and production
Company Limited are yet to be are yet to be Zhongzhou of crude oil and natural
published published Guanghua gas
CFA Company
Limited
-----------------------------------------------------------------------------------------------------------------------------------
Zhongyuan Petrochemical 2,400 93.51 2,265 528 Huazheng Manufacturing of
Company Limited CPA Company intermediate petro-
Limited chemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) 830 60.00 447 (11) KPMG Marketing and distribu-
Petroleum Marketing Company Huazhen tion of refined oil
Limited products
-----------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) 800 60.00 647 -- KPMG Marketing and
Petroleum Company Limited Huazhen distribution of
refined oil products
-----------------------------------------------------------------------------------------------------------------------------------
The above indicated total assets and net profit are prepared in accordance with
the PRC Accounting Rules and Regulations. Except Sinopec Kantons Holdings
Limited, which is incorporated in Bermuda, all of the above wholly-owned and
non wholly-owned subsidiaries are incorporated in the PRC. The above
wholly-owned and non wholly-owned subsidiaries are limited liability companies.
The Directors considered that it would be redundant to disclose the particulars
of all subsidiaries and, therefore, only those have a significant impact on
Sinopec Corp.'s results or net assets are set out above.
74
NOTICE OF ANNUAL GENERAL MEETING
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 - 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
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.
75
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).
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
76
REPORT OF THE PRC AUDITORS
KPMG Huazhen [logo graphic omitted]
To the Shareholders of China Petroleum & Chemical Corporation:
We have audited the accompanying Company's consolidated balance sheet and
balance sheet at 31 December 2004, and the consolidated income statement and
profit appropriation statement, income statement and profit appropriation
statement, consolidated cash flow statement and cash flow statement for the
year then ended. The preparation of these financial statements is the
responsibility of the Company's management. Our responsibility is to express an
audit opinion on these financial statements based on our audit.
We conducted our audit in accordance with China's Independent Auditing
Standards of the Certified Public Accountants. Those standards require that we
plan and perform the audit to obtain reasonable assurance as to whether the
financial statements are free from material misstatement. An audit includes
examination, on a test basis, of evidence supporting the amounts and
disclosures in the financial statements, an assessment of the accounting
policies used and significant estimates made by the Company's management in the
preparation of the financial statements, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the above-mentioned financial statements comply with the
requirements of the Accounting Standards for Business Enterprises and the
Accounting Regulations for Business Enterprises issued by the Ministry of
Finance of the People's Republic of China and present fairly, in all material
respects, the Company's consolidated financial position and financial position
at 31 December 2004, and the consolidated results of operations, results of
operations, consolidated cash flows and cash flows for the year then ended.
KPMG Huazhen Certified Public Accountants
Registered in the People's
Republic of China
8/F, Office Tower E2 WU WEI
Oriental Plaza SONG CHENYANG
No.1, East Chang An Ave.
Beijing, The People's Republic of China 25 March 2005
Post Code: 100738
77
(A) FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND
REGULATIONS CONSOLIDATED BALANCE SHEET at 31 December 2004
Note 2004 2003
RMB millions RMB millions
ASSETS
----------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
----------------------------------------------------------------------------------------------------------------------------------
Cash at bank and in hand 4 18,280 17,405
------------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 7,812 5,953
------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 9,756 9,284
------------------------------------------------------------------------------------------------------------------------------
Other receivables 7 12,462 15,457
------------------------------------------------------------------------------------------------------------------------------
Advance payments 8 4,828 3,904
------------------------------------------------------------------------------------------------------------------------------
Inventories 9 63,918 44,915
==============================================================================================================================
TOTAL CURRENT ASSETS 117,056 96,918
..................................................................................................................................
LONG-TERM EQUITY INVESTMENTS (INCLUDING EQUITY INVESTMENT DIFFERENCES OF
RMB 383 MILLION (2003: RMB 400 MILLION)) 10 13,409 11,150
----------------------------------------------------------------------------------------------------------------------------------
FIXED ASSETS
----------------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 519,462 461,128
------------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 243,510 213,804
------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets before impairment losses 11 275,952 247,324
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 5,816 1,331
------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 270,136 245,993
------------------------------------------------------------------------------------------------------------------------------
Construction materials 12 430 1,226
------------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 45,976 28,513
----------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED ASSETS 316,542 275,732
----------------------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS AND OTHER ASSETS
----------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 5,345 4,564
------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 15 3,563 97
------------------------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS AND OTHER ASSETS 8,908 4,661
----------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS 16 4,166 1,752
----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 460,081 390,213
==================================================================================================================================
LIABILITIES AND SHAREHOLDERS' FUNDS
----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
----------------------------------------------------------------------------------------------------------------------------------
Short-term loans 17 26,723 20,904
------------------------------------------------------------------------------------------------------------------------------
Bills payable 18 30,797 23,958
------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 19 23,792 22,704
------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 20 8,605 5,908
------------------------------------------------------------------------------------------------------------------------------
Wages payable 3,223 1,850
------------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 1,101 1,230
------------------------------------------------------------------------------------------------------------------------------
Taxes payable 21 6,741 6,986
------------------------------------------------------------------------------------------------------------------------------
Other payables 22 1,519 1,237
------------------------------------------------------------------------------------------------------------------------------
Other creditors 23 26,459 27,537
------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 24 652 303
------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term liabilities 25 14,298 8,175
------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 143,910 120,792
----------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
----------------------------------------------------------------------------------------------------------------------------------
Long-term loans 26 94,087 79,221
------------------------------------------------------------------------------------------------------------------------------
Debentures payable 27 3,500
------------------------------------------------------------------------------------------------------------------------------
Other long-term payables 28 820 888
------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 98,407 80,109
..................................................................................................................................
DEFERRED TAX LIABILITIES 16 198 289
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 242,515 201,190
----------------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 31,216 26,077
----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' FUNDS
----------------------------------------------------------------------------------------------------------------------------------
Share capital 29 86,702 86,702
------------------------------------------------------------------------------------------------------------------------------
Capital reserve 30 37,121 36,852
------------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public welfare fund of
RMB 9,558 million (2003: RMB 6,330 million)) 31 26,116 19,660
------------------------------------------------------------------------------------------------------------------------------
Unrecognised investment losses (713) (243)
------------------------------------------------------------------------------------------------------------------------------
Undistributed profits (Including dividend declared after the balance sheet date
in respect of year 2004 of RMB 6,936 million (2003: RMB 5,202 million)) 39 37,124 19,975
------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' FUNDS 186,350 162,946
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' FUNDS 460,081 390,213
==================================================================================================================================
Approved by the Board of Directors on 25 March 2005.
CHEN TONGHAI WANG JIMING ZHANG JIAREN LIU YUN
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
78
BALANCE SHEET
at 31 December 2004
Note 2004 2003
RMB millions RMB millions
ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Cash at bank and in hand 4 6,299 6,581
------------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 1,597 1,282
------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 8,245 7,080
------------------------------------------------------------------------------------------------------------------------------
Other receivables 7 19,625 24,861
------------------------------------------------------------------------------------------------------------------------------
Advance payments 8 4,358 2,990
------------------------------------------------------------------------------------------------------------------------------
Inventories 9 33,951 22,793
------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 74,075 65,587
...................................................................................................................................
LONG-TERM EQUITY INVESTMENTS (INCLUDING EQUITY INVESTMENT DIFFERENCES OF
RMB 400 MILLION (2003: RMB 395 MILLION)) 10 124,211 98,334
...................................................................................................................................
FIXED ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 271,120 223,015
------------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 113,572 94,138
------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets before impairment losses 11 157,548 128,877
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 4,038 764
------------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 153,510 128,113
------------------------------------------------------------------------------------------------------------------------------
Construction materials 12 93 263
------------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 28,779 19,858
------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED ASSETS 182,382 148,234
...................................................................................................................................
INTANGIBLE ASSETS AND OTHER ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 4,261 3,712
------------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 15 2,530
------------------------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS AND OTHER ASSETS 6,791 3,712
-----------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS 16 3,708 1,510
...................................................................................................................................
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 391,167 317,377
-----------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
-----------------------------------------------------------------------------------------------------------------------------------
Short-term loans 17 16,254 9,787
------------------------------------------------------------------------------------------------------------------------------
Bills payable 18 21,589 18,006
------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 19 21,137 18,117
------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 20 6,106 4,077
------------------------------------------------------------------------------------------------------------------------------
Wages payable 1,854 643
------------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 498 583
------------------------------------------------------------------------------------------------------------------------------
Taxes payable 21 3,170 2,975
------------------------------------------------------------------------------------------------------------------------------
Other payables 22 442 380
------------------------------------------------------------------------------------------------------------------------------
Other creditors 23 34,156 26,102
------------------------------------------------------------------------------------------------------------------------------
Accrued expenses 24 430 133
------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term liabilities 25 11,506 4,428
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 117,142 85,231
...................................................................................................................................
LONG-TERM LIABILITIES
-----------------------------------------------------------------------------------------------------------------------------------
Long-term loans 26 82,332 68,723
------------------------------------------------------------------------------------------------------------------------------
Debentures payable 27 3,500
------------------------------------------------------------------------------------------------------------------------------
Other long-term payables 28 438 461
------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 86,270 69,184
-----------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES 16 16 16
...................................................................................................................................
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 203,428 154,431
-----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' FUNDS
-----------------------------------------------------------------------------------------------------------------------------------
Share capital 29 86,702 86,702
------------------------------------------------------------------------------------------------------------------------------
Capital reserve 30 37,797 36,852
------------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public welfare fund of
RMB 9,558 million (2003: RMB 6,330 million)) 31 26,116 19,660
------------------------------------------------------------------------------------------------------------------------------
Undistributed profits (Including dividend declared after the
balance sheet date in respect of year 2004 of RMB 6,936
million (2003: RMB 5,202 million)) 39 37,124 19,732
------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' FUNDS 187,739 162,946
...................................................................................................................................
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' FUNDS 391,167 317,377
-----------------------------------------------------------------------------------------------------------------------------------
Approved by the Board of Directors on 25 March 2005.
CHEN TONGHAI WANG JIMING ZHANG JIAREN LIU YUN
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
79
CONSOLIDATED INCOME STATEMENT AND PROFIT APPROPRIATION STATEMENT
for the year ended 31 December 2004
Note 2004 2003
RMB MILLIONS RMB millions
Income from principal operations 32 590,632 417,191
-----------------------------------------------------------------------------------------------------------------------------------
Less: Cost of sales 459,207 323,104
-----------------------------------------------------------------------------------------------------------------------------------
Sales taxes and surcharges 33 16,203 13,371
----------------------------------------------------------------------------------------------------------------------------
PROFIT FROM PRINCIPAL OPERATIONS 115,222 80,716
-----------------------------------------------------------------------------------------------------------------------------------
Add: Profit from other operations 1,102 856
-----------------------------------------------------------------------------------------------------------------------------------
Less: Selling expenses 19,477 14,582
-----------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 23,167 21,219
----------------------------------------------------------------------------------------------------------------------------
Financial expenses 34 4,331 4,129
----------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 35 6,396 6,133
----------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 62,953 35,509
-----------------------------------------------------------------------------------------------------------------------------------
Add: Investment income 36 1,088 548
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating income 665 292
------------------------------------------------------------------------------------------------------------------------------
Less: Non-operating expenses 37 11,171 6,334
-----------------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE TAXATION 53,535 30,015
-----------------------------------------------------------------------------------------------------------------------------------
Less: Taxation 38 16,060 9,361
-----------------------------------------------------------------------------------------------------------------------------------
Minority interests 5,670 1,886
-----------------------------------------------------------------------------------------------------------------------------
Add: Unrecognised investment losses 470 243
-----------------------------------------------------------------------------------------------------------------------------------
NET PROFIT 32,275 19,011
-----------------------------------------------------------------------------------------------------------------------------------
Add: Undistributed profits at the beginning of the year 19,975 12,569
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTABLE PROFITS 52,250 31,580
-----------------------------------------------------------------------------------------------------------------------------------
Less: Transfer to statutory surplus reserve 31 3,228 1,901
-----------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 31 3,228 1,901
-----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTABLE PROFITS TO SHAREHOLDERS 45,794 27,778
-----------------------------------------------------------------------------------------------------------------------------------
Less: Ordinary shares' final dividend 39 5,202 5,202
-----------------------------------------------------------------------------------------------------------------------------------
Ordinary shares' interim dividend 3,468 2,601
------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED PROFITS AT THE END OF THE YEAR (INCLUDING DIVIDEND
DECLARED AFTER THE BALANCE SHEET DATE IN RESPECT OF YEAR 2004
OF RMB 6,936 MILLION (2003: RMB 5,202 MILLION)) 39 37,124 19,975
-----------------------------------------------------------------------------------------------------------------------------------
Approved by the Board of Directors on 25 March 2005.
CHEN TONGHAI WANG JIMING ZHANG JIAREN LIU YUN
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
80
INCOME STATEMENT AND PROFIT APPROPRIATION STATEMENT
for the year ended 31 December 2004
Note 2004 2003
RMB millions RMB millions
Income from principal operations 32 397,789 275,426
-----------------------------------------------------------------------------------------------------------------------------------
Less: Cost of sales 336,089 228,387
-----------------------------------------------------------------------------------------------------------------------------------
Sales taxes and surcharges 33 10,094 8,413
----------------------------------------------------------------------------------------------------------------------------
PROFIT FROM PRINCIPAL OPERATIONS 51,606 38,626
-----------------------------------------------------------------------------------------------------------------------------------
Add: Profit from other operations 108 146
-----------------------------------------------------------------------------------------------------------------------------------
Less: Selling expenses 13,055 9,591
-----------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 15,523 14,038
-----------------------------------------------------------------------------------------------------------------------------------
Financial expenses 34 2,770 2,337
-----------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 35 4,951 4,483
-----------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 15,415 8,323
-----------------------------------------------------------------------------------------------------------------------------------
Add: Investment income 36 39,374 22,844
-----------------------------------------------------------------------------------------------------------------------------------
Non-operating income 377 104
-----------------------------------------------------------------------------------------------------------------------------------
Less: Non-operating expenses 37 7,879 3,599
-----------------------------------------------------------------------------------------------------------------------------------
PROFIT BEFORE TAXATION 47,287 27,672
-----------------------------------------------------------------------------------------------------------------------------------
Less: Taxation 38 14,769 8,904
-----------------------------------------------------------------------------------------------------------------------------------
NET PROFIT 32,518 18,768
-----------------------------------------------------------------------------------------------------------------------------------
Add: Undistributed profits at the beginning of the year 19,732 12,569
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTABLE PROFITS 52,250 31,337
-----------------------------------------------------------------------------------------------------------------------------------
Less: Transfer to statutory surplus reserve 31 3,228 1,901
-----------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 31 3,228 1,901
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTABLE PROFITS TO SHAREHOLDERS 45,794 27,535
-----------------------------------------------------------------------------------------------------------------------------------
Less: Ordinary shares' final dividend 39 5,202 5,202
-----------------------------------------------------------------------------------------------------------------------------------
Ordinary shares' interim dividend 3,468 2,601
-----------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED PROFITS AT THE END OF THE YEAR (INCLUDING
DIVIDEND DECLARED AFTER THE BALANCE SHEET DATE IN
RESPECT OF YEAR 2004 OF RMB 6,936 MILLION (2003:
RMB 5,202 MILLION)) 39 37,124 19,732
-----------------------------------------------------------------------------------------------------------------------------------
Approved by the Board of Directors on 25 March 2005.
CHEN TONGHAI WANG JIMING ZHANG JIAREN LIU YUN
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
81
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2004
Note 2004 2003
RMB MILLIONS RMB millions
CASH FLOWS FROM OPERATING ACTIVITIES
-----------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 712,682 505,489
-------------------------------------------------------------------------------------------------------------------------
Rentals received 368 370
-------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 3,640 2,925
-------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 716,690 508,784
-------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (549,408) (371,086)
-------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (6,871) (4,224)
-------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (16,304) (15,964)
-------------------------------------------------------------------------------------------------------------------------
Value added tax paid (25,961) (19,429)
-------------------------------------------------------------------------------------------------------------------------
Income tax paid (16,858) (9,486)
-------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (16,045) (12,904)
-------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (15,104) (11,243)
-------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (646,551) (444,336)
=========================================================================================================================
NET CASH FLOWS FROM OPERATING ACTIVITIES (a) 70,139 64,448
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
-----------------------------------------------------------------------------------------------------------------------------
Cash received from sale of investments 186 107
-------------------------------------------------------------------------------------------------------------------------
Dividends received 322 442
-------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 315 380
-------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 2,217 1,700
-------------------------------------------------------------------------------------------------------------------------
Other cash received relating to investing activities 359 300
-------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 3,399 2,929
-------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets (66,693) (43,966)
-------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets of
jointly controlled entities (6,035) (4,107)
-------------------------------------------------------------------------------------------------------------------------
Cash paid for purchases of investments (1,225) (1,545)
-------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (1,932) (2,871)
-------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of Sinopec Maoming, Xi'an Petrochemical
and Tahe Petrochemical (3,652) --
-------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (79,537) (52,489)
=========================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (76,138) (49,560)
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
-----------------------------------------------------------------------------------------------------------------------------
Proceeds from contribution from minority shareholders 1,008 580
-------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of corporate bonds,net of issuing expenses 3,472
-------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings 391,832 228,654
-------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings of jointly controlled entities 3,014 1,450
-------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 399,326 230,684
-------------------------------------------------------------------------------------------------------------------------
Repayments of borrowings (377,855) (235,175)
-------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, distribution of profit or interest (13,538) (12,520)
-------------------------------------------------------------------------------------------------------------------------
Dividends paid to minority shareholders by subsidiaries (775) (360)
-------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (392,168) (248,055)
-------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 7,158 (17,371)
-----------------------------------------------------------------------------------------------------------------------------
EFFECTS OF FOREIGN EXCHANGE RATE 1 5
-----------------------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (c) 1,160 (2,478)
=============================================================================================================================
82
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2004
2004 2003
RMB MILLIONS RMB millions
(a) RECONCILIATION OF NET PROFIT TO CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------------------------------------------------------------------------------------------------
Net profit 32,275 19,011
------------------------------------------------------------------------------------------------------------------------------
Add:Allowance for doubtful accounts 2,050 1,902
------------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 433 114
----------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 30,766 27,151
----------------------------------------------------------------------------------------------------------------------
Amortisation of intangible assets 476 520
----------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 4,628 940
----------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 88 115
----------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 3,989 3,291
----------------------------------------------------------------------------------------------------------------------
Financial expenses 4,331 4,129
----------------------------------------------------------------------------------------------------------------------
Dry hole costs 2,976 2,789
----------------------------------------------------------------------------------------------------------------------
Investment income (843) (515)
----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities (less: assets) (2,439) (1,580)
----------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in inventories (16,927) 676
----------------------------------------------------------------------------------------------------------------------
Increase in operating receivables (4,245) (866)
----------------------------------------------------------------------------------------------------------------------
Increase in operating payables 6,911 4,885
----------------------------------------------------------------------------------------------------------------------
Minority interests 5,670 1,886
----------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 70,139 64,448
==============================================================================================================================
(b) FINANCING ACTIVITIES NOT REQUIRING THE USE OF CASH
------------------------------------------------------------------------------------------------------------------------------
Current portion of convertible bonds -- 1,500
------------------------------------------------------------------------------------------------------------------------------
(c) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 16,381 15,221
------------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the year 15,221 17,699
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,160 (2,478)
==============================================================================================================================
Approved by the Board of Directors on 25 March 2005.
CHEN TONGHAI WANG JIMING ZHANG JIAREN LIU YUN
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
83
CASH FLOW STATEMENT
for the year ended 31 December 2004
Note 2004 2003
RMB MILLIONS RMB millions
CASH FLOWS FROM OPERATING ACTIVITIES
---------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 474,149 335,409
-----------------------------------------------------------------------------------------------------------------------------
Rentals received 201 207
-----------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 2,760 1,789
-----------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 477,110 337,405
-----------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (382,856) (258,814)
-----------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (5,391) (2,785)
-----------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (8,539) (7,595)
-----------------------------------------------------------------------------------------------------------------------------
Value added tax paid (13,460) (11,678)
-----------------------------------------------------------------------------------------------------------------------------
Income tax paid (4,474) (2,009)
-----------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (10,319) (8,047)
-----------------------------------------------------------------------------------------------------------------------------
Repayments of borrowings on behalf of a subsidiary -- (962)
-----------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (17,851) (18,582)
-----------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (442,890) (310,472)
=============================================================================================================================
NET CASH FLOWS FROM OPERATING ACTIVITIES (a) 34,220 26,933
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
-----------------------------------------------------------------------------------------------------------------------------
Cash received from sale of investments 62 111
-----------------------------------------------------------------------------------------------------------------------------
Dividends received 6,379 9,067
-----------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 178 184
-----------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 60 434
-----------------------------------------------------------------------------------------------------------------------------
Other cash received relating to investing activities 144 125
-----------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 7,368 9,921
-----------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets (41,477) (25,151)
-----------------------------------------------------------------------------------------------------------------------------
Cash paid for purchases of investments (3,156) (1,121)
-----------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (617) (449)
-----------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of Sinopec Maoming, Xi'an Petrochemical
and Tahe Petrochemical (3,652) --
-----------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (48,902) (26,721)
=============================================================================================================================
NET CASH FLOWS FROM INVESTING ACTIVITIES (41,534) (16,800)
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
---------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of corporate bonds, net of issuing expenses 3,472 --
-----------------------------------------------------------------------------------------------------------------------------
Proceeds from borrowings 255,218 142,118
-----------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH INFLOWS 258,690 142,118
-----------------------------------------------------------------------------------------------------------------------------
Repayments of borrowings (239,933) (143,893)
-----------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, distribution of profit or interest (11,737) (10,220)
-----------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL OF CASH OUTFLOWS (251,670) (154,113)
=============================================================================================================================
NET CASH FLOWS FROM FINANCING ACTIVITIES 7,020 (11,995)
---------------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (b) (294) (1,862)
=================================================================================================================================
84
NOTES TO THE CASH FLOW STATEMENT
for the year ended 31 December 2004
2004 2003
RMB millions RMB millions
(a) RECONCILIATION OF NET PROFIT TO CASH FLOWS FROM OPERATING ACTIVITIES
----------------------------------------------------------------------------------------------------------------------------
Net profit 32,518 18,768
------------------------------------------------------------------------------------------------------------------------
Add:Allowance for doubtful accounts 2,159 1,956
------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 190 30
--------------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 13,349 11,734
-------------------------------------------------------------------------------------------------------------------------
Amortisation of intangible assets 346 442
-------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 3,417 373
-------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 21
-------------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 2,555 1,866
-------------------------------------------------------------------------------------------------------------------------
Financial expenses 2,770 2,337
-------------------------------------------------------------------------------------------------------------------------
Dry hole costs 2,184 1,780
-------------------------------------------------------------------------------------------------------------------------
Investment income (27,948) (15,211)
-------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities (less: assets) (2,198) (1,443)
-------------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in inventories (6,523) 2,700
-------------------------------------------------------------------------------------------------------------------------
Increase in operating receivables (756) (862)
-------------------------------------------------------------------------------------------------------------------------
Increase in operating payables 12,157 2,442
-------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 34,220 26,933
=============================================================================================================================
(b) NET DECREASE IN CASH AND CASH EQUIVALENTS
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 6,051 6,345
-----------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the year 6,345 8,207
-----------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (294) (1,862)
=============================================================================================================================
Approved by the Board of Directors on 25 March 2005.
CHEN TONGHAI WANG JIMING ZHANG JIAREN LIU YUN
Chairman Vice Chairman Director, Senior Vice President Head of Accounting
(Authorised representative) and President and Chief Financial Officer Division
85
NOTES ON THE FINANCIAL STATEMENTS
for the year ended 31 December 2004
1 STATUS OF THE COMPANY
China Petroleum & Chemical Corporation (the "Company") was established on
25 February 2000 as a joint stock limited company.
According to the State Council's approval to the "Preliminary Plan for the
Reorganisation of China Petrochemical Corporation" ( the "Reorganisation"),
the Company was established by China Petrochemical Corporation ("Sinopec
Group Company"), which transferred its core businesses together with the
related assets and liabilities at 30 September 1999 to the Company. Such
assets and liabilities had been valued jointly by China United Assets
Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets
Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation ("registered valuers"). The net asset value was determined at
RMB 98,249,084,000. The valuation was reviewed and approved by the Ministry
of Finance (the "MOF") (Cai Ping Zi [2000] No. 20 "Comments on the Review
of the Valuation Regarding the Formation of a Joint Stock Limited Company
by China Petrochemical Corporation").
In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 "Reply to the
Issue Regarding Management of State-Owned Equity by China Petroleum and
Chemical Corporation" issued by the MOF, 68.8 billion domestic state-owned
shares with a par value of RMB 1.00 each were issued to Sinopec Group
Company, the amount of which is equivalent to 70% of the above net asset
value transferred from Sinopec Group Company to the Company in connection
with the Reorganisation.
Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 "Reply on the
Formation of China Petroleum and Chemical Corporation", the Company
obtained the approval from the State Economic and Trade Commission on 21
February 2000 for the formation of a joint stock limited company.
The Company took over the exploration, development and production of crude
oil and natural gas, refining, chemicals and related sales and marketing
business of Sinopec Group Company after the establishment of the Company.
Pursuant to the resolution passed at the Extraordinary General Meeting held
on 24 August 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from
Sinopec Group Company for a consideration of RMB 6.45 billion.
Pursuant to the resolution passed at the Board of Directors' meeting held
on 28 October 2003, the Company acquired the principal assets and
liabilities related to the 380 Kiloton ethylene production and distribution
equipments from Sinopec Group Maoming Petrochemical Company ("Sinopec
Maoming"), for a consideration of RMB 3.3 billion (hereinafter referred to
as the "Acquisition of Ethylene Assets").
Pursuant to the resolution passed at the Board of Directors' meeting held
on 29 December 2003, the Company acquired all operating assets and
liabilities of two wholly owned subsidiaries of Sinopec Group Company,
being Tahe Oilfield Petrochemical Factory ("Tahe Petrochemical") and Xi'an
Petrochemical Main Factory ("Xi'an Petrochemical"), from Sinopec Group
Company, for considerations of RMB 0.14 billion and RMB 0.22 billion,
respectively (hereinafter referred to as the "Acquisition of Refining
Assets").
Pursuant to the resolutions passed at the Extraordinary General Meeting
held on 21 December 2004, the Company acquired certain operating assets and
the related liabilities of certain refining, petrochemicals, catalysts and
gas stations businesses (the "Acquisition of Acquired Assets") from Sinopec
Group Company for considerations totalling RMB 5.360 billion. In connection
with these acquisitions, the Group disposed of certain assets and
liabilities of its oilfield downhole operation (the "Disposal of Downhole
Assets") to Sinopec Group Company for a consideration of RMB 1.712 billion,
resulting in a net consideration of RMB 3.648 billion payable to Sinopec
Group Company.
2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Group are in conformity
with the Accounting Standards for Business Enterprises and "Accounting
Regulations for Business Enterprises" and other relevant regulations issued
by the MOF of the PRC.
(a)Accounting year
The accounting year of the Group is from 1 January to 31 December.
(b)Basis of consolidation
The Group prepared the consolidated financial statements according to
"Accounting Regulations for Business Enterprises" and Cai Kuai Zi [1995]
No.11 "Provisional regulations on consolidated financial statements"
issued by the MOF.
The consolidated financial statements include the financial statements
of the Company and all of its principal subsidiaries. A subsidiary is a
company held by the Company directly or indirectly, more than 50%
(excluding 50%) of the equity interest, or the Company holds less than
50% of the equity interest of a company but has effective controlling
power. The consolidated income statement of the Company only includes
the results of the subsidiaries during the period when the Company holds
more than 50% of the equity interests or holds less than 50% of equity
interest but exercises effective control. The effect of minority
interests on equity and profit/loss attributable to minority
shareholders are separately shown in the consolidated financial
statements. For those subsidiaries whose assets and results of operation
are not significant and have no significant effect on the Group's
consolidated financial statements, the Company does not consolidate
these subsidiaries, but accounts for under the equity method in the
long-term equity investments.
Where the accounting policies adopted by the subsidiaries are different
from the policies adopted by the Company, the financial statements of
the subsidiaries have been adjusted in accordance with the accounting
policies adopted by the Company on consolidation. All significant
inter-company balances and transactions, and any unrealised gains
arising from inter-company transactions, have been eliminated on
consolidation.
For those jointly controlled entities which the Company has joint
control with other investors under contractual arrangement, the Company
consolidates their assets, liabilities, revenues, costs and expenses
based on the proportionate consolidation method according to its
percentage of holding of equity interest in those entities in the
consolidated financial statements.
(c)Basis of preparation
The financial statements of the Group have been prepared on an accrual
basis under the historical costs convention, unless otherwise stated.
86
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d)Reporting currency and translation of foreign currencies
The Group's reporting currency is the Renminbi.
Foreign currency transactions during the year are translated into
Renminbi at exchange rates quoted by the People's Bank of China ("PBOC
rates") prevailing on the transaction dates. Foreign currency monetary
assets and liabilities are translated into Renminbi at the PBOC rates at
the balance sheet date. Exchange gains and losses on foreign currency
translation, except for those directly relating to the construction of
fixed assets (see note 2(i)), are dealt with in the income statement.
The results of overseas subsidiaries are translated into Renminbi at the
annual average PBOC rates. The balance sheet items are translated into
Renminbi at the PBOC rates at the balance sheet date. The resulting
exchange gains or losses are accounted for as foreign currency exchange
differences.
(e)Cash equivalents
Cash equivalents held by the Group are short-term and highly liquid
investments which are readily convertible into known amounts of cash and
are subject to an insignificant risk of change in value.
(f)Allowance for doubtful accounts
Trade accounts receivable showing signs of uncollectibility are
identified individually and allowance is then made based on the
probability of being uncollectible. In respect of trade accounts
receivable showing no sign of uncollectibility, allowance is made with
reference to the ageing analysis and management's estimation based on
past experience. Allowances for other receivables are determined based
on the nature and corresponding collectibility. Specific approval from
management is required for allowances made in respect of significant
doubtful accounts.
(g)Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realisable value.
The cost of inventories is calculated using the weighted average method.
In addition to the purchase cost of raw material, work in progress and
finished goods include direct labour and appropriate proportion of
production overheads.
Any excess of the cost over the net realisable value of each item of
inventories is recognised as a provision for diminution in the value of
inventories. Net realisable value is the estimated selling price in the
normal course of business less the estimated costs to completion and the
estimated expenses and related taxes necessary to make the sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence. Consumables are expensed when being consumed.
Inventories are recorded by perpetual method.
(h)Long-term equity investments
Where the Group has the power to control, jointly control or exercise
significant influence over an investee enterprise, the investment is
accounted for under the equity method whereby the investment is
initially recorded at cost and adjusted thereafter for any post
acquisition change in the Group's share of the shareholders' funds in
the investee enterprise.
Equity investment difference, which is the difference between the
initial investment cost and the Group's share of shareholders' funds of
the investee enterprise, is accounted for as follows:
Any excess of the initial investment cost over the share of
shareholders' funds of the investee enterprise is amortised on a
straight-line basis. The amortisation period is determined according to
the investment period as stipulated in the relevant agreement, or 10
years if the investment period is not specified in the agreement. The
unamortised balance is included in long-term equity investments at the
period end.
Any shortfall of the initial investment cost over the share of
shareholders' funds of the investee is recognised in capital reserve -
reserve for equity investment acquired after the issuance of Cai Kuai
[2003] No.10 "Questions and answers on implementing Accounting
Regulations for Business Enterprises and related accounting standards
(II)". If the investment was acquired before the issuance of Cai Kuai
[2003] No.10 "Questions and answers on implementing Accounting
Regulations for Business Enterprises and related accounting standards
(II)", such shortfall is amortised on a straight-line basis over the
investment period as stipulated in the relevant agreement, or 10 years
if the investment period is not specified in the agreement. The
unamortised balance is included in long-term equity investments at the
period end.
Where the Group does not control, jointly control or exercise
significant influence over an investee enterprise, the investment is
accounted for under the cost method, stating it at the initial
investment cost. Investment income is recognised when the investee
enterprise declares a cash dividend or distributes profits.
Disposals or transfers of long-term equity investments are recognised in
investment income/losses based on the difference between the disposal
proceeds and the carrying amount of the investments.
The Group makes provision for impairment losses on long-term equity
investments (see note 2(w)).
87
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i)Fixed assets and construction in progress
Fixed assets represent the assets held by the Group for production of
products and administrative purpose with useful life over 1 year and
comparatively high unit value.
Fixed assets are stated in the balance sheet at cost or revalued amount
less accumulated depreciation and impairment losses (see note 2(w)).
Construction in progress is stated in the balance sheet at cost or
revalued amount less impairment losses (see note 2(w)). The revalued
amount represents the value of an asset which has been adjusted based on
revaluation carried out in accordance with the relevant rules and
regulations.
All direct and indirect costs related to the purchase or construction of
fixed assets, incurred before the assets are ready for their intended
uses, are capitalised as construction in progress. Those costs include
borrowing costs (including foreign exchange differences arising from the
loan principal and the related interest) on specific borrowings for the
construction of the fixed assets during the construction period.
Construction in progress is transferred to fixed assets when the asset
is ready for its intended use. No depreciation is provided against
construction in progress.
Fixed assets of the Group are depreciated using the straight-line method
over their estimated useful lives. The estimated useful lives and the
estimated rate of residual values adopted for respective classes of
fixed assets are as follows:
Estimated Estimated rate of
useful lives residual value
Land and buildings 15-45 years 3%-5%
-----------------------------------------------------------------------------
Oil and gas properties 10-14 years 0%-3%
-----------------------------------------------------------------------------
Plant, machinery, equipment and vehicles 4-18 years 3%
-----------------------------------------------------------------------------
Oil depots and storage tanks 8-14 years 3%
-----------------------------------------------------------------------------
Service stations 25 years 3%-5%
-----------------------------------------------------------------------------
(j)Oil and gas properties
Costs of development wells and the related support equipment are
capitalised. The cost of exploratory wells is initially capitalised as
construction in progress pending determination of whether the well has
found proved reserves. Exploratory well costs are charged to expenses
upon the determination that the well has not found proved reserves.
However, in the absence of a determination of the discovery of proved
reserves, exploratory well costs are not carried as an asset for more
than one year following completion of drilling. If, after one year has
passed, a determination of the discovery of proved reserves cannot be
made, the exploratory well costs are charged to expense. All other
exploration costs, including geological and geophysical costs, are
expensed as incurred.
(k)Intangible assets
Intangible assets are carried in the balance sheet at cost or valuation
less accumulated amortisation and provision for impairment losses (see
note 2(w)). Amortisation is provided on a straight-line basis. The
amortisation period is the shorter of the beneficial period as specified
in the related agreement and the legal life of the intangible asset.
Amortisation is provided over 10 years if it is not specified in
agreements or stipulated by law.
Intangible assets include exploration and production right. Exploration
and production right are amortised on a straight-line basis over the
average period of the production rights of the related oil fields.
(l)Pre-operating expenditures
Except for the acquisition and constructions of fixed assets, all
expenses incurred during the start-up period are recorded in long-term
deferred expenses and charged to the income statement in the month when
business operation commences.
(m)Debentures payable
Debentures payable is stated in the balance sheet at issued price.
Interest expense is calculated based on stipulated interest rate.
(n)Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum
and chemical products and all other items are recorded when the customer
accepts the goods and the significant risks and rewards of ownership and
title have been transferred to the buyer. No revenue is recognised if
there are significant uncertainties regarding recovery of the
consideration due, the possible return of goods, or when the amount of
revenue and the costs incurred or to be incurred in respect of the
transaction cannot be measured reliably.
Revenue from the rendering of services only involving in one accounting
year is recognised in the income statement upon performance of services.
If a transaction lasts more than one accounting year, when the outcome
of the transaction involving the rendering of services can be estimated
reliably, revenue from the rendering of services is recognised in the
income statement in proportion to the stage of completion of the
transaction based on the progress of work performed; or when the outcome
of the transaction involving the rendering of services cannot be
estimated reliably, revenue is recognised only to the extent that costs
incurred which are expected to be recoverable.
Interest income is recognised on a time proportion basis according to
the outstanding principal and the applicable interest rate.
88
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(o)Income tax
Income tax is recognised using the tax effect accounting method. Income
tax for the year comprises provision for current tax and movement of
deferred tax assets and liabilities.
Current tax for the year is calculated on taxable income by applying the
applicable tax rates.
Deferred tax is provided using the liability method for timing
differences between accounting profit before tax and taxable income
arising from the differences in the tax and accounting treatment of
income, expense or loss item.
The tax value of losses expected to be available for utilisation against
future taxable income is set off against the deferred tax liability
within the same legal tax unit and jurisdiction. A valuation allowance
is provided for the tax value of losses to reduce the deferred tax asset
to the amount that is more likely than not to be realised through future
taxable income.
(p)Borrowing costs
Borrowing costs on specific borrowings for the construction of fixed
assets are capitalised into the cost of the fixed assets during the
construction period until the fixed assets are ready for their intended
uses.
Except for the above, other borrowing costs are recognised as financial
expenses in the income statement when incurred.
(q)Repairs and maintenance expenses
Repairs and maintenance expenses, including cost of major overhaul, are
recognised in the income statement when incurred.
(r)Environmental expenditures
Environmental expenditures that relate to current ongoing operations or
to conditions caused by past operations are recognised in the income
statement when incurred.
(s)Research and development costs
Research and development costs are recognised in the income statement
when incurred.
(t)Operating leases
Operating lease payments are charged to the income statement on a
straight-line basis over the period of the respective leases.
(u)Dividends
Dividends are recognised in the income statement and profit
appropriation statement when they are declared. Dividends proposed or
approved after the balance sheet date but before the date on which the
financial statements are authorised for issue are separately disclosed
under shareholders' funds in the balance sheet.
(v)Retirement benefits
Pursuant to the relevant laws and regulations in the PRC, the Group has
joined defined contribution retirement plans for the employees organised
by governmental organisations. The Group makes contributions to the
retirement plans at the applicable rates based on the employees'
salaries. The contributions payable under the retirement plans are
charged to the income statement when incurred.
(w)Provision for impairment
The carrying amounts of assets (including long-term equity investments,
fixed assets, construction in progress, intangible assets and other
assets) are reviewed periodically in order to assess whether the
recoverable amounts have declined below the carrying amounts. Assets are
tested for impairment whenever events or changes in circumstances
indicate that their recorded carrying amounts may not be recoverable.
When such a decline has occurred, the carrying amount is reduced to the
recoverable amount. The amount by which the carrying amount is reduced
is the impairment loss.
The recoverable amount is the greater of the net selling price and the
present value of the estimated future cash flows generated by the
continuous use of the asset and the proceed from the disposal of the
asset at the end of its useful life.
Provision for impairment loss is calculated on an item by item basis and
recognised as an expense in the income statement. However, when a
difference between the initial investment cost and the Group's share of
the shareholders' funds of the investee enterprise has been credited to
the capital reserve, any impairment loss for long-term equity investment
is firstly set off against the difference initially recognised in the
capital reserve in connection with the related investment and any excess
impairment loss is then recognised in the income statement.
If there is an indication that there has been a change in the estimates
used to determine the recoverable amount and as a result the estimated
recoverable amount is greater than the carrying amount of the asset, the
impairment loss recognised in prior years is reversed. Reversal of
impairment loss is recognised in current period's income statement.
Impairment loss is reversed to the extent of the asset's carrying amount
that would has been determined had no impairment loss been recognised in
prior years. In respect of the reversal of an impairment loss for a
long-term equity investment, the reversal starts with the impairment
loss that had previously been recognised in the income statement and
then the impairment loss that had been charged to capital reserve.
89
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(x)Related parties
If the Group has the ability, directly or indirectly, to control,
jointly control or exercise significant influence over another party, or
vice versa, or where the Group and one or more parties are subject to
common control from another party, they are considered to be related
parties. Related parties may be individuals or enterprises.
(y)Provisions and contingent liabilities
A provision is recognised when the Group has an obligation as a result
of a past event, and it is probable that an outflow of economic benefits
will be required to settle the obligations and a reliable estimate can
be made.
Where it is not probable that the settlement of the above obligation
will cause an outflow of economic benefits, or the amount of the outflow
cannot be estimated reliably, the obligation is disclosed as a
contingent liability.
3 TAXATION
Major taxes applicable to the Group and the Company comprise income tax,
consumption tax, resources tax and value added tax.
Income tax rate is 33% and that of certain subsidiaries is 15%.
Consumption tax is levied on gasoline and diesel at a rate of RMB 277.6 per
tonne and RMB 117.6 per tonne respectively.
Resources tax is levied on crude oil and natural gas at rates ranging from
RMB 8 per tonne to RMB 30 per tonne and RMB 2 to RMB 15 per 1000 cubic
metre respectively.
Value added tax rate for liquefied petroleum gas, natural gas and certain
agricultural products is 13% and that for other products is 17%.
The subsidiaries and branches granted with tax concession are set out below:
Name of subsidiaries Preferential tax rate Reasons for granting concession
Sinopec Shanghai Petrochemical Company Limited 15% The first batch of joint stock enterprise
which successfully got listed overseas
------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre Company Limited 15% The first batch of joint stock enterprise
which successfully got listed overseas
------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 15% High technology enterprise
------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum Company Limited 15% High technology enterprise
------------------------------------------------------------------------------------------------------------------------------
Petro-CyberWorks Information Technology Company Limited 15% High technology enterprise
------------------------------------------------------------------------------------------------------------------------------
Sinopec National Star Xinan Branch 15% Tax preferential policy in the western
part of China
------------------------------------------------------------------------------------------------------------------------------
Sinopec National Star Xibei Branch 15% Tax preferential policy in the western
part of China
------------------------------------------------------------------------------------------------------------------------------
Sinopec Southern Exploration Branch 15% Tax preferential policy in the western
part of China
------------------------------------------------------------------------------------------------------------------------------
4 CASH AT BANK AND IN HAND
The Group
2004 2003
ORIGINAL Original
CURRENCY EXCHANGE RMB currency Exchange RMB
MILLIONS RATES MILLIONS millions rates millions
Cash in hand
------------------------------------------------------------------------------------------------------------------------------
Renminbi 115 101
---------------------------------------------------------------------------------------------------------------------------
Cash at bank
------------------------------------------------------------------------------------------------------------------------------
Renminbi 12,621 11,959
---------------------------------------------------------------------------------------------------------------------------
US Dollars 96 8.2765 795 118 8.2767 973
---------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollars 47 1.0637 50 70 1.0657 75
---------------------------------------------------------------------------------------------------------------------------
Japanese Yen 220 0.0797 18 207 0.0773 16
---------------------------------------------------------------------------------------------------------------------------
Euro 1 11.2627 10 2 10.3380 17
---------------------------------------------------------------------------------------------------------------------------
13,609 13,141
------------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
------------------------------------------------------------------------------------------------------------------------------
Renminbi 4,657 4,210
---------------------------------------------------------------------------------------------------------------------------
US Dollars 2 8.2765 14 7 8.2767 54
---------------------------------------------------------------------------------------------------------------------------
TOTAL CASH AT BANK AND IN HAND 18,280 17,405
==============================================================================================================================s
90
4 CASH AT BANK AND IN HAND (Continued)
The Company
2004 2003
ORIGINAL Original
CURRENCY EXCHANGE RMB currency Exchange RMB
MILLIONS RATES MILLIONS millions rates millions
Cash in hand
----------------------------------------------------------------------------------------------------------------------------
Renminbi 107 64
-------------------------------------------------------------------------------------------------------------------------
Cash at bank
----------------------------------------------------------------------------------------------------------------------------
Renminbi 4,892 4,752
-------------------------------------------------------------------------------------------------------------------------
US Dollars 1 8.2765 6 6 8.2767 53
-------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollars 26 1.0657 28
-------------------------------------------------------------------------------------------------------------------------
Japanese Yen 7 0.0773 1
-------------------------------------------------------------------------------------------------------------------------
5,005 4,898
----------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
-------------------------------------------------------------------------------------------------------------------------
Renminbi 1,280 1,629
-------------------------------------------------------------------------------------------------------------------------
US Dollars 2 8.2765 14 7 8.2767 54
-------------------------------------------------------------------------------------------------------------------------
TOTAL CASH AT BANK AND IN HAND 6,299 6,581
============================================================================================================================
Deposits at related parties represent deposits placed at Sinopec Finance
Company Limited. Interest income is calculated at market rate.
5 BILLS RECEIVABLE
Bills receivable represents mainly the bills of acceptance issued by banks
for sales of goods and products.
6 TRADE ACCOUNTS RECEIVABLE
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Subsidiaries 5,026 2,920
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and its fellow subsidiaries 2,349 3,044 858 1,623
-----------------------------------------------------------------------------------------------------------------------------
Associates 89 81 19 23
-----------------------------------------------------------------------------------------------------------------------------
Others 10,989 9,344 5,179 4,813
-----------------------------------------------------------------------------------------------------------------------------
13,427 12,469 11,082 9,379
-----------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,671 3,185 2,837 2,299
-----------------------------------------------------------------------------------------------------------------------------
TOTAL 9,756 9,284 8,245 7,080
=============================================================================================================================
Allowance for doubtful accounts are analysed as follows:
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Balance at 1 January 3,185 2,666 2,299 1,867
-----------------------------------------------------------------------------------------------------------------------------
Provision for the year 931 910 708 763
-----------------------------------------------------------------------------------------------------------------------------
Written back for the year (85) (46) (37) (20)
-----------------------------------------------------------------------------------------------------------------------------
Written off for the year (360) (345) (133) (311)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 3,671 3,185 2,837 2,299
=============================================================================================================================
91
6 TRADE ACCOUNTS RECEIVABLE (Continued)
Ageing analyses on trade accounts receivable are as follows:
The Group
2004 2003
AMOUNT ALLOWANCE Amount Allowance
RMB MILLIONS % RMB MILLIONS % RMB millions % RMB millions %
Within one year 9,546 71.1 390 4.1 8,229 66.0 64 0.8
--------------------------------------------------------------------------------------------------------------------------------
Between one and two years 308 2.3 83 26.9 770 6.2 309 40.1
--------------------------------------------------------------------------------------------------------------------------------
Between two and three years 527 3.9 361 68.5 497 4.0 246 49.5
--------------------------------------------------------------------------------------------------------------------------------
Over three years 3,046 22.7 2,837 93.1 2,973 23.8 2,566 86.3
--------------------------------------------------------------------------------------------------------------------------------
TOTAL 13,427 100.0 3,671 12,469 100.0 3,185
================================================================================================================================
The Company
2004 2003
AMOUNT ALLOWANCE Amount Allowance
RMB MILLIONS % RMB MILLIONS % RMB millions % RMB millions %
Within one year 8,103 73.1 275 3.4 6,466 68.9 15 0.2
-------------------------------------------------------------------------------------------------------------------------------
Between one and two years 193 1.8 66 34.2 373 4.0 157 42.1
-------------------------------------------------------------------------------------------------------------------------------
Between two and three years 334 3.0 251 75.1 350 3.7 180 51.4
-------------------------------------------------------------------------------------------------------------------------------
Over three years 2,452 22.1 2,245 91.6 2,190 23.4 1,947 88.9
-------------------------------------------------------------------------------------------------------------------------------
TOTAL 11,082 100.0 2,837 9,379 100.0 2,299
===============================================================================================================================
Major trade accounts receivable of the Group at 31 December 2004 are set out below:
Percentage of trade
Name of entity Balance accounts receivable
RMB millions %
Baling Petrochemical Yueyang Petrochemical Company 393 2.9
------------------------------------------------------------------------------------------------------------------------
Qingdao Petrochemical Plant 379 2.8
------------------------------------------------------------------------------------------------------------------------
Petrolimex Vietnam 311 2.3
------------------------------------------------------------------------------------------------------------------------
Phibro GmbH 294 2.2
------------------------------------------------------------------------------------------------------------------------
Maoming Petrochemical Shihua Company Limited 248 1.8
------------------------------------------------------------------------------------------------------------------------
Major trade accounts receivable of the Group at 31 December 2003 are set out below:
Percentage of trade
Name of entity Balance accounts receivable
RMB millions %
Hinchest (HK) Limited 256 2.1
------------------------------------------------------------------------------------------------------------------------
Trafigura Pte Limited 179 1.4
------------------------------------------------------------------------------------------------------------------------
Pertamina Divisi Perbendaharaa 145 1.2
------------------------------------------------------------------------------------------------------------------------
Jinan Petrochemical Plant 141 1.1
------------------------------------------------------------------------------------------------------------------------
COSMO Oil 124 1.0
------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 40, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of trade accounts receivable.
During the years ended 31 December 2004 and 2003, the Group and the Company
had no individually significant trade accounts receivable which had been
fully or substantially provided for.
During the years ended 31 December 2004 and 2003, the Group and the Company
had no individually significant write off or recover of doubtful debts
which had been fully or substantially provided for in prior years.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant trade accounts receivable that aged over three years.
92
7 OTHER RECEIVABLES
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Subsidiaries -- -- 11,004 12,434
----------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and its fellow subsidiaries 6,135 8,894 5,616 8,104
----------------------------------------------------------------------------------------------------------------------------
Associates 308 331 260 331
----------------------------------------------------------------------------------------------------------------------------
Others 9,515 8,580 6,168 5,959
----------------------------------------------------------------------------------------------------------------------------
15,958 17,805 23,048 26,828
----------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,496 2,348 3,423 1,967
----------------------------------------------------------------------------------------------------------------------------
TOTAL 12,462 15,457 19,625 24,861
============================================================================================================================
Allowance for doubtful accounts are analysed as follows:
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Balance at 1 January 2,348 1,872 1,967 1,193
----------------------------------------------------------------------------------------------------------------------------
Provision for the year 1,245 1,098 1,514 1,258
----------------------------------------------------------------------------------------------------------------------------
Written back for the year (41) (61) (26) (45)
----------------------------------------------------------------------------------------------------------------------------
Written off for the year (56) (561) (32) (439)
----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 3,496 2,348 3,423 1,967
============================================================================================================================
Ageing analyses of other receivables are as follows:
The Group
2004 2003
AMOUNT ALLOWANCE Amount Allowance
RMB MILLIONS % RMB MILLIONS % RMB millions % RMB millions %
Within one year 8,577 53.8 14 0.2 8,191 46.0 14 0.2
------------------------------------------------------------------------------------------------------------------------------
Between one and two years 485 3.0 17 3.5 4,256 23.9 321 7.5
------------------------------------------------------------------------------------------------------------------------------
Between two and three years 3,549 22.2 430 12.1 1,367 7.7 65 4.8
------------------------------------------------------------------------------------------------------------------------------
Over three years 3,347 21.0 3,035 90.7 3,991 22.4 1,948 48.8
------------------------------------------------------------------------------------------------------------------------------
TOTAL 15,958 100.0 3,496 17,805 100.0 2,348
==============================================================================================================================
The Company
2004 2003
AMOUNT ALLOWANCE Amount Allowance
RMB MILLIONS % RMB MILLIONS % RMB millions % RMB millions %
Within one year 16,168 70.1 12 0.1 18,585 69.3 257 1.4
-------------------------------------------------------------------------------------------------------------------------------
Between one and two years 923 4.0 592 64.1 3,777 14.1 21 0.6
-------------------------------------------------------------------------------------------------------------------------------
Between two and three years 2,620 11.4 48 1.8 1,062 3.9 35 3.3
-------------------------------------------------------------------------------------------------------------------------------
Over three years 3,337 14.5 2,771 83.0 3,404 12.7 1,654 48.6
-------------------------------------------------------------------------------------------------------------------------------
TOTAL 23,048 100.0 3,423 26,828 100.0 1,967
===============================================================================================================================
Major other receivables of the Group at 31 December 2004 are set out below:
Percentage of
Name of entity Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 2,502 15.7
------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 219 1.4
------------------------------------------------------------------------------------------------------------------
China Ruilian Industrial Group Corporation Current Account 184 1.2
------------------------------------------------------------------------------------------------------------------
Anhui Jinyu Highway Development Company Limited Current Account 121 0.8
------------------------------------------------------------------------------------------------------------------
Anhui He Chao Wu Highway Company Limited Current Account 107 0.7
------------------------------------------------------------------------------------------------------------------
93
7 OTHER RECEIVABLES (Continued)
Major other receivables of the Group at 31 December 2003 are set out below:
Percentage of
Name of entity Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 3,201 18.0
-------------------------------------------------------------------------------------------------------
Baling Petrochemical Company Limited Current Account 967 5.4
-------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 367 2.1
-------------------------------------------------------------------------------------------------------
Changling Petrochemical Company Limited Current Account 300 1.7
-------------------------------------------------------------------------------------------------------
Guangzhou Petrochemical Plant Current Account 141 0.8
-------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 40, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of other receivables.
During the years ended 31 December 2004 and 2003, the Group and the Company
had no individually significant other receivables which had been fully or
substantially provided for.
During the years ended 31 December 2004 and 2003, the Group and the Company
had no individually significant write off of other receivables.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant other receivables that aged over three years.
8 ADVANCE PAYMENTS
All advance payments are aged within one year.
Except for the balances disclosed in Note 40, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of advance payments.
9 INVENTORIES
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
\ Raw materials 32,581 23,570 14,544 10,200
------------------------------------------------------------------------------------------------------------------------------
Work in progress 8,341 6,805 3,605 3,308
------------------------------------------------------------------------------------------------------------------------------
Finished goods 20,804 12,268 15,163 8,741
------------------------------------------------------------------------------------------------------------------------------
Spare parts and consumables 3,098 2,791 1,033 770
------------------------------------------------------------------------------------------------------------------------------
64,824 45,434 34,345 23,019
------------------------------------------------------------------------------------------------------------------------------
Less: Provision for diminution in value of inventories 906 519 394 226
------------------------------------------------------------------------------------------------------------------------------
63,918 44,915 33,951 22,793
==============================================================================================================================
All of the above inventories are purchased or self-manufactured.
Provision for diminution in value of inventories is mainly against finished
goods and spare parts.
Provision for diminution in value of inventories are analysed as follows:
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Balance at 1 January 519 486 226 224
------------------------------------------------------------------------------------------------------------------------------
Provision for the year 621 196 314 72
------------------------------------------------------------------------------------------------------------------------------
Written back for the year (188) (82) (124) (42)
------------------------------------------------------------------------------------------------------------------------------
Written off (46) (81) (22) (28)
------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 906 519 394 226
==============================================================================================================================
The cost of inventories recognised as costs and expenses by the Group and the Company amounted to RMB 473,724
million (2003: RMB 335,588 million) and RMB343,269 million (2003: RMB 235,664 million) for the year ended 31
December 2004.
94
10 LONG-TERM EQUITY INVESTMENTS
The Group
Unlisted Provision
stock and Equity for
Listed stock other equity investment impairment
investment investment differences losses Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2004 736 10,285 400 (271) 11,150
-----------------------------------------------------------------------------------------------------------------------------
Addition for the year -- 2,083 169 -- 2,252
-----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 54 887 -- -- 941
-----------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received -- (237) -- -- (237)
-----------------------------------------------------------------------------------------------------------------------------
Disposal for the year -- (429) -- -- (429)
-----------------------------------------------------------------------------------------------------------------------------
Amortisation for the year -- (186) -- (186)
-----------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- (82) (82)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 2004 790 12,589 383 (353) 13,409
=============================================================================================================================
The Company
Unlisted Provision
stock and Equity for
Listed stock other equity investment impairment
investment investment differences losses Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2004 43,459 54,640 395 (160) 98,334
------------------------------------------------------------------------------------------------------------------------------
Addition for the year -- 7,141 162 ? 7,303
------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 10,964 16,902 -- ? 27,866
------------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received (2,103) (4,037) -- ? (6,140)
------------------------------------------------------------------------------------------------------------------------------
Disposal for the year -- (411) -- ? (411)
------------------------------------------------------------------------------------------------------------------------------
Acquired equity interests in a subsidiary (Note) (2,589) -- -- ? (2,589)
------------------------------------------------------------------------------------------------------------------------------
Amortisation for the year -- -- (157) ? (157)
------------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- 5 5
------------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 2004 49,731 74,235 400 (155) 124,211
==============================================================================================================================
Note: During 2004 the Company acquired equity interests from minority shareholders of a subsidiary, Sinopec
Maoming Refining and Chemical Company Limited. All assets and liabilities of the subsidiary were merged
into the Company. The subsidiary was liquidated and no longer existed as at 31 December 2004.
Provision for impairment losses are analysed as follows:
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Balance at 1 January 271 184 160 149
-------------------------------------------------------------------------------------------------------------------------
Provision for the year 96 131 2 21
-------------------------------------------------------------------------------------------------------------------------
Written back for the year (8) (16) (2) ?
-------------------------------------------------------------------------------------------------------------------------
Written off (6) (28) (5) (10)
-------------------------------------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER 353 271 155 160
=========================================================================================================================
At 31 December 2004 and 2003, the Group and the Company had no individually significant long-term equity
investments which had been provided for.
Other equity investments represent the Group's interests in PRC domiciled enterprises which are mainly engaged in
non-oil and gas and chemical activities and operations. This includes non-consolidated entities which the Group
has over 50% equity interest but the costs of investment are not significant or the Group has no control on the
entities. Stock investments of the Company represent investments in subsidiaries, associates and jointly
controlled entities. Details of the Company's principal subsidiaries are set out in Note 41.
95
10 LONG-TERM EQUITY INVESTMENTS (Continued)
At 31 December 2004, details of listed stock investment of the Group are as follows:
Shares of
Percentage profits MARKET
of equity Balance accounted BALANCE VALUE AS
Type of interest Initial at 1 for under AT 31 AT 31
equity No. of held by investment January the equity DECEMBER DECEMBER
Name of investee enterprise interest shares the Group cost 2004 method 2004 2004*
millions RMB RMB RMB RMB RMB
millions millions millions MILLIONS MILLIONS
Sinopec Shengli Oil Legal person
Field Dynamic Co Ltd shares 96 26.33% 223 425 36 461 479
------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Taishan Legal person
Petroleum Co Ltd shares 186 38.68% 124 311 18 329 1,516
------------------------------------------------------------------------------------------------------------------------------
736 54 790
==============================================================================================================================
* Information of market price is sourced from Shenzhen Stock Exchange.
At 31 December 2004, details of principal unlisted stock and other equity investment of the Group are as follows:
Share of
profits/
(losses)
Percentage accounted BALANCE
of equity Balance for AT
Initial interest at 1 Addition under the Dividends 31
investment Investment held by January for the equity receivable/ DECEMBER
Name of investee enterprise cost period the Group 2004 year method received 2004
RMB RMB RMB RMB RMB RMB
millions millions millions millions millions MILLIONS
BASF-YPC Company Limited (i) 3,516 -- 40% 2,814 702 -- -- 3,516
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Finance Company Limited 1,205 -- 40% 1,288 -- 83 (60) 1,311
-------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum National
Gas Corporation 300 -- 30% 754 -- 293 (135) 912
-------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical Industry Park
Development Company Limited 608 30 years 38% 652 -- 10 (11) 651
-------------------------------------------------------------------------------------------------------------------------------
China Shipping & Sinopec
Suppliers Company Limited 438 -- 50% 438 -- 30 -- 468
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Changjiang Fuel
Company Limited 190 20 years 50% 217 -- 62 (28) 251
-------------------------------------------------------------------------------------------------------------------------------
Hunan Highway Industrial
Development Company Limited 215 -- 49% 106 109 3 -- 218
-------------------------------------------------------------------------------------------------------------------------------
China Gas Holdings Ltd 136 -- 11% -- 136 -- -- 136
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Railway Oil Marketing
Company Limited 50 20 years 50% 50 -- 60 -- 110
-------------------------------------------------------------------------------------------------------------------------------
Shanghai Jinpu Packaging
Material Company Limited 102 30 years 50% 104 -- (11) -- 93
-------------------------------------------------------------------------------------------------------------------------------
No provision for individually significant impairment losses or individually significant equity investment
difference was made for the long-term equity investments as set out above.
(i) Due to the fact that the project in the investee enterprise is still under construction, there is no
income statement for the investee enterprise. Accordingly the Group did not have any share of profit
or loss of the investee enterprise for the year ended 31 December 2004.
At 31 December 2004, the Group's and the Company's proportion of the total investments to the net assets
was 7.0% (2003: 6.8%) and 65.8% (2003: 60.3%) respectively.
96
11 FIXED ASSETS
The Group - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
COST/VALUATION:
---------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 166,603 104,432 54,212 133,374 2,507 461,128
---------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired Assets from
Sinopec Group Company (Note 1) -- 1,828 1,536 24,400 1,442 29,206
---------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (3,631) -- -- -- -- (3,631)
---------------------------------------------------------------------------------------------------------------------------------
Addition for the year 1,402 782 1,555 263 71 4,073
---------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 17,428 13,366 8,983 8,609 183 48,569
---------------------------------------------------------------------------------------------------------------------------------
Disposals (11,345) (3,345) (1,511) (3,571) (111) (19,883)
---------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 170,457 117,063 64,775 163,075 4,092 519,462
---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
---------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 84,662 50,335 10,000 68,235 572 213,804
---------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired Assets from
Sinopec Group Company (Note 1) -- 975 -- 13,674 740 15,389
---------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (1,774) -- -- -- -- (1,774)
---------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 12,556 7,564 2,599 7,855 192 30,766
Written back on disposal (8,894) (2,260) (942) (2,482) (97) (14,675)
---------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 86,550 56,614 11,657 87,282 1,407 243,510
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
---------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 83,907 60,449 53,118 75,793 2,685 275,952
---------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2003 81,941 54,097 44,212 65,139 1,935 247,324
---------------------------------------------------------------------------------------------------------------------------------
The Company - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
COST/VALUATION:
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 59,647 71,414 52,729 37,698 1,527 223,015
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired Assets from
Sinopec Group Company (Note 1) -- 1,828 1,536 19,360 1,442 24,166
-----------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (2,103) -- -- ? ? (2,103)
-----------------------------------------------------------------------------------------------------------------------------------
Transfer from a subsidiary -- 5,158 -- ? ? 5,158
-----------------------------------------------------------------------------------------------------------------------------------
Addition for the year 437 672 459 13 10 1,591
-----------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 9,056 10,911 8,020 1,452 183 29,622
-----------------------------------------------------------------------------------------------------------------------------------
Disposals (6,012) (2,090) (1,331) (804) (92) (10,329)
-----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 61,025 87,893 61,413 57,719 3,070 271,120
-----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 27,651 36,047 9,627 20,509 304 94,138
-----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company
(Note 1) -- 975 -- 10,267 740 11,982
-----------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (1,063) ? ? ? ? (1,063)
-----------------------------------------------------------------------------------------------------------------------------------
Transfer from a subsidiary ? 2,682 ? ? ? 2,682
Depreciation charge for the year 4,430 4,698 2,295 1,832 94 13,349
Written back on disposal (4,535) (1,599) (805) (496) (81) (7,516)
-----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 26,483 42,803 11,117 32,112 1,057 113,572
...................................................................................................................................
-----------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
-----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 34,542 45,090 50,296 25,607 2,013 157,548
-----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2003 31,996 35,367 43,102 17,189 1,223 128,877
-----------------------------------------------------------------------------------------------------------------------------------
97
11 FIXED ASSETS (Continued)
The Group - by asset class
Oil
depots, Plant,
storage machinery,
Oil tanks and equipment
Land and and gas service and
buildings properties stations others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
COST/VALUATION:
----------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 41,648 147,275 46,067 226,138 461,128
----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company (Note 1) 3,873 -- 1,533 23,800 29,206
----------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (97) (2,362) -- (1,172) (3,631)
----------------------------------------------------------------------------------------------------------------------------------
Addition for the year 305 450 1,301 2,017 4,073
----------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 2,235 17,428 12,161 16,745 48,569
Disposals (857) (10,846) (1,099) (7,081) (19,883)
----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 47,107 151,945 59,963 260,447 519,462
----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
----------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 16,978 77,640 8,771 110,415 213,804
----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company (Note 1) 1,734 -- -- 13,655 15,389
----------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (22) (1,207) -- (545) (1,774)
----------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,663 9,726 2,307 17,070 30,766
Written back on disposal (365) (8,493) (585) (5,232) (14,675)
----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 19,988 77,666 10,493 135,363 243,510
..................................................................................................................................
----------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 27,119 74,279 49,470 125,084 275,952
----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2003 24,670 69,635 37,296 115,723 247,324
----------------------------------------------------------------------------------------------------------------------------------
The Company - by asset class
Oil
depots, Plant,
storage machinery,
Oil tanks and equipment
Land and and gas service and
buildings properties stations others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
COST/VALUATION:
--------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 21,267 51,380 44,703 105,665 223,015
--------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company (Note 1) 3,060 -- 1,533 19,573 24,166
--------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (75) (1,081) -- (947) (2,103)
--------------------------------------------------------------------------------------------------------------------------------
Transfer from a subsidiary 216 -- -- 4,942 5,158
--------------------------------------------------------------------------------------------------------------------------------
Addition for the year 223 43 248 1,077 1,591
--------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 1,128 8,854 11,415 8,225 29,622
--------------------------------------------------------------------------------------------------------------------------------
Disposals (632) (5,889) (1,075) (2,733) (10,329)
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 25,187 53,307 56,824 135,802 271,120
--------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
--------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 7,682 25,631 8,505 52,320 94,138
--------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company (Note 1) 1,276 -- -- 10,706 11,982
--------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (17) (578) -- (468) (1,063)
--------------------------------------------------------------------------------------------------------------------------------
Transfer from a subsidiary 101 -- -- 2,581 2,682
--------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 923 3,664 2,193 6,569 13,349
--------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (293) (4,418) (582) (2,223) (7,516)
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 9,672 24,299 10,116 69,485 113,572
.................................................................................................................................
---------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 15,515 29,008 46,708 66,317 157,548
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2003 13,585 25,749 36,198 53,345 128,877
--------------------------------------------------------------------------------------------------------------------------------
Fixed assets and construction in progress of the Group at 30 September 1999
were valued by registered valuers. The valuation was reviewed and approved
by the MOF (Note 1). Surplus on revaluation was RMB 29,093 million and
deficit on revaluation was RMB 3,210 million. A net surplus on revaluation
of RMB 25,883 million was resulted which has been incorporated in the
Group's financial statements since the year ended 31 December 1999.
98
11 FIXED ASSETS (Continued)
In accordance with the relevant rules and regulations in respect of the
acquisition of Sinopec National Star, fixed assets and construction in
progress of Sinopec National Star have been valued by a firm of independent
valuers. Surplus on revaluation of RMB 541 million has been incorporated in
the Group's financial statements since the year ended 31 December 2001.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Ethylene Assets, fixed assets and construction in progress
of Sinopec Maoming have been revalued by a firm of independent valuers.
Deficit on revaluation of RMB 86 million has been incorporated in the
Group's financial statements since the year ended 31 December 2003.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Refining Assets, fixed assets and construction in progress
of the Refining Assets have been revalued by a firm of independent valuers.
Surplus on revaluation of RMB 82 million has been incorporated in the
Group's financial statements since the year ended 31 December 2003.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Acquired Assets, fixed assets and construction in progress
of the Acquired Assets have been revalued by independent valuers. Surplus
on revaluation of RMB 492 million has been incorporated in the Group's
financial statements for the year ended 31 December 2004.
At 31 December 2004, the carrying amounts of fixed assets that were pledged
by the Group and the Company were RMB 123 million (2003: RMB 519 million)
and RMB 10 million (2003: RMB 14 million) respectively.
Provision for impairment losses on fixed assets are analysed as follows:
The Group - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 764 114 -- 453 1,331
--------------------------------------------------------------------------------------------------------------------------------
Addition for the year 98 14 1,769 2,747 4,628
-------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (79) ? -- -- (79)
-------------------------------------------------------------------------------------------------------------------------------
Written off -- (64) -- -- (64)
-------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 783 64 1,769 3,200 5,816
-------------------------------------------------------------------------------------------------------------------------------
The Company - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 701 63 -- -- 764
-------------------------------------------------------------------------------------------------------------------------------
Addition for the year 98 14 1,737 1,568 3,417
-------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) (79) -- -- -- (79)
-------------------------------------------------------------------------------------------------------------------------------
Written off -- (64) -- -- (64)
-------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 720 13 1,737 1,568 4,038
-------------------------------------------------------------------------------------------------------------------------------
The Group - by asset class
Oil depots, Plant,
storage tanks machinery,
Land and Oil and gas and service equipment
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 8 764 -- 559 1,331
---------------------------------------------------------------------------------------------------------------------------------
Addition for the year 325 98 1,249 2,956 4,628
---------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) -- (79) -- -- (79)
---------------------------------------------------------------------------------------------------------------------------------
Written off (2) -- -- (62) (64)
---------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 331 783 1,249 3,453 5,816
--------------------------------------------------------------------------------------------------------------------------------
99
11 FIXED ASSETS (Continued)
The Company - by asset class
Oil depots, Plant,
storage tanks machinery,
Land and Oil and gas and service equipment
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 -- 701 -- 63 764
---------------------------------------------------------------------------------------------------------------------------------
Addition for the year 186 98 1,249 1,884 3,417
---------------------------------------------------------------------------------------------------------------------------------
Disposal of Downhole Assets (Note 1) -- (79) -- -- (79)
---------------------------------------------------------------------------------------------------------------------------------
Written off (2) -- -- (62) (64)
---------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 184 720 1,249 1,885 4,038
---------------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses recognised on fixed assets of the refining
and chemicals segment of RMB 14 million (2003: RMB 114 million) and RMB
2,747 million (2003: RMB 453 million) for the year ended 31 December 2004
relate to certain refining and chemicals production facilities that are
held for use. The carrying values of these facilities were written down to
their recoverable values which were based on the asset held for use model
using the present value of estimated future cash flows. The primary factor
resulting in the provision for impairment losses of the chemicals segment
was due to higher operating and production costs caused by the increase in
the prices of raw materials that are not expected to be recovered through
an increase in selling price.
Provision for impairment losses recognised on fixed assets of the marketing
and distribution segment of RMB 1,769 million (2003: RMB nil) for the year
ended 31 December 2004 primarily relate to certain service stations that
were closed during the year. In measuring the amounts of impairment
charges, the carrying amounts of these assets were compared to the present
value of the expected future cash flows of the assets, as well as
information about sales and purchases of similar properties in the same
geographic area.
The factors resulting in the exploration and production ("E&P") segment
provision for impairment losses of RMB 98 million for the year ended 31
December 2004 (2003: RMB 373 million) were unsuccessful development
drilling and high operating and development costs for certain small oil
fields. The carrying values of these E&P properties were written down to a
recoverable value which was determined based on the present values of the
expected future cash flows of the assets. The oil and gas pricing was a
factor used in the determination of the present values of the expected
future cash flows of the assets and had an impact on the recognition of the
asset impairment.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant fixed assets which were temporarily idle or pending for
disposal.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant fully depreciated fixed assets which were still in use.
12 CONSTRUCTION MATERIALS
At 31 December 2004 and 2003, the Group's and the Company's construction
materials mainly represent the actual cost of materials such as steel and
copper to be used for construction projects.
100
13 CONSTRUCTION IN PROGRESS
THE GROUP
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 5,535 8,355 7,641 6,581 401 28,513
-------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company
(Note 1) -- 2 -- 267 56 325
-------------------------------------------------------------------------------------------------------------------------------
Addition for the year 22,808 13,224 14,793 10,118 1,239 62,182
-------------------------------------------------------------------------------------------------------------------------------
Addition for the year of jointly
controlled entities 1,323 -- -- 5,178 -- 6,501
-------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,976) -- -- -- -- (2,976)
-------------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (17,428) (13,366) (8,983) (8,609) (183) (48,569)
-------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 9,262 8,215 13,451 13,535 1,513 45,976
-------------------------------------------------------------------------------------------------------------------------------
The interest rates per annum at which borrowing costs were capitalised during the year ended 31 December 2004 by the
Group ranged from 3.1% to 6.0% (2003: 3.1% to 6.1%).
The Group's proportionate share of the jointly controlled entities' construction in progress at 31 December 2004 in the
E&P and the chemicals segments were RMB 2,053 million (2003: RMB 3,812 million) and RMB 8,171 million (2003: RMB 2,993
million), respectively.
At 31 December 2004, major projects of the Group are as follows:
ACCUMULATED
At Transferred AT Percentage INTEREST
Budgeted 1 January Addition to fixed 31 DECEMBER of Source of CAPITALISED AT 31
Project name amount 2004 for the year assets 2004 completion funding DECEMBER 2004
RMB millions RMB millions RMB millions RMB millions RMB MILLIONS RMB MILLIONS
THE GROUP
-----------------------------------------------------------------------------------------------------------------------------------
South-west Fuel Oil 3,526 787 1,661 -- 2,448 69% Bank loans & 10
Pipeline Project self-financing
-----------------------------------------------------------------------------------------------------------------------------------
Ningbo - Shanghai - 5,705 3,049 1,865 (3,514) 1,400 86% Bank loans & 20
Nanjing self-financing
Pipeline Project
-----------------------------------------------------------------------------------------------------------------------------------
Sour Crude Oil 1,454 134 961 (120) 975 67% Bank loans & 4
Improvement Project self-financing
-----------------------------------------------------------------------------------------------------------------------------------
Yizheng-Changling Crude 4,820 -- 893 -- 893 19% Bank loans & --
Oil Pipeline Project self-financing
-----------------------------------------------------------------------------------------------------------------------------------
Fertilizer Improvement 1,063 178 712 -- 890 84% Bank loans & 4
Project self-financing
-----------------------------------------------------------------------------------------------------------------------------------
JOINTLY CONTROLLED ENTITIES
900,000 tonnes
Ethylene Project 8,895 2,975 5,165 -- 8,140 92% Bank loans & 261
self-financing
-----------------------------------------------------------------------------------------------------------------------------------
THE COMPANY
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 4,501 7,311 6,380 1,284 382 19,858
----------------------------------------------------------------------------------------------------------------------------------
Acquisition of Acquired
Assets from Sinopec Group Company (Note 1) -- 2 -- 257 56 315
----------------------------------------------------------------------------------------------------------------------------------
Transfer from a subsidiary -- 76 -- -- -- 76
----------------------------------------------------------------------------------------------------------------------------------
Addition for the year 13,346 10,281 11,581 3,889 1,239 40,336
----------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,184) -- -- -- -- (2,184)
---------------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (9,056) (10,911) (8,020) (1,452) (183) (29,622)
----------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 6,607 6,759 9,941 3,978 1,494 28,779
---------------------------------------------------------------------------------------------------------------------------------
The interest rates per annum at which borrowing costs were capitalised for the year ended 31 December 2004 by the
Company ranged from 3.1% to 6.0% (2003: 3.1% to 6.1%).
101
14 INTANGIBLE ASSETS
The Group
Exploration
Computer and
software Technical production
license know-how right Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
COST:
--------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 554 1,797 3,163 198 5,712
--------------------------------------------------------------------------------------------------------------------------------
Addition for the year 298 490 -- 516 1,304
--------------------------------------------------------------------------------------------------------------------------------
Disposals -- (1) -- (79) (80)
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 852 2,286 3,163 635 6,936
--------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED AMORTISATION:
--------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 90 634 351 73 1,148
--------------------------------------------------------------------------------------------------------------------------------
Amortisation charge for the year 95 207 117 57 476
--------------------------------------------------------------------------------------------------------------------------------
Written back on disposal -- -- -- (33) (33)
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 185 841 468 97 1,591
................................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 667 1,445 2,695 538 5,345
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2003 464 1,163 2,812 125 4,564
--------------------------------------------------------------------------------------------------------------------------------
Except for the exploration and production right, the above intangible assets were acquired from third parties. The
Company acquired Sinopec National Star together with the exploration and production right from Sinopec Group Company.
The exploration and production right was valued with reference to the proved reserves of the associated oil fields. The
amortisation period of the exploration and production right was 27 years. The amortisation periods of other intangible
assets range from 4 to 10 years. At 31 December 2004, the remaining amortisation period of the exploration and
production right was 23 years.
The Company
Exploration
Computer and
software Technical production
license know-how right Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
COST:
--------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 379 1,036 3,163 129 4,707
--------------------------------------------------------------------------------------------------------------------------------
Addition for the year 292 280 -- 355 927
--------------------------------------------------------------------------------------------------------------------------------
Disposals -- -- -- (63) (63)
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 671 1,316 3,163 421 5,571
--------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED AMORTISATION:
--------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 48 554 351 42 995
--------------------------------------------------------------------------------------------------------------------------------
Amortisation charge for the year 72 119 117 38 346
--------------------------------------------------------------------------------------------------------------------------------
Written back on disposal -- -- -- (31) (31)
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 120 673 468 49 1,310
................................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE:
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 551 643 2,695 372 4,261
--------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2003 331 482 2,812 87 3,712
--------------------------------------------------------------------------------------------------------------------------------
Except for the exploration and production right, the above intangible assets were acquired from third parties. The
Company acquired Sinopec National Star together with the exploration and production right from Sinopec Group Company.
The exploration and production right was valued with reference to the proved reserves of the associated oil fields. The
amortisation period of the exploration and production right was 27 years. The amortisation periods of other intangible
assets range from 4 to 10 years. At 31 December 2004, the remaining amortisation period of the exploration and
production right was 23 years.
15 LONG-TERM DEFERRED EXPENSES
Long-term deferred expenses primarily represent prepaid rental expenses
over one year, catalysts and jointly controlled entities' pre-operating
expenditures.
102
16 DEFERRED TAX ASSETS AND LIABILITIES
The Group
Deferred tax assets Deferred tax liabilities Net balance
2004 2003 2004 2003 2004 2003
RMB RMB RMB RMB RMB RMB
MILLIONS millions MILLIONS millions MILLIONS millions
Current
-----------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables
and inventories 2,524 1,436 -- -- 2,524 1,436
-----------------------------------------------------------------------------------------------------------------------------------
Non-current
-----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,566 272 (198) (289) 1,368 (17)
-----------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward,
net of valuation allowance 66 -- -- -- 66 --
-----------------------------------------------------------------------------------------------------------------------------------
Others 10 44 -- -- 10 44
-----------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS/(LIABILITIES) 4,166 1,752 (198) (289) 3,968 1,463
-----------------------------------------------------------------------------------------------------------------------------------
The Company
Deferred tax assets Deferred tax liabilities Net balance
2004 2003 2004 2003 2004 2003
RMB RMB RMB RMB RMB RMB
MILLIONS millions MILLIONS millions MILLIONS millions
Current
-----------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables
and inventories 2,245 1,249 -- -- 2,245 1,249
-----------------------------------------------------------------------------------------------------------------------------------
Non-current
-----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,457 226 (16) (16) 1,441 210
-----------------------------------------------------------------------------------------------------------------------------------
Others 6 35 -- -- 6 35
-----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 3,708 1,510 (16) (16) 3,692 1,494
-----------------------------------------------------------------------------------------------------------------------------------
17 SHORT-TERM LOANS
The Group's and the Company's short-term loans represent:
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Short-term bank loans 20,009 16,979 10,527 7,466
----------------------------------------------------------------------------------------------------------------------------------
Short-term other loans -- 29 -- 25
----------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and its fellow subsidiaries 6,714 3,896 5,727 2,296
----------------------------------------------------------------------------------------------------------------------------------
Total 26,723 20,904 16,254 9,787
----------------------------------------------------------------------------------------------------------------------------------
The Group's and the Company's weighted average interest rates per annum on short-term loans were 3.9% (2003: 3.2%) and
4.0% (2003: 3.1%) respectively at 31 December 2004. The majority of the above loans are unsecured.
At 31 December 2004 and 2003, the Group and the Company had no significant overdue short-term loans.
18 BILLS PAYABLE
Bills payable primarily represented the bank accepted bills for the
purchase of material, goods and products. The repayment term is normally
from three to six months.
103
<
19 TRADE ACCOUNTS PAYABLE
The ageing analyses of trade accounts payable are as follows:
The Group
2004 2003
RMB MILLIONS % RMB MILLIONS %
Within 3 months 12,868 54.1 16,311 71.8
-----------------------------------------------------------------------------------------------------
Between 3 and 6 months 9,110 38.3 5,140 22.6
-----------------------------------------------------------------------------------------------------
Over 6 months 1,814 7.6 1,253 5.6
-----------------------------------------------------------------------------------------------------
TOTAL 23,792 100.0 22,704 100.0
-----------------------------------------------------------------------------------------------------
The Company
2004 2003
RMB MILLIONS % RMB MILLIONS %
Within 3 months 13,462 63.7 15,143 83.6
-----------------------------------------------------------------------------------------------------
Between 3 and 6 months 6,183 29.3 2,130 11.8
Over 6 months 1,492 7.0 844 4.6
-----------------------------------------------------------------------------------------------------
TOTAL 21,137 100.0 18,117 100.0
-----------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of trade accounts payable.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant trade accounts payable aged over three years.
20 RECEIPTS IN ADVANCE
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of receipts in advance.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant receipts in advance aged over one year.
21 TAXES PAYABLE
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
Value added tax (1,119) 459 (1,377) (389)
----------------------------------------------------------------------------------------------------
Consumption tax 1,443 1,547 1,146 1,184
----------------------------------------------------------------------------------------------------
Income tax 5,391 4,077 3,142 2,012
----------------------------------------------------------------------------------------------------
Business tax 99 52 37 24
----------------------------------------------------------------------------------------------------
Other taxes 927 851 222 144
----------------------------------------------------------------------------------------------------
TOTAL 6,741 6,986 3,170 2,975
----------------------------------------------------------------------------------------------------
The provision for PRC current income tax is based on a statutory rate of
33% of the assessable income of the Group and the Company as determined in
accordance with the relevant income tax rules and regulations of the PRC
during the years ended 31 December 2004 and 2003, except for certain
entities of the Company, which are taxed at a preferential rate of 15%.
22 OTHER PAYABLES
At 31 December 2004 and 2003, the Group's and the Company's other payables
primarily represented payables for resources compensation fee and education
surcharge.
23 OTHER CREDITORS
At 31 December 2004 and 2003, the Group's and the Company's other creditors
primarily represented payables for constructions.
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of other creditors.
At 31 December 2004 and 2003, the Group and the Company had no individually
significant other creditors aged over three years.
104
24 ACCRUED EXPENSES
At 31 December 2004 and 2003, the Group's and the Company's accrued
expenses primarily represented accrued interest expenses, repair and
maintenance expenses, research and development expenses and other
production expenses.
25 CURRENT PORTION OF LONG-TERM LOANS
The Group's and the Company's current portion of long-term loans represent:
The Group The Company
2004 2003 2004 2003
RMB MILLIONS RMB millions RMB MILLIONS RMB millions
LONG-TERM BANK LOANS
----------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 8,500 5,363 6,247 3,437
----------------------------------------------------------------------------------------------------------------------------
-- Japanese Yen loans 805 533 798 498
-----------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans 2,841 623 2,341 408
-- Euro loans 28 -- 28 --
-- Hong Kong Dollar loans 3 4 -- --
-----------------------------------------------------------------------------------------------------------------------------
12,177 6,523 9,414 4,343
-----------------------------------------------------------------------------------------------------------------------------
LONG-TERM OTHER LOANS
-----------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 88 65 61 30
-----------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans 33 62 31 30
-----------------------------------------------------------------------------------------------------------------------------
121 127 92 60
-----------------------------------------------------------------------------------------------------------------------------
DEBENTURES PAYABLE
-----------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans (Note 27) -- 1,500 -- --
-----------------------------------------------------------------------------------------------------------------------------
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY AND
TS FELLOW SUBSIDIARIES
-----------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 2,000 19 2,000 19
-----------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans -- 6 -- 6
-----------------------------------------------------------------------------------------------------------------------------
2,000 25 2,000 25
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT PORTION OF LONG-TERM LOANS 14,298 8,175 11,506 4,428
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 and 2003, the Group and the Company had no significant overdue long-term loans.
105
26 LONG-TERM LOANS
The Group's and the Company's long-term loans represent:
Interest rate and final maturity The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
THIRD PARTIES DEBTS
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from
interest free to 6.2% per
annum at 31 December 2004
with maturities through 2013 52,227 38,863 45,233 29,577
------------------------------------------------------------------------------------------------------------------------------
Japanese Yen loans Interest rates ranging from
2.6% to 5.8% per annum at 31
December 2004 with
maturities through 2024 4,562 2,909 4,556 2,866
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from
interest free to 7.4% per
annum at 31 December 2004
with maturities through 2031 7,729 4,340 5,278 2,676
------------------------------------------------------------------------------------------------------------------------------
Euro loans Fixed rate at 6.7% per annum
at 31 December 2004 with
maturities through 2010 165 -- 165 --
------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar loans Floating rate at Hong Kong
Prime Rate plus 0.3% per
annum at 31 December 2004
with maturities through 2006 5 7 -- --
------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 12,177 6,523 9,414 4,343
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS 52,511 39,596 45,818 30,776
------------------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LOANS
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from
interest free to 5.0% per annum
at 31 December 2004 with
maturities through 2008 359 359 200 182
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from interest
free to 4.0% per annum at 31 December
2004 with maturities through 2015 110 151 89 118
------------------------------------------------------------------------------------------------------------------------------
Euro loans Interest rates ranging from
1.8% to 8.1% per annum at 31
December 2003 with maturities
through 2025. Paid off as at
31 December 2004 -- 21 -- 21
------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 121 127 92 60
------------------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LOANS 348 404 197 261
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS OF JOINTLY CONTROLLED ENTITIES
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Floating rate at 90% of
PBOC's base lending rate per
annum at 31 December 2004
with maturities through 2021 2,415 705 -- --
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Floating rate at London
Interbank Offer Rate
plus 0.7% per annum at
31 December 2004 with
maturities through 2021 2,048 745 -- --
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM BANK LOANS OF JOINTLY CONTROLLED ENTITIES 4,463 1,450 -- --
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest free with maturity in 2020 35,561 35,561 35,561 35,561
------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from
interest free to 5.2% per
annum at 31 December 2004
with maturities through 2009 3,204 2,223 2,756 2,138
------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Floating rate at London Interbank
Offer Rate plus 1.4% per annum at
31 December 2003; paid off as at
31 December 2004 -- 12 -- 12
------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 2,000 25 2,000 25
------------------------------------------------------------------------------------------------------------------------------
LONG-TERM LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES 36,765 37,771 36,317 37,686
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
94,087 79,221 82,332 68,723
===============================================================================================================================
106
26 LONG-TERM LOANS (Continued)
The maturity analyses of the Group's and the Company's long-term loans are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Between one and two years 15,886 13,145 12,363 9,346
-------------------------------------------------------------------------------------------------------------------
Between two and five years 36,041 26,591 31,279 21,526
-------------------------------------------------------------------------------------------------------------------
After five years 42,160 39,485 38,690 37,851
-------------------------------------------------------------------------------------------------------------------
Total long-term loans 94,087 79,221 82,332 68,723
-------------------------------------------------------------------------------------------------------------------
At 31 December 2004, the Group and the Company had secured loans from third
parties amounting to RMB 40 million (2003: RMB 103 million) and RMB 9
million (2003: RMB 9 million) respectively. All long-term other loans are
unsecured.
Except for the balances disclosed in Note 40, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of long-term loans.
27 DEBENTURES PAYABLE
Interest rate and final maturity The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Corporate bonds Fixed rate at 4.61% per annum,
redeemable in February 2014 (i) 3,500 -- 3,500 --
------------------------------------------------------------------------------------------------------------------------------
Convertible bonds Matured and paid off during the
year ended 2004(ii) -- 1,500 -- --
------------------------------------------------------------------------------------------------------------------------------
Less: current portion -- 1,500 -- --
------------------------------------------------------------------------------------------------------------------------------
3,500 -- 3,500 --
------------------------------------------------------------------------------------------------------------------------------
(i)The Company issued ten years corporate bonds of RMB 3.5 billion to PRC
citizens as well as PRC legal and non-legal persons on 24 February 2004,
guaranteed by Sinopec Group Company, with a fixed interest rate at 4.61%
per annum and annual interest payment schedule. Interest payable for the
current period was included in accrued expenses.
(ii) Convertible bonds amounting to RMB 1,500 million were issued by a
subsidiary of the Group on 28 July 1999. Pursuant to the subsidiary's
shareholders' approval at the Annual General Meeting held on 23 March
2004, the subsidiary decided not to undergo an initial public offering.
The bonds were repaid in July 2004.
28 OTHER LONG-TERM PAYABLES
Other long-term payables primarily represent provision for future
dismantlement of oil and gas properties, the costs arising from
environmental restoration and specific research and development projects.
29 SHARE CAPITAL
The Group and the Company
2004 2003
RMB millions RMB millions
REGISTERED, ISSUED AND FULLY PAID:
------------------------------------------------------------------------------------------------
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
------------------------------------------------------------------------------------------------
16,780,488,000 H shares of RMB 1.00 each 16,780 16,780
------------------------------------------------------------------------------------------------
2,800,000,000 A shares of RMB 1.00 each 2,800 2,800
------------------------------------------------------------------------------------------------
86,702 86,702
------------------------------------------------------------------------------------------------
The Company was established on 25 February 2000 with a registered capital
of 68.8 billion state-owned domestic shares with a par value of RMB 1.00
each, which were all held by Sinopec Group Company (see Note 1).
Pursuant to the resolutions passed in the Extraordinary General Meeting of
the Company held on 25 July 2000 and the approval from relevant
authorities, the Company issued 15,102,439,000 H shares with a par value of
RMB 1.00 each in its initial global offering in October 2000. The shares
include 12,521,864,000 H shares and 25,805,750 American Depositary Shares
("ADSs", each representing 100 H shares) at prices of HK$ 1.59 and US$
20.645 respectively. As part of the offering, 1,678,049,000 shares were
offered in placing to Hong Kong and overseas investors.
In July 2001, the Company issued 2,800,000,000 domestic listed A shares
with a par value of RMB 1.00 each at RMB 4.22.
All the domestic ordinary shares and H shares rank pari passu in all
material aspects.
KPMG Huazhen had verified the above paid-in capital. The capital
verification reports, KPMG-C (2000) CV No. 0007, KPMG-C (2001) CV No. 0002
and KPMG-C (2001) CV No. 0006 were issued on 22 February 2000, 27 February
2001 and 23 July 2001 respectively.
107
30 CAPITAL RESERVE
The movements in capital reserve are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 36,852 36,588 36,852 36,588
----------------------------------------------------------------------------------------------------------------------------
Government grants (i) 269 35 269 35
----------------------------------------------------------------------------------------------------------------------------
Reserve for equity investment (ii) -- -- 676 --
----------------------------------------------------------------------------------------------------------------------------
Premium from issuance of shares by a subsidiary (iii) -- 147 -- 147
----------------------------------------------------------------------------------------------------------------------------
Gain from debt restructuring by a subsidiary (iv) -- 82 -- 82
----------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LOANS 37,121 36,852 37,797 36,852
----------------------------------------------------------------------------------------------------------------------------
(i) During the year ended 31 December 2004, the Group received subsidy on investments amounted to RMB 269
million (2003: RMB 35 million), pursuant to Fa Gai Tou Zi [2004] No. 1248 "Notice on the Enterprise
Technology Reform and Industry Upgrade regarding the First Batch State Debt's Project Fund Plan in 2004"
issued by the National Development and Reform Commission and the MOF. This fund is used for technology
improvement projects.
(ii) During the year ended 31 December 2004, the Company invested in certain newly set up subsidiaries using
non-monetary assets at revalued amount as the Group's capital investment in these subsidiaries. The
difference between the revalued amount of these non-monetary assets and their original book value (that is
the Group's shared shareholders' funds in these subsidiaries over the initial investment cost) was recorded
in capital reserve. Such difference has been eliminated in the Group's consolidated financial statements.
(iii) A subsidiary of the Group issued additional shares in the PRC during the year ended 31 December 2003.
Independent investors used cash to subscribe for the additional shares. The increase in the Group's
consolidated net assets as a result of addition issuance of shares was reflected as an increase of capital
reserve.
(iv) During the year ended 31 December 2003, a subsidiary of the Group carried out debt restructuring with a bank
and certain interest payable had been wavied. The gain in connection with the debt restructuring was
reflected as an increase of capital reserve.
31 SURPLUS RESERVES
Movements in surplus reserves are as follows:
The Group and the Company
Statutory Statutory Discretionary
surplus public surplus
reserve welfare fund reserve Total
RMB millions RMB millions RMB millions RMB millions
At 1 January 2003 4,429 4,429 7,000 15,858
-------------------------------------------------------------------------------------------------------
Appropriation of net profit 1,901 1,901 -- 3,802
-------------------------------------------------------------------------------------------------------
At 31 December 2003 6,330 6,330 7,000 19,660
-------------------------------------------------------------------------------------------------------
At 1 January 2004 6,330 6,330 7,000 19,660
-------------------------------------------------------------------------------------------------------
Appropriation of net profit 3,228 3,228 -- 6,456
-------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 2004 9,558 9,558 7,000 26,116
-------------------------------------------------------------------------------------------------------
The Articles of Association of the Company and the following profit
appropriation plans had been approved at the Extraordinary General Meeting
held on 25 July 2000:
(a) 10% of the net profit is transferred to the statutory surplus
reserve;
(b) 5% to 10% of the net profit is transferred to the statutory public
welfare fund; and
(c) after the transfer to the statutory surplus reserve, a transfer to
discretionary surplus reserve can be made upon the passing of a
resolution at the shareholders' meeting.
32 INCOME FROM PRINCIPAL OPERATIONS
The income from principal operations represents revenue from sales of crude
oil, natural gas, petroleum and chemical products net of value added tax.
The Group's segmental information is set out in Note 45.
For the year ended 31 December 2004, revenue from sales to top five
customers amounted to RMB 58,691 million (2003: RMB 61,502 million) which
accounted for 10% (2003: 15%) of income from principal operations of the
Group.
108
33 SALES TAXES AND SURCHARGES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Consumption tax 11,847 9,856 7,981 6,691
--------------------------------------------------------------------------------------------------------------------
City construction tax 2,505 1,991 1,261 1,038
Education surcharge 1,243 955 624 503
--------------------------------------------------------------------------------------------------------------------
Resources tax 452 434 114 108
--------------------------------------------------------------------------------------------------------------------
Business tax 156 135 114 73
--------------------------------------------------------------------------------------------------------------------
Total 16,203 13,371 10,094 8,413
--------------------------------------------------------------------------------------------------------------------
34 FINANCIAL EXPENSES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Interest expenses incurred 4,909 4,635 3,067 2,417
--------------------------------------------------------------------------------------------------------------------
Less: Capitalised interest expenses 327 487 231 187
--------------------------------------------------------------------------------------------------------------------
Net interest expenses 4,582 4,148 2,836 2,230
--------------------------------------------------------------------------------------------------------------------
Interest income (359) (305) (144) (125)
Foreign exchange losses 167 316 130 279
--------------------------------------------------------------------------------------------------------------------
Foreign exchange gains (59) (30) (52) (47)
--------------------------------------------------------------------------------------------------------------------
Total 4,331 4,129 2,770 2,337
35 EXPLORATION EXPENSES
Exploration expenses include geological and geophysical expenses and dry
hole costs.
36 INVESTMENT INCOME
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Investment income accounted for under the cost method 120 71 82 36
--------------------------------------------------------------------------------------------------------------------------
Investment income accounted for under the equity method 968 477 39,292 22,808
--------------------------------------------------------------------------------------------------------------------------
Total 1,088 548 39,374 22,844
--------------------------------------------------------------------------------------------------------------------------
37 NON-OPERATING EXPENSES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Loss on disposal of fixed assets 4,304 3,459 2,733 1,917
----------------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 4,628 940 3,417 373
----------------------------------------------------------------------------------------------------------------------------
Fines, penalties and compensations 280 140 273 133
----------------------------------------------------------------------------------------------------------------------------
Donations 275 132 91 91
Employee reduction expenses (Note) 919 1,014 745 713
----------------------------------------------------------------------------------------------------------------------------
Others 765 649 620 372
----------------------------------------------------------------------------------------------------------------------------
Total 11,171 6,334 7,879 3,599
----------------------------------------------------------------------------------------------------------------------------
Note:During the year ended 31 December 2004, in accordance with the Group's
voluntary employee reduction plan, and in connection with the
Acquisition of Acquired Assets from and Disposal of Downhole Assets to
Sinopec Group Company, the Group recorded employee reduction expenses
of RMB 919 million (2003: RMB 1,014 million) relating to the reduction
of approximately 24,000 employees (2003: 21,000 employees).
109
38 INCOME TAX
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Provision for PRC income tax for the year 18,405 10,862 16,815 10,340
---------------------------------------------------------------------------------------------------------------------------
Deferred taxation (2,439) (1,580) (2,198) (1,443)
Underprovision for income tax in respect of preceding year 94 79 152 7
---------------------------------------------------------------------------------------------------------------------------
Total 16,060 9,361 14,769 8,904
---------------------------------------------------------------------------------------------------------------------------
39 DIVIDENDS
(a)Dividends of ordinary shares proposed after the balance sheet date
Pursuant to a resolution passed at the Board of Directors' meeting on 25
March 2005, a final dividend in respect of the year ended 31 December
2004 of RMB 0.08 per share totalling RMB 6,936 million was proposed for
shareholders' approval at the Annual General Meeting.
(b)Dividends of ordinary shares declared during the year
Pursuant to the shareholder's approval at the Annual General Meeting on
18 May 2004, the Board of Directors was authorised to declare the
interim dividends for the year ended 31 December 2004. According to the
resolution passed at the Directors' meeting on 27 August 2004, an
interim dividend of RMB 0.04 (2003: RMB 0.03) per share totalling RMB
3,468 million (2003: RMB 2,601 million) was declared.
Pursuant to the shareholders' approval at the Annual General Meeting on
18 May 2004, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2003 was declared and
paid on 28 June 2004.
Pursuant to the shareholders' approval at the Annual General Meeting on
10 June 2003, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2002 was declared and
paid on 30 June 2003.
40 RELATED PARTIES AND RELATED PARTY TRANSACTIONS
(a)Related parties having the ability to exercise control over the Group
The name of the company : China Petrochemical Corporation
("Sinopec Group Company")
Registered address : No. 6A, Huixin East Street,
Chaoyang District, Beijing
Principal activities : Processing crude oil into refined
products and petrochemical
products, petrochemical products
which include: petrochemical
products made from crude oil
and natural gas; production,
sale and import and export of
synthetic fibre and synthetic
fibre monomer.
Relationship with the Group : Ultimate holding company
Types of legal entity : State-owned
Authorised representative : Chen Tonghai
Registered capital : RMB 104,912 million
There is no movement in the above registered capital for the year ended
31 December 2004.
Change of the Company's equity interests held by Sinpec Group Company is
as follows:
From 1 January 2004 to 29 December 2004 55.06%
From 30 December 2004 to 31 December 2004 67.92%
110
40 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)
(b)The principal related party transactions carried out in the ordinary
course of business are as follows:
Note 2004 2003
RMB millions RMB millions
Sales of goods (i) 72,015 42,398
----------------------------------------------------------------------------------------------------------------------
Purchases (ii) 40,911 34,953
----------------------------------------------------------------------------------------------------------------------
Transportation and storage (iii) 2,003 1,835
----------------------------------------------------------------------------------------------------------------------
Exploration and development services (iv) 14,446 13,699
----------------------------------------------------------------------------------------------------------------------
Production related services (v) 9,123 8,718
Ancillary and social services (vi) 1,776 1,862
----------------------------------------------------------------------------------------------------------------------
Operating lease charges (vii) 3,365 3,116
----------------------------------------------------------------------------------------------------------------------
Agency commission income (viii) 41 41
----------------------------------------------------------------------------------------------------------------------
Intellectual property license fee paid (ix) 10 10
----------------------------------------------------------------------------------------------------------------------
Interest received (x) 59 87
----------------------------------------------------------------------------------------------------------------------
Interest paid (xi) 622 583
----------------------------------------------------------------------------------------------------------------------
Net deposits placed with /(withdrawn from) related parties (xii) 407 (1,438)
----------------------------------------------------------------------------------------------------------------------
Net loans obtained from /(paid to) related parties (xiii) 3,787 (285)
----------------------------------------------------------------------------------------------------------------------
The amounts set out in the table above in respect of the years ended 31
December 2004 and 2003 represent the relevant costs to the Group and
income from related parties as determined by the corresponding contracts
with the related parties.
At 31 December 2004 and 2003, there were no guarantees given to banks by
the Group in respect of banking facilities to Sinopec Group Company and
fellow subsidiaries.
The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course
of business and on normal commercial terms or in accordance with the
agreements governing such transactions, and this has been confirmed by
the independent non-executive directors.
Notes:
(i) Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary
materials.
(ii) Purchases represent the purchase of material and utility
supplies directly related to the Group's operations such as the
procurement of raw and ancillary materials and related services,
supply of water, electricity and gas.
(iii) Transportation and storage represent the cost for the use of
railway, road and marine transportation services, pipelines,
loading, unloading and storage facilities.
(iv) Exploration and development services comprise direct costs
incurred in the exploration and development activities oil such
as geophysical, drilling, well testing and well measurement
services.
(v) Production related services represent ancillary services rendered
in relation to the Group's operations such as equipment repair
and general maintenance, insurance premium, technical research,
communications, fire fighting, security, product quality testing
and analysis, information technology, design and engineering,
construction which includes the construction of oilfield ground
facilities, refineries and chemical plants, manufacture of
replacement parts and machinery, installation, project
management and environmental protection.
(vi) Ancillary and social services represent expenditures for social
welfare and support services such as educational facilities,
media communication services, sanitation, accommodation,
canteens, property maintenance and management services.
(vii) Operating lease charges represent the rental paid to Sinopec
Group Company for operating leases in respect of land, buildings
and service stations.
(viii)Agency commission income represents commission earned for
acting as an agent in respect of sales of products and purchase
of material for certain entities owned by Sinopec Group Company.
(ix) Intellectual property license fee represents reimbursement paid
to Sinopec Group Company for fees required to maintain the
validity of licenses for trademarks, patents, technology and
computer software.
(x) Interest received represents interest received from deposits
placed with Sinopec Finance Company Limited, a finance company
controlled by Sinopec Group Company. The applicable interest
rate is determined in accordance with the prevailing saving
deposit rate. The balances of deposits at 31 December 2004 and
2003 were RMB 4,671 million and RMB 4,264 million respectively.
(xi) Interest paid represents interest charges on the loans obtained
from Sinopec Group Company and Sinopec Finance Company Limited.
(xii) Deposits were withdrawn from/placed with Sinopec Finance Company
Limited.
(xiii)The Group obtained/repaid loans from/to Sinopec Group Company
and Sinopec Finance Company Limited. The average loan balance
for the year ended 31 December 2004, which is calculated based
on monthly average balance, was RMB 42,696 million (2003: RMB
41,247 million).
111
40 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)
In connection with the Reorganisation, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social
and supporting services to the Group and 2) the Group will sell certain
goods to Sinopec Group Company. These agreements impacted the operating
results of the Group for the year ended 31 December 2004. The terms of
these agreements are summarised as follows:
(a)The Company entered into a non-exclusive Agreement for Mutual
Provision of Products and Ancillary Services ("Mutual Provision
Agreement") with Sinopec Group Company under which Sinopec Group
Company has agreed to provide the Group with certain ancillary
production services, construction services, information advisory
services, supply services and other services and products. While each
of Sinopec Group Company and the Company is permitted to terminate
the Mutual Provision Agreement upon at least six months' notice,
Sinopec Group Company has agreed not to terminate the agreement if
the Group is unable to obtain comparable services from a third party.
The pricing policy for these services and products provided by
Sinopec Group Company to the Group is as follows:
o the government-prescribed price;
o where there is no government-prescribed price, the
government-guidance price;
o where there is neither a government-prescribed price nor a
government-guidance price, the market price; or
o where none of the above is applicable, the price to be agreed
between the parties, which shall be based on a
reasonable cost incurred in providing such services plus a profit
margin not exceeding 6%.
(b)The Company has entered into a non-exclusive Agreement for Provision
of Cultural and Educational, Health Care and Community Services with
Sinopec Group Company effective from 1 January 2000 in which Sinopec
Group Company has agreed to provide the Group with certain cultural,
educational, health care and community services on the same pricing
terms and termination conditions as agreed to in the above Mutual
Provision Agreement.
(c)The Company has entered into a number of lease agreements with
Sinopec Group Company to lease certain land and buildings at a rental
of approximately RMB 2,447 million and RMB 567 million, respectively,
per annum. The Company and Sinopec Group Company can renegotiate the
rental amount every three years for land and every year for
buildings, such amount not to exceed the market price as determined
by an independent third party. The Group has the option to terminate
these leases upon six months notice to Sinopec Group Company.
(d)The Company has entered into agreements with Sinopec Group Company
effective from 1 January 2000 under which the Group has been granted
the right to use certain trademarks, patents, technology and computer
software developed by Sinopec Group Company. The Group will reimburse
Sinopec Group Company for fees required to maintain the validity of
these licenses.
(e)The Company has entered into agency agreements effective from 1
January 2000 with certain entities owned by Sinopec Group Company
under which the Group acts as a sole agent in respect of the sale of
all the products of these entities. In exchange for the Group's sales
agency services, Sinopec Group Company has agreed to pay the Group a
commission of between 0.2% and 1.0% of actual sales receipts
depending on the products and to reimburse the Group for reasonable
costs incurred in the capacity as its sales agent.
(f)The Company has entered into a service station franchise agreement
with Sinopec Group Company under which its service station and retail
stores would exclusively sell the refined products supplied by the
Group.
(c)Balances with related parties
The balances with the Group's related parties at 31 December 2004 and
2003 are as follows:
The ultimate holding company Other related companies
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Trade accounts receivable -- -- 2,438 3,125
-------------------------------------------------------------------------------------------------------------------------------
Advance payments -- -- 350 463
-------------------------------------------------------------------------------------------------------------------------------
Other receivables 2,502 3,201 3,941 6,024
-------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable -- -- 1,527 1,028
-------------------------------------------------------------------------------------------------------------------------------
Receipts in advance -- -- 1,218 539
-------------------------------------------------------------------------------------------------------------------------------
Other creditors 4,851 4,588 4,828 9,927
-------------------------------------------------------------------------------------------------------------------------------
Short-term loans -- -- 6,714 3,896
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans (including current portion) (Note) -- -- 38,765 37,796
-------------------------------------------------------------------------------------------------------------------------------
Note:The Sinopec Group Company had borrowed an interest free loan for 20
years amounted to RMB 35,561 million to the Group through Sinopec
Finance Company Limited which was included in the long-term loans.
As discussed in Note 1, pursuant to the resolutions passed at the
Extraordinary General Meeting held on 21 December 2004, the Company
acquired the equity interests of Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants from Sinopec Group Company for a total consideration
payable of RMB 3,128 million. In addition, the Company acquired certain
individual assets and liabilities from Sinopec Group Company for a total
consideration payable of RMB 2,232 million. In connection with these
acquisitions, the Group disposed of Downhole Assets to Sinopec Group
Company for a consideration receivable of RMB 1,712 million, resulting
in a net consideration of RMB 3,648 million payable to Sinopec Group
Company.
112
41 PRINCIPAL SUBSIDIARIES
The Company's principal subsidiaries are limited companies operating in the
PRC and had been consolidated into the Group's financial statements for the
year ended 31 December 2004. Except for Sinopec Kantons Holdings Limited,
which is incorporated in Bermuda, the companies below are incorporated in
the PRC. The following list contains the particulars of subsidiaries which
principally affected the results or assets of the Group:
Percentage of
equity interest
Registered held by the
Name of enterprise capital Company Principal activities
RMB millions %
China Petrochemical International Company Limited 1,400 100.00 Trading of crude oil and
petrochemical products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanhua Petrochemical Company Limited 3,374 70.01 Manufacturing of chemical products
Sinopec Sales Company Limited 1,700 100.00 Marketing and distribution of refined
petroleum products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company Limited 29,000 100.00 Exploration and production of crude
oil and natural gas
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical Company Limited 2,253 (i) 50.00 Manufacturing of plastics,
intermediate petrochemical products
and petroleum products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical Company Limited 1,950 82.05 Manufacturing of intermediate
petrochemical products and
petroleum products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical Company Limited 7,200 55.56 Manufacturing of synthetic fibres,
resin and plastics, intermediate
petrochemical products and petroleum
products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining Chemical Company Limited 1,154 79.73 Manufacturing of intermediate
petrochemical products and petroleum
products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings Limited HK$104 72.40 Trading of crude oil and petroleum
products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum Group Company Limited 147 (i) 46.25 Marketing and distribution of
refined petroleum products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix Company Limited 519 (i) 40.72 Manufacturing of petrochemical
products and petroleum products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 2,330 84.98 Manufacturing of intermediate
petrochemical products and petroleum
products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre Company Limited 4,000 (i) 42.00 Production and sale of polyester
chips and polyester fibres
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and Chemical Company Limited 2,524 71.32 Manufacturing of intermediate
petrochemical products and petroleum
products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum Company Limited 875 70.85 Exploration and production of crude
oil and natural gas
--------------------------------------------------------------------------------------------------------------------------------
Zhongyuan Petrochenmical Company Limited 2,400 93.51 Manufacturing of chemical products
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) Petroleum 830 60.00 Marketing and distribution of
refined petroleum Marketing Company
Limited products
--------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) Petroleum Company Limited 800 60.00 Marketing and distribution of
refined petroleum products
--------------------------------------------------------------------------------------------------------------------------------
(i)The Company consolidated the results of these entities because the
Company controlled the board of these entities and had the power to
govern their financial and operating policies.
42 PRINCIPAL JOINTLY CONTROLLED ENTITIES
At 31 December 2004, the Group's principal jointly controlled entities are
as follows:
Registered Percentage of
capital/paid-up equity interest
Name of jointly controlled entities capital held by the Group Principal activities
%
Shanghai Secco Petrochemical Registered capital 50.00 Manufacturing and distribution
Company Limited USD 901,440,964 of petrochemical products
------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Registered capital 50.00 Manufacturing and distribution
Gasification Company Limited USD 45,588,700 of industrial gas
------------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western Area -- 43.00 Exploration and production
Chenda in Bohai Bay of crude oil and natural gas
------------------------------------------------------------------------------------------------------------------------------
113
43 COMMITMENTS
Operating lease commitments
The Group and the Company lease service stations and other equipment
through non-cancellable operating leases. These operating leases do not
contain provisions for contingent lease rentals. None of the rental
agreements contain escalation provisions that may require higher future
rental payments.
At 31 December 2004, the future minimum lease payments of the Group and the
Company under operating leases are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 3,452 3,276 3,272 3,175
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 3,343 3,229 3,237 3,133
-----------------------------------------------------------------------------------------------------------------------------
Between two and three years 3,278 3,200 3,213 3,114
-----------------------------------------------------------------------------------------------------------------------------
Between three and four years 3,245 3,175 3,188 3,095
-----------------------------------------------------------------------------------------------------------------------------
Between four and five years 3,225 3,162 3,170 3,087
-----------------------------------------------------------------------------------------------------------------------------
After five years 97,527 99,619 95,968 98,253
-----------------------------------------------------------------------------------------------------------------------------
Total 114,070 115,661 112,048 113,857
-----------------------------------------------------------------------------------------------------------------------------
Capital commitments
At 31 December 2004, capital commitments are as follows:
2004 2003
RMB millions RMB millions
The Group
----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 43,001 48,107
----------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 60,173 47,716
----------------------------------------------------------------------------------------------------------------------------
103,174 95,823
----------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities
----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 3,157 6,923
----------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 2,088 3,432
----------------------------------------------------------------------------------------------------------------------------
5,245 10,355
----------------------------------------------------------------------------------------------------------------------------
The Company
----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 28,143 32,210
----------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 37,619 36,029
----------------------------------------------------------------------------------------------------------------------------
65,762 68,239
----------------------------------------------------------------------------------------------------------------------------
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interests in associates.
Exploration and production licenses
Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the
license is issued. The Ministry of Land and Resources also issues
production licenses to the Group on the basis of the reserve reports
approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation was given by the State
Council. The maximum term of the production licenses issued to the Group is
55 years as a special dispensation was given to the Group by the State
Council. The Group's production license is renewable upon application by
the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB
189 million for the year ended 31 December 2004 (2003: RMB 97 million).
Estimated future annual payments are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 90 87 60 69
----------------------------------------------------------------------------------------------------------------------------
Between one and two years 120 117 85 88
----------------------------------------------------------------------------------------------------------------------------
Between two and three years 75 87 47 54
----------------------------------------------------------------------------------------------------------------------------
Between three and four years 67 72 55 42
----------------------------------------------------------------------------------------------------------------------------
Between four and five years 74 65 64 52
----------------------------------------------------------------------------------------------------------------------------
After five years 279 361 143 212
----------------------------------------------------------------------------------------------------------------------------
Total 705 789 454 517
----------------------------------------------------------------------------------------------------------------------------
114
44 CONTINGENT LIABILITIES
(a)The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the business
assumed by the Company in the Reorganisation, no other liabilities were
assumed by the Company, and the Company is not jointly and severally
liable for other debts and obligations incurred by Sinopec Group Company
prior to the Reorganisation.
(b)At 31 December 2004, guarantees given by the Group and the Company to
banks in respect of banking facilities granted to the parties below are
as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 2,656 173
------------------------------------------------------------------------------------------------------------------------------
Associates and jointly controlled entities 4,828 4,955 12,059 12,084
------------------------------------------------------------------------------------------------------------------------------
Total 4,828 4,955 14,715 12,257
------------------------------------------------------------------------------------------------------------------------------
The Company monitors the conditions that are subject to the guarantees to
identify whether it is probable that a loss has occurred, and recognises
any such losses under guarantees when those losses are estimable. At 31
December 2004 and 31 December 2003, it is not probable that the Company
will be required to make payments under the guarantees. Thus no liability
has been accrued relating to the Company's obligation under these guarantee
arrangements.
Environmental contingencies
To date, the Group has not incurred any significant expenditures for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC
government, however, has moved and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to
considerable uncertainties which affect the Group's ability to estimate the
ultimate cost of remediation efforts. These uncertainties include: i) the
exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold; ii) the extent
of required cleanup efforts; iii) varying costs of alternative remediation
strategies; iv) changes in environmental remediation requirements; and v)
the identification of new remediation sites. The amount of such future cost
is indeterminable due to such factors as the unknown magnitude of possible
contamination and the unknown timing and extent of the corrective actions
that may be required. Accordingly, the outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. The Group paid normal routine
pollutant discharge fee of approximately RMB 248 million for the year ended
31 December 2004 (2003: RMB 245 million).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities
will not have a material adverse effect on the financial position or
operating results of the Group.
45 SEGMENTAL INFORMATION
The Group has five operating segments as follows:
(i) Exploration and production - which explores and develops oil fields,
produces crude oil and natural gas and sells such products to the
refining segment of the Group and external customers.
(ii) Refining - which processes and purifies crude oil, which is sourced
from the exploration and production segment of the Group and
external suppliers, and manufactures and sells petroleum products
to the chemicals and marketing and distribution segments of the
Group and external customers.
(iii) Marketing and distribution - which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals - which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products to
external customers.
(v) Others - which largely comprise the trading activities of the import
and export companies of the Group and research and development
undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production, refining, marketing and distribution,
chemicals, and others businesses separately. The reportable segments are
each managed separately because they manufacture and/or distribute distinct
products with different production processes and due to their distinct
operating and gross margin characteristics. In view of the fact that the
Company and its subsidiaries operate mainly in the PRC, no geographical
segment information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of
the Group's segments are the same as those described in the principal
accounting policies (see Note 2). Corporate administrative costs and assets
are not allocated to the operating segments; instead, operating segments
are billed for direct corporate services. Inter-segment transfer pricing is
based on cost plus an appropriate margin, as specified by the Group's
policy.
115
45 SEGMENTAL INFORMATION (Continued)
Reportable information on the Group's business segments is as follows:
2004 2003
RMB millions RMB millions
Income from principal operations
----------------------------------------------------------------------------------------------------------------------
Exploration and production
External sales 16,109 14,936
----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 59,914 47,287
----------------------------------------------------------------------------------------------------------------------
76,023 62,223
----------------------------------------------------------------------------------------------------------------------
Refining
----------------------------------------------------------------------------------------------------------------------
External sales 71,333 57,887
----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 281,215 208,366
----------------------------------------------------------------------------------------------------------------------
352,548 266,253
----------------------------------------------------------------------------------------------------------------------
Marketing and distribution
----------------------------------------------------------------------------------------------------------------------
External sales 342,840 238,210
----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 2,831 2,602
----------------------------------------------------------------------------------------------------------------------
345,671 240,812
----------------------------------------------------------------------------------------------------------------------
Chemicals
----------------------------------------------------------------------------------------------------------------------
External sales 112,078 74,919
----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 10,040 7,415
----------------------------------------------------------------------------------------------------------------------
122,118 82,334
----------------------------------------------------------------------------------------------------------------------
Others
----------------------------------------------------------------------------------------------------------------------
External sales 48,272 31,239
----------------------------------------------------------------------------------------------------------------------
Inter-segment sales 30,873 29,361
----------------------------------------------------------------------------------------------------------------------
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 36,073 31,596
----------------------------------------------------------------------------------------------------------------------
Refining 340,360 254,360
----------------------------------------------------------------------------------------------------------------------
Marketing and distribution 306,309 210,456
----------------------------------------------------------------------------------------------------------------------
Chemicals 96,994 73,116
----------------------------------------------------------------------------------------------------------------------
Others 78,410 59,984
----------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment cost of sales (382,736) (293,037)
----------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges 475,410 336,475
Profit from principal operations
----------------------------------------------------------------------------------------------------------------------
Exploration and production 37,997 28,785
----------------------------------------------------------------------------------------------------------------------
Refining 12,005 11,741
----------------------------------------------------------------------------------------------------------------------
Marketing and distribution 39,362 30,356
----------------------------------------------------------------------------------------------------------------------
Chemicals 25,123 9,218
----------------------------------------------------------------------------------------------------------------------
Others 735 616
----------------------------------------------------------------------------------------------------------------------
Profit from principal operations 115,222 80,716
----------------------------------------------------------------------------------------------------------------------
46 POST BALANCE SHEET EVENTS
On 29 December 2004, the Group announced its proposal to privatise Sinopec
Beijing Yanhua Petrochemical Company Limited ("Beijing Yanhua"), a
non-wholly owned subsidiary in which the Group holds approximately 70% of
the equity interests. According to the proposal, the Group will acquire the
entire 1,012,000,000 H shares, representing approximately 30% of the issued
share capital of Beijing Yanhua at HK$ 3.80 per share. The total
consideration required to be paid by the Group was approximately HK$ 3,846
million which will be settled in cash.
Pursuant to the resolution passed in the Special General Meeting of Beijing
Yanhua on 4 March 2005, the shareholders of the H shares in Beijing Yanhua
agreed to dispose of and sell their shares in Beijing Yanhua to the Group
at the above mentioned price, subject to the approval from the relevant PRC
governmental and regulatory bodies.
116
47 ITEMS UNDER NON-OPERATING PROFITS/LOSSES
Pursuant to "Questions and answers in the prepayment of information
disclosures of companies issuing public shares, No.1?Extraordinary gain and
loss" (2004 revised), the extraordinary gains and losses of the Group are
as follows:
2004 2003
RMB millions RMB millions
Items under non-operating profits/losses for the year:
-------------------------------------------------------------------------------------------------------------------------------
Loss on disposal of fixed assets 4,304 3,459
-------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses 919 1,014
-------------------------------------------------------------------------------------------------------------------------------
Donations 275 132
-------------------------------------------------------------------------------------------------------------------------------
(Gain)/loss on disposal of long-term equity investments (2) 23
-------------------------------------------------------------------------------------------------------------------------------
Other non-operating income and expenses, excluding impairment losses on long-lived assets 380 497
-------------------------------------------------------------------------------------------------------------------------------
Written back of provisions for impairment losses in previous years (322) (205)
-------------------------------------------------------------------------------------------------------------------------------
Tax effect (1,833) (1,624)
-------------------------------------------------------------------------------------------------------------------------------
Total 3,721 3,296
-------------------------------------------------------------------------------------------------------------------------------
48 OTHER SIGNIFICANT EVENTS
The Group had no any other significant event required to disclose as at the
approval date of these financial statements.
117
REPORT OF THE INTERNATIONAL AUDITORS
KPMG [LOGO GRAPHIC OMITTED]
To the Shareholders of
China Petroleum & Chemical Corporation
(Established in The People's Republic of China with limited liability)
We have audited the financial statements on pages 127 to 158 which have been
prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing financial statements
which give a true and fair view it is fundamental that appropriate accounting
policies are selected and applied consistently, that judgements and estimates
are made which are prudent and reasonable and that the reasons for any
significant departure from applicable accounting standards are stated.
It is our responsibility to form an independent opinion, based on our audit, on
those financial statements and to report our opinion solely to you, as a body,
and for no other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
BASIS OF OPINION
We conducted our audit in accordance with Statements of Auditing Standards
issued by the Hong Kong Institute of Certified Public Accountants. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation
of the financial statements, and of whether the accounting policies are
appropriate to the Company's and the Group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 2004 and of the
Group's profit and cash flows for the year then ended and have been properly
prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board and the disclosure
requirements of the Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
Hong Kong, China, 25 March 2005
118
(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING
STANDARDS ("IFRS") CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2004
(Amounts in millions, except per share data)
Note 2004 2003
RMB RMB
Turnover and other operating revenues
------------------------------------------------------------------------------------------------------------------------------
Turnover 3 597,197 429,949
------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 4 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 5 (31,843) (27,228)
------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation (32,342) (27,951)
------------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes (6,396) (6,133)
------------------------------------------------------------------------------------------------------------------------------
Personnel expenses 6 (18,634) (16,972)
------------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses 7 (919) (1,040)
Taxes other than income tax 8 (16,324) (13,581)
------------------------------------------------------------------------------------------------------------------------------
Other operating expenses, net 9 (6,666) (3,975)
------------------------------------------------------------------------------------------------------------------------------
Total operating expenses (556,714) (410,118)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Operating profit 63,069 38,883
------------------------------------------------------------------------------------------------------------------------------
Finance costs
------------------------------------------------------------------------------------------------------------------------------
Interest expense 10 (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
------------------------------------------------------------------------------------------------------------------------------
Profit from ordinary activities before taxation 59,606 35,041
------------------------------------------------------------------------------------------------------------------------------
Taxation 11 (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 15 0.42 0.26
------------------------------------------------------------------------------------------------------------------------------
Dividends attributable to the year: 16
------------------------------------------------------------------------------------------------------------------------------
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
The notes on pages 133 to 158 form part of these financial statements.
119
CONSOLIDATED BALANCE SHEET
at 31 December 2004
(Amounts in millions)
Note 2004 2003
RMB RMB
Non-current assets
-----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 17 284,123 270,731
-----------------------------------------------------------------------------------------------------------------------------
Construction in progress 18 46,185 29,354
-----------------------------------------------------------------------------------------------------------------------------
Investments 20 2,538 2,709
-----------------------------------------------------------------------------------------------------------------------------
Interests in associates 21 10,222 8,121
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 27 4,558 3,067
-----------------------------------------------------------------------------------------------------------------------------
Lease prepayments 750 810
-----------------------------------------------------------------------------------------------------------------------------
Long-term prepayments and other assets 23 5,947 2,353
-----------------------------------------------------------------------------------------------------------------------------
Total non-current assets 354,323 317,145
-----------------------------------------------------------------------------------------------------------------------------
Current assets
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 16,381 16,263
-----------------------------------------------------------------------------------------------------------------------------
Time deposits with financial institutions 1,899 2,184
-----------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 24 9,756 9,479
-----------------------------------------------------------------------------------------------------------------------------
Bills receivable 24 7,812 6,283
-----------------------------------------------------------------------------------------------------------------------------
Inventories 25 64,329 47,916
-----------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 26 20,094 20,914
-----------------------------------------------------------------------------------------------------------------------------
Total current assets 120,271 103,039
-----------------------------------------------------------------------------------------------------------------------------
Current liabilities
-----------------------------------------------------------------------------------------------------------------------------
Short-term debts 28 32,307 29,181
-----------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 28 8,714 4,865
-----------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 29 23,792 23,319
-----------------------------------------------------------------------------------------------------------------------------
Bills payable 29 30,797 24,267
-----------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 30 45,276 43,561
-----------------------------------------------------------------------------------------------------------------------------
Income tax payable 5,391 4,079
-----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 146,277 129,272
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net current liabilities (26,006) (26,233)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 328,317 290,912
-----------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
-----------------------------------------------------------------------------------------------------------------------------
Long-term debts 28 60,822 48,257
-----------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 28 36,765 39,039
-----------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 27 5,636 4,599
-----------------------------------------------------------------------------------------------------------------------------
Other liabilities 1,008 1,451
-----------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 104,231 93,346
-----------------------------------------------------------------------------------------------------------------------------
Minority interests 31,046 26,051
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Net assets 193,040 171,515
-----------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------
Share capital 31 86,702 86,702
-----------------------------------------------------------------------------------------------------------------------------
Reserves 106,338 84,813
-----------------------------------------------------------------------------------------------------------------------------
193,040 171,515
-----------------------------------------------------------------------------------------------------------------------------
Approved and authorised for issue by the board of directors on 25 March 2005
CHEN TONGHAI WANG JIMING ZHANG JIAREN
Chairman Vice Chairman and President Director, Senior Vice President and
Chief Financial Officer
The notes on pages 133 to 158 form part of these financial statements.
120
BALANCE SHEET
at 31 December 2004
(Amounts in millions)
Note 2004 2003
RMB RMB
Non-current assets
------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 17 158,011 143,274
------------------------------------------------------------------------------------------------------------------------------
Construction in progress 18 28,948 20,631
------------------------------------------------------------------------------------------------------------------------------
Interests in subsidiaries 19 118,451 96,707
------------------------------------------------------------------------------------------------------------------------------
Investments 20 158 605
------------------------------------------------------------------------------------------------------------------------------
Interests in associates 21 7,540 5,983
------------------------------------------------------------------------------------------------------------------------------
Interests in jointly controlled entities 22 3,568 1,043
------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 27 3,724 2,196
------------------------------------------------------------------------------------------------------------------------------
Long-term prepayments and other assets 23 3,660 1,519
------------------------------------------------------------------------------------------------------------------------------
Total non-current assets 324,060 271,958
------------------------------------------------------------------------------------------------------------------------------
Current assets
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 6,051 7,259
------------------------------------------------------------------------------------------------------------------------------
Time deposits with financial institutions 248 236
------------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 24 8,245 7,311
------------------------------------------------------------------------------------------------------------------------------
Bills receivable 24 1,597 1,612
------------------------------------------------------------------------------------------------------------------------------
Inventories 25 34,044 24,736
------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 26 26,471 29,407
------------------------------------------------------------------------------------------------------------------------------
Total current assets 76,656 70,561
------------------------------------------------------------------------------------------------------------------------------
Current liabilities
------------------------------------------------------------------------------------------------------------------------------
Short-term debts 28 20,033 15,071
------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 28 7,727 3,265
------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 29 21,137 18,646
------------------------------------------------------------------------------------------------------------------------------
Bills payable 29 21,589 18,170
------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 30 45,565 35,337
------------------------------------------------------------------------------------------------------------------------------
Income tax payable 3,142 2,014
------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 119,193 92,503
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net current liabilities (42,537) (21,942)
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 281,523 250,016
------------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
------------------------------------------------------------------------------------------------------------------------------
Long-term debts 28 49,515 37,169
------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 28 36,317 38,954
------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 27 2,025 1,425
------------------------------------------------------------------------------------------------------------------------------
Other liabilities 626 953
------------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 88,483 78,501
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
Net assets 193,040 171,515
------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
------------------------------------------------------------------------------------------------------------------------------
Share capital 31 86,702 86,702
------------------------------------------------------------------------------------------------------------------------------
Reserves 106,338 84,813
------------------------------------------------------------------------------------------------------------------------------
193,040 171,515
------------------------------------------------------------------------------------------------------------------------------
Approved and authorised for issue by the board of directors on 25 March 2005
CHEN TONGHAI WANG JIMING ZHANG JIAREN
Chairman Vice Chairman and President Director, Senior Vice President and
Chief Financial Officer
The notes on pages 133 to 158 form part of these financial statements.
121
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2004
(Amounts in millions)
Note 2004 2003
RMB RMB
Cash flows from operating activities (a) 69,081 62,097
----------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities
----------------------------------------------------------------------------------------------------------------------------
Capital expenditure (67,583) (44,434)
----------------------------------------------------------------------------------------------------------------------------
Capital expenditure of jointly controlled entities (6,035) (4,107)
----------------------------------------------------------------------------------------------------------------------------
Purchase of investments and investments in associates (1,162) (1,519)
----------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of investments and investments in associates 186 141
----------------------------------------------------------------------------------------------------------------------------
Proceeds from disposal of property, plant and equipment 317 400
----------------------------------------------------------------------------------------------------------------------------
Increase in time deposits with financial institutions (1,932) (2,871)
----------------------------------------------------------------------------------------------------------------------------
Maturity of time deposits with financial institutions 2,217 1,700
----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (73,992) (50,690)
----------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities
----------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans 399,440 235,163
----------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans of jointly controlled entities 3,014 1,450
----------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of corporate bonds, net of issuing expenses 3,472 --
Repayments of bank and other loans (388,809) (243,503)
----------------------------------------------------------------------------------------------------------------------------
Distributions to minority interests (775) (360)
----------------------------------------------------------------------------------------------------------------------------
Contributions from minority interests 1,008 580
----------------------------------------------------------------------------------------------------------------------------
Dividend paid (8,670) (7,803)
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalent distributed to Sinopec Group Company (3,652) --
----------------------------------------------------------------------------------------------------------------------------
Net cash from/(used in) financing activities 5,028 (14,473)
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Net increase/(decrease) in cash and cash equivalents 117 (3,066)
----------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate 1 5
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of the year 16,263 19,324
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year 16,381 16,263
----------------------------------------------------------------------------------------------------------------------------
The notes on pages 133 to 158 form part of these financial statements.
122
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2004
(Amounts in millions)
(a) Reconciliation of profit from ordinary activities before taxation to cash
flows from operating activities
2004 2003
RMB RMB
Profit from ordinary activities before taxation 59,606 35,041
-----------------------------------------------------------------------------------------------------------------------------
Adjustments for:
-----------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation 32,342 27,951
-----------------------------------------------------------------------------------------------------------------------------
Dry hole costs 2,976 2,789
-----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates (797) (396)
-----------------------------------------------------------------------------------------------------------------------------
Investment income (111) (89)
-----------------------------------------------------------------------------------------------------------------------------
Interest income (374) (322)
-----------------------------------------------------------------------------------------------------------------------------
Interest expense 4,583 4,365
-----------------------------------------------------------------------------------------------------------------------------
Gain from issuance of shares by a subsidiary -- (136)
-----------------------------------------------------------------------------------------------------------------------------
Unrealised foreign exchange losses 150 289
-----------------------------------------------------------------------------------------------------------------------------
Loss on disposal of property, plant and equipment, net 1,686 2,238
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets 3,919 877
-----------------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in trade accounts receivable (494) 1,487
-----------------------------------------------------------------------------------------------------------------------------
Increase in bills receivable (1,529) (1,031)
-----------------------------------------------------------------------------------------------------------------------------
(Increase)/decrease in inventories (16,526) 449
-----------------------------------------------------------------------------------------------------------------------------
Decrease in prepaid expenses and other current assets 3,022 981
-----------------------------------------------------------------------------------------------------------------------------
Decrease in lease prepayments 60 19
-----------------------------------------------------------------------------------------------------------------------------
Increase in long-term prepayments and other assets (4,199) (781)
-----------------------------------------------------------------------------------------------------------------------------
Increase in trade accounts payable 599 3,283
-----------------------------------------------------------------------------------------------------------------------------
Increase/(decrease) in bills payable 6,530 (6,544)
-----------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in accrued expenses and other payables (391) 5,715
-----------------------------------------------------------------------------------------------------------------------------
(Decrease)/increase in other liabilities (334) 38
-----------------------------------------------------------------------------------------------------------------------------
Cash generated from operations 90,718 76,223
-----------------------------------------------------------------------------------------------------------------------------
Interest received 374 313
-----------------------------------------------------------------------------------------------------------------------------
Interest paid (5,450) (5,392)
-----------------------------------------------------------------------------------------------------------------------------
Investment and dividend income received 322 449
-----------------------------------------------------------------------------------------------------------------------------
Income tax paid (16,883) (9,496)
-----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities 69,081 62,097
-----------------------------------------------------------------------------------------------------------------------------
The notes on pages 133 to 158 form part of these financial statements.
123
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS for the year ended 31
December 2004 (Amounts in millions, except per share data)
Statutory Discre-
Statutory public tionary
Share Capital ShareRevaluation surplus welfare surplus Other Retained
capital reserve premium reserve reserve fund reserve reserves earnings Total
RMB RMB RMB RMB RMB RMB RMB RMB RMB RMB
Shareholders' funds at 1
January 2003, as previously
reported 86,702 (18,878) 18,072 31,641 4,429 4,429 7,000 9,579 20,849 163,823
---------------------------------------------------------------------------------------------------------------------------------
Adjusted for acquisition of the
Acquired Group -- -- -- -- -- -- -- 2,954 -- 2,954
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at 1 January
2003, as adjusted 86,702 (18,878) 18,072 31,641 4,429 4,429 7,000 12,533 20,849 166,777
---------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2002 (Note 16) -- -- -- -- -- -- -- -- (5,202) (5,202)
---------------------------------------------------------------------------------------------------------------------------------
Interim dividend for 2003 (Note 16) -- -- -- -- -- -- -- -- (2,601) (2,601)
---------------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders -- -- -- -- -- -- -- -- 22,424 22,424
---------------------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a) and (b)) -- -- -- -- 1,901 1,901 -- -- (3,802) --
---------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised -- -- -- (1,316) -- -- -- -- 1,316 --
Revaluation surplus of Refining
Assets -- (82) -- 16 -- -- -- 82 -- 16
---------------------------------------------------------------------------------------------------------------------------------
Deferred tax effect of surplus
on land use rights (Note 27) -- -- -- -- -- -- -- 16 -- 16
---------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on
land use rights -- -- -- -- -- -- -- (5) 5 --
---------------------------------------------------------------------------------------------------------------------------------
Transfer from retained earnings
to other reserves -- -- -- -- -- -- -- 1,157 (1,157)
--
---------------------------------------------------------------------------------------------------------------------------------
Net assets distributed to Sinopec
Group Company (Note (e)) -- -- -- -- -- -- -- (6,263) -- (6,263)
---------------------------------------------------------------------------------------------------------------------------------
Consideration for Acquisitions of
Ethylene Assets and Refining Assets
(Note 1) -- -- -- -- -- -- -- (3,652) -- (3,652)
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at 31
December 2003 86,702 (18,960) 18,072 30,341 6,330 6,330 7,000 3,868 31,832 171,515
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at
1 January 2004 86,702 (18,960) 18,072 30,341 6,330 6,330 7,000 3,868 31,832 171,515
---------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2003 (Note 16) -- -- -- -- -- -- -- -- (5,202) (5,202)
---------------------------------------------------------------------------------------------------------------------------------
Interim dividend for 2004 (Note 16) -- -- -- -- -- -- -- -- (3,468) (3,468)
---------------------------------------------------------------------------------------------------------------------------------
Profit attributable to shareholders -- -- -- -- -- -- -- -- 36,019 36,019
---------------------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a) and (b)) -- -- -- -- 3,228 3,228 -- -- (6,456) --
---------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised -- -- -- (1,891) -- -- -- -- 1,891 --
---------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus of Petrochemical
and Catalyst Assets -- (257) -- 257 -- -- -- 257 -- 257
---------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land
use rights -- -- -- -- -- -- -- (5) 5 --
---------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets
(Note 9) -- -- -- (709) -- -- -- -- -- (709)
---------------------------------------------------------------------------------------------------------------------------------
Transfer from retained earnings to
other reserves -- -- -- -- -- -- -- 1,499 (1,499) --
---------------------------------------------------------------------------------------------------------------------------------
Net assets distributed to Sinopec
Group Company (Note (e)) -- -- -- -- -- -- -- (2,244) -- (2,244)
---------------------------------------------------------------------------------------------------------------------------------
Consideration for Acquisition of
Petrochemical and Catalyst Assets
(Note 1) -- -- -- -- -- -- -- (3,128) -- (3,128)
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds at
31 December 2004 86,702 (19,217) 18,072 27,998 9,558 9,558 7,000 247 53,122 193,040
---------------------------------------------------------------------------------------------------------------------------------
Notes:
(a) According to the Company's Articles of Association, the Company is required
to transfer 10% of its net profit, as determined in accordance with the PRC
Accounting Rules and Regulations, to statutory surplus reserve until the
reserve balance reaches 50% of the registered capital. The transfer to this
reserve must be made before distribution of a dividend to shareholders.
Statutory surplus reserve can be used to make good previous years' losses,
if any, and may be converted into share capital by the issue of new shares
to shareholders in proportion to their existing shareholdings or by
increasing the par value of the shares currently held by them, provided
that the balance after such issue is not less than 25% of the registered
capital. During the year ended 31 December 2004, the Company transferred
RMB 3,228 million (2003: RMB 1,901 million), being 10% of the current
year's net profit determined in accordance with the PRC Accounting Rules
and Regulations, to this reserve.
(b) According to the Company's Articles of Association, the Company is required
to transfer 5% to 10% of its net profit, as determined in accordance with
the PRC Accounting Rules and Regulations, to the statutory public welfare
fund. This fund can only be utilised on capital items for the collective
benefits of the Company's employees such as the construction of
dormitories, canteen and other staff welfare facilities. This fund is
non-distributable other than on liquidation. The transfer to this fund must
be made before distribution of a dividend to shareholders.
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2004, the Board of Directors was authorised to determine the amount of
the transfer for the six-month period ended 30 June 2004. The directors
authorised the transfer of RMB 1,504 million (2003: RMB 977 million), being
10% of the net profit for the six-month period ended 30 June 2004
determined in accordance with the PRC Accounting Rules and Regulations, to
this fund.
The directors authorised the transfer of RMB 1,724 million (2003: RMB 924
million), subject to the shareholders' approval, being 10% of the net
profit for the six-month period ended 31 December 2004 determined in
accordance with the PRC Accounting Rules and Regulations, to this fund.
(c) The usage of the discretionary surplus reserve is similar to that of
statutory surplus reserve.
(d) According to the Company's Articles of Association, the amount of retained
profits available for distribution to shareholders of the Company is the
lower of the amount determined in accordance with the PRC Accounting Rules
and Regulations and the amount determined in accordance with IFRS. At 31
December 2004, the amount of retained profits available for distribution
was RMB 37,124 million (2003: RMB 19,732 million), being the amount
determined in accordance with the PRC Accounting Rules and Regulations.
Final dividend of RMB 6,936 million (2003: RMB 5,202 million) proposed
after the balance sheet date has not been recognised as a liability at the
balance sheet date.
(e) These represent net assets contributed from and distributed to Sinopec
Group Company for no monetary consideration. The net assets distributed to
Sinopec Group Company during the year ended 31 December 2004 primarily
represent certain assets retained by Sinopec Group Company in connection
with the Acquisition of Petrochemical and Catalyst Assets. The net assets
distributed to Sinopec Group Company during the year ended 31 December 2003
primarily represent certain assets retained by Sinopec Group Company in
connection with the Acquisition of Ethylene Assets and the Acquisition of
Refining Assets. These transactions were recorded at historical cost and
was reflected as changes in other reserves in the year the acquisitions
occurred.
(f) The capital reserve represents (i) the difference between the total amount
of the par value of shares issued and the amount of the net assets
transferred from Sinopec Group Company in connection with the
Reorganisation and (ii) the difference between the considerations paid over
the amount of the net assets acquired from Sinopec National Star, Sinopec
Maoming, Xi'an Petrochemical, Tahe Petrochemical, Tianjin Petrochemical,
Luoyang Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants.
(g) The application of the share premium account is governed by Sections 178
and 179 of the PRC Company Law.
The notes on pages 133 to 158 form part of these financial statements.
124
NOTES ON THE FINANCIAL STATEMENTS
for the year ended 31 December 2004
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION
Principal activities
China Petroleum & Chemical Corporation (the "Company") is an energy and
chemical company that, through its subsidiaries (hereinafter collectively
referred to as the "Group"), engages in fully integrated oil and gas and
chemical operations in the People's Republic of China (the "PRC"). Oil and
gas operations consist of exploring for, developing and producing crude oil
and natural gas; transporting crude oil, natural gas and products by
pipelines; refining crude oil into finished petroleum products; and
marketing crude oil, natural gas and refined petroleum products. Chemical
operations include the manufacture and marketing of a wide range of
chemicals for industrial uses.
Organisation
The Company was established in the PRC on 25 February 2000 as a joint stock
limited company as part of the reorganisation (the "Reorganisation") of
China Petrochemical Corporation ("Sinopec Group Company"), the ultimate
holding company of the Group and a ministry-level enterprise under the
direct supervision of the State Council of the PRC. Prior to the
incorporation of the Company, the oil and gas and chemical operations of
the Group were carried on by oil administration bureaux, petrochemical and
refining production enterprises and sales and marketing companies of
Sinopec Group Company.
As part of the Reorganisation, certain of Sinopec Group Company's core oil
and gas and chemical operations and businesses together with the related
assets and liabilities that were to be transferred to the Company were
segregated such that the operations and businesses were separately managed
beginning 31 December 1999. On 25 February 2000, in consideration for
Sinopec Group Company transferring such oil and gas and chemical operations
and businesses and the related assets and liabilities to the Company, the
Company issued 68.8 billion domestic state-owned ordinary shares with a par
value of RMB 1.00 each to Sinopec Group Company. The shares issued to
Sinopec Group Company on 25 February 2000 represented the entire registered
and issued share capital of the Company at that date. The oil and gas and
chemical operations and businesses transferred to the Company related to
(i) the exploration, development and production of crude oil and natural
gas, (ii) the refining, transportation, storage and marketing of crude oil
and petroleum products, and (iii) the production and sale of chemicals
(collectively the "Predecessor Operations").
Basis of presentation
Pursuant to the resolution passed at the Extraordinary General Meeting held
on 24 August 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from
Sinopec Group Company for a consideration of RMB 6.45 billion (hereinafter
referred to as the "Acquisition of Sinopec National Star").
Pursuant to the resolution passed at the Directors' meeting on 28 October
2003, the Group acquired the equity interest of Sinopec Group Maoming
Petrochemical Company ("Sinopec Maoming") from Sinopec Group Company, for a
consideration of RMB 3.3 billion, which was paid in 2004 (hereinafter
referred to as the "Acquisition of Ethylene Assets").
Pursuant to the resolution passed at the Directors' meeting on 29 December
2003, the Group acquired the equity interest of Xi'an Petrochemical Main
Factory ("Xi'an Petrochemical") and Tahe Oilfield Petrochemical Factory
("Tahe Petrochemical") from Sinopec Group Company, for considerations of
RMB 221 million and RMB 135 million, respectively which were paid in 2004
(hereinafter referred to as the "Acquisition of Refining Assets").
Pursuant to the resolutions passed at the Extraordinary General Meeting
held on 21 December 2004, the Group acquired the equity interest of Sinopec
Group Tianjin Petrochemical Company ("Tianjin Petrochemical"), Sinopec
Group Luoyang Petrochemical General Plant ("Luoyang Petrochemical"),
Zhongyuan Petrochemical Company Limited. ("Zhongyuan Petrochemical"),
Sinopec Group Guangzhou Petrochemical General Plant ("Guangzhou
Petrochemical") and certain catalyst plants ("Catalyst Plants") from
Sinopec Group Company for a total consideration of RMB 3,128 million
(hereinafter referred to as the "Acquisition of Petrochemical and Catalyst
Assets").
As the Group, Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical,
Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants are under the
common control of Sinopec Group Company, the Acquisition of Sinopec
National Star, the Acquisition of Ethylene Assets, the Acquisition of
Refining Assets and the Acquisition of Petrochemical and Catalyst Assets
are considered as "combination of entities under common control" which are
accounted in a manner similar to a pooling-of-interests ("as-if
pooling-of-interests accounting"). Accordingly, the assets and liabilities
acquired from Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical,
Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants have been
accounted for at historical cost and the financial statements of the Group
for periods prior to the combination have been restated to include the
results of operations of Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants on a combined basis. In connection with these acquisitions,
certain assets, primarily property, plant and equipment and construction in
progress, were retained by Sinopec Group Company. The assets retained by
Sinopec Group Company were reflected as a distribution in the shareholders'
funds. The considerations for these acquisitions were treated as equity
transactions.
The financial condition and results of operations previously reported by
the Group as at and for the year ended 31 December 2003 have been restated
to include the results of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical, Guangzhou Petrochemical and Catalyst Plants
(collectively the "Acquired Group") as set out below.
The Group
without the The Acquired
Acquired Group Group Combined
RMB millions RMB millions RMB millions
Results of operations:
-------------------------------------------------------------------------------------
Operating revenue 443,136 5,865 449,001
-------------------------------------------------------------------------------------
Net income 21,593 831 22,424
Basic earnings per share (RMB) 0.25 0.01 0.26
-------------------------------------------------------------------------------------
Financial condition:
-------------------------------------------------------------------------------------
Current assets 99,328 3,711 103,039
-------------------------------------------------------------------------------------
Total assets 400,818 19,366 420,184
Current liabilities 122,005 7,267 129,272
-------------------------------------------------------------------------------------
Total liabilities 207,053 15,565 222,618
-------------------------------------------------------------------------------------
Net assets 167,899 3,616 171,515
-------------------------------------------------------------------------------------
125
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION (Continued)
For the years presented, all significant balances and transactions between
the Group and the Acquired Group have been eliminated.
The accompanying financial statements have been prepared in accordance with
IFRS promulgated by the International Accounting Standards Board. IFRS
includes International Accounting Standards ("IAS") and related
interpretations. These financial statements also comply with the disclosure
requirements of the Hong Kong Companies Ordinance and the applicable
disclosure provisions of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited.
The accompanying financial statements are prepared on the historical cost
basis as modified by the revaluation of certain property, plant and
equipment (Note 17). The accounting policies described in Note 2 have been
consistently applied by the Group.
The International Accounting Standards Board has issued a number of new and
revised IFRS and IAS ("new IFRS") which are effective for accounting
periods beginning on or after 1 January 2005. The Group has not early
adopted these new IFRS in the financial statements for the year ended 31
December 2004. The Group has commenced an assessment of the impact of these
new IFRS but is not yet in a position to state whether these new IFRS would
have a significant impact on its results of operations and financial
position.
The preparation of the financial statements in accordance with IFRS
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.
2 PRINCIPAL ACCOUNTING POLICIES
(a) Basis of consolidation
The consolidated financial statements include the financial statements
of the Company and its subsidiaries. Subsidiaries are those entities
controlled by the Company. Control exists when the Company has the
power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries are included in the consolidated income
statement from the date that control effectively commences until the
date that control effectively ceases, and the share attributable to
minority interests is deducted from or added to profit from ordinary
activities after taxation. All significant inter-company balances and
transactions and any unrealised gains arising from inter-company
transactions are eliminated on consolidation.
The particulars of the Group's principal subsidiaries are set out in
Note 36.
(b) Translation of foreign currencies
The functional and reporting currency of the Group is Renminbi.
Foreign currency transactions during the year are translated into
Renminbi at the applicable rates of exchange quoted by the People's
Bank of China ("PBOC rates") prevailing on the transaction dates.
Foreign currency monetary assets and liabilities are translated into
Renminbi at the PBOC rates at the balance sheet date.
Exchange differences, other than those capitalised as construction in
progress, are recognised as income or expense in the income statement.
(c) Cash and cash equivalents
Cash equivalents consist of time deposits with financial institutions
with an initial term of less than three months when purchased. Cash
equivalents are stated at cost, which approximates fair value.
(d) Trade accounts receivable
Trade accounts receivable are stated at cost less allowance for
doubtful accounts. An allowance for doubtful accounts is provided
based upon the evaluation of the recoverability of these accounts at
the balance sheet date.
(e) Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realisable value. Cost includes the cost of
purchase computed using the weighted average method and, in the case
of work in progress and finished goods, direct labour and an
appropriate proportion of production overheads. Net realisable value
is the estimated selling price in the ordinary course of business less
the estimated costs of completion and the estimated costs necessary to
make the sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence.
126
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(f) Property, plant and equipment
An item of property, plant and equipment is initially recorded at
cost, less accumulated depreciation and impairment losses. The cost of
an asset comprises its purchase price and any directly attributable
costs of bringing the asset to working condition and location for its
intended use. Subsequent to the revaluation (Note 17), which was based
on depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and
impairment losses. Revaluations are performed periodically to ensure
that the carrying amount does not differ materially from that which
would be determined using fair value at the balance sheet date.
Expenditure incurred after the asset has been put into operation is
capitalised only when it increases the future economic benefits
embodied in the item of property, plant and equipment. All other
expenditure is charged to the income statement in the year in which it
is incurred.
Gains or losses arising from the retirement or disposal of property,
plant and equipment, other than oil and gas properties, are determined
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognised as income or expense in the
income statement on the date of retirement or disposal. On disposal of
a revalued asset, the related revaluation surplus is transferred from
the revaluation reserve to retained earnings.
Depreciation is provided to write off the cost/revalued amount of each
asset, other than oil and gas properties, over its estimated useful
life on a straight-line basis, after taking into account its estimated
residual value, as follows:
Buildings 15 to 45 years
Plant, machinery, equipment, oil depots and others 4 to 18 years
Service stations 25 years
(g) Oil and gas properties
The Group uses the successful efforts method of accounting for its oil
and gas producing activities. Under this method, costs of development
wells and the related support equipment are capitalised. The cost of
exploratory wells is initially capitalised as construction in progress
pending determination of whether the well has found proved reserves.
The impairment of exploratory well costs occurs upon the determination
that the well has not found proved reserves. Exploratory wells that
find oil and gas reserves in any area requiring major capital
expenditure are expensed unless the well has found a sufficient
quantity of reserves to justify its completion as a producing well if
the required capital expenditure is made, and drilling of the
additional exploratory wells is under way or firmly planned for the
near future. However, in the absence of a determination of the
discovery of proved reserves, exploratory well costs are not carried
as an asset for more than one year following completion of drilling.
If, after one year has passed, a determination of the discovery of
proved reserves cannot be made, the exploratory well costs are
impaired and charged to expense. All other exploration costs,
including geological and geophysical costs, other dry hole costs and
annual lease rentals, are expensed as incurred. Capitalised costs
relating to proved properties are amortised at the field level on a
unit-of-production method. The amortisation rates are determined based
on oil and gas reserves estimated to be recoverable from existing
facilities over the shorter of the economic lives of crude oil and
natural gas reservoirs and the terms of the relevant production
licenses.
Gains and losses on the disposal of proved oil and gas properties are
not recognised unless the disposal encompasses an entire property. The
proceeds on such disposals are credited to the carrying amounts of oil
and gas properties.
(h) Lease prepayments
Lease prepayments represent land use rights paid to the PRC's land
bureau. Land use rights are carried at cost and amortised on a
straight-line basis over the respective periods of the rights.
(i) Construction in progress
Construction in progress represents buildings, oil and gas properties,
various plant and equipment under construction and pending
installation, and is stated at cost less impairment losses. Cost
comprises direct costs of construction as well as interest charges,
and foreign exchange differences on related borrowed funds to the
extent that they are regarded as an adjustment to interest charges,
during the periods of construction.
Construction in progress is transferred to property, plant and
equipment when the asset is substantially ready for its intended use.
No depreciation is provided in respect of construction in progress.
(j) Investments
Investments in unlisted equity securities are stated at cost less
provision for impairment losses. A provision is made where, in the
opinion of management, the carrying amount of the investments exceeds
its recoverable amount.
(k) Interests in associates
An associate is a company, not being a subsidiary, in which the Group
exercises significant influence over its management. Significant
influence is the power to participate in the financial and operating
policy decisions of the investee but is not control over those
policies.
Investments in associates are accounted for using the equity method
from the date that significant influence commences until the date that
significant influence ceases.
(l) Jointly controlled entities
A jointly controlled entity is an entity over which the Group can
exercise joint control with other venturers. Joint control is the
contractually agreed sharing of control over an economic activity.
The Group's interests in jointly controlled entities are accounted for
on a proportionate consolidation basis. Under this method, the Group
combines its proportionate share of the jointly controlled entity's
turnover and expenses with each major turnover and expenses caption of
the Group's income statement and combines its proportionate share of
the jointly controlled entity's assets and liabilities with each major
asset and liability caption of the Group's balance sheet.
127
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(m) Provisions
A provision is recognised in the balance sheet when the Group has a
legal or constructive obligation as a result of a past event, and it
is probable that an outflow of economic benefits will be required to
settle the obligation.
(n) Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum
and chemical products and ancillary materials are recorded when the
customer accepts the goods and the significant risks and rewards of
ownership and title have been transferred to the buyer. Revenue from
the rendering of services is recognised in the income statement upon
performance of the services. No revenue is recognised if there are
significant uncertainties regarding recovery of the consideration due,
the possible return of goods, or when the amount of revenue and the
costs incurred or to be incurred in respect of the transaction cannot
be measured reliably.
Interest income is recognised on a time apportioned basis that takes
into account the effective yield on the asset.
(o) Borrowing costs
Borrowing costs are expensed in the income statement in the year in
which they are incurred, except to the extent that they are
capitalised as being attributable to the construction of an asset
which necessarily takes a period of time to get ready for its intended
use.
(p) Repairs and maintenance expenditure
Repairs and maintenance expenditure, including cost of major overhaul,
is expensed as incurred.
(q) Environmental expenditures
Environmental expenditures that relate to current ongoing operations
or to conditions caused by past operations are expensed as incurred.
Liabilities related to future remediation costs are recorded when
environmental assessments and/or cleanups are probable and the costs
can be reasonably estimated. As facts concerning environmental
contingencies become known to the Group, the Group reassesses its
position both with respect to accrued liabilities and other potential
exposures.
(r) Research and development costs
Research and development costs are recognised as expenses in the year
in which they are incurred.
(s) Operating leases
Operating lease payments are charged to the income statement on a
straight-line basis over the period of the respective leases.
(t) Retirement benefits
The contributions payable under the Group's retirement plans are
charged to the income statement as incurred and according to the
contribution determined by the plans. Further information is set out
in Note 34.
(u) Impairment loss
The carrying amounts of long-lived assets are reviewed periodically in
order to assess whether the recoverable amounts have declined below
the carrying amounts. These assets are tested for impairment whenever
events or changes in circumstances indicate that their recorded
carrying amounts may not be recoverable. When such a decline has
occurred, the carrying amount is reduced to the recoverable amount.
The recoverable amount is the greater of the net selling price and the
value in use. In determining the value in use, expected future cash
flows generated by the asset are discounted to their present value.
The amount of the reduction is recognised as an expense in the income
statement unless the asset is carried at revalued amount for which an
impairment loss is recognised directly against any related revaluation
reserve to the extent that the impairment loss does not exceed the
amount held in the revaluation reserve for that same asset.
The Group assesses at each balance sheet date whether there is any
indication that an impairment loss recognised for an asset in prior
years may no longer exist. An impairment loss is reversed if there has
been a favourable change in the estimates used to determine the
recoverable amount. A subsequent increase in the recoverable amount of
an asset, when the circumstances and events that led to the write-down
or write-off cease to exist, is recognised as income unless the asset
is carried at revalued amount. Reversal of an impairment loss on a
revalued asset is credited to the revaluation reserve except for
impairment loss which was previously recognised as an expense in the
income statement; a reversal of such impairment loss is recognised as
income. The reversal is reduced by the amount that would have been
recognised as depreciation had the write-down or write-off not
occurred.
(v) Income tax
Income tax comprises current and deferred tax. Current tax is
calculated on taxable income by applying the applicable tax rates.
Deferred tax is provided using the balance sheet liability method on
all temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is calculated on the basis of the
enacted tax rates that are expected to apply in the period when the
asset is realised or the liability is settled.
The tax value of losses expected to be available for utilisation
against future taxable income is set off against the deferred tax
liability within the same legal tax unit and jurisdiction to the
extent appropriate, and is not available for set-off against the
taxable profit of another legal tax unit. Deferred tax assets are
reduced to the extent that it is no longer probable that the related
tax benefit will be realised.
(w) Dividends
Dividends are recognised as a liability in the period in which they
are declared.
(x) Segmental reporting
A business segment is a distinguishable component of the Group that is
engaged in providing products or services and is subject to risks and
rewards that are different from those of other segments.
128
3 TURNOVER
Turnover represents revenue from the sales of crude oil, natural gas,
petroleum and chemical products, net of value-added tax.
4 OTHER OPERATING REVENUES
The Group
2004 2003
RMB millions RMB millions
Sale of materials, service and others 22,213 18,653
---------------------------------------------------------------------------------------------------------------
Rental income 373 399
---------------------------------------------------------------------------------------------------------------
22,586 19,052
---------------------------------------------------------------------------------------------------------------
5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following items are included in selling, general and administrative
expenses:
The Group
2004 2003
RMB millions RMB millions
Research and development costs 1,518 2,122
---------------------------------------------------------------------------------------------------------------
Operating lease charges 4,288 3,601
---------------------------------------------------------------------------------------------------------------
Auditors' remuneration
---------------------------------------------------------------------------------------------------------------
-- audit services 80 92
---------------------------------------------------------------------------------------------------------------
-- other services -- 3
---------------------------------------------------------------------------------------------------------------
6 PERSONNEL EXPENSES
The Group
2004 2003
RMB millions RMB millions
Wages and salaries 13,589 12,468
---------------------------------------------------------------------------------------------------------------
Staff welfare 1,772 1,624
---------------------------------------------------------------------------------------------------------------
Contributions to retirement schemes 2,242 1,882
---------------------------------------------------------------------------------------------------------------
Social security contributions 1,031 998
---------------------------------------------------------------------------------------------------------------
18,634 16,972
---------------------------------------------------------------------------------------------------------------
7 EMPLOYEE REDUCTION EXPENSES
During the year ended 31 December 2004, in accordance with the Group's
voluntary employee reduction plan, and in connection with the Acquisition
of Petrochemical and Catalyst Assets from and Disposal of Downhole Assets
to Sinopec Group Company, the Group recorded employee reduction expenses of
RMB 919 million (2003: RMB 1,040 million) relating to the reduction of
approximately 24,000 employees (2003: 21,500 employees).
8 TAXES OTHER THAN INCOME TAX
The Group
2004 2003
RMB millions RMB millions
Consumption tax 11,920 9,898
--------------------------------------------------------------------------------------------------------
City construction tax 2,533 2,078
--------------------------------------------------------------------------------------------------------
Education surcharge 1,255 995
--------------------------------------------------------------------------------------------------------
Resources tax 452 434
--------------------------------------------------------------------------------------------------------
Business tax 164 176
--------------------------------------------------------------------------------------------------------
16,324 13,581
--------------------------------------------------------------------------------------------------------
Consumption tax is levied on producers of gasoline and diesel based on a
tariff rate applied to the volume of sales. City construction tax is levied
on an entity based on its total amount of value-added tax, consumption tax
and business tax.
129
9 OTHER OPERATING EXPENSES, NET
The Group
2004 2003
RMB millions RMB millions
Fines, penalties and compensations 277 165
-----------------------------------------------------------------------------------------------
Donations 290 152
-----------------------------------------------------------------------------------------------
Loss on disposal of property, plant and equipment, net 1,686 2,238
-----------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (Note) 3,919 877
-----------------------------------------------------------------------------------------------
Others 494 543
-----------------------------------------------------------------------------------------------
6,666 3,975
-----------------------------------------------------------------------------------------------
Note:
Impairment losses recognised on long-lived assets of the refining and chemicals segment of RMB
14 million (2003: RMB 114 million) and RMB 2,747 million (2003: RMB 453 million) for the year
ended 31 December 2004 relate to certain refining and chemicals production facilities that are
held for use. The carrying values of these facilities were written down to their recoverable
values which were based on the asset held for use model using the present value of estimated
future cash flows. An amount of RMB 2,052 million (2003: RMB 567 million) was charged to the
income statement with the remaining amount of RMB 709 million (2003: RMB nil) in the chemicals
segment recognised directly against the related revaluation reserve in respect of those assets
that were carried at revalued amount. The primary factor resulting in the impairment losses of
the chemicals segment was due to higher operating and production costs caused by the increase
in the prices of raw materials that are not expected to be recovered through an increase in
selling price.
Impairment losses recognised on long-lived assets of the marketing and distribution segment of
RMB 1,769 million (2003: RMB nil) for the year ended 31 December 2004 primarily relate to
certain service stations that were closed during the year. In measuring the amounts of
impairment charges, the carrying amounts of these assets were compared to the present value of
the expected future cash flows of the assets, as well as information about sales and purchases
of similar properties in the same geographic area.
The factors resulting in the exploration and production ("E&P") segment impairment losses of
RMB 98 million for the year ended 31 December 2004 (2003: RMB 310 million) were unsuccessful
development drilling and high operating and development costs for certain small oil fields. The
carrying values of these E&P properties were written down to a recoverable value which was
determined based on the present values of the expected future cash flows of the assets. The oil
and gas pricing was a factor used in the determination of the present values of the expected
future cash flows of the assets and had an impact on the recognition of the asset impairment.
10 INTEREST EXPENSE
The Group
2004 2003
RMB millions RMB millions
Interest expense incurred 5,491 5,316
--------------------------------------------------------------------------------------------------------
Less: Interest expense capitalised* (908) (951)
--------------------------------------------------------------------------------------------------------
4,583 4,365
--------------------------------------------------------------------------------------------------------
* Interest rates per annum at which borrowing costs were 3.1% to 6.0% 3.1% to 6.1%
capitalised for construction in progress
--------------------------------------------------------------------------------------------------------
11 TAXATION
Taxation in the consolidated income statement represents:
The Group
2004 2003
RMB millions RMB millions
Provision for PRC income tax
--------------------------------------------------------------------------------------------------------
-- the Group 18,195 10,868
--------------------------------------------------------------------------------------------------------
-- associates 340 148
--------------------------------------------------------------------------------------------------------
Deferred taxation (Note 27) (720) (371)
--------------------------------------------------------------------------------------------------------
17,815 10,645
--------------------------------------------------------------------------------------------------------
A reconciliation of the expected tax with the actual tax expense is as follows:
The Group
2004 2003
RMB millions RMB millions
Profit from ordinary activities before taxation 59,606 35,041
---------------------------------------------------------------------------------------------------------
Expected PRC income tax expense at a statutory tax rate of 33% 19,670 11,564
---------------------------------------------------------------------------------------------------------
Non-deductible expenses 812 639
---------------------------------------------------------------------------------------------------------
Non-taxable income (216) (231)
---------------------------------------------------------------------------------------------------------
Differential tax rate on subsidiaries' income (Note) (2,408) (1,232)
---------------------------------------------------------------------------------------------------------
Tax losses not recognised for deferred tax 409 248
---------------------------------------------------------------------------------------------------------
Under-provision in prior years 94 79
---------------------------------------------------------------------------------------------------------
Other (546) (422)
---------------------------------------------------------------------------------------------------------
17,815 10,645
---------------------------------------------------------------------------------------------------------
Substantially all income before income tax and related tax expense is from PRC sources.
Note:
The provision for PRC current income tax is based on a statutory rate of
33% of the assessable income of the Group as determined in accordance with
the relevant income tax rules and regulations of the PRC, except for
certain subsidiaries of the Company, which are taxed at a preferential rate
of 15%.
130
12 DIRECTORS' AND SUPERVISORS' EMOLUMENTS
Directors' and supervisors' emoluments are as follows:
2004 2003
RMB'000 RMB'000
Fees 147 165
--------------------------------------------------------------------------
Salaries and other emoluments 3,850 2,875
--------------------------------------------------------------------------
Retirement scheme contributions 202 178
--------------------------------------------------------------------------
4,199 3,218
--------------------------------------------------------------------------
Included in the directors' and supervisors' emoluments were fees of RMB
141,000 (2003: RMB 165,000) paid to the independent non-executive directors
and the independent supervisors during the year ended 31 December 2004.
An analysis of directors' and supervisors' emoluments by number of
directors and supervisors and emolument range is as follows:
2004 2003
Number Number
Nil to HK$ 1,000,000 26 25
--------------------------------------------------------------------------
13 SENIOR MANAGEMENT'S EMOLUMENTS
For the year ended 31 December 2004, of the five highest paid individuals,
one is a director whose emoluments are disclosed in Note 12. The aggregate
of the emoluments in respect of the five highest paid individuals are as
follows:
2004 2003
RMB'000 RMB'000
Salaries and other emoluments 1,622 1,428
----------------------------------------------------------------------------
Retirement scheme contributions 65 89
----------------------------------------------------------------------------
1,687 1,517
----------------------------------------------------------------------------
An analysis of emoluments paid to the five highest paid individuals by
number of individuals and emolument range is as follows:
2004 2003
Number Number
Nil to HK$ 1,000,000 5 5
----------------------------------------------------------------------------
14 PROFIT ATTRIBUTABLE TO SHAREHOLDERS
The profit attributable to shareholders includes a profit of RMB 36,019
million (2003: RMB 22,424 million) which has been dealt with in the
financial statements of the Company.
15 BASIC EARNINGS PER SHARE
The calculation of basic earnings per share for the year ended 31 December
2004 is based on the profit attributable to shareholders of RMB 36,019
million (2003: RMB 22,424 million) divided by the weighted average number
of shares of 86,702,439,000 (2003: 86,702,439,000) during the year.
The amount of diluted earnings per share is not presented as there were no
dilutive potential ordinary shares in existence during the years presented.
16 DIVIDENDS
Dividends attributable to the year represent:
2004 2003
RMB millions RMB millions
Dividends declared and paid during
the year of RMB 0.04 per share
(2003: RMB 0.03 per share) 3,468 2,601
----------------------------------------------------------------------------
Dividends proposed after the balance
sheet date of RMB 0.08 per share
(2003: RMB 0.06 per share) 6,936 5,202
---------------------------------------------------------------------------
10,404 7,803
---------------------------------------------------------------------------
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2004, the Board of Directors was authorised to declare the interim
dividends for the year ended 31 December 2004. According to the resolution
passed at the Directors' meeting on 27 August 2004, an interim dividend of
RMB 0.04 (2003: RMB 0.03) per share totalling RMB 3,468 million (2003: RMB
2,601 million) was declared and paid on 30 September 2004.
Pursuant to a resolution passed at the Directors' meeting on 25 March 2005,
a final dividend in respect of the year ended 31 December 2004 of RMB 0.08
(2003: RMB 0.06) per share totalling RMB 6,936 million (2003: RMB 5,202
million) was proposed for shareholders' approval at the Annual General
Meeting. Final dividend of RMB 6,936 million (2003: RMB 5,202 million)
proposed after the balance sheet date has not been recognised as a
liability at the balance sheet date.
Dividends attributable to the previous financial year, approved and paid
during the year represent:
2004 2003
RMB millions RMB millions
Final dividends in respect of the
previous financial year, approved
and paid during the year
of RMB 0.06 per share
(2003: RMB 0.06 per share) 5,202 5,202
--------------------------------------------------------------------------
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2004, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2003 was declared and paid
on 28 June 2004.
Pursuant to the shareholders' approval at the Annual General Meeting on 10
June 2003, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2002 was declared and paid
on 30 June 2003.
131
17 PROPERTY, PLANT AND EQUIPMENT
The Group - by segment:
Exploration and Marketing and Corporate and
production Refining distribution Chemicals others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
--------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 177,962 105,237 54,482 160,289 3,788 501,758
Additions 1,402 793 1,555 314 169 4,233
Transferred from construction
in progress 17,428 13,489 9,283 9,460 304 49,964
--------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- 805 1,536 -- -- 2,341
--------------------------------------------------------------------------------------------------------------------------
Revaluation -- 35 -- 206 16 257
--------------------------------------------------------------------------------------------------------------------------
Disposals (1,085) (3,354) (1,511) (4,253) (179) (10,382)
--------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (3,631) -- -- -- -- (3,631)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection
with the Acquisition of
Petrochemical and Catalyst Assets -- (95) -- (2,794) (6) (2,895)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 192,076 116,910 65,345 163,222 4,092 541,645
--------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
--------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 84,604 50,901 10,014 84,285 1,223 231,027
--------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 12,042 7,594 2,624 9,156 289 31,705
--------------------------------------------------------------------------------------------------------------------------
Impairment losses for the year 98 14 1,769 2,747 -- 4,628
--------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- 458 -- -- -- 458
--------------------------------------------------------------------------------------------------------------------------
Written back on disposals (942) (2,323) (942) (3,157) (103) (7,467)
--------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (1,774) -- -- -- -- (1,774)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection with the Acquisition
of Petrochemical and Catalyst
Assets -- (64) -- (989) (2) (1,055)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 94,028 56,580 13,465 92,042 1,407 257,522
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net book value:
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 98,048 60,330 51,880 71,180 2,685 284,123
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 93,358 54,336 44,468 76,004 2,565 270,731
--------------------------------------------------------------------------------------------------------------------------
The Company - by segment:
Exploration and Marketing and Corporate and
production Refining distribution Chemicals others Total
RMB millions RMB millions millions RMB millions RMB millions RMB millions RMB
Cost/valuation:
-----------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 62,555 72,523 52,999 61,488 2,807 252,372
--------------------------------------------------------------------------------------------------------------------------
Additions 437 706 459 55 72 1,729
--------------------------------------------------------------------------------------------------------------------------
Transferred from construction in
progress 9,056 11,035 8,320 2,205 304 30,920
-----------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- 805 1,536 -- -- 2,341
--------------------------------------------------------------------------------------------------------------------------
Transferred from a subsidiary -- 5,158 -- -- -- 5,158
--------------------------------------------------------------------------------------------------------------------------
Revaluation -- 35 -- 206 16 257
--------------------------------------------------------------------------------------------------------------------------
Disposals (361) (2,101) (1,331) (1,301) (123) (5,217)
--------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (2,103) -- -- -- -- (2,103)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection
with the Acquisition of
Petrochemical
and Catalyst Assets -- (95) -- (2,794) (6) (2,895)
-------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 69,584 88,066 61,983 59,859 3,070 282,562
-------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
-------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 28,732 36,633 9,640 33,139 954 109,098
-------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 4,707 4,728 2,320 2,724 188 14,667
--------------------------------------------------------------------------------------------------------------------------
Impairment losses for the year 98 14 1,737 1,568 -- 3,417
-------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- 458 -- -- -- 458
-------------------------------------------------------------------------------------------------------------------------
Transferred from a subsidiary -- 2,682 -- -- -- 2,682
-------------------------------------------------------------------------------------------------------------------------
Written back on disposals (355) (1,662) (805) (748) (83) (3,653)
-------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (1,063) -- -- -- -- (1,063)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection with the Acquisi-
tion of Petrochemical and
Catalyst Assets -- (64) -- (989) (2) (1,055)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 32,119 42,789 12,892 35,694 1,057 124,551
-----------------------------------------------------------------------------------------------------------------------------
Net book value:
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 37,465 45,277 49,091 24,165 2,013 158,011
-----------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 33,823 35,890 43,359 28,349 1,853 143,274
-----------------------------------------------------------------------------------------------------------------------------
132
17 PROPERTY, PLANT AND EQUIPMENT
(Continued)
The Group - by asset class:
Oil depots, Plant,
storage tanks machinery,
Oil and gas and service equipment
Buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
-------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 44,728 158,634 46,337 252,059 501,758
--------------------------------------------------------------------------------------------------------------------------
Additions 342 450 1,301 2,140 4,233
--------------------------------------------------------------------------------------------------------------------------
Transferred from construction in
progress 2,357 17,428 12,461 17,718 49,964
-------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- -- 1,533 808 2,341
--------------------------------------------------------------------------------------------------------------------------
Revaluation 1 -- -- 256 257
-------------------------------------------------------------------------------------------------------------------------
Disposals (927) (586) (1,099) (7,770) (10,382)
-------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (97) (2,362) -- (1,172) (3,631)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection with the Acquisi-
tion of Petrochemical and
Catalyst Assets (1,550) -- -- (1,345) (2,895)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 44,854 173,564 60,533 262,694 541,645
--------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
--------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 18,975 77,582 8,785 125,685 231,027
--------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,768 9,211 2,332 18,394 31,705
--------------------------------------------------------------------------------------------------------------------------
Impairment losses for the year 325 98 1,249 2,956 4,628
--------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- -- -- 458 458
--------------------------------------------------------------------------------------------------------------------------
Written back on disposals (428) (541) (585) (5,913) (7,467)
--------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (22) (1,207) -- (545) (1,774)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection with the Acquisi-
tion of Petrochemical and
Catalyst Assets (310) -- -- (745) (1,055)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 20,308 85,143 11,781 140,290 257,522
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net book value:
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 24,546 88,421 48,752 122,404 284,123
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 25,753 81,052 37,552 126,374 270,731
--------------------------------------------------------------------------------------------------------------------------
The Company - by asset class:
Oil depots, Plant,
storage tanks machinery,
Oil and gas and service equipment
Buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
--------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 26,487 54,288 44,974 126,623 252,372
--------------------------------------------------------------------------------------------------------------------------
Additions 253 43 248 1,185 1,729
--------------------------------------------------------------------------------------------------------------------------
Transferred from construction
in progress 1,248 8,854 11,715 9,103 30,920
--------------------------------------------------------------------------------------------------------------------------
Acquired from Sinopec Group Company
(Note 33) -- -- 1,533 808 2,341
--------------------------------------------------------------------------------------------------------------------------
Transferred from a subsidiary 216 -- -- 4,942 5,158
--------------------------------------------------------------------------------------------------------------------------
Revaluation 1 -- -- 256 257
--------------------------------------------------------------------------------------------------------------------------
Disposals (742) (238) (1,075) (3,162) (5,217)
--------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (75) (1,081) -- (947) (2,103)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection with the Acquisi-
tion of Petrochemical and
Catalyst Assets (1,550) -- -- (1,345) (2,895)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 25,838 61,866 57,395 137,463 282,562
--------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
--------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 9,905 26,711 8,518 63,964 109,098
--------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,028 3,941 2,218 7,480 14,667
--------------------------------------------------------------------------------------------------------------------------
Impairment losses for the year 186 98 1,249 1,884 3,417
Acquired from Sinopec Group Company
(Note 33) -- -- -- 458 458
--------------------------------------------------------------------------------------------------------------------------
Transferred from a subsidiary 101 -- -- 2,581 2,682
--------------------------------------------------------------------------------------------------------------------------
Written back on disposals (356) (238) (582) (2,477) (3,653)
--------------------------------------------------------------------------------------------------------------------------
Disposed to Sinopec Group Company
(Note 33) (17) (578) -- (468) (1,063)
--------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in
connection with the Acquisi-
tion of Petrochemical and
Catalyst Assets (310) -- -- (745) (1,055)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 10,537 29,934 11,403 72,677 124,551
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net book value:
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 15,301 31,932 45,992 64,786 158,011
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2003 16,582 27,577 36,456 62,659 143,274
--------------------------------------------------------------------------------------------------------------------------
133
17 PROPERTY, PLANT AND EQUIPMENT (Continued)
As required by the relevant PRC regulations with respect to the
Reorganisation, the property, plant and equipment of the Group at 30
September 1999 were valued for each asset class by China United Assets
Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets
Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation, independent valuers registered in the PRC, on a depreciated
replacement cost basis. The value of property, plant and equipment was
determined at RMB 159,788 million. The surplus on revaluation of RMB 32,320
million, net of amounts allocated to minority interests, was incorporated
in the financial statements of the Group at 31 December 1999.
In connection with the Acquisition of Sinopec National Star, the property,
plant and equipment of Sinopec National Star were revalued at 31 December
2000, by a firm of independent valuers and approved by the Ministry of
Finance. The value of property, plant and equipment of Sinopec National
Star pursuant to the valuation, based on a depreciated replacement cost
basis, was determined at RMB 4,373 million, resulting in a surplus on
revaluation of RMB 1,136 million, net of amounts allocated to minority
interest.
In connection with the Acquisition of Ethylene Assets, the property, plant
and equipment of Sinopec Maoming were revalued at 31 December 2003, by a
firm of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of Sinopec Maoming
pursuant to the valuation, based on a depreciated replacement cost basis,
was determined at RMB 5,100 million, which approximated the net historical
carrying value of the assets.
In connection with the Acquisition of Refining Assets, the property, plant
and equipment of the Refining Assets were revalued at 31 October 2003, by a
firm of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of the Refining
Assets pursuant to the valuation, based on a depreciated replacement cost
basis, was determined at RMB 461 million, which approximated the net
historical carrying value of the assets.
In connection with the Acquisition of Petrochemical and Catalyst Assets,
the property, plant and equipment of the Petrochemical and Catalyst Assets
were revalued at 30 June 2004, by a firm of independent valuers in
accordance with the relevant rules and regulations. The value of property,
plant and equipment of the Petrochemical and Catalyst Assets pursuant to
the valuation, based on a depreciated replacement cost basis, was
determined at RMB 11,895 million, which approximated the net historical
carrying value of the assets.
In accordance with IAS 16, subsequent to these revaluations, which was
based on depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and impairment
losses. Revaluation is performed periodically to ensure that the carrying
amount does not differ materially from that which would be determined using
fair value at the balance sheet date. Based on a revaluation performed as
of 31 December 2004, which was based on depreciated replacement costs, the
carrying value of property, plant and equipment did not differ materially
from their fair value.
18 CONSTRUCTION IN PROGRESS
The Group:
Exploration and Marketing and Corporate and
production Refining distribution Chemicals others Total
RMB millions RMB millions millions RMB millions RMB millions RMB millions RMB
Balance at 1 January 2004 5,535 8,470 7,941 6,957 451 29,354
---------------------------------------------------------------------------------------------------------------------------
Additions 22,808 13,479 15,123 10,711 1,381 63,502
---------------------------------------------------------------------------------------------------------------------------
Additions of jointly controlled entities 1,323 -- -- 5,178 -- 6,501
---------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in connec-
tion with the Acquisition of
Petrochemical and Catalyst Assets -- (1) -- (216) (15) (232)
---------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,976) -- -- -- -- (2,976)
---------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and
equipment (17,428) (13,489) (9,283) (9,460) (304) (49,964)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 9,262 8,459 13,781 13,170 1,513 46,185
---------------------------------------------------------------------------------------------------------------------------
The Group's proportionate share of the jointly controlled entities'
construction in progress at 31 December 2004 in the E&P and the chemicals
segments reflected in the above table were RMB 2,053 million (2003: RMB
3,812 million) and RMB 8,171 million (2003: RMB 2,993 million),
respectively.
The Company:
Exploration and Marketing and Corporate and
production Refining distribution Chemicals others Total
RMB millions RMB millions millions RMB millions RMB millions RMB millions RMB
Balance at 1 January 2004 4,501 7,424 6,680 1,594 432 20,631
---------------------------------------------------------------------------------------------------------------------------
Additions 13,346 10,497 11,911 4,442 1,381 41,577
---------------------------------------------------------------------------------------------------------------------------
Transferred from a subsidiary -- 76 -- -- -- 76
---------------------------------------------------------------------------------------------------------------------------
Less: Amount distributed to
Sinopec Group Company in connec-
tion with the Acquisition of
Petrochemical and Catalyst Assets -- (1) -- (216) (15) (232)
---------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,184) -- -- -- -- (2,184)
---------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and
equipment (9,056) (11,035) (8,320) (2,205) (304) (30,920)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 6,607 6,961 10,271 3,615 1,494 28,948
---------------------------------------------------------------------------------------------------------------------------
134
19 INTERESTS IN SUBSIDIARIES
The Company
2004 2003
RMB millions RMB millions
Share of net assets 118,451 96,707
----------------------------------------------------------------------------
Details of the Company's principal subsidiaries at 31 December 2004 are set
out in Note 36.
20 INVESTMENTS
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Unlisted investments,
at cost 2,891 3,041 313 826
------------------------------------------------------------------------------------------------------
Less: Provision for
impairment losses (353) (332) (155) (221)
------------------------------------------------------------------------------------------------------
2,538 2,709 158 605
------------------------------------------------------------------------------------------------------
Unlisted investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas activities and
operations. The Group has no significant investments in marketable
securities.
21 INTERESTS IN ASSOCIATES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Share of net assets 10,222 8,121 7,540 5,983
------------------------------------------------------------------------------------------------------
The Group's investments in associates are with companies primarily engaged
in the oil and gas and chemical operations in the PRC. These investments
are individually and in the aggregate not material to the Group's financial
condition or results of operations for all periods presented. The principal
investments in associates, all of which are incorporated in the PRC, are as
follows:
Percentage of
Percentage equity held
Form of of equity by the
business Particulars of issued held by the Company's
Name of company structure and paid up capital Company subsidiaries Principal activities
% %
Shengli Oil Field Dynamic Incorporated 364,027,608 ordinary 26.33 -- Exploration of crude oil
Company Limited ("Dynamic")* shares of RMB 1.00 each and distribution of
petrochemical products
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Taishan Incorporated 480,793,320 ordinary 38.68 -- Trading of petroleum
Petroleum Company Limited shares of RMB 1.00 each products and decoration
("Taishan")* of service gas stations
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Finance Incorporated Registered capital 32.00 8.22 Provision of non-banking
Company Limited RMB 2,500,000,000 financial services
-------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum National Incorporated Registered capital 30.00 -- Exploration and production
Gas Corporation RMB 900,000,000 of crude oil and natural gas
-------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited Incorporated Registered capital 30.00 10.00 Manufacturing and distribu-
RMB 8,793,000,000 tion of petrochemical
products
-------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical Incorporated Registered capital -- 38.26 Planning, development and
Industry Park Development RMB 2,372,439,000 operation of the Chemical
Company Limited Industry Park in Shanghai,
the PRC
-------------------------------------------------------------------------------------------------------------------------------
China Shipping & Sinopec Incorporated Registered capital -- 50.00 Transportation of
Suppliers Company Limited RMB 876,660,000 petroleum products
-------------------------------------------------------------------------------------------------------------------------------
* Shares of Dynamic and Taishan are listed on the Shenzhen Stock Exchange.
Shares held by the Company are domestic state-owned A shares which are
not admitted for trading in any stock exchange in the PRC. The market
value of the Company's investments in Dynamic and Taishan based on the
quoted market price are RMB 479 million (2003: RMB 783 million) and RMB
1,516 million (2003: RMB 1,971 million) respectively at 31 December
2004.
135
22 INTERESTS IN JOINTLY CONTROLLED ENTITIES
The Company
2004 2003
RMB millions RMB millions
Share of net assets 3,568 1,043
----------------------------------------------------------------------------
The Group's investments in jointly controlled entities are primarily
engaged in the oil and gas and chemical operations in the PRC, the
principal interests in jointly controlled entities are as follows:
Percentage of
Percentage equity held
Form of of equity by the
business Particulars of issued held by the Company's
Name of company structure and paid up capital Company subsidiaries Principal activities
% %
Shanghai Secco Petrochemical Incorporated Registered capital 30.00 20.00 Manufacturing and distribu-
Company Limited USD 901,440,964 tion of petrochemical
products
-------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Incorporated Registered capital 50.00 -- Manufacturing and distribu-
Gasification Company Limited USD 45,588,700 tion of industrial gas
-------------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western Unincorporated -- -- 43.00 Exploration and production
Area Chengda in Bohai Bay of crude oil and natural gas
-------------------------------------------------------------------------------------------------------------------------------
The Group's proportionate share of the jointly controlled entities' current
and non-current assets, current and non-current liabilities, and turnover
and expenses is not material to the Group's financial condition or results
of operations for all years presented.
23 LONG-TERM PREPAYMENTS AND OTHER ASSETS
Long-term prepayments and other assets primarily represent prepaid rental
expenses over one year, computer software and catalysts.
24 TRADE ACCOUNTS AND BILLS RECEIVABLES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Third parties 10,989 9,820 5,179 5,074
-----------------------------------------------------------------------------------------------------------------
Subsidiaries -- -- 5,026 2,956
-----------------------------------------------------------------------------------------------------------------
Sinopec Group Company and fellow
subsidiaries 2,349 2,928 858 1,712
-----------------------------------------------------------------------------------------------------------------
Associates 89 81 19 23
-----------------------------------------------------------------------------------------------------------------
13,427 12,829 11,082 9,765
-----------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts (3,671) (3,350) (2,837) (2,454)
-----------------------------------------------------------------------------------------------------------------
9,756 9,479 8,245 7,311
-----------------------------------------------------------------------------------------------------------------
Bills receivable 7,812 6,283 1,597 1,612
-----------------------------------------------------------------------------------------------------------------
17,568 15,762 9,842 8,923
-----------------------------------------------------------------------------------------------------------------
The ageing analysis of trade accounts and bills receivables (net of
allowance for doubtful accounts) is as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 16,968 14,641 9,425 8,264
-----------------------------------------------------------------------------------------------------------------
Between one and two years 225 463 127 237
--------------------------------------------------------------------------------------------------------------------------
Between two and three years 166 251 83 171
-----------------------------------------------------------------------------------------------------------------
Over three years 209 407 207 251
-----------------------------------------------------------------------------------------------------------------
17,568 15,762 9,842 8,923
-----------------------------------------------------------------------------------------------------------------
Sales are generally on a cash term. Credit is generally only available
for major customers with well-established trading records. Amounts due
from Sinopec Group Company and fellow subsidiaries are repayable under
the same terms.
25 INVENTORIES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Crude oil and other raw materials 32,562 24,295 14,544 10,894
-----------------------------------------------------------------------------------------------------------------
Work in progress 8,341 7,040 3,605 3,534
--------------------------------------------------------------------------------------------------------------------------
Finished goods 20,804 12,877 15,163 9,334
-----------------------------------------------------------------------------------------------------------------
Spare parts and consumables 3,528 4,305 1,126 1,265
-----------------------------------------------------------------------------------------------------------------
65,235 48,517 34,438 25,027
-----------------------------------------------------------------------------------------------------------------
Less: Allowance for diminution in value
of inventories (906) (601) (394) (291)
-----------------------------------------------------------------------------------------------------------------
64,329 47,916 34,044 24,736
-----------------------------------------------------------------------------------------------------------------
At 31 December 2004, the carrying amount of the Group's and the Company's
inventories carried at net realisable value amounted to RMB 1,624 million
(2003: RMB 1,551 million) and 504 million (2003: RMB 878 million),
respectively.
The cost of inventories recognised as an expense in the consolidated
income statement amounted to RMB 474,961 million for the year ended 31
December 2004 (2003: RMB 341,115 million).
136
26 PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Advances to third parties 1,600 2,726 740 1,342
-----------------------------------------------------------------------------------------------------------------
Amounts due from Sinopec Group Company
and fellow subsidiaries 5,585 9,409 5,002 8,476
-----------------------------------------------------------------------------------------------------------------
Amounts due from subsidiaries -- -- 11,908 13,669
-----------------------------------------------------------------------------------------------------------------
Other receivables 2,161 1,830 1,223 1,179
--------------------------------------------------------------------------------------------------------------------------
Purchase deposits 2,547 2,588 2,059 1,429
-----------------------------------------------------------------------------------------------------------------
Prepayments in connection with con-
struction work and equipment purchases 4,727 2,675 2,679 2,475
--------------------------------------------------------------------------------------------------------------------------
Prepaid value-added tax and customs duty 3,166 1,355 2,600 506
--------------------------------------------------------------------------------------------------------------------------
Amounts due from associates 308 331 260 331
-----------------------------------------------------------------------------------------------------------------
20,094 20,914 26,471 29,407
-----------------------------------------------------------------------------------------------------------------
27 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and deferred tax liabilities are attributable to the
items detailed in the table below:
The Group
Assets Liabilities Net balance
2004 2003 2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables
and inventories 2,528 1,446 -- -- 2,528 1,446
--------------------------------------------------------------------------------------------------------------------------------
Non-current
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,566 272 (1,704) (981) (138) (709)
--------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation -- -- (3,932) (3,618) (3,932) (3,618)
--------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward,
net of valuation allowance 66 923 -- -- 66 923
--------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 366 373 -- -- 366 373
--------------------------------------------------------------------------------------------------------------------------------
Others 32 53 -- -- 32 53
--------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 4,558 3,067 (5,636) (4,599) (1,078) (1,532)
--------------------------------------------------------------------------------------------------------------------------------
The Company
Assets Liabilities Net balance
2004 2003 2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables and
inventories 2,245 1,249 -- -- 2,245 1,249
--------------------------------------------------------------------------------------------------------------------------------
Non-current
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,457 226 (983) (439) 474 (213)
--------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation -- -- (1,042) (986) (1,042) (986)
--------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward,
net of valuation allowance -- 670 -- -- -- 670
--------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 16 16 -- -- 16 16
--------------------------------------------------------------------------------------------------------------------------------
Others 6 35 -- -- 6 35
--------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 3,724 2,196 (2,025) (1,425) 1,699 771
--------------------------------------------------------------------------------------------------------------------------------
A valuation allowance on deferred tax assets is recorded if it is more
likely than not that some portion or all of the deferred tax assets will
not be realised through the recovery of taxes previously paid and/or future
taxable income. The allowance is subject to ongoing adjustments based on
changes in circumstances that affect the Group's assessment of the
realisability of the deferred tax assets. The Group has reviewed its
deferred tax assets at the balance sheet date. Based on this review,
valuation allowances of RMB 409 million (2003: RMB 248 million) were
provided for the year ended 31 December 2004. The Group determined the
valuation allowance based on management's assessment of the probability
that taxable profit will be available over the period which the deferred
tax assets can be realised or utilised. In assessing the probability, both
positive and negative evidence was considered, including whether it is more
likely than not that the operations will have future taxable profits over
the periods which the deferred tax assets are deductible or utilised and
whether the tax losses result from identifiable causes which are unlikely
to recur. Based on this assessment, a valuation allowance was provided to
reduce the deferred tax asset to the amount that is more likely than not to
be realised.
137
27 DEFERRED TAX ASSETS AND LIABILITIES (Continued)
Movements in the deferred tax assets and liabilities are as follows:
The Group
Recognised in
Balance at Recognised in consolidated Balance at
1 January other income 31 December
2003 reserves statement 2003
RMB RMB RMB RMB
millions millions millions millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables and inventories 275 -- 1,171 1,446
--------------------------------------------------------------------------------------------------------------------------------
Non-current
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (580) -- (129) (709)
--------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (2,958) -- (660) (3,618)
--------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation allowance 978 -- (55) 923
--------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 364 16 (7) 373
--------------------------------------------------------------------------------------------------------------------------------
Others 2 -- 51 53
--------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets (1,919) 16 371 (1,532)
--------------------------------------------------------------------------------------------------------------------------------
The Group
Recognised in
Balance at Recognised in consolidated Balance at
1 January other income 31 December
2004 reserves statement 2004
RMB RMB RMB RMB
millions millions millions millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables and inventories 1,446 -- 1,082 2,528
--------------------------------------------------------------------------------------------------------------------------------
Non-current
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (709) -- 571 (138)
--------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (3,618) -- (314) (3,932)
--------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation
allowance (Note) 923 (266) (591) 66
--------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 373 -- (7) 366
--------------------------------------------------------------------------------------------------------------------------------
Others 53 -- (21) 32
--------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets (1,532) (266) 720 (1,078)
--------------------------------------------------------------------------------------------------------------------------------
The Company
Balance at Recognised in Recognised in Balance at
1 January other income 31 December
2003 reserves statement 2003
RMB RMB RMB RMB
millions millions millions millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables and inventories 57 -- 1,192 1,249
--------------------------------------------------------------------------------------------------------------------------------
Non-current
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (204) -- (9) (213)
--------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (799) -- (187) (986)
--------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation allowance 677 -- (7) 670
--------------------------------------------------------------------------------------------------------------------------------
Lease prepayments -- 16 -- 16
--------------------------------------------------------------------------------------------------------------------------------
Others 12 -- 23 35
--------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets (257) 16 1,012 771
--------------------------------------------------------------------------------------------------------------------------------
The Company
Balance at Recognised in Recognised in Balance at
1 January other income 31 December
2004 reserves statement 2004
RMB RMB RMB RMB
millions millions millions millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Provisions, primarily for receivables and inventories 1,249 -- 996 2,245
--------------------------------------------------------------------------------------------------------------------------------
Non-current
--------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (213) -- 687 474
--------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (986) -- (56) (1,042)
--------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation
allowance (Note) 670 (266) (404) --
-------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 16 -- -- 16
--------------------------------------------------------------------------------------------------------------------------------
Others 35 -- (29) 6
-------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets 771 (266) 1,194 1,699
-------------------------------------------------------------------------------------------------------------------------------
Note:
At 31 December 2004, deferred tax assets of RMB 266 million were distributed to Sinopec Group Company in connection with
the Acquisition of Petrochemical and Catalyst Assets.
138
28 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES
Short-term debts represent:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Third parties' debts
--------------------------------------------------------------------------------------------------------------------------------
Short-term bank loans 20,009 19,961 10,527 9,838
--------------------------------------------------------------------------------------------------------------------------------
Short-term other loans -- 29 -- 25
--------------------------------------------------------------------------------------------------------------------------------
20,009 19,990 10,527 9,863
--------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term bank loans 12,177 7,359 9,414 4,943
--------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term other loans 121 332 92 265
--------------------------------------------------------------------------------------------------------------------------------
Current portion of convertible bonds -- 1,500 -- --
--------------------------------------------------------------------------------------------------------------------------------
12,298 9,191 9,506 5,208
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
32,307 29,181 20,033 15,071
--------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries
--------------------------------------------------------------------------------------------------------------------------------
Short-term loans 6,714 4,046 5,727 2,446
--------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term loans 2,000 819 2,000 819
--------------------------------------------------------------------------------------------------------------------------------
8,714 4,865 7,727 3,265
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
41,021 34,046 27,760 18,336
--------------------------------------------------------------------------------------------------------------------------------
The Group's and the Company's weighted average interest rates on short-term loans were 3.9% (2003: 3.2%) and 4.0% at 31
December 2004 (2003: 3.1%) respectively.
Long-term debts comprise:
The Group The Company
Interest rate and final 2004 2003 2004 2003
maturity RMB millions RMB millions RMB millions RMB millions
Third parties' debts
--------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from
interest free to 6.2% per
annum at 31 December 2004
with maturities through 2013 52,227 40,955 45,233 31,669
--------------------------------------------------------------------------------------------------------------------------------
Japanese Yen denominated Interest rates ranging from
2.6% to 5.8% per annum at
31 December 2004
with maturities through 2024 4,562 4,841 4,556 4,798
--------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from
interest free to 7.4% per
annum at 31 December 2004
with maturities through 2031 7,729 7,563 5,278 4,988
--------------------------------------------------------------------------------------------------------------------------------
Euro denominated Fixed interest rate at 6.7%
per annum at 31 December 2004
with maturities through 2010 165 547 165 547
--------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Floating rate at Hong Kong
denominated Prime Rate plus 0.3% per
annum at 31 December 2004
with maturities through 2006 5 7 -- --
--------------------------------------------------------------------------------------------------------------------------------
64,688 53,913 55,232 42,002
--------------------------------------------------------------------------------------------------------------------------------
Long-term other loans
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from
interest free to 5.0% per
annum at 31 December 2004
with maturities through 2008 359 413 200 236
--------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from
interest free to 4% per annum
at 31 December 2004 with
maturities through 2015 110 151 89 118
--------------------------------------------------------------------------------------------------------------------------------
Euro denominated Interest rates ranging from
1.8% to 8.1% per annum at 31
December 2003 with maturities
through 2025; paid off as at
31 December 2004 -- 21 -- 21
--------------------------------------------------------------------------------------------------------------------------------
469 585 289 375
--------------------------------------------------------------------------------------------------------------------------------
139
28 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)
The Group The Company
Interest rate and final 2004 2003 2004 2003
maturity RMB millions RMB millions RMB millions RMB millions
Convertible bonds
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rate at 2.5% per
annum at 31 December 2003
with maturity in July 2004 (a) -- 1,500 -- --
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
65,157 55,998 55,521 42,377
--------------------------------------------------------------------------------------------------------------------------------
Corporate bonds
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Fixed interest rate at 4.61%
per annum at 31 December 2004
with maturity in February
2014 (b) 3,500 -- 3,500 --
--------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans of jointly controlled entities
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Floating rate at 90% of
PBOC's base lending rate per
annum at 31 December 2004
with maturities through 2021 2,415 705 -- --
--------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Floating rate at London
Interbank Offer Rate plus
0.7% per annum at 31 December
2004 with maturities through
2021 2,048 745 -- --
--------------------------------------------------------------------------------------------------------------------------------
4,463 1,450 -- --
--------------------------------------------------------------------------------------------------------------------------------
Total third parties' long-term debts 73,120 57,448 59,021 42,377
--------------------------------------------------------------------------------------------------------------------------------
Less: Current portion (12,298) (9,191) (9,506) (5,208)
--------------------------------------------------------------------------------------------------------------------------------
60,822 48,257 49,515 37,169
--------------------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company and fellow subsidiaries
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest free with maturity
in 2020 35,561 35,561 35,561 35,561
--------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from
interest free to 5.2% per
annum at 31 December 2004
with maturities through 2009 3,204 4,285 2,756 4,200
--------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Floating rate at London
Interbank Offer Rate plus
1.4% per annum at 31 December
2003 with maturities through
2005; paid off as at 31
December 2004 -- 12 -- 12
--------------------------------------------------------------------------------------------------------------------------------
38,765 39,858 38,317 39,773
--------------------------------------------------------------------------------------------------------------------------------
Less: Current portion (2,000) (819) (2,000) (819)
--------------------------------------------------------------------------------------------------------------------------------
36,765 39,039 36,317 38,954
--------------------------------------------------------------------------------------------------------------------------------
97,587 87,296 85,832 76,123
--------------------------------------------------------------------------------------------------------------------------------
(a) Convertible bonds amounting to RMB 1,500 million were issued by a subsidiary on 28 July 1999. Pursuant to the
subsidiary's shareholders' approval at the Annual General Meeting held on 23 March 2004, the subsidiary decided not to
undergo an initial public offering. The bonds were repaid in July 2004.
(b) The Company issued ten years corporate bonds of RMB 3.5 billion to PRC citizens as well as PRC legal and non-legal
persons on 24 February 2004, guaranteed by Sinopec Group Company, with a fixed interest rate at 4.61% per annum.
Third parties' loans of RMB 40 million of the Group at 31 December 2004 (2003: RMB 103 million) were secured by certain
of the Group's property, plant and equipment. The net book value of property, plant and equipment of the Group pledged
as security amounted to RMB 123 million at 31 December 2004 (2003: RMB 519 million).
Third parties' loans of RMB 9 million of the Company at 31 December 2004 (2003: RMB 9 million) were secured by certain
of the Company's property, plant and equipment. The net book value of property, plant and equipment of the Company
pledged as security amounted to RMB 10 million at 31 December 2004 (2003: RMB 14 million).
The aggregate maturities of long-term debts and loans from Sinopec Group Company and fellow subsidiaries are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 14,298 10,010 11,506 6,027
------------------------------------------------------------------------------------------------------------------------
Between one and two years 15,886 14,479 12,363 10,480
------------------------------------------------------------------------------------------------------------------------
Between two and five year 36,041 30,334 31,279 24,794
------------------------------------------------------------------------------------------------------------------------
After five years 45,660 42,483 42,190 40,849
------------------------------------------------------------------------------------------------------------------------
111,885 97,306 97,338 82,150
------------------------------------------------------------------------------------------------------------------------
140
29 TRADE ACCOUNTS AND BILLS PAYABLES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Third parties 22,265 22,122 10,435 4,042
--------------------------------------------------------------------------------------------------------------------------
Subsidiaries -- -- 9,876 13,825
--------------------------------------------------------------------------------------------------------------------------
Sinopec Group Company and its fellow subsidiaries 1,527 1,153 826 735
--------------------------------------------------------------------------------------------------------------------------
Associates -- 44 -- 44
--------------------------------------------------------------------------------------------------------------------------
23,792 23,319 21,137 18,646
--------------------------------------------------------------------------------------------------------------------------
Bills payable 30,797 24,267 21,589 18,170
--------------------------------------------------------------------------------------------------------------------------
54,589 47,586 42,726 36,816
--------------------------------------------------------------------------------------------------------------------------
Amounts due to Sinopec Group Company and fellow subsidiaries are repayable in accordance with normal commercial terms.
The ageing analysis of trade accounts and bills payables are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Due within 1 month or on demand 25,444 21,540 21,839 18,430
--------------------------------------------------------------------------------------------------------------------------------
Due after 1 month but within 6 months 28,877 25,792 20,807 17,931
--------------------------------------------------------------------------------------------------------------------------------
Due after 6 months 268 254 80 455
--------------------------------------------------------------------------------------------------------------------------------
54,589 47,586 42,726 36,816
--------------------------------------------------------------------------------------------------------------------------------
30 ACCRUED EXPENSES AND OTHER PAYABLES
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Amounts due to Sinopec Group Company and its fellow subsidiaries 10,897 15,072 7,336 8,504
--------------------------------------------------------------------------------------------------------------------------------
Amounts due to subsidiaries -- -- 15,010 10,157
--------------------------------------------------------------------------------------------------------------------------------
Accrued expenditures 17,213 12,208 11,801 5,689
--------------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax 3,717 4,327 2,079 2,182
--------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 7,387 5,509 5,013 3,685
--------------------------------------------------------------------------------------------------------------------------------
Advances from third parties 1,009 979 961 864
--------------------------------------------------------------------------------------------------------------------------------
Others 5,053 5,466 3,365 4,256
--------------------------------------------------------------------------------------------------------------------------------
45,276 43,561 45,565 35,337
--------------------------------------------------------------------------------------------------------------------------------
31 SHARE CAPITAL
The Group and the Company
2004 2003
RMB millions RMB millions
Registered, issued and fully paid
----------------------------------------------------------------------------------------------------------------------------
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
----------------------------------------------------------------------------------------------------------------------------
16,780,488,000 overseas listed H shares of RMB 1.00 each 16,780 16,780
----------------------------------------------------------------------------------------------------------------------------
2,800,000,000 domestic listed A shares of RMB 1.00 each 2,800 2,800
----------------------------------------------------------------------------------------------------------------------------
86,702 86,702
----------------------------------------------------------------------------------------------------------------------------
The Company was established on 25 February 2000 with a registered capital
of 68.8 billion domestic state-owned shares with a par value of RMB 1.00
each. Such shares were issued to Sinopec Group Company in consideration for
the assets and liabilities of the Predecessor Operations transferred to the
Company (Note 1).
Pursuant to the resolutions passed at an Extraordinary General Meeting held
on 25 July 2000 and approvals from relevant government authorities, the
Company is authorised to increase its share capital to a maximum of 88.3
billion shares with a par value of RMB 1.00 each and offer not more than
19.5 billion shares with a par value of RMB 1.00 each to investors outside
the PRC. Sinopec Group Company is authorised to offer not more than 3.5
billion shares of its shareholdings in the Company to investors outside the
PRC. The shares sold by Sinopec Group Company to investors outside the PRC
would be converted into H shares.
In October 2000, the Company issued 15,102,439,000 H shares with a par
value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750
American Depositary Shares ("ADSs", each representing 100 H shares), at
prices of HK$ 1.59 per H share and US$ 20.645 per ADS, respectively, by way
of a global initial public offering to Hong Kong and overseas investors. As
part of the global initial public offering, 1,678,049,000 domestic
state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company
were converted into H shares and sold to Hong Kong and overseas investors.
In July 2001, the Company issued 2.8 billion domestic listed A shares with
a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to
natural persons and institutional investors in the PRC.
All A shares and H shares rank pari passu in all material aspects.
141
32 COMMITMENTS AND CONTINGENT LIABILITIES
Operating lease commitments
The Group leases service stations and other equipment through
non-cancellable operating leases. These operating leases do not contain
provisions for contingent lease rentals. None of the rental agreements
contain escalation provisions that may require higher future rental
payments.
At 31 December 2004 and 2003, the future minimum lease payments under
operating leases are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 3,452 3,276 3,272 3,175
-----------------------------------------------------------------------------------------------------
Between one and two years 3,343 3,229 3,237 3,133
-----------------------------------------------------------------------------------------------------
Between two and three years 3,278 3,200 3,213 3,114
-----------------------------------------------------------------------------------------------------
Between three and four years 3,245 3,175 3,188 3,095
-----------------------------------------------------------------------------------------------------
Between four and five years 3,225 3,162 3,170 3,087
-----------------------------------------------------------------------------------------------------
Thereafter 97,527 99,619 95,968 98,253
-----------------------------------------------------------------------------------------------------
114,070 115,661 112,048 113,857
-----------------------------------------------------------------------------------------------------
Capital commitments
At 31 December 2004 and 2003, capital commitments are as follows:
2004 2003
RMB millions RMB millions
The Group
------------------------------------------------------------------------------------------------
Authorised and contracted for 43,001 48,175
Authorised but not contracted for 60,173 48,130
------------------------------------------------------------------------------------------------
103,174 96,305
------------------------------------------------------------------------------------------------
Jointly controlled entities
------------------------------------------------------------------------------------------------
Authorised and contracted for 3,157 6,923
Authorised but not contracted for 2,088 3,432
------------------------------------------------------------------------------------------------
5,245 10,355
------------------------------------------------------------------------------------------------
The Company
------------------------------------------------------------------------------------------------
Authorised and contracted for 28,143 32,228
------------------------------------------------------------------------------------------------
Authorised but not contracted for 37,619 36,403
------------------------------------------------------------------------------------------------
65,762 68,631
------------------------------------------------------------------------------------------------
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interests in associates.
Exploration and production licenses
Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the
license is issued. The Ministry of Land and Resources also issues
production licenses to the Group on the basis of the reserve reports
approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation was given by the State
Council. The maximum term of production licenses issued to the Group is 55
years as a special dispensation was given to the Group by the State
Council. The Group's production license is renewable upon application by
the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB
189 million for the year ended 31 December 2004 (2003: RMB 97 million).
Estimated future annual payments are as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Within one year 90 87 60 69
-------------------------------------------------------------------------------------------------------
Between one and two years 120 117 85 88
-------------------------------------------------------------------------------------------------------
Between two and three years 75 87 47 54
-------------------------------------------------------------------------------------------------------
Between three and four years 67 72 55 42
-------------------------------------------------------------------------------------------------------
Between four and five years 74 65 64 52
-------------------------------------------------------------------------------------------------------
Thereafter 279 361 143 212
-------------------------------------------------------------------------------------------------------
Total payments 705 789 454 517
-------------------------------------------------------------------------------------------------------
142
32 COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Contingent liabilities
(a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the
business assumed by the Company in the Reorganisation, no other
liabilities were assumed by the Company, and the Company is not
jointly and severally liable for other debts and obligations
incurred by Sinopec Group Company prior to the Reorganisation.
(b) At 31 December 2004 and 2003, guarantees given to banks in respect
of banking facilities granted to the parties below were as follows:
The Group The Company
2004 2003 2004 2003
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 2,656 173
-----------------------------------------------------------------------------------------------------------------
Associates and jointly controlled entities 4,828 4,955 12,059 12,084
-----------------------------------------------------------------------------------------------------------------
Third parties -- 118 -- 118
-----------------------------------------------------------------------------------------------------------------
4,828 5,073 14,715 12,375
-----------------------------------------------------------------------------------------------------------------
The Group monitors the conditions that are subject to the guarantees to
identify whether it is probable that a loss has occurred, and recognise any
such losses under guarantees when those losses are estimable. At 31
December 2004 and 2003, it is not probable that the Group will be required
to make payments under the guarantees. Thus no liability has been accrued
relating to the Group's obligation under these guarantee arrangements.
Environmental contingencies
To date, the Group has not incurred any significant expenditures for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC
government, however, has moved, and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to
considerable uncertainties which affect the Group's ability to estimate the
ultimate cost of remediation efforts. These uncertainties include i) the
exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold, ii) the extent
of required cleanup efforts, iii) varying costs of alternative remediation
strategies, iv) changes in environmental remediation requirements, and v)
the identification of new remediation sites. The amount of such future cost
is indeterminable due to such factors as the unknown magnitude of possible
contamination and the unknown timing and extent of the corrective actions
that may be required. Accordingly, the outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. The Group paid normal routine
pollutant discharge fees of approximately RMB 248 million for the year
ended 31 December 2004 (2003: RMB 245 million).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities
will not have a material adverse effect on the financial position or
operating results of the Group.
33 RELATED PARTY TRANSACTIONS
Companies are considered to be related if one company has the ability,
directly or indirectly, to control the other company or exercise
significant influence over the other company in making financial and
operating decisions. Companies are also considered to be related if they
are subject to common control or common significant influence.
The Group is part of a larger group of companies under Sinopec Group
Company and has significant transactions and relationships with the Sinopec
Group Company and fellow subsidiaries. Because of these relationships, it
is possible that the terms of these transactions are not the same as those
that would result from transactions among wholly unrelated parties. Sinopec
Group Company itself is owned by the PRC government. There are also many
other enterprises directly or indirectly owned or controlled by the PRC
government ("state-owned enterprises"). Under IFRS, state-owned
enterprises, other than Sinopec Group Company and fellow subsidiaries, are
not considered related parties. Related parties refer to enterprises over
which Sinopec Group Company is able to exercise significant influence.
The Group conducts business with state-owned enterprises. Furthermore, the
PRC government itself represents a significant customer of the Group both
directly through its numerous authorities and indirectly through its
numerous affiliates and other organisations. Sales of certain products to
PRC government authorities and affiliates and other state-owned enterprises
may be at regulated prices, which differ from market prices. The Group
considers that these sales are activities in the ordinary course of
business in the PRC and has not disclosed such sales as related party
transactions.
143
33 RELATED PARTY TRANSACTIONS (Continued)
The principal related party transactions with Sinopec Group Company, which
were carried out in the ordinary course of business, are as follows:
Note 2004 2003
RMB millions RMB millions
Sales of goods (i) 63,507 32,134
--------------------------------------------------------------------------------------------------------------------
Purchases (ii) 36,828 31,964
--------------------------------------------------------------------------------------------------------------------
Transportation and storage (iii) 2,003 1,572
--------------------------------------------------------------------------------------------------------------------
Exploration and development services (iv) 14,446 13,699
--------------------------------------------------------------------------------------------------------------------
Production related services (v) 9,036 8,421
--------------------------------------------------------------------------------------------------------------------
Ancillary and social services (vi) 1,740 1,783
--------------------------------------------------------------------------------------------------------------------
Operating lease charges (vii) 3,297 2,924
--------------------------------------------------------------------------------------------------------------------
Agency commission income (viii) 41 41
--------------------------------------------------------------------------------------------------------------------
Intellectual property license fee paid (ix) 10 10
--------------------------------------------------------------------------------------------------------------------
Interest received (x) 59 114
--------------------------------------------------------------------------------------------------------------------
Interest paid (xi) 622 583
--------------------------------------------------------------------------------------------------------------------
Net deposits placed with/(withdrawn from) related parties (xii) 340 (1,634)
--------------------------------------------------------------------------------------------------------------------
Net loans obtained from/(paid to) related parties (xiii) 1,575 (24)
--------------------------------------------------------------------------------------------------------------------
The amounts set out in the table above in respect of the years ended 31
December 2004 and 2003 represent the relevant costs to the Group as
determined by the corresponding contracts with the related parties.
At 31 December 2004 and 2003, there were no guarantees given to banks by
the Group in respect of banking facilities to Sinopec Group Company and
fellow subsidiaries.
The directors of the Company are of the opinion that the above transactions
with related parties were conducted in the ordinary course of business and
on normal commercial terms or in accordance with the agreements governing
such transactions, and this has been confirmed by the independent
non-executive directors.
Notes:
(i) Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary materials.
(ii) Purchases represent the purchase of material and utility supplies
directly related to the Group's operations such as the procurement of
raw and ancillary materials and related services, supply of water,
electricity and gas.
(iii) Transportation and storage represent the cost for the use of railway,
road and marine transportation services, pipelines, loading,
unloading and storage facilities.
(iv) Exploration and development services comprise direct costs incurred
in the exploration and development activities such as geophysical,
drilling, well testing and well measurement services.
(v) Production related services represent ancillary services rendered in
relation to the Group's operations such as equipment repair and
general maintenance, insurance premium, technical research,
communications, fire fighting, security, product quality testing and
analysis, information technology, design and engineering,
construction which includes the construction of oilfield ground
facilities, refineries and chemical plants, manufacture of
replacement parts and machinery, installation, project management and
environmental protection.
(vi) Ancillary and social services represent expenditures for social
welfare and support services such as educational facilities, media
communication services, sanitation, accommodation, canteens,
property maintenance and management services.
(vii) Operating lease charges represent the rental paid to Sinopec Group
Company for operating leases in respect of land, buildings and
service stations.
(viii) Agency commission income represents commission earned for acting as
an agent in respect of sales of products of and purchase of material
for certain entities owned by Sinopec Group Company.
(ix) Intellectual property license fee represents reimbursement paid to
Sinopec Group Company for fees required to maintain the validity of
licenses for trademarks, patents, technology and computer software.
(x) Interest received represents interest received from deposits placed
with Sinopec Finance Company Limited, a finance company controlled
by Sinopec Group Company. The applicable interest rate is determined
in accordance with the prevailing saving deposit rate. The balance
of deposits at 31 December 2004 was RMB 4,671 million (2003: RMB
4,331 million).
(xi) Interest paid represents interest charges on the loans and advances
obtained from Sinopec Group Company and Sinopec Finance Company
Limited.
(xii) Deposits were placed with/withdrawn from Sinopec Finance Company
Limited.
(xiii) The Group obtained/repaid loans from/to Sinopec Group Company and
Sinopec Finance Company Limited.
144
33 RELATED PARTY TRANSACTIONS (Continued)
In connection with the Reorganisation, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social
and supporting services to the Group and 2) the Group will sell certain
goods to Sinopec Group Company. The terms of these agreements are
summarised as follows:
(a) The Company has entered into a non-exclusive Agreement for Mutual
Provision of Products and Ancillary Services ("Mutual Provision
Agreement") with Sinopec Group Company effective from 1 January 2000
under which Sinopec Group Company has agreed to provide the Group with
certain ancillary production services, construction services,
information advisory services, supply services and other services and
products. While each of Sinopec Group Company and the Company is
permitted to terminate the Mutual Provision Agreement upon at least six
months notice, Sinopec Group Company has agreed not to terminate the
agreement if the Group is unable to obtain comparable services from a
third party. The pricing policy for these services and products
provided by Sinopec Group Company to the Group is as follows:
o the government-prescribed price;
o where there is no government-prescribed price, the government-
guidance price;
o where there is neither a government-prescribed price nor a
government-guidance price, the market price; or
o where none of the above is applicable, the price to be agreed between
the parties, which shall be based on a reasonable cost incurred in
providing such services plus a profit margin not exceeding 6%.
(b) The Company has entered into a non-exclusive Agreement for Provision of
Cultural and Educational, Health Care and Community Services with
Sinopec Group Company effective from 1 January 2000 in which Sinopec
Group Company has agreed to provide the Group with certain cultural,
educational, health care and community services on the same pricing
terms and termination conditions as agreed to in the above Mutual
Provision Agreement.
(c) The Company has entered into a series of lease agreements with Sinopec
Group Company to lease certain land and buildings at a rental of
approximately RMB 2,447 million and RMB 567 million, respectively, per
annum. The Company and Sinopec Group Company can renegotiate the rental
amount every three years for land and every year for buildings, such
amount not to exceed the market price as determined by an independent
third party. The Group has the option to terminate these leases upon
six months notice to Sinopec Group Company.
(d) The Company has entered into agreements with Sinopec Group Company
effective from 1 January 2000 under which the Group has been granted
the right to use certain trademarks, patents, technology and computer
software developed by Sinopec Group Company. The Group will reimburse
Sinopec Group Company for fees required to maintain the validity of
these licenses.
(e) The Company has entered into agency agreements effective from 1 January
2000 with certain entities owned by Sinopec Group Company under which
the Group acts as a sole agent in respect of the sale of all the
products of these entities. In exchange for the Group's sales agency
services, Sinopec Group Company has agreed to pay the Group a
commission of between 0.2% and 1.0% of actual sales receipts depending
on the products and to reimburse the Group for reasonable costs
incurred in the capacity as its sales agent.
(f) The Company has entered into a service stations franchise agreement with
Sinopec Group Company effective from 1 January 2000 under which its
service stations and retail stores would exclusively sell the refined
products supplied by the Group.
As discussed in Note 1, pursuant to the resolutions passed at the
Extraordinary General Meeting held on 21 December 2004, the Group acquired
the equity interests of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical, Guangzhou Petrochemical and Catalyst Plants from
Sinopec Group Company for a total consideration payable of RMB 3,128
million. In addition, the Group acquired certain individual assets and
liabilities from Sinopec Group Company for a total consideration payable of
RMB 2,232 million. In connection with these acquisitions, the Group
disposed of certain property, plant and equipment, with net book value of
RMB1,857 million, and certain other assets and liabilities, related to its
oilfield downhole operation (the "Downhole Assets") to Sinopec Group
Company for a consideration receivable of RMB 1,712 million, which
approximated the net carrying value of the assets and liabilities,
resulting in a net cash consideration of RMB 3,648 million payable to
Sinopec Group Company.
34 EMPLOYEE BENEFITS PLAN
As stipulated by the regulations of the PRC, the Group participates in
various defined contribution retirement plans organised by municipal and
provincial governments for its staff. The Group is required to make
contributions to the retirement plans at rates ranging from 17.0% to 30.0%
of the salaries, bonuses and certain allowances of its staff. A member of
the plan is entitled to a pension equal to a fixed proportion of the salary
prevailing at his or her retirement date. The Group has no other material
obligation for the payment of pension benefits associated with these plans
beyond the annual contributions described above. The Group's contributions
for the year ended 31 December 2004 were RMB 2,242 million (2003: RMB 1,882
million).
The Company implemented a plan of share appreciation rights for members of
its senior management in order to provide further incentives to these
employees. Under this plan, share appreciation rights were granted in units
with each unit representing one H share. No shares will be issued under the
share appreciation rights plan.
Under the plan, all share appreciation rights have an exercise period of
five years. A recipient of share appreciation rights may not exercise the
rights in the first three years after the date of grant. As at each of the
third, fourth and fifth anniversary of the date of grant, the total number
of share appreciation rights exercisable may not in aggregate exceed 30%,
70% and 100%, respectively, of the total share appreciation rights granted
to such person.
During 2003, the Company granted 258.6 million share appreciation right
units to eligible employees.
The exercise price of share appreciation rights initially granted is the
initial public offering price of the Company's H shares. Upon exercise of
the share appreciation rights, a recipient will receive, subject to any
applicable withholding tax, a cash payment in RMB, translated from the Hong
Kong dollar amount equal to the product of the number of share appreciation
rights exercised and the difference between the exercise price and average
market price of the Company's H shares for the exercise period based on the
applicable exchange rate between RMB and Hong Kong dollar at the date of
the exercise.
The Company recognises compensation expense of the share appreciation
rights over the applicable vesting period. For the year ended 31 December
2004, compensation expense recognised was RMB 150 million (2003: RMB 120
million).
145
35 SEGMENTAL REPORTING
The Group has five operating segments as follows:
(i) Exploration and production, which explores and develops oil
fields, produces crude oil and natural gas and sells such products
to the refining segment of the Group and external customers.
(ii) Refining, which processes and purifies crude oil, which is sourced
from the exploration and production segment of the Group and
external suppliers, and manufactures and sells petroleum products
to the chemicals and marketing and distribution segments of the
Group and external customers.
(iii) Marketing and distribution, which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals, which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products
mainly to external customers.
(v) Corporate and others, which largely comprise the trading
activities of the import and export companies of the Group and
research and development undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production; refining; marketing and distribution;
chemicals; and corporate and others businesses separately. The reportable
segments are each managed separately because they manufacture and/or
distribute distinct products with different production processes and due to
their distinct operating and gross margin characteristics. In view of the
fact that the Company and its subsidiaries operate mainly in the PRC, no
geographical segment information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of
the Group's segments are the same as those described in the principal
accounting policies (see Note 2). Corporate administrative costs and assets
are not allocated to the operating segments; instead, operating segments
are billed for direct corporate services. Inter-segment transfer pricing is
based on cost plus an appropriate margin, as specified by the Group's
policy.
Reportable information on the Group's business segments is as follows:
2004 2003
RMB millions RMB millions
Turnover
------------------------------------------------------------------------------------------------------
Exploration and production
------------------------------------------------------------------------------------------------------
External sales 15,970 14,936
------------------------------------------------------------------------------------------------------
Inter-segment sales 60,053 47,287
------------------------------------------------------------------------------------------------------
76,023 62,223
------------------------------------------------------------------------------------------------------
Refining
------------------------------------------------------------------------------------------------------
External sales 63,388 51,445
------------------------------------------------------------------------------------------------------
Inter-segment sales 89,699 217,755
------------------------------------------------------------------------------------------------------
53,087 269,200
------------------------------------------------------------------------------------------------------
Marketing and distribution
------------------------------------------------------------------------------------------------------
External sales 42,840 238,210
------------------------------------------------------------------------------------------------------
Inter-segment sales 2,831 2,602
------------------------------------------------------------------------------------------------------
45,671 240,812
------------------------------------------------------------------------------------------------------
Chemicals
------------------------------------------------------------------------------------------------------
External sales 26,013 91,964
------------------------------------------------------------------------------------------------------
Inter-segment sales 12,510 7,415
------------------------------------------------------------------------------------------------------
38,523 99,379
------------------------------------------------------------------------------------------------------
Corporate and others
------------------------------------------------------------------------------------------------------
External sales 48,986 33,394
------------------------------------------------------------------------------------------------------
Inter-segment sales 32,046 30,371
------------------------------------------------------------------------------------------------------
81,032 63,765
------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales 97,139) (305,430)
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Turnover 97,197 429,949
------------------------------------------------------------------------------------------------------
Other operating revenues
------------------------------------------------------------------------------------------------------
Exploration and production 9,283 8,039
Refining 5,186 4,573
------------------------------------------------------------------------------------------------------
Marketing and distribution 755 548
------------------------------------------------------------------------------------------------------
Chemicals 6,170 4,461
Corporate and others 1,192 1,431
------------------------------------------------------------------------------------------------------
Other operating revenues 22,586 19,052
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
Turnover and other operating revenues 19,783 449,001
------------------------------------------------------------------------------------------------------
146
35 SEGMENTAL REPORTING (Continued)
2004 2003
RMB millions RMB millions
Result
------------------------------------------------------------------------------------------------------
Operating profit
By segment
------------------------------------------------------------------------------------------------------
-- Exploration and production 25,614 19,160
------------------------------------------------------------------------------------------------------
-- Refining 5,943 6,073
-- Marketing and distribution 14,716 11,943
------------------------------------------------------------------------------------------------------
-- Chemicals 18,721 3,543
------------------------------------------------------------------------------------------------------
-- Corporate and others (1,925) (1,836)
------------------------------------------------------------------------------------------------------
Total operating profit 63,069 38,883
------------------------------------------------------------------------------------------------------
Share of profits less losses from associates
------------------------------------------------------------------------------------------------------
-- Exploration and production 447 293
------------------------------------------------------------------------------------------------------
-- Refining 58 (1)
-- Marketing and distribution 302 43
------------------------------------------------------------------------------------------------------
-- Chemicals (164) (41)
------------------------------------------------------------------------------------------------------
-- Corporate and others 154 102
------------------------------------------------------------------------------------------------------
Aggregate share of profits less losses from associates 797 396
------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------
Assets and liabilities dedicated to a particular segment's operations are
included in that segment's total assets and liabilities. Assets which
benefit more than one segment or are considered to be corporate assets are
not allocated. "Unallocated assets" consists primarily of cash and cash
equivalents, time deposits with financial institutions, investments and
deferred tax assets. "Unallocated liabilities" consists primarily of
short-term and long-term debts, loans from Sinopec Group Company and fellow
subsidiaries, income tax payable, deferred tax liabilities and other
liabilities.
Interests in and earnings from associates are included in the segments in
which the associates operate. Information on associates is included in Note
21. Additions to long-lived assets by operating segment are included in
Notes 17 and 18.
RMB millions RMB millions
Assets
-----------------------------------------------------------------------------------------------------------------------------
Segment assets
-- Exploration and production 110,509 101,303
-----------------------------------------------------------------------------------------------------------------------------
-- Refining 111,878 96,839
-- Marketing and distribution 93,722 73,942
-----------------------------------------------------------------------------------------------------------------------------
-- Chemicals 105,032 101,130
-----------------------------------------------------------------------------------------------------------------------------
-- Corporate and others 17,574 14,445
-----------------------------------------------------------------------------------------------------------------------------
Total segment assets 438,715 387,659
-----------------------------------------------------------------------------------------------------------------------------
Interests in associates
-----------------------------------------------------------------------------------------------------------------------------
-- Exploration and production 1,396 1,233
-----------------------------------------------------------------------------------------------------------------------------
-- Refining 314 136
-- Marketing and distribution 2,410 1,815
-----------------------------------------------------------------------------------------------------------------------------
-- Chemicals 4,315 3,517
-----------------------------------------------------------------------------------------------------------------------------
-- Corporate and others 1,787 1,420
-----------------------------------------------------------------------------------------------------------------------------
Aggregate interests in associates 10,222 8,121
-----------------------------------------------------------------------------------------------------------------------------
Unallocated assets 25,657 24,404
-----------------------------------------------------------------------------------------------------------------------------
Total assets 474,594 420,184
-----------------------------------------------------------------------------------------------------------------------------
Liabilities
-----------------------------------------------------------------------------------------------------------------------------
Segment liabilities
-- Exploration and production 16,241 15,733
-----------------------------------------------------------------------------------------------------------------------------
-- Refining 28,130 25,729
-----------------------------------------------------------------------------------------------------------------------------
-- Marketing and distribution 23,419 21,091
-----------------------------------------------------------------------------------------------------------------------------
-- Chemicals 16,528 18,951
-- Corporate and others 15,547 10,022
-----------------------------------------------------------------------------------------------------------------------------
Total segment liabilities 99,865 91,526
-----------------------------------------------------------------------------------------------------------------------------
Unallocated liabilities 150,643 131,092
-----------------------------------------------------------------------------------------------------------------------------
Total liabilities 250,508 222,618
-----------------------------------------------------------------------------------------------------------------------------
147
35 SEGMENTAL REPORTING (Continued)
Segment capital expenditure is the total cost incurred during the year to
acquire segment assets that are expected to be used for more than one
year.
2004 2003
RMB millions RMB millions
Capital expenditure
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 21,234 20,628
-----------------------------------------------------------------------------------------------------------------------------
Refining 14,272 9,788
Marketing and distribution 16,678 6,826
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 11,025 7,680
-----------------------------------------------------------------------------------------------------------------------------
Corporate and others 1,550 518
-----------------------------------------------------------------------------------------------------------------------------
64,759 45,440
-----------------------------------------------------------------------------------------------------------------------------
Capital expenditure of jointly controlled entities
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 1,323 1,200
Chemicals 5,178 2,993
-----------------------------------------------------------------------------------------------------------------------------
6,501 4,193
-----------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 12,066 9,413
Refining 7,730 6,434
Marketing and distribution 2,759 2,431
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 9,325 9,149
-----------------------------------------------------------------------------------------------------------------------------
Corporate and others 462 524
-----------------------------------------------------------------------------------------------------------------------------
32,342 27,951
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets recognised in income statement
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 98 310
Refining 14 114
Marketing and distribution 1,769 --
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 2,038 453
-----------------------------------------------------------------------------------------------------------------------------
3,919 877
-----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets recognised in shareholders' funds
-----------------------------------------------------------------------------------------------------------------------------
Chemicals 709 --
-----------------------------------------------------------------------------------------------------------------------------
36 PRINCIPAL SUBSIDIARIES
At 31 December 2004, the following list contains the particulars of
subsidiaries which principally affected the results or assets of the Group.
Particulars of Type of Percentage of equity
issued legal held by the held by
Name of company capital entity Company Subsidiary Principal activities
(millions) % %
China Petrochemical International RMB 1,400 Limited 100.00 -- Trading of crude oil and
Company Limited company petrochemical products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanhua Petrochemical RMB 3,374 Limited 70.01 -- Manufacturing of chemical
Company Limited company products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited RMB 1,700 Limited 100.00 -- Marketing and distribution
company of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company RMB 29,000 Limited 100.00 -- Exploration and production
Limited company of crude oil and natural
gas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical Company RMB 2,253 Limited 50.00 -- Manufacturing of plaztics,
Limited (i) company intermediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical Company RMB 1,950 Limited 82.05 -- Manufacturing of inter-
mediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical RMB 7,200 Limited 55.56 -- Manufacturing of synthetic
Company Limited company fibres, resin and plastics,
intermediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining- RMB 1,154 Limited 79.73 -- Manufacturing of inter-
Chemical Company Limited company mediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings HK$104 Limited 72.40 -- Trading of crude oil and
Limited company petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum Group RMB 147 Limited 46.25 -- Marketing and distribution
Company Limited (i) company of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix RMB 519 Limited 40.72 -- Manufacturing of petro-
Company Limited (i) company chemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company RMB 2,330 Limited 84.98 -- Manufacturing of inter-
Limited company mediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
148
Particulars of Type of Percentage of equity
issued legal held by the held by
Name of company capital entity Company Subsidiary Principal activities
(millions) % %
Sinopec Yizheng Chemical Fibre RMB 4,000 Limited 42.00 -- Production and sale
Company Limited (i) company of polyester chips and
polyester fibres
-------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and Chemical RMB 2,524 Limited 71.32 -- Manufacturing of inter-
Company Limited company mediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum Company RMB 875 Limited 70.85 -- Exploration and production
Limited company of crude oil and natural
gas
-----------------------------------------------------------------------------------------------------------------------------------
Zhongyuan Petrochemical Company Limited RMB 2,400 Limited 93.51 -- Manufacturing of chemical
company products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) Petroleum RMB 455 Limited 60.00 -- Marketing and distribution
Marketing Company Limited company of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) Petroleum RMB 647 Limited 60.00 -- Marketing and
Company Limited company distribution of
refined petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Except for Sinopec Kantons Holdings Limited, which is incorporated in
Bermuda, all of the above principal subsidiaries are incorporated in the
PRC.
(i)The Group consolidated the results of the entity because the Group
controlled the board of this entity and had the power to govern its
financial and operating policies.
37 FINANCIAL INSTRUMENTS
Financial assets of the Group include cash and cash equivalents, time
deposits with financial institutions, investments, trade accounts
receivable, bills receivable, amounts due from Sinopec Group Company and
fellow subsidiaries, advances to third parties, amounts due from
associates, and other receivables. Financial liabilities of the Group
include bank and other loans, loans from Sinopec Group Company and fellow
subsidiaries, trade accounts payable, bills payable, amounts due to Sinopec
Group Company and fellow subsidiaries, receipts in advance, and advances
from third parties. The Group has no derivative instruments that are
designated and qualified as hedging instruments at 31 December 2004 and
2003.
Credit risk
The carrying amounts of cash and cash equivalents, time deposits with
financial institutions, trade accounts and bills receivables, and other
current assets, except for prepayments, represent the Group's maximum
exposure to credit risk in relation to financial assets.
The majority of the Group's trade accounts receivable relate to sales of
petroleum and chemical products to related parties and third parties
operating in the petroleum and chemical industries. The Group performs
ongoing credit evaluations of its customers' financial condition and
generally does not require collateral on trade accounts receivable. The
Group maintains an allowance for doubtful accounts and actual losses have
been within management's expectations. No single customer accounted for
greater than 10% of total revenues.
No other financial assets carry a significant exposure to credit risk.
Currency risk
Substantially all of the revenue-generating operations of the Group are
transacted in Renminbi, which is not fully convertible into foreign
currencies. On 1 January 1994, the PRC government abolished the dual rate
system and introduced a single rate of exchange as quoted by the People's
Bank of China. However, the unification of the exchange rate does not imply
convertibility of Renminbi into United States dollars or other foreign
currencies. All foreign exchange transactions continue to take place either
through the People's Bank of China or other banks authorised to buy and
sell foreign currencies at the exchange rates quoted by the People's Bank
of China. Approval of foreign currency payments by the People's Bank of
China or other institutions requires submitting a payment application form
together with suppliers' invoices, shipping documents and signed contracts.
Interest rate risk
The interest rates and terms of repayment of short-term and long-term debts
of the Group are disclosed in Note 28.
The disclosures of the fair value estimates, methods and assumptions, set
forth below for the Group's financial instruments, are made to comply with
the requirements of IAS 32 and IAS 39 and should be read in conjunction
with the Group's consolidated financial statements and related notes. The
estimated fair value amounts have been determined by the Group using market
information and valuation methodologies considered appropriate. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the Group could realise in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
The Group has not developed an internal valuation model necessary to make
the estimate of the fair value of loans from Sinopec Group Company and
fellow subsidiaries as it is not considered practicable to estimate their
fair value because the cost of obtaining discount and borrowing rates for
comparable borrowings would be excessive based on the Reorganisation of the
Group, its existing capital structure, and the terms of the borrowings.
149
37 FINANCIAL INSTRUMENTS (Continued)
The following table presents the carrying amount and fair value of the
Group's long-term indebtedness other than loans from Sinopec Group Company
and fellow subsidiaries at 31 December 2004 and 2003:
2004 2003
RMB millions RMB millions
Carrying amount 73,120 57,448
---------------------------------------------------------------------------
Fair value 73,263 57,546
---------------------------------------------------------------------------
The fair value of long-term indebtedness is estimated by discounting future
cash flows thereon using current market interest rates offered to the Group
for debts with substantially the same characteristics and maturities.
Investments in unlisted equity securities have no quoted market prices in
the PRC. Accordingly, a reasonable estimate of fair value could not be made
without incurring excessive costs.
The fair values of all other financial instruments approximate their
carrying amounts due to the nature or short-term maturity of these
instruments.
38 POST BALANCE SHEET EVENT
On 29 December 2004, the Group announced its proposal to privatise Sinopec
Beijing Yanhua Petrochemical Company Limited ("Beijing Yanhua"), a
non-wholly owned subsidiaries in which the Group holds approximately 70% of
the equity interests. According to the proposal, the Group will acquire the
entire 1,012,000,000 H shares, representing approximately 30% of the issued
share capital of Beijing Yanhua at HK$ 3.80 per share. The total
consideration required to be paid by the Group was approximately HK$ 3,846
million which will be settled in cash.
Pursuant to the resolution passed in the Special General Meeting of Beijing
Yanhua on 4 March 2005, the shareholders of the H shares in Beijing Yanhua
agreed to dispose of and sell their shares in Beijing Yanhua to the Group
at the above mentioned price, subject to the approval from the relevant PRC
governmental and regulatory bodies.
39 ULTIMATE HOLDING COMPANY
The directors consider the ultimate holding company of the Group at 31
December 2004 to be Sinopec Group Company, a state-owned enterprise
established in the PRC.
150
(C) DIFFERENCES BETWEEN FINANCIAL STATEMENTS PREPARED UNDER THE PRC
ACCOUNTING RULES AND REGULATIONS AND IFRS
Other than the differences in the classifications of certain financial
statements captions and the accounting for the items described below, there are
no material differences between the Group's financial statements prepared under
the PRC Accounting Rules and Regulations and IFRS. The major differences are:
(i) Disposal of oil and gas properties
Under the PRC Accounting Rules and Regulations, gains and losses
arising from the retirement or disposal of an individual item of oil
and gas properties are recognised as income or expense in the income
statement and are measured as the difference between the estimated net
disposal proceeds and the carrying amount of the asset.
Under IFRS, gains and losses on the retirement or disposal of an
individual item of proved oil and gas properties are not recognised
unless the retirement or disposal encompasses an entire property. The
costs of the asset abandoned or retired are charged to accumulated
depreciation with the proceeds received on disposals credited to the
carrying amounts of oil and gas properties.
(ii) Acquisitions of Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants
Under the PRC Accounting Rules and Regulations, the acquisitions of
Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical, Tahe
Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical and Catalyst Plants (the "Acquisitions") are accounted
for by the acquisition method. Under the acquisition method, the income
of an acquiring enterprise includes the operations of the acquired
enterprise subsequent to the acquisition. The difference between the
cost of acquiring Sinopec National Star and the fair value of the net
assets acquired is capitalised as an exploration and production right,
which is amortised over 27 years. The costs of acquiring Sinopec
Maoming, Xi'an Petrochemical, Tahe Petrochemical, Tianjin
Petrochemical, Luoyang Petrochemical, Zhongyuan Petrochemical and
Catalyst Plants approximated the fair value of the net assets acquired.
Under IFRS, as the Group, Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants are under
the common control of Sinopec Group Company, the Acquisitions are
considered "combination of entities under common control" which are
accounted in a manner similar to a pooling-of-interests ("as-if
pooling-of-interests accounting"). Accordingly, the assets and
liabilities of Sinopec National Star, Sinopec Maoming, Xi'an
Petrochemical, Tahe Petrochemical, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants acquired
have been accounted for at historical cost and the financial statements
of the Group for periods prior to the Acquisitions have been restated
to include the financial condition and results of operations of Sinopec
National Star, Sinopec Maoming, Xi'an Petrochemical, Tahe
Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical and Catalyst Plants on a combined basis. The
considerations paid by the Group are treated as equity transactions.
(iii) Depreciation of oil and gas properties
Under the PRC Accounting Rules and Regulations, oil and gas properties
are depreciated on a straight- line basis. Under IFRS, oil and gas
properties are depreciated on the unit of production method.
(iv) Impairment losses on revalued assets
Under the PRC Accounting Rules and Regulations, impairment losses on
property, plant and equipment are recognised as expense in the income
statement. Under IFRS, impairment loss on a revalued asset is
recognised directly against any related revaluation reserve to the
extent that the impairment loss does not exceed the amount held in the
revaluation reserve for that same asset.
(v) Capitalisation of general borrowing costs
Under the PRC Accounting Rules and Regulations, only borrowing costs on
funds that are specifically borrowed for construction are capitalised
as part of the cost of property, plant and equipment. Under IFRS, to
the extent that funds are borrowed generally and used for the purpose
of obtaining a qualifying asset, the borrowing costs should be
capitalised as part of the cost of that asset.
(vi) Revaluation of land use rights
Under the PRC Accounting Rules and Regulations, land use rights are
carried at revalued amount. Under IFRS, land use rights are carried at
historical cost less amortisation. Accordingly, the surplus on the
revaluation of land use rights, credited to revaluation reserve, was
eliminated.
(vii) Government grants
Under the PRC Accounting Rules and Regulations, government grants
should be credited to capital reserve. Under IFRS, government grants
relating to the purchase of equipment used for technology improvements
are initially recorded as long term liabilities and are offset against
the cost of assets to which the grants related when construction
commences. Upon transfer to property, plant and equipment, the grants
are recognised as an income over the useful life of the property, plant
and equipment by way of reduced depreciation charge.
(viii) Unrecognised losses of subsidiaries
Under the PRC Accounting Rules and Regulations, the results of
subsidiaries are included in the Group's consolidated income statement
to the extent that the subsidiaries' accumulated losses do not result
in their carrying amount being reduced below zero, without the effect
of minority interests. Further losses are debited to a separate reserve
in the shareholders' funds.
Under IFRS, the results of subsidiaries are included in the Group's
consolidated income statement from the date that control effectively
commences until the date that control effectively ceases.
(ix) Pre-operating expenditures
Under the PRC Accounting Rules and Regulations, expenditures incurred
during the start-up period are aggregated in long-term deferred
expenses and charged to the income statement when operations commence.
Under IFRS, expenditures on start-up activities are recognised as an
expense when they are incurred.
(x) Gain from issuance of shares by a subsidiary
Under the PRC Accounting Rules and Regulations, the increase in the
Company's share of net assets of a subsidiary after the sale of
additional shares by the subsidiary is credited to capital reserve.
Under IFRS, such increase is recognised as income.
151
(xi) Gain from debt restructuring
Under the PRC Accounting Rules and Regulations, gain from debt
restructuring resulting from the difference between the carrying amount
of liabilities extinguished or assumed by other parties and the amount
paid is credited to capital reserve. Under IFRS, the gain resulting
from such difference is recognised as income.
(xii) Impairment losses on long-lived assets
Under the PRC Accounting Rules and Regulations and IFRS, impairment
charges are recognised when the carrying value of long-lived assets
exceeds the higher of their net selling price and the value in use
which incorporates discounting the asset's estimated future cash flows.
Due to the difference in the depreciation method of oil and gas
properties discussed in (iii) above, the provision for impairment
losses and reversal of impairment loss under the PRC Accounting Rules
and Regulations are measured differently from the amounts recorded
under IFRS.
Effects of major differences between the PRC Accounting Rules and
Regulations and IFRS on net profit are analysed as follows:
2004 2003
Note 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 (i) 2,110 1,260
----------------------------------------------------------------------------------------------------------------------------
Acquisitions of Sinopec Maoming, Xi'an Petrochemical,
Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants (ii) 1,499 1,157
----------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (ii) 117 117
Depreciation of oil and gas properties (iii) 761 1,784
Impairment losses on revalued assets (iv) 709 --
----------------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs (v) 480 389
----------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (vi) 19 18
----------------------------------------------------------------------------------------------------------------------------
Government grants (vii) 3 --
----------------------------------------------------------------------------------------------------------------------------
Unrecognised losses of subsidiaries (viii) (531) (182)
Pre-operating expenditures (ix) (288) (169)
----------------------------------------------------------------------------------------------------------------------------
Gain from issuance of shares by a subsidiary (x) -- 136
----------------------------------------------------------------------------------------------------------------------------
Gain from debt restructuring (xi) -- 82
Effects of the above adjustments on taxation (1,135) (1,179)
----------------------------------------------------------------------------------------------------------------------------
Net profit under IFRS* 36,019 22,424
----------------------------------------------------------------------------------------------------------------------------
Effects of major differences between the PRC Accounting Rules and
Regulations and IFRS on shareholders' funds are analysed as follows:
Note 2004 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 (i) 3,370 1,260
----------------------------------------------------------------------------------------------------------------------------
Acquisitions of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants (ii) -- 3,616
----------------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (ii) (2,695) (2,812)
----------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties (iii) 11,646 10,885
Capitalisation of general borrowing costs (v) 1,605 1,125
----------------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (vi) (851) (870)
----------------------------------------------------------------------------------------------------------------------------
Government grants (vii) (592) (326)
----------------------------------------------------------------------------------------------------------------------------
Effect of minority interests on unrecognised losses of subsidiaries (viii) -- 61
Pre-operating expenditures (ix) (457) (169)
----------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets (xii) (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.
152
(D) SUPPLEMENTAL INFORMATION FOR NORTH AMERICAN SHAREHOLDERS
The Group's accounting policies conform with IFRS which differ in certain
significant respects from accounting principles generally accepted in the
United States of America ("US GAAP"). Information relating to the nature and
effect of such differences are set out below. The US GAAP reconciliation
presented below is included as supplemental information, is not required as
part of the basic financial statements and does not include differences related
to classification, display or disclosures.
(a) Foreign exchange gains and losses
In accordance with IFRS, foreign exchange differences on funds borrowed for
construction are capitalised as property, plant and equipment to the extent
that they are regarded as an adjustment to interest costs during the
construction period. Under US GAAP, all foreign exchange gains and losses
on foreign currency debts are included in current earnings. Accordingly,
the US GAAP adjustments represent the amortisation effect of such
originating adjustments described above.
(b) Capitalisation of property, plant and equipment
In the years prior to those presented herein, certain adjustments arose
between IFRS and US GAAP with regard to the capitalisation of interest and
pre-production results under IFRS that were reversed and expensed under US
GAAP. For the years presented herein, there were no adjustments related to
the capitalisation of interest and pre-production results. Accordingly, the
US GAAP adjustments represent the amortisation effect of such originating
adjustments described above.
(c) Revaluation of property, plant and equipment
As required by the relevant PRC regulations with respect to the
Reorganisation, the property, plant and equipment of the Group were
revalued at 30 September 1999. In addition, the property, plant and
equipment of Sinopec National Star, Sinopec Maoming, Refining Assets, and
Petrochemical and Catalyst Assets were revalued at 31 December 2000, 30
June 2003, 31 October 2003 and 30 June 2004, respectively, in connection
with the Acquisitions. Under IFRS, such revaluations result in an increase
in shareholders' funds with respect to the increase in carrying amount of
certain property, plant and equipment above their historical cost bases and
a charge to income with respect to the reduction in carrying amount of
certain property, plant and equipment below their historical cost bases.
Under US GAAP, property, plant and equipment are stated at their historical
cost less accumulated depreciation. However, as a result of the tax
deductibility of the net revaluation surplus, a deferred tax asset related
to the reversal of the revaluation surplus is created under US GAAP with a
corresponding increase in shareholders' funds.
In addition, under IFRS, on disposal of a revalued asset, the related
revaluation surplus is transferred from the revaluation reserve to retained
earnings. Under US GAAP, the gain and loss on disposal of an asset is
determined with reference to the asset's historical carrying amount and
included in current earnings.
(d) Exchange of assets
During 2002, the Company and Sinopec Group Company entered into an asset
swap transaction. Under IFRS, the cost of property, plant and equipment
acquired in an exchange for a dissimilar item of property, plant and
equipment is measured at fair value. Under US GAAP, as the exchange of
assets was between entities under common control, the assets received from
Sinopec Group Company are measured at historical cost. The difference
between the historical cost of the net assets transferred and the net
assets received is accounted for as an equity transaction. Accordingly, the
US GAAP adjustments represent the amortisation effect of such originating
adjustments described above.
(e) Impairment of long-lived assets
Under IFRS, impairment charges are recognised when a long-lived asset's
carrying amount exceeds the higher of an asset's net selling price and
value in use, which incorporates discounting the asset's estimated future
cash flows.
Under US GAAP, determination of the recoverability of a long-lived asset is
based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an
impairment loss is recognised. Measurement of an impairment loss for a
long-lived asset is based on the fair value of the asset.
In addition, under IFRS, a subsequent increase in the recoverable amount of
an asset is reversed to the consolidated income statement to the extent
that an impairment loss on the same asset was previously recognised as an
expense when the circumstances and events that led to the write-down or
write-off cease to exist. The reversal is reduced by the amount that would
have been recognised as depreciation had the write-off not occurred. Under
US GAAP, an impairment loss establishes a new cost basis for the impaired
asset and the new cost basis should not be adjusted subsequently other than
for further impairment losses.
The US GAAP adjustment represents the effect of reversing the recovery of
previous impairment charges recorded under IFRS.
(f) Capitalised interest on investment in associates
Under IFRS, investment accounted for by the equity method is not considered
a qualifying asset for which interest is capitalised. Under US GAAP, an
investment accounted for by the equity method while the investee has
activities in progress necessary to commence its planned principal
operations, provided that the investee's activities include the use of
funds to acquire qualifying assets for its operations, is a qualifying
asset for which interest is capitalised.
(g) Goodwill amortisation
Under IFRS, goodwill and negative goodwill are amortised on a systematic
basis over their useful lives.
Under US GAAP, with reference to Statement of Financial Accounting
Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS No.142"),
goodwill is no longer amortised beginning 1 January 2002. Instead, goodwill
is reviewed for impairment upon adoption of SFAS No.142 and annually
thereafter.
153
(h) Companies included in consolidation
Under IFRS, the Group consolidates less than majority owned entities in
which the Group has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from
its activities, and proportionately consolidates jointly controlled
entities in which the Group has joint control with other venturers.
However, US GAAP requires that any entity of which the Group owns 20% to
50% of total outstanding voting stock not be consolidated nor
proportionately consolidated, but rather be accounted for under the equity
method. Accordingly, certain of the Group's subsidiaries, of which the
Group owns between 40.72% to 50% of the outstanding voting stock, and the
Group's jointly controlled entities are not consolidated nor
proportionately consolidated under US GAAP and instead accounted for under
the equity method. This exclusion does not affect the profit attributable
to shareholders or shareholders' funds reconciliations between IFRS and US
GAAP.
Presented below is summarised financial information prepared in accordance
with US GAAP of such subsidiaries and jointly controlled entities.
Years ended 31 December
2004 2003
RMB millions RMB millions
Revenues 28,004 21,735
------------------------------------------------------------------------------
Profit before taxation 1,373 1,329
------------------------------------------------------------------------------
Net profit 969 1,090
------------------------------------------------------------------------------
At 31 December
2004 2003
RMB millions RMB millions
Current assets 7,084 4,986
------------------------------------------------------------------------------
Total assets 41,213 27,607
------------------------------------------------------------------------------
Current liabilities 7,222 5,902
------------------------------------------------------------------------------
Total liabilities 16,452 9,238
------------------------------------------------------------------------------
Total equity 24,761 18,369
------------------------------------------------------------------------------
(i) Related party transactions
Under IFRS, transactions of state-controlled enterprises with other
state-controlled enterprises are not required to be disclosed as related
party transactions. Furthermore, government departments and agencies are
deemed not to be related parties to the extent that such dealings are in
the normal course of business. Therefore, related party transactions as
disclosed in Note 33 in the financial statements prepared under IFRS only
refers to transactions with enterprises over which Sinopec Group Company is
able to exercise significant influence.
Under US GAAP, there are no similar exemptions. Although the majority of
the Group's activities are with PRC government authorities and affiliates
and other PRC state-owned enterprises, the Group believes that it has
provided meaningful disclosure of related party transactions in Note 33 to
the financial statements prepared under IFRS.
(j) Recently issued accounting standards
SFAS No. 123R
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-based
payment". SFAS No. 123R addresses the accounting for share-based payment
transactions in which an enterprise receives employee services in exchange
for equity instruments of the enterprise or liabilities that are based on
the fair value of the enterprise's equity instruments or that may be
settled by the issuance of such equity instruments. SFAS No. 123R requires
an entity to recognize the grant-date fair-value of stock options and other
equity-based compensation issued to employees in the income statement. The
revised statement generally requires that an entity account for those
transactions using the fair-value-based method, and eliminates an entity's
ability to account for share-based compensation transactions using the
intrinsic value method of accounting, which was permitted under Statement
123, as originally issued. For the Group, SFAS No. 123R is effective for
fiscal years beginning after 15 June 2005. Currently, the Group does not
expect the application of this statement will have a material impact on its
consolidated financial statements.
SFAS No. 151
In November 2004, the FASB issued SFAS No. 151, "Inventory costs". SFAS No.
151 clarifies accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). The statement
requires that those items be recognised as current period charges.
Additionally, SFAS No. 151 requires that allocation of fixed production
overheads to the costs of conversion based on normal capacity of the
production facilities. For the Group, SFAS No. 151 is effective for fiscal
years beginning after 15 June 2005. Currently, the Group does not expect
the application of this statement will have a material impact on its
consolidated financial statements.
SFAS No. 153
In December 2004, the FASB issued No. 153, "Exchanges of Non-monetary
Assets". SFAS No. 153 addresses the accounting for non-monetary exchanges
of productive assets. The statement requires non-monetary exchanges to be
accounted for at fair value, recognising any gains or losses, if the fair
value is determinable within reasonable limits and the transaction has
commercial substance. For the Group, SFAS No. 153 is effective for fiscal
years beginning after 15 June 2005. Currently, the Group does not expect
the application of this statement will have a material impact on its
consolidated financial statements.
154
The effect on profit attributable to shareholders of significant
differences between IFRS and US GAAP is as follows:
Reference Years ended 31 December
in note 2004 2004 2003
above 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 (a) 7 57 76
-------------------------------------------------------------------------------------------------------------------------------
Capitalisation of property, plant and equipment (b) 1 12 12
Reversal of deficit on revaluation of property,
plant and equipment, net of depreciation effect (c) (1) (8) 86
-------------------------------------------------------------------------------------------------------------------------------
Depreciation on revalued property, plant and equipment (c) 462 3,825 3,998
-------------------------------------------------------------------------------------------------------------------------------
Disposal of property, plant and equipment (c) 228 1,891 1,316
-------------------------------------------------------------------------------------------------------------------------------
Exchange of assets (d) 3 23 23
Reversal of impairment of long-lived assets,
net of depreciation effect (e) 4 29 47
-------------------------------------------------------------------------------------------------------------------------------
Capitalised interest on investments in associates (f) 25 205 141
-------------------------------------------------------------------------------------------------------------------------------
Goodwill amortisation for the year (g) 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$5.57 RMB46.11 RMB30.46
-------------------------------------------------------------------------------------------------------------------------------
* Basic and diluted earnings per ADS is calculated on the basis that one ADS is equivalent to 100 shares.
The effect on shareholders' funds of significant differences between IFRS and US GAAP is as follows:
Reference At 31 December
in note 2004 2004 2003
above US$ millions RMB millions RMB millions
Shareholders' funds under IFRS 23,324 193,040 171,515
-------------------------------------------------------------------------------------------------------------------------------
US GAAP adjustments:
-------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gains and losses (a) (36) (295) (352)
-------------------------------------------------------------------------------------------------------------------------------
Capitalisation of property, plant and equipment (b) -- -- (12)
Revaluation of property, plant and equipment (c) (820) (6,783) (12,943)
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax adjustments on revaluation (c) 254 2,101 4,004
-------------------------------------------------------------------------------------------------------------------------------
Exchange of assets (d) (64) (532) (555)
-------------------------------------------------------------------------------------------------------------------------------
Reversal of impairment of long-lived assets (e) (64) (532) (561)
-------------------------------------------------------------------------------------------------------------------------------
Capitalised interest on investments in associates (f) 64 526 321
Goodwill (g) 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.
155
(E) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
In accordance with the United States Statement of Financial Accounting
Standards No. 69, "Disclosures about Oil and Gas Producing Activities" ("SFAS
No. 69"), this section provides supplemental information on oil and gas
exploration and producing activities of the Group at 31 December 2004 and 2003,
and for the years then ended in the following six separate tables. Tables I
through III provide historical cost information under US GAAP pertaining to
capitalised costs related to oil and gas producing activities; costs incurred
in exploration and development; and results of operations related to oil and
gas producing activities. Tables IV through VI present information on the
Group's estimated net proved reserve quantities; standardised measure of
discounted future net cash flows; and changes in the standardised measure of
discounted future net cash flows.
Table I: Capitalised costs related to oil and gas producing activities
2004 2003
RMB millions RMB millions
Property cost -- --
--------------------------------------------------------------------------------
Wells and related equipment and facilities 158,422 143,492
--------------------------------------------------------------------------------
Supporting equipment and facilities 12,324 13,140
--------------------------------------------------------------------------------
Uncompleted wells, equipment and facilities 9,262 5,535
--------------------------------------------------------------------------------
Total capitalised costs 180,008 162,167
--------------------------------------------------------------------------------
Accumulated depreciation, depletion,
amortisation and impairment allowances (79,541) (70,726)
--------------------------------------------------------------------------------
Net capitalised costs 100,467 91,441
--------------------------------------------------------------------------------
Table II: Cost incurred in exploration
and development
2004 2003
RMB millions RMB millions
Exploration 8,272 8,109
--------------------------------------------------------------------------------
Development 20,681 19,852
--------------------------------------------------------------------------------
Total cost incurred 28,953 27,961
--------------------------------------------------------------------------------
Table III: Results of operations for oil
and gas producing activities
2004 2003
RMB millions RMB millions
Revenues
--------------------------------------------------------------------------------
Sales 11,833 11,850
--------------------------------------------------------------------------------
Transfers 60,053 47,287
--------------------------------------------------------------------------------
71,886 59,137
--------------------------------------------------------------------------------
Production costs excluding taxes (17,182) (16,187)
--------------------------------------------------------------------------------
Exploration expenses (6,396) (6,133)
--------------------------------------------------------------------------------
Depreciation, depletion, amortisation and
impairment provisions (11,457) (8,684)
--------------------------------------------------------------------------------
Taxes other than income tax (1,144) (970)
--------------------------------------------------------------------------------
Income before income tax 35,707 27,163
--------------------------------------------------------------------------------
Income tax expense (11,783) (8,964)
--------------------------------------------------------------------------------
Results of operations from producing activities 23,924 18,199
--------------------------------------------------------------------------------
The results of operations for producing activities for the years ended 31
December 2004 and 2003 are shown above. Revenues include sales to unaffiliated
parties and transfers (essentially at third-party sales prices) to other
segments of the Group. All revenues reported in this table do not include
royalties to others as there were none. In accordance with SFAS No. 69, income
taxes are based on statutory tax rates, reflecting allowable deductions and tax
credits. General corporate overhead and interest income and expense are
excluded from the results of operations.
Table IV: Reserve quantities information
The Group's estimated net proved underground oil and gas reserves and changes
thereto for the years ended 31 December 2004 and 2003 are shown in the
following table.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not
on escalations based upon future conditions. Due to the inherent uncertainties
and the limited nature of reservoir data, estimates of underground reserves are
subject to change as additional information becomes available.
Proved reserves do not include additional quantities recoverable beyond the
term of the relevant production licenses, or that may result from extensions of
currently proved areas, or from application of improved recovery processes not
yet tested and determined to be economical. The Group's estimated proved
reserves do not include any quantities that are recoverable through application
of tertiary recovery techniques.
156
Table IV: Reserve quantities information (continued)
Proved developed reserves are the quantities expected to be recovered through
existing wells with existing equipment and operating methods.
"Net" reserves exclude royalties and interests owned by others and reflect
contractual arrangements in effect at the time of the estimate.
2004 2003
Proved developed and undeveloped reserves
(oil) (million barrels)
--------------------------------------------------------------------------------
Beginning of year 3,257 3,320
--------------------------------------------------------------------------------
Revisions of previous estimates 23 (81)
--------------------------------------------------------------------------------
Improved recovery 127 143
--------------------------------------------------------------------------------
Extensions and discoveries 134 146
--------------------------------------------------------------------------------
Production (274) (271)
--------------------------------------------------------------------------------
End of year 3,267 3,257
--------------------------------------------------------------------------------
Proved developed reserves
--------------------------------------------------------------------------------
Beginning of year 2,786 2,732
--------------------------------------------------------------------------------
End of year 2,808 2,786
--------------------------------------------------------------------------------
Proved developed and undeveloped reserves
(gas) (billion cubic feet)
--------------------------------------------------------------------------------
Beginning of year 2,888 3,329
--------------------------------------------------------------------------------
Revisions of previous estimates (95) (649)
--------------------------------------------------------------------------------
Extensions and discoveries 447 396
--------------------------------------------------------------------------------
Production (207) (188)
--------------------------------------------------------------------------------
End of year 3,033 2,888
--------------------------------------------------------------------------------
Proved developed reserves
--------------------------------------------------------------------------------
Beginning of year 1,249 1,056
--------------------------------------------------------------------------------
End of year 1,398 1,249
--------------------------------------------------------------------------------
Table V: Standardised measure of discounted future net cash flows
The standardised measure of discounted future net cash flows, related to the
above proved oil and gas reserves, is calculated in accordance with the
requirements of SFAS No. 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting
year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved
reserves based on year-end cost indices, assuming continuation of year-end
economic conditions. Estimated future income taxes are calculated by applying
appropriate year-end statutory tax rates to estimated future pre-tax net cash
flows, less the tax basis of related assets. Discounted future net cash flows
are calculated using 10% midperiod discount factors. This discounting requires
a year-by-year estimate of when the future expenditure will be incurred and
when the reserves will be produced.
The information provided does not represent management's estimate of the
Group's expected future cash flows or value of proved oil and gas reserves.
Estimates of proved reserve quantities are imprecise and change over time as
new information becomes available. Moreover, probable and possible reserves,
which may become proved in the future, are excluded from the calculations. The
arbitrary valuation prescribed under SFAS No. 69 requires assumptions as to the
timing and amount of future development and production costs. The calculations
are made for the years ended 31 December 2004 and 2003 and should not be relied
upon as an indication of the Group's future cash flows or value of its oil and
gas reserves.
2004 2003
RMB millions RMB millions
Future cash flows 1,003,511 799,658
--------------------------------------------------------------------------------
Future production costs (350,012) (311,568)
--------------------------------------------------------------------------------
Future development costs (25,577) (23,838)
--------------------------------------------------------------------------------
Future income tax expenses (174,060) (130,224)
--------------------------------------------------------------------------------
Undiscounted future net cash flows 453,862 334,028
--------------------------------------------------------------------------------
10% annual discount for estimated
timing of cash flows (204,183) (146,726)
--------------------------------------------------------------------------------
Standardised measure of discounted
future net cash flows 249,679 187,302
--------------------------------------------------------------------------------
Table VI: Changes in the standardised measure of discounted future net cash
flows
2004 2003
RMB millions RMB millions
Sales and transfers of oil
and gas produced, net of production costs (46,145) (41,802)
--------------------------------------------------------------------------------
Net changes in prices and production costs 69,305 11,923
--------------------------------------------------------------------------------
Net change due to extensions, discoveries
and improved recoveries 36,209 27,721
--------------------------------------------------------------------------------
Revisions of previous quantity estimates 2,204 (5,951)
--------------------------------------------------------------------------------
Previously estimated development costs
incurred during the year 7,148 6,865
Accretion of discount 16,176 15,242
--------------------------------------------------------------------------------
Net change in income taxes (22,733) (2,992)
Others 213 (543)
--------------------------------------------------------------------------------
Net change for the year 62,377 10,463
--------------------------------------------------------------------------------
157
CORPORATE INFORMATION NEWSPAPERS FOR INFORMATION DISCLOSURE
Hong Kong Economic Times (Hong Kong)
South China Morning Post (Hong Kong)
STATUTORY NAME (in English)
[CHINESE HIEROGLYPHS] China Securities News
Shanghai Securities News
ENGLISH NAME Securities Times
China Petroleum & Chemical Corporation
INTERNET WEBSITE PUBLISHING ANNUAL REPORT DESIGNATED BY
CHINESE ABBREVIATION THE CHINA SECURITIES REGULATORY COMMISSION
[CHINESE HIEROGLYPHS] http://www.sse.com.cn
ENGLISH ABBREVIATION LEGAL ADVISORS
Sinopec Corp. People's Republic of China:
Haiwen & Partners
LEGAL REPRESENTATIVE Room 1711, Beijing Silver Tower
Mr. Chen Tonghai No. 2, Dong San Huan North Road
Chaoyang District
REGISTERED ADDRESS AND PLACE OF BUSINESS Beijing
6A Huixindong Street PRC
Chaoyang District Postcode: 100027
Beijing, PRC
Postcode : 100029 Hong Kong:
Tel. : 86-10-64990060 Fax : 86-10-64990022 Herbert Smith
Website : http://www.sinopec.com.cn 23rd Floor, Gloucester Tower
E-mail addresses : ir@sinopec.com.cn 11 Pedder Street
: media@sinopec.com.cn Central, Hong Kong
PLACE OF BUSINESS IN HONG KONG United States:
12th Floor, Office Tower Skadden, Arps, Slate, Meagher & Flom LLP
Convention Plaza 30th Floor, Tower II, Lippo Centre
1 Harbour Road 89 Queensway
Wanchai Hong Kong
Hong Kong
PRINCIPAL BANKERS
AUTHORISED REPRESENTATIVES Bank of China
Mr. Wang Jiming 410 Fuchengmenwai Street
Mr. Chen Ge Xicheng District
Beijing, PRC
SECRETARY TO THE BOARD OF DIRECTORS
Mr. Chen Ge Industrial and Commercial Bank of China
55 Fuxingmennei Avenue
REPRESENTATIVE ON SECURITIES MATTERS Xicheng District
Mr. Huang Wensheng Beijing, PRC
Address : 6A Huixindong Street
: Chaoyang District China Construction Bank
: Beijing, PRC 25 Finance Street
Postcode : 100029 Xicheng District
Tel. : 86-10-64990060 Beijing, PRC
Fax : 86-10-64990022
China Development Bank
29 Fuchengmenwai Street
Xicheng District
Beijing, PRC
158
REGISTRARS ADSs:
H Shares: New York Stock Exchange
Hong Kong Registrars Limited Stock name: SINOPEC CORP
Rooms 1712 to 1716 Stock code: SNP
17th Floor, Hopewell Centre
183 Queen's Road East London Stock Exchange
Hong Kong Stock name: SINOPEC CORP
Stock code: SNP
A Shares:
China Securities Registration and Clearing A Shares:
Company Limited Shanghai Branch Company Shanghai Stock Exchange
72 Pu Jian Road Stock name: Sinopec Corp
Pudong District Stock code: 600028
Shanghai, PRC
FIRST REGISTRATION DATE OF SINOPEC CORP.
DEPOSITARY FOR ADR 25 February 2000
The US:
Citibank, N.A. FIRST REGISTRATION PLACE OF SINOPEC CORP.
388 Greenwich St., 14th Floor 6A Huixindong Street, Chaoyang District,
New York NY 10013 Beijing, PRC
United States of America
ENTERPRISE LEGAL BUSINESSES LICENSE REGISTRATION NO.
COPIES OF THIS ANNUAL REPORT ARE AVAILABLE AT 1000001003298 (10-10)
The PRC:
China Petroleum & Chemical Corporation TAXATION REGISTRATION NO.
Board Secretariat Jing Guo Shui Chao Zi 110105710926094
6A Huixindong Street
Chaoyang District NAMES AND ADDRESSES OF AUDITORS OF SINOPEC CORP.
Beijing PRC Domestic Auditors : KPMG Huazhen Certified
Public Accountants
The US: Address : 8/F, Office Tower E2
Citibank, N.A. Oriental Plaza
388 Greenwich St., 14th Floor 1 East Chang An Avenue
New York NY 10013 Dong Cheng District
United States of America Beijing 100738, PRC
The UK: Overseas Auditors : KPMG Certified Public
Citibank, N.A. Accountants
Citigroup Centre Address : 8th Floor
Canada Square, Canary Wharf Prince's Building
London E14 5LB, U.K. Central, Hong Kong
PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES
H Shares:
Hong Kong Stock Exchange
Stock name: Sinopec Corp
Stock code: 0386
159
DOCUMENTS FOR INSPECTION
The following documents will be available for inspection during normal business
hours after 25 March 2005 (Friday) at the statutory address of Sinopec Corp.
upon requests by the relevant regulatory authorities and shareholders in
accordance with the Articles of Association of Sinopec Corp. and the Company Law
of the PRC:
a) The original annual report signed by the Chairman and the President;
b) The original audited financial statements and audited consolidated
financial statements of Sinopec Corp. prepared in accordance with IFRS
and the PRC Accounting Rules and Regulations for the year ended 31
December 2004 signed by the Chairman, the President, the Chief Financial
Officer and the head of the accounting division of Sinopec Corp.;
c) The original auditors' reports in respect of the above financial
statements signed by the auditors;
d) The latest Articles of Association of Sinopec Corp. and its appendices
which were approved at the Annual General Meeting for the year 2003; and
e) All the original copies of the documents and announcements Sinopec Corp.
published in the newspapers stipulated by the CSRC during the reporting
period.
By Order of the Board
CHEN TONGHAI
Chairman
Beijing, PRC, 25 March 2005
THIS ANNUAL REPORT IS PUBLISHED IN BOTH ENGLISH AND CHINESE LANGUAGES. THE
CHINESE VERSION SHALL PREVAIL.
160
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