Edgar Filing: SINOPEC SHANGHAI PETROCHEMICAL CO LTD

SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

Date: September 7, 2016

/s/ Wang Zhiqing

Wang Zhiqing

Form 6-K

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2016

Commission File Number: 1-12158

Sinopec Shanghai Petrochemical Company Limited

(Translation of registrant’s name into English)

No. 48 Jinyi Road, Jinshan District, Shanghai, 200540

The People’s Republic of China

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

EXHIBITS


Exhibit Number

99.1		2016 Interim Report;

99.2		Announcement on Appointment of Vice Presidents; and

99.3		List of Directors and their Role and Function.

SIGNATURES

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.

Exhibit 99.1

LOGO

CONTENTS


2		Important Message

3		Definitions

4		Major Financial Data and Indicators

7		Report of the Directors

22		Major Events

30		Change in Share Capital and Shareholders Status

35		Directors, Supervisors, Senior Management and Others

39		Documents for Inspection

40		Report on Review of Interim Financial Information

		A. Condensed Consolidated Interim Financial Information (unaudited)

41		Interim Condensed Consolidated Income Statement

42		Interim Condensed Consolidated Statement of Comprehensive Income

43		Interim Condensed Consolidated Balance Sheet

45		Interim Condensed Consolidated Statement of Changes in Equity

46		Interim Condensed Consolidated Statement of Cash Flows

47		Notes to the Condensed Consolidated Interim Financial Information

		B. Interim Financial Statements Prepared under China Accounting Standards for Business Enterprises (unaudited)

72		Consolidated and Company Balance Sheets

74		Consolidated and Company Income Statements

76		Consolidated and Company Cash Flow Statements

78		Consolidated Statement of Changes in Shareholders’ Equity

79		Statement of Changes in Shareholders’ Equity

80		Notes to the Financial Statements

190		Supplementary Information to the Financial Statements

193		Written Confirmation on the 2016 Interim Report Issued by Directors, Supervisors and Senior Management

194		Corporate Information

IMPORTANT MESSAGE

(1)

The Board, the Supervisory Committee of Sinopec Shanghai Petrochemical Company Limited and its Directors, Supervisors and Senior Management warrant the truthfulness, accuracy and completeness of the information contained in this interim report, and warrant that there are no false representations or misleading statements contained in, or material omissions from, the 2016 interim report of the Company, and severally and jointly accept responsibility.

(2)	Absence of Directors at the Board meeting for considering and approving the 2016 Interim Report of the Company


Position of Director	Name	Reasons for Absence	Name of Proxy

Director	Guo Xiaojun	Business engagement	Gao Jinping

Director	Lei Dianwu	Business engagement	Wang Zhiqing

Director	Mo Zhenglin	Business engagement	Wang Zhiqing

(3)	The interim financial report for the six months ended 30 June 2016 is unaudited.

(4)

Mr. Wang Zhiqing, Chairman, President, Executive Director and the person in charge of the Company; Mr. Ye Guohua, Executive Director and Chief Financial Officer overseeing the accounting operations; and Mr. Hua Xin, Deputy Chief Financial Officer, person in charge of the Accounting Department (Accounting Chief) and Finance Manager, hereby warrant the truthfulness, accuracy and completeness of the financial report contained in the 2016 interim report of the Company.

(5)	There was no profit distribution for the first half of 2016 and no capitalisation of capital reserve.

(6)	The statements regarding the Company’s plans for future development and operation are forward-looking statements and do not constitute any commitments to investors. Investors should pay attention to the relevant investment risks.

(7)	There was no incident of appropriation of funds by the controlling shareholder of the Company and its connected parties for non-operational purposes.

(8)	The Company did not provide any external guarantees in violation of the required decision-making procedures.

(9)	The 2016 interim report is published in both Chinese and English. In the event of any discrepancy between the English and Chinese versions, the Chinese version shall prevail.

DEFINITIONS

In this report, unless the context otherwise specifies, the following terms shall have the following meanings:


“Company” or “SPC”		Sinopec Shanghai Petrochemical Company Limited

“Board”		the board of directors of the Company

“Director(s)”		the director(s) of the Company

“Supervisory Committee”		the supervisory committee of the Company

“PRC” or “China”		the People’s Republic of China

“Reporting Period”		the six months ended 30 June 2016

“Hong Kong Stock Exchange”		The Stock Exchange of Hong Kong Limited

“Shanghai Stock Exchange”		The Shanghai Stock Exchange

“Group”		the Company and its subsidiaries

“Sinopec Group”		China Petrochemical Corporation

“Sinopec Corp.”		China Petroleum & Chemical Corporation

“Hong Kong Listing Rules”		The Rules Governing the Listing of Securities on the Hong Kong Stock Exchange

“Shanghai Listing Rules”		The Rules Governing the Listing of Securities on the Shanghai Stock Exchange

“Model Code for Securities Transactions”		the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Hong Kong Listing Rules

“Securities Law”		the PRC Securities Law

“Company Law”		the PRC Company Law

“CSRC”		China Securities Regulatory Commission

“Articles of Association”		the articles of association of the Company

“Hong Kong Stock Exchange website”		www.hkexnews.hk

“Shanghai Stock Exchange website”		www.sse.com.cn

“Website of the Company”		www.spc.com.cn

“HSE”		Health, Safety, and Environment

“COD”		Chemical Oxygen Demand

“EVA”		Ethylene Vinyl Acetate

“SFO”		the Securities and Futures Ordinance of Hong Kong (Chapter 571 of the Laws of Hong Kong)

“Corporate Governance Code”		the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules

“Share Option Incentive Scheme”		the Share Option Incentive Scheme for A shares of the Company

MAJOR FINANCIAL DATA AND INDICATORS

Prepared under the People’s Republic of China Accounting Standards for Business Enterprises (“CAS”)

(1)

Major Accounting Data and Financial Indicators

Major Accounting Data

Major accounting data

The Reporting
Period
(January to June)

Corresponding
period of the
previous year

Unit: RMB’000

Increase/decrease as
compared to the
corresponding period of
the previous year (%)

Revenue

36,993,191

42,152,450

-12.24

Net profit attributable to equity shareholders of the Company

3,096,675

1,731,166

78.88

Net profit attributable to equity shareholders of the Company excluding non-recurring items

3,117,585

1,736,231

79.56

Net cash generated from operating activities

4,645,024

1,924,239

141.40

As at the end
of the Reporting
Period

As at the
end of the
previous year

Increase/decrease at
the end of the
Reporting Period as
compared to the end
of the previous year (%)

Net assets attributable to equity shareholders of the Company

21,906,328

19,838,862

10.42

Total assets

31,924,949

28,022,171

13.93

MAJOR FINANCIAL DATA AND INDICATORS (continued)

Prepared under the People’s Republic of China Accounting Standards for Business Enterprises

Major Financial Indicators

Major financial indicators

The Reporting
Period
(January to June)

Corresponding
period of the
previous year

Increase/decrease as
compared to the
corresponding period of
the previous year (%)

Basic earnings per share
(RMB/Share)

0.287

0.160

79.38

Diluted earnings per share
(RMB/Share)

0.287

0.160

79.38

Basic earnings per share excluding non-recurring items (RMB/Share)

0.289

0.161

79.50

Return on net assets
(weighted average) (%)*

14.465

9.918

Increased by 4.547
percentage points

Return on net assets excluding non- recurring items (weighted average) (%)*

14.555

9.947

Increased by 4.608
percentage points

*	The above-mentioned net assets do not include minority shareholders’ interests.

(2)

Differences between Interim Financial Report Prepared under CAS and International Financial Reporting Standards (“IFRS”)


							Unit: RMB’000
	Net profit attributable to equity shareholders of the Company				Total equity attributable to equity shareholders of the Company
	The Reporting Period		Corresponding period of the previous year		At the end of the Reporting Period		At the beginning of the Reporting Period
Prepared under CAS		3,096,675		1,731,166		21,906,328		19,838,862
Prepared under IFRS		3,148,609		1,770,880		21,877,241		19,797,282

Details of the differences between financial statements prepared under CAS and IFRS:

For a detailed description of the differences, please refer to the supplementary information of the interim financial statements prepared under CAS.

MAJOR FINANCIAL DATA AND INDICATORS (continued)

Prepared under the People’s Republic of China Accounting Standards for Business Enterprises

(3)

Non-recurring Items and Amount


	Unit: RMB’000
Non-recurring items	Amount
Net loss from disposal of non-current assets		-23,977
Employee reduction expenses		-4,647
Government grants recorded in profit and loss (excluding government grants closely related to corporate business pursuant to the State’s unified standard on quota and amount entitlements)		14,280
Income from external entrusted loans		1,002
Other non-operating income and expenses other than those mentioned above		-13,993
Income tax effect		6,853
Effect attributable to non-controlling interests		-428

Total		-20,910

REPORT OF THE DIRECTORS

(1)

Management Discussion and Analysis of the Overall Operations during the Reporting Period

The following discussion and analysis should be read in conjunction with the unaudited financial report of the Group and the notes in the 2016 interim report. Unless otherwise specified, the financial data involved hereinafter are extracted from the unaudited interim financial report prepared in accordance with IFRS.

Review and Discussion of Operating Results

During the first half of 2016, the global economy had a tortuous progress. The volatility of the financial market increased, growth of investment in international trade declined and the recovery of economy slowed down in general. The United States economy experienced moderate growth but lacked sufficient drive. The Eurozone economy was not expected to turn the table in the foreseeable future despite the continuing recovery. As downward pressure persisted, the growth of developed economies was less than expected. Emerging economies faced more severe challenges as a result of a prolonged downturn in staple commodities, global financial fluctuation and difficulties in resolving structural economic problems.

The economy of China, faced with complicated domestic and international environment and the increased downward pressure on the economy, accelerated its supply-side structural reform and advocated business start-up and innovation which facilitated the economy to achieve an overall steady development and recorded a gross domestic products (GDP) growth of 6.7% for the first half of 2016, representing a decrease of 0.3 percentage points as compared to the same period of last year. The petrochemical industry in China in general was steady for the first half of 2016 as consumption of major products increased steadily, profitability of refined oil products improved while profit from the petrochemical business grew comparatively rapid. However, downward pressure affecting the development of the industry remains. While investment decreased and a new growth drive had yet to come, the industry was in the process of bottoming out and regaining confidence.

REPORT OF THE DIRECTORS (continued)

In the first half of 2016, the Group endeavoured to achieve progress in safety and environmental protection, operation optimization, market exploration as well as cost and expenses reduction while facing the adverse and intensive market competition. Benefited from the significant year-on-year decline in the global crude oil price, the Group’s cost of crude oil processing dropped, which led to an increase of the products’ gross profits and further boosted the profitability remarkably. In particular, the “floor price“¹ for domestic refined oil contributed to the results of the Company in the first quarter of 2016. As international crude oil prices began to rebound in February 2016, the cost of crude oil in transit and in stock was relatively low due to the long procurement cycle for imported crude oil of the Group, which led to an increase in profit in the second quarter. As of 30 June 2016, the Group recorded turnover of RMB36,968.5 million, decreased by RMB5,157 million, representing a decrease of 12.24% compared to the same period of last year. The profit before tax was RMB4,101.9 million (profit before tax for the same period of last year was RMB2,279.9 million), representing an increase of RMB1,822 million from last year. Profit after tax and non-controlling shareholder interests was RMB3,148.6 million (profit for the same period of last year was RMB1,770.9 million), representing an increase of RMB1,377.7 million from last year.

In the first half of 2016, the total production volume of the Group reached 6,510,500 tons, representing a year-on-year decrease of 8.53%. From January to June of 2016, the Group processed 7,354,000 tons of crude oil (including 1,316,800 tons of crude oil processed on a sub-contract basis), which remained at the same level as last year. The production volume of refined oil products reached 4,437,200 tons, representing a year-on-year increase of 0.56%. Among which, the output of gasoline was 1,562,600 tons, representing a year-on-year increase of 4.79%; the output of diesel was 2,038,800 tons, representing a year-on-year decrease of 4.79%; and the output of jet fuel was 835,800 tons, representing a year-on-year increase of 7.20%. The Group produced 414,800 tons of ethylene and 330,800 tons of paraxylene, representing a year-on-year decrease of 2.05% and 2.96%, respectively. The Group also produced 527,200 tons of synthetic resins and plastic (excluding polyesters and polyvinyl alcohol), representing a year-on-year decrease of 0.88%; 333,300 tons of synthetic fiber monomers, representing a year-on-year decrease of 21.52%; 217,500 tons of synthetic fiber polymers, representing a year-on-year decrease of 0.09%; and 110,400 tons of synthetic fibers, representing a year-on-year decrease of 4.66%. For the first half of the year, the output-to-sales ratio and receivable recovery ratio of the Group were 98.25% and 100.00%, respectively.

On 13 January 2016, the National Development and Reform Commission of the PRC announced the “Notice of the National Development and Reform Commission on Further Improving the Pricing Mechanism of Refined Oil” (Fa Gai Jia Ge [2016] No.64) (the “Notice”), stating that when the price of crude oil in the international market – with which the domestic refined oil price is affiliated – is lower than US$40/barrel, the domestic refined oil price will not be adjusted downward further (the so-called “floor price”). The Notice states that “when the price of crude oil in the international market is lower than US$40/barrel, which is the regulatory lower limit, the amount of refined oil price that has not been adjusted will be put into a risk reserve fund. A dedicated account will be set up which requires the approval of the government before using. The fund will mainly be used for energy conservation, emission reduction, oil product quality upgrading and oil supply security.” Specific management measures will be announced separately. As at the date of this report, the specific management measures have not been announced yet.

REPORT OF THE DIRECTORS (continued)

The Group maintained control of safety and environmental protection in general and stable operation of its equipment. For the first half of the year, the Group thoroughly took full responsibility on and implemented safe production, strengthened hidden hazard identification and investigation as well as risk identification, carried out pollution reduction and environmental treatment, and proactively implemented Leak Detection and Repair (LDAR) measures. During the first half of the year, the Group inspected a total of 740,000 sealed spots of oil refining and petrochemical devices and fixed leakages that were identified. The Company performed volatile organic compounds (“VOCs”) emission checks on nine aspects, including storage tanks, loading and unloading, leakage and flue gas combustion, so as to advance the comprehensive VOCs treatment and keep reducing VOCs emission. The Group continued to meet its safety and environmental target of “Seven Zeros”, (i.e. zero in work related deaths, serious injuries, major fires or explosions, major environmental pollution accidents, major occupational hazard accidents, major traffic accidents and major safe production responsibility accidents). The compliance rate of waste water, waste solid and waste gas disposal (“Three Wastes”) reached 100%. The total emission of chemical oxygen demand (“COD”), ammonia nitrogen, sulfur dioxide and nitrogen oxides decreased by 4.05%, 16.88%, 14.50% and 11.11% respectively over the same period of last year. The Group maintained stable operation of production devices and strengthened the evaluation on production and operation performance with all technical and economic indicators improved effectively. During the first half of the year, out of the 83 major technical and economic indicators under assessment, 43 indicators improved over last year, representing a year-on-year improvement rate of 51.81%, while 20 were among the top of the industry. Industry advance ratio was 24.10%.

The Group further implemented production and operation optimization, cost and expenses reduction aiming at increasing profitability. The Group adhered to the dynamic optimization mechanism of “daily computation of gross profit margin and weekly exploration of plant potential” during the first half of 2016. Regarding the optimization of equipment workload, the Group adjusted the workload based on market changes and profitability forecast, suspended or limited the production of certain equipment, such as the 1# ethylene glycol, PTA, 1# polyester staple, polyester and acrylic plants to minimize the loss in profitability in the first half of 2016. At the same time, the Group optimized the raw material structure with a focus on raw material dry points and oil yield on hydrogen cracking devices, so as to ensure the quality of raw materials for ethylene. The Group streamlined the processing workflow by timely commencing the operation of the 1# coking devices to reduce production of asphalt, given the increasing gap in gross profit margin between coked products and asphalt products to reduce loss. In terms of product structure improvement, the Group adjusted the output of atmospheric vacuum equipment and ethylene cracker feed, reduced the output of diesel, as well as increased gasoline production and ratio of high-grade gasoline. During the first half of the year, the ratio of diesel to gasoline was 1.30:1 (ratio for 2015 was 1.38:1), while the proportion of high-grade gasoline reached 32%, representing a year-on-year increase of 6.82 percentage points. The Group further enhanced cost reduction and efficiency improvement. For the first half of 2016, it strived to procure crude oil types of high cost-effectiveness and centralized crude oil procurement to reduce cost. It also put more efforts in cost control over major areas on maintenance and costs on catalyst, additive and solvent. In terms of control over finance cost, the Group insisted on innovative management, which led to significant reduction in finance cost.

REPORT OF THE DIRECTORS (continued)

The Group facilitated the work of project construction and research and development (“R&D”). In the first half of the year, it steadily implemented major emission reduction projects, such as the desulfurization and denitrification of boilers in the Thermal Power Division and the start-up boiler renovation for the Olefins Division. It also completed the “Clear Water, Blue Sky” environmental protection project. In terms of technological development, on the foundation of developing high value-added new products and implementing marketing initiatives, the Group actively put in efforts to achieve an up-to-standard operation of carbon fiber equipment with a breakthrough in the industrial application of carbon fiber achieved. Currently, the carbon fiber products of the Company were widely used in a highway project in an overseas country and a high speed railway project in Northeastern China. The application of such products in an oilfield in China successfully replaced related overseas carbon fiber products in sucker rods. In the first half of the year, the Group developed and manufactured 117,300 tons of new products and 398,100 tons of new synthetic resins products and specialized polyolefin materials, with a differentiation rate for synthetic fibers reaching 73.44%. The Group also submitted 26 patent applications and obtained 28 patent rights.

In addition, the Group further enhanced corporate management. During the first half of the year, it actively optimized the management framework, adopted professional and centralized management of equipments while modified and improved the organization structure of certain workshops. It also advanced the digitalization of business operation when formulating strategic, core operation and supporting workflows on a systematic basis, so as to facilitate the transition from functional management to workflow management. The Group took initiatives in implementing the “three basics” (basic foundation-building, basic work and basic skill training), which resulted in better work performance, and established and optimized the “three basics” organizational structure and work standards.

The Group proactively fulfilled its corporate social responsibility. It actively addressed the issues raised in the “Notice Regarding Listed Supervision of Environmental Issue” by the Ministry of Environmental Protection through communicating and coordinating with the local government and environmental protection authorities. At the same time, the Group formulated the “Rectification Plan for Notice Regarding Listed Supervision of Environmental Issue of Sinopec Shanghai Petrochemical Company Limited by the Ministry of Environmental Protection”, prepared the contingency plan for cross-region environmental incidents and upgraded the management of warehouses storing dangerous chemicals. In the first half of 2016, it organized eight ‘Corporate Open Days’ for over 200 visitors, including government officials of the Jinshan District, media representatives in Shanghai and neighboring residents, and arranged visits to the production plants and green waste treatment sites of the Company. The Group continued to seek mutual benefit with stakeholders of the supply chain. It endeavored to safeguard the interests of employees and cooperate with the local government to ensure a harmonious and stable development.

REPORT OF THE DIRECTORS (continued)

The following table sets forth the Group’s sales volume and net sales after business tax and surcharges for the Reporting Period:

For the six months ended 30 June

2016

2015

Sales

Net Sales

Sales

Net Sales

Volume

(RMB

Volume

(RMB

(’000 tons)

Million)

(’000 tons)

Million)

Synthetic fibers

105.1

966.1

3.1

114.4

1,241.3

3.5

Resins and plastics

664.7

4,609.8

15.0

659.9

5,244.1

15.0

Intermediate petrochemicals

1,016.7

4,105.7

13.3

1,083.5

4,905.1

14.0

Petroleum products

4,100.2

11,669.6

37.9

4,751.6

16,449.8

46.9

Trading of petrochemical products

—

9,003.3

29.2

—

6,820.9

19.4

Others

—

427.8

1.5

—

403.4

1.2

Total

5,886.7

30,782.3

100.0

6,609.4

35,064.6

100.0

In the first half of 2016, net sales of the Group amounted to RMB30,782.3 million, representing a decrease of 12.21% over the same period last year. Among which, net sales of synthetic fibers, resins and plastics, intermediate petrochemical products and petroleum products decreased by 22.17%, 12.10%, 16.30% and 29.06%, respectively. Net sales from the trading of petrochemical products increased by 32.00%. The decrease in net sales was mainly due to the decrease in the unit prices of products during the period as compared to the same period last year. The increase in the Group’s net sales from the trading of petrochemical products was mainly attributable to the increase in the business volume of Shanghai Jinshan Trading Corporation, a subsidiary of the Group, during the Reporting Period. In the first half of the year, the Group’s net sales of “Others” increased by 6.05% over the same period last year, which was mainly attributable to the increase in the Group’s revenue from oil processed on a sub-contract basis, as compared to the same period last year.

Most of the Group’s products are sold in Eastern China.

In the first half of 2016, the Group’s cost of sales decreased by 17.97% year-on-year to RMB26,814.8 million, representing 87.11% of total net sales.

REPORT OF THE DIRECTORS (continued)

The Group’s main raw material is crude oil. The global crude oil market gradually picked up in the first half of 2016. The global crude oil prices rebounded after touching the bottom in the beginning of the year and showed a rising trend with fluctuations. In the first half of the year, the highest and lowest closing prices of Brent crude oil futures were US$50.72/barrel and US$26.27/barrel, respectively, and the average price during the Reporting Period was approximately US$39.60/barrel, representing a year-on-year decrease of 31.56%. The highest and lowest closing prices of West Texas Intermediate crude oil were US$50.90/barrel and US$26.27/barrel, respectively, and the average price during the Reporting Period was approximately US$39.55/barrel, representing a year-on-year decrease of 25.59%. The highest and lowest closing prices of Dubai crude oil futures were US$48.81/barrel and US$22.80/barrel, respectively, and the average price during the Reporting Period was approximately US$37.06/ barrel, representing a year-on-year decrease of 34.47%.

In the first half of 2016, the average unit cost of processed crude oil (on the Group’s own account) was RMB1,745.24/ton, representing a decrease of RMB907.72/ton over the same period of last year, or a decrease of 34.22%. The Group processed a total of 6,037,200 tons of crude oil (excluding crude oil processed on a sub-contract basis), representing a decrease of 624,100 tons over the same period of last year. Taken together, the total costs of processed crude oil decreased by RMB7,136 million. Processing costs decreased by RMB1,656 million due to a decrease in the volume of crude oil processed. The decrease in unit cost of processed crude oil brought costs down by RMB5,480 million. From January to June this year, crude oil processed on a sub-contract basis reached 1,316,800 tons, representing an increase of 629,400 tons over the same period of last year. In the first half of the year, the Group’s cost of crude oil accounted for 39.29% of the total cost of sales.

In the first half of 2016, the Group’s expenses for other ancillary materials amounted to RMB4,084.5 million, which is basically the same as that of last year. During the Reporting Period, the Group’s depreciation and maintenance expenses decreased by 12.31% year-on-year to RMB938.0 million, mainly due to the decrease in depreciation expenses during the Reporting Period as certain fixed assets were fully depreciated. Maintenance expenses grew by 8.25% year-on-year over the same period of last year to RMB625.0 million, mainly due to an increase in maintenance work during the Reporting Period, which led to the rise in maintenance costs. Fuel and power expenses declined by 16.05% year-on-year to RMB837 million during the Reporting Period, mainly due to the decrease in the unit purchase price of coal.

In the first half of 2016, selling and administrative expenses of the Group amounted to RMB254.2 million, representing a decrease of 8.53% as compared with RMB277.9 million over the same period of last year. This was mainly due to the decrease in transportation and loading fees during the Reporting Period.

In the first half of 2016, other operating income of the Group amounted to RMB34.5 million, representing a decrease of RMB7.0 million over the same period of last year. This was mainly due to a decrease in income from investment property and pipeline transportation Services during the Reporting Period.

In the first half of 2016, the Group’s net finance income amounted to RMB7.0 million, compared to RMB137.2 million in net finance expenses over the same period last year. This was mainly due to a decrease in interest expenses during the period.

In the first half of 2016, the Group’s profit after tax and profit attributable to non-controlling shareholders was RMB3,148.6 million, representing an increase of RMB1,377.7 million as compared with RMB1,770.9 million over the same period of last year.

REPORT OF THE DIRECTORS (continued)

Liquidity and Capital Resources

The Group’s net cash generated from operating activities amounted to RMB4,613.4 million in the first half of 2016 as compared to net cash generated of RMB1,776.7 million over the same period of last year, which was primarily attributable to profit before tax during the Reporting Period which amounted to RMB4,101.9 million (profit before tax over the same period of last year was RMB2,279.9 million).

In the first half of 2016, the Group’s net cash used in investment activities amounted to RMB5.9 million as compared to a net cash used of RMB258.9 million over the same period of last year. This was primarily attributable to a year-on-year increase in the dividends received by the Group from joint ventures and associated companies during the Reporting Period, resulting in a decrease of RMB162.1 million in net cash used in investment activities.

In the first half of 2016, the Group’s net cash used in financing activities amounted to RMB1,235.9 million, compared to a net cash outflow of RMB1,496.0 million over the same period of last year, primarily attributable to a year-on-year increase in the Group’s profit and a decline in demand for capital during the Reporting Period.

Borrowings and Debts

The Group’s long-term borrowings are mainly used in capital expansion projects. In general, the Group arranges long-term borrowings according to its capital expenditure plans. On the whole, there are no seasonal borrowings. Short-term borrowings are used to replenish the Group’s working capital requirements during the normal course of production. During the first half of 2016, the Group’s short-term borrowings decreased by RMB1,210.3 million to RMB859.7 million as at the end of the Reporting Period as compared to the beginning of the Reporting Period.

Capital Expenditures

In the first half of 2016, the Group’s capital expenditures amounted to RMB265 million, mainly on the desulfurization projects for furnaces No. 1 – No. 5 and No. 7 of the Thermal Power Division, the odor control project for the oil tanks of the Storage Division, the start-up boilers flue gas desulfurization and denitrification project in the Olefins Division, clean and waste water segregation system upgrading of water circulating plants, as well as latent hazard management of the petroleum coke yard of the Thermal Power Division in light of environmental protection.

In the second half of the year, the Group plans to complete the quality upgrading project for No. 2 diesel hydrogenation plant, long distance pipelines latent hazard management and the start-up boilers flue gas desulfurization and denitrification project in the Olefins Division, while projects such as the 100,000 tons/year EVA plant project will be continued. The Group endeavours to launch the cogeneration low emission and energy saving project and 300,000 tons/year alkylated project this year. The Group’s planned capital expenditures can be appropriated from the cash generated from operation and from bank financing.

Liability-to-asset Ratio

As at 30 June 2016, the Group’s liability-to-asset ratio was 30.20% (As at 31 December 2015: 27.77%). The ratio is calculated using the following formula: total liabilities/total assets.

REPORT OF THE DIRECTORS (continued)

The Group’s Employees

As at 30 June 2016, the total number of enrolled employees of the Group was 11,490, among which the number of production staff was 6,781, the number of sales, financial and other staff was 3,157 and the number of administrative staff was 1,552. A total of 49.39% of the Group’s employees were college graduates or above.

The Group’s employees and Directors are remunerated with reference to their position, performance, experience and prevailing salary trends in the market. Other benefits include the Share Option Incentive Scheme and the state-managed retirement pension scheme. The Group also provides professional and vocational training to employees.

Income Tax

The PRC Enterprise Income Tax Law took effect from 1 January 2008, subsequent to which the income tax rate for enterprises was uniformly adjusted to 25%. The income tax rate for the Group in 2016 is 25%.

Disclosure Required by the Hong Kong Listing Rules

Save as disclosed herein, pursuant to paragraph 40 of Appendix 16 to the Hong Kong Listing Rules, the Company confirms that there were no material differences between the existing information of the Company relating to the matters as set out in paragraph 32 of Appendix 16 to the Hong Kong Listing Rules and the relevant information disclosed in the Company’s 2015 annual report.

Market Outlook and Work Plans for the Second Half of the Year

In the second half of 2016, the global economy will face with more uncertainties. Given low prices for staple commodity, stagnant growth of developed countries, sluggish investment and trading, coupled with the impact of uncertainties such as geopolitics and Brexit (the United Kingdom leaving the European Union), the global economy will continue to be in a stage of profound adjustments and the challenges to economic recovery will still be severe. The fundamental long-term positive trend of China economic development remains unchanged. However, the downward pressure on the economy is still tremendous as the structural conflicts in China’s economy is still prominent. New drives for economic growth are yet to emerge, and it will take time to come up with solutions to the overcapacity problem. Facing the serious structural overcapacity of the petrochemical industry in China, as well as the reform of resource tax in China and fees imposed on pollutants emissions, costs of petrochemical enterprises will definitely be increased. The increasingly stringent safety and environmental standards of the country and acceleration of oil products upgrade will also pose tremendous challenges to the industry.

In the second half of 2016, the prospect of global economy recovery does not look optimistic with the market’s concern about the impact of Brexit on oil demand. Seasonal increase in oil demand in the third quarter, and the decreasing production of crude oil in the United States and Venezuela helps to bring a fundamental balance between demand and supply. Nevertheless, various negative factors in the crude oil market, such as the global inventory level which is still close to its record high, gradual resumption of production in Nigeria, possible slowing down of the growth rate of imported crude oil in China, strengthening of the US dollars boosted by a potential hiking of rates by the Federal Reserve, will alleviate the driving force of oil price increase. It is expected that the demand and supply of crude oil in general will strike a balance, and the price will remain at low level with fluctuations, but will be higher than the average price in the first half of the year.

REPORT OF THE DIRECTORS (continued)

In the second half of the year, the Group’s approach will be more profit-oriented and market-oriented to ensure achievements in aspects including safety and environmental protection, optimization of system, reduction of cost and expenses, as well as corporate management, which in turn will bring a continuous improvement of effectiveness.

(i)

Further efforts in safety and environmental protection. The Group will proactively implement its principal obligations in safety and environmental protection, proactively foster the rectification of the listing and supervision of environment issues implemented by the Ministry of Environmental Protection of the PRC, focus its efforts on fostering on-schedule completion of projects such as latent management of long-distance pipelines, continuously promote standard checks for environmental protection risks, commence identification and governance in different aspects such as “emission indicators for sewage and waste gases” and “VOCs governance sessions”, and practically resolve the bottlenecks in the development of enterprises. The Group will firmly strengthen direct safety supervision and management of operations, reinforce the management of sub-contractors and continuously enhance corporate safety and environmental protection standards.

(ii)

More profit-oriented system optimization works. The Group will strengthen its tracking on the marginal contribution of its plants, and adjust the respective workload at appropriate times based on changes in market and profitability as well as the inventory level. The Group will also strive to capture the consumption peak season for refined oil products in the third quarter, optimize and adjust the structure of refined oil products and continuously enhance the proportion of high-value-added products. The Group will further diversify its oil refining product structure, rationally arrange the production of oil refining products, optimize ethylene raw materials, enhance the recovery rate of olefins and reduce the production cost of ethylene.

(iii)

Continuous efforts to reduce costs and expenses. The Group will further improve its cost control on every aspect from crude oil procurement to production and operate with an aim to lower its costs and expenses; enhance marketing efforts and strengthen the link between production and sales of products at high inventory level, vigorously advocate the “Boost Income and Cut Cost” group-wide enhancement campaign, continuously foster the reduction of flare gas emission, energy consumption level of production devices and enhance the stability of device operation, while keep on lowering energy and materials consumption as well as enhancing technological and economic indicators.

(iv)

Implementation of investment projects and R&D projects as planned. The Group will focus on the implementation of projects such as the quality upgrading and modification project for No. 2 diesel and hydrogen devices; commence the construction project of ultra low discharge and energy conservation in cogeneration units as well as the project of 300,000 tons/year alkylation plant. The Group will also accelerate its progress on a number of key scientific research projects, and focus on projects such as the development of the integrated technology of PAN based carbon fiber as well as phase II technology optimization.

REPORT OF THE DIRECTORS (continued)

1.	Analysis of the Company’s Principal Business and Performance (Part of the following financial data was extracted from the unaudited interim report prepared under CAS)

(i)

Analysis of Changes in the Company’s Related Financial Data

Unit: RMB’000

Item

As at 30
June 2016

As at 31
December 2015

Change
(%)

Reason for change

Cash and cash equivalents

4,451,306

1,077,430

313.14

Increases in profit in the Reporting Period and net cash generated from operating activities

Accounts receivable

2,195,055

1,624,571

35.12

Increases in business and revenue of the segment of trading of petrochemical products leading to an increase in accounts receivable

Short-term borrowings

859,657

2,070,000

-58.47

Profit in the Reporting Period; decline in cash requirement

Accounts payable

4,063,719

3,017,878

34.65

Increase in business and purchase leading to an increase in accounts payable

Dividends payable

1,099,119

19,119

5,648.83

The declaration of the dividends for the year ended 31 December 2015 during the Reporting Period

Specific reserve

40,394

953

4,138.61

Increase in unutilised provisions for safety production costs

Undistributed profits

6,044,700

4,028,025

50.07

Profit for the Reporting Period

REPORT OF THE DIRECTORS (continued)

Unit: RMB’000

For the six months ended
30 June

Change

Item

2016

2015

(%)

Reason for change

Revenue

36,993,191

42,152,450

-12.24

Decrease in unit prices of products

Cost of sales

25,177,628

31,233,864

-19.39

Decrease in cost of raw materials, leading to the decrease in unit costs of products

Finance expenses – net

1,983

140,537

-98.59

Decreases in interest on borrowing and foreign exchange losses

Asset impairment losses

150,004

61,411

144.26

Increase in provision of fixed asset impairment

Income tax expenses

948,241

491,686

92.85

Increase in profit in the Reporting Period

Operating profit attributable to shareholders of the Company

3,096,675

1,731,166

78.88

Substantial decrease in costs of raw materials and increase in gross profit of products

Net cash generated from operating activities

4,645,024

1,924,239

141.40

Increase in profit in the Reporting Period

Net cash used in investment activities

-5,941

-258,888

-97.71

Increase in dividends received from associated companies

Net cash used in financing activities

-1,267,427

-1,643,510

-22.88

Reduced demand for cash during the Reporting Period

Research and development costs

47,144

14,265

230.49

Increase in R&D projects

REPORT OF THE DIRECTORS (continued)

2.	Analysis of Business Operations by Segment, Product and Geographical Location

(i)

Principal Business Operations by Segment or Product


												Unit: RMB’000
Business Segment/Product Segment	Revenue		Cost of sales		Gross profit margin (%)			Increase/ decrease in revenue compared to last year (%)		Increase/ decrease in cost of sales compared to last year (%)		Increase/decrease in gross profit margin compared to last year (%)
Synthetic fibers		999,011		929,160		6.99			-21.82		-26.29	Increased by 5.64 percentage points
Resins and plastics		4,747,017		3,352,638		29.37			-11.68		-18.20	Increased by 5.63 percentage points
Intermediate petrochemicals		4,245,716		2,724,786		35.82			-15.91		-27.03	Increased by 9.77 percentage points
Petroleum products		17,535,794		8,921,854		49.12	^(*)		-24.37		-41.04	Increased by 14.39 percentage points
Trading of petrochemical products		9,004,010		8,927,994		0.84			31.98		32.33	Decreased by 0.26 percentage points
Others		461,643		321,196		30.42			4.51		23.19	Decreased by 10.55 percentage points

*	Gross profit margin is calculated according to the price of petroleum products which includes consumption tax. Gross profit margin of petroleum products after consumption tax was 18.78%.

(ii)

Operating Segment by Geographical Location


			Unit: RMB’000
Geographical location segment	Revenue		Increase/decrease in revenue compared to the previous year (%)
Eastern China		29,945,408		-21.68	%
Other regions in the PRC		1,951,503		8.29	%
Exports		5,096,280		140.67	%

REPORT OF THE DIRECTORS (continued)

3.	Analysis of Core Competitiveness

As one of the largest integrated petrochemical enterprises in China with highly integrated refining and petrochemical business operations, the Company possesses competitive strength in scale of operation, which has made it a major manufacturer of refined oil, intermediate petrochemical products, synthetic resins and synthetic fibers in the PRC. The Company also has its own utilities and environmental protection systems, as well as handling and transportation facilities for marine and inland waterways, railways and highways.

The Company’s major competitive advantages include quality, branding, geographical location and vertically-integrated production. The Company has over 40 years of experience in petrochemical production and management, and has accumulated extensive resources in the petrochemical industry. The Company has won several quality product awards from the central and local governments. The Company is located in the core region of the Yangtze River Delta, the most economically active region in China with strong demand for petrochemical products, and has a comprehensive logistics system and supporting facilities with the close geographic proximity with most of its clients and the Company enjoys the advantage of its location for coastal and inland shipping. This gives it a competitive edge in terms of transportation costs and timely delivery. The Company has leveraged its advantages in integrated refining and petrochemical business operation to proactively enhance strengthen its product structure, while also continuously improving products quality and variety. It has also improved its production technology and boosted the capacity of its key upstream facilities to maximize the in-depth use and comprehensive efficiency of its corporate resources, and is therefore able to achieve strong and sustainable growth.

REPORT OF THE DIRECTORS (continued)

4.	Analysis of Investments

(i)

Entrusted Wealth Management and Derivatives Investment Entrusted by Non-Financial Companies

(a)

Entrusted wealth management

The Company did not engage in entrusted wealth management during the Reporting Period.

(b)

Entrusted loans

Unit: RMB’000

Borrower

Amount
of
entrusted
loan

Loan
period

Interest
rate of
loan
%

Whether
it is
overdue

Whether
it is a
connected
transaction

Whether
it has
been
renewed

Whether
it is
under
litigation

Source of
funds and
whether the
funds are
from
fund-raising

Connected
relationship

Expected
income

Chevron Phillips
Chemicals (Shanghai) Corporation

12,000

2015/8/28 -

2016/8/26

2.25

Nil

12,000

2015/09/30 -

2016/09/26

2.00

Nil

28,000

2015/11/27 -

2016/11/25

1.75

Nil

199

12,000

2015/12/25 -
2016/12/23

1.75

Nil

101

12,000

2016/1/29 -
2017/1/27

1.75

Nil

121

12,000

2016/4/27 -
2017/4/27

1.75

Nil

173

Note: The aforementioned entrusted loans are loans provided to shareholders according to the proportion of shareholding by Shanghai Golden Phillips Petrochemical Company Limited, a subsidiary of the Company.

(ii)

Application of Fund Raised

During the Reporting Period, the Company did not raise fund, nor has it used the fund raised from the previous reporting periods.

(iii)

Analysis of the Companies in which the Company has Controlling Interests or Investment Interests

Due to the decrease in the cost of raw materials and increase in gross profit of products, Shanghai Secco Petrochemical Company Limited, an associated company of the Group, recorded a net profit of RMB1,680 million during the Reporting Period, profit attributable to the Group is RMB336 million, representing 10.85% of net profit attributable to equity shareholders of the Company.

REPORT OF THE DIRECTORS (continued)

(iv)

Major Projects from Non-raised Capital


			Unit: RMB million
Major Project	Estimated total project investment		Status as at 30 June 2016
The EVA production device with a capacity of 100,000 tons/year		1,132		Preliminary design
Desulfurization revamps for furnaces No. 1, No. 5 and No. 7 of the Thermal Power Division		167		Completed
Quality enhancement and transformation of the No. 2 diesel hydrogenation plant		100		Under construction

(2)

Plan for Profit Distribution or Capital Reserves Capitalization

Implementation or Amendment of Profit Appropriation Proposal during the Reporting Period

The 2015 Profit Distribution Proposal was considered and approved at the 2015 Annual General Meeting held on 15 June 2016: to distribute a dividend of RMB1.00 per 10 shares (including tax) totalling RMB1,080,000,000 based on the total issued share capital of RMB10.8 billion as at 31 December 2015. The relevant announcement was published in Shanghai Securities News, China Securities Journal and Securities Times on 16 June 2016 and was uploaded to the websites of the Hong Kong Stock Exchange, Shanghai Stock Exchange and the Company. On 8 July 2016, the Company published an announcement on the implementation of profit distribution for A shares for the year 2015. The record date for A shares dividend payment is 14 July 2016 and the ex-dividend date is 15 July 2016. The dividend payment date for both A shares and H shares is 15 July 2016. The Profit Distribution Proposal was implemented as scheduled.

Plan for Half-Yearly Profit Distribution and Plan for Conversion of Capital Reserves to Increase Share Capital

The Company will not distribute profit for the first half of 2016 and will not implement a plan for using capital reserves to increase share capital.

MAJOR EVENTS

(1)

Material Lawsuits, Arbitration or Media Queries

On 14 April 2016, the Company published an announcement named “Clarification relating to media reports” in Shanghai Securities News, China Securities Journal and Securities Times dated 15 April 2016 and uploaded to the websites of the Hong Kong Stock Exchange, the Shanghai Stock Exchange and the Company. Subsequently, the Company actively implemented matters specified in the “Supervision List” issued by the Chinese Ministry of Environmental Protection. The Company also communicated and coordinated with local governments and environmental protection departments, prepared an “Improvement Proposal in relation to the Notice Regarding Listed Supervisions of the Environmental Issues of Sinopec Shanghai Petrochemical Company Limited Issued by the Chinese Ministry of Environmental Protection” as well as a cross-district environmental emergency plan.

(2)

Events regarding Bankruptcy and Restructuring

The Company did not encounter events relating to bankruptcy or restructuring during the Reporting Period.

(3)

Asset Trading and Corporate Mergers

There was no asset trading or corporate merger during the Reporting Period.

(4)

Share Option Incentive Scheme and Its Impact

Date and Number of the Initial Grant of Share Options

Grant Date: 6 January 2015

Number of Participants: 214 persons

Number of A Shares Share Options Granted: 38,760,000

Share Options Granted to Directors, Senior Management or Major Shareholders

The Company granted a total of 2,540,000 A shares share options to six persons, including Executive Director, Chairman and President Mr. Wang Zhiqing, Executive Director, Vice Chairman and Vice President Mr. Gao Jinping, Executive Director and Chief Financial Officer Mr. Ye Guohua, Executive Director and Vice President Mr. Jin Qiang, Executive Director and Vice President Mr. Guo Xiaojun and former Secretary to the Board Mr. Tang Weizhong. Mr. Tang Weizhong has resigned as the Secretary to the Board on 23 October 2015. Pursuant to the Share Option Incentive Scheme, the share options granted to him have been cancelled.

Share Options Granted to Employees in addition to Those Mentioned in Item 2.

The Company granted a total of 36,220,000 A shares share options to 208 key business personnel.

Save as disclosed herein, no A shares share options were granted to or exercised by the employees or cancelled or lapsed during the Reporting Period.

MAJOR EVENTS (continued)

Exercise Price under the Initial Grant

In accordance with the determination principles for the exercise price, the exercise price under the initial grant is RMB4.20 per share. If, during the validity period of the share options, in case of, among others, payment of dividend, capitalization of capital reserves, distribution of bonus shares, subdivision or reduction of shares, and placing of shares, adjustment to the exercise price shall be made in accordance with the relevant provisions of the scheme. The 2015 Profit Distribution Proposal was considered and approved at the 2015 annual general meeting of the Company on 15 June 2016, pursuant to which a cash dividend of RMB1.00 was paid for every 10 shares. The adjusted exercise price is RMB4.10 per share.

Validity Period and Exercise Arrangement under the Initial Grant

The validity period of the share options shall be five years commencing from the grant date, but is subject to the following exercise arrangements. The exercisable period for the share options shall be three years, commencing from the expiry of the two-year period after the grant date. There shall be three exercisable periods (one year for each exercisable period, same hereinafter) under the Share Option Incentive Scheme. Upon the fulfillment of the exercise conditions, 40%, 30% and 30% of the total share options granted shall become exercisable within the 1st, 2nd and 3rd exercisable periods, respectively.


Stage	Arrangement	Exercise Ratio Cap
Grant Date	Determined by the Board upon fulfillment of the conditions for grant under the Share Option Incentive Scheme		—
1st Exercisable Period	Commencing on the first trading day after the expiry of the 24-month period following the grant date and ending on the last trading day preceding the expiry of the 36-month period following the grant date		40	%
2nd Exercisable Period	Commencing on the first trading day after the expiry of the 36-month period following the grant date and ending on the last trading day preceding the expiry of the 48-month period following the grant date		30	%
3rd Exercisable Period	Commencing on the first trading day after the expiry of the 48-month period following the grant date and ending on the last trading day preceding the expiry of the 60-month period following the grant date		30	%

MAJOR EVENTS (continued)

(5)

Major Connected Transactions of the Company

Connected Transactions in relation to Daily Operations

(1)

Items that have been disclosed in provisional announcements and there are no further updates or changes during the follow-up implementation

During the Reporting Period, pursuant to the Mutual Product Supply and Sales Services Framework Agreement entered into with the controlling shareholder of the Company, Sinopec Corp., and the de facto controller Sinopec Group, the Company purchased raw materials from Sinopec Group, Sinopec Corp and their associates, sold petroleum products and petrochemicals and leased properties to Sinopec Corp. and its associates, and received agency sales services for petrochemical products from Sinopec Corp. and its associates. Pursuant to the Comprehensive Services Framework Agreement entered into between the Company and the Company’s de facto controller Sinopec Group, the Company received construction installation, engineering design, petrochemical industry insurance and financial services provided by Sinopec Group and its associates.

The abovementioned transactions under the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement constituted continuing connected transactions under Chapter 14A of the Hong Kong Listing Rules and constituted day-to-day connected transactions under the Shanghai Listing Rules. The Company has disclosed the two agreements and the respective continuing connected transactions (i.e. day-to-day connected transactions; the same hereinafter) under the agreements in the announcement dated 25 October 2013 and the circular dated 1 November 2013. These two agreements and the respective continuing connected transactions under the agreements, together with the associated annual caps from 2014 to 2016, were considered and approved at the Second Extraordinary General Meeting for 2013 held on 11 December 2013.

During the Reporting Period, the relevant continuing connected transactions were fully conducted in accordance with the terms of the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement. The transaction amounts of the respective continuing connected transactions did not exceed the caps in relation to the continuing connected transactions approved at the Second Extraordinary General Meeting for 2013.

The prices of the continuing connected transactions conducted by the Company with Sinopec Group, Sinopec Corp. and their associates were determined, upon negotiations among all parties, on the basis of (i) state regulated prices, (ii) state guidance prices; or (iii) market prices. Such connected transactions were entered into in line with the Company’s production and operational needs. Accordingly, the aforementioned connected transactions did not have a significant adverse impact on the Company’s independence.

MAJOR EVENTS (continued)

The table below sets out the amounts of the continuing connected transactions of the Company with Sinopec Corp. and Sinopec Group during the Reporting Period:


						Unit: RMB’000
Type of connected transactions	Connected parties	Annual cap for 2016		Transaction amount during the Reporting Period		Percentage of the total amount of the same type of transaction (%)
Mutual Product Supply and Sales Services Framework Agreement
Purchases of raw materials	Sinopec Group, Sinopec Corp. and its associates		94,475,000		11,213,206		47.41	%
Sales of petroleum products	Sinopec Corp. and its associates		79,586,000		16,582,384		44.83	%
Sales of petrochemical products	Sinopec Corp. and its associates		31,156,000		2,665,568		7.21	%
Assets and property leasing	Sinopec Corp. and its associates		116,000		14,217		54.33	%
Agency sales of petrochemical products	Sinopec Corp. and its associates		309,000		46,872		100.00	%
Comprehensive Services Framework Agreement
Construction installation and engineering design services	Sinopec Group and its associates		1,824,000		64,212		65.87	%
Petrochemical industry insurance services	Sinopec Group and its associates		200,000		60,895		96.79	%
Financial services	Sinopec Group and its associates		300,000		2,405		3.23	%

MAJOR EVENTS (continued)

Credits and Liabilities with Connected Parties

Unit: RMB’000

Funds provided to
connected parties

Funds provided by connected
parties to the listed company

Connected

Opening

Amount of

Closing

Opening

Amount of

Closing

Connected party

relationship

Balance

transaction

Balance

transaction

Balance

Sinopec Corp., its subsidiaries and associates & Sinopec Group and its subsidiaries

Controlling shareholder and its related parties

736

(557

)

179

99,907

(63,049

)

36,858

Note 1: The balance of the funds provided by the Group to the connected parties at the end of the Reporting Period mainly included unsettled receivables arising from the provision of services and pipeline leases to Sinopec Corp., its subsidiaries and associates.

Note 2: The balance of the funds provided by other connected parties to the Group at the end of the Reporting Period mainly included unsettled payables arising from the services involving construction installation and engineering design provided by Sinopec Group and its subsidiaries.

(6)

Material Contracts and the Fulfillment of Obligations

Trusts, Sub-contracts and Lease Arrangements

The Company had no trusts, sub-contracts or lease arrangements that produced 10% or more of the gross profit of the Company during the Reporting Period.

Guarantees

There were no guarantees provided by the Company during the Reporting Period.

Other Material Contracts or Transactions

There were no other material contracts during the Reporting Period.

MAJOR EVENTS (continued)

(7)

Performance of Undertakings

Undertakings Made by the Listed Company, Shareholders Holding More Than 5% of the Shares, Controlling Shareholders, and De Facto Controller during the Reporting Period or Continued up to the Reporting Period

(i)

Undertakings about the Share Reform Proposal of the Company

The Company disclosed The Explanatory Memorandum for the Share Reform Proposal of the Company (the Revised Draft) on 20 June 2013, in which the Company’s controlling shareholder, Sinopec Corp., made the following key undertakings that continued up to the Reporting Period:

Sinopec Corp. shall not, within 12 months from the date on which its non-circulating shares of the Company attain the right to circulate in the market (meaning the first trading day after the implementation of the A-share Share Reform Proposal), deal or transfer such shares on the relevant stock exchange. Upon the expiration of the aforesaid undertaking period, the number of existing non-circulating shares which may be disposed by Sinopec Corp through trading on the stock exchange shall not exceed 5% of the total number of issued shares of the Company within the next 12 months, and not exceeding 10% within the next 24 months.

Sinopec Corp. shall continue to support the development of the Company upon the completion of the A-share reform, and shall use the Company as a platform for the development of related businesses in the future.

For details, please refer to “The Explanatory Memorandum for the Share Reform Proposal of the Company” (the Revised Draft) (Full Version) published in Shanghai Securities News and China Securities Journal, as well as the relevant announcements uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company on 20 June 2013.

The Share Reform Proposal was reviewed and approved at the A-share shareholders’ meeting held on 8 July 2013. After the implementation of the proposal on 20 August 2013, the Company’s A shares resumed trading, and the non-circulating shares previously held by non-circulating share shareholders attained the right of circulation. For details of the implementation of the Share Reform Proposal, please refer to the “Implementation Report on Sinopec Shanghai Petrochemical Company Limited Share Reform Proposal” published in China Securities Journal and Shanghai Securities News on 14 August 2013 and uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

MAJOR EVENTS (continued)

(ii)

Major Shareholders’ Undertakings not to Reduce Shareholdings

On 13 July 2015, the Company received a notice from the controlling shareholder Sinopec Corp. that for the purposes of maintaining and facilitating the sound development momentum of China’s economy and the capital market, Sinopec Corp. will actively support the healthy development of listed companies as in the past and undertakes that it will not reduce its shareholdings in the Company within 6 months from the date of the announcement i.e. 13 July 2015.

With regard to the aforementioned two undertakings, the Company was not aware of any violation of the undertakings or any unfulfilled matters during the Reporting Period.

(8)

Appointment and Dismissal of Accounting Firm

During the Reporting Period, the Company has not changed the accounting firms.

(9)

Punishment and Rectification of the Listed Company and its Directors, Supervisors, Senior Management, Shareholders holding more than 5% of the Company’s Shares, De Facto Controller and Purchaser

During the Reporting Period, the Company and its Directors, Supervisors, Senior Management, shareholders holding more than 5% of the Company’s shares, the de facto controller and purchasers were not being investigated, administratively punished, publicly criticized by the CSRC or publicly censured by the stock exchanges on which the Company is listed.

(10)

Convertible Bonds

Not applicable

(11)

Corporate Governance

The Company acted in strict compliance with regulatory legislations such as the Company Law, the Securities Law, the Corporate Governance Principles for Listed Companies and the Guidelines for Establishing the Independent Directors System for Listed Companies issued by the CSRC, as well as the relevant requirements of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange to push forward the advancement of the Company’s system and management, to improve the corporate legal person governance structure, and to strengthen the establishment of the Company’s system in order to enhance the overall image of the Company.

MAJOR EVENTS (continued)

(12)

Event after the Reporting Period

The trading restrictions on the 4.38 billion trading restricted A shares of the Company held by Sinopec Corp., were uplifted and those shares were listed on 22 August 2016. For details, please refer to the “Announcement on the Listing of Trading Restricted Shares under the Sinopec Shanghai Petrochemical Company Limited Share Reform Proposal”, which was published in Shanghai Securities News, China Securities Journal and Securities Times on 13 August 2016 and uploaded to the websites of the Hong Kong Stock Exchange, the Shanghai Stock Exchange and the Company.

(13)

Other Major Events

There were no other major events during the Reporting Period.

CHANGE IN SHARE CAPITAL AND SHAREHOLDERS STATUS

(1)

Changes in Share Capital

Changes in Share Capital

The total number of issued shares and the share capital structure of the Company was not changed during the Reporting Period.

Changes in Restricted Trading Share Capital

There were no increase/decrease in the restricted trading shares of the Company during the Reporting Period.

(2)

Shareholders of the Company

Total Number of Shareholders


Total number of shareholders as at the end of the Reporting Period			144,417

CHANGE IN SHARE CAPITAL AND SHAREHOLDERS STATUS (continued)

Shareholding of the Top Ten Shareholders and the Top Ten Shareholders of Shares in Circulation (or Those Without Trading Restrictions) as at the End of the Reporting Period

Shareholding of top ten shareholders


		Increase/ decrease of number of shares held		Number of shares held at the end of the Reporting Period (Shares)				Number of		Status of
		during the				Percentage		trading		pledged/ frozen
		Reporting				of total		restricted		shares
Name of Shareholder (Full Name)	Class of shares	Period (Shares)				shareholding (%)		shares held (Shares)		Status of shares		Number of shares		Nature of shareholders

China Petroleum & Chemical Corporation	A Shares		0		5,460,000,000		50.56		4,380,000,000		Nil		—	State-owned enterprise legal person
HKSCC (Nominees) Limited	H Shares		1,096,000		3,454,462,321		31.99		0		Unknown		—	Foreign legal person
China Securities Finance Corporation Limited	A Shares		-6,873,533		287,911,746		2.67		0		Unknown		—	Others
Central Huijin Investment Ltd.	A Shares		0		67,655,800		0.63		0		Unknown		—	Others
NSSF Combination 414	A Shares		Unknown		24,999,948		0.23		0		Unknown		—	Others
Shanghai Kangli Industry and Trade Co., Ltd	A Shares		510,000		21,925,300		0.20		0		Unknown		—	Others
Bank of China Limited - China New Economy Flexible Allocation Securities Investment Fund	A Shares		Unknown		19,645,656		0.18		0		Unknown		—	Others
Agricultural Bank of China Limited - BOCOM Schroder Growth Mixed Securities Investment Fund	A Shares		Unknown		12,467,300		0.12		0		Unknown		—	Others
China Life Insurance Company Limited-Dividend-Individual- Dividend-005L-FH002 Shanghai	A Shares		Unknown		12,016,700		0.11		0		Unknown		—	Others
Beijing Fengshan Investment Ltd	A Shares		Unknown		10,994,720		0.10		0		Unknown		—	Others

CHANGE IN SHARE CAPITAL AND SHAREHOLDERS STATUS (continued)

Top ten shareholders of shares in circulation (without trading restrictions)

Name of shareholder

Number of circulating shares
(without trading restrictions)
held (Shares)

Class
of shares

Types of Shares

HKSCC (Nominees) Limited

3,454,462,321

H Shares

Overseas listed
foreign shares

China Petroleum & Chemical Corporation

1,080,000,000

A Shares

RMB-denominated
ordinary shares

China Securities Finance Corporation Limited

287,911,746

A Shares

RMB-denominated
ordinary shares

Central Huijin Investment Ltd.

67,655,800

A Shares

RMB-denominated
ordinary shares

NSSF Combination 414

24,999,948

A Shares

RMB-denominated
ordinary shares

Shanghai Kangli Industry and Trade Co., Ltd

21,925,300

A Shares

RMB-denominated
ordinary shares

Bank of China Limited - China New Economy Flexible Allocation Securities Investment Fund

19,645,656

A Shares

RMB-denominated
ordinary shares

Agricultural Bank of China Limited - BOCOM Schroder Growth Mixed Securities Investment Fund

12,467,300

A Shares

RMB-denominated
ordinary shares

China Life Insurance Company Limited- Dividend-Individual-Dividend-005L-FH002 Shanghai

12,016,700

A Shares

RMB-denominated
ordinary shares

Beijing Fengshan Investment Ltd

10,994,720

A Shares

RMB-denominated
ordinary shares


Note on connected relationship or actions in concert of the above shareholders		Among the above-mentioned shareholders, China Petroleum & Chemical Corporation, a state-owned legal person, does not have any connected relationship with the other shareholders, and is not an act-in-concert party of the other shareholders under the Administrative Measures on Acquisition of Listed Companies. Among the above-mentioned shareholders, HKSCC (Nominees) Limited is a nominee shareholder. Apart from the above, the Company is not aware of any other connected relationships among the other shareholders, or any act-in-concert parties under the Administrative Measures on Acquisition of Listed Companies.

CHANGE IN SHARE CAPITAL AND SHAREHOLDERS STATUS (continued)

Numbers and trading restrictions of the shares held by the top ten shareholders holding trading restricted shares

Trading status of trading

restricted shares

Name of shareholder holding trading

restricted shares

Class of
shares

Number of
trading
restricted
shares held
(Shares)

Date on
which the
shares can be
traded
(Shares)

Number of
additional
shares that
can be traded
(Shares)

Trading restrictions

China Petroleum & Chemical Corporation

A Shares

4,380,000,000

22/08/2016

4,380,000,000

1. Shall not be traded or transferred in the twelve months commencing from the date of implementation of the Share Reform Proposal;

2. Upon the expiration of the first condition, the original trading restricted shares sold through the Stock Exchange shall not exceed 5% of the total number of shares of the Company within twelve months, and shall not exceed 10% within twenty-four months.

CHANGE IN SHARE CAPITAL AND SHAREHOLDERS STATUS (continued)

(3)

Change in Controlling Shareholder and De Facto Controller

During the Reporting Period, there was no change in the controlling shareholder and the de facto controller of the Company.

(4)

Interests and Short Positions of the Substantial Shareholders of the Company in Shares and Underlying Shares of the Company

As at 30 June 2016, so far as was known to the Directors of the Company, the interests and short positions of the Company’s substantial shareholders (including those who are entitled to exercise or control the exercise of 5% or more of the voting power at any general meeting of the Company but excluding the Directors, chief executive and Supervisors) who are required to disclose their interests pursuant to Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance of Hong Kong (Chapter 571 of the Laws of Hong Kong) (the “SFO”) in the shares and underlying shares of the Company or as recorded in the register required to be kept under Section 336 of the SFO were as set out below:

Interests in ordinary shares of the Company


						Percentage of		Percentage of
	Interests held or					total issued		total issued H
Name of shareholder	deemed as held (Shares)		Note			shares (%)		shares (%)		Capacity

China Petroleum & Chemical Corporation		5,460,000,000 A shares (L) Promoter legal person shares					50.56		—		Beneficial owner

BlackRock, Inc.		217,237,625 H Shares (L)		(1	)		2.01		6.22		Interest of controlled corporation

Citigroup Inc.		1,221,664 H shares (L)		(2	)		0.01		0.035		Interest of controlled corporation

		170,979,411 H shares (P)		(2	)		1.58		4.89		Custodian corporation/ approved lending agent

		2,701,925 H shares (L)		(2	)		0.03		0.08		Person having a security interest in shares

		1,001,950 H shares (S)		(2	)		0.01		0.03		Interest of controlled corporation

(L): Long position; (S): Short position; (P): Lending pool

Notes: (1)

Of the H Shares held by BlackRock, Inc., 3,376,000 H Shares (long position) were held through cash settled unlisted derivatives.

(2)

Of the H Shares held by Citigroup Inc., 876,000 H Shares (long position) and 876,000 H Shares (short position) were held through physically settled unlisted derivatives.

Save as disclosed above, as at 30 June 2016, the Directors have not been notified by any person (other than the Directors, chief executive and Supervisors) who had interest or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO or as recorded in the register required to be kept by the Company under Section 336 of the SFO.

DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS

(1)

Change in Shareholdings

Shareholdings of the current Directors, Supervisors and Senior Management and those Resigned during the Reporting Period

Name

Position

Number of shares
held at the
beginning of the
Reporting Period
(Shares)

Number of shares
held at the
end of the
Reporting Period
(Shares)

Change
during the
Reporting
Period

Wang Zhiqing

Executive Director, Chairman and President

Nil

No Change

Wu Haijun

Executive Director and Vice Chairman

Nil

No Change

Gao Jinping

Executive Director, Vice Chairman and Vice President

Nil

No Change

Ye Guohua

Executive Director and Chief Financial Officer

Nil

No Change

Jin Qiang

Executive Director and Vice President

Nil

No Change

Guo Xiaojun

Executive Director and Vice President

Nil

No Change

Lei Dianwu

Non-executive Director

Nil

No Change

Mo Zhenglin

Non-executive Director

Nil

No Change

Cai Tingji

Independent non-executive Director

Nil

No Change

Zhang Yimin

Independent non-executive Director

Nil

No Change

Liu Yunhong

Independent non-executive Director

Nil

No Change

Du Weifeng

Independent non-executive Director

Nil

No Change

Kuang Yuxiang*

Chairman of the Supervisory Committee

Nil

No Change

Zuo Qiang

Supervisor

Nil

No Change

Li Xiaoxia

Supervisor

Nil

No Change

Zhai Yalin

Supervisor

Nil

No Change

Zheng Yunrui

Independent Supervisor

Nil

No Change

Pan Fei

Independent Supervisor

Nil

No Change

Zhang Jianbo

Secretary of the Board, Joint Company Secretary

Nil

No Change

Wang Liqun

Former Supervisor

Nil

No Change

On 29 July 2016, Mr. Kuang Yuxiang requested to resign from his position as Supervisor and chairman of the Supervisory Committee due to a change of job assignments. Mr. Kuang’s resignation took effect upon the submission of the resignation letter to the Supervisory Committee of the Company on 29 July 2016.

DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

Share Options Held by the Directors, Supervisors and Senior Management during the Reporting Period


												Unit: Shares
Name	Position	Number of A shares share options held at the beginning of the Reporting Period		Number of A shares share options granted during the Reporting Period		Number of exercisable A shares share options during the Reporting Period		Number of A shares share options exercised during the Reporting Period		Number of A shares share option cancelled/ lapsed during the Reporting Period		Number of A shares share options held at the end of the Reporting Period

Wang Zhiqing	Executive Director, Chairman and President		500,000		0		0		0		0		500,000
Gao Jinping	Executive Director, Vice Chairman and Vice President		500,000		0		0		0		0		500,000
Ye Guohua	Executive Director and Chief Financial Officer		430,000		0		0		0		0		430,000
Jin Qiang	Executive Director and Vice President		430,000		0		0		0		0		430,000
Guo Xiaojun	Executive Director and Vice President		430,000		0		0		0		0		430,000

Total	/		2,290,000										2,290,000

Interests and Short Positions of the Directors, Chief Executive and Supervisors in the Shares, Underlying Shares and Debentures of the Company or Its Associated Corporations

As at 30 June 2016, the interests and short positions of the Directors, chief executive and Supervisors of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or to be recorded in the register required to be kept under Section 352 of the SFO; or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions set out in Appendix 10 to the Hong Kong Listing Rules were as follows:

DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

Interests in shares and underlying shares of the Company

Number of

underlying

shares held

in respect

of A shares

share options

under the

Share Option

Percentage of

Incentive

total issued

total issued H

Name

Position

Scheme

shares (%)

Capacity

Wang Zhiqing

Executive Director, Chairman and President

500,000

(L)

0.005

—

Beneficial owner

Gao Jinping

Executive Director, Vice Chairman and Vice President

500,000

(L)

0.005

—

Beneficial owner

Ye Guohua

Executive Director and Chief Financial Officer

430,000

(L)

0.004

—

Beneficial owner

Jin Qiang

Executive Director and Vice President

430,000

(L)

0.004

—

Beneficial owner

Guo Xiaojun

Executive Director and Vice President

430,000

(L)

0.004

—

Beneficial owner

(L): Long position

Save as disclosed above, as at 30 June 2016, so far as was known to the Directors, chief executive and Supervisors of the Company, none of the Directors, chief executive or Supervisors of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations which were required to be disclosed or recorded pursuant to the SFO and the Hong Kong Listing Rules as mentioned above.

As at 30 June 2016, none of the Directors, Supervisors or senior management of the Company or their spouses or children under the age of eighteen had been granted by the Company or had exercised rights to subscribe for shares or debentures of the Company or any of its associated corporations.

(2)

Changes in Directors, Supervisors and Senior Management during the Reporting Period


Name	Position held	Change	Reason

Wang Liqun	Supervisor	Resigned		Resignation due to personal reasons
Zhang Jianbo	Secretary to the Board, Joint Company Secretary	Elected		—

DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

(3)

Changes in Directors’ and Supervisors’ Information

Disclosure of changes in Directors’ and Supervisors’ information according to Rule 13.51B(1) of Hong Kong Listing Rules:

Zuo Qiang, Supervisor of the Company, was appointed as Deputy Chief of Political Work, effective from April 2016;

Zheng Yunrui, Independent Supervisor of the Company, was appointed as independent director of Shandong Jiangquan Industry Co., Ltd LOGO

, a company listed on the Shanghai Stock Exchange (Stock Code: 600212) in May 2016.

(4)

Audit Committee

On 22 August 2016, the Audit Committee of the Eighth Session of the Board held its fifth meeting, primarily to review the interim financial report of the Group for the Reporting Period.

(5)

Purchase, Sale and Redemption of the Company’s Securities

During the Reporting Period, the Group did not purchase, sell or redeem any of the Company’s securities (for the definition of “securities”, please refer to paragraph 1 of Appendix 16 to the Hong Kong Listing Rules).

(6)

Compliance with Corporate Governance Code

During the Reporting Period, the Company applied the principles and complied with the code provisions of the Corporate Governance Code, except for the deviation from code provision A.2.1 of the Corporate Governance Code as set out below.

Corporate Governance Code provision A.2.1: The roles of chairman and chief executive officer should be separate and should not be performed by the same individual. The division of responsibilities between the chairman and chief executive officer should be clearly established and set out in writing.

Deviation: Mr. Wang Zhiqing was appointed as the Chairman and the President (equivalent to chief executive officer) of the Company.

Reason: Mr. Wang Zhiqing has extensive experience in the management of petrochemicals production. Mr. Wang is the most suitable candidate to serve the positions of the Chairman and the President of the Company. For the time being, the Company has been unable to identify another person in possession of better or similar abilities and talent as Mr. Wang to serve either of the above positions.

(7)

Implementation of Model Code for Securities Transactions

The Directors confirm that the Company has adopted the Model Code for Securities Transactions. After making specific enquiries with all of the Directors and Supervisors of the Company, no incident of non-compliance with the Model Code for Securities Transactions by the Directors and Supervisors of the Company during the Reporting Period was noted by the Company.

DOCUMENTS FOR INSPECTION

The Company’s documents available for inspection comprise the followings:

1.	2016 interim report signed by the Chairman;

2.	Financial statements signed and sealed by the legal representative, chief financial officer and accounting chief of the Company;

3.	Original copies of all documents and announcements of the Company which were disclosed in the newspapers designated by the CSRS during the Reporting Period; and

4.	The Articles of Association.

The Company keeps all the documents listed above at the Company’s Secretariat Department, the address of which is as follows:

No.48 Jinyi Road, Jinshan District, Shanghai, PRC

Postal code: 200540

The 2016 interim report prepared in accordance with Appendix 16 to the Hong Kong Listing Rules will be published on the websites of the Hong Kong Stock Exchange and of the Company.

Wang Zhiqing Chairman

Sinopec Shanghai Petrochemical Company Limited

23 August 2016

LOGO

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

TO THE BOARD OF DIRECTORS OF SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

(Incorporated in the People’s Republic of China with limited liability)

Introduction

We have reviewed the interim financial information set out on pages 41 to 71, which comprises the interim condensed consolidated balance sheet of Sinopec Shanghai Petrochemical Company Limited (the “Company”) and its subsidiaries (together, the “Group”) as at 30 June 2016 and the related interim condensed consolidated statements of income, comprehensive income, changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 “Interim Financial Reporting” issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with International Accounting Standard 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting”.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 23 August 2016

A.	Condensed consolidated interim financial information (unaudited)

Sinopec Shanghai Petrochemical Company Limited - 30 June 2016

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT


		Unaudited
		Six-month period ended 30 June
	Note	2016 RMB’000			2015 RMB’000

Revenue	6		36,968,510			42,125,505
Sales taxes and surcharges			(6,186,162	)		(7,060,938	)


Net sales			30,782,348			35,064,567
Cost of sales			(26,814,760	)		(32,687,731	)


Gross profit			3,967,588			2,376,836


Selling and administrative expenses			(254,238	)		(277,890	)
Other operating income			34,497			41,461
Other operating expenses			(8,909	)		(67,094	)
Other (losses)/gains - net	7		(25,696	)		6,931


Operating profit	6		3,713,242			2,080,244


Finance income	7		41,500			23,457
Finance expenses	7		(34,549	)		(160,694	)
Share of profit of investments accounted for using the equity method			381,745			336,853


Profit before income tax			4,101,938			2,279,860

Income tax expense	8		(948,241	)		(491,686	)


Profit for the period			3,153,697			1,788,174


Profit attributable to:
- Owners of the Company			3,148,609			1,770,880
- Non-controlling interests			5,088			17,294


			3,153,697			1,788,174


Earnings per share attributable to owners of the Company for the period (expressed in RMB per share)

Basic earnings per share	9		RMB 0.292			RMB 0.164


Diluted earnings per share	9		RMB 0.291			RMB 0.164

The notes on pages 47 to 71 form an integral part of this condensed consolidated interim financial information.


Wang Zhiqing		Ye Guohua

Chairman and General Manager		Director and Chief Financial Officer

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME


	Unaudited
	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000
Profit for the period		3,153,697		1,788,174
Other comprehensive income for the period - net of tax		—		—


Total comprehensive income for the period		3,153,697		1,788,174


Profit attributable to:
- Owners of the Company		3,148,609		1,770,880
- Non-controlling interests		5,088		17,294


Total comprehensive income for the period		3,153,697		1,788,174

The notes on pages 47 to 71 form an integral part of this condensed consolidated interim financial information.


Wang Zhiqing		Ye Guohua

Chairman and General Manager		Director and Chief Financial Officer

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET


	Note		Unaudited 30 June 2016 RMB’000		Audited 31 December 2015 RMB’000

Assets

Non-current assets
Lease prepayment and other assets				735,295		783,016
Property, plant and equipment		11		13,750,082		14,383,319
Investment properties				398,794		405,572
Construction in progress		11		570,733		722,520
Investments accounted for using the equity method				3,464,789		3,311,139
Deferred income tax assets				87,673		71,045


				19,007,366		19,676,611


Current assets
Inventories				4,631,888		4,178,188
Trade receivables		12		1,086,626		488,560
Bills receivable		12		1,158,953		991,273
Other receivables and prepayments		12		228,770		245,401
Amounts due from related parties		12,19(c)		1,175,953		1,163,128
Cash and cash equivalents		13		4,451,306		1,077,430


				12,733,496		8,143,980


Total assets				31,740,862		27,820,591


Equity

Equity attributable to owners of the Company
Share capital				10,800,000		10,800,000
Reserves		18		11,077,241		8,997,282


				21,877,241		19,797,282

Non-controlling interests				276,618		297,038


Total equity				22,153,859		20,094,320

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (continued)

Note

Unaudited
30 June
2016
RMB’000

Audited
31 December
2015
RMB’000

Liabilities

Current liabilities

Borrowings

859,657

2,070,000

Trade payables

2,024,730

1,562,232

Advance from customers

405,159

561,721

Bills payable

40,000

—

Other payables

3,546,609

1,898,754

Amounts due to related parties

16,19(c)

2,087,419

1,573,967

Income tax payable

623,429

59,597

9,587,003

7,726,271

Total liabilities

9,587,003

7,726,271

Total equity and liabilities

31,740,862

27,820,591

The notes on pages 47 to 71 form an integral part of this condensed consolidated interim financial information.


Wang Zhiqing		Ye Guohua

Chairman and General Manager		Director and Chief Financial Officer

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


		Unaudited
		Attributable to owners of the Company
		Share		Other		Retained						Non-controlling			Total
		capital		reserves		profits			Total			interests			equity
	Note	RMB’000		RMB’000		RMB’000			RMB’000			RMB’000			RMB’000

Balance at 1 January 2016			10,800,000		4,201,666		4,795,616			19,797,282			297,038			20,094,320


Total comprehensive income for the period ended 30 June 2016			—		—		3,148,609			3,148,609			5,088			3,153,697


Dividends proposed and approved	10		—		—		(1,080,000	)		(1,080,000	)		—			(1,080,000	)
Employees share option scheme	18(a)		—		11,350		—			11,350			—			11,350
Dividends paid by subsidiaries to non-controlling interests			—		—		—			—			(25,508	)		(25,508	)
Appropriation of safety production fund	18(b)		—		39,441		(39,441	)		—			—			—


Balance at 30 June 2016			10,800,000		4,252,457		6,824,784			21,877,241			276,618			22,153,859


		Unaudited
		Attributable to owners of the Company
		Share		Other		Retained						Non-controlling			Total
		capital		reserves		profits			Total			interests			equity
	Note	RMB’000		RMB’000		RMB’000			RMB’000			RMB’000			RMB’000

Balance at 1 January 2015			10,800,000		4,179,276		1,520,996			16,500,272			271,395			16,771,667


Total comprehensive income for the period ended 30 June 2015			—		—		1,770,880			1,770,880			17,294			1,788,174


Employees share option scheme	18(a)		—		11,901		—			11,901			—			11,901
Dividends paid by subsidiaries to non-controlling interests			—		—		—			—			(10,459	)		(10,459	)
Appropriation of safety production fund	18(b)		—		25,328		(25,328	)		—			—			—


Balance at 30 June 2015			10,800,000		4,216,505		3,266,548			18,283,053			278,230			18,561,283

The notes on pages 47 to 71 form an integral part of this condensed consolidated interim financial information.


Wang Zhiqing		Ye Guohua

Chairman and General Manager		Director and Chief Financial Officer

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


			Unaudited
			Six-month period ended 30 June
	Note		2016 RMB’000			2015 RMB’000

Cash flows from operating activities
Cash generated from operations				5,046,061			1,941,770
Interest paid				(31,576	)		(147,511	)
Income tax paid				(401,037	)		(17,531	)


Net cash generated from operating activities				4,613,448			1,776,728

Cash flows from investing activities
Dividends received from joint ventures and associates				200,595			38,487
Cash received from entrusted lending				42,000			30,000
Interest received				42,435			23,454
Net (payments)/proceeds from disposal of property, plant and equipment				(1,730	)		4,417
Purchases of property, plant and equipment and other long-term assets				(265,241	)		(313,246	)
Cash payment of entrusted lending				(24,000	)		(42,000	)


Net cash used in investing activities				(5,941	)		(258,888	)

Cash flows from financing activities
Proceeds from borrowings				1,864,657			20,725,975
Repayments of borrowings				(3,075,000	)		(22,214,676	)
Dividends paid to the Company’s shareholders				—			(106	)
Dividends paid by subsidiaries to non-controlling interests				(25,508	)		(7,192	)


Net cash used in financing activities				(1,235,851	)		(1,495,999	)

Net increase in cash and cash equivalents				3,371,656			21,841
Cash and cash equivalents at beginning of the period				1,077,430			279,198
Exchange gains on cash and cash equivalents				2,220			22


Cash and cash equivalents at end of the period		13		4,451,306			301,061

The notes on pages 47 to 71 form an integral part of this condensed consolidated interim financial information.


Wang Zhiqing		Ye Guohua

Chairman and General Manager		Director and Chief Financial Officer

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

General information

Sinopec Shanghai Petrochemical Company Limited (“the Company”), located in Jinshan District of Shanghai, is one of the largest refining-chemical integrated petrochemical companies in China. It is one of the subsidiaries of China Petroleum & Chemical Corporation (“Sinopec Corp.”). It is also currently one of the most important domestic producers of refined oil products, intermediate petrochemicals, synthetic resins and synthetic fibers.

This condensed consolidated interim financial information is presented in thousands of Renminbi Yuan (RMB), unless otherwise stated. This condensed consolidated interim financial information was approved for issue on

23 Aug 2016.

This condensed consolidated interim financial information has been reviewed, not audited.

Basis of preparation

This condensed consolidated interim financial information for the six-month period ended 30 June 2016 has been prepared in accordance with International Accounting Standard 34 (“IAS 34”), ‘Interim financial reporting’. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended

31 December 2015 as described in those annual financial statements.

(a)

New standards, amendments and interpretations to existing standards which are effective for accounting periods beginning on or after 1 January 2016 and adopted by the Group.

The following new and amended standards and interpretations are effective for the financial year beginning on 1 January 2016. None of them have a material impact on the Group.

•

Amendment from annual improvements - 2012 - 2014 cycle, on IFRS 7, ‘Financial instruments: Disclosures’ and IAS 34, ‘Interim financial reporting’;

•

Amendment to IAS 1 - ‘Disclosure initiative’;

•

Amendment to IAS 27 - ‘Equity method in separate financial statements’

There are no other amended standards or interpretations that are effective for the first time for this interim period that could be expected to have a material impact on this Group.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Accounting policies (continued)

(b)

New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have not been applied in preparing these consolidated financial statements. Those applicable to the Group are listed below.

IFRS 9, ‘Financial Instruments’ on classification, measurement and derecognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. The standard does not need to be applied until 1 January 2018 but is available for early adoption. It is expected to have no significant impact on the consolidated financial statement of the Group.

IFRS 15, ‘Revenue from contracts with customers’ will replace IAS 18 which covers revenue arising from the sale of goods and the rendering of services and IAS 11 which covers construction contracts, based on the principle that revenue is recognised when control of a good or service transfers to a customer.The new standard is effective for first interim periods within annual reporting periods beginning on or after 1 January 2018, and will allow early adoption. The Group is assessing IFRS 15’s full impact.

IFRS 16, ‘Lease’ provides updated guidance on the definition of leases, and the guidance on the combination and separation of contracts and requires lessees to recognise lease liability reflecting future lease payments and a ‘right-of-use-asset’ for almost all lease contracts, with an exemption for certain short-term leases and leases of low-value assets. This standard is effective for annual periods beginning on or after 1 January 2019. The Group is assessing the impact of IFRS 16.

Estimates

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial information, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial information for the year ended 31 December 2015.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Financial risk management

(a)

Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The interim condensed consolidated financial information do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2015.

There have been no changes in the risk management policies since 31 December 2015.

(b)

Foreign exchange risk

The Group’s major operational activities are carried out in Mainland China and a majority of the transactions are denominated in RMB. The Group is exposed to foreign exchange risk arising from the recognised assets and liabilities (mainly trade receivables and trade payables), and future transactions denominated in foreign currencies, primarily with respect to USD. The Group’s finance department at its headquarter is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk.

As at 30 June 2016, if RMB had strengthened/weakened by 5% against the foreign currencies with all other variables held constant, the Group’s net profit for the six-month period ended 30 June 2016 would have been 8,941 thousands increased/decreased (31 December 2015: RMB3,605 thousands increased/ decreased in net profit) as a result of foreign exchange gains/losses which is mainly resulted from the translation of USD denominated trade receivables and trade payables.

(c)

Offsetting financial assets and financial liabilities

(i)

Financial assets


	As at 30 June 2016 RMB’000			As at 31 December 2015 RMB’000

Gross amounts of recognised amounts due from related parties		1,251,158			1,227,020
Gross amounts of recognised amounts due to related parties set off in the balance sheet		(75,205	)		(63,892	)


Net amounts of amounts due from related parties presented in the balance sheet		1,175,953			1,163,128

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Financial risk management (continued)

(c)

Offsetting financial assets and financial liabilities (continued)

(ii)

Financial liabilities


	As at 30 June 2016 RMB’000			As at 31 December 2015 RMB’000

Gross amounts of recognised amounts due to related parties		2,162,624			1,637,859
Gross amounts of recognised amounts due from related parties set off in the balance sheet		(75,205	)		(63,892	)


Net amounts of amounts due to related parties presented in the balance sheet		2,087,419			1,573,967

According to the offsetting master arrangement entered into in October 2014 between the Company and its related party, Shanghai Secco Petrochemical Company Limited, the relevant financial assets and liabilities of each operating agreement between the Group and Shanghai Secco Petrochemical Company Limited, are settled on a net basis each month.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Segment information

The basis of segmentation and the basis of measurement of segment profit or loss, and assets and liabilities are consistent with those of the annual financial statements for the year ended 31 December 2015.

Six-month period ended 30 June 2016

Six-month period ended 30 June 2015

Total
segment
revenue
RMB’000

Inter
segment
revenue
RMB’000

Revenue
from
external
customers
RMB’000

Total
segment
revenue
RMB’000

Inter
segment
revenue
RMB’000

Revenue
from
external
customers
RMB’000

Synthetic fibres

999,011

—

999,011

1,277,780

—

1,277,780

Resins and plastics

4,787,639

40,622

4,747,017

5,424,043

49,134

5,374,909

Intermediate petrochemicals

8,939,032

4,693,316

4,245,716

9,855,653

4,806,577

5,049,076

Petroleum products

19,059,944

1,524,150

17,535,794

24,857,847

1,670,932

23,186,915

Trading of petrochemical products

9,710,137

706,127

9,004,010

7,754,411

932,368

6,822,043

All others segments

701,252

264,290

436,962

802,051

387,269

414,782

Total

44,197,015

7,228,505

36,968,510

49,971,785

7,846,280

42,125,505


	Six-month period ended 30 June 2016 RMB’000			Six-month period ended 30 June 2015 RMB’000

Profit/(loss) from operations
Synthetic fibres		(227,203	)		(198,708	)
Resins and plastics		719,346			671,713
Intermediate petrochemicals		751,989			491,756
Petroleum products		2,457,516			1,038,809
Trading of petrochemical products		26,765			7,509
Others		(15,171	)		69,165


Total consolidated profit from operations		3,713,242			2,080,244


Net finance income/(expense)		6,951			(137,237	)
Share of profit of investments accounted for using the equity method		381,745			336,853
Profit before taxation		4,101,938			2,279,860

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Segment information (continued)


	30 June 2016 Total assets RMB’000		31 December 2015 Total assets RMB’000

Allocated assets

Synthetic fibres		1,565,924		1,624,351
Resins and plastics		1,624,808		1,578,493
Intermediate petrochemicals		4,379,081		4,557,760
Petroleum products		12,257,753		12,164,426
Trading of petrochemical products		1,455,364		924,622
All others		2,257,207		2,299,088


Allocated assets		23,540,137		23,148,740


Unallocated assets

Investments accounted for using the equity method		3,464,789		3,311,139
Cash and cash equivalents		4,451,306		1,077,430
Deferred tax assets		87,673		71,045
Others		196,957		212,237


Unallocated assets		8,200,725		4,671,851


Total assets		31,740,862		27,820,591

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Segment information (continued)


	30 June 2016 Total liabilities RMB’000		31 December 2015 Total liabilities RMB’000

Allocated liabilities

Synthetic fibres		316,374		272,717
Resins and plastics		867,937		646,347
Intermediate petrochemicals		901,151		675,470
Petroleum products		3,770,122		3,059,334
Trading of petrochemical products		1,571,094		948,775
Others		201,549		53,628


Allocated liabilities		7,628,227		5,656,271


Unallocated liabilities
Borrowings		859,657		2,070,000
Dividend payable		1,099,119		—


Unallocated liabilities		1,958,776		2,070,000


Total liabilities		9,587,003		7,726,271

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Profit before income tax

(a)

Finance income/(expenses) - net


	Six-month period ended 30 June
	2016 RMB’000			2015 RMB’000

Interest income		39,989			23,457
Net foreign exchange gain		1,511			—


Finance income		41,500			23,457


Interest on bank and other borrowings		(34,549	)		(141,005	)
Net foreign exchange loss		—			(19,689	)


Finance expenses		(34,549	)		(160,694	)


Finance income/(expenses) - net		6,951			(137,237	)

(b)

Other (losses)/gains - net


	Six-month period ended 30 June
	2016 RMB’000			2015 RMB’000

Loss on disposal of property, plant and equipment		(23,977	)		—
Others		(1,719	)		6,931


		(25,696	)		6,931

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Profit before income tax (continued)

(c)

Operating items


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Amortisation of lease prepayments		8,706		8,804
Depreciation		820,141		895,110
Research and development costs		47,144		14,265
Write-down of inventories		37,944		10,700
Impairment of property, plant and equipment		112,063		50,001
Net loss on disposal of property, plant and equipment		23,977		7,927

During the six-month period ended 30 June 2016, as a result of increasing market competition and low profit margin of the relevant products, the Company made impairment provisions of RMB112,063 thousands to reduce the carrying amounts of polyester and filament production lines to their estimated net realizable values (six-month period ended 30 June 2015: RMB50,001 thousands).

Income tax expense


	Six-month period ended 30 June
	2016 RMB’000			2015 RMB’000

Provision for PRC income tax for the period		964,869			14,773
Deferred taxation		(16,628	)		476,913


		948,241			491,686

The provision for PRC income tax is calculated at the rate of 25% (six-month period ended 30 June 2015: 25%) on the estimated taxable income of the six-month period ended 30 June 2016 determined in accordance with relevant income tax rules and regulations. The Group did not carry out overseas business and therefore does not incur overseas income taxes.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Earnings per share

(a)

Basic

The calculation of basic profit per share is based on the profit attributable to equity shareholders of the Company for the six-month period ended 30 June 2016 of RMB3,148,609 thousands (six-month period ended 30 June 2015: profit of RMB1,770,880 thousands) and 10,800,000,000 shares (six-month period ended 30 June 2015: 10,800,000,000 shares) in issue during the interim period.

(b)

Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

The Company has dilutive potential ordinary shares from share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s A shares for the six-month period ended 30 June 2016) based on the monetary value of the subscription rights attached to outstanding share options. The number of ordinary shares in issue is compared with the number of shares that would have been issued assuming the exercise of the share options. The calculation of the diluted earnings per share for the six-month period ended 30 June 2016 and the six-month period ended 30 June 2015 was shown as:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Earnings
Profit attributable to owners of the Company		3,148,609		1,770,880


Weighted average number of ordinary shares in issue (thousands of shares)		10,800,000		10,800,000

Adjustments for share options granted (thousands of shares)		6,961		6,954


Weighted average number of ordinary shares for diluted earnings per share (thousands of shares)		10,806,961		10,806,954


Diluted earnings per share (RMB per share)		0.291		0.164

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Dividends

Pursuant to a resolution passed at the Annual General Meeting held on 15 June 2016, a total dividend of RMB1,080,000 thousands was declared for the year ended 31 December 2015 and subsequently paid in July 2016. The Board of Directors did not propose any dividend in respect of the six-month period ended 30 June 2016.

Pursuant to a resolution passed at the Annual General Meeting held on 18 June 2015, no dividend was declared for the year ended 31 December 2014. The Board of Directors did not propose any dividend in respect of the six-month period ended 30 June 2015.

Property, plant and equipment, construction in progress

Acquisitions and disposals

The acquisitions and disposals of items of property, plant and equipment and construction in progress during the six-month period ended 30 June 2016 and the six-month period ended 30 June 2015 are as follows:


	Six-month period ended 30 June
	2016 RMB’000			2015 RMB’000

Cost of acquisition		162,648			154,990
Transfer to investment properties		—			(3,277	)
Disposals (net carrying amount)		(22,247	)		(12,344	)
Impairment (Note 7)		(112,063	)		(50,001	)

Trade and other receivables


	As at 30 June 2016 RMB’000			As at 31 December 2015 RMB’000

Trade receivables		1,086,643			488,584
Less: allowance for doubtful debts		(17	)		(24	)


		1,086,626			488,560


Bills receivable		1,158,953			991,273
Amounts due from related parties		1,175,953			1,163,128


		3,421,532			2,642,961


Other receivables and prepayments (i)		228,770			245,401


		3,650,302			2,888,362

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Trade and other receivables (continued)

(i)

For the six-month period ended 30 June 2016, the associates and joint ventures of the Group declared dividends with total amount of RMB228,095 thousands to the Group (six-month period ended 30 June 2015: RMB19,115 thousands). As at 30 June 2016, RMB27,500 thousands among the aforementioned dividends were not yet received and therefore were recorded in other receivables and prepayments(31 December 2015: all the aforementioned dividends were received).

As at 30 June 2016, entrusted lendings of RMB88,000 thousands included in other receivables and prepayments was made by the Group at interest rates ranged from 1.75% to 2.25% per annum, which will be due within twelve months from 30 June 2016 (31 December 2015: RMB106,000 thousands at interest rates ranged from 1.75% to 3.00% per annum).

As at 30 June 2016, the Group didn’t have any trade receivable which was past due but not impaired (31 December 2015: Nil).

Amounts due from related parties represent trade-related balances.

The ageing analysis of trade receivables, bills receivable and amounts due from related parties (net of impairment loss for bad and doubtful debts) based on invoice date is as follows:


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Within one year		3,421,512		2,642,921
Above one year		20		40


		3,421,532		2,642,961

Bills receivable represent short-term bank acceptance receivables that entitle the Group to receive the full face amount of the receivables from the banks at maturity, which generally range from one to six months from the date of issuance. Historically, the Group had experienced no credit losses on bills receivable.

As at 30 June 2016, no trade receivables or bills receivable was pledged as collateral(31 December 2015: nil).

Sales to third parties are generally on cash basis and letter of credit against payment. Subject to negotiation, credit is generally only available for major customers with well-established trading records.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Cash and cash equivalents


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Cash deposits with a related party (Note 19(c))		21,315		5,394
Cash at bank and in hand		4,429,991		1,072,036


		4,451,306		1,077,430

Borrowings


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Short term loans
- Short term bank loans		789,657		1,700,000
- Short term loans from related parties (Note 19(c))		70,000		370,000


		859,657		2,070,000

At 30 June 2016, no borrowings were secured by property, plant and equipment (31 December 2015: nil).

The Group has the following undrawn facilities:


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Expiring within one year		15,797,202		18,235,372
Expiring beyond one year		6,800,000		7,300,000


		22,597,202		25,535,372

These facilities have been arranged to finance the working capitals as well as ongoing investments on long-term assets.

The Company does not have any exposure to collateralised debt obligations. The Company has sufficient headroom to enable it to conform to covenants on its existing borrowings. The Company has sufficient undrawn financing facilities to service its operating activities and ongoing investments.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Fair value of financial assets and liabilities measured at amortised cost

Financial assets and financial liabilities not measured at fair value mainly represent cash and cash equivalents, bills receivable, trade receivables and other receivables (except for the prepayments), trade and other payables (except for the staff salaries and welfare payables and other taxes payables) and borrowings. As at 30 June 2016, the carrying amounts of these financial assets and liabilities not measured at fair value is a reasonable approximation of their fair value.

Trade and other payables


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Trade payables		2,024,730		1,562,232
Bills payable		40,000		—
Amounts due to related parties (Note 19(c))		2,087,419		1,573,967


Subtotal		4,152,149		3,136,199


Staff salaries and welfares payable		167,512		39,999
Taxes payable (exclude income tax payable)		1,508,027		1,308,821
Interest payable		430		1,642
Dividends payable		1,099,119		19,119
Construction and maintenance payable		356,804		205,714
Other liabilities		414,717		323,459


Subtotal of other payables		3,546,609		1,898,754


		7,698,758		5,034,953

As at 30 June 2016 and 31 December 2015, all trade and other payables of the Group were non-interest bearing, and their fair value, which are not financial liabilities, approximated their carrying amounts due to their short maturities.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Trade and other payables (continued)

As at 30 June 2016 and 31 December 2015, the ageing analysis of the trade payables (including amounts due to related parties of trading in nature) based on invoice date were as follows:


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Within one year		4,119,881		3,110,638
Between one and two years		9,696		3,240
Over two years		22,572		22,321


		4,152,149		3,136,199

Contingent liabilities

(a)

Income tax differences

In June 2007, the State Administrative of Taxation issued a tax circular (Circular No.664) to the local tax authorities requesting the relevant local tax authorities to rectify the applicable enterprise income tax (“EIT”) for nine listed companies, which included the Company. After the notice was issued, the Company was required by the relevant tax authority to settle the EIT for 2007 at a rate of 33 percent. To date, the Company has not been requested by the tax authorities to pay additional EIT in respect of any years prior to 2007. There is no further development of this matter during the six-month period ended 30 June 2016. No provision has been made in this interim financial report for this uncertainty because management believes it is not probable that the Group will be required to pay additional EIT for tax years prior to 2007. (31 December 2015: Nil).

(b)

Except for the above, there is no contingent liabilities for which the possibility of any outflow of resources is other than remote.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Reserves

(a)

Share option reserve

Pursuant to the resolution of the fifth meeting of the eighth session of the Board of Directors of the Company on 6 January 2015, the proposal regarding the list of participants and the number of share options under the share option incentive scheme was approved.

According to the Company’s share option incentive scheme, the grant date of share options was 6 January 2015, and there were a total of 38,760 thousand share options granted to 214 participants (0.359% of the total ordinary share capital issued). Each share option has a right to purchase an ordinary A share listed in PRC on vesting date at an exercise price of RMB4.20 under vesting conditions. The options are exercisable starting two years from the grant date, subject to the following vesting conditions:

•

RoE of the Group should be no less than 9% for 2015, 9.5% for 2016 and 10% for 2017 in respect to the three vesting periods;

•

achieving the target compound annual growth rate of 5% in net profit for 2015, 2016 and 2017, respectively based on the net profit of 2013;

•

proportion of the main business revenue in the total revenue should be no less than 99%;

•

each of the above three conditions should be no lower than the 75% level of peer companies; and

•

achieving the target budget set by the Sinopec Corp

The fair value of the employee services received in exchange for the grant of this equity-settled, share-based compensation plan is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted excluding the impact of any service and non-market performance vesting conditions. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium. As at 30 June 2016, no share option had been exercised yet.

The share options outstanding as at 30 June 2016 have the following vesting dates and exercise prices:


Vesting date	Exercise price (per share in RMB)		Outstanding shares

6 January 2017		4.20		15,504,000
6 January 2018		4.20		11,628,000
6 January 2019		4.20		11,628,000

The total fair value of share options at the grant date was RMB65,412 thousands, which has been valued by an external valuation expert using Black-Scholes valuation model.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Reserves (continued)

(a)

Share option reserve (continued)

The significant inputs into the model were as follows:


	Granting date

Spot share price		RMB4.51
Exercise price		RMB4.20
Expected volatility		41.20%
Maturity (years)		5.00
Risk-free interest rate		3.39%~3.67%
Dividend yield		1.00%

Share option expenses of RMB11,350 thousands have been recognised in the condensed interim income statement for the six-month period ended 30 June 2016(six-month period ended 30 June 2015: 11,901 thousands).

(b)

For the six-month period ended 30 June 2016, the Group transferred RMB39,441 thousands (six-month period ended 30 June 2015: RMB25,328 thousands) from retained earnings to reserves for the safety production fund determined according to relevant PRC regulations.

(c)

For the six-month period ended 30 June 2016 and six-month period ended 30 June 2015, no transfers were made to the statutory surplus reserve or the discretionary surplus reserve.

Related-party transactions

The following is a list of the Group’s major related parties:


Names of related parties		Relationship with the Company

China Petrochemical Corporation (“Sinopec Group”)		Ultimate parent company
China Petroleum & Chemical Corporation (“Sinopec Corp.”)		Immediate parent company
Sinopec Huadong Sales Company Limited		Subsidiary of the immediate parent company
China International United Petroleum and Chemical Company Limited		Subsidiary of the immediate parent company
China Petrochemical International Company Limited		Subsidiary of the immediate parent company
Sinopec Chemical Commercial Holding Company Limited		Subsidiary of the immediate parent company
Sinopec Finance Company Limited (“Sinopec Finance”)		Subsidiary of the ultimate parent company
Shanghai Secco Petrochemical Co., Ltd. (“Shanghai Secco”)		Associate of the Group
BOC-SPC Gases Co., Ltd.		Joint venture of the Group

The following is a summary of significant balances and transactions between the Group and its related parties except for the dividends receivable and payable as disclosed in Note 10, Note 12 and Note 16.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(a)

Most of the transactions undertaken by the Group during the six-month period ended 30 June 2016 have been affected on such terms as determined by Sinopec Corp. and relevant PRC authorities.

Sinopec Corp. negotiates and agrees the terms of crude oil supply with suppliers on a group basis, which is then allocated among its subsidiaries, including the Group, on a discretionary basis. Sinopec Corp. also owns a widespread petroleum products sales network and possesses a fairly high market share in domestic petroleum products market, which is subject to extensive regulation by the PRC government.

The Group has entered into a mutual product supply and sales services framework agreement with Sinopec Corp. Pursuant to the agreement, Sinopec Corp. provides the Company with crude oil, other petrochemical raw materials and agent services. On the other hand, the Group provides Sinopec Corp. with petroleum products, petrochemical products and property leasing services.

The pricing policy for these services and products provided under the agreement is as follows:

•

if there are applicable State (central and local government) tariffs, the pricing shall follow the State tariffs;

•

if there are no State tariffs, but there are applicable State’s guidance prices, the pricing shall follow the State’s guidance prices; or

•

if there are no State tariffs or State’s guidance prices, the pricing shall be determined in accordance with the prevailing market prices (including any bidding prices).

Transactions between the Group and Sinopec Corp, its subsidiaries and joint ventures during the six-month period ended 30 June 2016 and the six-month period ended 30 June 2015 were as follows:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Sales of petroleum products		16,582,384		22,095,131
Sales other than petroleum products		2,548,304		2,026,945
Purchases of crude oil		9,190,466		13,127,913
Purchases other than crude oil		2,012,603		1,611,033
Sales commissions		46,872		57,921
Rental income		14,217		14,793

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(b)

Other transactions between the Group and Sinopec Group and its subsidiaries, associates and joint ventures of the Group during the six-month period ended 30 June 2016 and the six-month period ended 30 June 2015 were as follows:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Sales of goods and service fee income
- Sinopec Group and its subsidiaries		33,577		83,371
- Associates and joint ventures of the Group		860,318		952,212


		893,895		1,035,583


Purchases
- Sinopec Group and its subsidiaries		74,350		383,645
- Associates and joint ventures of the Group		1,732,059		1,969,333


		1,806,409		2,352,978


Insurance premiums
- Sinopec Group and its subsidiaries		60,895		58,955


Interest income
- Sinopec Finance		127		310


Loans borrowed
- Sinopec Finance		—		3,550,000


Loans repayment
- Sinopec Finance		300,000		4,350,000


Interest expenses
- Sinopec Finance		2,278		22,566


Construction and installation cost
- Sinopec Group and its subsidiaries		61,316		44,730

The directors of the Company are of the opinion that the transactions with Sinopec Corp., its subsidiaries and joint ventures, Sinopec Group and its subsidiaries, associates and joint ventures of the Group as disclosed in notes 19(a) and 19(b) were conducted in the ordinary course of business, on normal commercial terms and in accordance with the agreements governing such transactions.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(c)

The relevant amounts due from/to Sinopec Corp., its subsidiaries and joint ventures, Sinopec Group and its subsidiaries, associates and joint ventures of the Group, arising from purchases, sales and other transactions as disclosed in notes 19(a) and 19(b), are summarised as follows:


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Amounts due from related parties

- Sinopec Corp., its subsidiaries and joint ventures		1,121,892		1,098,872
- Sinopec Group and its subsidiaries		215		9,263
- Associates and joint ventures of the Group		53,846		54,993


Total		1,175,953		1,163,128


Amounts due to related parties
- Sinopec Corp., its subsidiaries and joint ventures		1,945,776		1,253,940
- Sinopec Group and its subsidiaries		28,619		91,342
- Associates and joint ventures of the Group		113,024		228,685


Total		2,087,419		1,573,967


Cash deposits, maturing within three months
- Sinopec Finance (i)		21,315		5,394


Short-term loans
- Sinopec Finance (ii)		70,000		370,000

(i)	As at 30 June 2016 and 31 December 2015, cash deposits at Sinopec Finance were charged at an interest rate of 0.35% per annum.

(ii)	As at 30 June 2016, short-term loans from Sinopec Finance were made by the Company at a weighted average interest rate of 3.94% per annum (31 December 2015: 3.92% per annum), which will be due in September and November 2016.

Except for cash deposits at Sinopec Finance and short-term loans from Sinopec Finance, the balances with related parties as above are unsecured, interest-free and repayable on demand.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(d)

Key management personnel compensation, post-employment benefit plans and share options

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key personnel compensations are as follows:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Short-term employee benefits		3,267		3,299
Post-employment benefits		73		72
Share-based payments		671		703


		4,011		4,074

Post-employment benefits are included in “contributions to defined contribution retirement plans” as disclosed in note 19(e).

(e)

Contributions to defined contribution retirement plans

The Group participates in defined contribution retirement plans organised by municipal governments for its staff. The contributions to defined contribution retirement plans are as follows:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Municipal retirement scheme costs		128,170		138,003
Supplementary retirement scheme costs		35,362		36,312

As at 30 June 2016 and 31 December 2015, there was no material outstanding contribution to the above defined contributions retirement plans.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(f)

Transactions with other state-owned entities in the PRC

The Group is a state-controlled enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government (collectively referred as “state-controlled entities”) through its government authorities, agencies, affiliations and other organisations.

Apart from transactions with related parties, transactions with other state-controlled entities include but are not limited to the following:

•

sales and purchases of goods and ancillary materials;

•

rendering and receiving services;

•

lease of assets, purchase of property, plant and equipment;

•

placing deposits and obtaining finance; and

•

use of public utilities.

These transactions are conducted in the ordinary course of the Group’s business on terms comparable to those with other entities that are not state-controlled. The Group has established its procurement policies, pricing strategy and approval process for purchases and sales of products and services which do not depend on whether the counterparties are state-controlled entities or not.

Having considered the potential for transactions to be impacted by related party relationships, the entity’s pricing strategy, procurement policies and approval processes, and the information that would be necessary for an understanding of the potential effect of the related party relationship on the financial information, the directors are of the opinion that the following transactions require disclosure of the related amounts:

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(f)

Transactions with other state-owned entities in the PRC (continued)

(i)

Transactions with other state-controlled energy and chemical companies

The Group’s major domestic suppliers of crude oil are China National Offshore Oil Corporation and its subsidiaries, Sinochem International Group and its subsidiaries, Heilongjiang United Oil & Chemicals Co., Ltd., Zhuhai Zhenrong Company and Hunan New Hualian Import & Export Corp. Ltd., which are state-controlled entities.

During the six-month period ended 30 June 2016 and six-month period ended 2015, the aggregate amount of crude oil purchased by the Group from the above state-controlled energy and chemical companies are as follows:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Purchases of crude oil		731,181		5,172,806

No prepayments for purchases of crude oil was made to the above state-controlled energy and chemical companies as at 30 June 2016 (31 December 2015: Nil).

(ii)

Transactions with state-controlled banks

The Group deposits its cash with several state-controlled banks in the PRC. The Group also obtains short-term and long-term loans from these banks in the ordinary course of business. The interest rates of the bank deposits and loans are regulated by the People’s Bank of China. The Group’s interest income from and interest expenses to these state-controlled banks in the PRC are as follows:


	Six-month period ended 30 June
	2016 RMB’000		2015 RMB’000

Interest income		19,781		6,377
Interest expenses		19,348		115,183

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(f)

Transactions with other state-owned entities in the PRC (continued)

(ii)

Transactions with state-controlled banks (continued)

The amounts of cash deposited at and loans from state-controlled banks in the PRC are summarised as follows:


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Cash and cash equivalents at state-controlled banks in the PRC		4,429,410		1,071,863
Short-term loans from state-controlled banks in the PRC		789,657		1,700,000

(g)

Commitments with related parties


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000
Construction and installation cost:
- Sinopec Group and its subsidiaries		58,920		35,244

Except for the above, the Group had no other material commitments with related parties as at 30 June 2016 and 31 December 2015, which are contracted, but not included in the interim financial report.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

Related-party transactions (continued)

(h)

Investment commitments with related parties


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Capital contribution to Shanghai Secco		111,263		111,263

Pursuant to the resolution of the 18th meeting of the 7th term of Board of Directors on 5 December 2013, it was approved to make capital contribution of USD30,017 thousands (RMB182,804 thousands equivalent) to Shanghai Secco, an associate of the Group. The capital to Shanghai Secco will be contributed in RMB by instalments. The capital contribution is mainly to meet the funding needs of the implementation of the “260,000 tons of AN-2 project” (“AN-2 project”), and “90,000 tons of BEU-2 project” (“BEU-2 project”).

19 October 2015, the rest of the capital contribution to Shanghai Secco should be within 50 years starting from its registration date.

Except for the above, the Group and the Company had no other material commitments with related parties as at 30 June 2016, which are contracted, but not included in the financial statements.

Capital commitments


	As at 30 June 2016 RMB’000		As at 31 December 2015 RMB’000

Property, plant and equipment

Contracted but not provided for		86,720		39,814
Authorised but not contracted for		1,046,475		1,124,660


		1,133,195		1,164,474

B.	Interim Financial Statements Prepared under China Accounting Standards for Business Enterprises (unaudited)

CONSOLIDATED AND COMPANY BALANCE SHEETS

AS AT 30 JUNE 2016


	(All amounts in thousands of Renminbi Yuan unless otherwise stated) [English Translation for Reference Only]
				30 JUNE 2016 (UNAUDITED)		31 DECEMBER 2015		30 JUNE 2016 (UNAUDITED)		31 DECEMBER 2015
ASSETS	Note			Consolidated		Consolidated		Company		Company
Current assets
Cash at bank and on hand		4	(1)		4,451,306		1,077,430		3,881,881		942,264
Notes receivable		4	(2)		1,178,053		1,007,373		935,457		679,084
Accounts receivable		4	(4), 14(1)		2,195,055		1,624,571		1,000,699		1,034,286
Advances to suppliers		4	(6)		38,475		15,131		33,108		10,377
Interests receivable					45		2,491		—		2,420
Dividends receivable		4	(3)		27,500				—		—
Other receivables		4	(5), 14(2)		41,764		29,050		25,833		10,968
Inventories		4	(7)		4,631,888		4,178,188		4,298,548		3,955,550
Other current assets		4	(8)		169,410		209,746		59,240		86,481


Total current assets					12,733,496		8,143,980		10,234,766		6,721,430


Non-current assets
Long-term equity investments		4	(9), 14(3)		3,619,789		3,471,139		4,769,337		4,550,126
Investment properties		4	(10)		398,794		405,572		395,905		402,581
Fixed assets		4	(11), 14(4)		13,779,169		14,424,899		13,483,019		14,080,657
Construction in progress		4	(12)		570,733		722,520		570,733		722,520
Intangible assets		4	(13)		414,823		423,529		342,035		348,193
Long-term prepaid expenses		4	(14)		320,472		359,487		307,759		345,978
Deferred tax assets		4	(15)		87,673		71,045		79,933		62,867


Total non-current assets					19,191,453		19,878,191		19,948,721		20,512,922


Total assets					31,924,949		28,022,171		30,183,487		27,234,352

CONSOLIDATED AND COMPANY BALANCE SHEETS (continued)

AS AT 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]


				30 JUNE				30 JUNE
				2016		31 DECEMBER		2016		31 DECEMBER
LIABILITIES AND				(UNAUDITED)		2015		(UNAUDITED)		2015
SHAREHOLDERS’ EQUITY	Note			Consolidated		Consolidated		Company		Company

Current liabilities
Short-term borrowings		4	(17)		859,657		2,070,000		1,332,000		2,499,000
Notes payable		4	(18)		40,000		—		40,000		—
Accounts payable		4	(19)		4,063,719		3,017,878		2,575,675		2,275,922
Advances from customers		4	(20)		416,654		579,887		291,361		446,318
Employee benefits payable		4	(21)		167,512		39,999		156,943		34,264
Taxes payable		4	(22)		2,131,456		1,368,418		2,102,894		1,330,067
Interest payable		4	(23)		507		1,890		902		2,370
Dividends payable		4	(24)		1,099,119		19,119		1,099,119		19,119
Other payables		4	(25)		808,379		629,080		703,200		843,724


Total current liabilities					9,587,003		7,726,271		8,302,094		7,450,784


Non-current liabilities
Deferred income		4	(26)		155,000		160,000		155,000		160,000


Total liabilities					9,742,003		7,886,271		8,457,094		7,610,784


Shareholders’ equity
Share capital		1, 4	(27)		10,800,000		10,800,000		10,800,000		10,800,000
Capital surplus		4	(28)		527,974		516,624		527,974		516,624
Specific reserve		4	(29)		40,394		953		37,366		—
Surplus reserve		4	(30)		4,493,260		4,493,260		4,493,260		4,493,260
Undistributed profits		4	(31)		6,044,700		4,028,025		5,867,793		3,813,684


Total equity attributable to equity shareholders of the Company					21,906,328		19,838,862		21,726,393		19,623,568

Non-controlling interests		4	(32)		276,618		297,038		—		—

Total shareholders’ equity					22,182,946		20,135,900		21,726,393		19,623,568


Total liabilities and shareholders’ equity					31,924,949		28,022,171		30,183,487		27,234,352

The accompanying notes form an integral part of these financial statements.




Chairman and General Manager	Director and Chief Financial Officer	Deputy Chief Financial Officer and Accounting Chief

Wang Zhiqing	Ye Guohua	Hua Xin

CONSOLIDATED AND COMPANY INCOME STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]


		Six Months Ended 30 June				Six Months Ended 30 June
		2016		2015		2016		2015
		(UNAUDITED)		(UNAUDITED)		(UNAUDITED)		(UNAUDITED)
Items	Note	Consolidated		Consolidated		Company		Company
1. Revenue	4(33), 14(5)		36,993,191		42,152,450		27,195,559		34,274,347
Less: Cost of sales	4(33), 14(5)		25,177,628		31,233,864		15,516,828		23,525,573
Taxes and surcharges	4(34)		6,186,162		7,060,938		6,183,034		7,056,655
Selling and distribution expenses	4(35)		235,672		261,581		184,934		198,924
General and administrative expenses	4(36)		1,544,793		1,490,220		1,468,342		1,416,884
Financial expenses - net	4(37)		1,983		140,537		5,359		150,364
Asset impairment losses	4(40)		150,004		61,411		139,940		65,601
Add: Investment income	4(39), 14(6)		376,745		338,784		397,411		325,776
Including: Share of profit of associates and joint ventures			376,745		331,853		397,411		312,112

2. Operating profit			4,073,694		2,242,683		4,094,533		2,186,122
Add: Non-operating income	4(41)		17,364		18,408		15,993		17,081
Including: Profits on disposal of non-current assets			2,548		986		1,894		877
Less: Non-operating expenses	4(42)		41,054		20,945		40,927		20,908
Including: Losses on disposal of non-current assets			26,525		8,913		26,398		8,879

3. Total profit			4,050,004		2,240,146		4,069,599		2,182,295
Less: Income tax expenses	4(43)		948,241		491,686		935,490		477,348


4. Net profit			3,101,763		1,748,460		3,134,109		1,704,947
Attributable to shareholders of the Company			3,096,675		1,731,166		—		—
Non-controlling interests			5,088		17,294		—		—

5. Other comprehensive income			—		—		—		—

CONSOLIDATED AND COMPANY INCOME STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]


				Six Months Ended 30 June				Six Months Ended 30 June
				2016		2015		2016		2015
				(UNAUDITED)		(UNAUDITED)		(UNAUDITED)		(UNAUDITED)
Items	Note			Consolidated		Consolidated		Company		Company

Total comprehensive income					3,101,763		1,748,460		3,134,109		1,704,947
Attributable to shareholders of the Company					3,096,675		1,731,166		—		—
Non-controlling interests					5,088		17,294		—		—

Earnings per share
Basic earnings per share (RMB)		4	(44)		0.287		0.160		—		—
Diluted earnings per share (RMB)		4	(44)		0.287		0.160		—		—

The accompanying notes form an integral part of these financial statements.




Chairman and General Manager	Director and Chief Financial Officer	Deputy Chief Financial Officer and Accounting Chief

Wang Zhiqing	Ye Guohua	Hua Xin

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]


		Six Months Ended 30 June						Six Months Ended 30 June
		2016			2015			2016			2015
		(UNAUDITED)			(UNAUDITED)			(UNAUDITED)			(UNAUDITED)
Items	Note	Consolidated			Consolidated			Company			Company
Cash flows from operating activities
Cash received from sale of goods or rendering of services			40,959,820			46,893,886			30,642,588			38,627,647
Refund of taxes and surcharges			19,829			26,203			—			—
Cash received relating to other operating activities	4(45)		9,662			6,713			9,099			5,495

Sub-total of cash inflows			40,989,311			46,926,802			30,651,687			38,633,142

Cash paid for goods and services			(26,427,676	)		(34,564,026	)		(16,365,281	)		(26,437,199	)
Cash paid to and on behalf of employees			(1,191,300	)		(1,221,286	)		(1,108,144	)		(1,143,494	)
Payments of taxes and surcharges			(8,467,073	)		(8,942,004	)		(8,415,782	)		(8,884,167	)
Cash paid relating to other operating activities	4(45)		(258,238	)		(275,247	)		(562,958	)		(186,347	)

Sub-total of cash outflows			(36,344,287	)		(45,002,563	)		(26,452,165	)		(36,651,207	)


Net cash flows generated from operating activities	4(46), 14(7)		4,645,024			1,924,239			4,199,522			1,981,935


Cash flows from investing activities
Cash received from entrusted lendings			42,000			30,000			—			—
Cash received from returns on investments			200,595			38,487			178,200			19,372
Net cash received from disposal of fixed assets			—			4,417			—			4,294
Cash received relating to other investing activities	4(45)		42,435			23,454			27,952			16,592

Sub-total of cash inflows			285,030			96,358			206,152			40,258

Cash paid to acquire fixed assets and other long-term assets			(265,241	)		(313,246	)		(264,844	)		(314,223	)
Net cash paid in disposal of fixed assets			(1,730	)		—			(2,407	)		—
Investment in an associate			(24,000	)		(42,000	)		—			—

Sub-total of cash outflows			(290,971	)		(355,246	)		(267,251	)		(314,223	)


Net cash flows used in investing activities			(5,941	)		(258,888	)		(61,099	)		(273,965	)

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]


				Six Months Ended 30 June						Six Months Ended 30 June
				2016			2015			2016			2015
				(UNAUDITED)			(UNAUDITED)			(UNAUDITED)			(UNAUDITED)
Items	Note			Consolidated			Consolidated			Company			Company

Cash flows from financing activities
Cash received from borrowings					1,864,657			20,725,975			2,276,000			21,081,005

Sub-total of cash inflows					1,864,657			20,725,975			2,276,000			21,081,005

Cash repayments of borrowings					(3,075,000	)		(22,214,676	)		(3,443,000	)		(22,583,166	)
Cash paid for distribution of dividends or profits and interest expenses					(57,084	)		(154,809	)		(31,806	)		(152,665	)

Including: Cash payments for dividends or profit to non-controlling shareholders of subsidiaries					(25,508	)		(7,192	)		—			—

Sub-total of cash outflows					(3,132,084	)		(22,369,485	)		(3,474,806	)		(22,735,831	)


Net cash flows used in from financing activities					(1,267,427	)		(1,643,510	)		(1,198,806	)		(1,654,826	)


Effect of foreign exchange rate changes on cash and cash equivalents					2,220			22			—			6


Net increase in cash and cash equivalents					3,373,876			21,863			2,939,617			53,150

Add: Cash and cash equivalents at the beginning of the period		4	(1)		1,077,430			279,198			942,264			186,348


Cash and cash equivalents at the end of the period		4	(1)		4,451,306			301,061			3,881,881			239,498

The accompanying notes form an integral part of these financial statements.




Chairman and General Manager	Director and Chief Financial Officer	Deputy Chief Financial Officer and Accounting Chief

Wang Zhiqing	Ye Guohua	Hua Xin

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2016


(All amounts in thousands of Renminbi Yuan unless otherwise stated) [English Translation for Reference Only]
				Attributable to equity shareholders of the Company															Total shareholders’ equity
				Share		Capital		Specific			Surplus		Undistributed			Non-controlling
Items	Note			capital		surplus		reserve			reserve		profits			interests
Balance at 1 January 2015					10,800,000		493,922		1,265			4,173,831		1,101,605			271,395			16,842,018


Movements for the six months ended 30 June 2015 (unaudited)
Total comprehensive income
Net profit for the period					—		—		—			—		1,731,166			17,294			1,748,460
Employees share option scheme					—		11,901		—			—		—			—			11,901
Appropriation of profits
Distribution to the shareholders		4	(31)		—		—		—			—		—			(10,459	)		(10,459	)
Specific reserve
Accrued		4	(29)		—		—		72,925			—		—			—			72,925
Utilised		4	(29)		—		—		(47,597	)		—		—			—			(47,597	)

Balance at 30 June 2015 (unaudited)					10,800,000		505,823		26,593			4,173,831		2,832,771			278,230			18,617,248


Balance at 1 January 2016					10,800,000		516,624		953			4,493,260		4,028,025			297,038			20,135,900


Movements for the six months ended 30 June 2016 (unaudited)
Total comprehensive income
Net profit for the period					—		—		—			—		3,096,675			5,088			3,101,763
Employees share option scheme		4	(28)		—		11,350		—			—		—			—			11,350
Appropriation of profits
Distribution to the shareholders		4	(31)		—		—		—			—		(1,080,000	)		(25,508	)		(1,105,508	)
Specific reserve
Accrued		4	(29)		—		—		53,343			—		—			—			53,343
Utilised		4	(29)		—		—		(13,902	)		—		—			—			(13,902	)

Balance at 30 June 2016 (unaudited)					10,800,000		527,974		40,394			4,493,260		6,044,700			276,618			22,182,946

The accompanying notes form an integral part of these financial statements.




Chairman and General Manager	Director and Chief Financial Officer	Deputy Chief Financial Officer and Accounting Chief

Wang Zhiqing	Ye Guohua	Hua Xin

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]


													Total
	Share		Capital		Specific			Surplus		Undistributed			shareholders’
Items	capital		surplus		reserve			reserve		profits			equity
Balance at 1 January 2015		10,800,000		493,922		—			4,173,831		938,823			16,406,576


Movements for the six months ended 30 June 2015 (unaudited)
Total comprehensive income
Net profit for the period		—		—		—			—		1,704,947			1,704,947
Employees share option scheme		—		11,901		—			—		—			11,901
Specific reserve
Accrued		—		—		69,960			—		—			69,960
Utilised		—		—		(46,108	)		—		—			(46,108	)
Balance at 30 June 2015 (unaudited)		10,800,000		505,823		23,852			4,173,831		2,643,770			18,147,276

Balance at 1 January 2016		10,800,000		516,624		—			4,493,260		3,813,684			19,623,568

Movements for the six months ended 30 June 2016 (unaudited)
Total comprehensive income
Net profit for the period		—		—		—			—		3,134,109			3,134,109
Employees share option scheme		—		11,350		—			—		—			11,350
Appropriation of profits
Distribution to the shareholders		—		—		—			—		(1,080,000	)		(1,080,000	)
Specific reserve
Accrued		—		—		50,340			—		—			50,340
Utilised		—		—		(12,974	)		—		—			(12,974	)

Balance at 30 June 2016 (unaudited)		10,800,000		527,974		37,366			4,493,260		5,867,793			21,726,393

The accompanying notes form an integral part of these financial statements.




Chairman and General Manager	Director and Chief Financial Officer	Deputy Chief Financial Officer and Accounting Chief

Wang Zhiqing	Ye Guohua	Hua Xin

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

1	General information

Sinopec Shanghai Petrochemical Company Limited (“the Company”), formerly Shanghai Petrochemical Company Limited, was established in the People’s Republic of China (“the PRC”) on 29 June 1993 with registered capital of RMB4,000,000,000, invested by its holding company-China National Petrochemical Corporation; these shares were converted from assets of former Shanghai Petrochemical Complex.

H shares were listed on the Hong Kong Stock Exchange on 26 July 1993, and listed on the New York Stock Exchange in the form of American Depositary Shares at the same time; the A shares were listed on the Shanghai Stock Exchange on 8 November 1993.

Sinopec Group completed its reorganisation on 25 February 2000. After the reorganisation, China Petroleum & Chemical Corporation (“Sinopec Corp.”) was established. As part of the reorganisation, Sinopec Group transferred its 4,000,000,000 of the Company’s state-owned legal shares, which represented 55.56 percent of the issued share capital of the Company, to Sinopec Corp Sinopec Corp. became the largest shareholder of the Company.

The Company changed its name to Sinopec Shanghai Petrochemical Company Limited on 12 October 2000.

As at 30 June 2016, total Share capital of the Company were 10,800,000 thousands, 1 Yuan per share.

The Company and its subsidiaries (“the Group”) is a highly integrated entity which processes crude oil into synthetic fibres, resins and plastics, intermediate petrochemicals and petroleum products.

Details of the Company’s principal subsidiaries are set out in Note 5(1).

These financial statements were authorised for issue by the Board of Directors on 23 August 2016.

2	Summary of significant accounting policies and accounting estimates

The Group determines the accounting policies and accounting estimates based on its production and management features, mainly reflecting in provision for decline in the value of inventories (Note 2(11)), depreciation of fixed assets(Note2(14)), impairment of long-term assets (Note 2(19)), share-based payments (Note 2(23)), revenue recognition (Note 2(25)) and income tax (Note 2(27)) etc.

The key assumptions adopted by the Group in evaluating significant accounting policies and accounting estimates are listed in Note 2(31).

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(1)

Basis of preparation

The financial statements have been prepared in accordance with the Basic Standard and each specific standards of the Accounting Standards for Business Enterprises issued by the Ministry of Finance on 15 February 2006 and subsequent period, and relevant regulations issued thereafter (hereafter referred to as “the Accounting Standard for Business Enterprises” or “CAS”) and disclosure requirements in the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No.15 – General Provisions on Financial Reporting issued by the China Securities Regulatory Commission.

The financial statements are prepared on a going concern basis.

(2)

Statement of compliance with the Accounting Standards for Business Enterprises

The financial statements of the Company for the six months ended 30 June 2016 are in compliance with the Accounting Standards for Business Enterprises, and truly and completely present the financial position as of 30 June 2016 and the operating results, cash flows and other information for the period then ended of the Group and the Company.

(3)

Accounting period

The Company’s accounting year starts on 1 January and ends on 31 December. The financial statements cover period from 1 January 2016 to 30 June 2016.

(4)

Recording currency

The recording currency is Renminbi (RMB).

(5)

Business combinations

(a)

Business combinations involving enterprises under common control

The consideration paid and net assets obtained by the absorbing party in a business combination are measured at the carrying amount. The difference between the carrying amount of the net assets obtained from the combination and the carrying amount of the consideration paid for the combination is treated as an adjustment to capital surplus (share premium). If the capital surplus (share premium) is not sufficient to absorb the difference, the remaining balance is adjusted against retained earnings. Costs directly attributable to the combination are included in profit or loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debt securities for the business combination are included in the initially recognised amounts of the equity or debt securities.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(5)

Business combinations (continued)

(b)

Business combinations involving enterprises not under common control

The cost of combination and identifiable net assets obtained by the acquirer in a business combination are measured at fair value at the acquisition date. Where the cost of the combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognised as goodwill; where the cost of combination is lower than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognised in profit or loss for the current period. Costs directly attributable to the combination are included in profit or loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debt securities for the business combination are included in the initially recognised amounts of the equity or debt securities.

(6)

Preparation of consolidated financial statements

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries.

Subsidiaries are consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary that is acquired in a business combination involving enterprises under common control, it is included in the consolidated financial statements from the date when it, together with the Company, comes under common control of the ultimate controlling party. The portion of the net profits realised before the combination date is presented separately in the consolidated income statement.

In preparing the consolidated financial statements, where the accounting policies and the accounting periods of the Company and subsidiaries are inconsistent, the financial statements of the subsidiaries are adjusted in accordance with the accounting policies and the accounting period of the Company. For subsidiaries acquired from business combinations involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition date.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(6)

Preparation of consolidated financial statements (continued)

All significant intra-group balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion of subsidiaries’ equity and the portion of a subsidiaries’ net profits and losses and comprehensive incomes for the period not attributable to Company are recognised as non-controlling interests, net profit attributed to non-controlling interests and incomes attributed to non-controlling interests and presented separately in the consolidated financial statements under equity, net profits and total comprehensive income respectively. Unrealised profits and losses resulting from the sale of assets by the Company to its subsidiaries are fully eliminated against net profit attributable to owners of the parent. Unrealised profits and losses resulting from the sale of assets by a subsidiary to the Company are eliminated and allocated between net profit attributable to owners of the parent and non-controlling interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealised profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to owners of the parent and non-controlling interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealised profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to owners of the parent and non-controlling interests in accordance with the allocation proportion of the parent in the subsidiary.

If the accounting treatment of a transaction which considers the Group as an accounting entity is different from that considers the Company or its subsidiaries as an accounting entity, it is adjusted from the perspective of the Group.

(7)

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits that can be readily drawn on demand, and short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(8)

Foreign currency translation

Foreign currency transactions

Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions.

At the balance sheet date, monetary items denominated in foreign currencies are translated into RMB using the spot exchange rates on the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currencies that are measured at historical costs are translated into RMB at the balance sheet date using the spot exchange rates at the date of the transactions. The effect of exchange rate changes on cash is presented separately in the cash flow statement.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(9)

Financial instrument

(a)

Financial assets

(i)

Financial assets classification

Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, receivables, available-for-sale financial assets and held-to-maturity investments. The classification of financial assets depends on the Group’s intention and ability to hold the financial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term.

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets on the balance sheet if management intends to dispose of them within 12 months after the balance sheet date.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity. Held-to-maturity investments with maturities over 12 months when the investments were made but are due within 12 months at the balance sheet date are included in the current portion of non-current assets; held-to maturity investments with maturities no more than 12 months when the investments were made are included in other current assets.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(9)

Financial instrument (continued)

(a)

Financial assets (continued)

(ii)

Recognition and measurement

Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, the related transaction costs incurred at the time of acquisition are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initially recognised amounts.

Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method.

Gains or losses arising from change in the fair value of financial assets at fair value through profit or loss are recognised in profit or loss. Interests and cash dividends received during the period in which such financial assets are held, as well as the gains or losses arising from disposal of these assets are recognised in profit or loss for the current period.

Gains or losses arising from change in fair value of available-for-sale financial assets are recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from translation of monetary financial assets. When such financial assets are derecognised, the cumulative gains or losses previously recognised directly into equity are recycled into profit or loss for the current period. Interests on available-for-sale investments in debt instruments calculated using the effective interest method during the period in which such investments are held and cash dividends declared by the investee on available-for-sale investments in equity instruments are recognised as investment income, which is recognised in profit or loss for the period.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(9)

Financial instrument (continued)

(a)

Financial assets (continued)

(iii)

Impairment of financial assets

The Group assesses the carrying amounts of financial assets other than those at fair value through profit or loss at each balance sheet date. If there is objective evidence that a financial asset is impaired, an impairment loss is provided for.

Objective evidence indicating impairment of financial assets refers to the matter that actually occurs after the initial recognition of financial assets, it will affect estimated future cash flows of financial assets, and its impact can be reliably measured.

The objective evidence that indicate the impairment of available-for-sale investment in equity instruments includes a significant or prolonged decline in the fair value of available-for-sale investment in equity instruments. The Group assesses all kinds of available-for-sale investments in equity instruments individually at balance sheet date. Impairment loss should be recognised if the fair value of investments in equity instruments is less than 50% (50% inclusive) of its initial investment cost or in the case that the fair value has been less than the initial investment cost for more than one year (one year inclusive). The Group will consider other relevant factors, such as the price volatility, to determine whether an impairment loss should be recognised for the equity instrument if the decline in the fair value of an equity instrument is more than 20% (20% inclusive) but less than 50% of its initial investment cost.

When an impairment loss on a financial asset carried at amortised cost has occurred, the amount of loss is provided for at the difference between the asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the amount of reversal is recognised in profit or loss.

In the case of impairment of available-for-sale financial assets measured at fair value, the cumulative loss arising from the decline in fair value that had been recognised directly in equity is removed from equity and recognised in impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, it’s fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current year. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, the increase in its fair value in a subsequent period is recognised in equity directly.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(9)

Financial instrument (continued)

(a)

Financial assets (continued)

(iii)

Impairment of financial assets (continued)

If an impairment loss on an available-for-sale financial asset measured at cost incurs, the amount of loss is measured at the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The previously recognised impairment loss will not be reversed in subsequent periods.

(iv)

Derecognition of financial assets

A financial asset is derecognised when it meets one of the following conditions:

•

If the Group’s contractual rights to the cash flows from the financial asset expire.

•

Or if the Group transfers substantially all the risks and rewards of ownership of the financial asset to another party.

•

Or if the Group has neither transferred nor retained substantially all of the risks and rewards of the asset, but the Group has ceased the control over the financial asset.

On derecognition of a financial asset, the difference between the carrying amount and the aggregate consideration received and the accumulative amount of the changes of fair value originally recorded in the shareholders’ equity is recognised in profit or loss.

(b)

Financial liabilities

Financial liabilities are classified into two categories at initial recognition: financial liabilities at fair value through profit or loss and other financial liabilities. The financial liabilities of the Group mainly comprise other financial liabilities, including payables, borrowings.

Payables comprise accounts payables, notes payable and other payables and are recognised at fair value at initial recognition. Payables are measured at amortised cost using the effective interest method.

Borrowings and debentures payable are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(9)

Financial instrument (continued)

(b)

Financial liabilities (continued)

Other financial liabilities with maturities no more than one year are classified as current liabilities. Other financial liabilities with maturities over one year but are due within one year at the balance sheet date are classified as the current portion of non-current liabilities. Others are classified as non-current liabilities.

A financial liability is derecognised or partly derecognised when the current obligation is discharged or partly discharged. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished and the consideration paid, shall be recognised in profit or loss.

(c)

Determination of fair value of financial instruments

The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument that is not traded in an active market is determined by using a valuation technique which is applicable in the current situation and support with enough available data and other information. Valuation techniques mainly include market approach and income approach.

When a valuation technique is used to establish the fair value of a financial instrument, it chooses the inputs which are consistent with the asset or liability’s characteristics considered by market participants in the transaction of the relevant asset or liability and makes the maximum use of relevant observable inputs. Unobservable inputs are used when it is unavailable or impracticable to obtain relevant observable inputs.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(10)

Receivables

Receivables comprise accounts receivable and other receivables. Accounts receivable arising from sale of goods or rendering of services are initially recognised at fair value of the contractual payments from the buyers or service recipients.

(a)

Receivables that are individually significant and subject to separate provision

Receivables with amounts that are individually significant are subject to separate assessment for impairment. If there exists objective evidence that the Group will not be able to collect the amount under the original terms, a provision for impairment of that receivable is made.

Judgement basis or criteria for receivables that are individually significant is over RMB10,000 thousands.

The method of providing for bad debts for those individually significant amounts is as follows: the amount of the present value of the future cash flows expected to be derived from the receivable below its carrying amount.

(b)

Receivables that are combined into certain groups and subject to provision by groups

Receivables with amounts that are not individually significant and those receivables that have been individually assessed for impairment and have not been found impaired are classified into certain groupings based on their credit risk characteristics. The provision for bad debts is determined based on the historical loss experience for the groupings of receivables with similar credit risk characteristics, taking into consideration of the current circumstances.

Basis for determination of groups is as follows:


Group Name		Criteria
Group 1		Groups of receivables with similar credit risk characteristics
Group 2		Receivables for related parties except for the accounts receivables that are
		individually significant and subject to separate provision

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(10)

Receivables (continued)

(b)

Receivables that are combined into certain groups and subject to provision by groups (continued)

Methods of determining provision for bad debts by groupings are as follows:


Group Name		Method for provision
Group 1		Ageing analysis method
Group 2		Percentage of bad debt provision is 0%

Ratios of provision for bad debts used in the ageing analysis method for groups are as follows:


	Provisions as a percentage of accounts receivable			Provisions as a percentage of other receivables
Within one year		—			—
Over one year but within two years		30	%		30	%
Over two years but within three years		60	%		60	%
Over three years		100	%		100	%

(c)

Receivables that are individually insignificant but subject to separate provision

The reason for making separate assessment for provision for bad debts is that there exists objective evidence that the Group will not be able to collect the amount under the original terms of the receivable.

The provision for bad debts is determined based on the amount of the present value of the future cash flows expected to be derived from the receivable below its carrying amount.

(d)

When the Group transfers the accounts receivable to the financial institutions without recourse, the difference between the proceeds received from the transaction and their carrying amounts and the related taxes is recognised in profit or loss for the current period.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(11)

Inventories

(a)

Categories of inventories

Inventories include raw materials, work in progress, finished goods, spare parts and consumables, and are measured at the lower of cost and net realisable value.

(b)

Measurement of cost of inventories

Cost is determined using the weighted average method. The cost of finished goods and work in progress comprise raw materials, direct labour and systematically allocated production overhead based on the normal production capacity.

(c)

Basis for determining net realisable value of inventories and method of provision for impairment of inventories

Provision for decline in the value of inventories is determined at the excess amount of the carrying amounts of the inventories over their net realisable value. Net realisable value is determined based on the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.

(d)

The Group adopts the perpetual inventory system.

(e)

Amortisation methods for low-value consumables

Low-value consumables are expensed upon issuance.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(12)

Long-term equity investments

Long-term equity investments comprise the Company’s long-term equity investments in its subsidiaries, the Group’s long-term equity investments in its joint ventures and associates

Subsidiaries are the investees over which the Company is able to exercise control. A joint venture is a joint arrangement which is structured through a separate vehicle over which the Group has joint control together with other parties and only has rights to the net assets of the arrangement based on legal forms, contractual terms and other facts and circumstances. An associate is the investee over which the Group has significant influence by participating in the financial and operating policy decisions.

Investments in subsidiaries are presented in the Company’s financial statements using the cost method, and are adjusted to the equity method when preparing the consolidated financial statements. Investments in joint ventures and associates are accounted for using the equity method.

(a)

Initial recognition

For long-term equity investments acquired through a business combination: The initial investment cost of a long-term equity investment obtained through a business combination involving enterprises under common control is the Company’s share of the carrying amount of the subsidiary’s equity at the combination date. For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost is the combined cost issued by the Company, in exchange for control of the acquire.

For long-term equity investment acquired other than through a business combination, the initial investment cost is recognised at the actual consideration paid if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities.

(b)

Subsequent measurement

Under the cost method of accounting, long-term equity investments are measured at initial investment cost, investment income is recognised in profit or loss for the cash dividends or profit distribution declared by the investee.

For long-term equity investments accounted for using the equity method, where the initial investment cost exceeds the fair value of the Group’s share of the investee’s identifiable net assets at the time of acquisition, the investment is initially measured at cost; Where the initial investment cost is less than the fair value of the Group’s share of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current period and the cost of the long-term equity investment is adjusted upwards accordingly.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(12)

Long-term equity investments (continued)

(b)

Subsequent measurement (continued)

Under the equity method of accounting, the Group recognises the investment income according to its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term interests that, in substance, form part of the investor’s net investment in the investee are reduced to zero. However, if the Group has obligations for additional losses and the criteria with respect to recognition of provisions under the accounting standards on contingencies are satisfied, the Group continues recognising the investment losses and the provisions. For changes in shareholders’ equity of the investee other than those arising from its net profit or loss, the Group records its proportionate share directly into capital surplus, provided that the Group’s proportion of shareholding in the investee remains unchanged. The carrying amount of the investment is reduced by the Group’s share of the profit distribution or cash dividends declared by an investee. The unrealised profits or losses arising from the intra-group transactions amongst the Group and its investees are eliminated in proportion to the Group’s equity interest in the investees, and then based on which the investment gain or losses are recognised. For the loss on the intra-group transaction amongst the Group and its investees attributable to asset impairment, and the related unrealised loss is not eliminated.

(c)

Definition of control, joint control or significant influence over the investees

Control refers to the power to govern the financial and operating policies of an investee, so as to obtain benefits from their operating activities. In determining whether the Company is able to exercise control over the investee, the effect of potential voting rights of the investee shall be considered, such as convertible debts and warrants currently exercisable.

Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control.

Significant influence refers to the power to participate in making decisions on the financial and operating policies of an enterprise, but not the power to control, or jointly control, the formulation of such policies with other parties.

(d)

Impairment of long-term equity investments

The carrying amounts of long-term equity investments in subsidiaries, joint ventures and associates are reduced to the recoverable amounts when the recoverable amounts are below their carrying amounts (Note 2 (19)).

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(13)

Investment properties

Investment properties, including land use rights that have already been leased out, buildings that are held for the purpose of leasing and buildings that is being constructed or developed for future use for leasing, are measured initially at cost. Subsequent expenditures incurred in relation to an investment property are included in the cost of the investment property when it is probable that the associated economic benefits will flow to the Group and their costs can be reliably measured; otherwise, the expenditures are recognised in profit or loss in the period in which they are incurred.

The Group adopts the cost model for subsequent measurement of investment properties. Buildings and land use rights are depreciated or amortised to their estimated net residual values over their estimated useful lives. The estimated useful lives, the estimated net residual values that are expressed as a percentage of cost and the annual depreciation rates of investment properties are as follows:


	Estimated useful lives	Estimated net residual values			Annual depreciation rates
Buildings	30-40 years		3	%	2.43%-3.23%

When an investment property is transferred to owner-occupied properties, it is reclassified as fixed asset or intangible asset at the date of the transfer. When an owner-occupied property is transferred out for earning rentals or for capital appreciation, the fixed asset or intangible asset is reclassified as investment properties at its carrying amount at the date of the transfer. The carrying amount before is deemed as the entry value after at the time of the transfer.

The investment property’s estimated useful life, net residual value and depreciation method applied are reviewed and adjusted as appropriate at each year-end.

An investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The net amount of proceeds from sale, transfer, retirement or damage of an investment property after its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.

When the recoverable amount of investment properties is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2 (19)).

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(14)

Fixed assets

(a)

Recoginition and initial measurement of fixed assets

Fixed assets comprise buildings, plant and machinery, vehicles and other equipment, etc.

Fixed asset is recognized when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. Fixed assets purchased or constructed by the Group are initially measured at cost at the time of acquisition. The fixed assets injected by the state-owned shareholder during the restructuring were initially recorded at the valuated amount approved by the relevant authorities managing state-owned assets.

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. The carrying amount of the replaced part is derecognised. All the other subsequent expenditures are recognised in profit or loss in the period in which they are incurred.

(b)

Depreciation methods of fixed assets

Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets that have been provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.

The estimated useful lives, the estimated residual values expressed as a percentage of cost and the annual depreciation rates of fixed assets are as follows:


	Estimated useful lives		Estimated net residual values		Annual depreciation rates
Buildings		12-40 years		0%-5%		2.4%-8.3%
Plant and machinery		12-20 years		0%-5%		4.8%-8.3%
Vehicles and other equipment		4-20 years		0%-5%		4.8%-25.0%

The estimated useful life, the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted as appropriate at each year-end.

(c)

When the recoverable amount of fixed assets is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2 (19)).

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(14)

Fixed assets (continued)

(d)

Disposal of fixed assets

A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds from disposals on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.

(15)

Construction in progress

Construction in progress is measured at actual cost. Actual cost comprises construction costs, installation costs, borrowing costs that are eligible for capitalisation and other costs necessary to bring the fixed assets ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month. When the recoverable amount of construction in progress is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2 (19)).

(16)

Borrowing costs

The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that needs a substantially long period of time for its intended use commence to be capitalised and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalisation of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use and the borrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed.

For the specific borrowings obtained for the acquisition or construction of a fixed asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by deducting any interest income earned from depositing the unused specific borrowings in the banks or any investment income arising on the temporary investment of those borrowings during the capitalisation period.

For the general borrowings obtained for the acquisition or construction of a fixed asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by applying the weighted average effective interest rate of general borrowings, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specific borrowings. The effective interest rate is the rate at which the estimated future cash flows during the period of expected duration of the borrowings or applicable shorter period are discounted to the initial amount of the borrowings.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(17)

Intangible assets

Intangible assets include land use rights and patents, and are measured at cost. The intangible assets injected by the state-owned shareholder during the restructuring were initially recorded at the valuated amount approved by the relevant authorities managing state-owned assets.

(a)

Land use rights

Land use rights are amortised on the straight-line basis over their approved use period of 30-50 years. If the acquisition costs of the land use rights and the buildings located thereon cannot be reasonably allocated between the land use rights and the buildings, all of the acquisition costs are recognised as fixed assets.

(b)

Patents

Patents are amortised on a straight-line basis over the patent protection period of 10-28 years as stipulated by the laws.

(c)

Periodical review of useful life and amortisation method

For an intangible asset with a finite useful life, review of its useful life and amortisation method is performed at each year-end, with adjustment made as appropriate.

(d)

Research and development

The expenditure on an internal research and development project is classified into expenditure on the research phase and expenditure on the development phase based on its nature and whether there is material uncertainty that the research and development activities can form an intangible asset at end of the project.

Expenditure on the research phase is recognised in profit or loss in the period in which it is incurred. Expenditure on the development phase is capitalised only if all of the following conditions are satisfied:

•

it is technically feasible to complete the research and development project so that it will be available for use or sale;

•

management intends to complete the research and development project, and use or sell it;

•

it can be demonstrated how the research and development project will generate economic benefits;

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(17)

Intangible assets (continued)

(d)

Research and development (continued)

•

there are adequate technical, financial and other resources to complete the development and the ability to use or sell the research and development project; and

•

the expenditure attributable to the research and development project during its development phase can be reliably measured.

Other development expenditures that do not meet the conditions above are recognised in profit or loss in the period in which they are incurred. Development costs previously recognised as expenses are not recognised as an asset in a subsequent period. Capitalised expenditure on the development phase is presented as development costs in the balance sheet and transferred to intangible assets at the date that the asset is ready for its intended use.

(e)

Impairment of intangible assets

When the recoverable amount of an intangible asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2 (19)).

(18)

Long-term prepaid expenses

Long-term prepaid expenses mainly include the catalyst expenditures, leasehold improvements and other expenditures that have been incurred but should be recognised as expenses over more than one year in the current and subsequent periods. Long-term prepaid expenses with the book value net of estimated residual value are amortised on the straight-line basis over the expected beneficial periods and are presented at actual expenditure net of accumulated amortisation.

Catalyst expenditures are amortised on a straight-line method within 2 to 5 years.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(19)

Impairment of long-term assets

Fixed assets, construction in progress, intangible assets with finite useful lives, long-term prepaid expenses, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that the assets may be impaired at the balance sheet date; intangible assets which are not ready for their intended use should be tested for impairment at least on an annual basis, irrespective of whether there is any indication that it may be impaired. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognised on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.

Once the above asset impairment loss is recognised, it will not be reversed for the value recovered in the subsequent periods.

(20)

Safety production costs

According to the decision of the State Council on Further Strengthing the work of production safety (Guofa No.2 2004), Shanghai Municipal Government to implement the State Council on Further Strengthening corporate safety work notice (Hufufa No.35 2010) and Safe production costs extraction and use of management practices (Caiqi No.16 2012) issued by the Ministry of Finance and the national production safety supervision administration on 2 February 2012, The Group extracted safety production costs in a certain percentage of sales revenue from the dangerous goods in previous year, which is used for safety costs.

The safety production costs, accrued in accordance with the above regulations, shall be charged in relevant costs or profit and loss, and in the specific reserve. Safety production costs, which belong to expenses, directly offset the special reserves. If the costs formed into fixed assets, the special reserves shall be offset according to the cost forming into fixed assets, and recognize the same amount of accumulated depreciation. This fixed asset shall no longer accrue depreciation in the following period.

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(21)

Employee benefits

Employee benefits include short-term employee benefits, post-employment benefit and termination benefits provided in various forms of consideration in exchange for service rendered by employees or compensations for the termination of employment relationship.

(a)

Short-term employee benefits

Short-term employee benefits include employee wages or salaries, bonus, allowances and subsidies, staff welfare, premiums or contributions on medical insurance, work injury insurance and maternity insurance, housing funds, union running costs and employee education costs, short-term paid absences. The employee benefit liabilities are recognised in the accounting period in which the service is rendered by the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevant assets. Employee benefits which are non-monetary benefits are measured at fair value.

(b)

Post-employment benefits

The Group classifies post-employment benefit plans as either defined contribution plans or defined benefit plans. Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into a separate fund and will have no obligation to pay further contributions; and Defined benefit plans are post-employment benefit plans other than defined contribution plans. During the reporting period, the Group’s post-employment benefits mainly include basic pensions, unemployment insurance and supplemental basic pensions, all of which belong to the defined contribution plans.

Basic pensions

Employees of the Group participate in the defined basic pension insurance plan set up and administered by local labour and social protection authorities. Monthly payments of premiums on the basic pensions are calculated according to prescribed bases and percentage by the relevant local authorities. When employees retire, the relevant local authorities are obliged to pay the basic pensions to them. The amounts based on the above calculations are recognised as liabilities in the accounting period in which the service has been rendered by the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevant assets.

100

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(21)

Employee benefits (continued)

(c)

Termination benefits

When the Group terminates the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognised in profit or loss when both of the following conditions are satisfied:

•

The Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly.

•

The Group is not allowed to withdraw from termination plan or redundancy offer unilaterally.

Termination benefits expected to be paid in one year are listed as current liabilities.

(22)

Profit distribution

Proposed profit distribution is recognised as a liability in the period in which it is approved by the Shareholders’ meeting.

(23)

Share-based payments

(a)

Types of Share-based payment

The term “share-based payment” refers to a transaction in which an enterprise grants equity instruments or undertakes equity-instrument-based liabilities in return for services from employee or other parties. Equity instruments include equity instruments of the Company itself or its subsidiaries.

Equity-settled share-based payment transactions

The Group’s share option incentive plans are equity-settled share-based payments and are measured at fair value of equity instruments granted to employees on the date of the grant. If the right cannot be exercised until the vesting period comes to an end and until the prescribed performance conditions are met, then within the vesting period, the services obtained in the current period shall, based on the best estimate of the number of vested equity instruments, be included in the relevant costs or expenses and the capital reserves shall be increased accordingly at the fair value of the equity instruments on the date of the grant. If the subsequent information indicates that the number of vested equity instruments is different from the previous estimate, an adjustment shall be made and on the vesting date, and the estimate shall be adjusted to equal the number of the actually vested equity instruments. On the vesting date, an enterprise shall, based on the number of the equity instruments of which the right is actually exercised, confirm share capital and share premium, and carry forward the capital surplus recognised within the vesting period.

101

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(23)

Share-based payments (continued)

(b)

Method for determining the fair value of share options

The Group uses Black-Scholes valuation model to determine the fair value of the share options.

(c)

Estimate basis of the the number of options

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. As at the vesting date, the estimates of the number of options should be same with the actual exercised number.

(d)

Accounting treatment for share-based payments exercise

When the options are exercised at the vesting date, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (and share premium).

(24)

Provisions

Provisions for contingent liabilities etc. are recognised when the Group has a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably.

A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency, such as the risks, uncertainties and the time value of money, are taken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value of money is material, the best estimate is determined by discounting the related future cash outflows. The increase in the discounted amount of the provision arising from passage of time is recognised as interest expense.

The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate.

102

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(25)

Revenue recognition

The amount of revenue is determined in accordance with the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of discounts and returns.

Revenue is recognised when the economic benefits associated with the transaction will flow to the Group, the related revenue can be reliably measured, and the specific revenue recognition criteria have been met for each type of the Group’s activities as described below:

(a)

Sale of goods

Revenue from sale is recognised when all of the general conditions stated above and the following conditions are satisfied: the significant risks and rewards of ownership of goods have been transferred to the buyer, as well as the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. The Group recognises revenue when goods are sent to designated place and confirmed receipt by customers according to the terms of contract.

(b)

Rendering of services

The Group provides service to external parties. The related revenue is recognised using the percentage of completion method, with the stage of completion being determined based on proportion of costs incurred to date to the estimated total costs.

(c)

Transfer of asset use rights

Interest income is determined by using the effective interest method, based on the length of time for which the Group’s cash is used by others.

Income from an operating lease is recognised on a straight-line basis over the period of the lease.

103

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(26)

Government grants

Government grants are transfers of monetary or non-monetary assets from the government to the Group at nil consideration, including refund of taxes and financial subsidies, etc.

A government grant is recognised when the conditions attached to it can be complied with and the government grant can be received. For a government grant in the form of transfer of monetary assets, the grant is measured at the amount received or receivable. For a government grant in the form of transfer of non-monetary assets, it is measured at fair value; if the fair value is not reliably determinable, the grant is measured at nominal amount.

A government grant related to an asset means grant that used for acquisition, construction or otherwise to form long-term assets. A government grant related to income is grant in addition to government grant related to an asset.

A government grant related to an asset is recognised initially as deferred income and amortised to profit or loss on a straight-line basis over the useful life of the asset. A grant measured at nominal amount is recognised in profit or loss for the period immediately.

A government grant related to income that compensates the Group for expenses to be incurred in the subsequent periods is recognised initially as deferred income and recognised in profit or loss in the same periods in which the expenses are recognised. A grant that compensates the Group for expenses incurred is recognised in profit or loss immediately.

(27)

Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred tax asset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.

Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilised.

104

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(27)

Deferred tax assets and deferred tax liabilities (continued)

Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, associates and joint ventures will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilised, the corresponding deferred tax assets are recognised.

Deferred tax assets and liabilities are offset when:

•

the deferred taxes are related to the same tax payer within the Group and the same taxation authority; and,

•

that tax payer within the Group has a legally enforceable right to offset current tax assets against current tax liabilities.

(28)

Leases

A lease that in substance transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease. Lease payments under an operating lease are recognised on a straight-line basis over the period of the lease, and are either capitalised as part of the cost of related assets, or charged as an expense for the current period.

(29)

Related parties

If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control or joint control from another party, they are considered to be related parties. Related parties may be individuals or enterprises. Enterprises with which the Company is under common control only from the State and that have no other related party relationships are not regarded as related parties of the Group. Related parties of the Group and the Company include, but are not limited to:

105

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(29)

Related parties (continued)

the Company’s parent;

the Company’s subsidiaries;

enterprises that are controlled by the Company’s parent;

investors that have joint control or exercise significant influence over the Group;

enterprises or individuals if a party has control or joint control over both the enterprises or individuals and the Group;

joint ventures of the Group, including subsidiaries of joint ventures;

associates of the Group, including subsidiaries of associates;

principal individual investors of the Group and close family members of such individuals;

key management personnel of the Group and close family members of such individuals;

key management personnel of the Company’s parent company;

close family members of key management personnel of the Company’s parents; and

other enterprises that are controlled or jointly controlled by principal individual investors, key management personnel of the Group, or close family members of such individuals.

In addition to the related parties stated above determined in accordance with the requirements of CAS, the following enterprises and individuals(but not limited to) are considered as related parties based on the disclosure requirements of Administrative Procedures on the Information Disclosures of Listed Companies issued by the CSRC:

enterprises or individuals that act a concert, that hold 5% or more of the Company’s shares;

individuals who directly or indirectly hold more than 5% of the Company’s shares and their close family members, supervisors of the listed companies and their close family members;

enterprises that satisfied any of the aforesaid conditions in (a), (c) or (m) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement;

individuals who satisfied any of the aforesaid conditions in (i), (j) or (n) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement; and

enterprises, other than the Company and the subsidiaries controlled by the Company, which are controlled directly or indirectly by an individual defined in (i), (j), (n) or (p), or in which such an individual assumes the position of a director or senior executive.

106

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(30)

Segment information

The Group identifies operating segments based on the internal organisation structure, management requirements and internal reporting system, and discloses segment information of reportable segments which is determined on the basis of operating segments.

An operating segment is a component of the Group that satisfies all of the following conditions: (1) the component is able to earn revenue and incur expenses from its ordinary activities; (2) whose operating results are regularly reviewed by the Group’s management to make decisions about resources to be allocated to the segment and to assess its performance, and (3) for which the information on financial position, operating results and cash flows is available to the Group. If two or more operating segments have similar economic characteristics and satisfy certain conditions, they are aggregated into one single operating segment.

(31)

Significant accounting policies and accounting estimates

The Group continually evaluates the critical accounting estimates and key judgments applied based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

The critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting year are outlined below:

(i)

Estimated useful life and residual value of fixed assets

The Group assessed the reasonableness of estimated useful life of fixed assets in line with the historical experience on the basis of similar function or characteristic for the assets. If there are significant changes in estimated useful lives and residual value from previous years, the depreciation expenses for future periods are adjusted.

The Group reviews and adjusts the useful lives and estimated residual value of the assets regularly at the end of each year end.

(ii)

Impairment of long-term assets

Long-term assets are reviewed for impairment at each balance sheet date when events or changes in circumstance have indicated that their carrying amounts may not be recoverable. If any such evidence indicated that their carrying amounts may not be recoverable, the carrying amounts exceed the recoverable amounts would be recognized as impairment loss and accounted in current profit or loss.

107

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

2	Summary of significant accounting policies and accounting estimates (continued)

(31)

Significant accounting policies and accounting estimates (continued)

(ii)

Impairment of long-term assets (continued)

The recoverable amount of an asset (or an asset group) is the greater of its net selling price and its present value of expected future cash flows. In assessing value in use, significant judgements are exercised over the assets’ (or the asset group’s) production and sales, selling prices, related operating expenses and discount rate to calculate the present value. All relevant materials which can be obtained are used for estimation of the recoverable amount, including the estimation of the production, selling prices and related operating expenses based on reasonable and supportable assumptions.

(iii)

Inventory provision

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 represents 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. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical cost of sales. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated.

(iv)

Income taxes

There are many transactions and events for which the ultimate tax determination is uncertain during the ordinary course of business. Significant judgment is required from the Group in determining the provision for income taxes in each of these jurisdictions. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

In addition, the Group recognises deferred tax assets only to the extent that it is probable that future taxable profit will be available against the assets which can be realised or utilized. If profit forecasts deviate from original estimates, the deferred tax assets will need to be adjusted in future, which has significant impact on profit.

In making the assessment of whether it is probable the Group will realise or utilise the deferred tax assets, management primarily relies on the generation of future taxable income to support the recognition of deferred tax assets. In order to fully utilise the deferred tax assets recognised at 30 June 2016, the Group would need to generate future taxable income of at least RMB351 million (unaudited). Based on estimated forecast and historical experience, management believes that it is probable that the Group will generate sufficient taxable income.

108

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

3	Taxation

(1)

The main categories and rates of taxes applicable to the Group are set out below:


Category	Tax base	Tax rate
Enterprise income tax	Taxable income		25%
Value-added tax (“VAT”) (a)	Taxable value-added amount (Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less deductible VAT input of the current period)		6%, 11%, 13% and 17%
Business tax (a)	Taxable turnover amount		5%
Consumption tax	Taxable sales amount		Gasoline: RMB2,110 per ton;
			diesel oil: RMB1,411 per ton
City maintenance and construction tax	Consumption tax payable, business tax payable and VAT payable		1% and 7%

(a)

Revenue from transportation industry, modern service industry, tangible asset leasing, port service and warehousing service are subject to VAT, the applicable tax rate of revenue from tangible assets leasing is 17%, revenue from transportation industry is 11%, and revenue from modern service, port service and warehousing service income is 6%.

4	Notes to the consolidated financial statements

(1)

Cash at bank and on hand


	30 June 2016 (unaudited)		31 December 2015
Cash on hand		5		7
Cash at bank		4,450,725		1,077,229
Other monetary funds		576		194
		4,451,306		1,077,430

109

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(2)

Notes receivable


	30 June 2016 (unaudited)		31 December 2015
Trade acceptance notes		4,777		4,680
Bank acceptance notes		1,173,276		1,002,693
		1,178,053		1,007,373

All of the above notes held are short-term acceptance notes due within six months. No notes receivables, included in the above, were transferred to accounts receivable due to non-performance of the issuers for the six months ended 30 June 2016 (unaudited).

(a)

As at 30 June 2016, the Group has no notes receivable which are pledged for the issuance of letters of credit (unaudited) (31 December 2015: Nil).

(b)

As at 30 June 2016, the Group’s endorsed or discounted notes receivable which are still undue are as follows (unaudited):


	Derecognised		Not derecognised
Bank acceptance notes		1,090,757		—

(3)

Dividends receivable


	30 June 2016 (unaudited)		31 December 2015
BOC-SPC Gases Company Limited (“BOC-SPC”)		27,500		—

110

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(4)

Accounts receivable


	30 June 2016 (unaudited)			31 December 2015
Amounts due from related parties (Note 7(6))		1,108,429			1,136,011
Amounts due from third parties		1,086,643			488,584
		2,195,072			1,624,595
Less: Provision for bad debts		(17	)		(24	)
		2,195,055			1,624,571

(a)

The ageing of accounts receivable is analysed as follows:


	30 June 2016 (unaudited)			31 December 2015
Within one year		2,195,035			1,624,530
Over one year but within two years		26			55
Over two years but within three years		6			7
Over three years		5			3
		2,195,072			1,624,595
Less: Provision for bad debts		(17	)		(24	)
		2,195,055			1,624,571

As at 30 June 2016, the Group has no any significant overdue accounts receivable (unaudited) (31 December 2015: Nil).

111

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(4)

Accounts receivable (continued)

(b)

Accounts receivable by categories are analysed as follows:


	30 June 2016 (unaudited)								31 December 2015
	Gross carrying amount				Provision for bad debts				Gross carrying amount				Provision for bad debts
	Amount		Percentage (%)		Amount		Percentage (%)		Amount		Percentage (%)		Amount		Percentage (%)
Individually significant and subject to separate provision		—		—		—		—		—		—		—		—
Subject to provision by groups:
- Group 1		1,086,643		49.50		17		0.01		488,584		30.07		24		0.01
- Group 2		1,108,429		50.50		—		—		1,136,011		69.93		—		—
Individually insignificant but subject to separate provision		—		—		—		—		—		—		—		—
		2,195,072		100.00		17		—		1,624,595		100.00		24		—

Classification of accounts receivable: refer to Note 2(10(b)).

(c)

Subject to provision by Group 1 are as follows:


	30 June 2016 (unaudited)						31 December 2015
	Gross carrying amount		Provision for bad debts				Gross carrying amount		Provision for bad debts
	Amount		Amount		Percentage (%)		Amount		Amount		Percentage (%)
Within one year		1,086,606		—		—		488,519		—		—
Over one year but within two years		26		8		30.00		55		17		30.00
Over two years but within three years		6		4		60.00		7		4		60.00
Over three years		5		5		100.00		3		3		100.00
		1,086,643		17		—		488,584		24		—

There are no collateral over the above accounts receivable with provision for bad debts (unaudited).

112

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(4)

Accounts receivable (continued)

(d)

During the period, the Group assessed the impairment on an individual basis in accordance with the accounting policy as described in Note 2(10), and there were no provision for accounts receivable that are individually significant or insignificant but assessed for impairment individually (unaudited).

(e)

During the period, the Group had no accounts receivable with fully or substantially write-off or write-back of bad debts which had been fully or substantially provided for in prior years (unaudited).

(f)

There are no significant accounts receivable that are written off during the current period (unaudited).

(g)

As at 30 June 2016, the top five accounts receivable by borrowers are summarised as follows (unaudited):


	Amount		Provision for bad debts		Percentage of total accounts receivable (%)
Total top five accounts receivable		1,429,851		—		65.14	%

(h)

Accounts receivable derecognised due to the transfer of financial assets this period amounted to RMB1,176,930 thousands (unaudited) (for the six months ended 30 June 2015: RMB382,109 thousands (unaudited)), the relating amount recorded in financial expenses was RMB3,495 thousands (unaudited) (for the six months ended 30 June 2015: RMB433 thousands (unaudited)).

(i)

As at 30 June 2016, the Group had no accounts receivable which are pledged for the issuance of letters of credit (31 December 2015: Nil).

(5)

Other receivables


	30 June 2016 (unaudited)			31 December 2015
Amounts due from related parties (Note 7(6))		15,455			4,052
Receivables from the third parties		27,416			26,243
		42,871			30,295
Less: Provision for bad debts		(1,107	)		(1,245	)
		41,764			29,050

113

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(5)

Other receivables (continued)

(a)

The ageing of other receivables is analysed as follows:


	30 June 2016 (unaudited)			31 December 2015
Within one year		41,729			29,050
Over one year but within two years		50			—
Over two years but within three years		—			—
Over three years		1,092			1,245
		42,871			30,295
Less: Provision for bad debts		(1,107	)		(1,245	)
		41,764			29,050

As at 30 June 2016, the Group has no any significant overdue other receivables (unaudited) (31 December 2015: Nil).

(b)

Other receivables by categories are analysed as follows:


	30 June 2016 (unaudited)								31 December 2015
	Gross carrying amount				Provision for bad debts				Gross carrying amount				Provision for bad debts
	Amount		Percentage (%)		Amount		Percentage (%)		Amount		Percentage (%)		Amount		Percentage (%)
Individually significant and subject to separate provision		—		—		—		—		—		—		—		—
Subject to provision by groups:
- Group 1		27,416		63.95		1,107		4.04		26,243		86.62		1,245		4.74
- Group 2		15,455		36.05		—		—		4,052		13.38		—		—
Individually insignificant but subject to separate provision		—		—		—		—		—		—		—		—
		42,871		100.00		1,107		—		30,295		100.00		1,245		—

Classification of other receivable: refer to Note 2 (10(b)).

114

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(5)

Other receivables (continued)

(c)

The groups of other receivable in which provisions are made using ageing analysis method are analysed as follows:


	30 June 2016 (unaudited)						31 December 2015
	Gross carrying amount		Provision for bad debts				Gross carrying amount		Provision for bad debts
	Amount		Amount		Percentage (%)		Amount		Amount		Percentage (%)
Within one year		26,274		—		—		24,998		—		—
Over one year but within two years		50		15		30.00		—		—		—
Over two years but within three years		—		—		—		—		—		—
Over three years		1,092		1,092		100.00		1,245		1,245		100.00
		27,416		1,107		—		26,243		1,245		—

(d)

During the period, the Group assessed the impairment on an individual basis in accordance with the accounting policy as described in Note 2(10), and there were no provision for other receivables that are individually significant or insignificant but assessed for impairment individually (unaudited).

(e)

During the period, the Group had no material other receivables with fully or substantially write-off or write-back of bad debts which had been fully or substantially provided for in prior years (unaudited).

(f)

There are no significant other receivables that are written off during the current period (unaudited).

(g)

As at 30 June 2016, the top five other receivables are as follows (unaudited):


	Nature		Amount		Ageing		Percentage of total other receivables			Provision for bad debts
Jiaxing Customs		Export tax refund		8,447		Within one year		19.70	%		—
BOC-SPC		Business transaction		7,085		Within one year		16.53	%		—
Sinopec-SK (Wuhan) Petrochemical Company Limited		Business transaction		6,505		Within one year		15.17	%		—
Jinshan Customs		Export tax refund		5,962		Within one year		13.91	%		—
Shanghai Jinshan Petrochemical Logistics Co., Ltd.		Business transaction		4,016		Within one year		9.37	%		—
				32,015				74.68	%

115

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(6)

Advances to suppliers


	30 June 2016 (unaudited)		31 December 2015
Amounts advance to related parties (Note 7(6))		32,969		6,966
Amounts advance to third parties		5,506		8,165
		38,475		15,131

(a)

The ageing of advances to suppliers is analysed as follows:

30 June 2016 (unaudited)

31 December 2015

Amount

Percentage (%)

Amount

Percentage (%)

Within one year

38,475

100.00

15,131

100.00

(b)

As at 30 June 2016, the top five advances to suppliers are summarised as follows (unaudited):


	Amount		Percentage of total advances to suppliers (%)
Total top five advances to suppliers		36,761		95.55	%

116

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(7)

Inventories

(a)

Inventories by categories are as follows:


	30 June 2016 (unaudited)							31 December 2015
	Gross carrying amount		Provision for declines in the value of inventories			Carrying amount		Gross carrying amount		Provision for declines in the value of inventories			Carrying amount
Raw materials		2,682,672		(1,564	)		2,681,108		2,517,806		(1,564	)		2,516,242
Work in progress		982,610		(30,488	)		952,122		898,694		(28,081	)		870,613
Finished goods		822,606		(14,837	)		807,769		554,171		(25,424	)		528,747
Spare parts and consumables		284,802		(93,913	)		190,889		332,652		(70,066	)		262,586
		4,772,690		(140,802	)		4,631,888		4,303,323		(125,135	)		4,178,188

(b)

Provision for declines in the value of inventories is analysed as follows:


	31 December 2015		Increases		Decreases Sold			30 June 2016 (unaudited)
Raw materials		1,564		—		—			1,564
Work in progress		28,081		14,097		(11,690	)		30,488
Finished goods		25,424		—		(10,587	)		14,837
Spare parts and consumables		70,066		23,847		—			93,913
		125,135		37,944		(22,277	)		140,802

117

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(7)

Inventories (continued)

(c)

Provision for declines in the value of inventories are analysed as follows:


	Basis for determining net realisable value	Reason for sold (unaudited)
Raw materials	The estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.	Not available
Work in progress	Same as above	Sold in current period
Finished goods	The estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale and related taxes.	Sold in current period
Spare parts and consumables	Same as above	Not available

(8)

Other current assets


	30 June 2016 (unaudited)		31 December 2015
Entrusted lendings due within one year		88,000		106,000
Long-term prepaid expenses – the current part (Note 4(14))		59,240		86,481
VAT deductible		22,170		17,265
		169,410		209,746

118

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(9)

Long-term equity investments


	30 June 2016 (unaudited)		31 December 2015
Joint ventures (a)		177,547		236,983
Associates (b)		3,442,242		3,234,156
		3,619,789		3,471,139
Less: Provision for impairment of long-term equity investment		—		—
		3,619,789		3,471,139

There are no significant restrictions over the realisation of the Group’s long-term equity investment.

(a)

Joint ventures


	31 December 2015		Current period movement										30 June 2016 (unaudited)
	31 December 2015		Additional/ negative investment		Net profit/(loss) adjusted by equity method			Cash dividends declared in current period			Impairment provided in current period		30 June 2016 (unaudited)
Joint ventures of subsidiaries
Shanghai Jinpu Plastic Packing Materials Company Limited (“Jinpu”)		39,981		—		(36,732	)		—			—		3,249
Shanghai Petrochemical Yangu Gas Development Company Limited (“Yangu Gas”)		52,483		—		(1,893	)		(600	)		—		49,990
BOC-SPC		144,519		—		12,914			(33,125	)		—		124,308
		236,983		—		(25,711	)		(33,725	)		—		177,547

Interests in joint ventures, refer to Note 5(2).

119

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(9)

Long-term equity investments (continued)

(b)

Associates


			Current period movement
	31 December 2015		Additional/ negative investment		Net profit/(loss) adjusted by equity method			Cash dividends declared in current period			Impairment provided in current period		30 June 2016 (unaudited)
Associates of the Company
Shanghai Secco		1,778,760		—		335,951			(178,200	)		—		1,936,511
Shanghai Chemical Industry Park Development Company Limited (“Chemical Industry Park”)		1,280,859		—		61,460			—			—		1,342,319

Associates of subsidiaries
Shanghai Jinsen Hydrocarbon Resins Company Limited (“Jinsen”)		82,794		—		(1,866	)		(2,936	)		—		77,992
Shanghai Azbil Automation Company Limited (“Azbil”)		44,926		—		2,978			(7,200	)		—		40,704
Others		46,817		—		3,933			(6,034	)		—		44,716
		3,234,156		—		402,456			(194,370	)		—		3,442,242

Interests in associates, refer to Note 5(2).

120

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(10)

Investment properties


	Buildings
Cost
30 June 2016 (unaudited) and 31 December 2015		556,883

Accumulated depreciation
31 December 2015		151,311
Depreciation charged in current period		6,778
30 June 2016 (unaudited)		158,089

Carrying amount
30 June 2016 (unaudited)		398,794
31 December 2015		405,572

For the six months ended 30 June 2016, depreciation charges amounted to RMB6,778 thousands (unaudited) (for the six months ended 30 June 2015: RMB6,769 thousands (unaudited)), without impairment provided (unaudited) (for the six months ended 30 June 2015: Nil (unaudited)).

121

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(11)

Fixed assets


	Buildings			Plant and machinery			Vehicles and other equipment			Total
Cost
31 December 2015		3,815,817			41,041,036			1,904,001			46,760,854
Reclassification in current period		(76	)		(3,311	)		3,387			—
Increase in current period		—			57,583			7,589			65,172
Transfer from construction in progress (Note 4(12))		—			244,247			5,016			249,263
Decrease in current period		(7,822	)		(369,201	)		(21,781	)		(398,804	)
30 June 2016 (unaudited)		3,807,919			40,970,354			1,898,212			46,676,485

Accumulated depreciation
31 December 2015		2,216,539			27,649,951			1,495,427			31,361,917
Reclassification in current period		667			(781	)		114			—
Current period charges		53,791			740,161			31,904			825,856
Decrease in current period		(7,511	)		(292,927	)		(20,663	)		(321,101	)
30 June 2016 (unaudited)		2,263,486			28,096,404			1,506,782			31,866,672

Impairment provision
31 December 2015		279,099			640,896			54,043			974,038
Current period charges		—			104,878			7,184			112,062
Decrease in current period		—			(55,456	)		—			(55,456	)
30 June 2016 (unaudited)		279,099			690,318			61,227			1,030,644

Carrying amount
30 June 2016 (unaudited)		1,265,334			12,183,632			330,203			13,779,169
31 December 2015		1,320,179			12,750,189			354,531			14,424,899

122

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(11)

Fixed assets (continued)

As at 30 June 2016 (unaudited) and 31 December 2015, the Group had no pledged fixed assets.

For the sixth months ended 30 June 2016, the depreciation expenses amounted to RMB825,856 thousands (unaudited) (for the sixth months ended 30 June 2015: RMB902,727 thousands (unaudited)), of which RMB781,309 thousands (unaudited), RMB4,468 thousands (unaudited) and RMB40,079 thousands (unaudited) (for the sixth months ended 30 June 2015: RMB861,461 thousands (unaudited), RMB38 thousands (unaudited) and RMB41,228 thousands (unaudited)) were charged in cost of sales, selling and distribution expenses and general and administrative expenses respectively.

The amount of fixed assets transferred from construction in progress was RMB249,263 thousands (unaudited) (for the sixth months ended 30 June 2015: RMB145,274 thousands (unaudited)).

(12)

Construction in progress

30 June 2016 (unaudited)

31 December 2015

Original
cost

Impairment
provision

Carrying
amount

Original
cost

Impairment
provision

Carrying
amount

Construction in progress

580,908

(10,175

)

570,733

732,695

(10,175

)

722,520

123

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(12)

Construction in progress (continued)

The movement of the Group’s major construction in progress is listed as follows:


Projects name	Budget		31 December 2015			Increase in current year		Transferred to fixed assets in current year (Note 4(11))			Provision for imparment in current year		30 June 2016 (unaudited)			Percentage of actual cost to budget			Project progress			Source of funds
100,000 tons/year EVA production plant		1,131,520		115,379			—		—			—		115,379			10.20	%		10.20	%	Equity funds and borrowings
1# ~ 5# and 7# boiler desulphurization project of Thermoelectricity Department		167,050		113,959			3,600		(117,559	)		—		—			100.00	%		100.00	%	Equity funds and borrowings
Desulfurization and denitrification project for the boiler of Olefins Department		80,540		30,170			24,271		(54,441	)		—		—			100.00	%		100.00	%	Equity funds and borrowings
Oil Tank’s odors control project of Storage and Transportation Department		62,640		36,262			8,997		—			—		45,259			72.25	%		72.25	%	Equity funds
The Improvement works of circulating water’s clean-up and shunting of Sinopec Shanghai Petrochemical		41,670		24,769			1,182		(25,951	)		—		—			100.00	%		100.00	%	Equity funds
The fire station project of Weiliu Road		24,920		22,424			—		—			—		22,424			89.98	%		89.98	%	Equity funds
The improvement of control system and operation station centralized project for acrylic fibers department		9,570		1,234			3,398		—			—		4,632			48.40	%		48.40	%	Equity funds
The part four comprehensive reconstruction of air compressor station for plastic department		9,340		969			1,664		—			—		2,633			28.19	%		28.19	%	Equity funds
The transformation project for the chemical sewage pipeline, sewage of Unit 2# olefin device		9,120		5,591			774		—			—		6,365			69.79	%		69.79	%	Equity funds
The transformation project of burning tank of Unit 2# olefin device		9,110		7,153			527		(7,680	)		—		—			100.00	%		100.00	%	Equity funds
Other Business Unit Minor Project				374,785			53,063		(43,632	)		—		384,216
				732,695			97,476		(249,263	)		—		580,908
Less: provision for impairment				(10,175	)		—		—			—		(10,175	)
				722,520			97,476		(249,263	)		—		570,733

124

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(12)

Construction in progress (continued)

For the sixth months ended 30 June 2016, the Group has capitalised borrowing costs amounted to RMB1,788 thousands on qualifying assets (unaudited) (for the sixth months ended 30 June 2015: RMB1,609 thousands (unaudited)).

In 2014, the Group ceased the construction of 50,000 tons per year ethanolamine project and fully provided impairment for this project at its carrying amounts of RMB10,175 thousands.

(13)

Intangible assets


	Land use rights		Other intangible assets		Total
Cost
30 June 2016 (unaudited) and 31 December 2015		708,972		95,370		804,342

Accumulated amortisation
31 December 2015		314,776		66,037		380,813
Charge in current period		7,245		1,461		8,706
30 June 2016 (unaudited)		322,021		67,498		389,519

Carrying amount
30 June 2016 (unaudited)		386,951		27,872		414,823
31 December 2015		394,196		29,333		423,529

For the six months ended 30 June 2016, amortisation expenses of intangible assets amounted to RMB8,706 thousands (unaudited) (for the six months ended 30 June 2015: RMB8,804 thousands (unaudited)).

125

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(14)

Long-term prepaid expenses


	31 December 2015		Increase in current period		Amortisation in current period			Other decreases in current period (Note 4(8))			30 June 2016 (unaudited)
Catalysts		345,978		128,771		(108,006	)		(58,984	)		307,759
Leaseholding improvements		12,315		564		(862	)		(256	)		11,761
Others		1,194		—		(242	)		—			952
		359,487		129,335		(109,110	)		(59,240	)		320,472

(15)

Deferred tax assets and deferred tax liabilities

(a)

Deferred tax assets before offsetting

30 June 2016 (unaudited)

31 December 2015

Deductible
temporary
differences and
deductible losses

Deferred
tax assets

Deductible
temporary
differences and
deductible losses

Deferred
tax assets

Provision for bad debts and inventory provision

94,804

23,701

79,139

19,785

Provision for impairment of fixed assets and depreciation difference

212,050

53,013

176,174

44,043

Provision for impairment of construction in progress

10,175

2,544

10,175

2,544

Investment with fixed assets and sales of fixed assets to a joint ventures

17,515

4,379

19,267

4,817

Share-based payments

34,052

8,512

22,702

5,675

Other deferred tax assets

Deductible tax losses

11,500

2,875

11,500

2,875

380,123

95,031

318,984

79,746

Including:

To be recovered within 12 months (inclusive)

29,229

31,862

To be recovered over 12 months

65,802

47,884

95,031

79,746

126

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(15)

Deferred tax assets and deferred tax liabilities (continued)

(b)

Deferred tax liabilities before offsetting


	30 June 2016 (unaudited)						31 December 2015
	Taxable temporary differences			Deferred tax liabilities			Taxable temporary differences			Deferred tax liabilities
Capitalised borrowing costs		(29,432	)		(7,358	)		(34,802	)		(8,701	)
Including:
To be recovered within 12 months (inclusive)					(2,686	)					(2,889	)
To be recovered over 12 months					(4,672	)					(5,812	)
					(7,358	)					(8,701	)

(c)

Deductible temporary differences and deductible losses that are not recognised as deferred tax assets are analysed as follows:


	30 June 2016 (unaudited)		31 December 2015
Deductible temporary differences		504,585		480,685
Deductible losses		449,832		411,284
		954,417		891,969

As accounting policies stated in Note 2(27), and it is not probable that future taxable income against which the deductible temporary differences and deductible losses can be utilised in some subsidiaries of the Company, such subsidiaries have not recognised deferred tax assets.

As at 30 June 2016, Zhejiang Jinyong Acrylic Fibre Company Limited (“Jinyong”) has not recognised deferred tax assets in respect of its fixed assets impairment provision of RMB456,623 thousands, inventory provision of RMB46,190 thousands (unaudited) (31 December 2015: Jinyong has not recognised deferred tax assets in respect of its fixed assets impairment provision of RMB432,579 thousands, inventory provision of RMB46,190 thousands).

As at 30 June 2016, other subsidiaries of the Company have not recognised deferred tax assets of RMB1,772 thousands (31 December 2015: RMB1,916 thousands).

127

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(15)

Deferred tax assets and deferred tax liabilities (continued)

(c)

Deductible temporary differences and deductible losses that are not recognised as deferred tax assets are analysed as follows: (continued)

As accounting policies stated in Note 2(27), the Group not recognised deferred tax assets as it is not probable that future taxable profit against which the losses can be utilized will be available for the Group pursuant to latest tax laws, these accumulated losses will expire from 2016 to 2021.


	30 June 2016		31 December 2015
Jinyong		186,676		172,224
Shanghai Golden Conti Petrochemical
Company Limited (“Jindi”)		143,423		124,288
Shanghai Petrochemical Investment Development
Company Limited (“Toufa”)		85,383		81,363
Jinshan Hotel		34,350		33,409
		449,832		411,284

(d)

Deductible losses that are not recognised as deferred tax assets will expire in the following years:


	30 June 2016 (unaudited)		31 December 2015
2016		79,526		79,526
2017		68,211		68,211
2018		63,733		63,733
2019		70,723		70,723
2020		129,091		129,091
2021		38,548		—
		449,832		411,284

128

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(15)

Deferred tax assets and deferred tax liabilities (continued)

(e)

The net balance of deferred tax assets and liabilities after offsetting is as follows:

30 June 2016 (unaudited)

31 December 2015

Offsetting amount of
deferred tax assets
and deferred tax
liabilities

Deferred
tax
assets - net

Offsetting amount of
deferred tax assets and
deferred tax liabilities

Deferred
tax
assets - net

Deferred tax assets

(7,358

)

87,673

(8,701

)

71,045

Deferred tax liabilities

7,358

—

8,701

—

(16)

Provision for assets impairment


	31 December 2015		Increase in current period		Decrease in current period						30 June 2016 (unaudited)
	31 December 2015		Increase in current period		Reversal			Sold/ write-off			30 June 2016 (unaudited)
Provision for bad debts		1,269		12		(14	)		(143	)		1,124
Including: Provision for bad debts of accounts receivable (Note 4(4))		24		7		(14	)		—			17
Provision for bad debts of other receivables (Note 4(5))		1,245		5		—			(143	)		1,107
Provision for declines in the value of inventories (Note 4(7))		125,135		37,944		—			(22,277	)		140,802
Impairment provisions for fixed asset (Note 4(11))		974,038		112,062		—			(55,456	)		1,030,644
Impairment provision for construction in progress (Note 4(12))		10,175		—		—			—			10,175
		1,110,617		150,018		(14	)		(77,876	)		1,182,745

129

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(17)

Short-term borrowings

Classification of short-term borrowings

Currency

30 June 2016 (unaudited)

31 December 2015

Unsecured

- Bank borrowings

RMB

789,657

1,700,000

- Borrowings from related party (Note 7(6))

RMB

70,000

370,000

859,657

2,070,000

As at 30 June 2016, the weighted average interest rate of short-term borrowings is 2.90%-4.85% per annum (unaudited) (31 December 2015: 2.90%-5.60% per annum).

As at 30 June 2016, there are no short-term borrowings which are due but have not been repaid (unaudited) (31 December 2015: Nil).

(18)

Notes payable


	30 June 2016 (unaudited)		31 December 2015
Bank acceptance notes		40,000		—

(19)

Accounts payable


	30 June 2016 (unaudited)		31 December 2015
Related parties (Note 7(6))		2,038,989		1,455,646
Third parties		2,024,730		1,562,232
		4,063,719		3,017,878

As at 30 June 2016 (unaudited) and 31 December 2015, there are no individually significant accounts payable aged over one year.

130

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(20)

Advances from customers


	30 June 2016 (unaudited)		31 December 2015
Related parties (Note 7(6))		11,495		18,166
Third parties		405,159		561,721
		416,654		579,887

Advances from customers are mainly advances on sales.

As at 30 June 2016 (unaudited) and 31 December 2015, there are no advances from customers that are individually significant aged over one year (31 December 2015: Nil).

(21)

Employee benefits payable


	30 June 2016 (unaudited)		31 December 2015
Short-term employee benefits payable		146,205		16,813
Defined contribution plans payable		21,307		23,186
		167,512		39,999

131

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(21)

Employee benefits payable (continued)

(a)

Short-term employee benefits


	31 December 2015		Increase in current period		Decrease in current period			30 June 2016 (unaudited)
Wages and salaries, bonuses, allowances and subsidies		—		742,266		(613,696	)		128,570
Staff welfare		—		154,211		(154,211	)		—
Social insurances		12,887		86,571		(86,872	)		12,586
Including: Medical insurance		11,338		65,859		(67,056	)		10,141
Work injury insurance		516		5,390		(4,643	)		1,263
Maternity insurance		1,033		6,254		(6,266	)		1,021
Supplementary medical insurance		—		9,068		(8,907	)		161
Housing funds		—		74,066		(74,066	)		—
Compensation for lay-off		—		4,647		(4,647	)		—
Others		3,926		75,408		(74,285	)		5,049
		16,813		1,137,169		(1,007,777	)		146,205

In accordance with the Group voluntary employee reduction plan, employee reduction expenses amounted to RMB4,647 thousands for the sixth months ended 30 June 2016 (unaudited) (for the sixth months ended 30 June 2015: RMB10,264 thousands (unaudited)).

132

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(21)

Employee benefits payable (continued)

(b)

Defined contribution plans


	31 December 2015		Increase in current period		Decrease in current period			30 June 2016 (unaudited)
Basic pensions		21,644		128,170		(129,527	)		20,287
Unemployment insurance		1,542		7,850		(8,372	)		1,020
Supplemental basic pensions		—		35,363		(35,363	)		—
		23,186		171,383		(173,262	)		21,307

As stipulated by the regulations of the PRC, the Group participates in a defined contribution retirement plan organised by the Shanghai Municipal Government for its staff.

In addition, pursuant to the document “Order of the Ministry of Labour and Social Security No.20” dated 6 January 2004 issued by the Ministry of Labour of the PRC, the Group has set up a supplementary defined contribution retirement plan for the benefit of employees. Employees who have served the Group for more than one year may participate in this plan. The Group and participating employees make defined contributions to their pension saving accounts according to the plan. The assets of this plan are held separately from those of the Group in an independent fund administered by a committee consisting of representatives from the employees and the Group.

The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. For the sixth months ended 30 June 2016, the Group’s contribution to the above two plans amounted to RMB128,170 thousands (unaudited) and RMB35,363 thousands (unaudited) respectively (for the sixth months ended 30 June 2015: RMB138,003 thousands (unaudited) and RMB36,312 thousands (unaudited) respectively).

133

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(22)

Taxes payable


	30 June 2016 (unaudited)		31 December 2015
Consumption tax payable		919,398		1,001,250
Enterprise income tax payable		623,429		59,597
Value added tax payable		385,437		86,691
City maintenance and construction tax payable		92,246		76,656
Educational surcharge payable		65,814		54,843
Land use tax payable		6,736		23,263
Housing property tax payable		6,581		19,892
Individual income tax payable		3,875		14,136
Business tax payable		—		1,647
Others		27,940		30,443
		2,131,456		1,368,418

(23)

Interest payable


	30 June 2016 (unaudited)		31 December 2015
Interest payable for short-term borrowings		507		1,890

(24)

Dividends payable


	30 June 2016 (unaudited)		31 December 2015
A share dividends		749,619		19,119
H share dividends		349,500		—
		1,099,119		19,119

134

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(25)

Other payables


	30 June 2016 (unaudited)		31 December 2015
Related parties (Note 7(6))		36,858		99,907
Third parties		771,521		529,173
		808,379		629,080

(a)

As at 30 June 2015 (unaudited), there are no other payables that are individually significant aged over one year besides unpaid guaranty deposit.

(b)

Other payables by categories are analysed as follows:


	30 June 2016 (unaudited)		31 December 2015
Equipment project and repair charges		356,804		205,714
Accrued expenses		101,712		45,788
Guaranty deposit		45,756		56,200
Payable to related parties (Note 7(6))		36,858		99,907
Sales discount		17,002		19,297
Deposits		14,600		11,556
Social insurance withholding		10,199		10,194
Others		225,448		180,424
		808,379		629,080

(26)

Deferred income

Government grants project

31
December
2015

Increase in
current
period

Recognised in
non-operating income
in current period

30 June
2016
(unaudited)

Related to
assets/related
to income

Investment subsidies for Chemical Industry

160,000

—

(5,000

)

155,000

Related to
assets

135

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(27)

Share capital


	31 December 2015		Current period movement										30 June 2016 (unaudited)
	31 December 2015		Issue new share		Stock dividend		Transfer from capital surplus to paid-in capital		Others		Subtotal		30 June 2016 (unaudited)
Restricted shares -
Domestic legal persons shares		4,380,000		—		—		—		—		—		4,380,000
Non-restricted shares -
RMB ordinary A shares listed in PRC		2,925,000		—		—		—		—		—		2,925,000
Foreign investment H shared listed overseas		3,495,000		—		—		—		—		—		3,495,000
		10,800,000		—		—		—		—		—		10,800,000

The Company was founded in Shanghai, PRC on 29 June 1993 with registered capital of RMB4,000,000,000 invested by its holding company-China National Petrochemical Corporation; these shares were converted from assets of former Shanghai Petrochemical Complex.

Approved by Zheng Wei Fa No. [1993]30 issued by the State Council Securities Committee, the Company launched its Initial Public Offering (“IPO”) in July 1993 and September 1993 in Hong Kong, New York and Shanghai to issue 2.23 billion shares, including 1.68 billion H shares and 550 million A shares. The 550 million A shares included 400 million individual shares (including 150 million shares issued to SPC employees) and 150 million legal person shares. H shares were listed on the Hong Kong Stock Exchange on 26 July 1993, and listed on the New York Stock Exchange in the form of American Depositary Shares at the same time; the A shares were listed on the Shanghai Stock Exchange on 8 November 1993.

After the IPO, the total quantity of shares issued by the Company was 6.23 billion, including 4 billion state-owned shares, 150 million legal person shares, 400 million individual shares, and 1.68 billion H shares.

136

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(27)

Share capital (continued)

According to the plan stated in the prospectus issued in July 1993, and approved by the China Securities Regulatory Commission, the Company issued 320 million ordinary A shares with a par value of RMB1 each at an issuing price of RMB2.4 each during the period from 5 April to 10 June 1994. These shares were listed on the Shanghai Stock Exchange on 4 July 1994. By then, the total quantity of shares issued was expanded from 6.23 billion to 6.55 billion.

On 22 August 1996, the Company issued 500 million H shares to overseas investors; on 6 January 1997, another 150 million H shares were issued to overseas investors. By then, the total quantity of shares issued was expanded to 7.2 billion, including 2.33 billion H shares.

In 1998, China National Petrochemical Corporation was restructured to Sinopec Group.

Sinopec Corp. was founded on 28 February 2000 based on the approved assets restructuring of Sinopec Group. As part of the restructuring, the shares of the Company held by the Sinopec Group were injected in Sinopec Corp.; after the restructuring, the ownership of 4 billion state-owned shares of the Company held by the Sinopec Group were transferred to Sinopec Corp., and the shares were changed to state-owned legal person shares in nature.

All the A and H shares rank pari passu in all respects.

Pursuant to the ‘Approval on matters relating to the Share Segregation Reform of Sinopec Shanghai Petrochemical Company Limited’ issued by the State-owned Assets Supervision and Administration Commission of the State Council (State Owned Property [2013] No.443), a General Meeting of A share shareholders was held on 8 July 2013 and passed the resolution of ‘Share Segregation Reform of Sinopec Shanghai Petrochemical Company Limited (Amendment)’ (“the share segregation reform resolution”) which was published by the Company on Shanghai Stock Exchange (“SSE”) website on 20 June 2013.

According to the Share Segregation Reform Resolution, the controlling shareholder of the Company, Sinopec Corp., offered shareholders of circulating A shares 5 shares for every 10 circulating A shares they held on 16 August 2013, aggregating 360,000,000 A shares, for the purpose of obtaining the listing rights of its non-circulating shares in the A Shares market. From 20 August 2013 (“the circulation date”), all the Company’s non-circulating A shares have been granted circulating rights on Shanghai Stock Exchange (“SSE”). As part of the restricted conditions, Sinopec Corp. committed that all the 3,640,000,000 A shares held were not allowed to be traded on SSE or transferred within 12 months from the circulation date (“the restriction period”). After the restriction period, Sinopec Corp. can only sell no more than 5 and 10 percent of its total shares within 12 and 24 months, respectively. The former 150,000,000 non-circulating A shares held by social legal persons were also prohibited to be traded on SSE or transferred within 12 months from the circulation date.

The resolution were approved by the extraordinary general meeting of shareholders, A share class shareholders meeting and H share class shareholders meeting on 22 Oct 2013, respectively. As at 30 June 2016, total shares of the Company were 10,800,000 thousands.

137

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(27)

Share capital (continued)

Since the implementation of share segregation reform resolution on 20 August 2013, the Company’s non-circulating A shares had been granted circulating rights. As part of the restricted conditions, 1,080,000,000 A shares (equivalent to ten percent of the total number of Sinopec Shanghai Petrochemical Company’s shares) held by Sinopec Corp. and 225,000,000 A shares held by social legal persons had achieved circulation as at 30 June 2016.


	31 December 2014		Current period movement										30 June 2015 (unaudited)
			Issue new share		Stock dividend		Transfer from capital surplus to paid-in capital		Others		Subtotal


Restricted shares -
Domestic legal persons shares		4,920,000		—		—		—		—		—		4,920,000

Non-restricted shares -
RMB ordinary A shares listed in PRC		2,385,000		—		—		—		—		—		2,385,000
Foreign investment H shared listed overseas		3,495,000		—		—		—		—		—		3,495,000
		10,800,000		—		—		—		—		—		10,800,000

(28)

Capital surplus


	31 December 2015		Increase in current period		Decrease in current period		30 June 2016 (unaudited)
Government grants		412,370		—		—		412,370
Refund of harbor construction charge		32,485		—		—		32,485
Share-based payment recognised in shareholders’ equity (a)		22,702		11,350		—		34,052
Others		49,067		—		—		49,067
		516,624		11,350		—		527,974

138

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(28)

Capital surplus (continued)


	31 December 2014		Increase in current period		Decrease in current period		30 June 2015 (unaudited)
Government grants		412,370		—		—		412,370
Refund of harbor construction charge		32,485		—		—		32,485
Share-based payment recognised in shareholders’ equity (a)		—		11,901		—		11,901
Others		49,067		—		—		49,067
		493,922		11,901		—		505,823

(a)

Share-based payments

•

RoE of the Group should be no less than 9% for 2015, 9.5% for 2016 and 10% for 2017 in respect to the three vesting periods;

•

achieving the target compound annual growth rate of 5% in net profit for 2015, 2016 and 2017, respectively based on the net profit of 2013;

•

proportion of the main business revenue in the total revenue should be no less than 99%;

•

each of the above three conditions should be no lower than the 75% level of peer companies; and

•

achieving the target budget set by the Sinopec Corp

139

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(28)

Capital surplus (continued)

(a)

Share-based payments (continued)

As at 31 December 2016, the outstanding share options which will expire in twelve months after the vesting dates and their exercise prices are as follows:


Vesting date	Exercise price		Outstanding shares
	per share in RMB		(unaudited)
6 January 2017		4.20		15,504,000
6 January 2018		4.20		11,628,000
6 January 2019		4.20		11,628,000

(b)

Changes in number of share options in current year


	As at 30 June 2016 (unaudited) and 31 December 2015
Outstanding stock options issued		38,760,000

(c)

Fair value of share options as at grant date

The total fair value of share options has been valued by an external valuation expert using Black- Scholes valuation model. As at the grant date, the significant inputs into the model were as follows:


Exercise price (Renminbi: Yuan)	4.20
Maturity (years)	5.00
Spot share price (Renminbi: Yuan)	4.51
Expected volatility	41.20	%
Dividend yield	1.00	%
Risk-free interest rate	3.39%-3.67	%

The total fair value of share options at the grant date was RMB65,412 thousands.

140

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(28)

Capital surplus (continued)

(d)

Effect of share-based payment transactions on the financial position and financial performance


	For the six months ended 30 June 2016 (unaudited)
Total expense recognised for the Equity-settled share-based payment in consolidated income statement		11,350
Accumulated amount recognised for the Equity-settled share-based payment in capital surplus		34,052

(29)

Specific reserve


	31 December 2015		Accrued during the period		Utilised during the period			30 June 2016 (unaudited)
Safety production costs		953		53,343		(13,902	)		40,394

	31 December 2014		Accrued during the period		Utilised during the period			30 June 2015 (unaudited)
Safety production costs		1,265		72,925		(47,597	)		26,593

Specific reserve represents unutilised safety production fund accrued in accordance with state regulations (Note 2(20)).

141

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(30)

Surplus reserve


	31 December 2015		Increase in current period		Decrease in current period		30 June 2016 (unaudited)
Statutory surplus reserve		4,391,905		—		—		4,391,905
Discretionary surplus reserve		101,355		—		—		101,355
		4,493,260		—		—		4,493,260

	31 December 2014		Increase in current period		Decrease in current period		30 June 2015 (unaudited)
Statutory surplus reserve		4,072,476		—		—		4,072,476
Discretionary surplus reserve		101,355		—		—		101,355
		4,173,831		—		—		4,173,831

In accordance with the Company Law and the Company’s Articles of Association, the Company should appropriate 10% of net profit for the year to the statutory surplus reserve, and the Company can cease appropriation when the statutory surplus reserve accumulated to more than 50% of the registered capital. The statutory surplus reserve can be used to make up for the loss or increase the share capital after approval from the appropriate authorities. No Statutory surplus reserve was provided during current period (unaudited) (for the six months ended 30 June 2015: Nil (unaudited)).

The Company appropriates for the discretionary surplus reserve should be proposed by the board of directors and approved by the General Meeting of Shareholders. The discretionary surplus reserve can be used to make up for the loss or increase the share capital after approval from the appropriate authorities. No discretionary surplus reserve was provided in current period (unaudited) (for the six months ended 30 June 2015: Nil (unaudited)).

142

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(31)

Undistributed profits


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Undistributed profits at the beginning of the period		4,028,025			1,101,605
Add: Net profit attributable to equity shareholders of the parent company for the current period		3,096,675			1,731,166
Less: Ordinary shares dividends payable		(1,080,000	)		—
Undistributed profits at the end of the period		6,044,700			2,832,771

Pursuant to the resolution of the shareholders’ meeting on 15 June 2016, a dividend in respect of the year ended 31 December 2015 of RMB0.1 per share, amounting to a total dividend of RMB1,080,000 thousands was declared (unaudited) (for the six months ended 30 June 2015: Nil (unaudited)).

(32)

Non-controlling interests

Attributable to the non-controlling interests of the Group:


	30 June 2016 (unaudited)			31 December 2015
Shanghai Golden Phillips Petrochemical Company Limited (“Jinfei”)		173,378			196,067
China Jinshan Associated Trading Corporation (“Jinmao”)		69,593			63,723
Shanghai Jinchang Engineering Plastics Company Limited (“Jinchang”)		39,658			37,248
Jinyong		(6,011	)		—
		276,618			297,038

143

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(33)

Revenue and cost of sales

Six months ended 30 June

2016 (unaudited)

2015 (unaudited)

Revenue

Cost of sales

Revenue

Cost of sales

Main operations

36,729,912

24,970,180

41,933,751

31,092,007

Other operations

263,279

207,448

218,699

141,857

36,993,191

25,177,628

42,152,450

31,233,864

(a)

Main operations revenue and main operations cost

The Group mainly operates in petrochemical industry.

Analysis by product is as follows:

Six months ended 30 June

2016 (unaudited)

2015 (unaudited)

Main operations
revenue

Main operations
cost

Main operations
revenue

Main operations
cost

Synthetic fibres

999,011

929,160

1,277,780

1,260,478

Resins and plastics

4,747,017

3,352,638

5,374,909

4,098,680

Intermediate petrochemicals

4,245,716

2,724,786

5,049,076

3,734,009

Petroleum products

17,535,794

8,921,854

23,186,915

15,133,125

Trading

9,004,010

8,927,994

6,822,043

6,746,830

Others

198,364

113, 748

223,028

118,885

36,729,912

24,970,180

41,933,751

31,092,007

144

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(34)

Taxes and surcharges


	Six months ended 30 June				Tax base and rate
	2016 (unaudited)		2015 (unaudited)		Tax base and rate
Consumption tax		5,294,575		6,082,783	According to relevant PRC tax regulations, since 1 January 2009, the Group is required to pay consumption tax based on the Group’s sales of gasoline and diesel rate according to the applicable tax rate (Note 3(1))
City maintenance and construction tax		514,502		566,892	1% and 7% of actual payments of consumption, business tax and VAT during the period
Educational surcharge and others		374,731		407,321	5% of actual payments of consumption, business tax and VAT during the period
Business tax		2,354		3,942	5% of taxable turnover amount
		6,186,162		7,060,938

(35)

Selling and distribution expenses


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Transportation fee		122,574		139,870
Sales commission		46,872		57,921
Storage and logistics expenses		30,956		29,171
Staff costs		26,885		22,926
Others		8,385		11,693
		235,672		261,581

145

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(36)

General and administrative expenses


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Repair and maintenance expenses		625,013		577,395
Employee benefits		551,828		568,198
Administrative expenses		74,918		81,580
Depreciation and amortisation		48,785		50,033
Research and development costs		47,144		14,265
Taxation charges		43,276		50,725
Security and fire extinguishment expenses		39,284		36,607
Operation and maintenance expenses for information system		15,756		15,003
Others		98,789		96,414
		1,544,793		1,490,220

(37)

Financial expenses - net


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Interest expenses		34,549			141,005
Less: Interest income		(39,989	)		(23,457	)
Exchange loss - net		208			18,581
Others		7,215			4,408
		1,983			140,537

146

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(38)

Expenses by nature

The cost of sales, selling and distribution expenses and general and administrative expenses in the income statement are listed as follows by nature:


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Changes in inventories of finished goods and work in progress		(374,628	)		577,162
Consumed raw materials and low value consumables, etc.		14,614,108			21,768,057
Cost of trading products		8,927,994			6,746,830
Employee benefits		1,319,902			1,319,805
Depreciation and amortisation expenses		950,450			1,084,111
Repair and maintenance expenses		625,013			577,395
Transportation expenses		153,530			169,041
Agency commission		46,872			57,921
Audting fees		3,900			3,900
Others		690,952			681,443
		26,958,093			32,985,665

(39)

Investment income


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Investment accounted for using the equity method		376,745		331,853
Forward exchange contract income (a)		—		6,931
		376,745		338,784

There are no severe restrictions on the investee’s ability to transfer investment income to the Group.

(a)

For the six months ended 30 June 2016, the Group did not enter into any forward exchange contracts (unaudited) (For the six months ended 30 June 2015: the Group entered into the forward exchange contracts to avoid foreign exchange risk arising from borrowings denominated in EUR. The total realised income from forward exchange contracts is RMB6,931 thousands (unaudited)).

147

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(40)

Asset impairment losses


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Provision for impairment of fixed assets		112,062			50,001
Provision for decline in value of inventories		37,944			10,700
Provision for bad debts		(2	)		710
		150,004			61,411

(41)

Non-operating income


	Six months ended 30 June				Amounts included in non-recurring profit or loss for the six months ended 30 June 2016
	2016 (unaudited)		2015 (unaudited)
Government grants (a)		14,280		7,155		14,280
Gains on disposal of fixed assets		2,548		986		2,548
Advances from customers no need to be charged		—		5,709		—
Others		536		4,558		536
		17,364		18,408		17,364

(a)

Government grants mainly include:


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Fiscal subsidy for scientific research, energy saving and environmental protection		8,900		535
Amortisation of deferred income		5,000		5,000
Others		380		1,620
		14,280		7,155

148

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(42)

Non-operating expenses


	Six months ended 30 June				Amounts included in non-recurring profit or loss for the six months ended 30 June 2016
	2016 (unaudited)		2015 (unaudited)
Losses on disposal of fixed assets		26,525		8,913		26,525
Allowances		13,631		10,621		13,631
Others		898		1,411		898
		41,054		20,945		41,054

(43)

Income tax expenses


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Current tax expense for the period based on tax law and regulations		964,869			14,773
Deferred income tax		(16,628	)		476,913
		948,241			491,686

149

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(43)

Income tax expenses (continued)

The reconciliation from income tax calculated based on the applicable tax rates and total profit presented in the consolidated income statement to the income tax expenses is listed below:


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Total profit		4,050,004			2,240,146
Income tax expenses calculated at applicable tax rates		1,012,501			560,037
Tax effect of share of profit of investments accounted for using the equity method		(94,186	)		(82,963	)
Tax effect of non-deductible expenses		10,424			4,691
Under provision for income tax expense in respect of preceding years		3,890			1,741
Utilisation of previously unrecognised temporary differences		(36	)		—
Temporary differences for which no deferred income tax asset was recognised in the period		6,011			8,180
Tax losses for which no deferred income tax asset was recognized in the year		9,637			—
Income tax expenses		948,241			491,686

(44)

Earnings per share

(a)

Basic earnings per share

Basic earnings per share is calculated by dividing the consolidated net profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding:


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Consolidated net profit attributable to ordinary shareholders of the parent company		3,096,675		1,731,166
Weighted average number of the Company’s ordinary shares outstanding (thousands)		10,800,000		10,800,000
Basic earnings per share		0.287		0.160

150

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(44)

Earnings per share (continued)

(b)

Diluted earnings per share


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Diluted consolidated net profit attributable to ordinary shareholders of the parent company		3,096,675		1,731,166

Weighted average number of the Company’s ordinary shares outstanding (thousands)		10,800,000		10,800,000
Adjustment for share option incentive (thousands) (i)		6,961		6,954
Diluted weighted average number of the Company’s ordinary shares outstanding (thousands)		10,806,961		10,806,961

Diluted earnings per share		0.287		0.160

(i)

The Company has dilutive potential ordinary shares from share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s A shares for the six months ended 30 June 2016) based on the monetary value of the outstanding share options. The number of ordinary shares in issue is compared with the number of shares that would have been issued assuming the exercise of the share options.

(45)

Notes to consolidated cash flow statement

(a)

Cash received relating to other operating activities


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Subsidy income		9,280		2,155
Others		382		4,558
		9,662		6,713

151

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(45)

Notes to consolidated cash flow statement (continued)

(b)

Cash paid relating to other operating activities


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Administrative expenses		74,918		81,580
Research and development costs		47,144		14,265
Agency commission		46,872		57,921
Security and fire extinguishment expenses		39,284		36,607
Storage and logistics expenses		28,535		29,171
Operation and maintenance expenses for information system		15,756		15,003
Others		5,729		40,700
		258,238		275,247

(c)

Cash received relating to other investment activities


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Interest income		42,435		23,454

152

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(46)

Supplementary materials to consolidated cash flow statement

(a)

Supplementary materials to consolidated cash flow statement

Reconciliation from net profit to cash flows from operating activities


	Six months ended 30 June
	2016 (unaudited)			2015 (unaudited)
Net profit		3,101,763			1,748,460
Add: Asset impairment losses		150,004			61,411
Depreciation of investment properties		6,778			6,769
Depreciation of fixed assets		825,856			902,727
Amortisation of intangible assets		8,706			8,804
Amortisation of long-term prepaid expenses		109,110			165,811
Net losses on disposal of fixed assets		23,977			7,927
Financial (income)/expenses - net		(13,804	)		137,237
Investment income		(376,745	)		(338,784	)
(Increase)/Decrease in deferred tax assets		(16,628	)		476,913
Decrease in deferred income		(5,000	)		(5,000	)
(Increase)/Decrease in inventories		(491,644	)		134,730
Increase in operating receivables		(824,979	)		(482,562	)
Increase/(Decrease) in operating payables		2,096,839			(937,433	)
Increase in specific reserve		39,441			25,328
Share-based payment expenses		11,350			11,901
Net cash flows generated from operating activities		4,645,024			1,924,239

(b)

Net increase in cash and cash equivalents


	Six months ended 30 June
	2016 (unaudited)		2015 (unaudited)
Cash and cash equivalents at the end of the period		4,451,306		301,061
Less: Cash and cash equivalents at the beginning of the period		1,077,430		279,198
Net increase in cash and cash equivalents		3,373,876		21,863

153

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

4	Notes to the consolidated financial statements (continued)

(46)

Supplementary materials to consolidated cash flow statement (continued)

(c)

Cash and cash equivalents


	30 June 2016 (unaudited)		31 December 2015
Cash
Including: Cash on hand		5		7
Bank deposits available on demand		4,450,725		1,077,229
Other cash at bank and on hand available on demand		576		194
Cash and cash equivalents at the end of the period		4,451,306		1,077,430

(47)

Monetary items denominated in foreign currency


	30 June 2016(unaudited)
	Balances denominated in foreign currency			Exchange rate		Balances denominated in RMB
Cash at bank and on hand -
USD		15,291			6.6312		101,399
Accounts receivable -
USD		163,652			6.6312		1,085,212
Other receivables -
USD		2			6.6312		16
Accounts payable -
USD		(212,159	)		6.6312		(1,406,869	)
EUR		(17	)		7.3750		(125	)
							(1,406,994	)
Other payables -
USD		(2,722	)		6.6312		(18,049	)

154

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

5	Equity in other entities

(1)

Equity in subsidiaries

(a)

Main structure of the enterprise Group

Operating

Place of

Business

Shareholding (%)

Acquisition

place

Registration

nature

Direct

Indirect

method

Toufa

Shanghai

Investment

100.00

—

Establish

Jinmao

Shanghai

Trading

67.33

—

Establish

Jinchang

Shanghai

Manufacturing

—

74.25

Establish

Jinfei

Shanghai

Manufacturing

—

60.00

Establish

Jinyong

Ningbo,
Zhejiang

Manufacturing

75.00

—

Investment

Jindi

Shanghai

Manufacturing

—

100.00

Establish

Shanghai Jinmao Trading Co., Ltd.

Shanghai

Trading

—

67.33

Establish

(b)

As at 30 June 2016 (unaudited) and 31 December 2015, attributable to non-controlling interests of subsidiaries’ non-controlling shareholders were not significant (Note 4(32)).

(2)

Equity in joint ventures and associates

(a)

Background information of joint ventures and associates

Main
operating
place

Place of
Registration

Business
nature

Strategic to the
activities of the
Group?

Shareholding (%)

Direct

Indirect

Joint ventures -

BOC-SPC

Shanghai

Production and sale of industrial gas

Yes

—

50.00

Jinpu

Shanghai

Production of polypropylene film

Yes

—

50.00

Yangu Gas

Shanghai

Production and sale of industrial gas

Yes

—

50.00

Significant associates -

Shanghai Secco

Shanghai

Manufacturing and distribution of
chemical products

Yes

20.00

—

Chemical Industrial Park

Shanghai

Planning, development and operation
of Chemical Industrial Park

Yes

38.26

—

Jinsen

Shanghai

Production of resin products

Yes

—

40.00

Azbil

Shanghai

Service and maintenance of building
automation systems and products

Yes

—

40.00

Set out below are the summarised financial information for the above companies which are accounted for using the equity method.

155

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

5	Equity in other entities (continued)

(2)

Equity in joint ventures and associates (continued)

(b)

Significant financial information of significant joint ventures


	30 June 2016 (unaudited)									31 December 2015
	BOC-SPC			Jinpu			Yangu Gas			BOC-SPC			Jinpu			Yangu Gas
Current assets		104,642			17,262			37,092			84,451			32,676			32,149
Including: Cash and cash equivalents		49,541			856			22,460			28,563			1,790			19,224
Non-current assets		292,421			19,630			70,446			313,884			81,985			78,622

Total assets		397,063			36,892			107,538			398,335			114,661			110,771


Current liabilities		(113,416	)		(30,394	)		(7,561	)		(70,763	)		(34,698	)		(5,807	)
Non-current liabilities		—			—			—			—			—			—

Total liabilities		(113,416	)		(30,394	)		(7,561	)		(70,763	)		(34,698	)		(5,807	)


Net assets		283,647			6,498			99,977			327,572			79,963			104,964
Share of net assets recognised at shareholding percentage (i)		141,823			3,249			49,990			163,786			39,981			52,483
Adjusted items - Offsetting the internal transactions unrealised		(17,515	)		—			—			(19,267	)		—			—
Carrying value of investments in joint venture		124,308			3,249			49,990			144,519			39,981			52,483

	Six months ended 30 June
	2016 (unaudited)									2015 (unaudited)
	BOC-SPC			Jinpu			Yangu Gas			BOC-SPC			Jinpu			Yangu Gas
Revenue		179,170			28,661			28,099			199,216			55,064			34,528
Financial (expenses)/income - net		(397	)		418			(89	)		(2,224	)		(524	)		(102	)
Income tax expenses		7,612			—			—			(9,365	)		—			—
Net profit/(loss)		22,326			(73,465	)		(3,787	)		27,682			(11,201	)		1,506
Other comprehensive income		—			—			—			—			—			—

Total comprehensive income/(loss)		22,326			(73,465	)		(3,787	)		27,682			(11,201	)		1,506


Dividends received from associates by the Group for the current period		33,125			—			600			—			—			650

(i)	The information above reflects the amounts presented in the financial statements of the joint ventures (and not the Group’s share of those amounts) adjusted for differences in accounting policies between the group and the associates.

156

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

5	Equity in other entities (continued)

(2)

Equity in joint ventures and associates (continued)

(c)

Significant financial information of significant associates


	30 June 2016 (Unaudited)												31 December 2015
				Chemical												Chemical
	Shanghai			Industrial									Shanghai			Industrial
	Secco			Park			Jinsen			Azbil			Secco			Park			Jinsen			Azbil
Current assets		5,344,367			4,323,698			122,667			148,581			4,879,596			2,486,929			128,354			150,672
Including: Cash and cash equivalents		1,126,902			2,559,442			54,285			85,881			598,397			981,308			75,881			74,867
Non-current assets		7,263,864			2,890,494			82,639			3,210			8,033,469			3,111,311			86,514			3,444

Total assets		12,608,231			7,214,192			205,306			151,791			12,913,065			5,598,240			214,868			154,116


Current liabilities		(2,428,336	)		(1,113,411	)		(10,326	)		(50,032	)		(3,532,247	)		(404,115	)		(7,882	)		(41,801	)
Non-current liabilities		(497,340	)		(1,720,718	)		—			—			(487,020	)		(980,583	)		—			—

Total liabilities		(2,925,676	)		(2,834,129	)		(10,326	)		(50,032	)		(4,019,267	)		(1,384,698	)		(7,882	)		(41,801	)


Net assets		9,682,555			4,380,063			194,980			101,759			8,893,798			4,213,542			206,986			112,315
Share of net assets recognised at shareholding percentage (i)		1,936,511			1,675,812			77,992			40,704			1,778,760			1,612,101			82,794			44,926
Adjusted items (ii)		—			(333,493	)		—			—			—			(331,242	)		—			—

Carrying value of investments in associates		1,936,511			1,342,319			77,992			40,704			1,778,760			1,280,859			82,794			44,926

157

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

5	Equity in other entities (continued)

(2)

Equity in joint ventures and associates (continued)

(c)

Significant financial information of significant associates (continued)


	Six months ended 30 June
	2016 (unaudited)									2015 (unaudited)
	Shanghai Secco		Chemical Industrial Park		Jinsen			Azbil		Shanghai Secco		Chemical Industrial Park		Jinsen		Azbil
Revenue		11,524,791		1,218,237		83,531			89,372		12,302,881		—		133,799		87,362
Net profit/(loss)		1,679,758		160,638		(4,665	)		7,445		1,356,862		106,484		5,809		9,174
Other comprehensive income		—		—		—			—		—		—		—		—

Total comprehensive income		1,679,758		160,638		(4,665	)		7,445		1,356,862		106,484		5,809		9,174


Dividends received from associates by the Group for the current period		178,200		—		2,936			7,200		—		—		2,926		12,000

(i)

The information above reflects the amounts presented in the financial statements of the associates (and not the Group’s share of those amounts) adjusted for differences in accounting policies between the Group and the associates.

(ii)

Unentitled portion represented some piece of lands injected by Government in Chemical Industry as capital reserve and the earnings from this land cannot be shared by other shareholders.

(d)

Summarised information of insignificant associates


	Six months ended 30 June (unaudited)
	2016		2015
Total carrying value of investment made on 30 June		44,716		47,447

Below total amount are calculated at shareholding percentages
Net profit (i)		3,933		3,003
Other comprehensive income (i)		—		—

Total comprehensive income		3,933		3,003

(i)	The effects of the fair value of identifiable assets and liabilities at the time of investment acquisition and the adjustment for collective accounting policies are taken into consideration in determining net profit and other comprehensive income.

158

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

6	Segment information

Segment information is presented in respect of the Group’s business segments, the format of which is based on the structure of the Group’s internal organisation, management requirement, and internal reporting system.

In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments.

The Group evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance expenses, investment income, non-operating income and non-operating expenses. The accounting policies adopted by the operating segments are the same with the policies in Note 2(30). The transfer price of intersegment is recognised with cost plus profit method.

The Group principally operates in five operating segments: petroleum products, intermediate petrochemicals, synthetic fibres, resins and plastics and trading of petrochemical products. Petroleum products, intermediate petrochemicals, synthetic fibres and resins and plastics are produced through intermediate steps from crude oil, the principal raw material. The specific products of each segment are as follows:

(i)

The Group’s petroleum products segment is equipped with crude oil distillation facilities used to produce vacuum and atmospheric gas oils used as feedstocks of the Group’s downstream processing facilities. Residual oil and low octane gasoline fuels are co-products of the crude oil distillation process. Part of the residual oil is further processed into qualified refined gasoline and diesel oil. In addition, the Group produces a variety of fuels for transportation, industry and household heating usage, such as diesel oil, jet fuel, heavy oil and liquefied petroleum gas.

(ii)

The intermediate petrochemicals segment primarily produces p-xylene, benzene and butadiene. Most of the intermediate petrochemicals produced by the Group are used by the Group as raw materials in the production of other petrochemicals, resins, plastics and synthetic fibres. A portion of the intermediate petrochemicals as well as certain by-products of the production process are sold to outside customers.

(iii)

The synthetic fibres segment produces primarily polyester and acrylic fibres, which are mainly used in the textile and apparel industries.

(iv)

The resins and plastics segment produces primarily polyester chips, low-density polyethylene resins, polypropylene resins, films and PVA granules. The polyester chips are used to produce polyester fibres, coating and containers. Polyethylene resins and plastics are used to produce insulated cable, mulching films and moulded products such as housewares and toys. Polypropylene resins are used for films, sheets and moulded products such as housewares, toys, consumer electronics and automobile parts.

(v)

The Group’s trading of petrochemical products segment primarily engages in importing and exporting of petrochemical products.

159

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

6	Segment information (continued)

(vi)

All other operating segments represent the operating segments which do not meet the quantitative threshold for determining reportable segments. These include consumer products and services and a variety of other commercial activities, which are not allocated to the above five operating segments.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise long-term equity investments, deferred tax assets, cash at bank and on hand and its related interest income, interest-bearing borrowings, interest expenses, deferred income, corporate assets and related expenses.

(a)

Segment information as at and for the six months ended 30 June 2016 is as follows (unaudited):


	Synthetic fibres			Resins and plastics			Intermediate petrochemicals			Petroleum products			Trading of petrochemical products			Others			Unallocated			Elimination			Total
Revenue from external customers		999,011			4,747,017			4,245,716			17,535,794			9,004,010			461,643			—			—			36,993,191
Inter-segment revenue		—			40,622			4,693,316			1,524,150			706,127			264,290			—			(7,228,505	)		—
Cost of sales		(929,160	)		(3,352,638	)		(2,724,786	)		(8,921,854	)		(8,927,994	)		(321,196	)		—			—			(25,177,628	)
Interest income		—			—			—			—			—			—			39,989			—			39,989
Interest expenses		—			—			—			—			—			—			(34,549	)		—			(34,549	)
Investment income		—			—			—			—			—			—			376,745			—			376,745
Asset impairment losses		(57,624	)		(81,155	)		(11,225	)		—			—			—			—			—			(150,004	)
Depreciation and amortisation		(73,194	)		(54,941	)		(261,646	)		(450,431	)		(88	)		(110,150	)		—			—			(950,450	)

Total (loss)/profit		(229,891	)		713,166			734,194			2,431,333			21,203			(5,292	)		385,291			—			4,050,004

Income tax expenses		—			—			—			—			—			—			(948,241	)		—			(948,241	)
Net (loss)/profit		(229,891	)		713,166			734,194			2,431,333			21,203			(5,292	)		(562,950	)		—			3,101,763

Total assets		1,583,385			1,624,808			4,390,672			12,257,788			1,455,364			2,257,207			8,355,725			—			31,924,949

Total liabilities		316,374			867,937			901,151			3,770,122			1,571,094			201,549			2,113,776			—			9,742,003

160

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

6	Segment information (continued)

(b)

Segment information as at and for the six months ended 30 June 2015 is as follows(unaudited):


	Synthetic fibres			Resins and plastics			Intermediate petrochemicals			Petroleum products			Trading of petrochemical products			Others			Unallocated			Elimination			Total
Revenue from external customers		1,277,780			5,374,909			5,049,076			23,186,915			6,822,043			441,727			—			—			42,152,450
Inter-segment revenue		—			49,134			4,806,577			1,670,932			932,368			387,269			—			(7,846,280	)		—
Cost of sales		(1,260,478	)		(4,098,680	)		(3,734,009	)		(15,133,125	)		(6,746,830	)		(260,742	)		—			—			(31,233,864	)
Interest income		—			—			—			—			—			—			23,457			—			23,457
Interest expenses		—			—			—			—			—			—			(141,005	)		—			(141,005	)
Investment income		—			—			—			—			—			—			338,784			—			338,784
Asset impairment losses		—			—			(50,001	)		—			(10,700	)		(710	)		—			—			(61,411	)
Depreciation and amortisation		(84,924	)		(63,915	)		(314,053	)		(502,407	)		(88	)		(111,955	)		(6,769	)		—			(1,084,111	)
Total (loss)/profit		(199,711	)		671,713			478,376			1,038,806			7,509			47,742			195,711			—			2,240,146
Income tax expenses		—			—			—			—			—			—			(491,686	)		—			(491,686	)
Net (loss)/profit		(199,711	)		671,713			478,376			1,038,806			7,509			47,742			(295,975	)		—			1,748,460

Total assets		1,779,242			1,755,600			4,942,535			13,690,774			1,351,049			2,009,000			4,813,057			—			30,341,257

Total liabilities		307,114			842,401			873,682			4,019,245			1,173,298			108,315			4,399,954			—			11,724,009

In view of the fact that the Group operates mainly in the PRC, no geographical segment information is presented.

For the six months ended 30 June 2016, revenue from the same customer accounted for 44% (unaudited) of total Group revenue (For the six months ended 30 June 2015: 57% (unaudited)). The revenue from the customer derived from the following segments: intermediate petrochemicals, petroleum products, trading of petrochemical products and other segment.

161

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

7	Related parties and related party transactions

(1)

Information on the parent company

(a)

General information of the parent company

Place of
registration

Business

nature

China Petroleum & Chemical Corporation

No.22 Chaoyangmen North Street, Chaoyang District, Beijing

Exploring for, extracting and selling crude oil and natural gas; oil refining; production, sale and transport of petrochemical, chemical fibres and other chemical products; pipe transport of crude oil and natural gas; research and development and application of new technologies and information.

The Company’s ultimate controlling party is China Petrochemical Corporation.

(b)

Share capital and changes in share capital of the parent company

31 December 2015

Increase in
current period

Decrease in
current period

30 June 2016

China Petroleum & Chemical Corporation

RMB 121.1 billion

—

RMB 121.1 billion

(c)

The percentages of shareholding and voting rights in the Company held by the parent company


	30 June 2016 (unaudited)						31 December 2015
	Shareholding			Voting rights			Shareholding			Voting rights
China Petroleum & Chemical Corporation		50.56	%		50.56	%		50.56	%		50.56	%

162

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

7	Related parties and related party transactions (continued)

(2)

Information on the Company’s subsidiaries

The general information and other related information of the subsidiaries is set out in Note 5.

(3)

Information on joint ventures and associates

In addition to the major joint ventures and associates disclosed in Note 5(2), related transactions between the Group and other associates are as follows:

Whether it

Shareholding (%)

Operating
place

Place of
registry

Business
nature

is strategic
for group
activities

Directly

Indirectly

Shanghai Nanguang Petrochemical Co., Ltd.

Shanghai

Petrochemical
products
import and
export

Yes

—

Shanghai Jinhuan Petroleum Naphthalene Development Company Limited

Shanghai

Petrochemical
products
import and
export

Yes

—

Shanghai Chemical Industry Park Logistics Company Limited

Shanghai

Products
freight

Yes

—

33.33

163

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

7	Related parties and related party transactions (continued)

(4)

Information on other related parties


Names of other related parties		Relationship with the Group
Sinopec Chemical Commercial Holding Company Limited		Subsidiary of the holding company
Sinopec Huadong Sales Company Limited		Subsidiary of the holding company
Sinopec Huanan Sales Company Limited		Subsidiary of the holding company
Sinopec Huabei Sales Company Limited		Subsidiary of the holding company
Sinopec Yizheng Chemical Fibre Company Limited		Subsidiary of the holding company
China International United Petroleum and Chemical Company Limited		Subsidiary of the holding company
China Petrochemical International Company Limited		Subsidiary of the holding company
Sinopec Refinery Product Sales Company Limited		Subsidiary of the holding company
Sinopec Yangzi Petrochemical Company Limited		Subsidiary of the holding company
China Petrochemical International Beijing Company Limited		Subsidiary of the holding company
China Petrochemical International Ningbo Company Limited		Subsidiary of the holding company
China Petrochemical International Tianjin Company Limited		Subsidiary of the holding company
Sinopec Huadong Supplies and Equipment Company Limited		Subsidiary of the holding company
Petro-CyberWorks Information Technology Company Limited		Subsidiary of the holding company
Sinopec Qingdao Refining and Chemical Company Limited		Subsidiary of the holding company
Sinopec Fuel Oil Sales Corporation Limited		Subsidiary of the holding company
Sinopec SK (Wuhan) Petrochemical Company Limited		Subsidiary of the holding company
Nantong East China Sea Petroleum Chemical Company Limited		Subsidiary of the holding company
BASF-YPC Company Limited		Joint venture of the holding company
Zhejiang Baling Hengyi Caprolactam Limited Company		Joint venture of the holding company
Sinopec Petroleum Storage and Reserve Limited		Subsidiary of the ultimate holding company
Sinopec Assets Management Corporation		Subsidiary of the ultimate holding company
Shanghai Petrochemical Machine Manufacturing Company Limited		Subsidiary of the ultimate holding company
Sinopec International Petroleum Exploration and Production Limited		Subsidiary of the ultimate holding company
Sinopec Shanghai Engineering Company Limited		Subsidiary of the ultimate holding company
The Fourth Construction Company of Sinopec		Subsidiary of the ultimate holding company
The Fifth Construction Company of Sinopec		Subsidiary of the ultimate holding company
The Tenth Construction Company of Sinopec		Subsidiary of the ultimate holding company
Sinopec Engineering Incorporation		Subsidiary of the ultimate holding company
Sinopec Ningbo Engineering Company Limited		Subsidiary of the ultimate holding company
Sinopec Tending Company Limited		Subsidiary of the ultimate holding company
Sinopec Finance Company Limited		Subsidiary of the ultimate holding company

164

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2016

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

7	Related parties and related party transactions (continued)

(5)

Related party transactions

In addition to the related party transactions disclosed in Note 4(3), Note 4(9), Note 4(24), Note 4(28), Note 4(31) and Note 4(39), other major related party transactions of the Group are as follows:

(a)

Purchases and sale of goods, rendering and receiving services

Purchases of goods and receiving services:

The Group

Six months ended 30 June

2016
(unaudited)

2015
(unaudited)

Name of Related Parties


	30 June 2016 (unaudited)		31 December 2015
Sinopec Group and its subsidiaries		58,920		35,244


	30 June 2016 (unaudited)		31 December 2015
Purchase of fixed assets contracted but not provided for		86,720		39,814
Purchase of fixed assets authorised but not contracted for		1,046,475		1,124,660
		1,133,195		1,164,474


	30 June 2016 (unaudited)
	Within 1 year		1 to 2 years		2 to 5 years		Over 5 years		Total
Short-term borrowings		859,657		—		—		—		859,657
Notes payable		40,000		—		—		—		40,000
Accounts payable		4,063,719		—		—		—		4,063,719
Interest payable		4,961		—		—		—		4,961
Dividends payable		1,099,119		—		—		—		1,099,119
Other payables		808,379		—		—		—		808,379
		6,875,835		—		—		—		6,875,835

	31 December 2015
	Within 1 year		1 to 2 years		2 to 5 years		Over 5 years		Total
Short-term borrowings		2,070,000		—		—		—		2,070,000
Accounts payable		3,017,878		—		—		—		3,017,878
Interest payable		35,771		—		—		—		35,771
Dividends payable		19,119		—		—		—		19,119
Other payables		629,080		—		—		—		629,080
		5,771,848		—		—		—		5,771,848


	31 December 2015
Short-term borrowings (Note 4(17))		2,070,000
Less: Cash and cash equivalents at the end of the period (Note 4(1))		(1,077,430	)
Net debt		992,570
Add: Shareholder’s equity		20,135,900
Total Capital		21,128,470
Gearing ratio		4.70	%


	Amount		Provision for bad debts		Percentage of total accounts receivable
Total amount of top five accounts receivable		948,237		—		94.76	%


	30 June 2016 (unaudited)			31 December 2015
Subsidiaries (a)		1,718,007			1,718,007
Associates (b)		3,278,830			3,059,619
		4,996,837			4,777,626
Less: Provision for impairment of long-term equity investments		(227,500	)		(227,500	)
		4,769,337			4,550,126


Cash and cash equivalents balance at the end of the period	3,881,881	239,498
Less: Cash and cash equivalents balance at the beginning of the period	942,264	186,348
Net increase in cash and cash equivalents	2,939,617	53,150


Signature:

Directors:

/s/ Wang Zhiqing	/s/ Wu Haijun	/s/ Gao Jinping	/s/ Ye Guohua
Wang Zhiqing	Wu Haijun	Gao Jinping	Ye Guohua

/s/ Jin Qiang	/s/ Guo Xiaojun	/s/ Lei Dianwu	/s/ Mo Zhenglin
Jin Qiang	Guo Xiaojun	Lei Dianwu	Mo Zhenglin

/s/ Cai Tingji	/s/ Zhang Yimin	/s/ Liu Yunhong	/s/ Du Weifeng
Cai Tingji	Zhang Yimin	Liu Yunhong	Du Weifeng

Supervisors:

/s/ Zuo Qiang	/s/ Li Xiaoxia	/s/ Zhai Yalin
Zuo Qiang	Li Xiaoxia	Zhai Yalin

/s/ zheng Yunrui	/s/ Pan Fei
zheng Yunrui	Pan Fei

Senior Management:

/s/ Zhang Jianbo
Zhang Jianbo


(1)	Corporate Information
	Legal Chinese Name of the Company
	Abbreviation for Legal Chinese Name of the Company
	Legal English Name of the Company			Sinopec Shanghai Petrochemical Company Limited
	Abbreviation for Legal English Name of the Company			SPC
	Legal Representative of the Company			Wang Zhiqing

(2)	Contact Persons and Contact Details
		Secretary to the Board		Securities Affairs Representative
	Name	Zhang Jianbo		Wu Yuhong
	Address	48 Jinyi Road, Jinshan District,		48 Jinyi Road, Jinshan District,
		Shanghai, PRC		Shanghai, PRC
		Postal Code: 200540		Postal Code: 200540
	Tel	8621-57943143		8621-57933728
	Fax	8621-57940050		8621-57940050
	E-mail	zhangjb@spc.com.cn		wuyh@spc.com.cn

(3)	Basic Information
	Registered Address			48 Jinyi Road, Jinshan District, Shanghai, PRC
	Postal Code of Registered Address			200540
	Business Address in PRC			48 Jinyi Road, Jinshan District, Shanghai, PRC
	Postal Code of Business Address in PRC			200540
	Principal Place of Business in Hong Kong			Room 1501, 15/F, AXA Centre, 151 Gloucester Road,
	Website of the Company			Wanchai, Hong Kong
	E-mail address			www.spc.com.cn
				spc@spc.com.cn

(4)	Information Disclosure and Place for Access to Information
	Designated Newspapers for the Publication of Company Announcements		Shanghai Securities News, China Securities Journal and Securities Times
	Websites for the Publication of the Company’s Interim Report		Shanghai Stock Exchange website, Hong Kong Stock Exchange website and the Website of the Company
	Place for Access to the Company’s Interim Report		Secretariat Office to the Board, 48 Jinyi Road, Jinshan District, Shanghai, PRC


(5)	Share Profile of the Company

	Share Type	Place of Listing of the Shares	Stock Abbreviation	Stock Code

	A Shares	Shanghai Stock Exchange		600688
	H Shares	Hong Kong Stock Exchange	SHANGHAI PECHEM	00338
	ADR	New York Stock Exchange	SHI	—

(6)	Changes in Registration

	Date of the Company’s initial registration		29 June 1993
	Initial registration address of the Company		Jinshan Wei, Shanghai, PRC
	First change:
	Date of change of the Company’s registration		12 October 2000
	Change of the registered address of the Company		48 Jinyi Road, Jinshan District, Shanghai, PRC
	SAIC registration number of the Company		310000000021453
	Tax registration number of the Company		310228132212291
	Company and Organization Code		13221229-1

(7)	Other Information


Auditors engaged by the Company (Domestic):
	Name	PricewaterhouseCoopers Zhong Tian LLP
	Address	11/F., PricewaterhouseCoopers Center, 2 Corporate Avenue,
		202 Hubin Road, Huangpu District, Shanghai 200021, PRC

Auditors engaged by the Company (International):
	Name	PricewaterhouseCoopers
	Address	22/F Prince’s Building, Central, Hong Kong

Legal advisors


				20th Floor, Fortune & Finance Center
				No. 5 Dong San Huan Central Road
				Chaoyang District, Beijing, PRC
				Postal Code: 100020


		Hong Kong Law:		Freshfields Bruckhaus Deringer
				11th Floor, Two Exchange Square
				Central, Hong Kong


		United States Law:		Morrison & Foerster
				425 Market Street
				San Francisco, California 94105-2482
				U.S.A


Board Committee Director	Audit Committee	Remuneration and Appraisal Committee		Nomination Committee
Wang Zhiqing				M
Wu Haijun
Gao Jinping
Ye Guohua			M
Jin Qiang
Guo Xiaojun
Lei Dianwu
Mo Zhenglin
Cai Tingji	C
Zhang Yimin			C	C
Liu Yunhong	M
Du Weifeng	M		M	M