REG - China Pet &Chem Corp - Half-year Report <Origin Href="QuoteRef">600028.SS</Origin> - Part 14
29/08/2017 07:08
- Part 14: For the preceding part double click ID:nRSc0740Pm
and cash equivalents and time deposits with financial institutions 160,822 142,497
Other unallocated assets 27,355 25,337
Total assets 1,487,538 1,498,609
Liabilities
Segment liabilities
- Exploration and production 84,838 95,944
- Refining 59,576 82,170
- Marketing and distribution 141,494 133,303
- Chemicals 30,591 32,072
- Corporate and others 90,394 97,080
Total segment liabilities 406,893 440,569
Short-term debts 43,906 56,239
Income tax payable 5,192 6,051
Long-term debts 70,997 72,674
Loans from Sinopec Group Company and fellow subsidiaries 67,801 63,352
Deferred tax liabilities 6,146 7,661
Other unallocated liabilities 42,012 20,828
Total liabilities 642,947 667,374
Total segment liabilities
406,893
440,569
Short-term debts
43,906
56,239
Income tax payable
5,192
6,051
Long-term debts
70,997
72,674
Loans from Sinopec Group Company and fellow subsidiaries
67,801
63,352
Deferred tax liabilities
6,146
7,661
Other unallocated liabilities
42,012
20,828
Total liabilities
642,947
667,374
34 SEGMENT REPORTING (Continued)
(1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be
used for more than one year.
Six-month periods ended 30 June
2017 2016
RMB million RMB million
Capital expenditure
Exploration and production 6,870 5,168
Refining 3,672 2,774
Marketing and distribution 2,500 2,610
Chemicals 2,594 2,440
Corporate and others 317 482
15,953 13,474
Depreciation, depletion and amortisation
Exploration and production 32,097 26,348
Refining 8,669 8,488
Marketing and distribution 7,575 7,038
Chemicals 5,970 6,300
Corporate and others 906 931
55,217 49,105
Impairment losses on long-lived assets
Exploration and production 3,487 -
Refining 166 1,108
Marketing and distribution - 31
Chemicals 309 118
3,962 1,257
Exploration and production
3,487
-
Refining
166
1,108
Marketing and distribution
-
31
Chemicals
309
118
3,962
1,257
(2) Geographical information
The following tables set out information about the geographical information of the Group's external sales and the Group's
non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of
geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on
the geographical location of the assets.
Six-month periods ended 30 June
2017 2016
RMB million RMB million
External sales
Mainland China 865,869 704,300
Others 299,968 174,920
1,165,837 879,220
1,165,837
879,220
30 June 31 December
2017 2016
RMB million RMB million
Non-current assets
Mainland China 967,644 1,000,209
Others 42,636 45,887
1,010,280 1,046,096
1,010,280
1,046,096
35 PRINCIPAL SUBSIDIARIES
At 30 June 2017, the following list contains the particulars of subsidiaries which principally affected the results, assets
and liabilities of the Group.
Interests
Particulars of Interests held held by
issued capital by the non-controlling
Name of company (million) Company % interests % Principal activities
Sinopec International Petroleum Exploration and RMB 8,000 100.00 - Investment in exploration, production and
Production Limited ("SIPL") sale of petroleum and natural gas
Sinopec Great Wall Energy & Chemical RMB 20,739 100.00 - Coal chemical industry investment
Company Limited management, production and sale
of coal chemical products
Sinopec Yangzi Petrochemical Company Limited RMB 13,203 100.00 - Manufacturing of intermediate
petrochemical products and
petroleum products
Sinopec Pipeline Storage & Transportation RMB 12,000 100.00 - Pipeline storage and transportation
Company Limited of crude oil
Sinopec Yizheng Chemical Fibre Limited RMB 4,000 100.00 - Production and sale of polyester
Liability Company chips and polyester fibres
Sinopec Lubricant Company Limited RMB 3,374 100.00 - Production and sale of refined
petroleum products, lubricant base
oil, and petrochemical materials
Sinopec Qingdao Petrochemical Company Limited RMB 1,595 100.00 - Manufacturing of intermediate
petrochemical products and
petroleum products
Sinopec Chemical Sales Company Limited RMB 1,000 100.00 - Marketing and distribution of
petrochemical products
China International United Petroleum and RMB 3,000 100.00 - Trading of crude oil and
Chemical Company Limited petrochemical products
Sinopec Overseas Investment Holding Limited ("SOIH") USD 1,638 100.00 - Investment holding
Sinopec Catalyst Company Limited RMB 1,500 100.00 - Production and sale of catalyst products
China Petrochemical International Company Limited RMB 1,400 100.00 - Trading of petrochemical products
Sinopec Beihai Refining and Chemical Limited RMB 5,294 98.98 1.02 Import and processing of crude oil,
Liability Company production, storage and sale of
petroleum products and
petrochemical products
Sinopec Qingdao Refining and Chemical RMB 5,000 85.00 15.00 Manufacturing of intermediate
Company Limited petrochemical products and
petroleum products
Sinopec Zhanjiang Dongxing Petrochemical RMB 4,397 75.00 25.00 Manufacturing of intermediate
Company Limited petrochemical products and
petroleum products
Sinopec Hainan Refining and Chemical RMB 3,986 75.00 25.00 Manufacturing of intermediate
Company Limited petrochemical products and
petroleum products
Sinopec Marketing Company Limited RMB 28,403 70.42 29.58 Marketing and distribution of refined
("Marketing Company") petroleum products
Sinopec-SK(Wuhan) Petrochemical Company Limited RMB 6,270 65.00 35.00 Production, sale, research and
("Zhonghan Wuhan") development of ethylene and
downstream byproducts
Sinopec Kantons Holdings Limited HKD 248 60.34 39.66 Trading of crude oil and petroleum
("Sinopec Kantons") products
Gaoqiao Petrochemical Company Limited (Note 1) RMB 10,000 55.00 45.00 Manufacturing of intermediate
petrochemical products
and petroleum products
Sinopec Shanghai Petrochemical Company Limited RMB 10,800 50.56 49.44 Manufacturing of synthetic fibres,
("Shanghai Petrochemical") resin and plastics, intermediate
petrochemical products and
petroleum products
Fujian Petrochemical Company Limited RMB 5,745 50.00 50.00 Manufacturing of plastics,
("Fujian Petrochemical") (i) intermediate petrochemical
products and petroleum products
petroleum products
Fujian Petrochemical Company Limited
RMB 5,745
50.00
50.00
Manufacturing of plastics,
("Fujian Petrochemical") (i)
intermediate petrochemical
products and petroleum products
Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong respectively, all of the above
principal subsidiaries are incorporated and operate their businesses principally in the PRC. All of the above principal
subsidiaries are limited companies.
Note:
(i) The Company consolidated the financial statements of the entity because it is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity.
35 PRINCIPAL SUBSIDIARIES (Continued)
Summarised financial information on subsidiaries with material non-controlling interests
Set out below are the summarised financial information which the amount before inter-company eliminations for each
subsidiary that has non-controlling interests that are material to the Group.
Summarised consolidated balance sheet
Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical Sinopec Kantons Zhonghan Wuhan
At At At At At At At At At At At At
30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million
Current assets 131,655 121,260 18,884 18,116 18,262 14,876 567 926 1,130 1,352 1,616 1,489
Current liabilities (161,987) (168,366) (7,394) (824) (12,219) (8,942) (157) (812) (2,645) (2,891) (5,605) (7,521)
Net current (liabilities)/assets (30,332) (47,106) 11,490 17,292 6,043 5,934 410 114 (1,515) (1,539) (3,989) (6,032)
Non-current assets 243,708 246,514 38,183 40,067 18,867 19,070 9,635 7,845 13,280 13,228 14,058 14,686
Non-current liabilities (1,712) (1,460) (31,249) (39,322) - - (721) (721) (2,570) (3,101) (21) -
Net non-current assets 241,996 245,054 6,934 745 18,867 19,070 8,914 7,124 10,710 10,127 14,037 14,686
Net assets 211,664 197,948 18,424 18,037 24,910 25,004 9,324 7,238 9,195 8,588 10,048 8,654
Attributable to owners of the Company 143,844 134,393 3,164 2,784 12,452 12,500 4,662 3,619 5,529 5,162 6,531 5,625
Attributable to non-controlling interests 67,820 63,555 15,260 15,253 12,458 12,504 4,662 3,619 3,666 3,426 3,517 3,029
Net assets
211,664
197,948
18,424
18,037
24,910
25,004
9,324
7,238
9,195
8,588
10,048
8,654
Attributable to owners of the Company
143,844
134,393
3,164
2,784
12,452
12,500
4,662
3,619
5,529
5,162
6,531
5,625
Attributable to non-controlling interests
67,820
63,555
15,260
15,253
12,458
12,504
4,662
3,619
3,666
3,426
3,517
3,029
Summarised consolidated statement of comprehensive income
Six-month periods ended 30 June Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical Sinopec Kantons Zhonghan Wuhan
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million
Turnover 604,612 499,651 2,756 2,449 43,081 36,969 3,003 2,420 835 725 8,045 4,196
Profit/(loss) for the period 14,380 12,436 561 (166) 2,603 3,154 1,510 1,435 621 431 1,442 46
Total comprehensive income 14,114 12,625 137 265 2,603 3,154 1,510 1,435 704 291 1,442 46
Comprehensive income attributable to 4,664 4,134 7 312 1,289 1,562 755 718 270 115 505 16
non-controlling interests
Dividends paid to non-controlling 440 1,071 - - 1,339 559 - - 30 21 - -
interests
312
1,289
1,562
755
718
270
115
505
16
Dividends paid to non-controlling
interests
440
1,071
-
-
1,339
559
-
-
30
21
-
-
Summarised consolidated statement of cash flows
Six-month periods ended 30 June Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical Sinopec Kantons Zhonghan Wuhan
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million RMB million
Net cash generated from/(used in) 17,563 18,615 1,976 1,131 2,350 4,614 (578) 93 824 650 1,296 800
operating activities
Net cash (used in)/generated from (10,708) (3,924) (857) 3,578 111 (6) (488) 5 111 (2,632) (1,235) (890)
investing activities
Net cash (used in)/generated from (7,427) (4,753) 261 (5,144) 63 (1,236) 516 (3) (1,016) 1,521 (183) (36)
financing activities
Net (decrease)/increase in cash and (572) 9,938 1,380 (435) 2,524 3,372 (550) 95 (81) (461) (122) (126)
cash equivalents
Cash and cash equivalents at 1 January 14,373 14,914 3,045 2,042 5,441 1,077 717 101 289 886 134 260
Effect of foreign currency exchange (127) 213 (89) 30 (9) 2 - - 7 11 - -
rate changes
Cash and cash equivalents at 30 June 13,674 25,065 4,336 1,637 7,956 4,451 167 196 215 436 12 134
101
289
886
134
260
Effect of foreign currency exchange
rate changes
(127)
213
(89)
30
(9)
2
-
-
7
11
-
-
Cash and cash equivalents at 30 June
13,674
25,065
4,336
1,637
7,956
4,451
167
196
215
436
12
134
36 FINANCIAL RISK MANAGEMENT AND FAIR VALUES
Overview
Financial assets of the Group include cash and cash equivalents, time deposits with financial institutions, investments,
trade accounts receivable, bills receivable, amounts due from Sinopec Group Company and fellow subsidiaries, amounts due
from associates and joint ventures, available-for-sale financial assets, derivative financial instruments and other
receivables. Financial liabilities of the Group include short-term and long-term debts, loans from Sinopec Group Company
and fellow subsidiaries, trade accounts payable, bills payable, amounts due to Sinopec Group Company and fellow
subsidiaries, derivative financial instruments and other payables.
The Group has exposure to the following risks from its uses of financial instruments:
‧ credit risk;
‧ liquidity risk;
‧ market risk.
The Board of Directors has overall responsibility for the establishment, oversight of the Group's risk management
framework, and developing and monitoring the Group's risk management policies.
The Group's risk management policies are established to identify and analyse the risks faced by the Group, and set
appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are
reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and
management controls and procedures, aims to develop a disciplined and constructive control environment in which all
employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of
risk management controls and procedures, the results of which are reported to the Group's audit committee.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions and
receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits
only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group's trade
accounts receivable relate to sales of petroleum and chemical products to related parties and third parties operating in
the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 30
June 2017, except the amounts due from Sinopec Group Company and fellow subsidiaries. Management performs ongoing credit
evaluations of the Group's customers' financial condition and generally does not require collateral on trade accounts
receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's
expectations.
The carrying amounts of cash and cash equivalents, time deposits with financial institutions, trade accounts and bills
receivables, derivative financial instruments and other receivables, represent the Group's maximum exposure to credit risk
in relation to financial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's
approach in managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to
the Group's reputation. Management prepares monthly cash flow budget to ensure that the Group will always have sufficient
liquidity to meet its financial obligations as they fall due. The Group arranges and negotiates financing with financial
institutions and maintains a certain level of standby credit facilities to reduce the Group's liquidity risk.
At 30 June 2017, the Group has standby credit facilities with several PRC financial institutions which provide borrowings
up to RMB 366,899 million (2016: RMB 256,375 million) on an unsecured basis, at a weighted average interest rate of 3.24%
per annum (2016: 3.57%). At 30 June 2017, the Group's outstanding borrowings under these facilities were RMB 48,855 million
(2016: RMB 36,933 million) and were included in debts.
36 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
Liquidity risk (Continued)
The following table sets out the remaining contractual maturities at the balance sheet date of the Group's financial
liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual
rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group would
be required to repay:
30 June 2017
Total
contractual Within More than 1 More than 2
Carrying undiscounted 1 year or year but less years but less More than
amount cash flow on demand than 2 years than 5 years 5 years
RMB million RMB million RMB million RMB million RMB million RMB million
Short-term debts 43,906 44,766 44,766 - - -
Long-term debts 70,997 83,402 2,698 19,663 38,843 22,198
Loans from Sinopec Group Company and
fellow subsidiaries 67,801 68,099 23,116 2,103 42,880 -
Trade accounts payable 170,116 170,116 170,116 - - -
Bills payable 6,162 6,162 6,162 - - -
Accrued expenses and other payables 91,360 91,360 91,360 - - -
450,342 463,905 338,218 21,766 81,723 22,198
-
-
Accrued expenses and other payables
91,360
91,360
91,360
-
-
-
450,342
463,905
338,218
21,766
81,723
22,198
31 December 2016
Total
contractual Within More than 1 More than 2
Carrying undiscounted 1 year or year but less years but less More than
amount cash flow on demand than 2 years than 5 years 5 years
RMB million RMB million RMB million RMB million RMB million RMB million
Short-term debts 56,239 57,515 57,515 - - -
Long-term debts 72,674 85,021 2,672 27,277 30,535 24,537
Loans from Sinopec Group Company and
fellow subsidiaries 63,352 63,678 18,790 2,092 42,796 -
Trade accounts payable 174,301 174,301 174,301 - - -
Bills payable 5,828 5,828 5,828 - - -
Accrued expenses and other payables 81,781 81,781 81,781 - - -
454,175 468,124 340,887 29,369 73,331 24,537
-
-
Accrued expenses and other payables
81,781
81,781
81,781
-
-
-
454,175
468,124
340,887
29,369
73,331
24,537
Management believes that the Group's current cash on hand, expected cash flows from operations and available standby credit
facilities from financial institutions will be sufficient to meet the Group's short-term and long-term capital
requirements.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of
market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the
return on risk.
Currency risk
Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in
which they are measured. The Group's currency risk exposure primarily relates to short-term and long-term debts and loans
from Sinopec Group Company and fellow subsidiaries denominated in USD. The Group enters into foreign exchange contracts to
manage its currency risk exposure.
Included in short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries of the Group are
the following amounts denominated in a currency other than the functional currency of the entity to which they relate:
30 June 31 December
2017 2016
million million
Gross exposure arising from loans
USD USD 156 USD 126
USD 156
USD 126
36 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
Currency risk (Continued)
A 5 percent strengthening/weakening of Renminbi against the following currencies at 30 June 2017 and 31 December 2016 would
have increased/decreased net profit for the period/year of the Group by the amounts shown below. This analysis has been
determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied
to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables,
in particular interest rates, remain constant. The analysis is performed on the same basis for 2016.
30 June 31 December
2017 2016
RMB million RMB million
USD 40 33
33
Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are
substantially denominated in the functional currency of respective entity within the Group.
Interest rate risk
The Group's interest rate risk exposure arises primarily from its short-term and long-term debts. Debts bearing interest at
variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk
respectively. The interest rates of short-term and long-term debts, and loans from Sinopec Group Company and fellow
subsidiaries of the Group are disclosed in Note 26.
As at 30 June 2017, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with
all other variables held constant, would decrease/increase the Group's net profit for the period by approximately RMB 408
million (2016: RMB decrease/increase 327 million). This sensitivity analysis has been determined assuming that the change
of interest rates was applied to the Group's debts outstanding at the balance sheet date with exposure to cash flow
interest rate risk. The analysis is performed on the same basis for 2016.
Commodity price risk
The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude
oil, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical
products could have significant impact on the Group. The Group uses derivative financial instruments, including commodity
futures and swaps, to manage a portion of this risk. As at 30 June 2017, the Group had certain commodity contracts of crude
oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. The fair
values of these derivative financial instruments as at 30 June 2017 are set out in Notes 24 and 28.
As at 30 June 2017, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative
financial instruments, with all other variables held constant, would impact the fair value of derivative financial
instruments, which would decrease/increase the Group's profit for the period by approximately RMB 520 million (2016:
decrease/increase RMB 634 million), and decrease/increase the Group's other reserves by approximately RMB1,284 million
(2016: decrease/increase RMB 4,007 million). This sensitivity analysis has been determined assuming that the change in
prices had occurred at the balance sheet date and the change was applied to the Group's derivative financial instruments at
that date with exposure to commodity price risk. The analysis is performed on the same basis for 2016.
Fair values
(i) Financial instruments carried at fair value
The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date
across the three levels of the fair value hierarchy defined in IFRS 7, 'Financial Instruments: Disclosures', with the fair
value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to
that fair value measurement. The levels are defined as follows:
‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical
financial instruments.
‧ Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using
valuation techniques in which all significant inputs are directly or indirectly based on observable market data.
‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on
observable market data.
36 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)
Fair values (Continued)
(i) Financial instruments carried at fair value (Continued)
At 30 June 2017
Level 1 Level 2 Level 3 Total
RMB million RMB million RMB million RMB million
Assets
Available-for-sale financial assets:
- Listed 238 - - 238
Derivative financial instruments:
- Derivative financial assets 234 896 - 1,130
472 896 - 1,368
Liabilities
Derivative financial instruments:
- Derivative financial liabilities 164 396 - 560
164 396 - 560
- Derivative financial liabilities
164
396
-
560
164
396
-
560
At 31 December 2016
Level 1 Level 2 Level 3 Total
RMB million RMB million RMB million RMB million
Assets
Available-for-sale financial assets:
- Listed 262 - - 262
Derivative financial instruments:
- Derivative financial assets 29 733 - 762
291 733 - 1,024
Liabilities
Derivative financial instruments:
- Derivative financial liabilities 2,586 1,886 - 4,472
2,586 1,886 - 4,472
- Derivative financial liabilities
2,586
1,886
-
4,472
2,586
1,886
-
4,472
During the six-month period ended 30 June 2017, there were no transfers between instruments in Level 1 and Level 2.
(ii) Fair values of financial instruments carried at other than fair value
The disclosures of the fair value estimates, and their methods and assumptions of the Group's financial instruments, are
made to comply with the requirements of IFRS 7 and IAS 39 and should be read in conjunction with the Group's consolidated
financial statements and related notes. The estimated fair value amounts have been determined by the Group using market
information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret
market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Group could realise in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness
and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these
instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market
interest rates offered to the Group from 1.75% to 4.90 % (2016: 1.06% to 4.90%). The following table presents the carrying
amount and fair value of the Group's long-term indebtedness other than loans from Sinopec Group Company and fellow
subsidiaries at 30 June 2017 and 31 December 2016:
30 June 31 December
2017 2016
RMB million RMB million
Carrying amount 95,840 110,969
Fair value 95,676 109,308
95,676
109,308
The Group has not developed an internal valuation model necessary to estimate the fair values of loans from Sinopec Group
Company and fellow subsidiaries as it is not considered practicable to estimate their fair values because the cost of
obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation, the
Group's existing capital structure and the terms of the borrowings.
Investments in unquoted equity securities are individually and in the aggregate not material to the Group's financial
condition or results of operations. There are no listed market prices for such interests in the PRC and, accordingly, a
reasonable estimate of fair value could not be made without incurring excessive costs. The Group intends to hold these
unquoted other investments in equity securities for long term purpose.
Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially
different from their fair values at 30 June 2017 and 31 December 2016.
37 ACCOUNTING ESTIMATES AND JUDGEMENTS
The Group's financial condition and results of operations are sensitive to accounting methods, assumptions and estimates
that underlie the preparation of the consolidated interim financial statements. Management bases the assumptions and
estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the
basis for making judgements about matters that are not readily apparent from other sources. On an ongoing basis, management
evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.
The selection of critical accounting policies, the judgements and other uncertainties affecting application of such
policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when
reviewing the consolidated interim financial statements. The significant accounting policies are set forth in Note 2.
Management believes the following critical accounting policies involve the most significant judgements and estimates used
in the preparation of the consolidated interim financial statements.
Oil and gas properties and reserves
The accounting for the exploration and production's oil and gas activities is subject to accounting rules that are unique
to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts
method and the full cost method. The Group has elected to use the successful efforts method. The successful efforts method
reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory
efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other
exploratory costs. Under the full cost method, these costs are capitalised and written-off or depreciated over time.
Engineering estimates of the Group's oil and gas reserves are inherently imprecise and represent only approximate amounts
because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding
the engineering criteria that have to be met before estimated oil and gas reserves can be designated as "proved". Proved
and proved developed reserves estimates are updated at least annually and take into account recent production and technical
information about each field. In addition, as prices and cost levels change from year to year, the estimate of proved and
proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is
reflected on a prospective basis in relation to depreciation rates. Oil and gas reserves have a direct impact on the
assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If
proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an
immediate write-down of the property's carrying amount.
Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking
into consideration the anticipated method of dismantlement required in accordance with industry practices in similar
geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present
values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts
recognised as provisions for dismantlement costs.
Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation
expense, impairment loss and future dismantlement costs. Capitalised costs of proved oil and gas properties are amortised
on a unit-of-production method based on volumes produced and reserves.
Impairment for long-lived assets
If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered
"impaired", and an impairment loss may be recognised in accordance with IAS 36 "Impairment of Assets". The carrying amounts
of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the
carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their
recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to
recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of
the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market
prices for the Group's assets or cash-generating units are not readily available. In determining the value in use, expected
cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires
significant judgement relating to level of sale volume, selling price and amount of operating costs. Management uses all
readily available information in determining an amount that is a reasonable approximation of recoverable amount, including
estimates based on reasonable and supportable assumptions and projections of sale volume, selling price and amount of
operating costs.
Depreciation
Property, plant and equipment, other than oil and gas properties, are depreciated on a straight-line basis over the
estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the
estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be
recorded during any reporting period. The useful lives are based on the Group's historical experience with similar assets
and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there
are significant changes from previous estimates.
37 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)
Impairment for bad and doubtful debts
Management estimates impairment losses for bad and doubtful debts resulting from the inability of the Group's customers to
make the required payments. Management bases the estimates on the ageing of the accounts receivable balance, customer
credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate,
actual write-offs would be higher than estimated.
Allowance for diminution in value of inventories
If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of
inventories is recognised. 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
operating costs. 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.
38 PARENT AND ULTIMATE HOLDING COMPANY
The directors consider the parent and ultimate holding company of the Group as at 30 June 2017 is Sinopec Group Company, a
state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use.
(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE
WITH THE ACCOUNTING POLICIES COMPLYING WITH ASBE AND IFRS (UNAUDITED)
Other than the differences in the classifications of certain financial statements captions and the accounting for the items
described below, there are no material differences between the Group's consolidated financial statements prepared in
accordance with the accounting policies complying with ASBE and IFRS. The reconciliation presented below is included as
supplemental information, is not required as part of the basic financial statements and does not include differences
related to classification, presentation or disclosures. Such information has not been subject to independent audit or
review. The major differences are:
(I) GOVERNMENT GRANTS
Under ASBE, grants from the government are credited to capital reserve if required by relevant governmental regulations.
Under IFRS, government grants relating to the purchase of fixed assets are recognised as deferred income and are
transferred to the income statement over the useful life of these assets.
(II) SAFETY PRODUCTION FUND
Under ASBE, safety production fund should be recognised in profit or loss with a corresponding increase in reserve
according to PRC regulations. Such reserve is reduced for expenses incurred for safety production purposes or, when safety
production related fixed assets are purchased, is reduced by the purchased cost with a corresponding increase in the
accumulated depreciation. Such fixed assets are not depreciated thereafter. Under IFRS, payments are expensed as incurred,
or capitalised as fixed assets and depreciated according to applicable depreciation methods.
Effects of major differences between the net profit under ASBE and the profit for the period under IFRS are analysed as
follows:
Note Six-month periods ended 30 June
2017 2016
RMB million RMB million
Net profit under ASBE 36,117 26,381
Adjustments:
Government grants (i) 55 55
Safety production fund (ii) 870 706
Profit for the period under IFRS* 37,042 27,142
706
Profit for the period under IFRS*
37,042
27,142
Effects of major differences between the shareholders' equity under ASBE and the total equity under IFRS are analysed as
follows:
Note 30 June 31 December
2017 2016
RMB million RMB million
Shareholders' equity under ASBE 845,826 832,525
Adjustments:
Government grants (i) (1,235) (1,290)
Total equity under IFRS* 844,591 831,235
Total equity under IFRS*
844,591
831,235
* The figures are extracted from the consolidated financial statements prepared in accordance with the accounting
policies complying with IFRS which have been audited by PricewaterhouseCoopers.
DOCUMENTS FOR INSPECTION
The following documents will be available for inspections during the normal business hours after 25 August 2017 (Friday) at
the legal address of Sinopec Corp. upon the requests by the relevant regulatory authorities and shareholders in accordance
with the Articles of Association of Sinopec Corp. and relevant laws and regulations:
1 The original interim report for the first half of 2017 signed by Mr. Wang Yupu., Chairman of the Board;
2 The original audited financial statements and consolidated financial statements of Sinopec Corp. for the six-month
period ended 30 June 2017 prepared in accordance with IFRS and the ASBE, signed by Mr. Wang Yupu, Chairman of the Board,
Mr. Dai Houliang, Vice Chairman and President, Mr. Wang Dehua, Chief Financial Officer and head of accounting department;
3 The original auditors'reports in respect of the above financial statements signed by the auditors; and
4 Copies of documents and announcements published by Sinopec Corp. in the newspapers designated by the CSRC during the
reporting period.
By Order of the Board
Wang Yupu
Chairman
Beijing, PRC, 25 August 2017
If there is any inconsistency between the Chinese and English version of this interim report, the Chinese version shall
prevail.
This information is provided by RNS
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