REG - China Pet &Chem Corp - Half-year Report <Origin Href="QuoteRef">600028.SS</Origin> - Part 3
29/08/2017 07:08
- Part 3: For the preceding part double click ID:nRSc0740Pb
institutions to the Company
was RMB 366.899 billion in total, facilitating the Company to get such amount of unsecured loans. As of 30 June 2017, the
Company has accessed RMB 48.855 billion which was recorded into loans from the aforesaid credit line and all the matured
debts have been repaid on time. During the reporting period, Sinopec Corp. fulfilled relevant undertakings in the
prospectus of corporate bonds and had no significant matters which could influence the Company's operation and debt paying
ability.
On 18 April 2013, Sinopec Capital (2013) Limited, a wholly-owned overseas subsidiary of Sinopec Corp., issued senior notes
guaranteed by Sinopec Corp. with four different maturities, 3 years, 5 years, 10 years and 30 years. The 3-year notes
principal totaled USD 750 million, with an annual interest rate of 1.250% and had been repaid in 2016; the 5-year notes
principal totaled USD 1 billion, with an annual interest rate of 1.875%; the 10-year notes principal totaled USD 1.25
billion, with an annual interest rate of 3.125%; and the 30-year notes principal totaled USD 500 million, with an annual
interest rate of 4.250%. These notes were listed on the Hong Kong Stock Exchange on 25 April 2013, with interest payable
semi-annually. The first payment of interest was made on 24 October 2013. During the reporting period, the Company has paid
in full the current-period interests of all notes with maturities of 5 years, 10 years and 30 years.
7 CORE COMPETITIVENESS ANALYSIS
The Company is a large scale integrated energy and petrochemical company with upstream, mid-stream and downstream
operations. The Company is a large scaled oil and gas producer in China. In terms of refining capacity, it ranks first in
China. Equipped with a well-developed refined oil products sales network, the Company is the largest supplier of refined
oil products in China; and in terms of ethylene production capacity, the Company takes the first position in China, and has
a well-established marketing network for chemical products.
The integrated business structure of the Company carries strong advantages in synergy among its various business segments,
enabling the Company to continuously tap into potentials in attaining an efficient and comprehensive utilisation of its
resources, and endowed the Company with strong resistance against risks, as well as remarkable capabilities in sustaining
profitability.
The Company enjoys a favorable positioning with its operations located close to the consumer markets. Along with the steady
growth of Chinese economy, sales volume of both oil products and chemical products of the Company has been increasing
steadily over the years. Through continuous and specialised marketing efforts, the Company's capability in international
operations and market expansion has been further enhanced.
The Company owns a team of professionals and expertise engaged in the production of oil and gas, operation of refineries
and chemical plants, as well as marketing activities. The Company applies fine management measures with its remarkable
capabilities in managing operations, and enjoys a favorable operational cost advantage in its downstream businesses.
The Company has formulated a well-established technology system and mechanism, and owns competent teams specialising in
scientific research covering a wide range of subjects. The four platforms for technology advancement is taking shape, which
includes exploration and development of oil and gas, refining, chemicals and strategic emerging technology. With its
overall technologies reaching state of the top level in the global arena, and some of them taking the lead globally, the
Company enjoys strong capability for technical innovations.
The Company always attaches great importance to fulfilling social responsibilities, and carries out the green and low
carbon strategy to pursue a sustainable development. Moreover, the Company enjoys an outstanding brand name, plays an
important role in the economy and is a renowned company in China.
8 CONNECTED TRANSACTIONS DURING THE REPORTING PERIOD
Sinopec Corp. and China Petrochemical Corporation entered into a number of agreements with respect to continuing connected
transactions, including the mutual supply agreement, the community services agreement, the land use rights leasing
agreement, the properties leasing agreement, the intellectual property license agreement and safety production insurance
fund document.
Pursuant to the above-mentioned agreements on continuing connected transactions, the aggregate amount of the connected
transactions of the Company during the reporting period was RMB 154.050 billion. Among the expenses, purchase expense
amounted to RMB 103.374 billion, representing 10.40% of the total amount of this type of transaction for the reporting
period, including purchases of products and services (procurement, storage, exploration and development services, and
production-related services) of RMB 95.742 billion, auxiliary and community services of RMB 3.209 billion, housing rent of
RMB 207 million, rent for use of land of RMB 3.988 billion, and interest expenses of RMB 228 million. Sales income amounted
to RMB 50.676 billion, representing 4.17% of the total amount of this type of transaction for the reporting period,
including RMB 50.336 billion for sales of products and services, RMB 18 million for agency commission income, and RMB 322
million for interest income.
9 FUNDS PROVIDED BETWEEN RELATED PARTIES
Unit: RMB million
Related parties Relations Funds to related parties Funds from related parties
Balance atthe beginningof the period Amount incurred Balance atthe end ofthe period Balance atthe beginningof the period Amount incurred Balance atthe endof the period
China Petrochemical Group Parent company and its subordinate companies* 26,464 604 27,068 29,541 (7,906) 21,635
Other related parties Associates and joint ventures 6,008 (331) 5,677 55 (3) 52
Total 32,472 273 32,745 29,596 (7,909) 21,687
Reason for provision of funds between related parties Loans and other accounts receivable and accounts payable
Impacts on operating results and financial position No material negative impact
273
32,745
29,596
(7,909)
21,687
Reason for provision of funds between related parties
Loans and other accounts receivable and accounts payable
Impacts on operating results and financial position
No material negative impact
*: Subordinate companies includes subsidiaries, joint ventures and associates.
10 SIGNIFICANT LITIGATION AND ARBITRATION RELATING TO THE COMPANY
No significant litigation, arbitration relating to the Company occurred during the reporting period.
11 OTHER MATERIAL CONTRACTS
Saved as disclosed by Sinopec Corp., the Company did not enter into any significant contracts which are subject to
disclosure obligations during the reporting period.
12 CREDIBILITY FOR THE COMPANY, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER
During the reporting period, the Company and its controlling shareholder did not have any court's effective judgments which
should be executed or any large amount of debt which should be repaid.
13 DEPOSITS AT SINOPEC FINANCE CO., LTD AND SINOPEC CENTURY BRIGHT CAPITAL INVESTMENT LTD.
During the reporting period, the deposit of the Company in Sinopec Finance Co., Ltd. (Finance Company) and Sinopec Century
Bright Capital Investment Ltd. (Century Bright Company) was strictly in compliance with the cap as approved at the general
meeting of shareholders. During daily operations, the deposits of Sinopec Corp. in the Finance Company and Century Bright
Company can be fully withdrawn for the Company's use.
14 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE
Unit: RMB million
Major external guarantees (excluding guarantees for controlled subsidiaries)
Guarantor Relationship withthe Company Name of guaranteedcompanies Amount Transaction date(date of signing) Period of guarantee Type Whethercompletedor not Whetheroverdueor not Amountsof overdueguarantee Counter-guaranteed Whetherguaranteedfor connectedparties(yes or no)1
Sinopec Corp. The listed companyitself Yueyang Sinopec Corp.Shell Coal Gasification 45 10 December 2003 10 December 2003 -10 December 2017 Joint obligations No No - No No
Corporation
Sinopec Corp. The listed companyitself Zhongtian HechuangEnergy Co., Ltd. 12,734 25 May 2016 25 May 2016 - 31 December2023 (the mature date is Joint obligations No No - No Yes
estimated) 10 December 2017
Sinopec Corp. The listed companyitself Yanbu Aramco SinopecRefining Company(YASREF) Limited no specificamount agreed, guaranteeon contract 31 December 2014 30 years from the dateYASRFE requires supply ofhydrogen from AirLiquedieArabia LLC. Joint obligations No No - No No
performance
Sinopec Great WallEnergy Chemical Wholly ownedsubsidiary Zhong An United CoalChemical Co., Ltd. 940 18 April 2014 18 April 2014 - 17 April 2026 Joint obligations No No - No No
Industry Co., Ltd
SSI Controlled subsidiary New Bright International Development Ltd./ 10,586 Joint obligations No No - Yes No
Sonangol E.P.
Total amount of guarantees provided during the reporting period 2 1,539
Total amount of guarantee balance at the end of reporting period2 (A) 19,542
Guarantees by the Company to the controlled subsidiaries
Total amount of guarantee provided to controlled subsidiaries during the reporting period 6,097
Total amount of guarantee for controlled subsidiaries balance at the end of the reporting period (B) 24,647
Total amount of guarantees provided by the Company (including those provided for controlled subsidiaries)
Total amount of guarantees (A+B) 44,189
The proportion of the total amount of guarantees to the Sinopec Corp.'s net assets 6.15%
Guarantees provided for shareholders, de facto controller and connected parties (C) 2,223
Amount of debt guarantees provided directly or indirectly for the companies with liabilities to assets ratio over 70% 2,520
(D)
The amount of guarantees in excess of 50% of the net assets (E) None
Total amount of the above three guarantee items (C+D+E) 4,743
Explanation of guarantee undue that might involve joint and several liabilities None
Explanation of guarantee status None
Total amount of guarantee balance at the end of reporting period2 (A)
19,542
Guarantees by the Company to the controlled subsidiaries
Total amount of guarantee provided to controlled subsidiaries during the reporting period
6,097
Total amount of guarantee for controlled subsidiaries balance at the end of the reporting period (B)
24,647
Total amount of guarantees provided by the Company (including those provided for controlled subsidiaries)
Total amount of guarantees (A+B)
44,189
The proportion of the total amount of guarantees to the Sinopec Corp.'s net assets
6.15%
Guarantees provided for shareholders, de facto controller and connected parties (C)
2,223
Amount of debt guarantees provided directly or indirectly for the companies with liabilities to assets ratio over 70% (D)
2,520
The amount of guarantees in excess of 50% of the net assets (E)
None
Total amount of the above three guarantee items (C+D+E)
4,743
Explanation of guarantee undue that might involve joint and several liabilities
None
Explanation of guarantee status
None
*1: As defined in the Listing Rules of the Shanghai Stock Exchange.
*2: The amount of the guarantees provided during the reporting period and the amount of guarantees outstanding at the end
of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of
the guarantees provided by these subsidiaries is derived from multiplying the guarantees provided by Sinopec Corp.'s
subsidiaries by the percentage of shareholding held by Sinopec Corp. in such subsidiaries.
15 STRUCTURED ENTITY CONTROLLED BY THE COMPANY
None
16 PERFORMANCE OF THE UNDERTAKINGS
Background Type ofUndertaking Party Contents Term forperformance Whether bears deadline or not Whether strictly performed or not
Undertakings Initial Public China 1 Compliance with the connected transaction agreements; From 22 June 2001 No Yes
related toInitial PublicOfferings (IPOs) Offerings Petrochemical Corporation 2 Solving the issues regarding the legality of land-use rights
certificates and property ownership rights certificates within a
specified period of time;
3 Implementation of the Reorganisation Agreement (please refer to the
definition of Reorganisation Agreement in the H share prospectus of
Sinopec Corp.);
4 Granting licenses for intellectual property rights;
5 Avoiding competition within the same industry;
6 Abandonment of business competition and conflicts of interest with
Sinopec Corp.
Otherundertakings Other China Petrochemical Corporation China Petrochemical Corporation would dispose of its minor remaining Within five years, commencing from 15 March 2012 Yes Yes
chemicals business within five years in order to avoid competition with
Sinopec Corp. in the chemicals business.
Given that China Petrochemical Corporation engages in the same or similar Within 10 years from 29 April 2014 or the date when China Petrochemical Corporation acquires the assets Yes Yes
businesses as Sinopec Corp. with regard to the exploration and production
of overseas petroleum and natural gas, China Petrochemical Corporation
granted a 10-year option to Sinopec Corp. with the following provisions:
(i) after a thorough analysis from political, economic and other
perspectives, Sinopec Corp. is entitled to require China Petrochemical
Corporation to sell its overseas oil and gas assets owned as of the date
of the undertaking and still in its possession upon Sinopec Corp.'s
exercise of the option to Sinopec Corp.; (ii) in relation to the overseas
oil and gas assets acquired by China Petrochemical Corporation after the
grant of the undertaking, within 10 years of the completion of such
acquisition, after a thorough analysis from political, economic and other
perspectives, Sinopec Corp. is entitled to require China Petrochemical
Corporation to sell those assets to Sinopec Corp. China Petrochemical
Corporation undertakes to transfer the assets as required by Sinopec
Corp. under aforesaid items (i) and (ii) to Sinopec Corp., provided that
the exercise of such option complies with applicable laws and
regulations, contractual obligations and other procedural requirements.
Given that China Petrochemical Corporation engages in the same or similar businesses as Sinopec Corp. with regard to the
exploration and production of overseas petroleum and natural gas, China Petrochemical Corporation granted a 10-year option
to Sinopec Corp. with the following provisions: (i) after a thorough analysis from political, economic and other
perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell its overseas oil and gas assets
owned as of the date of the undertaking and still in its possession upon Sinopec Corp.'s exercise of the option to Sinopec
Corp.; (ii) in relation to the overseas oil and gas assets acquired by China Petrochemical Corporation after the grant of
the undertaking, within 10 years of the completion of such acquisition, after a thorough analysis from political, economic
and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell those assets to
Sinopec Corp. China Petrochemical Corporation undertakes to transfer the assets as required by Sinopec Corp. under
aforesaid items (i) and (ii) to Sinopec Corp., provided that the exercise of such option complies with applicable laws and
regulations, contractual obligations and other procedural requirements.
Within 10 years from 29 April 2014 or the date when China Petrochemical Corporation acquires the assets
Yes
Yes
Since 2012, China Petrochemical Corporation has earnestly fulfilled its undertaking in eliminating competitions in chemical
business with Sinopec Corp. through: (1) subscribing capital contribution of joint ventures controlled by Sinopec Corp., by
way of injecting net assets of certain chemical business and cash; (2) authorising Sinopec Corp. to be in charge of
production plan, management and sales of the remaining chemical business. The competition in chemical business between
China Petrochemical Corporation and Sinopec Corp. has been eliminated.
As of the date of this interim report, Sinopec Corp. had no undertakings in respect of profits, asset injections or asset
restructuring that had not been fulfilled, nor did Sinopec Corp. make any profit forecast in relation to any asset or
project.
17 IMPLEMENTATION OF THE SHARE INCENTIVE SCHEME DURING THE REPORTING PERIOD
Sinopec Corp. did not implement any share incentive scheme during the reporting period.
18 SHARE OPTION INCENTIVE SCHEME OF SINOPEC CORP.'S SUBSIDIARY, SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED (SHANGHAI
PETRO)
(1) Initial Grant of the Share Option:
Grant Date: 6 January 2015
Number of Participants: 214 persons
Number of Share Options Granted: 38,760,000
(2) Outstanding share options held by Directors, chief executive and substantial shareholders as at the end of the
reporting period
As at the beginning of the reporting period, the total number of outstanding A share options held by five directors, chief
executives and substantial shareholders of Shanghai Petro and Mr. Jin Wenmin, vice president of Shanghai Petro, were
2,540,000. As at the end of the Reporting Period, the total number of outstanding A share options held by four persons,
including chairman and president of Shanghai Petro Mr. Wang Zhiqing; vice chairman and vice president Mr. Gao Jinping;
director and vice president Mr. Jin Qiang; director, vice president, secretary to the board of Shanghai Petro and joint
company secretary Mr. Guo Xiaojun and vice president Mr. Jin Wenmin were 2,110,000. Former director and chief financial
officer of Shanghai Petro Mr. Ye Guohua resigned on 26 January 2017. Pursuant to the Share Option Incentive Scheme, the
share options granted to him have lapsed.
(3) Outstanding share options granted to employees other than the persons mentioned in item (2)
As at the beginning of the reporting period, the number of outstanding A share options held by Shanghai Petro's key
business personnel were 35,970,000. During the Reporting Period, 900,000 A share options held by Shanghai Petro's key
business personnel lapsed due to termination of employment and other reaons. At the end of the reporting period, the number
of outstanding A share options held by Shanghai Petro's key business personnel was 35,070,000.
(4) Exercise of the Share Options under the Initial Grant
According to the principle disclosed by Shanghai Petro on the determination of exercise price, the exercise price under the
initial grant was RMB4.20 per share (in the event of dividends payment, capitalisation of capital reserves, bonus issue,
subdivision or reduction of shares or allotment of shares during the validity period, the exercise price shall be adjusted
according to the Share Option Incentive Scheme). On 15 June 2016, the 2015 annual profit distribution plan of Shanghai
Petro was considered and passed at its 2015 Annual General Meeting, whereby cash dividend of RMB1.00 was paid for each 10
shares of Shanghai Petro. On 15 June 2017, the 2016 annual profit distribution plan of Shanghai Petro was considered and
passed at its 2016 Annual General Meeting, whereby cash dividend of RMB2.50 was paid for each 10 shares of Shanghai Petro,
and the exercise price was adjusted to RMB3.85 per share accordingly.
(5) 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 of Shanghai Petro 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 40%
following the grant date and ending on the last trading day preceding the expiry
of the 36-month period following the grant date
2nd Exercisable Period Commencing on the first trading day after the expiry of the 36-month period 30%
following the grant date and ending on the last trading day preceding the expiry
of the 48-month period following the grant date
3rd Exercisable Period Commencing on the first trading day after the expiry of the 48-month period 30%
following the grant date and ending on the last trading day preceding the expiry
of the 60-month period following the grant date
of the 60-month period following the grant date
Save as disclosed herein, no A share options of Shanghai Petro were granted pursuant to the Share Option Incentive Scheme
or exercised by any grantees or cancelled or lapsed during the Reporting Period.
(6) Share options exercised as at the report date
At the third meeting of the Ninth Session of the board of Shanghai Petro held on 23 August 2017, "Resolution in respect of
adjustment to the participants list and the number of share options of the A Share Share Option Incentive Scheme of
Shanghai Petro", "Resolution in respect of determination of the exercise date of share options initially granted under A
Share Option Incentive Scheme of Shanghai Petro" and "Resolution in respect of fulfillment of exercise conditions of first
batch of share options initially granted under A Share Option Incentive Scheme of Shanghai Petro and arrangement of
confirmation of the date to exercise options" were considered and passed. A total of 2,410,000 A share share options of
Shanghai Petro held by 15 participants have been cancelled due to their resignations and other reasons. A total of
2,733,000 A share options of Shanghai Petro held by 27 participants have been cancelled after adjustment due to their
position changes and other reasons.
A total of 5,143,000 A share options have been cancelled and the total number of A share options was adjusted to
33,617,000. A total of 14,212,500 A share options of first batch of share options initially granted were exercisable.
19 THE AUDIT FIRM
The appointment of PricewaterhouseCoopers ZhongTian LLP and PricewaterhouseCoopers Certified Public Accountants as Sinopec
Corp.'s external auditors for the year 2017 and the authorisation to the Board to decide their remuneration was approved at
Sinopec's 2016 Annual General Meeting on 28 June 2017. The Company has accrued audit fee of RMB 25.79 million for the first
half of 2017. The interim financial report has been audited by PricewaterhouseCoopers ZhongTian LLP and
PricewaterhouseCoopers Certified Public Accountants. The Chinese certified accountants signing the report are Zhao Jianrong
and Gao Peng from PricewaterhouseCoopers ZhongTian LLP.
20 RISK FACTORS
In the course of its production and operations, the Company will actively take various measures to circumvent operational
risks. However, in practice, it may not be possible to prevent the occurrence of all risks and uncertainties described
below.
Risks with regard to the variations from macroeconomic situation: The business results of the Company are closely related
to Chinese and global economic situation. The development of Chinese economy has entered New Normal. Although various
countries have adopted different kinds of macroeconomic policies to eliminate negative effects caused by lower growth of
global economy, the turnaround of economic recovery still remains uncertain. The Company's business could also be adversely
affected by such factors as the impact on export due to trade protectionism from certain countries, and impact on import
which is likely caused by regional trade agreements and etc.
Risks with regard to the cyclical effects from the industry: The majority of the Company's operating income comes from the
sales of refined oil products and petrochemical products, and part of those businesses and their related products are
cyclic and are sensitive to factors, such as macro-economy, cyclic changes of regional and global economy, the changes of
the production capacity and output, demand of consumers, prices and supply of the raw materials, as well as prices and
supply of the alternative products etc. Although the Company is an integrated company with upstream, midstream and
downstream operations, it can only counteract the adverse influences of industry cycle to some extent.
Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalising
the market entry regulations on petroleum and petrochemicals sector, the sector is still subject to entry regulations to a
certain degree, which include: issuing licenses in relation to exploration and development of crude oil and natural gas,
issuing business licenses for trading crude oil and refined oil, setting caps for retail prices of gasoline, diesel and
other oil products, the imposing of the special oil income levy, formulation of import and export quotas and procedures,
formulation of safety, quality and environmental protection standards and formulation of energy conservation policies. In
addition, the changes which have occurred or might occur in macroeconomic and industry policies such as the opening up of
crude oil import licenses, and further improvement in pricing mechanism of refined oil products, reforming and improvement
in pricing mechanism of natural gas, cost supervision of gas pipeline and access to the market by third party, and
reforming in resource tax and environmental tax, will cause effects on our business operations. Such changes might further
intensify market competition and have certain effect on the operations and profitability of the Company.
Risks with regard to the changes from environmental legislation requirements: Our production activities generate waste
liquids, gases and solids. The Company has built up the supporting effluent treatment systems to reduce and prevent the
pollution to the environment. However, the relevant government authorities may issue and implement much stricter
environmental protection laws and regulations, and adopt much stricter environment protection standards. Under such
situations, the Company may increase expenses in relation to the environment protection accordingly.
Risks from the uncertainties of obtaining additional oil and gas resources: The future sustainable development of the
Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring more oil and
natural gas resources. To obtain more oil and natural gas resources, the Company faces some inherent risks associated with
exploration and development and/or with acquisition activities, and the Company has to invest a large amount of money with
no guarantee of certainty. If the Company fails to acquire more resources through further exploration, development and
acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the
Company may decline overtime which may adversely affect the Company's financial situation and operation performance.
Risks with regard to the external purchase of crude oil: A significant amount of crude oil as needed by the Company is
satisfied through external purchases. In recent years, especially influenced by the mismatch between supply and demand of
crude oil, geopolitics, global economic growth and other factors, the prices of crude oil fluctuated at a low level.
Additionally, the supply of crude oil may even be interrupted due to some extreme major incidents in certain regions.
Although the Company has taken flexible counter measures, it may not fully avoid risks associated with any significant
fluctuation of international crude oil prices and sudden disruption of supply of crude oil from certain regions.
Risks with regard to the operation and natural disasters: The process of petroleum chemical production is exposed to the
risks of inflammation, explosion and environmental pollution and is vulnerable to natural disasters. Such contingencies may
cause serious impact to the community, major financial losses to the Company and grievous injuries to people. The Company
has always been paying great emphasis on the safety of production, and has implemented a strict HSE management system as an
effort to avoid such risks as far as possible. Meanwhile, the main assets and inventories of the Company as well as the
possibility of causing damage to a third party have been insured. However, such measures may not shield the Company from
financial losses or adverse impact resulting from such contingencies.
Investment risks: Petroleum and chemical sector is a capital intensive industry. Although the Company adopted a prudent
investment strategy and conducted rigorous feasibility study on each investment project, certain investment risks may exist
in the sense that expected returns may not be achieved due to major changes in factors such as market environment, prices
of equipment and raw materials, and construction period during the implementation of the projects.
Risks with regard to overseas business development and management: The Company engages in oil and gas exploration, refining
and chemical, warehouse logistics and international trading businesses in some regions outside of China. The Company's
overseas businesses and assets are subject to the jurisdiction of the host country's laws and regulations. In light of the
complicacy of geopolitics, economic and other conditions, including sanctions, barriers to entry, instability in the
financial and taxation policies, contract defaults, the Company's risks with regard to overseas business development and
management could be increased.
Currency risks: At present, China implements an administered floating exchange rate regime based on market supply and
demand which is regulated with reference to a basket of currencies in terms of the exchange rate of Renminbi. As the
Company purchases a significant portion of crude oil in foreign currency which is based on US dollar-denominated prices,
fluctuations in the exchange rate of Renminbi against US dollars and certain other foreign currencies may affect the
Company's purchasing costs of crude oil. Meanwhile, according to domestic pricing mechanism of refined oil products, the
prices of domestic refined oil products fluctuate with Renminbi exchange rate, and the prices of other domestic refined and
chemical products would also be influenced by import price.
Cyber-security risks: the Company devotes significant resources to protecting our digital infrastructure and data against
cyber-attacks, if our systems against cyber-security risk prove to be ineffective, we could be adversely affected by, among
other things, disruptions to our business operations, and loss of proprietary information, including intellectual property,
financial information and employer and customer data, injury to people, property, reputation and environment. As
cyber-security attacks continue to evolve, we may be required to expend additional resources to enhance our protective
measures against cyber-security breaches.
21 INFORMATION ON MAJOR SUBSIDIARIES
The subsidiary whose net profit or investment income accounts for more than 10% of the Company's net profit:
At 30 June 2017 Six-month period ended 30 June 2017
Net profit/ Principal Principal
Company name RegisteredCapital(RMB million) Percentageof shares held(%) Total Assets(RMB million) Net Assets(RMB million) investmentincome(RMB million) BusinessRevenue(RMB million) BusinessProfit(RMB million) Principal business
Sinopec Marketing 28,403 70.42 375,363 211,664 14,168 589,991 546,530 Sales of refined
Co., Ltd. oil products
oil products
22 ENVIRONMENTAL PROTECTION BY SINOPEC CORP. AND ITS SUBSIDIARIES
Some branches and subsidiaries of Sinopec Corp. are major pollutant discharging companies stipulated by China's
environmental protection authorities. Pursuant to relevant regulations and specific requirements of local related
authorities, environmental information of these companies has been disclosed publicly. For more details, please refer to
the website of relevant local government.
Directors, Supervisors and Senior Management
1 INFORMATION ON APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT
On 28 June 2017, Sinopec Corp. convened the annual general meeting for the year 2016, during which Mr. Li Yunpeng was
elected as the Non-executive Director of the sixth session of the Board, and Mr. Zhao Dong was elected as the
Non-Employees' Representative Supervisor of the sixth session of the Board of Supervisors.
On 28 Jun 2017, through democratic election procedure, Mr. Yu Xizhi was elected as the Employees' Representative Supervisor
of the sixth session of the Board of Supervisors.
On 28 Jun 2017, Sinopec Corp. convened the 10th meeting of the sixth session of the Board of the Supervisors, during which
Mr. Zhao Dong was elected as Chairman of the Board of Supervisor of Sinopec CORP.
On 16 Mar 2017, Mr. Liu Yun resigned as the Chairman of the Board of Supervisor and Supervisor of Sinopec Corp., due to his
age.
On 28 Jun 2017, Mr.Wang Yajun resigned as the Supervisor of Sinopec Corp., due to his age.
2 NO CHANGES IN SHAREHOLDINGS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT DURING THE REPORTING PERIOD
report of the prc auditor
PwC ZT Shen Zi (2017) No. 10119
To the Shareholders of China Petroleum & Chemical Corporation,
Opinion
What we have audited
We have audited the accompanying interim financial statements of China Petroleum & Chemical Corporation (hereinafter
"Sinopec Corp."), which comprise the consolidated and company balance sheets as at 30 June 2017, the consolidated and
company income statements for the six months period then ended, the consolidated and company cash flow statements for the
six months period then ended, the consolidated and company statements of changes in shareholders' equity for the six months
period then ended, and the notes to the financial statements.
Our opinion
In our opinion, the accompanying interim financial statements present fairly, in all material respects, the consolidated
and company's financial position of Sinopec Corp. as at 30 June 2017, and their financial performance and cash flows for
the six months period then ended in accordance with the requirements of Accounting Standards for Business Enterprises
("CASs").
Basis for Opinion
We conducted our audit in accordance with China Standards on Auditing ("CSAs"). Our responsibilities under those standards
are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of Sinopec Corp. in accordance with the Code of Ethics for Professional Accountants of the Chinese
Institute of Certified Public Accountants ("CICPA Code"), and we have fulfilled our other ethical responsibilities in
accordance with the CICPA Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the
financial statements of the current period. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The key audit matter identified in our audit is "Recoverability of the carrying amount of oil and gas properties".
Key Audit Matter How our audit addressed the Key Audit Matter
Recoverability of the carrying amount of oil and gas properties Refer to note 13 "FIXED ASSETS" to the consolidated financial statements. As at 30 June 2017, the carrying amount of oil and gas properties amounted to RMB 192,287 million. Low crude oil prices gave rise to possible indication that the carrying amount of oil and gas properties as at 30 June 2017 might be impaired. The Group has adopted discounted cash flow as the respective recoverable amounts of the oil and gas properties, which involved key estimations or assumptions including: - Future crude oil prices;- Future production profiles;- Future cost profiles; and- Discount rates. Because of the significance of the carrying amount of oil and gas properties as at 30 June 2017, together with the use of significant estimations or assumptions in determining their respective discounted cash flow, we had placed our audit emphasis on this matter. In auditing the respective discounted cash flow of the relevant oil and gas properties, we have performed the following key procedures on the relevant discounted cash flow projections prepared by management: ‧ Evaluated and tested the key controls,
relating to the preparation of the discounted cash flow projections of oil and gas properties. ‧ Compared estimates of future crude oil prices adopted by the Group against a range of reputable published crude oil price forecasts. ‧ Compared the future
production profiles against the oil and gas reserve estimation report approved by the management. Evaluated the competence, capability and objectivity of the management's experts engaged in estimating the oil and gas reserves. Assessed key estimations or
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