REG - China Pet &Chem Corp - Half-year Report <Origin Href="QuoteRef">600028.SS</Origin> - Part 9
29/08/2017 07:08
- Part 9: For the preceding part double click ID:nRSc0740Ph
3,968
and Chemical Company Limited
Sinopec Catalyst Company Limited Production and sale of catalyst products RMB 1,500 RMB 1,562 100.00 181
Sinopec Yangzi Petrochemical Company Limited Manufacturing of intermediate petrochemical RMB 13,203 RMB 15,651 100.00 -
products and petroleum products
Sinopec Pipeline Storage & Transportation Pipeline storage and transportation of crude oil RMB 12,000 RMB 12,000 100.00 -
Company Limited
Sinopec Lubricant Company Limited Production and sale of refined petroleum products, RMB 3,374 RMB 3,374 100.00 52
lubricant base oil, and petrochemical materials
Sinopec Yizheng Chemical Fibre Production and sale of polyester chips RMB 4,000 RMB 6,713 100.00 -
Limited Liability Company and polyester fibre
Sinopec Marketing Company Limited Marketing and distribution of RMB 28,403 RMB 20,000 70.42 67,820
("Marketing Company") refined petroleum products
Sinopec Kantons Holdings Limited ("Sinopec Kantons") Trading of crude oil and petroleum products HKD 248 HKD 3,952 60.34 3,666
Sinopec Shanghai Petrochemical Company Limited Manufacturing of synthetic fibre, resin and plastics, RMB 10,800 RMB 5,820 50.56 12,473
("Shanghai Petrochemical") intermediate petrochemical products and
petroleum products
Fujian Petrochemical Company Limited Manufacturing of plastics, intermediate petrochemical RMB 5,745 RMB 3,161 50.00 4,662
("Fujian Petrochemical") (i) products and petroleum products
(b) Subsidiaries established by the Group:
Sinopec International Petroleum Exploration Investment in exploration, production and sale RMB 8,000 RMB 8,000 100.00 15,260
and Production Limited ("SIPL") of petroleum and natural gas
Sinopec Overseas Investment Holding Limited ("SOIH") Investment holding USD 1,638 USD 1,638 100.00 53
Sinopec Chemical Sales Company Limited Marketing and distribution of petrochemical products RMB 1,000 RMB 1,165 100.00 57
Sinopec Great Wall Energy & Chemical Coal chemical industry investment management, RMB 20,739 RMB 20,773 100.00 156
Company Limited production and sale of coal chemical products
Sinopec Beihai Refining and Chemical Import and processing of crude oil, production, RMB 5,294 RMB 5,240 98.98 96
Limited Liability Company storage and sale of petroleum products
and petrochemical products
Sinopec Qingdao Refining and Manufacturing of intermediate petrochemical RMB 5,000 RMB 4,250 85.00 1,294
Chemical Company Limited products and petroleum products
Sinopec-SK(Wuhan) Petrochemical Company Limited Production, sale, research and development of RMB 6,270 RMB 4,076 65.00 3,517
("Zhonghan Wuhan") ethylene and downstream byproducts
(c) Subsidiaries acquired through business combination under common control:
Sinopec Hainan Refining and Manufacturing of intermediate petrochemical products RMB 3,986 RMB 2,990 75.00 2,164
Chemical Company Limited and petroleum products
Sinopec Qingdao Petrochemical Manufacturing of intermediate petrochemical products RMB 1,595 RMB 7,233 100.00 -
Company Limited and petroleum products
Gaoqiao Petrochemical Manufacturing of intermediate petrochemical products RMB 10,000 RMB 4,804 55.00 4,621
Company Limited (Note 1) and petroleum products
(d) Subsidiaries acquired through business combination not under common control:
Sinopec Zhanjiang Dongxing Petrochemical Manufacturing of intermediate petrochemical products RMB 4,397 RMB 3,225 75.00 1,046
Company Limited and petroleum products
RMB 10,000
RMB 4,804
55.00
4,621
Company Limited (Note 1)
and petroleum products
(d) Subsidiaries acquired through business combination not under common control:
Sinopec Zhanjiang Dongxing Petrochemical
Manufacturing of intermediate petrochemical products
RMB 4,397
RMB 3,225
75.00
1,046
Company Limited
and petroleum products
* The minority interests of subsidiaries which the Group holds 100% of equity interests at the end of the period are the
minority interests of their subsidiaries.
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.
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.
54 PRINCIPAL SUBSIDIARIES (Continued)
Summarised financial information on subsidiaries with material minority interests
Set out below are the summarised financial information which the amount before inter-company eliminations for each
subsidiary that has minority interests that are material to the Group.
Summarised consolidated balance sheet
Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical Sinopec Kantons Zhonghan Wuhan
At30 June At31 December At30 June At31 December At30 June At31 December At30 June At31 December At30 June At31 December At30 June At31 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 19,039 19,248 9,635 7,845 13,280 13,228 14,058 14,686
Non-current liabilities (1,712) (1,460) (31,249) (39,322) (145) (150) (721) (721) (2,570) (3,101) (21) -
Net non-current assets 241,996 245,054 6,934 745 18,894 19,098 8,914 7,124 10,710 10,127 14,037 14,686
Non-current liabilities
(1,712)
(1,460)
(31,249)
(39,322)
(145)
(150)
(721)
(721)
(2,570)
(3,101)
(21)
-
Net non-current assets
241,996
245,054
6,934
745
18,894
19,098
8,914
7,124
10,710
10,127
14,037
14,686
Summarised consolidated statement of comprehensive income and cash flow
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 43,107 36,993 3,003 2,420 835 725 8,045 4,196
Profit/(loss) for the period 14,168 12,436 561 (166) 2,580 3,102 1,510 1,435 621 431 1,439 46
Total comprehensive income 13,902 12,625 137 265 2,580 3,102 1,510 1,435 704 291 1,439 46
Comprehensive income attributable 4,600 4,134 7 312 1,278 1,536 755 718 270 115 504 16
to minority interests
Dividends paid to minority interests 440 1,071 - - 1,339 559 - - 30 21 - -
Net cash generated from/ 17,563 18,615 1,976 1,131 2,359 4,645 (578) 93 824 650 1,296 800
(used in) operating activities
Dividends paid to minority interests
440
1,071
-
-
1,339
559
-
-
30
21
-
-
Net cash generated from/
(used in) operating activities
17,563
18,615
1,976
1,131
2,359
4,645
(578)
93
824
650
1,296
800
55 COMMITMENTS
Operating lease commitments
The Group lease land and buildings, service stations and other equipment through non-cancellable operating leases. These
operating leases do not contain provisions for contingent lease rentals. None of the rental agreements contain escalation
provisions that may require higher future rental payments.
At 30 June 2017 and 31 December 2016, the future minimum lease payments of the Group under operating leases are as
follows:
At 30 June At 31 December
2017 2016
RMB million RMB million
Within one year 10,836 14,917
Between one and two years 11,070 14,228
Between two and three years 10,296 13,966
Between three and four years 10,069 13,217
Between four and five years 9,919 12,980
After five years 201,329 275,570
Total 253,519 344,878
12,980
After five years
201,329
275,570
Total
253,519
344,878
Capital commitments
At 30 June 2017 and 31 December 2016, the capital commitments of the Group are as follows:
At 30 June At 31 December
2017 2016
RMB million RMB million
Authorised and contracted for (i) 116,385 116,379
Authorised but not contracted for 53,299 31,720
Total 169,684 148,099
Total
169,684
148,099
These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity
expansion projects, the construction of service stations and oil depots and investment commitments.
Note:
(i) The investment commitments of the Group is RMB 5,326 million (2016: RMB 4,173 million).
55 COMMITMENTS (Continued)
Commitments to joint ventures
Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products
from the joint ventures based on market prices.
Exploration and production licenses
Exploration licenses for exploration activities are registered with the Ministry of Land and Resources. The maximum term of
the Group's exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original
term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Land and Resources
also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The
maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The
maximum term of the production licenses issued to the Group is 80 years as a special dispensation was given to the Group by
the State Council. The Group's production license is renewable upon application by the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Land
and Resources annually and recognised in profit and loss.
Estimated future annual payments of the Group are as follows:
At 30 June At 31 December
2017 2016
RMB million RMB million
Within one year 209 263
Between one and two years 76 123
Between two and three years 24 25
Between three and four years 25 24
Between four and five years 25 25
After five years 859 867
Total 1,218 1,327
25
After five years
859
867
Total
1,218
1,327
The implementation of commitments in previous year and the Group's commitments did not have material discrepancy.
56 CONTINGENT LIABILITIES
(a) The Company has been advised by its PRC lawyers that, except for liabilities constituting or arising out of or
relating to the business assumed by the Company in the Reorganisation, no other liabilities were assumed by the Company,
and the Company is not jointly and severally liable for other debts and obligations incurred by Sinopec Group Company prior
to the Reorganisation.
(b) At 30 June 2017 and 31 December 2016, guarantees by the Group in respect of facilities granted to the parties below
are as follows:
At 30 June At 31 December
2017 2016
RMB million RMB million
Joint ventures 985 658
Associates (i) 12,734 11,545
Others 10,586 10,669
Total 24,305 22,872
10,669
Total
24,305
22,872
(i) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by
banks amount to RMB 17,050 million. As at 30 June 2017, the amount withdrawn by Zhongtian Synergetic Energy from banks and
guaranteed by the Group was RMB 12,734 million.
The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss has
occurred, and recognises any such losses under guarantees when those losses are reliably estimable. At 30 June 2017 and 31
December 2016, it was not probable that the Group will be required to make payments under the guarantees. Thus no
liabilities have been accrued for a loss related to the Group's obligation under these guarantee arrangements.
Environmental contingencies
Under existing legislation, management believes that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move
further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental
standards. Environmental liabilities are subject to considerable uncertainties which affect the Group's ability to estimate
the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination
at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development
areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative
remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new
remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of
possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the
outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at
present, and could be material. The Group paid normal routine pollutant discharge fees of approximately RMB 2,786 million
for the six-month period ended 30 June 2017 (2016: RMB 2,508 million).
56 CONTINGENT LIABILITIES (Continued)
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course
of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other
proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position,
operating results or cash flows of the Group.
57 SEGMENT REPORTING
Segment information is presented in respect of the Group's operating segments. The format is based on the Group's
management and internal reporting structure.
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 has identified the following five
reportable segments. No operating segments have been aggregated to form the following reportable segments.
(i) Exploration and production - which explores and develops oil fields, produces crude oil and natural gas and sells
such products to the refining segment of the Group and external customers.
(ii) Refining - which processes and purifies crude oil, which is sourced from the exploration and production segment of
the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and
distribution segments of the Group and external customers.
(iii) Marketing and distribution - which owns and operates oil depots and service stations in the PRC, and distributes and
sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks.
(iv) Chemicals - which manufactures and sells petrochemical products, derivative petrochemical products and other chemical
products to external customers.
(v) Corporate and others - which largely comprise the trading activities of the import and export companies of the Group
and research and development undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its exploration and production, refining, marketing and
distribution, chemicals, and corporate and others businesses separately. The reportable segments are each managed
separately because they manufacture and/or distribute distinct products with different production processes and due to
their distinct operating and gross margin characteristics.
(1) Information of reportable segmental revenues, profits or losses, assets and liabilities
The Group's chief operating decision maker evaluates the performance and allocates resources to its operating segments on
an operating income basis, without considering the effects of finance costs or investment income. Inter-segment transfer
pricing is based on the market price or cost plus an appropriate margin, as specified by the Group's policy.
Assets and liabilities dedicated to a particular segment's operations are included in that segment's total assets and
liabilities. Segment assets include all tangible and intangible assets, except for cash at bank and on hand, long-term
equity investments, deferred tax assets and other unallocated assets. Segment liabilities exclude short-term loans,
short-term debentures payable, non-current liabilities due within one year, long-term loans, debentures payable, deferred
tax liabilities, other non-current liabilities and other unallocated liabilities.
57 SEGMENT REPORTING (Continued)
(1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)
Reportable information on the Group's operating segments is as follows:
ent liabilities due within one year
25,506
38,972
Long-term loans
68,045
62,461
Debentures payable
47,784
54,985
Deferred tax liabilities
6,146
7,661
Other non-current liabilities
17,121
16,136
Other unallocated liabilities
28,848
15,453
Total liabilities
641,712
666,084
57 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 year 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
At 30 June At 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
58 FINANCIAL INSTRUMENTS
Overview
Financial assets of the Group include cash at bank, equity investments other than long-term equity investment, accounts
receivable, bills receivable, available-for-sale financial assets, derivative financial instruments and other receivables.
Financial liabilities of the Group include short-term and long-term loans, accounts payable, bills payable, debentures
payable, employee benefits payable, 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 and oversight of the Group's risk management
framework, and developing and monitoring the Group's risk management policies.
58 FINANCIAL INSTRUMENTS (Continued)
Overview (Continued)
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 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 standards 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 institution in the PRC with acceptable credit ratings. The majority of the Group's accounts
receivable relates 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 for the amounts due from Sinopec Group Company and fellow subsidiaries. The Group performs ongoing credit
evaluations of its customers' financial condition and generally does not require collateral on 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 at bank, 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 encounters short fall of capital when meeting its obligation of financial
liabilities. The Group's approach to 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 capital conditions, without incurring
unacceptable losses or risking damage to the Group's reputation. The Group prepares monthly cash flow budget to ensure that
they will always have sufficient liquidity to meet its financial obligation 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
liquidity risk.
At 30 June 2017, the Group has standby credit facilities with several PRC financial institutions which provide the Group to
borrow up to RMB 366,899 million (2016: RMB 256,375 million) on an unsecured basis, at a weighted average interest rate of
3.24 % (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 loans.
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:
At 30 June 2017
Carryingamount Totalcontractualundiscountedcash flow Withinone year oron demand More thanone yearbut lessthan twoyears More thantwo yearsbut less thanfive years More thanfive years
RMB million RMB million RMB million RMB million RMB million RMB million
Short-term loans 42,032 42,534 42,534 - - -
Non-current liabilities due within one year 25,506 25,909 25,909 - - -
Long-term loans 68,045 71,396 1,008 4,298 58,963 7,127
Debentures payable 47,784 57,091 1,792 17,468 22,760 15,071
Bills payable 6,162 6,162 6,162 - - -
Accounts payable 170,116 170,116 170,116 - - -
Dividends payable 22,336 22,336 22,336 - - -
Other payables and employee benefits payable 68,361 68,361 68,361 - - -
Total 450,342 463,905 338,218 21,766 81,723 22,198
Dividends payable
22,336
22,336
22,336
-
-
-
Other payables and employee benefits payable
68,361
68,361
68,361
-
-
-
Total
450,342
463,905
338,218
21,766
81,723
22,198
58 FINANCIAL INSTRUMENTS (Continued)
Liquidity risk (Continued)
At 31 December 2016
Carryingamount Totalcontractualundiscountedcash flow Withinone year oron demand More thanone yearbut lessthan two years More thantwo yearsbut less thanfive years More thanfive years
RMB million RMB million RMB million RMB million RMB million RMB million
Short-term loans 30,374 30,708 30,708 - - -
Non-current liabilities due within one year 38,972 39,934 39,934 - - -
Short-term debentures payable 6,000 6,030 6,030 - - -
Long-term loans 62,461 64,566 900 4,652 57,262 1,752
Debentures payable 54,985 65,503 1,932 24,717 16,069 22,785
Bills payable 5,828 5,828 5,828 - - -
Accounts payable 174,301 174,301 174,301 - - -
Dividends payable 2,006 2,006 2,006 - - -
Other payables and employee benefits payable 79,248 79,248 79,248 - - -
Total 454,175 468,124 340,887 29,369 73,331 24,537
-
-
Dividends payable
2,006
2,006
2,006
-
-
-
Other payables and employee benefits payable
79,248
79,248
79,248
-
-
-
Total
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.
(a) 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 denominated
in US Dollars, and the Group enters into foreign exchange contracts to manage currency risk exposure.
Included in short-term and long-term debts denominated are the following amounts denominated in a currency other than the
functional currency of the entity to which they relate:
The Group
At 30 June At 31 December
2017 2016
million million
Gross exposure arising from loans and borrowings
US Dollars USD 156 USD 126
USD 156
USD 126
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.
The Group
At 30 June At 31 December
2017 2016
million million
US Dollars 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 of the Group.
58 FINANCIAL INSTRUMENTS (Continued)
Market risk (Continued)
(b) Interest rate risk
The Group's interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest
at variable rates and at fixed interest rates expose the Group to cash flow interest rate risk and fair value interest rate
risk respectively. The interest rates and terms of repayment of short-term and long-term loans of the Group are disclosed
in Note 21 and Note 29, respectively.
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 (at 31 December 2016: decrease/increase RMB 327 million). This sensitivity analysis has been determined assuming
that the change in interest rates had occurred at the balance sheet date and the change was applied to the Group's loans
outstanding at that date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for
2016.
(c) 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 such risk.
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. At 30 June 2017, the net fair value of such derivative
hedging financial instruments is derivative financial assets of RMB 1,024 million (2016: RMB 312 million) recognised in
other receivables and derivative financial liabilities of RMB 555 million (2016: RMB 4,336 million) recognised in other
payables.
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 comprehensive income by approximately RMB 1,284
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. With the fair value of each financial instrument categorised in its
entirely 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.
At 30 June 2017
The Group
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
58 FINANCIAL INSTRUMENTS (Continued)
Fair values (Continued)
(i) Financial instruments carried at fair value (Continued)
At 31 December 2016
The Group
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 period, there was no transfer between instruments in Level 1 and Level 2.
(ii) Fair values of financial instruments carried at other than fair value
The fair values of the Group's financial instruments carried at other than fair value (other than long-term debts and
unquoted security investments) approximate their carrying amounts due to the short-term maturity of these instruments. The
fair values of long-term debts are estimated by discounting future cash flows using current market interest rates offered
to the Group for debt with substantially the same characteristics and maturities ranging 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 debts other than loans
from Sinopec Group Company and fellow subsidiaries at 30 June 2017 and 31 December 2016:
At 30 June At 31 December
2017 2016
RMB
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