SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of April, 2006
CHINA PETROLEUM & CHEMICAL CORPORATION
A6, Huixindong Street,
Chaoyang District Beijing, 100029
People's Republic of China
Tel: (8610) 6499-0060
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F [X] Form 40-F
-----
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No [X]
----
(If "Yes" is marked, indicate below the file number assigned to
registrant in connection with Rule 12g3-2(b): 82-__________.)
N/A
This Form 6-K consists of:
The Hong Kong annual report for the year 2005 of China Petroleum & Chemical
corporation (the "Registrant"), made by the Registrant in English on April 3,
2006.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
China Petroleum & Chemical Corporation
By: /s/ Chen Ge
-----------
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: April 3, 2006
CONTENTS
2 Company Profile
3 Principal Financial Data and
Indicators
10 Changes in Share Capital and
Shareholdings of Principal
Shareholders
12 Chairman's Statement
18 Business Review and Prospects
25 Health, Safety and Environment
28 Management's Discussion and
Analysis
42 Significant Events
50 Connected Transactions
54 Corporate Governance
63 Summary of Shareholders'
Meetings
64 Report of the Board of Directors
68 Report of the Supervisory
Committee
70 Directors, Supervisors, Senior
Management and Employees
81 Principal Wholly-owned and
Non Wholly-owned Subsidiaries
83 Financial Statements
171 Corporate Information
173 Documents for Inspection
174 Confirmation from the
Directors and
Senior Management
This annual report includes forward-looking statements. All statements, other
than statements of historical facts, that address activities, events or
developments that the Company expects or anticipates will or may occur in the
future (including but not limited to projections, targets, reserves and other
estimates and business plans) are forward-looking statements. The Company's
actual results or developments may differ materially from those indicated by
these forward-looking statements as a result of various factors and
uncertainties. The Company makes the forward-looking statements referred to
herein as at 31 March 2006 and undertakes no obligation to update these
statements.
IMPORTANT: THE BOARD AND THE SUPERVISORY COMMITTEE OF CHINA PETROLEUM &
CHEMICAL CORPORATION ("SINOPEC CORP.") AND ITS DIRECTORS, SUPERVISORS AND
SENIOR MANAGEMENT WARRANT THAT THERE ARE NO MATERIAL OMISSIONS FROM, OR
MISREPRESENTATIONS OR MISLEADING STATEMENTS CONTAINED IN THIS ANNUAL REPORT,
AND JOINTLY AND SEVERALLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY,
ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS ANNUAL REPORT.
MR. GAO JIAN, MR. FAN YIFEI, MR. HO TSU KWOK, CHARLES AND MR. ZHANG YOUCAI,
DIRECTORS OF SINOPEC CORP., COULD NOT ATTEND THE TWENTY-FIFTH MEETING OF THE
SECOND SESSION OF THE BOARD FOR REASON OF OFFICIAL DUTIES. MR. FAN YIFEI,
DIRECTOR OF SINOPEC CORP., AUTHORISED MR. WANG JIMING, MR. GAO JIAN AND MR. HO
TSU KWOK, CHARLES, DIRECTORS OF SINOPEC CORP., AUTHORISED MR. CHEN QINGTAI, MR.
ZHANG YOUCAI, DIRECTOR OF SINOPEC CORP., AUTHORISED MR. SHI WANPENG, TO VOTE ON
THEIR BEHALF IN RESPECT OF THE RESOLUTIONS PUT FORWARD IN THE MEETING OF THE
BOARD. MR. CHEN TONGHAI, CHAIRMAN OF THE BOARD, MR. WANG TIANPU, PRESIDENT OF
SINOPEC CORP., MR. ZHANG JIAREN, DIRECTOR & CHIEF FINANCIAL OFFICER OF SINOPEC
CORP. AND MR. LIU YUN, HEAD OF THE ACCOUNTING DIVISION OF SINOPEC CORP., HEREBY
WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED
IN THIS ANNUAL REPORT.
COMPANY PROFILE
Sinopec Corp. is a Chinese company listed in Hong Kong, New York, London and
Shanghai, and is an integrated energy and chemical company with upstream,
midstream and downstream operations. The principal operations of Sinopec Corp.
and its subsidiaries (the "Company") include:
o exploring for and developing, producing and trading crude oil and natural
gas
o processing crude oil into refined oil products, producing refined oil
products and trading, transporting, distributing and marketing refined oil
products
o producing, distributing and trading petrochemical products
Based on turnover in 2005, Sinopec Corp. is the largest listed company in
China. The Company is also:
o one of the largest petroleum and petrochemical companies in China and Asia
o one of the largest producers and distributors of gasoline, diesel, jet fuel
and other major refined oil products in China and Asia
o the second largest producer of crude oil and natural gas in China
The Company's competitive strengths are mainly reflected in:
o its leading market position in the production and sales of refined oil
products in China
o its status as the largest petrochemical producer in China
o its strategic market position in China's highest economic growth areas
o its well-established, highly efficient and cost effective sales and
distribution network
o its integrated operation structure with strong resistance against industry
cyclical risks
o its well-recognised brand and excellent reputation
The Company has been focusing on capturing profit growth and expanding
opportunities, optimising capital allocation and investment activities,
developing and effectively deploying technologies and human resources,
promoting the efficient use of resources, seeking to improve its overall
competitiveness and strengths, and pursuing a higher return on capital employed
and sustained development and thereby increasing shareholders' value and
returns.
PRINCIPAL FINANCIAL DATA AND INDICATORS
1 FINANCIAL DATA AND OPERATING DATA PREPARED IN ACCORDANCE WITH THE PRC
ACCOUNTING RULES AND REGULATIONS
(1) Summary of principal financial data and operating data of the Company
for the year 2005
For the year ended 31 December 2005
Items RMB millions
Profit before taxation 61,482
----------------------------------------------------------------------------------------
Net profit 39,558
----------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 34,999
----------------------------------------------------------------------------------------
Profit from principal operations 113,714
----------------------------------------------------------------------------------------
Profit from other operations 839
----------------------------------------------------------------------------------------
Operating profit 56,856
----------------------------------------------------------------------------------------
Investment income 813
----------------------------------------------------------------------------------------
Subsidy income 9,415
----------------------------------------------------------------------------------------
Net non-operating income/expenses 5,602 (net expense)
----------------------------------------------------------------------------------------
Net cash flow from operating activities 84,963
----------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 2,636
----------------------------------------------------------------------------------------
Items under non-operating profits/losses and corresponding amounts:
For the year ended 31 December 2005
(Income)/Expense
Items RMB millions
Gain on disposal of long-term equity investments (25)
----------------------------------------------------------------------------------------
Written back of provisions for impairment losses
on assets provided in previous years (1,115)
----------------------------------------------------------------------------------------
Non-operating expenses (excluding normal provisions
on assets provided in accordance with the
Accounting Regulations for Business Enterprises) 4,118
----------------------------------------------------------------------------------------
Of which:Loss on disposal of fixed assets 2,422
----------------------------------------------------------------------------------------
Employee reduction expenses 369
----------------------------------------------------------------------------------------
Donations 203
----------------------------------------------------------------------------------------
Non-operating income (367)
----------------------------------------------------------------------------------------
Subsidy income (9,415)
----------------------------------------------------------------------------------------
Tax effect 2,245
----------------------------------------------------------------------------------------
Total (4,559)
========================================================================================
(2) Principal financial data and indicators prepared in accordance with the PRC
Accounting Rules and Regulations
For the years ended 31 December
2005 2004 2003
Items Note RMB millions RMB millions RMB millions
Income from principal operations 799,115 590,632 417,191
----------------------------------------------------------------------------------------------------------------------------------
Net profit 39,558 32,275 19,011
----------------------------------------------------------------------------------------------------------------------------------
Earnings per share (RMB)
Fully diluted (i) 0.456 0.372 0.219
----------------------------------------------------------------------------------------------------------------------------------
Weighted average (ii) 0.456 0.372 0.219
----------------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities per share (RMB) 0.980 0.809 0.743
----------------------------------------------------------------------------------------------------------------------------------
Return on net assets (%)
----------------------------------------------------------------------------------------------------------------------------------
Fully diluted (iii) 18.346 17.320 11.667
----------------------------------------------------------------------------------------------------------------------------------
Weighted average (iv) 19.682 18.403 12.048
----------------------------------------------------------------------------------------------------------------------------------
Return (before non-operating profits/losses) on net assets (%)
----------------------------------------------------------------------------------------------------------------------------------
Fully diluted 16.232 19.316 13.690
----------------------------------------------------------------------------------------------------------------------------------
Weighted average 17.414 20.524 14.137
----------------------------------------------------------------------------------------------------------------------------------
At 31 December
2005 2004 2003
Items RMB millions RMB millions RMB millions
Total assets 520,572 460,081 390,213
----------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds (excluding minority interests) 215,623 186,350 162,946
----------------------------------------------------------------------------------------------------------------------------------
Net assets per share (RMB) 2.487 2.149 1.879
----------------------------------------------------------------------------------------------------------------------------------
Adjusted net assets per share (RMB) 2.426 2.102 1.850
----------------------------------------------------------------------------------------------------------------------------------
Notes:
i Fully diluted earnings per share = net profit for the year/total number of
shares in issue at the end of the year
ii Weighted average earnings per share = net profit for the year/(number of
shares at the beginning of the year + number of shares increased due to the
transfer from surplus reserves to capital or share dividend distributed +
(increase in number of shares during the year due to issuance of new shares
or capitalisation of debt x number of months from the month following the
increase of shares to the end of the year/number of months in the year) i-D
(number of shares decreased due to share repurchases or reduction in share
capital x number of months from the month following the decrease of shares
to the end of the year/number of months for the year))
iii Fully diluted return on net assets = (net profit for the year/shareholders
funds at the end of the year) x 100%
iv Weighted average return on net assets = (net profit for the
year/(shareholders' funds at the beginning of the year + net profit for the
year/2 + (shareholders' funds increased due to issuance of new shares or
capitalisation of debt during the year x number of months from the month
following the increase of shareholders' funds to the end of the year/number
of months in the year) i-D (shareholders' funds decreased due to share
repurchases or cash dividends during the year x number of months from the
month following the decrease of shareholders funds to the end of the
year/number of months in the year))) x 100%
(3) Appendix to income statement prepared in accordance with the PRC Accounting
Rules and Regulations
For the year ended For the year ended
31 December 2005 31 December 2004
Return on net assets (%) Return on net assets (%)
Items Fully diluted Weighted average Fully diluted Weighted average
Profit from principal operations 52.74 56.58 61.83 65.70
-------------------------------------------------------------------------------------------------------------------------------
Operating profit 26.37 28.29 33.78 35.90
-------------------------------------------------------------------------------------------------------------------------------
Net profit 18.35 19.68 17.32 18.40
-------------------------------------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 16.23 17.41 19.32 20.52
-------------------------------------------------------------------------------------------------------------------------------
For the year ended For the year ended
31 December 2005 31 December 2004
Earnings per share Earnings per share
Items Fully diluted Weighted average Fully diluted Weighted average
RMB RMB RMB RMB
Profit from principal operations 1.312 1.312 1.329 1.329
-------------------------------------------------------------------------------------------------------------------------------
Operating profit 0.656 0.656 0.726 0.726
-------------------------------------------------------------------------------------------------------------------------------
Net profit 0.456 0.456 0.372 0.372
-------------------------------------------------------------------------------------------------------------------------------
Net profit before non-operating profits/losses 0.404 0.404 0.415 0.415
-------------------------------------------------------------------------------------------------------------------------------
(4) Changes to the consolidated shareholders' funds and the reasons for changes
for the year
Unit: RMB millions
Statutory Statutory Discretionary Unrecognised Total
Share Capital surplus public surplus investment Retained shareholders'
Items capital reserve reserve welfare fund reserve losses profits funds
Beginning of the year 86,702 37,121 9,558 9,558 7,000 (713) 37,124 186,350
---------------------------------------------------------------------------------------------------------------------------------
Increase in the year - - 3,956 3,956 - - 39,558 47,470
---------------------------------------------------------------------------------------------------------------------------------
Decrease in the year - - - - - 119 (18,316) (18,197)
---------------------------------------------------------------------------------------------------------------------------------
End of the year 86,702 37,121 13,514 13,514 7,000 (594) 58,366 215,623
---------------------------------------------------------------------------------------------------------------------------------
The reasons for the changes are as follows:
i Statutory surplus reserve at the end of 2005 was RMB 13,514 million, an
increase by RMB 3,956 million compared with that at the beginning of the
year. The increase was mainly due to the transfer by Sinopec Corp. of 10%
of its consolidated net profit for 2005 in accordance with the PRC
Accounting Rules and Regulations of RMB 39,558 million to the statutory
surplus reserve.
ii Statutory public welfare fund at the end of 2005 was RMB 13,514 million, an
increase by RMB 3,956 million compared with that at the beginning of the
year. The increase was mainly due to the transfer by Sinopec Corp. of 10%
of its consolidated net profit for 2005 in accordance with the PRC
Accounting Rules and Regulations of RMB 39,558 million to the statutory
public welfare fund.
iii Unrecognised investment losses at the end of 2005 was RMB 594 million, a
decrease of RMB 119 million compared with RMB 713 million at the beginning
of the year. The decrease represents a reversal of unrecognised investment
losses which exceeded the carrying value of long-term equity investment.
iv Consolidated retained profits at the end of 2005 was RMB 58,366 million, an
increase by RMB 21,242 million compared with that at the beginning of the
year. The increase was attributable to the realisation by Sinopec Corp. of
a consolidated net profit for 2005 in accordance with the PRC Accounting
Rules and Regulations of RMB 39,558 million, and taking into account of the
deduction of RMB 7,912 million for the appropriation of statutory surplus
reserve and statutory public welfare fund, and RMB 10,404 million declared
and paid as interim dividend for 2005 and final dividend for 2004; and
v Total shareholders' funds at the end of 2005 were RMB 215,623 million, an
increase by RMB 29,273 million compared with that at the beginning of the
year.
(5) Details of provisions for assets
Unit: RMB millions
Beginning of Provisions Written back Written off End of
Items the year for the year for the year for the year the year
1 Allowance for doubtful accounts 7,167 774 (918) (371) 6,652
-------------------------------------------------------------------------------------------------------------------------------
Of which: Allowance for doubtful accounts for accounts
receivable 3,671 328 (503) (356) 3,140
-------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts for other
receivables 3,496 446 (415) (15) 3,512
-------------------------------------------------------------------------------------------------------------------------------
2 Provisions for impairment losses on short-term investments - - - - -
-------------------------------------------------------------------------------------------------------------------------------
3 Provisions for diminution in value of inventories 906 262 (180) (96) 892
-------------------------------------------------------------------------------------------------------------------------------
4 Provision for impairment losses on long-term equity
investments 353 77 (17) (86) 327
-------------------------------------------------------------------------------------------------------------------------------
Of which: long-term equity investments 353 77 (17) (86) 327
-------------------------------------------------------------------------------------------------------------------------------
5 Provision for impairment losses on fixed assets 5,816 1,851 - (1,433) 6,234
-------------------------------------------------------------------------------------------------------------------------------
Of which: Land and buildings 331 79 - (59) 351
-------------------------------------------------------------------------------------------------------------------------------
Oil and gas properties 783 60 - - 843
-------------------------------------------------------------------------------------------------------------------------------
Oil depots, storage tanks and service stations 1,249 261 - (593) 917
-------------------------------------------------------------------------------------------------------------------------------
Plant, machinery, equipment, vehicles and others 3,453 1,451 - (781) 4,123
-------------------------------------------------------------------------------------------------------------------------------
6 Provision for impairment losses on intangible assets - - - - -
-------------------------------------------------------------------------------------------------------------------------------
7 Provision for impairment losses on construction in progress - - - - -
-------------------------------------------------------------------------------------------------------------------------------
8 Provision for impairment losses on entrusted loans - - - - -
-------------------------------------------------------------------------------------------------------------------------------
(6) Significant changes of items in the financial statements
The table below sets forth reasons for those changes where the fluctuation
was more than 30% during the reporting period, or such changes which
constituted 5% or more of the total assets at the balance sheet date or
more than 10% of the profit before taxation:
At 31 December Increased/(decreased)
Items 2005 2004 Amount Percentage Reasons of changes
RMB millions RMB millions (%)
Accounts receivable 14,532 9,756 4,776 49.0 Mainly due to the increase in income from
principal operations
-------------------------------------------------------------------------------------------------------------------------------
Inventories 88,936 63,918 25,018 39.1 Due to the increase in price of crude oil and
refined oil products
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 5,701 4,166 1,535 36.8 Please refer to note 16 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-------------------------------------------------------------------------------------------------------------------------------
Short-term loans 16,124 26,723 (10,599) (39.7) Please refer to note 17 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-------------------------------------------------------------------------------------------------------------------------------
Accounts payable 52,967 23,792 29,175 122.6 Mainly due to the increase in processed volume
of crude oil and crude oil prices, leading to
increase in accounts payable in relation to
crude oil procurement
-------------------------------------------------------------------------------------------------------------------------------
Receipt in advance 14,086 8,605 5,481 63.7 Mainly due to increase in receipt in advance
in relation to sales of refined oil products
-------------------------------------------------------------------------------------------------------------------------------
Short-term debentures payable 9,921 - 9,921 N/A Please refer to note 27 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities - 198 (198) (100.0) Please refer to note 16 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-------------------------------------------------------------------------------------------------------------------------------
For the years
ended 31 December Increased/(decreased)
2005 2004 Amount Percentage Reasons of changes
RMB millions RMB millions (%)
Income from 799,115 590,632 208,483 35.3 Please refer to Management's Discussion and
principal operations Analysis
-------------------------------------------------------------------------------------------------------------------------------
Cost of sales 668,249 459,207 209,042 45.5 Please refer to Management's Discussion and
Analysis
-------------------------------------------------------------------------------------------------------------------------------
Subsidy income 9,415 - 9,415 N/A Please refer to note 37 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-------------------------------------------------------------------------------------------------------------------------------
Non-operating income 367 665 (298) (44.8) Mainly due to decrease in net gains from
disposal of fixed assets
-------------------------------------------------------------------------------------------------------------------------------
Non-operating expenses 5,969 11,171 (5,202) (46.6) Please refer to note 38 to the financial
statements prepared in accordance with the PRC
Accounting Rules and Regulations
-------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,902 5,670 (2,768) (48.8) Please refer to Management's Discussion and
Analysis
-------------------------------------------------------------------------------------------------------------------------------
(Reversal of) unrecognised (119) 470 (589) (125.3) Due to reversal of unrecognised investment
investment losses losses which exceeded the carrying value of the
long-term equity investment
-------------------------------------------------------------------------------------------------------------------------------
2 FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING
STANDARDS ("IFRS")
Unit: RMB millions
For the years ended 31 December
Items 2005 2004 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Turnover, other operating revenues and other income 832,532 619,783 449,001 350,078 326,424
-------------------------------------------------------------------------------------------------------------------------------
Operating profit 66,814 63,069 38,883 29,301 27,311
-------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 63,228 59,606 35,041 24,916 23,930
-------------------------------------------------------------------------------------------------------------------------------
Profit attributable to equity shareholders of the Company 40,920 36,019 22,424 16,296 15,503
-------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share (RMB) 0.472 0.415 0.259 0.188 0.182
-------------------------------------------------------------------------------------------------------------------------------
Earnings per share (based on the total number
of shares in issue at the year end) (RMB) 0.472 0.415 0.259 0.188 0.179
-------------------------------------------------------------------------------------------------------------------------------
Return on capital employed (%) 11.99 12.84 9.01 6.90 6.26
-------------------------------------------------------------------------------------------------------------------------------
Return on net assets (%) 18.30 18.66 13.07 9.77 9.72
-------------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities per share (RMB) 0.882 0.797 0.716 0.655 0.663
-------------------------------------------------------------------------------------------------------------------------------
Unit: RMB millions
At 31 December
Items 2005 2004 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Non-current assets 392,030 354,323 317,145 301,614 286,093
-------------------------------------------------------------------------------------------------------------------------------
Net current liabilities 25,358 26,006 26,233 18,759 16,574
-------------------------------------------------------------------------------------------------------------------------------
Non-current liabilities 113,676 104,231 93,346 91,927 86,309
-------------------------------------------------------------------------------------------------------------------------------
Minority interests 29,440 31,046 26,051 24,151 23,652
-------------------------------------------------------------------------------------------------------------------------------
Total equity attributable to equity shareholders of the Company 223,556 193,040 171,515 166,777 159,558
-------------------------------------------------------------------------------------------------------------------------------
Net assets per share (RMB) 2.578 2.226 1.978 1.924 1.840
-------------------------------------------------------------------------------------------------------------------------------
Adjusted net assets per share (RMB) 2.518 2.187 1.950 1.910 1.820
-------------------------------------------------------------------------------------------------------------------------------
Debt/equity ratio*(%) 32.37 33.58 33.73 34.25 34.03
-------------------------------------------------------------------------------------------------------------------------------
* Debt/equity ratio = long-term loans/(total equity attributable to equity
shareholders of the Company + long-term loans) x 100%
3 MAJOR DIFFERENCES BETWEEN THE AUDITED FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS AND IFRS
(1) Analysis of the effects of major differences between the net profit
under the PRC Accounting Rules and Regulations and profit for the year
under IFRS
For the years
ended 31 December
2005 2004
RMB millions RMB millions
Net profit under the PRC Accounting Rules and Regulations 39,558 32,275
--------------------------------------------------------------------------------------------------------------------------
Adjustments:
--------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties 751 761
-----------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs, net of depreciation effect 507 480
-----------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures 435 (288)
-----------------------------------------------------------------------------------------------------------------------
Equity investment differences 200 -
-----------------------------------------------------------------------------------------------------------------------
Unrecognised investment losses 119 (531)
-----------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star 117 117
-----------------------------------------------------------------------------------------------------------------------
Acquisitions of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants - 2,119
-----------------------------------------------------------------------------------------------------------------------
Reduced amortisation on revaluation of land use rights 24 19
-----------------------------------------------------------------------------------------------------------------------
Reduced depreciation on government grants 4 3
-----------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets - 709
-----------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties, net of depreciation effect (310) 2,110
-----------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (485) (1,755)
-----------------------------------------------------------------------------------------------------------------------
Minority interests 2,920 5,772
--------------------------------------------------------------------------------------------------------------------------
Profit for the year under IFRS 43,840 41,791
--------------------------------------------------------------------------------------------------------------------------
(2) Analysis of the effects of major differences between the shareholders'
funds under the PRC Accounting Rules and Regulations and total equity
under IFRS
At 31 December
2005 2004
RMB millions RMB millions
--------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds under the PRC Accounting Rules and Regulations 215,623 186,350
--------------------------------------------------------------------------------------------------------------------------
Adjustments:
--------------------------------------------------------------------------------------------------------------------------
Depreciation of oil and gas properties 12,233 11,482
-----------------------------------------------------------------------------------------------------------------------
Capitalisation of general borrowing costs 2,112 1,605
-----------------------------------------------------------------------------------------------------------------------
Pre-operating expenditures (22) (457)
-----------------------------------------------------------------------------------------------------------------------
Equity investment differences 200 -
-----------------------------------------------------------------------------------------------------------------------
Acquisition of Sinopec National Star (2,578) (2,695)
-----------------------------------------------------------------------------------------------------------------------
Revaluation of land use rights (953) (977)
-----------------------------------------------------------------------------------------------------------------------
Government grants (588) (592)
-----------------------------------------------------------------------------------------------------------------------
Disposal of oil and gas properties 3,060 3,370
-----------------------------------------------------------------------------------------------------------------------
Effects of the above adjustments on taxation (5,531) (5,046)
-----------------------------------------------------------------------------------------------------------------------
Minority interests 29,440 31,046
---------------------------------------------------------------------------------------------------------------------------------
Total equity under IFRS 252,996 224,086
---------------------------------------------------------------------------------------------------------------------------------
CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
1 CHANGES IN THE SHARE CAPITAL OF SINOPEC CORP. UNIT: 1,000 SHARES
Pre-movement Increase/(decrease) Post-movement
Percent- New shares Bonus Conversion Percent-
Numbers age % issued issued from Others Sub-total Number age %
Percentage % reserves
Shares not listed 67,121,951 77.4 - - - - - 67,121,951 77.4
--------------------------------------------------------------------------------------------------------------------------------
1 Promoter shares 58,885,561 67.9 - - - 2,871,764 2,871,764 61,757,325 71.2
--------------------------------------------------------------------------------------------------------------------------------
Of which:
--------------------------------------------------------------------------------------------------------------------------------
State-owned shares 58,885,561 67.9 - - - 2,871,764 2,871,764 61,757,325 71.2
--------------------------------------------------------------------------------------------------------------------------------
2 Raised legal person shares
--------------------------------------------------------------------------------------------------------------------------------
3 Internal employee shares
--------------------------------------------------------------------------------------------------------------------------------
4 Preferential shares or others* 8,236,390 9.5 - - - (2,871,764)(2,871,764) 5,364,626 6.2
--------------------------------------------------------------------------------------------------------------------------------
Total listed outstanding shares 19,580,488 22.6 - - - - - 19,580,488 22.6
--------------------------------------------------------------------------------------------------------------------------------
1 RMB ordinary shares 2,800,000 3.2 - - - - - 2,800,000 3.2
--------------------------------------------------------------------------------------------------------------------------------
2 Shares traded in non-RMB
currencies and listed
domestically - - - - - - - - -
--------------------------------------------------------------------------------------------------------------------------------
3 Shares traded in non-RMB
currencies and listed
overseas 16,780,488 19.4 - - - - - 16,780,488 19.4
--------------------------------------------------------------------------------------------------------------------------------
4 Others - - - - - - - - -
--------------------------------------------------------------------------------------------------------------------------------
Total Shares 86,702,439 100.0 - - - - - 86,702,439 100.0
--------------------------------------------------------------------------------------------------------------------------------
* "Preferential shares or others" under "Shares not listed" refers to the
balance of shares which were transferred from China Petrochemical
Corporation, the promoter of Sinopec Corp., to domestic asset management
corporations in 2000, after deducting the shares which were subsequently
transferred to China Petrochemical Corporation.
2 NUMBER OF SHAREHOLDERS AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS
Number of shareholders of Sinopec Corp. as at 31 December 2005 was 224,808,
including 215,258 holders of A Shares and 9,550 holders of H Shares.
(1)Top ten Shareholders
UNIT: 1,000 SHARES
Percentage Number of
Number of among total shares held
Nature of shares held at the end of Number of
pledges or at the end of reporting non-tradable
Name of shareholders Shareholders reporting period period shares lock-ups
--------------------------------------------------------------------------------------------------------------------------------
China Petrochemical Corporation State-owned shares 71.2% 61,757,325 61,757,325
--------------------------------------------------------------------------------------------------------------------------------
HKSCC (Nominees) Limited H shares 19.2% 16,679,304 unknown
--------------------------------------------------------------------------------------------------------------------------------
China Cinda Asset Management Corp. State-owned shares 3.3% 2,848,886 2,848,886
--------------------------------------------------------------------------------------------------------------------------------
China Orient Asset Management Corp. State-owned shares 1.5% 1,296,410 1,296,410
--------------------------------------------------------------------------------------------------------------------------------
China Development Bank State-owned shares 0.7% 632,570 632,570
--------------------------------------------------------------------------------------------------------------------------------
Guo Tai Jun An Corp. State-owned legal 0.7% 605,041* 586,760 548,530
person shares + A Shares (pledges)/
38,230
(lock-ups)
--------------------------------------------------------------------------------------------------------------------------------
Fortis Haitong Growth Investment Fund A Shares 0.1% 89,668
--------------------------------------------------------------------------------------------------------------------------------
EFUND 50 Securities Investment Fund A Shares 0.1% 70,984
--------------------------------------------------------------------------------------------------------------------------------
Shanghai Securities 50ETF A Shares 0.1% 67,016
Investment Fund
--------------------------------------------------------------------------------------------------------------------------------
Qingdao Port (Group) Co Ltd. A Shares 0.1% 60,000
--------------------------------------------------------------------------------------------------------------------------------
* of which 586,760,000 shares are state-owned legal person shares and the remaining 18,281,000 shares are A share.
(2)Top ten shareholders with tradable shares Unit: 1,000 shares
Type of
Name of shareholders Number of tradable shares held shares held
HKSCC (Nominees) Limited 16,679,304 H Shares
----------------------------------------------------------------------------------------------------------------------
Fortis Haitong Growth Investment Fund 89,668 A Shares
----------------------------------------------------------------------------------------------------------------------
EFUND 50 Securities Investment Fund 70,984 A Shares
----------------------------------------------------------------------------------------------------------------------
Shanghai Securities 50ETF Investment Fund 67,016 A Shares
----------------------------------------------------------------------------------------------------------------------
Qingdao Port (Group) Co., Ltd. 60,000 A Shares
----------------------------------------------------------------------------------------------------------------------
Boshi Selected Equity Securities Investment Fund 45,931 A Shares
----------------------------------------------------------------------------------------------------------------------
Jingfu Securities Investment Fund 41,103 A Shares
----------------------------------------------------------------------------------------------------------------------
Communication-Shroders Selected Equity Securities Investment Fund 40,019 A Shares
----------------------------------------------------------------------------------------------------------------------
CITIC Classic Securities Co., Ltd. 38,850 A Shares
----------------------------------------------------------------------------------------------------------------------
Tianyuan Securities Investment Fund 38,000 A Shares
----------------------------------------------------------------------------------------------------------------------
We are not aware of any connection or activities in concert among the top ten shareholders and top ten shareholders with
tradable shares or between them.
(3)Information disclosed by the shareholders of H Shares according to the Securities and Futures Ordinance
Approximate
percentage of
Number of share Sinopec Corp.'s
Capacity of interests held or interests
Name of shareholders interest held regarded as held (H Share) (%)
----------------------------------------------------------------------------------------------------------------------------
Alliance Capital Management L.P. Corporate interest 1,345,646,601(L) 8.02(L)
----------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase & Co. Beneficial owner 166,691,000 0.99(L)
Investment manager 488,604,905 2.91(L)
Custodian corporation 625,340,998 3.73(P)(L)
----------------------------------------------------------------------------------------------------------------------------
J.P. Morgan Chase & Co. Beneficial owner 46,454,000 0.27(L)
Investment manager 634,707,194 3.78(L)
Others 347,184,277 2.07(P)(L)
----------------------------------------------------------------------------------------------------------------------------
Note: (L): Long position, (S): Short position, (P): Lending pool
3 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE EFFECTIVE CONTROLLER
There was no change in the controlling shareholders or the effective
controller during the reporting period.
(1)Controlling shareholder
The controlling shareholder of Sinopec Corp. is China Petrochemical
Corporation ("Sinopec Group Company"). Established in July 1998, Sinopec
Group Company is a State authorised investment organisation and a
State-owned company. Its registered capital is RMB 104.9 billion, and
the legal representative is Mr. Chen Tonghai. Through reorganisation in
2000, Sinopec Group Company injected its principal petroleum and
petrochemical operations into Sinopec Corp. and retained certain
petrochemical facilities and small-scale refineries. It provides
well-drilling services, oil testing services, downhole operation
services, services in connection with manufacturing and maintenance of
production equipment, engineering construction, utility services and
social services.
(2) Basic information of other legal person shareholders holding 10% or
more of shares of Sinopec Corp. other than HKSCC (Nominees) Limited
None.
(3) Basic information of the effective controller
China Petrochemical Corporation is the effective controller of Sinopec
Corp.
(4) Diagram of the equity and controlling relationship between Sinopec
Corp. and its effective controller
------------------------
| China Petrochemical |
| Corporation |
------------------------
|
| 71.23%
\|/
------------------------
| China Petroleum & |
| Chemical Corporation |
------------------------
CHAIRMAN'S STATEMENT
Dear shareholders,
On behalf of the Board of Directors of Sinopec Corp., I would like to extend my
sincere gratitude for your concern and support to the Company.
In 2005, the Company was confronted with soaring international crude oil
prices, regulated domestic refined oil products prices and relatively large
fluctuations in petrochemical market, compounded by various pressures and
difficulties such as maintaining refined oil products supply and overcoming
transportation capacity constraints. Nevertheless, the Company fared well and
achieved good operational results through leveraging on its overall strengths,
optimising resource allocation and improving management in adherence to the
guidelines of "reform, restructuring, innovation and development". The
exploration & production segment witnessed increases in both reserve and
production, delivering remarkable earnings growth. The refining segment and
marketing & distribution segment managed to mitigate impacts from the
government's tight control over prices of refined oil products, and effectively
ensured market supply through multiple sourcing of refined oil products. The
chemicals segment achieved safe, stable, sustained, full load, optimal
operations and maintained relatively sound profitability. Over the year, in
addition to achieving relatively good operating results, the Company tried to
lay a solid foundation for its organic growth and made significant contribution
to the society.
According to the PRC Accounting Rules and Regulations, the Company's net profit
was RMB 39.558 billion in 2005, up by 22.6% over 2004. According to the
International Financial Reporting Standards (IFRS), the profit attributable to
equity shareholders of the Company was RMB 40.92 billion, up by 13.6% over
2004. In consideration of the Company's earnings in 2005 and its long-term
sustainable growth, the Board of Directors proposed a dividend of RMB 0.13 per
share for the full year of 2005. After deducting the interim dividend of RMB
0.04 that has been paid, the year-end dividend for 2005 is RMB 0.09 per share.
Looking back over the second session of the Board of Directors, the Company has
progressively improved corporate governance and aggressively initiated reforms
on its management and operational mechanism. Based on achievements of the
previous Board, and following its the guidelines of "reform, restructuring,
innovation and development", the Board of Directors took the opportunities and
made advisable decisions in light of market dynamics in conjunction with the
Company's specific features in its course of development. Since 2002, the
Company has been persistently implementing its strategies of "expanding
resources, exploring markets, cost saving and prudent investment", and achieved
significant growth from 2002 in all key areas: significant growth in the
Company's scale of operations, with operating revenue growing to RMB 823.1
billion from RMB 340 billion; remarkable profit increase, with profits
attributable to equity shareholders of the Company rising from RMB 16.1 billion
to RMB 40.9 billion; notable improvement in asset structure and quality, with
core competitive strengths generating more advantages, and return on capital
employed (ROCE) rising from 7% to 12%. As of the end of 2005, enterprise value
of the Company has grown significantly and the aggregate dividend distribution
over the three years would likely reach RMB 29.5 billion, showing a good return
to our shareholders.
During the tenure of the current Board, the Company has gradually improved its
corporate governance mechanism characterised with effective checks and
balances, informed decision making and orchestrated operations. The Company
reinforced efficacy of the Board of Directors, giving full play to the roles of
the Strategic Committee, Audit Committee and Remuneration & Examination
Committee, as well as independent directors. Particularly, in order to meet
regulatory requirements and the need for improving management, the Company has
established and implemented its internal control system on trial basis since
2003, and formally adopted the system on 1 January 2005. Moreover, at the end
of 2005, the Company conducted a full-scale review and examination on the
efficacy of internal control system and further revised the system based on the
findings, thus laying a solid foundation for the Company to make informed
management decisions and effectively prevent operational risks.
Acknowledging the new requirements posed by reform and development efforts over
the corporate system and mechanism, the Company has actively and progressively
streamlined its organisation, reduced workforce, and flattened managerial
hierarchies with a view to improving efficiency. In this regard, the Company
has reduced the workforce by approximately 54,000 employees and cut
approximately 1,263 mid-level management positions through various measures
during the tenure of the current Board. In the meantime, considering capital
market situation and its own development needs, the Company has timely
privatised Beijing Yanshan Petrochemical Company Ltd. and Zhenhai Refining and
Chemical Co., Ltd. Presently, the Company is privatising four A share-listed
subsidiaries in an effort to remove impediments in the management structure.
Furthermore, the Company has undergone massive consolidation of its businesses
and branding. Based on the experience from its centralised management of
lubricant business, the Company has set up Chemical Sales Company in May 2005,
which transformed the former long-existent separate sales practices and
eliminated internal rivalry. Consolidation of international trading operations
under the refining and chemical subsidiaries has been consummated. China
International United Petroleum & Chemicals Co., Ltd. ("Unipec") has been
changed from a controlled subsidiary into a wholly owned subsidiary. In
response to fierce competition, the Company has developed strategic alliances
with major clients, service providers and suppliers, with the aim of expanding
the markets and securing supply.
In accordance with the characteristics of the Company's own industrial
structure and layout, the current Board pursued asset restructuring as the
focus of development, giving priority to its core businesses. With regard to
investment, the Company adhered to the principle of "giving priority to core
businesses, taking on investment based on cash flow, and being attentive to
returns", and incurred total capital expenditure of RMB 168.5 billion over the
past three years. As a result, the Company managed to adjust its assets
structure, rationalised its strategic layout and regional integration. In
addition, the Company's two ethylene production joint ventures at Shanghai
SECCO and BASE-YBC have been put to stream on schedule. Meanwhile, through
shedding non-core business and establishing effective exit mechanism, the
Company endeavored to strengthen its core competitiveness. The Company has
acquired assets such as petrol stations, ethylene and aromatics plants from
China Petrochemical Corporation and sold off some of its non-core businesses
such as down-hole operations. Low efficiency assets were either shut down,
suspended production or disposed. The total value of disposed assets amounted
to RMB 12.7 billion during the past three years. As a result, the size, quality
and profitability of the Company assets all improved significantly. At the end
of 2005, the Company's total assets reached RMB 537.3 billion, up by 42.9% over
the tenure of the current Board. In the past three years, the upstream reserve
sequence was improved, achieving over 100 percent of reserve to production
ratio. Crude oil and natural gas production rose by 3.3% and 24.1%,
respectively. Refining capacity increased by 19.1%, with refining throughput
rising by 33.3%. The quality of refined oil products has been upgraded. Sales
volume of refined oil products rose by 49.2%, with the percentage of sales
volume to end-users reaching 80.24%. Ethylene production rose by 95.8% in the
past three years, with production of higher value added chemicals rose
accordingly.
During the tenure of the current Board, with the focus on value accretion on
capital, the Company effectively utilised the technological advancements in
increasing reserves and productions, asset restructuring, quality upgrading and
cost saving, hence provided strong technical support for its core businesses
development. Over the three years, the Company has applied for 2,450 patents,
of which 1,871 patents have been granted. At the end of 2005, the Company held
5,466 valid patents. In the upstream business, through major breakthroughs in
marine facies exploration theory and technology, the Company discovered the
largest and most abundant domestic marine gas field. According to the Ministry
of Land and Resources, the gas reserves of the field are estimated at 251.1
billion cubic meters, which would provide a solid resource base for the future
development of the Company's natural gas business. In the refining business,
the Company upgraded refined oil product quality to GB2 standard (equivalent to
Euro II) nationwide, and JB standard (equivalent to Euro III) in Beijing at low
cost through development of proprietary technology. In the chemical business,
the Company has introduced and absorbed internationally advanced technologies,
and has gradually improved its manufacturing standards. In particular, the
Company pioneered the industrial application of non-crystal alloy catalyst with
the stable magnetic bed reactor, which has won the only grand prize in the
National Technology Invention Prizes in 2005, thereby laying a solid foundation
for the development of new chemical reaction engineering technologies.
Moreover, the Company attaches great importance to upgrading traditional
industries by employing information technologies. Application of ERP and other
information technologies have strongly underpinned the Company's reform,
development, operations and management activities.
The Company places great emphasis on nurturing and developing human resources.
During the tenure of the current Board, the Company strengthened the training
of its managers in the different areas of its operation and has completed the
succession to its senior management of young executives. Attentive to launching
training programs for senior management, sophisticated professionals and
experts engaged in international businesses, the Company has trained more than
five thousand personnel in total. Meanwhile, more training programs have been
provided to a range of skilled workers. With the establishment of human
resource development and management systems, which is composed of three
formations of talents, namely managerial experts, professionals and skilled
workers, a rich talent pool has been formed for long term development.
Additionally, the Company has continued to reform its internal remuneration
system. Pegged to labor market prices, the Company has established a long term
incentive system, and formulated a reasonable internal remuneration framework,
which is conducive in stimulating and retaining various talents. Through human
resource management, the Company has created a favorable environment for
personal advancement and career development. This has resulted in the Company
becoming more attractive as an employer and has contributed to the integrity
and creativity of the Company, and to the continuing growth of our employees'
loyalty with the Company.
As a major integrated energy and chemicals company, the Company has consciously
fulfilled its social responsibilities with initiatives aimed at resource
conservation and environmental protection, and has strenuously promoted HSE and
implemented its sustainable growth strategies. Over the years, the Company has
improved the living environment for its field working force and improved labor
protection standards. Meanwhile, it has reinforced safety awareness and
management, hence realised safe, stable, sustained, full load and optimal
operations. In addition, the Company has been providing cleaner fuels with
higher product standard and better product quality to the public.
Notwithstanding significant growth in its total production and sales volume,
COD emission decreased by 15.6%, consumption of fresh water decreased by 8.2%,
recycling rate of water for industrial use risen by 3.55 percentage points and
the unit energy consumption has gradually declined during the tenure of the
current Board. The Company has also actively supported and participated in the
causes of public welfare in various ways, making contributions to the
harmonious development of the society.
Through reform and development over the years, the Company has established an
organisational framework for its managerial system and mechanism necessitated
by market economy and corporate governance. The Company now stands at a new
starting point which will lead to a higher destination. These achievements are
brought by our adherence to existing strategies and aggressive reform efforts.
The Board of Directors is drawing near to the end of its current term in the
second half of May 2006. Throughout the tenure of the Board, each director has
performed his duties consciously and diligently. Because of age, change of
position and regulatory requirements, Vice-chairman Mr. Wang Jiming, director
Mr. Mou Shuling, Mr. Zhang Jiaren, Mr. Cao Xianghong and Mr. Liu Genyuan,
external director Mr. Gaojian, independent director Mr. Chen Qingtai, Mr. Ho
Tsu Kwok, Charles and Mr. Zhang Youcai, employee representative director Mr.
Cao Yaofeng will not be nominated for the next session of the Board of
Directors. During their tenure, they have made significant contributions to the
Company. I would like to extend my appreciation to these directors and other
members of the Board, as well as to our supervisors, executive officers and
employees.
Looking forward, we enjoy a favorable domestic market that have shown steady
increase in fundamental demand for energy and chemicals. Yet, the future is
also fraught with various uncertainties, such as market fluctuations and
increasing competition, both overseas and domestically. All other members of
the Board and I believe that, under the leadership of the next session of the
Board, and in pursuit of building up an integrated energy and chemical company
with strong competitive edges in the international market, Sinopec Corp. will
continue to grow with the strategy of "expanding resources, exploring markets,
increasing competitiveness" that are centered around corporate reforms, and
strive for a balanced and sustainable development, which are the common
interests of our shareholders, customers, employees, society and the Company.
/s/ Chen Tonghai
Chen Tonghai
Chairman
Beijing, China
31 March 2006
BUSINESS REVIEW AND PROSPECTS
BUSINESS REVIEW
In 2005, the Chinese economy continued to grow at a steady and rapid rate, with
a GDP growth rate of 9.9%, and domestic demand for petroleum and petrochemical
products kept increasing. In a market environment characterised with soaring
international crude oil price, tight government control of domestic refined oil
products prices and volatile petrochemical market, the Company managed to
achieve satisfactory operating results, maintained growth in production and
profitability and improved asset quality by relying on the collective efforts
of its employees, leveraging on its overall advantages, strengthening internal
management and optimising production operations with a market-based approach
and a focus on profits.
1. REVIEW OF MARKET ENVIRONMENT
(1) Crude oil market
In 2005, international crude oil prices were fluctuating at high
levels. The Platts' Brent spot price averaged US$ 54.53 per barrel, up
by 42.5% compared with 2004. The domestic crude oil price basically
followed the trend in the international market. Average realised crude
oil price produced by the Company was RMB 2,664.7 per tonne in 2005, up
by 36.2% compared with 2004.
(2) Refined oil products market
In 2005, domestic demand for refined oil products maintained a moderate
growth. According to the Company's statistics, the apparent domestic
consumption of refined oil products (inclusive of gasoline, diesel and
kerosene including jet fuel) in 2005 was 164.44 million tonnes, up by
4.7% compared with 2004. International refined oil prices experienced a
significant increase following the trend in the international crude oil
market. However, due to tight control over the domestic prices of
refined oil products, there was a significant gap between domestic and
international prices of refined oil products.
(3) Chemicals market
In 2005, domestic demand for chemicals continued to show a relatively
strong growth. According to the Company's statistics, the apparent
consumption of synthetic fibers and synthetic rubbers increased by
10.2% compared with 2004 while domestic ethylene equivalent consumption
increased by 8.6% compared with 2004. Domestic chemicals prices
witnessed a similar trend as that of the international market. However,
due to the rise of chemical feedstock prices in the second half of
2005, the gross profit margin of chemicals declined noticeably.
2 PRODUCTION AND OPERATION
(1)Exploration and production
In 2005, the Company achieved good results in oil and gas exploration
and production by intensifying its exploration activities, optimising
and adjusting its exploration and production plans.
In connection with exploration activities, the Company attached great
importance to new discoveries in both mature and new blocks, completed
15,380 kilometers of 2D seismic and 7,164 square kilometers of 3D
seismic, and drilled 545 exploration wells with a total footage of 1,467
kilometers. Relying on theoretical innovation and technological
advances, the Company discovered the largest and most aboundant gas
field in marine facies carbonate sturcture ever found in China, the
Puguang Gas Field. Important discoveries were also made in exploration
activities in mature blocks in east China as well as in Junger and Tahe
blocks, achieving over 100% replacement of oil and gas reserves and
laying a solid foundation for future resources.
In oil and gas production, the Company intensified its progressive
exploration activities and oil reserve evaluation, and effectively
developed proved reserves. Under the high oil price environment, the
company actively developed low yield reverves and improved the quality
and efficiency of new capacity construction in the new blocks to
increase oil and gas production. The Company also put a premium on
application of new processes and new technologies to the development of
mature blocks, continually improving recovery rate in mature blocks. In
2005, 2,348 development wells were drilled with total drilling footage
of 5,109 kilometers, and new capacities totaling 5.79 million tonnes per
annum and 2.1 billion cubic meters per annum. In 2005, the Company's
production of crude oil and natural gas reached 278.82 million barrels
and 221.9 billion cubic feet, respectively, representing an increase of
1.7% and 7.2%, respectively, compared with 2004.
[GRAPHIC OMITTED]
Price Trend of International Crude Oil
SUMMARY OF OPERATIONS OF THE EXPLORATION AND PRODUCTION SEGMENT
Change
from 2004
2005 2004 2003 to 2005 (%)
Crude oil production (mmbbls) 278.82 274.15 270.96 1.70
------------------------------------------------------------------------------------------------------------------------------
Natural gas production (bcf) 221.9 207.0 187.7 7.20
------------------------------------------------------------------------------------------------------------------------------
Newly added proved reserves of crude oil (mmbbls) 306 284 208 7.75
------------------------------------------------------------------------------------------------------------------------------
Newly added proved reserves of natural gas (bcf) 140.6 352.0 (254.3) (60.05)
------------------------------------------------------------------------------------------------------------------------------
Year-end proved reserves of crude oil (mmbbls) 3,294 3,267 3,257 0.83
------------------------------------------------------------------------------------------------------------------------------
Year-end proved reserves of natural gas (bcf) 2,951.7 3,033.0 2,887.6 (2.68)
------------------------------------------------------------------------------------------------------------------------------
Year-end proved reserves of crude oil and natural gas (mmboe) 3,786 3,773 3,738 0.34
------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF PRODUCTION AND OPERATIONS OF SHENGLI OIL FIELD
Change
from 2004
2005 2004 2003 to 2005 (%)
Crude oil production (mmbbls) 191.31 189.88 189.25 0.75
------------------------------------------------------------------------------------------------------------------------------
Natural gas production (bcf) 31.1 31.8 28.6 (2.20)
------------------------------------------------------------------------------------------------------------------------------
Newly added proved reserves of crude oil (mmbbls) 247 225 196 9.78
------------------------------------------------------------------------------------------------------------------------------
Newly added proved reserves of natural gas (bcf) (3.6) 79.9 70.1 (104.51)
------------------------------------------------------------------------------------------------------------------------------
Year-end proved reserves of crude oil (mmbbls) 2,362 2,306 2,271 2.43
------------------------------------------------------------------------------------------------------------------------------
Year-end proved reserves of natural gas (bcf) 322.4 357.1 308.9 (9.72)
------------------------------------------------------------------------------------------------------------------------------
Year-end proved reserves of crude oil and natural gas (mmboe) 2,415 2,366 2,322 2.07
------------------------------------------------------------------------------------------------------------------------------
Note: crude oil volume is converted at 1 tonne to 7.1 barrels, and gas volume is converted at 1 cubic meter to 35.31 cubic
feet
(2) Refining
In 2005, the Company actively worked on full-load operations to meet market
demand. Crude oil throughput reached 139.94 million tonnes, up by 5.26%
compared with 2004. The Company endeavored to reduce crude oil purchase
costs by optimising crude oil procurement, allocation and transportation
efficiency, and by increasing the processing ratio of high sulphur and
heavy crude oil. The Company strived to increase the sales volume of higher
value-added products through optimised production plan and product mix. It
intensified technical revamping of refining facilities and upgraded
gasoline and diesel quality on schedule. The Company also improved its main
technical and economic performance indicators in the refining segment by
relying on strengthened management and advances in technologies. As a
result, both light products yield and overall refining yield went up.
SOURCES OF CRUDE OIL UNIT: MILLION TONNES
Change
from 2004
2005 2004 2003 to 2005 (%)
Self-supplied 28.62 28.14 28.20 1.71
---------------------------------------------------------------------------------------------------------------------------------
PetroChina Company Ltd. 8.75 10.31 13.08 (15.13)
---------------------------------------------------------------------------------------------------------------------------------
CNOOC Ltd. 5.05 6.69 5.57 (24.51)
---------------------------------------------------------------------------------------------------------------------------------
Imported 99.13 89.03 71.14 11.34
---------------------------------------------------------------------------------------------------------------------------------
Total 141.55 134.17 117.99 5.50
---------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF PRODUCTION OF THE REFINING SEGMENT
Change
from 2004 to
2005 2004 2003 2005 (%)
Crude throughput (mbbls/day) 2,817.9 2,677.2 2,350.0 5.26
---------------------------------------------------------------------------------------------------------------------------------
of which sour crude throughput (mbbls/day): 698.8 551.1 478.7 26.80
---------------------------------------------------------------------------------------------------------------------------------
Refining utilisation rate (%) 94.01 93.43 88.10 0.58
percentage
point
---------------------------------------------------------------------------------------------------------------------------------
Gasoline, diesel and kerosene including jet fuel (million tonnes) 84.53 80.83 69.01 4.58
---------------------------------------------------------------------------------------------------------------------------------
of which: Gasoline (million tonnes) 22.98 23.58 21.79 (2.54)
---------------------------------------------------------------------------------------------------------------------------------
Diesel (million tonnes) 54.92 50.89 41.91 7.92
---------------------------------------------------------------------------------------------------------------------------------
Kerosene including jet fuel (million tonnes) 6.63 6.36 5.31 4.25
---------------------------------------------------------------------------------------------------------------------------------
Light chemical feedstock (million tonnes) 21.10 17.70 16.46 19.21
---------------------------------------------------------------------------------------------------------------------------------
Light products yield (%) 74.16 74.02 73.80 0.14
percentage
point
---------------------------------------------------------------------------------------------------------------------------------
Overall refining yield (%) 93.24 93.09 92.63 0.15
percentage
point
---------------------------------------------------------------------------------------------------------------------------------
Note:(1) Crude oil processing volume is converted at 1 tonne to 7.35 barrels.
(2) The operational data for 2003 include operational results of Xi'an
Petrochemical and Tahe Petrochemical.
(3) Marketing and distribution
In 2005, while maintaining full-load operations of its refining
facilities to increase production of refined oil products, the Company
increased procurement of refined oil products from other sources to
meet the market demand. It also endeavored to reduce storage and
transportation costs by fully leveraging its modern logistics systems
and optimising resource allocation. It further expanded retail and
direct sales by improving service-oriented awareness, service quality
and standards as well as marketing structure . The sales of refined oil
products for 2005 exceeded 100 million tonnes for the first time,
representing a year on year increase of 10.54%, of which retail volume
increased by 19.29%. The efficiency of petrol stations continued to
improve with the annual throughput per petrol station exceeding 2,321
tonnes, up by 15.88% compared with 2004. Retail and direct sales volume
of refined oil products accounted for 80.24% of the total domestic
sales volume. In addition, the Company is actively marketing its petrol
IC cards, which allows customers to use one single card at its petrol
stations across the nation.
SUMMARY OF OPERATIONS OF MARKETING AND DISTRIBUTION SEGMENT
Change
from 2004
2005 2004 2003 to 2005 (%)
Total domestic sales of refined oil products (million tonnes) 104.56 94.59 75.92 10.54
---------------------------------------------------------------------------------------------------------------------------------
Of which: Retail volume (million tonnes) 63.52 53.25 38.85 19.29
---------------------------------------------------------------------------------------------------------------------------------
Direct sales volume (million tonnes) 20.38 19.65 15.33 3.72
---------------------------------------------------------------------------------------------------------------------------------
Wholesale volume (million tonnes) 20.66 21.69 21.74 (4.75)
---------------------------------------------------------------------------------------------------------------------------------
Average annual throughput per petrol station (tonne/station) 2,321 2,003 1,686 15.88
---------------------------------------------------------------------------------------------------------------------------------
Total number of petrol stations under SINOPEC brand 29,647 30,063 30,242 (1.38)
---------------------------------------------------------------------------------------------------------------------------------
Of which: Number of COCO petrol stations 27,367 26,581 24,506 2.96
---------------------------------------------------------------------------------------------------------------------------------
Number of franchised petrol stations 2,280 3,482 5,736 (34.52)
---------------------------------------------------------------------------------------------------------------------------------
Retail volume/total domestic sales volume (%) 60.7 56.3 51.2 4.4
percentage
points
---------------------------------------------------------------------------------------------------------------------------------
(4) Chemicals
In 2005, the Company achieved safe, stable, sustained, full-load and
optimal operation of its core facilities. The Company's two major ethylene
joint ventures, Shanghai Secco and BASF-YPC, were put into commercial
operation on schedule, and as a result, the Company's ethylene capacity
significantly increased. The Company produced 5.319 million tonnes of
ethylene in 2005, up by 30.56% from 2004. The Company proactively tried to
improve its chemicals product mix with more higher value-added products,
which allowed the Company to further increase its production of performance
compound resins and differential fibres. The Company also established a
specialised sales company for chemical products to enhance its overall
competitiveness and gradually integrate or centralise its marketing
strategies, market development, logistics, resource allocations, sales
practices and branding.
PRODUCTION OF MAJOR CHEMICALS UNIT: 1,000 TONNES
Change
from 2004
2005 2004 2003 to 2005 (%)
Ethylene 5,319 4,074 3,982 30.56
---------------------------------------------------------------------------------------------------------------------------------
Synthetic resins 7,605 6,221 5,805 22.25
---------------------------------------------------------------------------------------------------------------------------------
of which: performance compound resins 3,498 3,034 2,707 15.29
---------------------------------------------------------------------------------------------------------------------------------
Synthetic rubbers 626 561 553 11.59
---------------------------------------------------------------------------------------------------------------------------------
Monomers and polymers for synthetic fibres 6,725 6,021 5,633 11.69
---------------------------------------------------------------------------------------------------------------------------------
Synthetic fibre, 1,570 1,654 1,659 (5.08)
---------------------------------------------------------------------------------------------------------------------------------
of which: differential fibres 811 753 623 7.70
---------------------------------------------------------------------------------------------------------------------------------
Urea 1,780 2,630 2,028 (32.32)
---------------------------------------------------------------------------------------------------------------------------------
Note: (1) The operational data for 2003 and 2004 include the production of Maoming Ethylene, and, also that of various
chemical assets acquired from Sinopec Group in 2004.
(2) The operational data for 2005 include the production of the two joint venture ethylene facilities, Shanghai
Secco and BASF-YPC.
(5) Research and development
In 2005, the Company adhered to the application of research and engineering
design into production, focused on technological innovation and development
of key technologies, achieved a string of important scientific and
technological results and obtained 706 domestic and international patents.
The technologies in non-crystal state alloy catalyst and stable magnetic
bed reactor were used for commercial application for the first time in the
world, generating significant economic benefits due to its lower catalyst
consumption. With greater air velocity ratio, which is 5 to 10 times of
that of the traditional reactor bed. Its catalyst consumption only accounts
for 30% of the amount consumed with traditional technologies. The
technology was the only grand prize awarded by the National Technology
Invention Prizes in 2005. Another ten technologies including the geo-
steering drilling technology, a new catalyst cracking process which can
increase production of propylene while reducing olefin content in gasoline,
and a 200,000 tonne per annum EB/styrene, were successfully developed and
put into commercial application. Breakthroughs were made in researches over
20 technologies, including technologies in the field of oil reserve
geophysics. A series of technologies, including a catalytic cracking
technology to maximise isoalkane production, and aromatics extraction
technology, were applied extensively, generating meaningful economic
benefits.
Information technologies were applied to improve management. Applications
of ERP and other IT systems are playing increasingly important roles in the
Company's business development and operation management.
(6) Cost saving
In 2005, the Company took various measures to reduce cost, such as reducing
transportation costs by optimising resource allocation and leveraging on
existing logistics system, reducing crude procurement cost by further
increasing the processing volume of sour and heavy crude oil and reducing
consumption of energy and materials in the production process by optimising
operation of the facilities. In 2005, the Company effectively saved RMB
2.762 billion in cost, which exceeded the original target of RMB 2.5
billion by RMB 262 million. Of the total cost saved, the exploration and
production segment, the refining segment, the marketing and distribution
segment and the chemicals segment achieved cost saving of RMB 638 million,
RMB 706 million, RMB 712 million, and RMB 706 million, respectively.
(7) Capital expenditure
In 2005, the Company adjusted and optimised its investment allocation in
line with its development strategy and core businesses based on market
conditions, and worked for better organisation and implementation of major
projects. The total capital expenditure in 2005 was RMB 58.726 billion.
Among which, the expenditure for exploration and production segment was RMB
23.095 billion. With the investment, significant amount of oil and gas
reserves were discovered in some major exploratory areas, including Jiyang
Depression, Tahe and northeast Sichuan. Newly built crude oil and gas
production capacity increased by 5.79 million tonnes per annum and 2.1
billion cubic meters per annum respectively. The newly built proved crude
oil reserves reached 305.62 million barrels and realised increases in both
oil and gas reserves and production. The expenditure for refining segment
was RMB 14.127 billion. With the investment, newly added crude oil
processing capacity, hydro-fining capacity and coking capacity increased by
6.7 million tonnes per annum, 3.73 million tonnes per annum and 2.8 million
tonnes per annum, respectively; the revamping of facilities for upgrading
refined oil product quality was completed on schedule and
Ningbo-Shanghai-Nanjing pipeline for imported crude oil was completed and
put into operation. The expenditure for marketing and distribution segment
was RMB 10.954 billion. With the investment, the Southwest refined oil
pipeline was fully completed and put into operation, the refined oil
products sales network further improved by way of construction, acquisition
and renovation of petrol stations. The Company's leading position in the
strategic market was further solidified, with a net increase of 786
self-operated petrol stations. The expenditure for chemicals segment was
RMB 9.386 billion. With the investment, Maoming Ethylene expansion project,
PTA revamping project at Shanghai Petrochemical and Yangzi Petrochemical
progressed smoothly, the coal gasification projects for fertiliser
production was on schedule. The expenditure for corporate and others was
RMB 1.164 billion. With the investment, construction of the information
technology systems made new progresses.
In addition, the Company's two large joint ventures, Shanghai Secco and
BASF-YPC, with a total capital expenditure of RMB 2.602 billion, were
successfully put into commercial operation.
BUSINESS PROSPECT
1 MARKET OUTLOOK
Looking forward for 2006, China's economy is expected to maintain a stable
and rapid growth, which would help sustain a stable growth of domestic
demand for oil and petrochemical products, providing good market conditions
for the Company. The international crude oil prices are expected to
continue to maintain at a high price level. The domestic prices of refined
oil products are expected to gradually reflect the international prices
following the integrated reform of crude oil pricing mechanism, but
currently the refining segment would likely to continue facing challenges.
While the prices for chemicals are expected to continue to stay at
relatively high level, but due to the expected increase of feedstock cost,
the gross profit margin for chemicals segment may experience further
decline. Meanwhile, with the opening of the domestic wholesale market of
refined oil products, competitions in domestic refined oil products market
may be stronger.
2 PRODUCTION AND OPERATION
Faced with the complicated market environment in 2006, the Company intends
to adopt flexible operating strategies and focus on the following areas:
Exploration and production segment: The Company will make further efforts
to develop economic reserves, complement the construction of production
capacity in new blocks and accelerate construction of natural gas
production capacity, trial production and marketing to ensure stable growth
of oil and gas production and to improve the recovery rate and commodity
rate of oil and gas as well as total production and economic benefits. The
Company plans to produce 39.8 million tonnes of crude oil and 7 billion
cubic meters of natural gas in 2006.
Refining segment: The Company intends to optimise the existing systems
while increasing throughput of sour and heavy oil to reduce crude oil
costs. It intends to more efficiently utilise the capacity of large wharfs,
ports and pipeline transportation to reduce transportation costs. It
intends to optimise the processing plans of each refinery to strive for
more flexible adjustment of processing volume in line with the demand of
each regional market and the overall situations of crude supply and demand,
while endeavoring to adjust product mix and increase production of higher
value-added products. The Company plans to process 146 million tonnes of
crude oil in 2006.
Marketing and distribution segment: The Company intends to better deploy
its marketing networks to improve service quality and increase the
percentage of retail and direct sales. Moreover, it intends to better
deploy its refined oil product pipelines to reduce storage and
transportation costs. The Company plans to have a total sales volume of
refined oil products of 110 million tonnes, including a retail sales volume
of 66.2 million tonnes.
Chemicals segment: The Company intends to strengthen its management to
ensure safe, stable and high load operation of its chemical facilities, and
intends to produce more higher value-added products. Priority will be given
to test run and commercial operation of those revamping facilities
including Maoming Ethylene revamping. It intends to fully leverage on the
strengths of its chemicals sales subsidiary to improve competitiveness by
optimising operational process, improving sales networks and solidifying
the linkage between production and sales. In 2006, the Company plans to
produce 5.92 million tonnes of ethylene, 8.15 million tonnes of synthetic
resins, 0.6 million tonnes of synthetic rubbers, 1.53 million tonnes of
synthetic fibers and 7.14 million tonnes of synthetic fiber monomers and
polymers.
Research and development: In line with the needs of production and
development, the Company intends to further refine exploration technologies
for uncovering operational process oil and gas in the mature blocks in
eastern China, strengthen its research over key technologies, and
accelerate theoretical innovation as well as key technological innovation
in marine facies oil and gas exploration in western China. The Company also
intends to intensify its efforts in technologies for enhancing the quality
of gasoline and diesel and production technologies for increasing higher
value-added new chemical products, while accelerating application of
technological achievements and providing technical support for improving
the Company's core competitiveness.
Cost saving: In 2005, the Company intends to rely on scientific and
technological advancement and reinforced management practices to deepen
reforms and enhance operating efficiency. It plans to achieve a cost saving
of RMB 2.5 billion, among which exploration and production segment plans to
achieve a cost saving of RMB 600 million, refining segment RMB 600 million,
chemicals segment RMB 700 million, and marketing and distribution segment
RMB 600 million.
Capital expenditure: The Company's planned capital expenditure is RMB 70
billion for 2006. The projected expenditure for exploration and production
segment is RMB 29.8 billion, for refining segment is RMB 14.6 billion, for
chemicals segment is RMB 12.5 billion, for marketing and distribution
segment is RMB 11 billion and for corporate and others is RMB 2.1 billion.
The capital expenditure will be primarily invested in the following
activities within each of the various segments: in the exploration and
production segment, the Company will continue to pursue the principle of
"coordination of reserves, production, investment and returns", under which
the concept of oil reserve management will be strengthened, construction of
oil and gas production capacity in western China and development of Puguang
Gas Field in northeastern Sichuan will be accelerated. The Company will
also endeavor to enhance overall deployment of its production capacity,
increase the production in low-yield reserves and maintain a positive
balance between the production and newly found reserves. In the refining
segment, the Company will continue to refine and accelerate construction of
crude oil pipeline and related receiving and unloading facilities, ensure
the smooth progress of the revamping efforts at refining facilities in
Guangzhou, Yanshan and other areas aimed at upgrading oil product quality,
and push forward Qingdao oil refining project and Fujian integrated
project. In the chemicals segment, the Company will focus on the successful
commencement of operation of the revamped facilities at Maoming Ethylene,
the PX and PTA facilities at Yangzi Petrochemical and three fertiliser
facilities, and the orderly commencement of construction of the ethylene
facilities at Fujian, Tianjin and Zhenhai. In the marketing and
distribution segment, the Company will continue to optimise and adjust the
sales network, accelerate construction of refined oil product pipelines,
and construct more petrol stations in central cities, new urban districts
and along expressways.
Employee reduction: The Company plans to reduce its number of employee by
over 6,000 employees in 2006 so that the total number of employee will be
controlled at approximately 358,500 as of the end of 2006, which would make
the total employees reduction exceed 150,000 since the establishment of the
Company.
In 2006, the Company will strive to overcome various difficulties and meet
operational objectives of 2006 in line with the operating policies set
forth by the Board of Directors, and will endeavor to set new records,
deliver sound performances in its business operations and maintain
sustainable development.
HEALTH, SAFETY AND ENVIRONMENT
The Company has long been dedicated to achieving a coordinated development
between health, safety and environment (HSE) and economic growth and has
instituted a mechanism for effective long-term operations. While maintaining
full load and longer cycle production, the Company in 2005 continued to focus
on operational safety and improved environmental protection and made continuous
efforts to care for the health of its employees and its relations with the
communities to achieve harmonious growth.
1 Steady improvement of HSE management
Since the institution of HSE management system, the Company and each of the
subsidiaries and affiliates have worked for its smooth operation. In 2005,
the company organised HSE supervision, inspection and evaluation at various
levels to review and evaluate implementation and follow-up of the HSE
system so as to achieve continual improvement.
2 Pursuit of a caring approach to create a harmonious and healthy working
environment In 2005, the Company continued to strengthen firm-wide HSE
education and training to continually improve employees' operational skills
and strengthen occupational health management. Warning signs were posted in
the workplace and monitoring and measurement results were publicly
displayed. Regular occupational health checkups were arranged for relevant
employees and working conditions were continually improved to ensure
employee safety and health.
3 Implementation of a prevention-based policy; assessment of safety and
environmental risks of newly built facilities and construction-in-progress
In 2005, the Company performed safety and environmental risk assessments
over a number of newly built projects, including Tianjin Petrochemical
Integration Project, and continued to perform risk assessments over
operating facilities as well as public facilities. Rectification of
potentially risky areas was subject to continuous monitoring throughout the
process, while random monitoring was instituted for major facilities and
key areas under the oversight of a specially designated person. The Company
overhauled its emergency response plans for major and extreme emergencies
and its capacity for confronting emergencies was continually improved.
4 Active promotion of clean production to save water and reduce effluents
In 2005, the Company standardised its environmental management in line with
HSE management system, strengthened performance evaluation and its control
of polluting sources and endeavored to achieve conservation of energy and
water reduction of pollution and consumption.
Notwithstanding significant increase in the Company's production, as
compared to 2004, amount of major effluents was further reduced, while
industrial water consumption being reduced by 4% and COD content in its
discharged waste water by 6%.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PART OF THE
FINANCIAL INFORMATION PRESENTED IN THIS SECTION IS DERIVED FROM THE COMPANY'S
AUDITED FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED IN ACCORDANCE WITH
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS").
1 CONSOLIDATED RESULTS OF OPERATIONS
In 2005, the Company's turnover, other operating revenues and other income
were RMB 832.5 billion, and the operating profit was RMB 66.8 billion,
representing an increase of 34.3% and 5.9%, respectively, over those in the
previous year. These results were largely attributable to the following
factors: International crude oil prices continued to be volatile and
remained at a high level; chemical products prices remained at a high
level; the Company strived to mitigate the effect of the tight price
control over refined oil products, proactively developed the market,
increased oil and gas production, optimised crude oil processing and output
structure, increased chemicals production and sales of refined oil
products. In addition, the Company received a one-time compensation of RMB
9.4 billion from the central government to compensate the Company's
inability to fully pass the increased crude oil costs to the refined oil
products due to the tight government control over prices of domestic
refined oil products, which to some extent relieved the pressures imposed
by the increased crude oil costs and contributed to the comparatively good
operating results.
The following table sets forth the major items in the consolidated income
statement of the Company for the indicated periods.
Years Ended 31 December Rate of
2005 2004 Change
(RMB in millions) (%)
Turnover, other operating revenues and other income 832,532 619,783 34.3
---------------------------------------------------------------------------------------------------------------------------------
Of which:Turnover 799,115 597,197 33.8
---------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 24,002 22,586 6.3
------------------------------------------------------------------------------------------------------------------------
Other income 9,415 i-D N/A
------------------------------------------------------------------------------------------------------------------------
Operating expenses (765,718) (556,714) 37.5
---------------------------------------------------------------------------------------------------------------------------------
Of which:
Purchased crude oil, products, and operating supplies and expenses (653,056) (443,590) 47.2
---------------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses (33,709) (31,843) 5.9
-----------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation (31,413) (32,342) (2.9)
-----------------------------------------------------------------------------------------------------------------------------
Exploration expenses (including dry holes) (6,411) (6,396) 0.2
-----------------------------------------------------------------------------------------------------------------------------
Personnel expenses (18,483) (18,634) (0.8)
-----------------------------------------------------------------------------------------------------------------------------
Employee reduction expenses (369) (919) (59.8)
-----------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax (17,152) (16,324) 5.1
-----------------------------------------------------------------------------------------------------------------------------
Other operating expenses, net (5,125) (6,666) (23.1)
-----------------------------------------------------------------------------------------------------------------------------
Operating profit 66,814 63,069 5.9
---------------------------------------------------------------------------------------------------------------------------------
Net finance costs (4,621) (4,371) 5.7
---------------------------------------------------------------------------------------------------------------------------------
Investment income and share of profit less losses from associates 1,035 908 14.0
---------------------------------------------------------------------------------------------------------------------------------
Profit before tax 63,228 59,606 6.1
---------------------------------------------------------------------------------------------------------------------------------
Taxation (19,388) (17,815) 8.8
---------------------------------------------------------------------------------------------------------------------------------
Profit for the year 43,840 41,791 4.9
---------------------------------------------------------------------------------------------------------------------------------
Attributable to:
-----------------------------------------------------------------------------------------------------------------------------
Equity shareholders of the Company 40,920 36,019 13.6
-----------------------------------------------------------------------------------------------------------------------------
Minority interests 2,920 5,772 (49.4)
-----------------------------------------------------------------------------------------------------------------------------
(1)Turnover, Other Operating Revenues and Other Income
In 2005, the Company's turnover, other operating revenues and other
income were RMB 832.5 billion, of which, the turnover was RMB 799.1
billion, representing an increase of 33.8% over 2004. These results were
largely attributable to the increase in international prices of crude
oil and chemical products, and the Company's efforts in expanding the
sales volume of our petroleum and chemical products and optimising our
sales and marketing structure. In 2005, the Company's other operating
revenues went up to RMB 24 billion, representing an increase of 6.3%
compared with 2004.
In 2005, the Company received from the central government a one-time
compensation of RMB 9.4 billion to compensate the Company's inability to
fully pass the increased crude oil costs to refined oil products due to
the tight government control over prices of domestic refined petroleum
products.
The following table sets forth the Company's external sales volume,
average realised prices and the respective rate of changes from 2004 to
2005 for the Company's major products.
Average realised prices
Sales Volume (RMB per tonne, RMB per
(thousand tonnes) thousand cubic meters)
Rate of Rate of
Change change
2005 2004 (%) 2005 2004 (%)
Crude oil 5,289 6,012 (12.0) 2,680 1,872 43.2
--------------------------------------------------------------------------------------------------------------------------------
Natural gas (million cubic meters) 4,356 3,775 15.4 673 609 10.5
--------------------------------------------------------------------------------------------------------------------------------
Gasoline 30,191 27,353 10.4 4,432 3,765 17.7
--------------------------------------------------------------------------------------------------------------------------------
Diesel 67,247 60,419 11.3 3,772 3,221 17.1
--------------------------------------------------------------------------------------------------------------------------------
Kerosene 6,003 5,680 5.7 3,710 2,923 26.9
--------------------------------------------------------------------------------------------------------------------------------
Basic chemical feedstock 8,658 6,664 29.9 4,846 4,429 9.4
--------------------------------------------------------------------------------------------------------------------------------
Monomers and polymers for synthetic fiber 2,993 2,704 10.7 8,879 8,022 10.7
--------------------------------------------------------------------------------------------------------------------------------
Synthetic resin 6,343 5,401 17.4 9,005 7,986 12.8
--------------------------------------------------------------------------------------------------------------------------------
Synthetic fiber 1,585 1,741 (9.0) 11,123 10,818 2.8
--------------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 678 556 21.9 13,040 10,238 27.4
--------------------------------------------------------------------------------------------------------------------------------
Chemical fertiliser 1,822 2,622 (30.5) 1,539 1,355 13.6
--------------------------------------------------------------------------------------------------------------------------------
Most of the crude oil and a small portion of the natural gas produced by
the Company were internally used for refining and chemicals production,
the remaining was sold to the refineries of Sinopec Group Company and
other customers. In 2005, the turnover from crude oil and natural gas
that were sold externally amounted to RMB 19.9 billion, representing an
increase of 24.4% over 2004, accounting for 2.4% of the Company's total
turnover, other operating revenues and other income. The increase was
mainly due to the increase in crude oil prices and expansion of natural
gas business.
The Company's refining segment and marketing and distribution segment
sell refined oil products (mainly consisting of gasoline, diesel, jet
fuel, kerosene and other refined oil products) to third parties. In
2005, the external sales revenue of refined oil products by these two
segments were RMB 542.1 billion, representing an increase of 33.5% over
2004, accounting for 65.1% of the Company's turnover, other operating
revenues and other income. The increase was mainly due to the rise of
refined oil products price, and our proactive efforts in increasing
sales volume, optimising sales and marketing structure and expanding the
market of other refined oil products. The sales revenues of gasoline,
diesel and kerosene were RMB 409.7 billion, representing an increase of
30.4% over 2004, and accounting for 75.6% of the total sales revenues of
refined oil products. The sales revenues of other refined oil products
were RMB 132.4 billion, representing an increase of 43.9% over 2004,
accounting for 24.4% of the total sales revenues of refined oil
products.
The Company's external sales revenues of chemical products were RMB
160.8 billion, representing an increase of 27.6% over 2004, accounting
for 19.3% of the Company's total turnover, other operating revenues and
other income. The increase was mainly due to the fact that the Company
captured the opportunity of the high level price of chemical products
and increased its sales volume accordingly.
(2)Operating expenses
In 2005, the Company's operating expenses amounted to RMB 765.7 billion,
representing an increase of 37.5% compared with 2004. The operating
expenses mainly consisted of the following:
Purchased Crude Oil, Products, and Operating Supplies and Expenses
In 2005, the Company's purchased crude oil, products and operating
supplies and expenses were RMB 653.1 billion, representing an increase
of 47.2% over 2004, accounting for 85.3% of the total operating
expenses, of which:
o Purchased crude oil expenses were RMB 338.2 billion, representing an
increase of 45.4% compared with 2004, accounting for 44.2% of the total
operating expenses, up by 2.4 percentage points over 2004. To meet the
increasing market demands in the fast growing Chinese economy, the
Company increased its throughput of crude oil purchased from third
parties. In 2005, the throughput of the Company's crude oil purchased
externally was RMB 107.95 million tonnes (excluding amounts processed
for third parties), representing an increase of 7.3% compared with
2004. Average cost for crude oil purchased externally in 2005 was RMB
3,133 per tonne (approximately US$ 52.11 per barrel), representing an
increase of 35.5% compared with 2004.
o In 2005, the Company's other purchase expenses were RMB 314.9
billion, representing an increase of 49.2% compared with 2004,
accounting for 41.1% of the total operating expenses. The increase was
mainly due to the increased costs of refined petroleum products and
chemical feedstock purchased externally.
Selling, general and administrative expenses
In 2005, the Company's selling, general and administrative expenses
totaled RMB 33.7 billion, representing an increase of 5.9% compared with
2004. The increase was largely due to:
o An increase of RMB 1.5 billion in the selling expenses, such as
transportation costs, compared with 2004, resulted from the increase in
the total sales volume of refined petroleum products and chemical
products, and increased sales volume through retail and direct
distribution;
o An increase of RMB 1.2 billion in operating lease expenses compared
with 2004 mainly due to the increased lease of operating facilities to
increase sales volume;
o A decrease in repairing and maintenance expenses by RMB 800 million,
mainly as a result of the increased maintenance carried out in 2004 for
petrol stations.
Depreciation, depletion and amortisation
In 2005, the Company's depreciation, depletion and amortisation were RMB
31.4 billion, down by 2.9% compared with 2004. The decrease was mainly
due to disposal of, and impairment loss on, less efficient assets in the
previous years.
Exploration expenses
In 2005, the Company's exploration expenses were RMB 6.4 billion,
maintaining at the same level as in 2004.
Personnel expenses
In 2005, the Company's personnel expenses were RMB 18.5 billion, down by
0.8% compared with 2004. The decrease was mainly due to the reduction of
operating personnel resulting from the disposal of downhole operation
assets in 2004.
Employee reduction expenses
In 2005, in accordance with the Company's voluntary employee reduction
plan, the Company recorded employee reduction expenses of approximately
RMB 370 million.
Taxes other than income tax
In 2005, the Company's taxes other than income tax were RMB 17.2
billion, representing an increase of 5.1% compared with 2004. The
increase was largely due to the increased consumption tax and associated
surcharges as a result of the increase in the sales volume of gasoline
and diesel.
Other operating expenses, net
In 2005, the Company's other operating expenses, net were RMB 5.1
billion, representing a decrease of 23.1% compared with 2004. The
decrease was largely due to the decrease of RMB 2.1 billion in
impairment loss on long-lived assets and an increase of RMB 400 million
in net losses of disposal of assets compared with 2004.
(3) Operating profit
In 2005, the Company's operating profit was RMB 66.8 billion,
representing an increase of 5.9% compared with 2004.
(4) Net finance costs
In 2005, the Company's net finance costs were RMB 4.6 billion,
representing an increase of 5.7% over 2004. The increase was mainly due
to the following factors:
o An increase of RMB 1.3 billion in net interest expenses as a result
of the increase in long term loans borrowed in accordance with the
investment plans, and the increase in short term debts attributable to
the increased working capital requirement, as a result of the increased
crude oil price and the expansion of production and operation;
o An increase of RMB 1.1 billion in net foreign exchange gains due to
fluctuation of the foreign exchange rate.
(5) Profit before income tax
In 2005, the Company's profit from ordinary activities before income tax
was RMB 63.2 billion, representing an increase of 6.1% compared with
2004.
(6) Taxation
In 2005, the Company's taxation was RMB 19.4 billion, representing an
increase of 8.8% compared with 2004.
(7) Profit attributable to minority interests
In 2005, the Company's profit attributable to minority interests was RMB
2.9 billion, representing a decrease of 49.4% compared with 2004. The
decrease was largely due to the decreased profit in certain subsidiaries
and our privatisation of Beijing Yanhua.
(8) Profit attributable to equity shareholders to the Company
In 2005, the Company's profit attributable to equity shareholders of the
Company was RMB 40.9 billion, up by 13.6% over 2004.
2 DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS
The Company divides its operations into four business segments (exploration
and production segment, refining segment, marketing and distribution
segment and chemicals segment) and corporate and others. Unless otherwise
specified, the inter-segment transactions have not been eliminated in the
financial data discussed in this section. In addition, the operating
revenue data of each segment have included the "other operating revenues"
and "other income" of the segment.
The following table sets forth the operating revenues by each segment, the
contribution of external sales and inter-segment sales as a percentage of
operating revenues before elimination of inter-segment sales, and the
contribution of external sales as a percentage of consolidated operating
revenues (i.e. after elimination of inter-segment sales) for the periods
indicated.
As a Percentage As a Percentage
of the Consolidated of the Consolidated
Operating Revenues Operating Revenues,
Operating Revenues Before Elimination of After Elimination of
Years Ended 31 December Inter-segment Sales Inter-segment Sales
2005 2004 2005 2004 2005 2004
RMB in millions (%) (%)
Exploration and Production Segment
-------------------------------------------------------------------------------------------------------------------------------
External sales(1) 30,607 25,253 2.2 2.5 3.7 4.1
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 84,423 60,053 6.2 5.9
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 115,030 85,306 8.4 8.4
-------------------------------------------------------------------------------------------------------------------------------
Refining Segment
-------------------------------------------------------------------------------------------------------------------------------
External sales(1) 97,646 68,574 7.2 6.7 11.7 11.1
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 386,456 289,699 28.3 28.5
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 484,102 358,273 35.5 35.2
-------------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment
-------------------------------------------------------------------------------------------------------------------------------
External sales(1) 460,650 343,595 33.8 33.8 55.3 55.4
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 3,172 2,831 0.2 0.3
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 463,822 346,426 34.0 34.1
-------------------------------------------------------------------------------------------------------------------------------
Chemicals Segment
-------------------------------------------------------------------------------------------------------------------------------
External sales(1) 166,624 132,183 12.2 13.0 20.0 21.3
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 12,199 12,510 0.9 1.2
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 178,823 144,693 13.1 14.2
-------------------------------------------------------------------------------------------------------------------------------
Corporate and others
-------------------------------------------------------------------------------------------------------------------------------
External sales(1) 77,005 50,178 5.7 4.9 9.3 8.1
-------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 44,897 32,046 3.3 3.2
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues 121,902 82,224 9.0 8.1
-------------------------------------------------------------------------------------------------------------------------------
Operating revenues before elimination
of inter-segment sales 1,363,679 1,016,922 100.0 100.0
-------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (531,147) (397,139)
Consolidated operating revenues 832,532 619,783 100.0 100.0
-------------------------------------------------------------------------------------------------------------------------------
Note: (1) include other operating revenues and other income.
The following table sets forth the operating revenues, operating expenses and
operating profit by each segment before elimination of the inter-segment
transactions for the periods indicated, and the rate of changes from 2004 to
2005.
Years Ended 31 December Rate of
2005 2004 Change
(RMB in millions) (%)
Exploration and Production Segment
----------------------------------------------------------------------------------------
Operating revenues 115,030 85,306 34.8
----------------------------------------------------------------------------------------
Operating expenses 68,159 59,692 14.2
----------------------------------------------------------------------------------------
Operating profit 46,871 25,614 83.0
----------------------------------------------------------------------------------------
Refining Segment
----------------------------------------------------------------------------------------
Operating revenues 484,102 358,273 35.1
----------------------------------------------------------------------------------------
Operating expenses 487,607 352,330 38.4
----------------------------------------------------------------------------------------
Operating (loss) profit (3,505) 5,943 (159.0)
Marketing and Distribution Segment
----------------------------------------------------------------------------------------
Operating revenues 463,822 346,426 33.9
----------------------------------------------------------------------------------------
Operating expenses 453,472 331,710 36.7
----------------------------------------------------------------------------------------
Operating profit 10,350 14,716 (29.7)
Chemicals Segment
----------------------------------------------------------------------------------------
Operating revenues 178,823 144,693 23.6
----------------------------------------------------------------------------------------
Operating expenses 164,527 125,972 30.6
----------------------------------------------------------------------------------------
Operating profit 14,296 18,721 (23.6)
Corporate and others
----------------------------------------------------------------------------------------
Operating revenues 121,902 82,224 48.3
----------------------------------------------------------------------------------------
Operating expenses 123,100 84,149 46.3
----------------------------------------------------------------------------------------
Operating loss (1,198) (1,925) (37.8)
----------------------------------------------------------------------------------------
(1) Exploration and production segment
Most of the crude oil and a small portion of the natural gas produced by
the exploration and production segment were used for the Company's refining
and chemicals production. Most of the natural gas and a small portion of
crude oil produced were sold to refineries owned by Sinopec Group Company
and other customers.
In 2005, the operating revenues of this segment were RMB 115 billion,
representing an increase of 34.8% over 2004, largely due to the increase in
the sales price and volume of crude oil compared with those in 2004.
In 2005, this segment sold 36.86 million tonnes of crude oil and 4.44
billion cubic meters of natural gas, representing an increase of 1.7% and
14.7% respectively compared with those in 2004. The average realised price
of crude oil was RMB 2,665 per tonne (approximately US$ 45.9 per barrel),
representing an increase of 36.2% over 2004. The average realised price of
natural gas was RMB 673 per thousand cubic meters, representing an increase
of 9.3% compared with 2004.
In 2005, the operating expenses of this segment were RMB 68.2 billion,
representing an increase of 14.2% compared with 2004. The increase was
mainly due to:
o The rise of raw materials and utilities costs attributed to
approximately RMB
2.2 billion in the increase of operating expenses compared with 2004;
o The increase of approximately RMB 1.6 billion in other operating
expenses including expenses related to the sales of materials compared
with 2004;
o The increase of RMB 1.5 billion resulted from the increased production
activities in this segment to take advantage of the high crude oil price
environment.
o The increase of approximately RMB 700 million in resources tax due to
the change of tax rate, and the increased construction tax, education
surcharges as well as mineral resources compensation fees associated with
the increased sales revenues of crude oil.
In 2005, in light of the high crude oil price, the Company increased its oil
production in higher cost areas , which, together with the increased water and
electricity rates for oil and gas production, contributed to the increase of
the lifting cost of crude oil and natural gas by 20.8% from US$ 6.72 per barrel
in 2004 to US$ 8.12 per barrel in 2005.
In 2005, this segment's operating profit was RMB 46.9 billion, representing an
increase of 83.0% compared with 2004.
(2) Refining segment
The business activities of the refining segment consist of purchasing crude
oil from the exploration and production segment and third parties,
processing crude oil into refined oil products, selling gasoline, diesel
and kerosene to marketing and distribution segment, selling a portion of
chemical feedstock to chemicals segment and selling other refined oil
products to domestic and foreign customers.
In 2005, this segment's operating revenues were approximately RMB 484.1
billion, representing an increase of 35.1% compared with 2004. The increase
was mainly due to the increased sales prices and sales volume of various
refined petroleum products.
The following table sets forth the sales volumes, average realised prices
and the respective rate of changes of the Company's major refined oil
products of the segment from 2004 to 2005.
Sales Volume Average Realised Prices
(thousand tonnes) Rate of (RMB per tonne) Rate of
2005 2004 Change 2005 2004 Change
(%) (%)
Gasoline 21,520 21,420 0.5 3,763 2,977 26.4
---------------------------------------------------------------------------------------------------------------------------------
Diesel 54,128 50,271 7.7 3,462 2,890 19.8
---------------------------------------------------------------------------------------------------------------------------------
Chemical feedstock 26,446 23,165 14.2 3,734 2,682 39.2
---------------------------------------------------------------------------------------------------------------------------------
Other refined petroleum products 32,724 31,710 3.2 3,121 2,583 20.8
---------------------------------------------------------------------------------------------------------------------------------
In 2005, the sales revenues of gasoline by the segment were RMB 81 billion,
representing an increase of 27.0% compared with 2004, accounting for 16.7%
of this segment's operating revenues.
In 2005, the sales revenues of diesel by the segment were RMB 187.4
billion, representing an increase of 29.0% compared with 2004, accounting
for 38.7% of this segment's operating revenues.
In 2005, the sales revenues of chemical feedstock by the segment were RMB
98.8 billion, representing an increase of 58.9% compared with 2004,
accounting for 20.4% of this segment's operating revenues. The increase in
the sales revenues of chemical feedstock was more than that in the sales
revenues of gasoline and diesel, which was primarily due to the smaller
increase in gasoline and diesel prices as compared with chemical feedstock
prices as a result of tight government control over domestic gasoline and
diesel prices. In addition, the segment also increased the sales volume of
chemical feedstock.
In 2005, the sales revenues of refined petroleum products other than
gasoline, diesel and chemical feedstock were RMB 102.1 billion,
representing an increase of 24.7% compared with 2004, accounting for 21.1%
of this segment's operating revenues.
In 2005, the operating expenses of the segment were RMB 487.6 billion,
representing an increase of 38.4% compared with 2004. The increase was
primarily due to the increase in crude oil price and throughput.
In 2005, the average crude oil cost was RMB 3,064 per tonne (approximately
US$ 50.96 per barrel), representing an increase of 35.5% compared with
2004. Refining throughput was 136.08 million tonnes (excluding amounts
processed for third parties) in 2005, representing an increase of 5.6%
compared with 2004. The total crude oil costs in 2005 were RMB 416.9
billion, representing an increase of 43.1% compared with 2004, accounting
for 85.5% of the total operating expenses of the segment, up by 2.8
percentage points over 2004.
In 2005, although crude oil prices remaining at a high level; the Chinese
government implemented tight control over domestic prices of refined oil
products, as a result, the Company's refining segment incurred significant
loss. To ensure our refining segment's normal operation, the Company
strived to lower its production cost and controlled the internal transfer
prices between the different segments. In addition, through timely
communication with the government, the Company received a one-time
financial grant in the amount of RMB 9.4 billion. In 2005, the operating
losses of the segment were RMB 3.5 billion, representing a decrease in
operating profit of RMB 9.4 billion compared with 2004. The refining margin
was US$ 1.32 per barrel (defined as the sales revenues less the crude oil
costs and refining feedstock costs and taxes other than income tax, divided
by the throughput of crude oil and refining feedstock) in 2005,
representing a decrease of US$ 2.54 per barrel, or 65.8%, from US$ 3.86 per
barrel in 2004.
In 2005, the refining cash operating cost (defined as operating expenses
less the purchase costs of crude oil and refining feedstock, depreciation
and amortisation, taxes other than income tax, other business expenses and
adjustments; and divided by the throughput of crude oil and refining
feedstock) was US$ 1.91 per barrel, representing a decrease of US$ 0.07 per
barrel, or 3.5%, compared with 2004. This change was mainly due to the
continued reduction of costs and increased throughput in this segment.
(3) Marketing and distribution segment
The business activities of marketing and distribution segment include
purchasing refined oil products from the refining segment and third
parities, and wholesale selling of refined oil products to domestic
customers, directly selling and retail distributing the refined oil
products through the retail network owned by this segment and provision of
related services.
In 2005, the operating revenues of this segment were RMB 463.8 billion,
representing an increase of 33.9% compared with 2004. The increase was
primarily due to the increases in sales volume and prices of gasoline,
diesel and kerosene including jet fuel, the continuous optimisation of
marketing structure to further increase the percentage of retail sales in
the total sales volume of gasoline and diesel.
In 2005, the operating revenues from sales of gasoline and diesel were RMB
390.2 billion, accounting for 84.1% of the operating revenues of this
segment. The percentage of retail sales in the total sales volume of
gasoline and diesel increased from 54.6% in 2004 to 59.5% in 2005, up by
5.0 percentage points. The percentage of sales of gasoline and diesel by
direct sales in the total sales volume decreased from 20.3% in 2004 to
19.1% in 2005, down by 1.2 percentage points. The percentage of wholesale
sales in the total sales volume of gasoline and diesel decreased from 25.1%
in 2004 to 21.3% in 2005, down by 3.8 percentage points.
The following table sets forth the sales volumes, average realised prices
and the respective rate of changes of the four major product categories in
2004 and 2005 in different forms of sales channels for gasoline and diesel.
Sales Volume Average Realised Prices
(thousand tonnes) Rate of (RMB per tonne) Rate of
2005 2004 Change 2005 2004 Change
(%) (%)
Gasoline 30,319 27,508 10.2 4,430 3,762 17.8
------------------------------------------------------------------------------------------------------------------------------
Of which: Retail 21,629 18,416 17.4 4,562 3,911 16.6
------------------------------------------------------------------------------------------------------------------------------
Direct Sales 2,839 2,890 (1.8) 4,206 3,536 18.9
------------------------------------------------------------------------------------------------------------------------------
Wholesale 5,851 6,202 (5.7) 4,050 3,426 18.2
------------------------------------------------------------------------------------------------------------------------------
Diesel 67,925 61,097 11.2 3,767 3,215 17.2
------------------------------------------------------------------------------------------------------------------------------
Of which: Retail 36,896 29,997 23.0 3,885 3,351 15.9
------------------------------------------------------------------------------------------------------------------------------
Direct Sales 15,909 15,123 5.2 3,786 3,211 17.9
------------------------------------------------------------------------------------------------------------------------------
Wholesale 15,120 15,978 (5.4) 3,458 2,963 16.7
------------------------------------------------------------------------------------------------------------------------------
Kerosene 5,955 5,623 5.9 3,710 2,923 26.9
------------------------------------------------------------------------------------------------------------------------------
Fuel oil 13,334 9,685 37.7 2,374 1,793 32.4
------------------------------------------------------------------------------------------------------------------------------
In 2005, the segment's operating expenses were RMB 453.5 billion,
representing an increase of 36.7% compared with 2004. The increase was
mainly due to the increase in purchase expenses, of which, purchase
expenses for gasoline and diesel were RMB 355.5 billion, up by 36.3% over
2004, accounting for 78.4% of the segment's operating expenses. In 2005,
average purchase prices of gasoline and diesel increased by 27.3% and
20.9%, respectively, to RMB 3,844 per tonne and RMB 3,518 per tonne
compared with 2004. The purchase volume of gasoline and diesel increased by
10.2% and 11.2%, respectively, compared with 2004 to 30.32 million tonnes
and 67.93 million tonnes.
In 2005, the segment's cash selling cost (defined as the operating expenses
less the purchasing costs, taxes other than income tax, depreciation and
amortisation, and divided by the sales volume) was RMB 162.55 per tonne,
representing a decrease by 2.7% compared with 2004. This decrease was
primarily due to the segment's continuous effort in cost saving and the
scale effect of increase in sales volume.
In 2005, the segment's operating profit was RMB 10.4 billion, representing
a decrease of 29.7% compared with 2004.
(4) Chemicals Segment
The business activities of the chemicals segment include purchasing
chemical feedstock from the refining segment and third parities, and
producing, marketing and distribution of petrochemical products and
inorganic chemical products.
In 2005, the segment's operating revenues were RMB 178.8 billion,
representing an increase of 23.6% compared with 2004, which was primarily
due to the increases in prices and sales volume of major chemical products.
In 2005, the sales revenues of the Company's six major categories of
chemical products (i.e. basic organic chemicals, monomers and polymers for
synthetic fiber, synthetic resin, synthetic fiber, synthetic rubber and
chemical fertiliser) totaled approximately RMB 159.5 billion, representing
an increase of 27.9% compared with 2004, accounting for 89.2% of the total
operating revenues of this segment.
The following table sets forth the sales volume, average realised price and
the respective rate of changes for each of these six categories of chemical
products of this segment from 2004 to 2005.
Sales Volume (thousand tonnes) Average Realised Prices (RMB/Tonne)
Rate of Rate of
Change Change
2005 2004 (%) 2005 2004 (%)
--------------------------------------------------------------------------------------------------------------------------------
Basic organic chemicals 9,509 7,384 28.8 4,828 4,292 12.5
--------------------------------------------------------------------------------------------------------------------------------
Monomers and polymers for synthetic fiber 3,003 2,704 11.1 8,872 8,022 10.6
--------------------------------------------------------------------------------------------------------------------------------
Synthetic resin 6,366 5,402 17.8 9,007 7,986 12.8
--------------------------------------------------------------------------------------------------------------------------------
Synthetic fiber 1,585 1,741 (9.0) 11,123 10,818 2.8
--------------------------------------------------------------------------------------------------------------------------------
Synthetic rubber 703 563 24.9 13,000 10,247 26.9
--------------------------------------------------------------------------------------------------------------------------------
Chemical fertiliser 1,824 2,659 (31.4) 1,539 1,355 13.6
--------------------------------------------------------------------------------------------------------------------------------
In 2005, the operating expenses of the segment were RMB 164.5 billion,
representing an increase of 30.6% compared with 2004. The increase was
primarily due to the price increases of various raw materials, the
increased consumption of various raw materials and auxiliary materials, the
increased utilities expenses and other variable expenses and fixed costs,
all associated with the increased production of the chemical products.
More specifically:
o Affected by the increase in the consumption of raw materials and their
unit prices, the costs for raw materials increased by RMB 37.6 billion
compared with 2004. Consumption of naphata and other cracking materials
increased by 2.43 million tonnes over 2004, and unit price of raw
materials was RMB 3,704 per tonne, up by RMB 1,160 per tonne over 2004.
o Due to increased sales volume of chemical products, selling expenses,
such as transportation costs, increased by RMB 700 million compared with
2004.
In 2005, the segment's operating profit was RMB 14.3 billion, representing
a decrease of RMB 4.4 billion compared with 2004.
(5) Corporate and others
The business activities of corporate and others mainly consist of the
import and export businesses of the subsidiaries, research and development
activities of the Company and managerial activities of its headquarters.
In 2005, the operating revenues of corporate and others were RMB 121.9
billion, representing an increase of 48.3% compared with 2004. The increase
was due to the fact that China Petrochemical International Co., Ltd. and
its subsidiaries increased their trading volume in importing and exporting
crude oil and petrochemical products and other business transactions.
In 2005, the segment's operating expenses were RMB 123.1 billion,
representing an increase of 46.3% compared with 2004. The increase was
primarily due to the increased purchase expenses of China Petrochemical
International Co., Ltd. and its subsidiaries associated with the increase
in their revenues.
The segment's operating losses were RMB 1.2 billion, representing a
decrease of RMB 700 million compared with 2004.
3 ASSETS, LIABILITIES, EQUITY AND CASH FLOWS
The Company's primary sources of funding were from operating activities,
short-term and long-term borrowings, and primary uses of funds were for
operating expenses, capital expenditures and repayments for short-term and
long-term borrowings.
(1)Assets, liabilities and equity Unit: RMB in millions
As of 31 December
2005 2004 Amount
RMB millions RMB millions Changes
Total assets 537,321 474,594 62,727
----------------------------------------------------------------------------------------
Current assets 145,291 120,271 25,020
----------------------------------------------------------------------------------------
Non-current assets 392,030 354,323 37,707
----------------------------------------------------------------------------------------
Total liabilities 284,325 250,508 33,817
----------------------------------------------------------------------------------------
Current liabilities 170,649 146,277 24,372
----------------------------------------------------------------------------------------
Non-current liabilities 113,676 104,231 9,445
----------------------------------------------------------------------------------------
Equity attributable to equity
shareholders of the Company 223,556 193,040 30,516
----------------------------------------------------------------------------------------
Share capital 86,702 86,702 -
----------------------------------------------------------------------------------------
Reserves 136,854 106,338 30,516
----------------------------------------------------------------------------------------
Minority interests 29,440 31,046 (1,606)
----------------------------------------------------------------------------------------
Total equity 252,996 224,086 28,910
----------------------------------------------------------------------------------------
The Company's total assets were RMB 537.321 billion, representing an
increase of RMB 62.727 billion compared with those at the end of 2004,
of which:
o The current assets increased by RMB 25.02 billion from those at the
end of 2004 to RMB 145.291 billion. The increase was mainly due to the
increases in inventories of crude oil and refined oil products as a
result of the increase in prices and volume of crude oil and refined
oil products.
o The non-current assets increased by RMB 37.707 billion from those at
the end of 2004 to RMB 392.03 billion. The increase was mainly due to
the increase of RMB 30.45 billion in property, plant and equipment and
the increase of RMB 2.082 billion in construction in progress.
The total liabilities were RMB 284.325 billion, representing an increase
of RMB 33.817 billion compared with those at the end of 2004, of which :
o The current liabilities increased by RMB 24.372 billion from those
at the end of 2004 to RMB 170.649 billion. The increase was mainly due
to the increase of RMB 29.175 billion in accounts payable associated
with the expansion of production and operation, and the decrease of
RMB 7.554 billion in bills payable resulted from adjustment of
financing structures.
o The non-current liabilities increased by RMB 9.445 billion from
those at the end of 2004 to RMB 113.676 billion. The decrease was
mainly due to the fact that long-term loans of the Company increased
by RMB 9.405 billion compared with those at the end of 2004.
The equity attributable to equity shareholders of the Company was RMB
223.556 billion, representing an increase of RMB 30.516 billion in
reserves compared with those at the end of 2004.
(2) Cash flow
In 2005, the Company's cash and cash equivalent decreased by RMB 2.614
billion, which, together with the decrease of RMB 22 million due to the
change in foreign exchange rates, contributed to the net decrease of RMB
2.636 billion, down from RMB 16.381 billion as of 31 December, 2004 to
RMB 13.745 billion as of 31 December 2005.
The following table sets forth the major items on the consolidated cash
flow statements in 2004 and 2005.
Major items of cash flows Unit: RMB in millions
Years Ended 31 December
2005 2004
Net cash flow from operating activities 76,497 69,081
-----------------------------------------------------------------------------------------------------------------------
Net cash flow from investing activities (71,051) (73,992)
-----------------------------------------------------------------------------------------------------------------------
Net cash flow from financing activities (8,060) 5,028
-----------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalent (2,614) 117
-----------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities was RMB 76.497 billion.
In 2005, profit before taxation was RMB 63.228 billion; after adjusting
the non-cash expenses items, the adjusted cash flow from operating
activities was RMB 105.23 billion. Major non-cash expense items
included: depreciation, depletion and amortisation of RMB 31.413
billion, dry holes costs of RMB 2.992 billion, net losses from disposal
of properties, plants and equipments of RMB 2.095 billion, and
impairment losses on long-lived assets of RMB 1.851 billion.
The changes in operating-related accounts receivable and payable items
reduced cash inflow of RMB 1.828 billion. In order to meet the market
demand, the Company expanded production and operation, as a result, the
working capital required by the ordinary business settlement increased,
of which, the changes in inventory led to a decreased cash inflow of RMB
24.998 billion , the increase in accounts payable due to the increase in
operation and purchase costs led to an increased cash inflow of RMB
28.97 billion, and the increase in accounts receivable and other assets
led to a decreased cash inflow of RMB 5.8 billion.
After adjusting the non-cash expense items and accounts receivable and
payable items with regard to the profit before taxation, and deducting
the cash outflow for payment of income tax totaling RMB 20.998 billion,
and the net cash outflow for net interests paid as well as the dividend
received totaling RMB 5.907 billion, the net cash flow from operating
activities was RMB 76.497 billion.
Net cash flow for investing activities was RMB 71.051 billion.
The net cash flow for investing activities mainly represented cash
outflows of RMB 63.135 billion for capital expenditures and RMB 4.324
billion for acquisition of minority interests in subsidiaries such as
Beijing Yanhua by the Company, and cash outflows of RMB 2.474 billion
for capital expenditures by the Company's jointly controlled entities.
Net cash flow for financing activities was RMB 8.06 billion.
The net cash outflow for financing activities increased because the
amount of newly added bank loans and other loans by the Company and its
jointly controlled entities was less than the amount of repayment of
bank loans and other loans, resulting in a cash outflow of RMB 2.921
billion. The net cash outflow for financing activities was further
increased by the distribution of final dividend for 2004 and interim
dividend for 2005 totaling RMB 10.404 billion; and the distribution of
cash in connection with petrochemical assets and catalyst assets
totaling RMB 3.128 billion. On the other hand, the cash outflow was
partially offset by the proceeds from the issuance of short term
financial bonds totaling RMB 9.875 billion.
During 2005, the Company captured the opportunity of robust market
demand to steadily increase cash flow from operating activities. At the
same time, the Company tightened its control over integrated cash
management and strictly controlled the scale of cash and cash
equivalents to decrease [the amount of idle cash, and accelerate capital
turnover. As a result, the overall cash efficiency of the Company
improved.
(3) Contingent liabilities
Refer to the descriptions under Major Guarantees and Performance in the
section entitled Disclosure of Significant Events.
(4) Capital expenditure
Refer to the descriptions under Capital Expenditure in the section
entitled Business Review and Prospects.
(5) Research and development expenses and environmental expenses
Research and development expenses refer to the expenses that have been
recognised during the period in which they incurred. In 2005, the
Company's research and development expenses were RMB 2.243 billion.
Environmental expenses refer to the normal routine pollutant discharge
fees paid by the Company, excluding
any capitalised costs of pollutant discharge facilities. In 2005, the
Company's environmental expenses were RMB 493 million.
(6) Analysis of financial statements prepared under the PRC Accounting Rules
and Regulations The major differences between the Company's financial
statements prepared under the IFRS and those under the PRC Accounting
Rules and Regulations are set out in Section C of the financial
statements of the Company on pages 164 to page 165 of this report.
The following table sets forth each of its segments' income and profit
from principal operations, costs of sales, taxes and surcharges, as
prepared under the PRC Accounting Rules and Regulations.
Unit: RMB in millions
Years Ended 31 December
2005 2004
RMB in millions RMB in millions
Income from principal operations
-----------------------------------------------------------------------------------------------------------------------------
Exploration and Production Segment 104,285 76,023
-----------------------------------------------------------------------------------------------------------------------------
Refining Segment 469,266 352,548
-----------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 462,464 345,671
-----------------------------------------------------------------------------------------------------------------------------
Chemicals Segment 172,982 122,118
-----------------------------------------------------------------------------------------------------------------------------
Others 121,265 79,145
-----------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (531,147) (384,873)
-----------------------------------------------------------------------------------------------------------------------------
Consolidated income from principal operations 799,115 590,632
-----------------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges
-----------------------------------------------------------------------------------------------------------------------------
Exploration and Production Segment 40,118 36,073
-----------------------------------------------------------------------------------------------------------------------------
Refining Segment 477,843 340,360
-----------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 427,308 306,309
-----------------------------------------------------------------------------------------------------------------------------
Chemicals Segment 149,431 96,994
-----------------------------------------------------------------------------------------------------------------------------
Others 118,152 78,410
-----------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment cost of sales (527,451) (382,736)
-----------------------------------------------------------------------------------------------------------------------------
Consolidated cost of sales, sales taxes and surcharges 685,401 475,410
-----------------------------------------------------------------------------------------------------------------------------
Profit from principal operations
-----------------------------------------------------------------------------------------------------------------------------
Exploration and Production Segment 59,732 37,997
-----------------------------------------------------------------------------------------------------------------------------
Refining Segment (7,838) 12,005
-----------------------------------------------------------------------------------------------------------------------------
Marketing and Distribution Segment 35,156 39,362
-----------------------------------------------------------------------------------------------------------------------------
Chemicals Segment 23,551 25,123
-----------------------------------------------------------------------------------------------------------------------------
Others 3,113 735
-----------------------------------------------------------------------------------------------------------------------------
Consolidated profit from principal operations 113,714 115,222
-----------------------------------------------------------------------------------------------------------------------------
Net profit 39,558 32,275
-----------------------------------------------------------------------------------------------------------------------------
Profit from principal operation: in 2005, the Company's realised profit
from principal operations was RMB 113.714 billion, representing a
decrease of RMB 1.508 billion compared with 2004. The decrease was
mainly due to the fact that crude oil price continued to be volatile and
remained at a high level in international market, and the Chinese
government implemented tight price control over domestic refined oil
product, resulting in smaller increase in the price of refined oil
products as compared with that in crude oil price. The Company strived
to expand sales volume and optimise marketing and distribution
structures, but was still unable to completely offset the pressure from
the increased crude oil costs. As a result, profit from principal
operations declined compared with 2004.
Net profit: in 2005, the net profit realised by the Company was RMB
39.558 billion, representing an increase of RMB 7.283 billion, or
22.57%, over that in 2004.
Financial data prepared under the PRC Accounting Rules and
Regulations:
Unit: RMB in millions
At 31 December
2005 2004 Changes
Total assets 520,572 460,081 60,491
-----------------------------------------------------------------------------
Long-term liabilities 107,774 98,407 9,367
-----------------------------------------------------------------------------
Shareholders' funds 215,623 186,350 29,273
-----------------------------------------------------------------------------
Analysis of changes:
Total assets: in 2005, the total assets increased by RMB 60.491 billion
from those at the end of 2004 to RMB 520.572 billion. The increase was
primarily due to a number of factors, of which, the fixed assets
increased by RMB 32.706 billlion as a result of the Company's
implementation of a prudent investment policy to meet the market
demands; the current assets increased by RMB 24.84 billion resulted from
increases in inventories of crude oil and refined oil products in line
with the rise of price and expansion of production and operation; other
assets, including intangible assets, increased by RMB 2.945 billion.
Long-term liabilities: the Company's long-term liabilities were RMB
107.774 billion as of 31 December 2005, representing an increase of RMB
9.367 billion from those as of 31 December 2004, which was primarily due
to the increase in long term borrowings in line with investment plans.
Shareholders' funds: At the end of 2005, shareholders' funds of the
Company was RMB 215.623 billion, representing an increase of RMB 29.273
billion compared with those at the end of 2004. This increase was
primarily due to: first, the realised net profit in 2005 amounted to RMB
39.558 billion; second, in 2005, the distribution of the final dividend
of 2004 amounted to RMB 6.936 billion and the interim dividend for 2005
totaled RMB 3.468 billion.
(7)Significant differences between the financial statements prepared under
IFRS and U.S. GAAP.
The major differences between the Company's financial statements
prepared under IFRS and US GAAP are set out in Section D of the
financial statements of the Company on page 166 to page 168 of this
report.
SIGNIFICANT EVENTS
1 DISCOVERY OF LARGE-SCALE MARINE FACIES GAS FIELD - PUGUANG GAS FIELD
The Company discovered the largest and most abundant marine facies natural
gas field (Puguang Gas Field) in China, which is located in northeast
Sichuan Province. According to the appraisal undertaken by the Mineral
Resource Reserve Evaluation Center under the Ministry of Land and
Resources, reserve in place in the Puguang Gas Field is estimated at
251.071 billion cubic meters, with technical recoverable reserve of 188.304
billion cubic meters. Puguang Gas Field meets the conditions for commercial
development. Sinopec Corp. has prepared a Phase I Development Plan, which
plans to achieve commercial production of more than 4 billion cubic meters
per annum of gas by 2008 and 8 billion cubic meters per annum by 2010. In
connection with the contemplated project, a natural gas pipeline from
northeast Sichuan Province to Jinan, Shandong Province will be constructed.
The government has approved Sinopec Corp. to proceed with preparatory work
for the project. The discovery of Puguang Gas Field is attributable to the
innovations in marine facies exploration theory, exploration methodology,
exploration technology and management innovation, representing a major
breakthrough in marine facies exploration theory and practices in China.
The discovery expanded the Company's exploration territory, thereby paving
the way for future growth in both reserve and production.
2 PERFORMANCE OF THE COMMITMENTS BY SINOPEC CORP. AND ITS SHAREHOLDER HOLDING
5% OR MORE OF THE TOTAL ISSUED SHARE CAPITAL, NAMELY, SINOPEC GROUP COMPANY
At the end of the reporting period, the major undertakings given by Sinopec
Group Company to the Company included:
i Complying with agreements regarding connected transactions;
ii Solving the issues arising from the land use rights certificates and
property ownership rights certificates within a specified period of
time;
iii Implementing the Reorganisation Agreement (as defined in the
Prospectus for the Issuance of H Shares);
iv Granting licenses for intellectual property rights;
v Refraining from involvement in competition within the industry; and
vi Withdrawing from the business competition and conflict of interests
with Sinopec Corp.
Details of the above commitments are included in the Prospectus for the
Issuance of A Shares published by Sinopec Corp. in China Securities
Journal, Shanghai Securities News and Securities Times on 22 June 2001.
During this reporting period, Sinopec Corp. was not aware of any breach of
above commitments by the above principal shareholder.
3 USE OF PROCEEDS FROM ISSUANCE OF A SHARES
In 2001, the proceeds from the issuance of A shares of Sinopec Corp.
amounted to RMB 11.816 billion. Excluding issuance expenses, the net
proceeds from the issuance of A shares amounted to RMB 11.648 billion, of
which RMB 7.766 billion was used in 2001 mainly for the acquisition of
Sinopec National Star and to supplement the Company's working capital. In
2002, RMB 696 million was used mainly to cover the initial preparation
costs of the southwest oil products pipeline project and to build the
Ningbo-Shanghai-Nanjing crude oil pipeline. In 2003, RMB 1.514 billion was
used, of which RMB 700 million was used for building the southwest oil
products pipeline and RMB 814 million was used for building the
Ningbo-Shanghai-Nanjing crude oil pipeline. RMB 1.061 billion was used in
2004 for the southwest oil products pipeline project. RMB 611 million was
used during this reporting period for the southwest oil products pipeline
project. As of 30 June 2005, the proceeds from issuance of A shares were
exhausted.
4 ISSUANCE OF CORPORATE BONDS AND INTEREST PAYMENT
On February 24, 2004, Sinopec Corp. successfully issued domestic 10-year
term corporate bonds which amounted to RMB 3.5 billion with a credit rating
of AAA and a fixed coupon rate of 4.61%. On September 28, 2004, the
aforementioned corporate bonds were listed on the Shanghai Stock Exchange.
For further details, please refer to Sinopec Corp.'s announcement published
in China Securities Journal, Shanghai Securities News, and Securities Times
in Mainland China, and South China Morning Post and Hong Kong Economic
Times in Hong Kong on February 24, 2004 and September 28, 2004,
respectively. The balance of the outstanding principal under the corporate
bond issuance was RMB 3.5 billion as of December 31, 2005. As of February
24, 2006, Sinopec Corp. had repaid the full amount of coupon interest for
the second interest payment year.
5 ISSUANCE OF SHORT-TERM COMMERCIAL PAPER
On September 19, 2005, Sinopec Corp. convened the first Extraordinary
General Meeting of Shareholders for 2005, at which a resolution was passed
for issuance of short term commercial paper. For details, please refer to
Sinopec Corp.'s announcements published in China Securities Journal,
Shanghai Securities News, and Securities Times in Mainland China, and Hong
Kong Economic Times and South China Morning Post in Hong Kong on September
20, 2005. The tranche of six-month 2.54% commercial paper was issued on
October 24, 2005 to institutional investors in PRC inter-bank bond market
(excluding investors prohibited by relevant PRC laws and regulations),
raising a total of RMB 10 billion.
6 ESTABLISHMENT OF SINOPEC CHEMICALS SALES COMPANY
Sinopec Chemicals Sales Company was established on May 10, 2005 in Beijing.
To meet the requirements posed by the new system and mechanism, the
Chemicals Sales Company will integrate the Company's marketing strategy,
branding strategy, market development, logistics optimisation, resource
allocation and sales activities, so as to fully leverage the overall
strength of extensive operations and maximise overall profitability.
7 AUDITORS
At the Annual General Meeting of Sinopec Corp. for the year 2004 held on 18
May 2005, KPMG Huazhen and KPMG were re-appointed as the domestic and
overseas auditors of Sinopec Corp. for the year 2005, respectively, and the
Board of Directors was authorised to determine their remunerations. As
approved at the twenty-fifth meeting of the Second Session of the Board of
Directors of Sinopec Corp., the audit fee for 2005 was HK$ 48 million. The
financial statements for the year 2005 have been audited by KPMG Huazhen
and KPMG. KPMG Huazhen's China registered Certified Public Accountants are
Wu Wei and Zhang Jingjing.
KPMG Huazhen and KPMG have provided auditing services to Sinopec Corp. for
5.5 years, since the second half of 2000, and the first audit engagement
was entered into in March 2001.
During the reporting period, both KPMG Huazhen and KPMG did not provide any
non-audit service to the Company.
Auditors appointed KPMG Huazhen (Domestic) KPMG (Overseas)
Audit fees of Sinopec Corp. HK$ 1,500,000 (unpaid) HK$ 21,500,000 (unpaid)
for year 2005 HK$ 1,500,000 (paid) HK$ 23,500,000 (paid)
-----------------------------------------------------------------------------------------
Audit fees of Sinopec Corp.
for year 2004 HK$ 3,000,000 (paid) HK$ 47,000,000 (paid)
-----------------------------------------------------------------------------------------
Audit fees of Sinopec Corp.
for year 2003 HK$ 3,000,000 (paid) HK$ 52,000,000 (paid)
----------------------------------------------------------------------------------------
Travel and other expenses Borne by the firm Borne by the firm
----------------------------------------------------------------------------------------
Note:
Most domestic and overseas listed subsidiaries of the Company appointed KPMG
Huazhen and KPMG as their auditors, and a few domestic listed subsidiaries
selected other firms as their auditors. Please refer to their respective annual
reports for details about such subsidiaries' appointments and dismissals of
auditing firms.
8 ACQUISITION OF SHARES OF BEIJING YANHUA HI-TECH CATALYST CO., LTD. HELD
BY YANHUA HI-TECH CORP.,
On June 21, 2005, Sinopec Corp. entered into an agreement with Beijing
Yanhua Hi-tech Co., Ltd., pursuant to which Sinopec Corp. acquired 95%
equity of Beijing Yanhua Hi-tech Catalyst Co., Ltd., held by Yanhua Hi-tech
Corp., at a consideration of RMB 195 million.
9 DELISTING OF BEIJING YANHUA
According to the Agreement of Merger by Absorption between Beijing Feitian
Petrochemical Company Limited ("Beijing Feitian"), a wholly-owned
subsidiary of Sinopec Corp. established for the purpose of such merger, and
Beijing Yanhua Petrochemical Company Limited ("Beijing Yanhua") which was
signed on 29 December 2004, Beijing Feitian would purchase the listed
shares of Beijing Yanhua from shareholders at the price of HK$ 3.80 per
share in cash, the total consideration being approximately HK$ 3.8456
billion. Beijing Yanhua was delisted on 11 May 2005. Please refer to
Sinopec Corp.'s announcement published in China Securities Journal,
Shanghai Securities News and Securities Times in Mainland China and South
China Morning Post and Hong Kong Economic Times in Hong Kong on 30 December
2004 and 7 March 2005, respectively, for details.
10 THE TRANSFER OF STATE-OWNED LEGAL PERSON SHARES OF CHINA PHOENIX HELD
BY SINOPEC CORP.
On October 18, 2005, Sinopec Corp. and China Changjiang National Shipping
Group ("Changhang Group") entered into a share transfer agreement, under
which Sinopec Corp. agreed to transfer to Changhang Group a total of
211,423,651 state-owned legal person shares held by Sinopec Corp. in
Sinopec Wuhan Phoenix Company Limited ("China Phoenix") (representing
40.72% of the total issued share capital of China Phoenix). For further
details, please refer to the "Report on Changes of Shareholdings in Sinopec
Wuhan Phoenix Company Limited" dated October 20, 2005 published by Sinopec
Corp. on the website of the Shanghai Stock Exchange. The proposed asset
restructuring is pending approval by the China Securities Regulatory
Commission ("CSRC").
11 MERGER BY ABSORPTION OF ZHENHAI REFINERY AND CHEMICALS
According to the Agreement of Merger by Absorption between Ningbo Yonglian
Co., Ltd. ("Ningbo Yonglian"), a wholly owned subsidiary of Sinopec Corp.
established for the purpose of such a merger, and Sinopec Zhenhai Refinery
and Chemicals Co., Ltd. ("ZRCC") signed on November 12, 2005, Ningbo
Yonglian will purchase the listed H shares of ZRCC from its shareholders at
the price of HK$ 10.60 per share in cash, the total consideration being HK$
7.672 billion. For further details, please refer to Sinopec Corp.'s
announcement published in China Securities Journal, Shanghai Securities
News and Securities Times in Mainland China and South China Morning Post
and Hong Kong Economic Times in Hong Kong on November 14, 2005. The
proposed merger was approved on January 12, 2006 at the general meeting of
shareholders and the general meeting of independent shareholders of ZRCC
and was approved by the shareholders of Ningbo Yonglian, as well as by
domestic and overseas securities regulators.
12 TENDER OFFER BY SINOPEC CORP. TO FOUR A-SHARE SUBSIDIARIES
On February 25, 2006, the 24th meeting of the Second Session of the Board
of Directors of Sinopec Corp. respectively approved its voluntary tender
offers to acquire all the tradable shares of Sinopec Qilu Petrochemical
Co., Ltd. at a price of RMB 10.18 per share, all the tradable shares of
Sinopec Yangzi Petrochemical Co., Ltd. at a price of RMB 13.95 per share,
all the tradable shares of Sinopec Zhongyuan Oil & Gas Hi-tech Co., Ltd. at
a price of RMB 12.12 per share, all the tradable shares of Sinopec Shengli
Oil Field Dynamic (Group) Co., Ltd. at a price of RMB 10.30 per share and
all the non-tradable shares of Sinopec Shengli Oil Field Dynamic (Group)
Co., Ltd. held by investors other than Sinopec Corp. at a price of RMB 5.60
per share. For further details, please refer to relevant announcements
published in China Securities Journal, Shanghai Securities News and
Securities Times in Mainland China on February 16 and March 6, 2006
(Sinopec Shengli Oil Field Dynamic (Group) Co., Ltd.'s announcements were
only published in China Securities Journal and Securities Times).
13 MAJOR PROJECTS
(1)Tianjin one million tpa ethylene project
Sinopec Tianjin one million tpa ethylene and associated facilities
project was approved by the State Council in December 2005. The project
includes the ethylene project, revamping of refinery and thermal power
generation facilities, with its total investment being about RMB 21
billion, and Sinopec Corp. is proceeding with preparatory work for the
project.
(2)ZRCC one million tpa ethylene project
ZRCC one million tpa ethylene and associated facilities project was
approved by the State Council in March 2006. The project includes the
ethylene project, expansion of thermal power generation facilities, with
its total investment being about RMB 22 billion, and Sinopec Corp. and
ZRCC are proceeding with preparatory work for the project.
14 RECEIPT OF ONE-OFF REBATE FROM THE CENTRAL GOVERNMENT
During the reporting period, international crude oil prices fluctuated and
climbed at a high level, and domestic prices of refined oil products were
tightly controlled. In December 2005, Sinopec Group Company received a
Circular, referenced as Cai Qi [2005] No. 298, from the Ministry of
Finance, pursuant to which the central government provided a one-off rebate
of RMB 10 billion to Sinopec Group Company. Sinopec Corp. received RMB
9.415 billion out of the RMB 10 billion, which has been included as other
income in the financial statements for 2005.
15 THE TRANSFER OF STATE-OWNED SHARES FROM CBD AND CINDA TO SINOPEC GROUP
COMPANY
During the reporting period, China Development Bank ("CDB") and China Cinda
Asset Management Corporation ("Cinda"), both of which are shareholders of
Sinopec Corp., entered into a share transfer agreement with Sinopec Group
Company, pursuant to which CDB and Cinda respectively transferred 2 billion
(2.31% of the total issued shares of Sinopec Corp.) and 871,763,776 (1.01%
of the total issued shares of Sinopec Corp.) state-owned shares to Sinopec
Group Company. The respective total cash considerations of RMB 4.2 billion
and RMB 1.8307 billion were paid to CDB and Cinda by Sinopec Group Company.
The above-mentioned share transfers were completed on December 29, 2005.
16 PRELIMINARY PLAN FOR PROFIT APPROPRIATION FOR 2005
In accordance with the provisions of Sinopec Corp.'s Articles of
Association, the appropriation of profit for the relevant fiscal year would
be conducted on the basis of distributable profit determined in accordance
with the PRC Accounting Rules and Regulations or IFRS, whichever is lower.
Thus, on the basis of the distributable profit of Sinopec Corp. audited
under IFRS, which was RMB 38.907 billion, after deducting the statutory
surplus reserve and the statutory public welfare fund totaled RMB7.912
billion, and deducting the final dividend for year 2004 distributed in
2005, the interim dividend for 2005 totaled RMB 10.404 billion, the amount
of undistributed profit of Sinopec Corp. for 2005 was RMB 20.591 billion
(for details please refer to Note 33 to the financial statements prepared
under IFRS). On the basis of the total number of 86,702,439,000 shares at
the end of 2005, the Board proposed a final dividend of RMB 0.09 per share
(including tax) in cash for year 2005 (totaled RMB 7.803 billion), adding
the distributed interim cash dividends of 0.04 per share (totaled RMB 3.468
billion), the total cash dividends for 2005 shall be RMB 0.13 per share
(RMB 11.271 billion in total). The preliminary plan for profit
appropriation will be subject to consideration and approval at Annual
General Meeting of Shareholders for year 2005.
17 DE-REGISTRATION OF SINOPEC SHENGLI OIL FIELD CO., LTD.
Sinopec Corp. de-registered Sinopec Shengli Oil Field Co., Ltd. and on
January 16, 2006 established Shengli Oilfield branch. Prior to the
de-registration, Sinopec Shengli Oil Field Co., Ltd. was a wholly owned
subsidiary of Sinopec Corp.
18 REDUCTION OF EMPLOYEES
Sinopec Corp. plans to reduce the number of employees by 100,000 through
retirement, voluntary resignation and/or dismissal within 5 years, from
2001 to 2005, to improve its efficiency and profitability In 2005, Sinopec
Corp. assumed RMB 369 million in voluntary resignation compensation for
approximately 7,000 voluntarily resigned employees. By the end of 2005, the
aggregate net headcount reduction during the past five years had amounted
to 143,700 persons.
19 MATERIAL LITIGATION AND ARBITRATION EVENTS
The Company was not involved in any material litigation or arbitration
during the reporting period.
20 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE
Guarantees provided by the Company (excluding the guarantees provided for subsidiaries)
Date of
Occurrence Whether
(Date of Guaranteed Whether for a
Execution of amount Type of completed connected
Obligors the Agreement) (RMB millions) guarantee Term or not party (1)
Shanghai Secco Petrochemical 9 February 2002 2,857 Joint and 9 February 2002 No Yes
Co, Ltd. several liability -20 December 2021
--------------------------------------------------------------------------------------------------------------------------------
Shanghai Secco Petrochemical 9 February 2002 4,062 Joint and 9 February 2002 No Yes
Co, Ltd. several liability - 20 December 2013
--------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Co., Ltd. 7 March 2003 4,680 Joint and 7 March 2003 No Yes
several liability - 31 December 2008
--------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec Shell Coal 10 December 2003 377 Joint and 10 December 2003 No Yes
Gasification Co. Ltd. several liability - 10 December 2017
--------------------------------------------------------------------------------------------------------------------------------
Fujian Zhangzhao Expressway 21 January 2003 10 Joint and 21 January 2003 No Yes
Service Company Limited several liability - 31 October 2007
--------------------------------------------------------------------------------------------------------------------------------
Balance of Guarantee by Shanghai
Petrochemical for its associates and joint ventures 38 No Yes
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee provided during the reporting period (2) None
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee outstanding at the end of the reporting period (2) RMB 12,024 million
--------------------------------------------------------------------------------------------------------------------------------
Guarantees for subsidiaries
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee outstanding at the end of the reporting period RMB 27 million
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee for subsidiaries outstanding at the end of the reporting period RMB 2,583 million
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee (including those provided for subsidiaries)
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee(3) RMB 14,607 million
--------------------------------------------------------------------------------------------------------------------------------
Total amount of guarantee as a percentage of Sinopec Corp.'s net assets 6.7%
--------------------------------------------------------------------------------------------------------------------------------
Guarantee provided for shareholders, effective controller and connected parties None
--------------------------------------------------------------------------------------------------------------------------------
Amount of debt guarantee provided directly or indirectly for
the companies with liabilities to assets ratio of over 70% RMB 179 million
--------------------------------------------------------------------------------------------------------------------------------
The amount of guarantee in excess of 50% of the net assets None
--------------------------------------------------------------------------------------------------------------------------------
Total amount of the above three guarantee items(4) RMB 179 million
--------------------------------------------------------------------------------------------------------------------------------
Note 1: As defined in the stock listing rules of Shanghai Stock Exchange.
Note 2: The amount of guarantee provided during the reporting period and
the amount of guarantee outstanding at the end of the reporting
period include the guarantees provided by the subsidiaries to
external parties. The amount of the guarantee provided by these
subsidiaries is the guarantee provided by the Company's
subsidiaries multiplied by the shareholdings held by Sinopec Corp.
in such subsidiaries.
Note 3: Total amount of guarantee is the aggregate of the above "total
amount of guarantee outstanding at the end of the reporting period
(excluding the guarantee provided for subsidiaries)"and "total
amount of guarantee for subsidiaries outstandingEat the end of the
reporting period".
Note 4: "Total guarantee amount of the above three guarantee items" is
the aggregate of "guarantee provided for shareholders, effective
controller and connected parties", "amount of debt guarantee
provided directly or indirectly Efor the companies with liabilities
to assets ratio of over 70%" and "the amount guarantee in excess of
50% of the net assets". If the above three conditions are borne in
one guarantee item, they will be calculated only once in the total
amount.
Material Guarantees under Performance
At the fourteenth meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board approved Sinopec Corp. to provide conditional
guarantee in both domestic and foreign currencies for the Shanghai Secco
project loan, and the amount of guarantee was equivalent to RMB 6.992 billion.
For further details, please refer to Sinopec Corp.'s results announcement for
the year 2001 published in China Securities Journal, Shanghai Securities News
and Securities Times in Mainland China and South China Morning Post and Hong
Kong Economic Times in Hong Kong on 2 April 2002.
At the fourteenth meeting of the First session of the Board of Directors of
Sinopec Corp., the Board approved the proposal regarding Sinopec Corp.'s
provision of guarantee for completion of construction of the BASF-YPC project.
On 7 March 2003, Sinopec Corp. entered into guarantee agreements for the
completion of construction of the BASF-YPC project with domestic and foreign
banks, whereby it guaranteed 40% of a domestic and foreign currencies
denominated loan equivalent to around RMB 11.7 billion provided by these banks
to BASF-YPC Co., Ltd. for completion of construction.
At the twenty-second meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board approved the proposal regarding Sinopec Corp.'s
provision of an equity pledge for the BASF-YPC project loan on the condition
that BASF should provide an equity pledge on the same terms.
At the twenty-second meeting of the First Session of the Board of Directors of
Sinopec Corp., the Board also approved the proposal regarding Sinopec Corp.'s
provision of guarantee for Yueyang Sinopec Shell Coal Gasification Co., Ltd.,
in the amount of RMB 377 million.
At the thirteenth meeting of the Second Session of the Board of Directors of
Sinopec Corp, the Board approved Sinopec Corp. in providing China International
United Petroleum & Chemical Co., Ltd. with a credit line guarantee equivalent to
RMB 2.421 billion.
21 DOMESTIC SHARE REFORM ON NON-TRADABLE SHARES
The Company is currently reorganising its internal management systems to
provide favorable conditions for such reform. Sinopec Group Company has not
formed definitive plans for such reform with regard to Sinopec Corp.
22 GENERAL MEETING OF SHAREHOLDERS
During the reporting period, Sinopec Corp. held two shareholders' general
meetings in strict compliance with the procedures of notification,
convening and holding as stipulated in relevant laws, rules and regulations
and the Articles of Association of Sinopec Corp. For further details,
please refer to the section "Summary of Shareholders' Meetings" of this
report.
23 TRUSTEESHIP, SUB-CONTRACT AND LEASE
During this reporting period, Sinopec Corp. did not have any omittion in
disclosure for significant trusteeship, sub-contract or lease of any other
company's assets, nor placed its assets to or under any other company's
trusteeship, sub-contract or lease that is subject to disclosure.
24 OTHER MATERIAL CONTRACTS
During this reporting period, Sinopec Corp. did not have any omittion in
disclosure for any material contract that is subject to disclosure.
25 ENTRUSTED MONEY MANAGEMENT
During this reporting period, Sinopec Corp. did not entrust or continuously
entrust any outside party to carry out cash assets management on its
behalf.
26 ASSET SECURED
Details regarding the Company's secured assets as at 31 December 2005 are
disclosed in Note 29 to the financial statements prepared under IFRS in
this Annual Report.
27 INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER MEMBERS OF THE SENIOR
MANAGEMENT IN THE SHARE CAPITAL
As of December 31, 2005, none of Sinopec Corp.'s directors, supervisors and
other senior management holds any share of Sinopec Corp.
During this reporting period, none of the directors, supervisors or senior
management or any of their respective associates had any interests and
short positions in any shares or debentures or related shares of Sinopec
Corp. or its associated corporations (as defined in Part XV of the
Securities and Futures Ordinance) which are required to notify Sinopec
Corp. and the Hong Kong Stock Exchange pursuant to Division 7 and 8 of Part
XV of the Securities and Futures Ordinance or which are required pursuant
to section 352 of the Securities and Futures Ordinance to be entered in the
register referred to therein, or which are required to notify Sinopec Corp.
and the Hong Kong Stock Exchange pursuant to the Model Code for Securities
Transactions Entered by Directors of Listed Companies as specified in the
Listing Rules of the Hong Kong Stock Exchange (including those interests
and short positions that are deemed to be such, or are regarded to be owned
in accordance with the relative provisions under the Securities and Futures
Ordinance).
28 PURCHASE, SALES AND REDEMPTION OF SHARES
During the reporting period, neither Sinopec Corp. nor any of its affiliates
repurchased, sold or redeemed any securities of Sinopec. Corp.
29 OTHER SIGNIFICANT EVENTS
During this reporting period, neither Sinopec Corp., the Board of Directors
of Sinopec Corp., nor the directors were subject to any investigation from
the CSRC, nor was there any administrative penalty or circular of criticism
issued by the CSRC, the Securities and Futures Commission of Hong Kong and
the Securities and Exchange Committee of the United States, nor any
reprimand published by the Shanghai Stock Exchange, the Hong Kong Stock
Exchange, the New York Stock Exchange or the London Stock Exchange.
CONNECTED TRANSACTIONS
1 AGREEMENTS CONCERNING CONNECTED TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC
GROUP COMPANY
In order to ensure the smooth continuation of normal production and of
business transacted between the Company and Sinopec Group Company, the
parties entered into a number of agreements on connected transactions prior
to the overseas listings. Particulars of the connected transactions are set
out below:
(1) Agreement for the mutual supply of ancillary services for products,
production and construction services ("Mutual Supply Agreement").
(2) Sinopec Group Company provides trademarks, patents and computer
software to the Company for use free of charge.
(3) Sinopec Group Company provides cultural and educational, hygienic and
community services to the Company.
(4) Sinopec Group Company provides leasing of land and certain properties
to the Company.
(5) Sinopec Group Company provides consolidated insurance to the Company.
(6) Sinopec Group Company provides shareholders' loan to the Company.
(7) The Company provides agency marketing services on products to Sinopec
Group Company.
(8) The Company provides petrol stations franchisee licenses to Sinopec
Group Company.
2 WAIVER OF CONNECTED TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC GROUP
COMPANY GRANTED BY THE HONG KONG STOCK EXCHANGE
Pursuant to the Listing Rules of the Hong Kong Stock Exchange, the above
connected transactions are subject to full disclosure, reporting and,
depending on their nature and the value of the transaction, with prior
approvals from independent directors and the Hong Kong Stock Exchange.
Subsequently, relevant materials shall be disclosed in the annual report. At
the time of its listing, Sinopec Corp. applied for waivers from the Hong
Kong Stock Exchange of the requirement to fully comply with the disclosure
requirements of the Listing Rules in respect of the transactions mentioned
above. The Hong Kong Stock Exchange conditionally exempted Sinopec Corp.
from complying with the obligations of continuous disclosure.
At the end of 2003, the above waiver conditionally granted by the Hong Kong
Stock Exchange for disclosure requirements of the ongoing connected
transactions, which had a term of three years (from 2001 to 2003), expired.
Sinopec Corp. readjusted the cap amount for the ongoing connected
transactions, and re-applied for a new 3-year waiver from disclosure
requirements of ongoing connected transactions (from 2004 to 2006) with
regard to the relevant major ongoing connected transactions and the cap
amount of ongoing connected transactions (as defined in the announcement
dated 28 October 2003) in accordance with the Listing Rules of the Hong
Kong Stock Exchange, which exempts Sinopec Corp. from strict compliance
with the relevant disclosure requirements and approval by shareholders with
regard to the major ongoing connected transactions and exempts Sinopec
Corp. from strict compliance with rules of relevant disclosure with regard
to the cap amount of ongoing connected transactions. Those major ongoing
connected transactions and the cap amount of ongoing connected transactions
have been approved by the independent shareholders in the General Meeting
of Shareholders. On December 24, 2003, the Hong Kong Stock Exchange
conditionally agreed to grant new waivers of continuous disclosure
obligations to Sinopec Corp. and granted Sinopec Corp. a waiver for a
period of three fiscal years ending on December 31, 2006. Within this
period, Sinopec Corp. is not required to comply with the Listing Rules of
the Hong Kong Stock Exchange relevant to connected transactions disclosure
and independent shareholders' approval of connected transactions, provided
that it satisfies the conditions for the waivers which were set out in the
letter from the Chairman incorporated in the circular concerning connected
transactions and ongoing connected transactions which was dispatched to the
holders of H shares on October 29, 2003 and published in the announcement
of Sinopec Corp.'s Third Extraordinary General Meeting of Shareholders for
the Year 2003 in China Securities Journal News, Shanghai Securities News
and Securities Time on October 29, 2003.
3 THE PROVISIONS ON WAIVER OF DISCLOSURE AND APPROVAL OF CONNECTED
TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC GROUP COMPANY UNDER THE LISTING
RULES OF THE SHANGHAI STOCK EXCHANGE
In the prospectus for the issue of A shares of Sinopec Corp., the above
connected transactions together with the agreements and arrangements between
the Company and Sinopec Group Company were fully disclosed. During the
reporting period, there were no significant changes to the agreements
governing the above mentioned connected transactions. The accumulated
connected transactions for the year 2005 of Sinopec Corp. are in accordance
with the related requirements under the Listing Rules of the Shanghai Stock
Exchange.
4 CONNECTED TRANSACTIONS ENTERED INTO BY THE COMPANY DURING THE YEAR
The aggregate amount of connected transactions actually occurred in
relation to the Company during the year was RMB 179.296 billion, of which,
incoming trade amounted to RMB 84.073 billion, and outgoing trade amounted
to RMB 95.223 billion (including, RMB 95.123 billion of sales of products
and services, RMB 52 million of interest earned, RMB 48 million of income
from agency fee). All of these transactions satisfied the conditions of
waiver granted by the Hong Kong Stock Exchange. In 2005, the products and
services provided by Sinopec Group Company (procurement, storage,
transportation, exploration and production services, production-related
services) to the Company were RMB 75.486 billion, representing 9.86% of the
Company's operating expenses for year 2005, a decrease of 1.33 percentage
points compared with those in 2004, which were within the cap of 18% for
waiver. The auxiliary and community services provided by Sinopec Group
Company to the Company were RMB 1.79 billion, representing 0.23% of the
operating expenses, with a slight decrease compared with 0.31% in the
preceding year, which were within the cap of 2% for waiver. In 2005, the
product sales from the Company to Sinopec Group Company amounted to RMB
58.579 billion, representing 7.12% of the Company's operating revenue,
which were within the cap of 14% for waiver. With regard to the Leasing
Agreement for Land Use Rights, the amount of rent paid by the Company as of
December 31, 2005 was approximately RMB 2.557 billion. With regard to the
premium payable under SPI Fund Document, the amount of fund paid by the
Company in 2005 shall not be less than the amount specified in the SPI Fund
Document.
Please refer to Note 35 to the financial statements prepared under the IFRS
in this annual report for details of the connected transactions actually
occurred during the year.
The above mentioned connected transactions in 2005 have been approved at
the twenty-fifth meeting of the Second Session of the Board of Directors of
Sinopec Corp.
The auditors of Sinopec Corp. have confirmed to the Board of Directors in
writing that:
(a) The transactions have been approved by the Board of Directors;
(b) The transactions have been entered into for considerations consistent
with the pricing policies as stated in the relevant agreements;
(c) The transactions have been entered into in accordance with the terms of
the respective agreements and documents governing the respective
transactions; and
(d) The relevant amounts have not exceeded the relevant caps for waiver.
After reviewing the abovetransactions, the independent directors of Sinopec
Corp. have confirmed that:
(a) The transactions have been entered into by Sinopec Corp. in its
ordinary course of business;
(b) The transactions have been entered into based on one of the following
terms:
i on normal commercial terms;
ii on terms not less favorable than those available from/to
independent third parties; or
iii on terms that are fair and reasonable to the shareholders of
Sinopec Corp., where there is no available comparison to
determine whether item i or ii is satisfied; and
(c) The total value of each category of transactions does not exceed its
respective cap for waiver.
5 OTHER MATERIAL CONNECTED TRANSACTIONS DURING THE YEAR
In the reporting period, there was no other connected transaction
undisclosed which was required to be disclosed.
6 THE PRINCIPAL OPERATIONS CATEGORISED BY BUSINESS SEGMENTS AND THE STATUS OF
THE CONNECTED TRANSACTIONS The following data are extracted from the
financial statements prepared under the PRC Accounting Rules and
Regulations.
Increase/income Increase/ Increase/
from principal decrease of decrease of
operations cost of gross profit
compared principal margin
with the operation compared with
Income from Cost of Gross preceding compared with the preceding
principal principal profit year the preceding year
operations operations margin percentage year percent- percentage
Categorised by business segments (RMB millions)(RMB millions) (%) points age points points
Exploration and production 104,285 38,464 57.28 37.18 10.12 7.30
-------------------------------------------------------------------------------------------------------------------------------
Refining 469,266 463,682 (1.67) 33.11 41.98 (5.08)
-------------------------------------------------------------------------------------------------------------------------------
Chemicals 172,982 148,710 13.61 41.65 54.36 (6.96)
-------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution 462,464 426,727 7.60 33.79 39.59 (3.79)
-------------------------------------------------------------------------------------------------------------------------------
Corporate and others 121,265 118,117 2.57 53.22 50.67 1.64
-------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (531,147) (527,451) N/A N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------------
Total 799,115 668,249 14.23 35.30 45.52 (5.28)
-------------------------------------------------------------------------------------------------------------------------------
Of which: connected transactions 80,096 74,628 5.90 36.38 37.70 (1.45)
-------------------------------------------------------------------------------------------------------------------------------
Connected transactions Please refer to Item 4 "Connected Transactions"
-------------------------------------------------------------------------------------------------------------------------------
Principle of pricing for (1) Government-prescribed prices and government-guided prices are adopted for products or
connected transactions projects if such prices are available; (2) Where there is no government-prescribed price or
government-guided price for products or projects, the market price (inclusive of bidding
price) will apply; (3) Where none of the above is applicable, the price will be decided
based on the cost incurred plus a reasonable profit of not more than 6% of the price.
-------------------------------------------------------------------------------------------------------------------------------
7 FUNDS PROVIDED BETWEEN CONNECTED PARTIES UNIT: RMB MILLIONS
Funds provided to Funds provided to the Company
connected party by connected party
Connected Parties Occurrence Balance Occurrence Balance
Sinopec Group Company (3,647) 2,488 (4,261) 5,418
-----------------------------------------------------------------------------------------------------------------
Other Connected Parties 209 517 - -
-----------------------------------------------------------------------------------------------------------------
Total (3,438) 3,005 (4,261) 5,418
-----------------------------------------------------------------------------------------------------------------
Use of fund and repayment plan as of the end of the reporting period
Not-applicable
CORPORATE GOVERNANCE
1 IMPROVEMENT ON CORPORATE GOVERNANCE DURING THE REPORTING PERIOD
During the reporting period, Sinopec Corp. continued to work to improve its
corporate governance, this primarily involved:
(1) In line with the requirements of China Securities Regulatory
Commission, Sinopec Corp. carried out investigation of use of its
proceeds, guarantees, use of funds by connected parties and matters
regarding enhancement of listed company quality, and rectified
deficiencies uncovered in the inspection investigation process. The
Audit Committee Rules was amended and refined in accordance with the
requirements of domestic and foreign regulators and the composition of
the Audit Committee of the Board of Directors was adjusted in a timely
manner.
(2) The internal control system was fully implemented. The internal control
system was fully implemented in 2005 and comprehensive investigation
was carried out over the implementation of branches and subsidiaries.
In response to deficiencies uncovered in the investigation, the
Internal Control Manual and complementary rules and regulations were
further refined. The amended Internal Control Manual was approved by
the Board of Director at the end of 2005 and came into effect from
January 2006.
(3) The directors, supervisors and senior management of Sinopec Corp. have
carefully studied the Code on Corporate Governance Practices issued by
the Hong Kong Stock Exchange. The Company drafted and the Board of
Directors approved the "Rules for Securities Dealing by Company
Employees", in accordance with the requirements under the Code on
Corporate Governance Practices.
(4) Sinopec Corp. has worked through various effective methods and routes
to further optimise its rules and procedures for information disclosure
and investor relations and endeavored to strengthen its communications
with domestic and foreign investors and to continually improve
corporate transparency.
In 2005, Sinopec Corp. continued to be well regarded in the capital market
and was awarded "Best Investor Relations (Large Cap)" in China and "Best
Annual Report and Other Corporate Literature" by the periodical Investor
Relations.
2 INDEPENDENT DIRECTORS' PERFORMANCE OF THEIR DUTIES AND CONFIRMATION OF
INDEPENDENCE
During the reporting period, the independent directors were very committed
to carrying out their duties and fulfilling the fiduciary obligations as
specified in the relevant laws, regulations and the Articles of
Association. They attended meetings of both the Board of Directors (for the
information about attendance, please refer to the Report of the Board of
Directors in this Annual Report) and professional committees, and put forth
many constructive comments and suggestions relating to the Company's
development strategy, corporate governance, internal reform and production
and operation. They were particularly concerned with the interests of
individual shareholders and minority shareholders. They reviewed the
documents submitted by the Company, listened to reports delivered by
relevant personnel, gave independent comments on connected transactions,
guarantees and appointment and dismissal of senior management officers, all
of which ensured the interests of the Company and all shareholders are
safeguarded.
As required by Hong Kong Stock Exchange, Sinopec Corp. makes the following
confirmations concerning its independent directors: Sinopec Corp. has
received annual confirmations from all the independent non-executive
directors acknowledging full compliance with the relevant requirements in
respect of their independence pursuant to Rule 3.13 of the Listing Rules.
Sinopec Corp. considers all independent non-executive directors independent.
3 SEPARATION BETWEEN SINOPEC CORP. AND ITS CONTROLLING SHAREHOLDER
Sinopec Corp. is independent from its controlling shareholder, Sinopec Group
Company, in respect of business, personnel, asset, organisational structure
and finance and has its own independent and comprehensive business
operations and management capability.
4 SENIOR MANAGEMENT EVALUATION AND INCENTIVE SCHEMES
Sinopec Corp. has established and is continuously improving the fairness and
transparency of its performance evaluation and incentive schemes for the
directors, supervisors and other senior management officers. Sinopec Corp.
implements various incentive schemes like "Measures for Implementation of
Senior Management Remuneration Packages".
Remuneration for Sinopec Corp. directors, supervisors and other senior
management officers consists of base salary and performance bonus, including
contributions by Sinopec Corp. to pension plans for its directors,
supervisors and other senior management officers.
During the period of this report, the provision for the share appreciation
rights has been made according to the terms as stipulated in "Measures on
the First Granting of Stock Appreciation Rights for the Senior Management
of Sinopec Corp."
5 COMPARISON OF NEW YORK STOCK EXCHANGE CORPORATE GOVERNANCE RULES AND CHINA
CORPORATE GOVERNANCE RULES FOR LISTED COMPANIES
For details, please refer to the website of Sinopec Corp. at
http://english.sinopec.com/
en-ir/en-governance/index.shtml
6 CORPORATE GOVERNANCE REPORT
(1) Compliance with Code on Corporate Governance Practices Since its
listing, in accordance with the relevant requirements of the domestics
and foreign regulating bodies, Sinopec Corp. has set up compliant
corporate governance structures and has continually improved its
Articles of Association, Rules and Procedures for the General Meeting
of Shareholders, Rules and Procedures for the Meeting of Board of
Directors, Rules and Procedures for the Meeting of Supervisory
Committee and other related rules. The operations of the general
meeting of shareholders, the Board of Directors (including the three
professional committees: Strategies and Development Committee, Audit
Committee, and Remuneration and Performance Evaluation Committee), the
Supervisory Committee and the President's office are compliant and
coordinated. At the same time, the Company has continually improved its
internal control system and actively enhanced information disclosure
and investor relations. The level of corporate governance has
continually improved.
Sinopec Corp.'s compliance with the Code on Corporate Governance
Practices is principally as follows:
A Board of Directors
A.1 Board of Directors
Principle: The Company should be headed by an effective board which
should assume responsibility for leadership and control of the
Company.
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Board meetings shall be held X The Board convenes at least a meeting every quarter.
at least four times a year In 2005, Sinopec Corp. convened nine Board meetings.
For the information about attendances, please refer
to the Report of the Board of Directors of this
Annual Report.
-----------------------------------------------------------------------------------------------------------------------------------
All directors are given an opportunity to X Pursuant to the Rules and Procedures for the Meeting
include matters in the agenda for regular of Board of Directors, each Board member may submit
Board meetings proposals for inclusion in to the agenda for Board
meetings (including regular Board meetings).
-----------------------------------------------------------------------------------------------------------------------------------
Notice of at least 14 days shall be given X For any regular meeting of the Board, a notice will
of any regular meeting be given 14 days in advance, while for other types
of Board meetings, a notice will normally be given
10 days in advance in line with the Rules and
Procedures for the Meeting of Board of Directors.
-----------------------------------------------------------------------------------------------------------------------------------
All directors should have access to the X Pursuant to Sinopec Corp.'s Articles of Association,
advice and services of the Board Secretary the Board Secretary shall assist the directors in
addressing the routine tasks of the Board, keep the
directors informed and alerted about any regulation,
policy and other requirements of domestic and
foreign regulators and ensure that the directors
observe domestic and foreign laws and regulations as
well as the Articles of Association and other
related regulations when performing their duties and
responsibilities.
-----------------------------------------------------------------------------------------------------------------------------------
A.2 Chairman and the Chief Executive Officer
Principle: Distinction of the Board of Directors from the
Management
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
The respective roles of the Chairman and X Mr. Chen Tonghai serves as Chairman of the Board,
the Chief Executive Officer shall be separate, while Mr. Wang Tianpu serves as the President. The
and shall be clearly established and set out Chairman is elected by a simple majority vote, while
in writing the President will be nominated by the Chairman and
appointed by the Board. The duties and
responsibilities of the Chairman and the President
are separate and the scope of their respective
duties and responsibilities are set forth in the
Articles of Association.
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The Chairman shall ensure that all directors X Each of the directors will normally receive meeting
are properly briefed on issues arising information and related documents 10 days before the
at board meetings Board meeting, as well as special briefing if
necessary. In addition, the Board Secretary will
prepare meeting materials such as related
explanations for each proposal, so as to ensure that
each of the directors clearly understands the
content of each proposal.
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The Chairman shall be responsible for X Under the Articles of Association, the President
ensuring that directors receive adequate shall provide necessary information and materials to
information in a timely manner each of the directors, and each of the directors may
request the President, or request, via the
President, relevant departments to provide
information and explanations necessary for a prompt,
informed and prudent decision.
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A.3 Board Composition
Principle: the Board shall have a combination of appropriate skills
and experience.
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Board Composition X The Board is made up of 13 members, each with
extensive professional and governance experiences.
Of the 13 members, 4 are independent non-executive
directors. Over 1/2 of the Board are non-executive
directors and independent non-executive directors.
Sinopec Corp. has received from each independent
non-executive director a letter of confirmation for
2005 regarding its qualification under relevant
independence requirements set out in rule 3.13 of
the Listing Rules of the Hong Kong Stock Exchange.
Sinopec Corp. considers that each of the independent
non-executive directors is independent.
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A.4 Appointment; Re-election and Removal
Principle: there should be a formal, prudent and transparent
procedures for appointment of directors
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Non-executive directors should be appointed X Pursuant to the Articles of Association, terms of
for a specific term each session of the Board (including non-executive
directors) shall be 3 years.
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Each of the directors shall be subject to X Pursuant to the Articles of Association, all
election and to retirement by rotation at directors shall be elected by the general meeting
least once every three years of shareholders, each for a term of 3 years. The
Board is not authorised to fill casual vacancies.
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A.5 Responsibility of Directors
Principle: Each director is required to keep abreast of his
responsibilities as a director
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Each newly appointed director shall be X For each new appointment, Sinopec Corp. will
inducted on the first occasion of his arrange for professional consultants, including
appointment PRC and Hong Kong lawyers, to induct the newly
appointed director.
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Non-executive directors shall have certain X Non-executive directors have certain authorities,
authorities including decision making for the Board in case of
abstention of executive directors to avoid conflict
of interest, and to serve on Board committees.
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Every director shall ensure that he can give X Sinopec Corp. considers that each of the directors
sufficient time and attention to the affairs can devote enough time and efforts to the affairs of
of the Company and should not accept the the Company.
appointment if he cannot do so
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Every director must comply with its X Upon inquiry, each of the directors confirmed that
obligations under the Model Code set out in he has always complied with the Model Code during
Appendix 10; the Board of Directors shall the reporting period. Sinopec Corp. formulated
develop written guidelines for the dealings "Rules for Employee Dealing in Securities" in 2005
by employees in the issuer's securities in accordance with the Code on Corporate Governance
Practices.
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A.6 Supply and Access to Information
Principle: Directors should be provided in a timely manner with
appropriate information.
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
The agenda and accompanying board documents X According to the Rules and Procedures for the Meeting
shall be sent at least 3 days before the of Board of Directors, the meeting agenda and related
intended date of the meeting documents should normally be sent out 10 days in
advance. Each director is entitled to request other
related information.
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The management has an obligation to supply X The Board Secretary is responsible for organising
the board directors with adequate information and preparing materials for Board meetings, including
relevant to the meeting preparation of explanations for each proposed agenda
to enable clear understanding by each director.
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All directors are entitled to have access X All directors may inspect Board minutes and related
to board minutes and related materials data at any time.
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B Remuneration and related Disclosure
Principle: The director remuneration system should be transparent.
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
A remuneration committee shall be set up X A Remuneration and Performance Evaluation Committee
with written scope of authorities has been set up, its members including director Shi
Wanpeng (Chairman), director Chen Qingtai (Deputy
Chairman), director Zhang Youcai (Deputy Chairman),
director Mu Shuling (Commissioner) and director Liu
Genyuan (Commissioner), one of its main authorities
is to propose to the Board related remuneration
plans for directors and senior managements officers.
Its written scope of authorities are available for
inspection from the Board Secretary.
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The Remuneration Committee shall consult X The Remuneration and Performance Evaluation Committee
the Chairman and/or President about proposed has always consulted the Chairman and the President
remuneration for other executive directors, regarding proposed compensations to other executive
and shall have access to professional advice directors.
if necessary
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The Remuneration Committee shall be X Committee member may obtain independent professional
provided with sufficient resources to advice. Costs arising from or in connection with such
discharge its duties and responsibilities consultation are borne by the Company.
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C Accountability and Audit
C.1 Financial Reporting
Principle: The Board should present a balanced, clear and
comprehensive assessment of the company's performance, status and
prospects.
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Management should provide such explanation X Sinopec Corp. has adopted an internal mechanism to
and information to the board as will enable ensure that the management and related Sinopec Corp.
the board to make informed assessment departments have provided sufficient financial data
of the financial and other information put to the board and its audit committee.
before the board for approval
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The directors should acknowledge their X The directors are responsible for supervising the
responsibility for preparing the accounts preparation of accounts for every fiscal period to
and there should be a statement by the ensure an authentic and fair presentation of the
auditors about their reporting responsibil- business status, performance and cash flows
ities in the auditor's report on the financial year ended fiscal period. When preparing the accounts
statements for the ending on December 31, 2005, the directors
have consistently applied appropriate accounting
policies, made reasonable and prudent judgment and
estimates and prepared the accounts on a
going-concern basis.
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The board should acknowledge its responsi- X Sinopec Corp. is in compliance with the Listing
bility for financial disclosure, reports Rules by publishing its annual, interim and
submitted to regulators as well as other quarterly results.
disclosure required under statutory
requirements Sinopec Corp. has adopted an internal mechanism for
ensuring formal disclosure of price-sensitive
information.
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C.2 Internal Control
Principle: The issuer should maintain sound and effective internal
controls
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
The directors shall at least annually X Sinopec Corp. has established an internal control
conduct a review of the effectiveness system to assist the Company in achieving all
of the system of internal control of the business targets and guarding the safety of its
assets, ensuring that the Company maintains proper
accounting records to provide reliable financial
information for internal use and public disclosures
and ensuring compliance with related rules and
regulations. During the reporting period, Sinopec
Corp. conducted comprehensive of its branches and
subsidiaries to review the implementation of
internal control system, and in response to problems
uncovered in the investigation, the Internal Control
Manual and related systems were further refined and
improved.
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C.3 Audit Committee
Principle: The arrangements regarding the board and company
auditors should be formal and transparent
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Minutes of the committee meeting shall be X The minutes of committee meeting are kept by a
kept by a duly appointed secretary of the general office under the committee. The draft and
meeting. The draft and final minutes shall final minutes are generally sent out to each of the
be sent to all members of the committee committee members within a reasonable period after
within a reasonable period after the meeting the meeting.
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A former partner of the issuer's current X The audit committee members include Messrs. Chen
auditing firm shall be refrained from Qingtai (Chairman), Shi Wanpeng (Deputy Chairman),
acting as a member of the issuer's audit Zhang Youcai (Deputy Chairman) and Ho Tsu Kwok,
committee Charles (Commissioner). As verified, none of the
members had served as a partner to the current
auditing firm.
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The written terms of reference of the audit X During this reporting period, the Audit Committee
committee (including the minimum requirements Rules was further improved with supplementary
regarding authority and duties) shall be made provisions. The main authorities of the committee
available for inspection or be posted include: make recommendations on appointment of
on the website external auditors, reviewannual, interim and
quarterly financial statements, make recommendations
on adoption of accounting policies and changes to
financial reporting requirements. The written terms
of reference are available for inspection at the
secretariat of the board.
During the reporting period, the Audit Committee
held three meetings which were attended by all its
members. For details, please refer to the Report of
the Board of Directors of this Annual Report.
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Where the board disagrees with the audit X The board and the audit committee did not have any
committee's view on selection, appointment, different opinion in 2005.
resignation or dismissal of external auditors,
such disagreement shall be set out in the
Corporate Governance Report
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The audit committee should be provided with X The committee members may seek independent profess-
sufficient resources to discharge its duties ional advice, the costs of which will be borne by
the Company.
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D Delegation by the Board
D.1 Management function of the Board
Principle: The scope of authorisation should be clear
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
The board should give clear directions X The board, the management and each of the board
as to the powers of management, in particular, committees have clear terms of reference. The
as to circumstances where the management Articles of Association and the Rules and Procedures
should obtain prior approval or authorisation for the General Meeting of Shareholders and the
from the board Rules and Procedures for the Meeting of Board of
Directors have clear scope regarding the duties and
authorities of the Board and the management, which
are posted on the Website of Sinopec Corp. at
http://www.sinopec.com.cn.
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D.2 Board committees
Principle: Board committees should be formed with specific written
terms of reference
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Where board committees are established X The board, the management and each of the board
to deal with matters, the board should committees have clear terms of reference.
subscribe sufficiently clear terms of
reference to enable the committee to properly
discharge its functions
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The terms of reference of the board X The rules of the board committees require such
committees should require such committees to committees to report to the Board on their decision
report to the board on their decisions and and recommendations.
recommendations
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E Effective communication with shareholders
E.1 Effective communication
Principle: The board should endeavor to maintain an ongoing
dialogue with shareholders
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
In respect of a substantially separate issue X A separate resolution is always proposed for each
at a general meeting of shareholders, a substantially separate issue.
separate resolution shall be proposed by the
chairman of that meeting
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The chairman of the board shall attend X The chairman of the Board attended the annual general
the annual general meeting and shall arrange meeting of 2004.
the chairman of the audit, remuneration and
nomination committees to attend (as
appropriate)
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E.2 Voting by poll
Principle: The issuer should regularly inform shareholders of the
procedures for demanding a poll.
Whether
Code Provisions Complied with Compliance by Sinopec Corp.
Voting by poll is required under certain X To ensure the interests of all shareholders, all
circumstances in the general meeting resolutions at the general meetings are subject to
voting by poll.
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(2) Nomination of Directors
The Board of Sinopec Corp. has not established Nomination Committee.
No director nominations were made in 2005.
According to the Articles of Association, the list of director
candidates is submitted to the general meeting of shareholders by way
of a proposal.
Independent directors shall be nominated by the board of directors, the
Supervisory Committee and shareholders who individually or jointly hold
1% or more of the voting stock of the Company and be elected by the
general meeting of shareholders. All other directors other than
independent directors shall be nominated by the board of directors, the
Supervisory Committee and shareholders who individually or jointly hold
5% or more of the voting stock of the Company and be elected by the
general meeting of shareholders.
(3) Other Information about Sinopec Corp.'s Corporate Governance
For information regarding changes in share capital and shareholdings of
principal shareholders, please refer to Page 10; for information
regarding general meetings of shareholders, please refer to Page 63;
for information regarding meetings of the board of directors, please
refer to Page 64; for information regarding equity interests of
directors, supervisors and senior management officers, please refer to
Page 27; for information regarding resume and annual remuneration of
directors, supervisors and senior management officers, please refer to
Page 74; and for information regarding external auditors, please refer
to Page 83.
SUMMARY OF SHAREHOLDERS' MEETINGS
During the reporting period, Sinopec Corp. convened two general meetings of
shareholders in strict observance of relevant laws, regulations and the
provisions of the Articles of Association regarding notification, convening and
holding of general meetings, the specifics of the general meetings are as
follows:
1 The Annual General Meeting of Shareholders for 2004 was Held on 18th May
2005 at Crowne Plaza Beijing-Park View Wuzhou.
For further details regarding the General Meeting of Shareholders for the
year 2004, please refer to the announcements of Sinopec Corp. published in
China Securities Journal, Shanghai Securities News and Securities Times in
Mainland China and Hong Kong Economic Times and South China Morning Post in
Hong Kong on 19 May 2005.
2 An Extraordinary General Meeting of Shareholders for 2005 was Held on 19th
September 2005 at Crowne Plaza Beijing-Park View Wuzhou.
For further details regarding the Extraordinary General Meeting of
Shareholder for year 2005, see the relevant announcements of Sinopec Corp.
published in China Securities Journal, Shanghai Securities News and
Securities Times in mainland China and Hong Kong Economic Times and South
China Morning Post in Hong Kong on 20 September 2005.
REPORT OF THE BOARD OF DIRECTORS
The Board of Directors of Sinopec Corp. is pleased to present their report for
the year ended 31 December 2005 for review.
1 THE MEETINGS OF THE BOARD OF DIRECTORS
During the period of this report, nine Board meetings were held, details of
which are as follows:
(1) The fifteenth meeting of the Second Session of the Board of Directors
was held at Sinopec Corp. head office on 25th March 2005.
For details of this meeting, please refer to relevant announcements of
Sinopec Corp. published in China Securities Journal, Shanghai
Securities News and Securities Times in mainland China and Hong Kong
Economic Times and South China Morning Post in Hong Kong on 28th March
2005.
(2) The sixteenth meeting of the Second Session of the Board of Directors
was held at Sinopec Corp. head office on 25th March 2005.
For details of this meeting, please refer to relevant announcements of
Sinopec Corp. published in China Securities Journal, Shanghai
Securities News and Securities Times in mainland China and Hong Kong
Economic Times and South China Morning Post in Hong Kong on 28th March
2005.
(3) The seventeenth meeting of the Second Session of the Board of Directors
was held on 28th April 2005 by way of written resolution, at which the
First Quarterly Report of 2005 was approved.
(4) The eighteenth meeting of the Second Session of the Board of Directors
was held on 29th July 2005 by way of written resolution.
For details of this meeting, please refer to relevant announcements of
Sinopec Corp. published in China Securities Journal, Shanghai
Securities News and Securities Times in mainland China and Hong Kong
Economic Times and South China Morning Post in Hong Kong on 1st August
2005.
(5) The nineteenth meeting of the Second Session of the Board of Directors
was held at Sinopec Corp. head office on 26th August 2005.
For details of this meeting, please refer to relevant announcements of
Sinopec Corp. published in China Securities Journal, Shanghai
Securities News and Securities Times in mainland China and Hong Kong
Economic Times and South China Morning Post in Hong Kong on 29th August
2005.
(6) The twentieth meeting of the Second Session of the Board of Directors
was held on 27th October 2005 by way of written resolution, at which
the Third Quarterly Report of 2005 was approved.
(7) The twenty-first meeting of the Second Session of the Board of
Directors was held on 12th November 2005 by way of written resolution.
For details of this meeting, please refer to relevant announcements of
Sinopec Corp. published in China Securities Journal, Shanghai
Securities News and Securities Times in mainland China and Hong Kong
Economic Times and South China Morning Post in Hong Kong on 14th
November 2005.
(8) The twenty-second meeting of the Second Session of the Board of
Directors was held on 25th November 2005 by way of written resolution.
For details of this meeting, please refer to relevant announcements of
Sinopec Corp. published in China Securities Journal, Shanghai
Securities News and Securities Times in mainland China and Hong Kong
Economic Times and South China Morning Post in Hong Kong on 28th
November 2005.
(9) The twenty-third meeting of the Second Session of the Board of
Directors was held on 28th December 2005 by way of written resolution,
at which the amended Internal Control Manual was approved for due
implementation starting from 1st January 2006.
2 IMPLEMENTATION OF RESOLUTIONS PASSED AT SHAREHOLDERS' MEETING BY THE BOARD
OF DIRECTORS
During the period of this report, all members of the Board of Directors of
Sinopec Corp. carried out their duties diligently and responsibly in
accordance with the relevant laws and regulations and the Articles of
Association, duly implemented the resolutions passed at the shareholders'
meetings, and accomplished the various tasks entrusted to them at the
shareholders' meetings.
3 ATTENDANCE OF DIRECTORS AT THE BOARD OF DIRECTORS MEETINGS
During this reporting period, the Board held nine meetings. The attendance
of directors describes as follows:
Counts of Counts of
attendance commissioned
Name by himself (times) attendance (times)
Chen Tonghai 9 0
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Wang Jiming 9 0
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Mou Shuling 6 3
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Zhang Jiaren 9 0
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Cao Xianghong 9 0
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Liu Genyuan 9 0
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Gao Jian 6 3
-------------------------------------------------------------------------------------
Fan Yifei 6 3
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Chen Qingtai (Independent Director) 9 0
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Ho Tsu Kwok, Charles (Independent Director) 7 2
-------------------------------------------------------------------------------------
Shi Wanpeng (Independent Director) 8 1
-------------------------------------------------------------------------------------
Zhang Youcai (Independent Director) 6 3
-------------------------------------------------------------------------------------
Cao Yaofeng 9 0
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4 MEETINGS OF PROFESSIONAL COMMITTEES
(1) Meetings of the Audit Committee
During the reporting period, the Audit Committee under the Second
Session of the Board of Directors held three meetings, and also held a
meeting with auditors, details of which are as follows:
a. The third meeting of the Second Session of the Audit Committee was
held on 24th March 2005 by way of written resolutions, whereby the
Explanation on the Operating Business and Financial Positions of
Year 2004, Explanation on Audit for Year 2004, Explanation on
Amending the Audit Committee Rules, as well as the Financial
Statements for Year 2004 as audited by KPMG Huazhen and KPMG
respectively in accordance with PRC accounting rules and
regulations and IFRS were reviewed and the Opinions on the
Reviewing of the Financial Statements for the Year 2004 was issued.
b. The fourth meeting of the Second Session of the Audit Committee was
held on 25th August 2005 by way of written resolutions, whereby the
Explanation on the Operating Business and Financial Positions of
the First Half of 2005, Explanation on Audit for the First Half of
Year 2005, and the Financial Statements for the first half of Year
2005 as audited by KPMG Huazhen and KPMG respectively in accordance
with PRC accounting rules and regulations and IFRS, were reviewed
and the Opinions on the Reviewing of the Financial Statements for
the First Half of Year 2005 was issued.
c. The fifth meeting of the Second Session of the Audit Committee was
held on 27th October 2005 by way of written resolutions, whereby
the Third Quarterly Report of 2005 was reviewed and the Opinions on
the Reviewing of the Financial Statements for the Third Quarter of
Year 2005 was issued.
d. The meeting between the Second Session of the Audit Committee and
auditors of the Company was held at the headquarters of Sinopec
Corp. on 31st March 2006, whereby auditors of the Company was
consulted in detail about audit of Sinopec Corp. for 2005.
(2) Meetings of the Strategies and Development Committee
During the reporting period, the second session of the Strategies and
Development Committee under the Second Session of the Board of
Directors held one meeting on 24th March 2005 by way of written
resolutions, whereby the Explanation on Tianjin 1 million tonnes per
annum ethylene and auxiliary facilities project, the Explanation on
Zhenhai 1 million tonnes per annum ethylene and auxiliary facilities
project were reviewed. The Opinions on the Reviewing of the Tianjin 1
million tonnes per annum ethylene and auxiliary facilities project and
the Opinions on the Reviewing of the Zhenhai 1 million tonnes per annum
ethylene and auxiliary facilities project were issued.
5 THE INDEPENDENT DIRECTORS PRESENTED ITEMISED EXPLANATIONS AND INDEPENDENT
OPINIONS ON THE COMPANY'S ACCUMULATED AND CURRENT EXTERNAL GUARANTEES FOR
THE YEAR 2005:
In accordance with the requirements by the Shanghai Stock Exchange, we, as
the independent directors of Sinopec Corp., have carefully reviewed the
accumulated and current external guarantees by Sinopec Corp. for 2005, and
would describe as follows:
The outstanding aggregate external guarantees by Sinopec Corp. in 2005
totaled approximately 14.607 billion, accounting for around 6.7% of the
Company's net assets and decreased by approximately RMB 192 million
compared with that of 2004. The external guarantees occurring prior to 2005
had been disclosed in detail in the 2004 Annual Report.
We present our opinions as follows:
No external guarantees were issued in 2005. External guarantees occurring
before 2005 had been subjected to review and approvals in accordance with
relevant laws and regulations and various internal documents including the
Articles of Association. The disclosures about such external guarantees was
authentic and complete and the potential risks under these guarantees were
revealed. For any external guarantees in the future, Sinopec Corp. shall
continue to strictly observe relevant provisions regarding guarantees, in
order to protect the interests of Sinopec Corp. and of the shareholders in
general.
6 FINANCIAL PERFORMANCE
The financial results of the Company for the year ended 31 December 2005
prepared in accordance with IFRS and its financial position as at that date
and its analysis are set out from page 123 to page 163 in this Annual
Report.
7 DIVIDEND
At the 25th meeting of the Second Session of the Board of Directors of
Sinopec Corp., the Board approved the proposal to declare a final dividend
of RMB 0.13 per share (including tax) in cash and thus the dividends in
cash declared for 2005 totaled RMB 11,271 billion. After deducting the
interim cash dividend, the final cash dividend per share for distribution
would be RMB 0.09. The distribution proposal will be implemented upon
approval by the Annual General Meeting of Shareholders for 2005. The final
dividends will be distributed on or before 30th June 2006 (Friday) to those
shareholders whose names appear on the register of members of Sinopec Corp.
at the close of business on 16th June 2006 (Friday). The register of
members of Sinopec Corp.'s H shares will be closed from 12th June 2006
(Monday) to 16th June 2006 (Friday) (both dates are inclusive). In order to
qualify for the final dividend for H shares, the shareholders must lodge
all share certificates accompanied by the transfer documents with HKSCC
Nominees Limited, at Shops 1712 to 1716, 17th Floor, Hopewell Centre, 183
Queen's Road East, Hong Kong before 4:00 p.m. on 9th June 2006 (Friday) for
registration.
The dividend for holders of domestic shares will be denominated, declared
and paid in Renminbi and the dividend for holders of foreign shares will be
denominated, declared and paid in Hong Kong dollars. The exchange rate for
the dividend to be paid in Hong Kong dollars will be the mean of the
exchange rates of Hong Kong dollars to Renminbi as announced by the
People's Bank of China during the week prior to the date of declaration of
dividend.
Generally, an individual shareholder of H shares or an individual holder of
American Depository Shares (ADSs) who is resident and domiciled in the UK
will be liable to UK income tax on the dividend received from Sinopec Corp.
(after deducting relevant pre-tax deductions and tax credit). Where an
individual shareholder of H shares receives a dividend from Sinopec Corp.
without any deduction of tax, the amount included as income for the
purposes of computing his or her UK tax liability is the gross amount of
the dividend and this is taxed at the applicable rate (currently 10 % in
the case of a taxpayer subject to a basic rate or a lower rate, and 32.5 %
in the case of a taxpayer subject to a higher rate). Where tax is withheld
from the dividend, credit may be claimed against UK income tax for any tax
withheld from the dividend up to the amount of the UK income tax liability.
If such a withholding is required, Sinopec Corp. will assume responsibility
for withholding that tax regarding the income with a source within the PRC.
The current Chinese-UK Double Taxation Agreement provides that the maximum
withholding tax on dividend payable by a Chinese-domiciled company to UK
residents is generally limited to 10% of the gross dividend.
Individual holders of H Shares or holders of ADSs who are UK resident but
are not domiciled in the UK (and have submitted a claim to that effect to
the UK Inland Revenue), will generally only be liable to income tax on any
dividend received from Sinopec Corp. to the extent that it is repatriated
to the UK.
Generally, a shareholder of H shares or a holder of ADSs which is a UK tax
resident and UK domiciled will be liable to UK income tax or corporation
tax (as appropriate and at the rates of tax applicable to the shareholder
or holder) on any dividend received from Sinopec Corp., with double tax
relief available for withholding tax imposed. In certain cases (not to be
discussed here), a shareholder of H shares or a holder of ADSs which is a
UK tax resident may be entitled to relief for "underlying" tax paid by
Sinopec Corp. or its subsidiaries.
8 MAJOR SUPPLIERS AND CUSTOMERS
During this reporting period, the total amount of purchase from the five
largest suppliers of the Company represented 37.68% of the total amount of
purchase made by the Company, of which purchases from the largest supplier
represented 15.87% of the total purchases made by the Company. The total
amount of sales to the five largest customers of the Company represented 8%
of the total annual sales of the Company.
During this reporting period, except for the connected transactions with
the controlling shareholder Sinopec Group Company and its subsidiaries, as
disclosed in Connected Transaction Section of this Annual Report, none of
the directors, supervisors of Sinopec Corp. and their associates or any
shareholders holding over 5% in Sinopec Corp. had any interest in any of
the above-mentioned major suppliers and customers.
9 BANK LOANS AND OTHER BORROWINGS
Details of bank loans and other borrowings of the Company as of 31 December
2005 are set out in Note 29 of the Financial Statements prepared in
accordance with IFRS in this Annual Report.
10 FIXED ASSETS
During this reporting period, changes to the fixed assets of the Company
are set out in Note 18 of the Financial Statements prepared in accordance
with IFRS in this Annual Report.
11 RESERVES
During this reporting period, changes to the reserves of the Company are
set out in the Consolidated Statement of Changes in Equity in the Financial
Statements prepared in accordance with IFRS in this Annual Report.
12 DONATIONS
During the reporting period, the amount of donations made by the Company
totaled around RMB 203 million, which was primarily used for education and
development of poor areas.
13 PRE-EMPTIVE RIGHTS
Pursuant to the Articles of Association of Sinopec Corp. and the laws of the
PRC, Sinopec Corp. is not subject to any pre-emptive rights requiring it to
offer new issue of its shares to its existing shareholders in proportion to
their shareholdings.
14 PURCHASE, SALES AND REDEMPTION OF SHARES Refer to "Significant Events" of
this Annual Report.
15 RISK FACTORS
In the course of its production and operations, Sinopec Corp. will actively
take various measures to mitigate operational risks. However, in practice,
it may not be possible to prevent all risks and uncertainties.
(1) Fluctuation of Crude Oil Prices: a significant amount of the Company's
demand for crude oil is satisfied from external purchases. In recent
years, the international crude oil prices continued to be volatile and
remained at a high level and are subject to wild fluctuations. Although
the Company has taken flexible measures to cope with the high prices,
it may not be fully shielded from risks associated with any wild
fluctuation of the international crude oil prices.
(2) Cyclic Effects: as an integrated energy and chemicals company, the
Company is also subject to cyclic effects which characterise to the
chemicals industry. Affected by the fast growth of new production
capacities worldwide and oil price fluctuation, the gross profit margin
in the chemicals industry may fall, and the operational performance of
the Chemicals Segment may be affected by cyclic factors.
(3) Government Regulation: although the government is gradually
liberalising the petroleum and petrochemicals sector, the petroleum and
petrochemical industry in China are still subject to some form of
regulation, which include: issuing petroleum production License,
setting of guidance prices for retail of gasoline and diesel, provision
and pricing of certain resources and services, determination of taxes
and fees, formulation of import & export quotas and procedures,
formulation of safety, quality and environmental protection standards.
Such regulation may have material effect over the operations and
economic returns of the Company.
(4) Full market access: under China's commitments for access into the WTO,
the refined oil products market will be fully opened soon and market
competition will grow fiercer. Although the Company has actively taken
various measures and optimised its sales network for refined oil
products, it may still experience some of the impact from full market
access.
(5) Uncertainties with Oil & Gas Reserves: various data disclosed in this
annual report, including the oil and gas reserves, are only estimates
derived by adoption of certain appraisal methods. The reliability of
such estimates depends on many factors including techniques used and
involves various uncertainties, and there is a risk that the actual
data may differ substantially from such estimates.
(6) Operational Risks and Natural Disasters: the process of chemical
production is exposed to the risk of inflammation, explosion and
environmental pollution and is vulnerable to natural disasters. Such
contingencies may cause serious impact to the society, grievous
injuries to people and major financial losses to the Company. The
Company has formulated and is implementing a strict HSE management
system, in an effort to avoid such risks as much as possible. The
Company also subscribed to the SPI Fund. However, it may happen that
the claimed proceeds under the SPI fund is not enough to cover actual
financial losses suffered by the Company.
(7) Exchange Rate and Interest Rate: according to the existing rules of
foreign exchange, the government has lifted the control over foreign
exchange transactions under current accounts, but foreign exchange
transactions under capital accounts still need approval from the State
Administration of Foreign Exchange. These restrictions may influence
the Company's ability to get foreign currencies through financing
activities or the ability to get foreign currencies for capital
expenditure. On 21st July 2005, China began to adopt an administered
floating exchange rate regime based on market supply and demand with
reference to a basket of currencies. Exchange rate fluctuation may also
have certain impact on the operations of the Company.
By Order of the Board
Chen Tonghai
Chairman
Beijing China
31 March 2006
REPORT OF THE SUPERVISORY COMMITTEE
To all shareholders:
During this reporting period, all members of the Supervisory Committee observed
the principle of good faith and duly fulfilled their supervisory duties in
accordance with the Company Law of the PRC and the relevant provisions of the
Articles of Association of Sinopec Corp. to safeguard the rights of the
shareholders and the interest of the Company.
During this reporting period, the Supervisory Committee held two meetings.
At the fifth meeting of the Second Session of the Supervisory Committee held on
25 March 2005, the Committee reviewed the report submitted by the Department of
Finance on Operating Results and Financial Positions for Year 2004 and the
Explanatory notes on the auditor's report submitted by KPMG. It also considered
and approved the Financial Statements for Year 2004, Annual Report for Year
2004 as well as its relevant summary, and the Proposal on Profit Appropriations
for Year 2004; discussed and approved the Report of the Supervisory Committee
for Year 2004 and the Work Plan for Year 2005. The Supervisory Committee also
notified in writing investigation and inspection of Wuhan Petroleum and Taishan
Petroleum undertaken by some supervisors and the relevant resolutions were
passed at the meeting.
At the sixth meeting of the Second Session of the Supervisory Committee held on
26 August 2005, the Committee considered and approved the Interim Financial
Report for the First Half of 2005, the Interim Report for the First Half of
2005 and its summary, and the Proposal on profit appropriations for the First
Half of 2005.It also notified in writing visits to and inspection of the
southwest subsidiary, the northwest sales subsidiary and Sichuan and Chongqing
subsidiary undertaken by some supervisors and the relevant resolutions were
passed on the meeting.
In addition, the Supervisory Committee exercised oversight over major decisions
of the Company, such as capital operations, asset restructuring, connected
transactions and dividend distribution, by attending meetings of the Board of
Directors.
Through its diligent performance of supervisory and oversight duties, the
Supervisory Committee believe that: in 2005, Sinopec Corp. has abided by the
principles of standardisation, precision and integrity in its operation.
Confronted with soaring international crude oil price, tight control of
domestic refined oil product prices and wild fluctuations in the chemicals
market, Sinopec Corp. continued to focus on the policy of "reform, streamline,
innovation and development", and took market based initiatives to increase
returns by leveraging its overall strength, timely adjusting operations
strategy, strengthening internal management and optimising operations. These
efforts have been rewarded in increased production volume, steady improvements
in operations quality and increased economic returns.
Firstly, the Board of Directors diligently discharged its obligations and
exercised its rights under the Company Law of the PRC and the Company's
Articles of Association, fully implemented the resolutions of the general
meeting of shareholders and the meetings of Board of Directors and made
decisions in a timely manner over material affairs including the capital
operations, production and operating plans and development goals. The Board
fully implemented the internal control system to further improve the Company's
corporate governance structure. The Directors and the senior management
officers acted diligently and in good faith, and operated in compliance with
laws and regulations. No violation or breach of laws, regulations or the
Articles of Association on the part of the aforementioned persons, nor any act
to the detriment of the Company's interest, was found during the reporting
period.
Secondly, the preparation and review of the annual report comply with
applicable laws, regulations, the Company's Articles of Association and other
internal management rules, the content and forms of which complies with the
requirements of CSRC and the stock exchanges. The information contained in the
report accurately reflect in all respects the operations, management and
financial status of the Company for 2005.
Thirdly, the Financial Statement for the year 2005 has been prepared in
accordance with the PRC Accounting Rules and Regulations and the IFRS
respectively. The principle of consistency has been adopted in preparing the
financial reports and the reported data truly and fairly reflect the Company's
financial status and operating performance. According to the financial data
prepared in accordance with the PRC Accounting Rules and Regulations, the
income from the Company's principal operations and net profits were RMB 799.115
billion and RMB 39.558 billion respectively. According to the financial data
prepared in accordance with the IFRS, the turnover , the Company's turnover and
other operating revenues, and profit attributable to shareholders were RMB
832.532 billion and RMB 40.920 billion respectively.
Fourthly, the Company utilised RMB 611 million from funds of previous years'
financing activities, which is in conformity with the Company's undertakings
for use of proceeds. By 31 December 2005, the proceeds of RMB 11.648 billion
from issuance of A shares had used up.
Fifthly, the Company's acquisition and sales of assets were in conformity with
the relevant regulations and laws. In this reporting period, the consolidation
of Beijing Yanhua, China Phoenix and Zhenhai Refinery and Chemicals was either
basically completed or was under way. In relation to the above, there were no
insider dealings, and nothing in the transactions were found to be detrimental
to the shareholders' interests and/or led to a loss of assets of the Company.
Sixthly, all connected transactions are compliant with related regulations. All
connected transactions between the Company and the Sinopec Group Company were
in conformity with the relevant rules and regulations of the Hong Kong Stock
Exchange and Shanghai Stock Exchange. The connected transactions were conducted
on the basis of fair and reasonable price and abided by the principle of "fair,
just and open". Nothing in these transactions was found to be detrimental to
the Company's benefits.
In the year ahead, the Supervisory Committee will further develop its focus on
operation, carry out balanced development with emphasis on the improvement and
implementation of internal control systems. In addition, the Committee will
work on aspects including the implementation of the fixed asset investment
plan, asset acquisition or swap, connected transactions and financial budget
implementation. The Committee will strengthen its supervision and investigation
of the Company based on the principle of honesty and good faith to promote the
growth of the Company's economic benefits in 2006 and to safeguard the
shareholders' interests.
Wang Zuoran
Chairman of the Supervisory Committee
Beijing China
31 March 2006
DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
1 GENERAL INFORMATION ON DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT
(1) Directors
Chen Tonghai, 57, Chairman of the Board of Directors of Sinopec Corp.
and Mr. Chen is also President of Sinopec Group Company. Mr. Chen
graduated from Northeast Petroleum Institute in September 1976
specialising in petroleum production engineering. Mr. Chen is a
professor level senior economist. He has extensive experience in
petrochemical industry administration and macro-economic management.
From July 1983 to December 1986, Mr. Chen was Vice Party Secretary and
then Party Secretary of Zhenhai Petroleum and Petrochemical Plant under
the former Sinopec Group Company. From December 1986 to July 1989, Mr.
Chen served as Managing Deputy Mayor of Ningbo City, Zhejiang Province.
From July 1989 to June 1991, Mr. Chen served as Managing Deputy
Director of the Planning and Economic Committee of Zhejiang Province.
From June 1991 to February 1992, Mr. Chen served as Acting Mayor of
Ningbo City. From February 1992 to January 1994, Mr. Chen served as
Mayor of Ningbo City. From January 1994 to April 1998, Mr. Chen served
as Vice Minister of the State Planning Commission. Mr. Chen served as
Vice President of Sinopec Group Company from April 1998 to March 2003.
Mr. Chen has been President of Sinopec Group Company since March 2003.
Mr. Chen served as Director and Vice Chairman of the First Session of
the Board of Directors of Sinopec Corp. from February 2000 to April
2003. Mr. Chen was elected as Director and Chairman of the Second
Session of the Board of Directors of Sinopec Corp. in April 2003.
Wang Jiming, 63, Vice Chairman of the Board of Directors. Mr. Wang
graduated from East China Chemical Institute in September 1964
specialising in petroleum refining. Mr. Wang is a professor level
senior engineer with over 30 years' management experience in China's
petroleum and petrochemical industry. From November 1984 to June 1993,
Mr. Wang served as Vice President, Acting President and President of
Shanghai Petrochemical Plant under the former Sinopec Group Company.
Mr. Wang served as Chairman and President of Shanghai Petrochemical
Company Limited from June 1993 to February 1994. He served as Vice
President of Sinopec Group Company (before its reorganisation) and
Chairman of Shanghai Petrochemical Company from February 1994 to April
1998. Mr. Wang served as Vice President of Sinopec Group Company from
April 1998 to February 2000. Mr. Wang has also served as Chairman of
Shanghai SECCO Petrochemical Company Limited from December 2001 to July
2003. Mr. Wang served as Director of the First Session of the Board of
Directors and President of Sinopec Corp. from February 2000 to April
2003. From April 2003 to March 2005, Mr. Wang served as President of
Sinopec Corp. In April 2003, Mr. Wang was elected as Director and Vice
Chairman of the Second Session of the Board of Directors of Sinopec
Corp.
Mou Shuling, 61, Director of Sinopec Corp. Mr. Mou graduated from
Beijing Petroleum Institute in July 1968 specialising in petroleum
production engineering. Mr. Mou is a professor level senior engineer
and has over 30 years' management experience in China's petroleum
industry. From February 1990 to April 1997, Mr. Mou served as Deputy
Director and Director of Jiangsu Petroleum Exploration Bureau. From
April 1997 to April 1998, Mr. Mou served as Director of Shengli
Petroleum Administration Bureau. Mr. Mou served as Vice President of
Sinopec Group Company from April 1998 to February 2000. Mr. Mou served
as Director of the First Session of the Board of Directors and Vice
President of Sinopec Corp. from February 2000 to April 2003. From April
2003 to March 2005, Mr. Mou served as Senior Vice President of Sinopec
Corp. In April 2003, Mr. Mou was elected as Director of the Second
Session of the Board of Directors of Sinopec Corp.
Zhang Jiaren, 61, Director and Chief Financial Officer of Sinopec Corp.
Mr. Zhang graduated from Hefei Industrial University in July 1966
specialising in electrical engineering. Mr. Zhang is a professor level
senior economist with over 30 years' management experience in China's
petrochemical industry. From August 1987 to July 1994, Mr. Zhang served
as Vice President and President of Zhenhai Petroleum and Petrochemical
Plant under the former Sinopec Group Company. From July 1994 to April
1998, Mr. Zhang served as Chairman and President of Zhenhai Refining
and Chemical Company. Mr. Zhang served as Vice President of Sinopec
Group Company from April 1998 to February 2000. Mr. Zhang served as
Director of the First Session of the Board of Directors and Vice
President of Sinopec Corp. from February 2000 to April 2003. Mr. Zhang
has been Chief Financial Officer of Sinopec Corp. since March 2000. In
April 2003, Mr. Zhang was elected as Director of the Second Session of
the Board of Directors of Sinopec Corp. From April 2003 to November
2005, Mr. Zhang served as Senior Vice President and Chief Financial
Officer of Sinopec Corp. In November 2005, Mr. Zhang was appointed as
Chief Financial Officer of Sinopec Corp.
Cao Xianghong, 60, Director of Sinopec Corp. Mr. Cao graduated from
Nanjing Chemical Institute in July 1967 specialising in macro molecular
chemistry. Mr. Cao is an academician of the China Academy of
Engineering and a professor level senior engineer. Mr. Cao has over 30
years' management experience in China's petrochemical industry. From
July 1984 to August 1997, Mr. Cao served as Deputy General Manager and
Chief Engineer of Beijing Yanshan Petrochemical Company under the
former Sinopec Group Company. From August 1997 to February 2000, Mr.
Cao served as President, Vice Chairman and Chairman of Beijing Yanshan
Petrochemical Company Limited and Chairman of Beijing Yanhua
Petrochemical Company Limited. Mr. Cao served as Director of the First
Session of the Board of Directors and Vice President of Sinopec Corp.
from February 2000 to April 2003. From April 2003 to November 2005, Mr.
Cao served as Senior Vice President of Sinopec Corp. In November 2005,
Mr. Cao was appointed as Chief Engineer of Sinopec Corp. In April 2003,
Mr. Cao was elected as Director of the Second Session of the Board of
Directors of Sinopec Corp.
Liu Genyuan, 60, Director of Sinopec Corp. Mr. Liu graduated from
Shanghai Science and Technology University in July 1968 specialising in
radiation chemistry. He is a professor level senior economist and has
over 30 years' extensive management experience in China's petrochemical
industry. From May 1995 to July 2001, he served as President of
Shanghai Gaoqiao Petrochemical Company under the former Sinopec Group
Company. Mr. Liu served as Vice President of Sinopec Group Company from
July 2001 to November 2005. Mr. Liu has been Chairman and President of
Sinopec Assets Management Company Limited since September 2005. Mr. Liu
was elected as Director of the Second Session of the Board of Directors
of Sinopec Corp. in June 2003.
Gao Jian, 56, Director of Sinopec Corp. In September 1982, Mr. Gao
graduated from the Beijing Institute of Politics and Law as a
postgraduate specialising in political economics. In July 1992, he
graduated from the Finance Science Research Institute of the Ministry
of Finance with a Ph.D. degree specialising in finance. From November
1997 to June 1998, he conducted postdoctoral research at the Faculty of
Economics at Harvard University, USA. He is a Senior Economist. Mr. Gao
has been engaged in research in economic theories and financial
management for a long period of time and has extensive experience in
economics and financial management. From January 1989 to April 1994, he
was Deputy Head of the Department of Treaty and Law of the Ministry of
Finance and the Deputy Head of the National Debts Management
Department. From April 1994 to October 1998, he was the Head of the
National Debts Department and the Head of the Department of Treaty and
Law of the Ministry of Finance. From October 1998 to April 2001, he was
the Chief Economist, the Head of the Funds Bureau and, concurrently,
the Chief Representative of the Hong Kong Representative Office of the
China Development Bank. From April 2001 to July 2003, he was the
Assistant to the Governor, Head of the Funds Bureau and, concurrently,
the Chief Representative of the Hong Kong Representative Office of the
China Development Bank. Since July 2003, he is the Deputy Governor of
the China Development Bank. He was elected as Director of the Second
Session of the Board of Directors of Sinopec Corp. in May 2004.
Fan Yifei, 42, Director of Sinopec Corp. Mr. Fan graduated from the
treasury and finance department of Renmin University of China in July
1993 and obtained a doctoral degree in economics; He obtained a master
degree in international economics from the Columbia University in 2002.
He is a senior accountant. From June 1993 to September 1994, he was the
Assistant to the General Manager and Manager of the Planning and
Finance Department of the Trust Investment Company of China
Construction Bank successively. From September 1994 to July 1996, he
served as Vice General Manager of the Capital Planning Department of
China Construction Bank. He was the General Manager of the Finance and
Accounting Department of China Construction Bank from July 1996 to
January 1998. He was the General Manager of the Planning and Finance
Department of China Construction Bank from January 1998 to February
2000. Mr. Fan served as the Assistant to the Governor of China
Construction Bank from February 2000 to June 2005, during which he
enriched his experience by participating in the Three Gorges project,
and also acted as the Assistant to the General Manager of China
Changjiang Power Co., Ltd. In June 2005, Mr. Fan was appointed as
Deputy Governor of China Construction Bank. Mr. Fan was elected as
Director of the Second Session of the Board of Directors of Sinopec
Corp. in April 2003.
Chen Qingtai, 68, Independent Non-executive Director of Sinopec Corp.
Mr. Chen graduated from Tsinghua University in February 1964
specialising in power and dynamics engineering. Mr. Chen is a
researcher and professor. Mr. Chen was engaged in business
administration and macro-economic management over a long period of
time, and has accumulated extensive experience in business
administration and macro-economic management. From October 1982 to July
1992, Mr. Chen was Chief Engineer, President and Chairman of China No.
2 Automobile Works and Chairman of Dongfeng Peugeot Citroen Automobile
Limited, Ltd. From July 1992 to April 1993, Mr. Chen served as Deputy
Director of the State Council Economic and Trade Office. From April
1993 to March 1998, Mr. Chen served as Deputy Director of State
Economic and Trade Commission. From March 1998 to November 2004, Mr.
Chen served as Vice Minister of the Development Research Center of the
State Council (DRC) of PRC. Since July 2000, he has been Director of
the Public Policy and Management School of Tsinghua University. Mr.
Chen has been a member of the Standing Committee of the Tenth session
of Chinese People's Political Consultative Conference since March,
2003. From November 2004, Mr. Chen has been a senior researcher of the
DRC. Since March 2005, he has been Vice chairman of the Economic
Committee of the Tenth Session of Chinese People's Political
Consultative Conference. Mr. Chen served as Independent Non-executive
Director of the First session of the Board of Directors of Sinopec
Corp. from February 2000 to April 2003. In April 2003, Mr. Cao was
elected as Independent Non-executive Director of the Second Session of
the Board of Directors of Sinopec Corp.
Ho Tsu Kwok Charles, 56, Independent Non-executive Director of Sinopec
Corp. Mr. Ho is Chairman of Hong Kong Tobacco Company Limited, a
cigarette manufacturer and distributor in Asia Pacific region. Mr. Ho
is also Chairman and Director of Global China Investments Limited, a
joint venture between a Canadian provincial government pension fund and
the Ontario Municipal Employees Retirement System. He is responsible
for devising investment and management strategies for Global China
Investments Limited. Mr. Ho is Chairman of Global China Investments
Holdings Limited and Non-executive Director of China National Aviation
Company Limited, each of which is listed on the Hong Kong Stock
Exchange. Mr. Ho is also a member of the Standing Committee of the
Chinese People's Political Consultative Conference and an economic
consultant to Shandong provincial government. He is a member of the
Board of Trustees of the University of International Business and
Economics of China and an honorary member of the Board of Trustees of
Peking University. Mr. Ho served as Independent Non-executive Director
of the First session of the Board of Directors of Sinopec Corp. from
June 2000 to April 2003. In April 2003, Mr. Ho was elected as
Independent Non-executive Director of the Second Session of the Board
of Directors of Sinopec Corp.
Shi Wanpeng, 68, Independent Non-executive Director of Sinopec Corp.
Mr. Shi graduated from Northern Jiaotong University in August 1960
specialising in railway transportation administration. He is a
professor level senior engineer. He has long been engaged in economic
management work, and has extensive experience in macro-economic
management. From January 1983 to January 1987, he served as a Deputy
Director of the Transport Bureau of the State Economic Commission. From
January 1987 to May 1988, he was the Director of the Economic and
Technical Co-operation Bureau of the State Economic Commission. From
May 1988 to July 1991, he was the Director of the Production and
Dispatch Bureau of the State Planning Commission. From July 1991 to
July 1992, he served as Deputy Secretary General of the Production
Office of the State Council. From July 1992 to April 1993, he served as
a Deputy Director of the Economic and Trade Office of the State
Council. From April 1993 to July 1997, he was a Vice Minister of the
State Economic and Trade Commission. From July 1997 to March 1998, he
was the Chairman (minister level) of the China Textiles Association.
From March 1998 to February 2002, he served as a Vice Minister of the
State Economic and Trade Commission. Since January 2003, he has been
Chairman of China Packaging Federation. He has been a member of the
Standing Committee of the National Committee of the Tenth session of
the Chinese People's Political Consultative Conference and Deputy
Director of its Economic Committee since March 2003. Mr. Shi was
elected as Independent Non-executive Director of the Second Session of
the Board of Directors of Sinopec Corp. in April 2003.
Zhang Youcai, 64, Independent Non-executive Director of Sinopec Corp.
Mr. Zhang graduated from Nanjing Industrial University in August 1965
specialising in inorganic chemistry. He is a professor. He has long
been engaged in business administration, financial management and
government work, and has extensive experience in industrial, economic,
financial and accounting management. From January 1968 to August 1980,
he served as a technician, Vice President, Deputy Secretary of the
Party Committee and President, respectively, of Nantong Chemical
Fertiliser Plant. From August 1980 to January 1982, he was a Deputy
Director and a member of the Leading Party Group of the Industrial
Bureau of Nantong Region. From January 1982 to February 1983, he served
as a Deputy Director of the Planning Commission of Nantong Region. From
February 1983 to November 1989, he served as a Deputy Mayor, Deputy
Secretary of the Party Committee and Mayor of Nantong City. He was a
Vice Minister of the Ministry of Finance and a member of the Leading
Party Group of the Ministry of Finance from December 1989 to July 2002
(from May 1994 to March 1998 of this period, he served concurrently as
the Director of the State-owned Assets Administration Bureau). He has
been the Chairman of The Chinese Institute of Chief Accountants since
November 2002. He has also been the member of the standing committee of
the Tenth Session of the National People's Congress and Deputy Director
of its Financial and Economic Committee since March 2003. Mr. Zhang was
elected as Independent Non-executive Director of the Second Session of
the Board of Directors of Sinopec Corp. in April 2003.
Cao Yaofeng, 52, Employee Representative Director of Sinopec Corp. Mr.
Cao graduated from the General Section of East China Petroleum
Institute in September 1977 specialising in mining machinery. He
obtained a master's degree in mechanical design and theories from the
Petroleum University (East China) in June 2001. He is a professor level
senior engineer. From April 1997 to December 2001, he was a Deputy
Director of Shengli Petroleum Administration Bureau under Sinopec Group
Company. He acted concurrently as a ViceChairman of the Board of
Directors of Sinopec Shengli Oilfield Company Limited from May 2000 to
December 2001. From December 2001 to December 2002, he was a Director
and the General Manager of Sinopec Shengli Oilfield Company Limited.
Mr. Cao served as the Chairman of the Board of Directors of Sinopec
Shengli Oilfield Company Limited from December 2002 to December 2005.
From October 2004 to November 2005, Mr. Cao served as Assistant to the
President of the Sinopec Group Company. In November 2005, Mr. Cao was
appointed as Vice President of Sinopec Group Company. Mr. Cao was
elected as Employee Representative Director of the Second Session of
the Board of Directors of Sinopec Corp. in April 2003.
Information of Directors
Remuneration paid
Position with by the Company Shares Held at Sinopec
Name Gender Age Sinopec Corp. Term of Office in 2005 Whether paid from any shareholder
(RMB thousand) by the Company (as at 31 December)
2005 2004
Chen Tonghai M 57 Chairman 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Wang Jiming M 63 Vice Chairman 2003.4-2006.4 480 YES 0 0
--------------------------------------------------------------------------------------------------------------------------------
Mou Shuling M 61 Director 2003.4-2006.4 442 YES 0 0
--------------------------------------------------------------------------------------------------------------------------------
Zhang Jiaren M 61 Director and 2003.4-2006.4 455 YES 0 0
Chief Financial Officer
--------------------------------------------------------------------------------------------------------------------------------
Cao Xianghong M 60 Director 2003.4-2006.4 455 YES 0 0
--------------------------------------------------------------------------------------------------------------------------------
Liu Genyuan M 60 Director 2003.6-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Gao Jian M 56 Director 2004.5-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Fan Yifei M 42 Director 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Chen Qingtai M 68 Independent 2003.4-2006.4 27 (Fees) NO 0 0
Non-executive Director
--------------------------------------------------------------------------------------------------------------------------------
Ho Tsu Kwok M 56 Independent 2003.4-2006.4 21 (Fees) NO 0 0
Charles Non-executive Director
--------------------------------------------------------------------------------------------------------------------------------
Shi Wanpeng M 68 Independent 2003.4-2006.4 24 (Fees) NO 0 0
Non-executive Director
--------------------------------------------------------------------------------------------------------------------------------
Zhang Youcai M 64 Independent 2003.4-2006.4 21 (Fees) NO 0 0
Non-executive Director
--------------------------------------------------------------------------------------------------------------------------------
Cao Yaofeng M 52 Employee 2003.4-2006.4 279 YES 0 0
Representative Director
--------------------------------------------------------------------------------------------------------------------------------
(2) Supervisors
Wang Zuoran, 55, Chairman of the Supervisory Committee of Sinopec Corp.
Mr. Wang graduated from Shandong Economic Administration Institute in
September 1994 specialising in economic administration. Mr. Wang is a
professor level senior economist and he has extensive experience in the
management of petroleum industry. From October 1994 to February 2000,
Mr. Wang served as Deputy Director and Party Secretary of Shengli
Petroleum Administration Bureau. From February 2000 to July 2001, Mr.
Wang was the Assistant to President of Sinopec Group Company. Mr. Wang
has been Director of Disciplinary Supervision Committee of Sinopec
Group Company since July 2001. Mr. Wang served as Supervisor of the
First Session of the Supervisory Committee of Sinopec Corp. from
February 2000 to April 2003. In April 2003, Mr. Wang was elected as
Supervisor and Chairman of the Second Session of the Supervisory
Committee of Sinopec Corp..
Zhang Chongqing, 61, Supervisor of Sinopec Corp. Mr. Zhang graduated
from China University of Science and Technology in July 1967
specialising in macro molecular chemistry. He is a professor level
senior economist. From May 1991 to February 1993, Mr. Zhang served as
Vice President of Planning Institute of former Sinopec Group Company.
From February 1993 to December 1998, Mr. Zhang served as Deputy
Director and Director of General Administrative Office of former
Sinopec Group Company. Mr. Zhang has been Director of General
Administrative Office of Sinopec Group Company from December 1998 to
February 2005. Mr. Zhang served as Supervisor of the First Session of
the Supervisory Committee of Sinopec Corp. from February 2000 to April
2003. In April 2003, Mr. Zhang was elected as Supervisor of the Second
Session of the Supervisory Committee of Sinopec Corp.
Wang Peijun, 60, Supervisor of Sinopec Corp. Mr. Wang graduated from
Northeast Petroleum Institute in July 1970 specialising in oil and gas
field engineering. He is a professor level senior economist. From June
1989 to August 1991, Mr. Wang was Vice Party Secretary of Qilu
Petroleum and Petrochemical Company under former Sinopec Group Company.
From August 1991 to December 1998, he served as Deputy Director and
Director of Human Resources Department of former Sinopec Group Company.
From December 1998 to September 2005, Mr. Wang has been Director of
Human Resources Department of Sinopec Group Company. Mr. Wang served as
Supervisor of the First Session of the Supervisory Committee of Sinopec
Corp. from February 2000 to April 2003. In April 2003, Mr. Wang was
elected as Supervisor of the Second Session of the Supervisory
Committee of Sinopec Corp.
Wang Xianwen, 61, Supervisor of Sinopec Corp. Mr. Wang graduated from
Jilin University in July 1968 specialising in chemistry. He is a
professor level senior economist. From April 1984 to March 1990, Mr.
Wang served as Deputy Manager of Jinzhou Petrochemical Company under
the former Sinopec Group Company. From March 1990 to December 1998, Mr.
Wang served as Deputy Director and Director of Auditing Bureau of the
former Sinopec Group Company. Mr. Wang served as Director General of
Auditing Bureau of Sinopec Group Company from December 1998 to January
2005. Mr. Wang served as the Director of Sinopec Corp.'s Auditing
Bureau from February 2000 to January 2005. Mr. Wang served as
Supervisor of the First Session of the Supervisory Committee of Sinopec
Corp. from February 2000 to April 2003. In April 2003, Mr. Wang was
elected as Supervisor of the Second Session of the Supervisory
Committee of Sinopec Corp.
Zhang Baojian, 61, Supervisor of Sinopec Corp. Mr. Zhang graduated from
Shandong Institute of Finance and Economics in July 1968 specialising
in industrial accounting. He is a professor level senior accountant.
From October 1985 to April 1989, he was the Chief Accountant of Yueyang
Petrochemical General Plant. From April 1989 to October 1995, he served
as the chief accountant and Deputy Director of the Finance Department
of the former Sinopec Group Company. He acted concurrently as the Vice
Chairman of Sinopec Finance Company Limited from May 1993 to October
1995. From October 1995 to February 2000, he served as the Director of
the Finance Department of former Sinopec Group Company and Sinopec
Group Company, and concurrently served as Chairman of Sinopec Finance
Company Limited. From February 2000 to March 2003, Mr. Zhang served as
Director of the Finance & Planning Department of Sinopec Group Company
and concurrently as Vice Chairman of the Board of Directors of Sinopec
Finance Company Limited. From March 2003 to October 2004, he served as
Deputy Chief Accountant and concurrently the Director of the Finance &
Planning Department of Sinopec Group Company as well as Vice Chairman
of the Board of Directors of Sinopec Finance Company Limited. He served
as Vice Chairman of the Board of Directors of Sinopec Finance Company
Limited from October 2004 to July 2005. Mr. Zhang was elected as
Supervisor of the Second Session of the Supervisory Committee of
Sinopec Corp. in April 2003.
Kang Xianzhang, 57, Supervisor of Sinopec Corp. Mr. Kang graduated from
the Correspondence Teaching Department of the Party School of the
Beijing Municipal Party Committee in March 1988 specialising in
ideology politics (undergraduate course). He also graduated from the
Correspondence Teaching College of the Party School of the Central
Committee of the Communist Party of China in December 1992 specialising
in party and political affairs management (bachelor course). He is a
senior political worker. From June 1995 to August 1996, he was the
Deputy Director of the Organisation Department of the Communist Party
Committee of the Tibet Autonomous Region. From August 1996 to May 1997,
he was a senior researcher of the deputy director level in the Cadre
Allocation Bureau of the Organisation Department of the Central
Committee of the Communist Party of China. He acted as the Deputy
Secretary of the Communist Party Committee of the Coal Scientific
Research Institute of the Ministry of Coal Industry from May 1997 to
October 1998. From October 1998 to May 1999, he was a Supervisor of the
deputy director level in the Discipline Inspection Group and the
Supervisory Bureau of Sinopec Group Company, and acted as a Deputy
Director of the Supervisory Bureau of the same company from May 1999 to
March 2001. He was the Deputy Director of the Supervisory Department of
Sinopec Corp. from February 2000 to March 2001. He has been a Deputy
Head of the Discipline Inspection Group of the Leading Party Group and
Director of the Supervisory Bureau of Sinopec Group Company, as well as
Director of the Supervisory Department of Sinopec Corp. since March
2001. Mr. Kang was elected as Supervisor of the Second Session of the
Supervisory Committee of Sinopec Corp. in April 2003.
Cui Jianmin, 73, Independent Supervisor of Sinopec Corp. Mr. Cui
graduated from the Renmin University of China in October 1962
specialising in planning. Mr. Cui is a senior auditor, certified
accountant and has extensive management experience in the fields of
auditing and finance. From June 1983 to January 1985, Mr. Cui served as
Director of Industry and Transportation Bureau of National Audit Office
of PRC. From January 1985 to April 1995, Mr. Cui was Deputy
Auditor-General and Managing Deputy Auditor-General of National Audit
Office of PRC. From December 1995 to November 2004, Mr. Cui was
Chairman of the Chinese Certified Public Accountants Association. Since
October 2004, he has been the consultant for the Chinese Certified Tax
Agents Association. Mr. Cui served as Independent Supervisor in the
first session of Supervisory Committee of Sinopec Corp. from April 2000
to April 2003 and was elected Independent Supervisor of the Second
Session of Supervisory Committee of Sinopec Corp. in April 2003.
Li Yonggui, 65, Independent Supervisor of Sinopec Corp. Mr. Li
graduated from Shandong Institute of Finance and Economics in July 1965
specialising in finance. He is a senior economist and a certified
public accountant. He has long been engaged in tax management work and
has extensive management experience in the field of taxation. From
February 1985 to December 1988, he was Deputy Director of the Taxation
Bureau of the Ministry of Finance. He served as Chief Economist of the
State Administration of Taxation from December 1988 to April 1991. From
April 1991 to February 1995, he served as Deputy Director of the State
Administration of Taxation. He was Chief Economist of the State
Administration of Taxation of China from February 1995 to September
2001. Mr. Li has been Chairman of the Chinese Certified Tax Agents
Association since April 2000. Mr. Li was elected as Independent
Supervisor of the Second Session of the Supervisory Committee of
Sinopec Corp. in April 2003.
Su Wensheng, 49, Employee Representative Supervisor of Sinopec Corp.
Mr. Su graduated from Tsinghua University in December 1980 specialising
in environmental engineering. He obtained a master's degree in
management science and engineering from Petroleum University (Beijing)
in June 2000. He is a senior engineer. From September 1986 to November
1996, he was a Deputy Secretary of the Party Committee of the Beijing
Designing Institute under the former Sinopec Group Company, and acted
concurrently as the Secretary of the Disciplinary Committee of the same
Institute. From November 1996 to December 1998, he was the Secretary of
the Party Committee of Beijing Designing Institute of the former
Sinopec Group Company. Mr. Su has been the Director of the Ideology &
Politics Department and a Deputy Secretary of the Affiliated Party
Committee of Sinopec Group Company since December 1998. He has acted
concurrently as the Managing Deputy Secretary of the Party Working
Committee of the Western New Region Exploration Headquarter of Sinopec
Corp. since December 2001. Mr. Su was elected as Employee
Representative Supervisor of the Second Session of the Supervisory
Committee of Sinopec Corp. in April 2003.
Cui Guoqi, 52, Employee Representative Supervisor of Sinopec Corp. Mr.
Cui graduated from the Correspondence Teaching College of Renmin
University of China in December 1985 specialising in industrial
business management. In January 1997, he obtained a master's degree in
business management from the Business Management School of Renmin
University of China. He is a senior political worker. Mr. Cui has
served as Director of Sinopec Beijing Yanhua Petrochemical Company
Limited and has served concurrently as Chairman of the Trade Union of
Sinopec Beijing Yanshan Company since February 2000. Mr. Cui has been a
member of the Executive Committee of the All China Federation of Trade
Unions since December 2000, and a member of the Standing Committee of
the National Committee of the Union of Chinese Energy and Chemical
Industries since December 2001. In August 2005, Mr. Cui was elected as
Deputy Secretary of the CPC Committee of Sinopec Yansan Petrochemical
Co. Mr. Cui was elected Employee Representative Supervisor of the
Second Session of the Supervisory Committee of Sinopec Corp. in April
2003.
Zhang Xianglin, 59, Employee Representative Supervisor of Sinopec Corp.
Mr. Zhang graduated from Beijing Machinery College in July 1970
specialising in precision machine tools. He is a professor level senior
political worker. From January 2000 to March 2004, he served as
Director and Chairman of the Trade Union of Sinopec Yangzi
Petrochemical Company Limited. He has been Deputy Secretary of the
Communist Party Committee of Sinopec Yangzi Petrochemical Company
Limited since July 2002. Since March 2004, he has been secretary of the
Commission for Discipline Inspection and concurrently the convener of
the Supervisory Committee of Sinopec Yangzi Petrochemical Company
Limited. Mr. Zhang was elected Employee Representative Supervisor of
the Second Session of the Supervisory Committee of Sinopec Corp. in
April 2003.
Supervisors
Remuneration paid
Position with by the Company Shares Held at Sinopec
Name Gender Age Sinopec Corp. Term of Office in 2005 Whether paid from any shareholder
(RMB thousand) by the Company (as at 31 December)
2005 2004
Wang Zuoran M 55 Chairman of the 2003.4-2006.4 - NO 0 0
Supervisory Committee
--------------------------------------------------------------------------------------------------------------------------------
Zhang Chongqing M 61 Supervisor 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Wang Peijun M 60 Supervisor 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Wang Xianwen M 61 Supervisor 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Zhang Baojian M 61 Supervisor 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Kang Xianzhang M 57 Supervisor 2003.4-2006.4 - NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Cui Jianmin M 73 Independent Supervisor 2003.4-2006.4 24 (Fees) NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Li Yonggui M 65 Independent Supervisor 2003.4-2006.4 24 (Fees) NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Su Wensheng M 49 Employee Representative 2003.4-2006.4 202 YES 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
Cui Guoqi M 52 Employee Representative 2003.4-2006.4 154 YES 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
Zhang Xianglin M 59 Employee Representative 2003.4-2006.4 181 YES 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
Zhang Haichao M 48 Employee Representative 2003.4-2005.11 194 YES 0 0
Supervisor
--------------------------------------------------------------------------------------------------------------------------------
(3) Other Members of the Senior Management
Wang Tianpu, 43, President of Sinopec Corp. Mr. Wang graduated from
Qingdao Chemical Institute in July 1985 majoring in basic organics
chemistry. He obtained his MBA degree in Dalian Polytechnic University
in July 1996 and Ph.D. degree in Zhejiang University in August 2003
majoring in chemical engineering. He is a professor level senior
engineer and well-experienced in the production and management in
petrochemical industry. From March 1999 to February 2000, Mr. Wang was
Vice President of Qilu Petrochemical Company of Sinopec Group. From
February 2000 to September 2000, he was Vice President of Sinopec Corp.
Qilu Company. From September 2000 to August 2001, he was President of
Sinopec Corp. Qilu Company. Mr. Wang was Vice President of Sinopec
Corp. from August 2001 to April 2003 and was Senior Vice President of
Sinopec Corp. from April 2003 to March 2005. Mr. Wang has been
President of Sinopec Corp. since March 2005.
Zhang Jianhua, 41, Senior Vice President of Sinopec Corp. Mr. Zhang
graduated from East China Chemical Institute in July 1986 majoring in
petroleum refining, and obtained a masters degree from East China
University of Science and Technology in December 2000 majoring in
chemical engineering. He is a professor level senior engineer. From
April 1999 to February 2000, Mr. Zhang was Vice President of Shanghai
Gaoqiao Petrochemical Company of Sinopec Group. From February to
September 2000, he was Vice President of Sinopec Corp. Shanghai Gaoqiao
Company. He was President of Sinopec Corp. Shanghai Gaoqiao Company
from September 2000 to June 2003. Mr. Zhang served as Vice President of
Sinopec Corp. from April 2003 to March 2005. He was also the Director
General of Sinopec Production Management Dept. from November 2003 to
November 2005. He has been Senior Vice President of Sinopec Corp. since
March 2005.
Wang Zhigang, 48, Senior Vice President of Sinopec Corp. Mr. Wang
graduated from East China Petroleum Institute in January 1982 majoring
in oil production, and then obtained a masters degree from University
of Petroleum in June 2000 majoring in oil and gas development
engineering. He obtained a Ph.D degree from Geology and Geo-physics
Research Institute of the China Academy of Sciences in September 2003
majoring in geology. He is a professor level senior engineer. From
February to June 2000, he was Vice President of Sinopec Shengli
Oilfield Company Limited. From June 2000 to December 2001, Mr. Wang
served as Director and President of Sinopec Shengli Oilfield Company
Limited. He was appointed honorary Deputy Director-General of the
Economic and Trade Committee of Ningxia Hui Autonomous Region from
November 2001 to May 2003. He was Vice President of Sinopec Corp. from
April 2003 to March 2005. He was also the Director General of Sinopec
Exploration and Production Dept. since June 2003 to November 2005. He
has been Senior Vice President of Sinopec Corp. since March 2005.
Cai Xiyou, 44, Senior Vice President. Mr. Cai graduated from Fushun
Petroleum Institute in August 1982 majoring in petroleum refining
automation, and obtained a MBA degree from China Industry and Science
Dalian Training center in October 1990. He is a senior economist. From
June 1995 to May 1996, he was the Deputy General Manager of Jinzhou
Petrochemical Company of the former Sinopec Group Company. From May
1996 to December 1998, he was the Deputy General Manager of Dalian
Western Pacific Petrochemical Co., Ltd (WEPEC). From December 1998 to
June 2001, he was the Deputy General Manager of Sinopec Sales Company,
and from June 2001 to December 2001, he was the Executive Deputy
Manager of Sinopec Sales Company. He has been a Director of China
International United Petrochemical Company Limited (UNIPEC) since
December 2001 and has been the General Manager of UNIPEC from December
2001 to December 2005. He was Vice President of Sinopec Corp. from
April 2003 to November 2005. Mr. Cai has been Senior Vice President of
Sinopec Corp. since November 2005.
Dai Houliang, 42, Vice President of Sinopec Corp. Mr. Dai graduated
from Jiangsu Chemical Institute in July 1985, specialising in Organic
Chemical Engineering. From September 1997 to July 1999, he participated
in the MBA training program in Nanjing University. He is a professor
level senior engineer. He was Deputy Manager of Sinopec Yangzi
Petrochemical Company from December 1997 to April 1998. He served as a
Director and Deputy General Manager of Sinopec Yangzi Petrochemical
Co., Ltd. from April 1998 to July 2002. He was Vice Chairman and
President of Sinopec Yangzi Petrochemical Co., Ltd. and Director of
Sinopec Yangzi Petrochemical Company from July 2002 to December 2003.
He was Chairman and President of Sinopec Yangzi Petrochemical Co., Ltd.
and Chairman of Sinopec Yangzi Petrochemical Company from December 2003
to September 2005. He also served as the Chairman of BASF-YPC Company
Limited since December 2004. He has been the Deputy Chief Finance
Officer of Sinopec Corp. since September 2005. Mr. Dai has been Vice
President of Sinopec Corp. since November 2005.
Zhang Haichao, 48, Vice President of Sinopec Corp. Mr. Zhang graduated
from Zhoushan Commercial and Technical School in December 1979,
specialising in oil storage and transportation. He also graduated from
Jilin Petrochemical Institute in July 1985 specialising in recycling of
lubricating oil. From January 2001 to June 2002, he participated in the
business administration programme at Macau Science & Technology
University. He is an economist. He served as a Deputy General Manager
of Zhejiang Petroleum Company from March 1998 to September 1999. He
served as the General Manager of Zhejiang Petroleum Company from
September 1999 to February 2000, and has served as the Manager of
Sinopec Zhejiang Petroleum Company from February 2000 to September
2005. He has been Chairman of Sinopec-BP Zhejiang Petroleum Co., Ltd.
since April 2004. He was Secretary of the CPC Party Committee and Vice
Chairman and Deputy General Manager of Sinopec Oil Products Sales
Company from October 2004 to November 2005. He served as an employee
representative supervisor of the second session of the Supervisory
Committee of Sinopec Corp. from April 2003 to November 2005. He has
been Secretary of the CPC Party Committee, Chairman and General Manager
of Sinopec Oil Products Sales Company since November 2005. Mr. Zhang
has been Vice President of Sinopec Corp. since November 2005.
Chen Ge, 43, Secretary to the Board of Directors of Sinopec Corp. Mr.
Chen graduated from Daqing Petroleum Institute in July 1983 majoring in
petroleum refining, and then obtained an MBA degree from Dalian
University of Science and Technology in July 1996. He is a senior
economist. From July 1983 to February 2000, he worked in Beijing
Yanshan Petrochemical Company. From February 2000 to December 2001, he
was Deputy Director-General of Board Secretariat of Sinopec Corp. Mr.
Chen has been the Director General of the Board Secretariat since
December 2001. Mr. Chen has been the Secretary to the Board of
Directors of Sinopec Corp. since April 2003.
Other Members of the Senior Management
Remuneration paid
Position with by the Company Shares Held at Sinopec
Name Gender Age Sinopec Corp. Term of Office in 2005 Whether paid from any shareholder
(RMB thousand) by the Company (as at 31 December)
2005 2004
Wang Tianpu M 43 President 2005.3- 462 NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Zhang Jianhua M 41 Senior Vice President 2005.3- 261 NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Wang Zhigang M 48 Senior Vice President 2005.3- 261 NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Cai Xiyou M 44 Senior Vice President 2005.11- 260 NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Dai Houliang M 42 Vice President 2005.11- 219 NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Zhang Haichao M 48 Vice President 2005.11- 194 NO 0 0
--------------------------------------------------------------------------------------------------------------------------------
Chen Ge M 43 Secretary to the 2003.4-2006.4 202 NO 0 0
Board of Directors
--------------------------------------------------------------------------------------------------------------------------------
2 NEW APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND SENIOR
MANAGEMENT
The 16th Meeting of the Second Session of the Board of Directors of China
Petroleum & Chemical Corporation approved the resignation by Mr. Wang Jiming
as President of Sinopec Corp. and the resignation by Mr. Mou Shuling as
Senior Vice President of Sinopec Corp. for work-related reasons. Mr. Wang
Tianpu was appointed as President of Sinopec Corp. Mr. Zhang Jianhua and Mr.
Wang Zhigang were appointed as Senior Vice Presidents of Sinopec Corp. The
22nd Meeting of the Second Session of the Board of Directors of China
Petroleum & Chemical Corporation approved the resignation by Mr. Zhang
Jiaren as the Senior Vice President of Sinopec Corp., the resignation by Mr.
Cao Xianghong as the Senior Vice President of Sinopec Corp. and the
resignation by Mr. Li Chunguang as Vice President of Sinopec Corp. Mr. Cai
Xiyou was appointed as Senior Vice President of Sinopec Corp. Mr. Dai
Houliang and Mr. Zhang Haichao was appointed as Vice President of Sinopec
Corp.
3 INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER MEMBERS OF THE SENIOR
MANAGEMENT IN THE SHARE CAPITAL OF SINOPEC CORP.
Please refer to item 27 in the section of this report entitled "Significant
Events".
4 DIRECTORS' OR SUPERVISORS' INTERESTS IN CONTRACTS
None of the Directors nor the Supervisors of Sinopec Corp. had any
beneficial interests in any material contracts to which Sinopec Corp., its
holding company or any of its subsidiaries or fellow subsidiaries was a
party at 31 December 2005 or at any time during the year.
5 SALARIES OF DIRECTORS, SUPERVISORS AND THE SENIOR MANAGEMENT
Please refer to the relevant tables in this report in respect of the
directors, supervisors and senior management.
6 THE COMPANY'S EMPLOYEES
As at 31 December 2005, the Company had a total of 364,528 employees.
Breakdown according to operation department structures
Number of Percentage to
Employees Total Employees (%)
Exploration and Production 119,282 32.7
----------------------------------------------------------------------------
Refining 76,332 21.0
----------------------------------------------------------------------------
Marketing and Distribution 66,839 18.3
----------------------------------------------------------------------------
Chemicals 93,990 25.8
----------------------------------------------------------------------------
R&D and Others 8,085 2.2
----------------------------------------------------------------------------
Total 364,528 100
----------------------------------------------------------------------------
Breakdown according to functions
Number of Percentage to
Employees Total Employees (%)
Production 181,332 49.7
----------------------------------------------------------------------------
Sales 65,615 18.0
----------------------------------------------------------------------------
Technical 45,026 12.4
----------------------------------------------------------------------------
Finance 9,697 2.7
----------------------------------------------------------------------------
Administration 29,891 8.2
----------------------------------------------------------------------------
Others 32,967 9.0
----------------------------------------------------------------------------
Total 364,528 100
----------------------------------------------------------------------------
Breakdown according to education level
Number of Percentage to
Employees Total Employees (%)
Master's degree or above 3,958 1.1
----------------------------------------------------------------------------
University 52,796 14.5
----------------------------------------------------------------------------
Tertiary education 74,173 20.3
----------------------------------------------------------------------------
Technical/polytechnic school 37,743 10.4
----------------------------------------------------------------------------
Secondary, technical/polytechnic school
or below 195,858 53.7
----------------------------------------------------------------------------
Total 364,528 100
----------------------------------------------------------------------------
7 EMPLOYEES' PENSION SCHEME
Details of the employees' pension scheme of the Company are set out in note
36 to the financial statements prepared under IFRS which are contained in
this annual report.
As at 31 December 2005, the Company had a total of 112,000 retired
employees. All of them participate in the basic pension schemes
administered by provincial (autonomous regions and municipalities)
governments. Government-administered pension schemes are responsible for
the payments of basic pensions.
PRINCIPAL WHOLLY-OWNED AND NON WHOLLY-OWNED SUBSIDIARIES (CONTINUED)
At 31 December 2005, details of the principal wholly-owned and non wholly-owned
subsidiaries of the Company were as follows.
Percentage of
Registered shares held by Total
capital Sinopec Corp. assets Net profit Auditor Principal
Name of company RMB millions (%) RMB millions RMB millions activities
China Petrochemical 1,704 100.00 7,608 924 KPMG Trading of crude
International Company Huazhen oil and petro-
Limited chemical products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanshan 3,404 100.00 11,498 1,758 KPMG Manufacturing of
Petrochemical Company Huazhen chemical products
Limited
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company 1,700 100.00 25,649 1,716 KPMG Marketing and
Limited Huazhen distribution of
refined oil
products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield 29,000 100.00 52,734 25,747 KPMG Exploration and
Company Limited Huazhen production of crude
oil and natural gas
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petro- 2,253 50.00 4,226 (179) KPMG Manufacturing of
chemical Company Huazhen petroleum products,
Limited intermediate petro-
chemical products
and synthetic resin
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical 1,950 82.05 To be announced To be announced KPMG Manufacturing of
Company Limited Huazhen plastics and
intermediate
petrochemical
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petro- 7,200 55.56 27,102 1,705 KPMG Manufacturing of
chemical Company Limited Huazhen petroleum products,
synthetic fibres,
resin and inter-
mediate petro-
chemical products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang 1,154 79.73 To be announced To be announced KPMG Manufacturing of
Refining-Chemical Huazhen intermediate petro-
Company Limited chemical products
and petroleum
products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings HK$104 million 72.40 HK$2,837 million HK$169 millions KPMG Trading of
Limited petroleum products
and crude oil
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum 147 46.25 635 28 Wuhan Marketing and
Group Company Limited Zhonghuan distribution of
CPA Company refined oil
Limited products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix 519 40.72 1,396 33 KPMG Manufacturing of
Company Limited Huazhen chemical products
and petroleum
products
---------------------------------------------------------------------------------------------------------------------------------
Percentage of
Registered shares held by Total
capital Sinopec Corp. assets Net profit Auditor Principal
Name of company RMB millions (%) RMB millions RMB millions activities
Sinopec Yangzi Petro- 2,330 84.98 To be announced To be announced KPMG Manufacturing of
chemical Company Limited Huazhen petrochemical
products and
petroleum products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical 4,000 42.00 9,985 (954) KPMG Manufacturing and
Fibre Company Limited Huazhen sale of polyester
chips and polyester
fibres
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and 2,524 71.32 To be announced To be announced KPMG Manufacturing of
Chemical Company Limited Huazhen intermediate petro-
chemical products
and petroleum
products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum 875 70.85 To be announced To be announced KPMG Exploration andn
Company Limited Huazhen productio of crude
oil and natural gas
---------------------------------------------------------------------------------------------------------------------------------
Zhongyuan Petrochemical 2,400 93.51 2,113 226 KPMG Manufacturing of
Company Limited Huazhen petrochemical
products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) 830 60.00 735 48 KPMG Marketing and
Petroleum Marketing Company Huazhen distribution of
Limited refined oil
products
---------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) 800 60.00 725 49 KPMG Marketing and
Petroleum Company Limited Huazhen distribution of
refined oil
products
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Qingdao Refining 800 85.00 969 - KPMG Manufacturing of
and Chemical Co., Ltd. Huazhen intermediate
petrochemical
products and
petroleum products
---------------------------------------------------------------------------------------------------------------------------------
The above indicated total assets and net profit has been prepared in accordance
with the PRC Accounting Rules and Regulations. Except for Sinopec Kantons
Holdings Limited, which is incorporated in Bermuda, all of the above
wholly-owned and non wholly-owned subsidiaries are incorporated in the PRC. The
above wholly-owned and non wholly-owned subsidiaries are limited liability
companies. The Directors considered that it would be redundant to disclose the
particulars of all subsidiaries and, therefore, only those which have a
material impact on Sinopec Corp.'s results or net assets are set out above.
REPORT OF THE PRC AUDITORS
[KPMG GRAPHIC OMITTED] Huazhen
To the Shareholders of China Petroleum & Chemical Corporation:
We have audited the accompanying Company's consolidated balance sheet and
balance sheet at 31 December 2005, and the consolidated income statement and
profit appropriation statement, income statement and profit appropriation
statement, consolidated cash flow statement and cash flow statement for the
year then ended. The preparation of these financial statements is the
responsibility of the Company's management. Our responsibility is to express an
audit opinion on these financial statements based on our audit.
We conducted our audit in accordance with China's Independent Auditing
Standards of the Certified Public Accountants. Those standards require that we
plan and perform the audit to obtain reasonable assurance as to whether the
financial statements are free from material misstatement. An audit includes
examination, on a test basis, of evidence supporting the amounts and
disclosures in the financial statements, an assessment of the accounting
policies used and significant estimates made by the Company's management in the
preparation of the financial statements, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the above-mentioned financial statements comply with the
requirements of the Accounting Standards for Business Enterprises and the
Accounting Regulations for Business Enterprises issued by the Ministry of
Finance of the People's Republic of China and present fairly, in all material
respects, the Company's consolidated financial position and financial position
at 31 December 2005, and the consolidated results of operations, results of
operations, consolidated cash flows and cash flows for the year then ended.
KPMG Huazhen Certified Public Accountants
Registered in the People's
Republic of China
8/F, Office Tower E2 Wu Wei
Oriental Plaza Zhang Jingjing
No.1, East Chang An Ave.
Beijing, The People's Republic of China 31 March 2006
Post Code: 100738
(A) FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING RULES AND REGULATIONS
CONSOLIDATED BALANCE SHEET
at 31 December 2005
Note 2005 2004
RMB millions RMB millions
Assets
-------------------------------------------------------------------------------------------------------------------------------
Current assets
-------------------------------------------------------------------------------------------------------------------------------
Cash at bank and in hand 4 14,747 18,280
---------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 7,143 7,812
---------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 14,532 9,756
---------------------------------------------------------------------------------------------------------------------------
Other receivables 7 11,487 12,462
---------------------------------------------------------------------------------------------------------------------------
Advance payments 8 5,051 4,828
---------------------------------------------------------------------------------------------------------------------------
Inventories 9 88,936 63,918
---------------------------------------------------------------------------------------------------------------------------
Total current assets 141,896 117,056
-------------------------------------------------------------------------------------------------------------------------------
Long-term equity investments (Including equity investment differences of
RMB 2,003 million (2004: RMB 383 million)) 10 14,146 13,409
-------------------------------------------------------------------------------------------------------------------------------
Fixed assets
-------------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 572,465 519,462
---------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 265,611 243,510
---------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets before impairment losses 11 306,854 275,952
---------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 6,234 5,816
---------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 300,620 270,136
---------------------------------------------------------------------------------------------------------------------------
Construction materials 12 555 430
---------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 48,073 45,976
---------------------------------------------------------------------------------------------------------------------------
Total fixed assets 349,248 316,542
-------------------------------------------------------------------------------------------------------------------------------
Intangible assets and other assets
-------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 5,924 5,345
---------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 15 3,657 3,563
---------------------------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 9,581 8,908
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 16 5,701 4,166
-------------------------------------------------------------------------------------------------------------------------------
Total assets 520,572 460,081
-------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
-------------------------------------------------------------------------------------------------------------------------------
Current liabilities
-------------------------------------------------------------------------------------------------------------------------------
Short-term loans 17 16,124 26,723
---------------------------------------------------------------------------------------------------------------------------
Bills payable 18 23,243 30,797
---------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 19 52,967 23,792
---------------------------------------------------------------------------------------------------------------------------
Receipts in advance 20 14,086 8,605
---------------------------------------------------------------------------------------------------------------------------
Wages payable 3,436 3,223
---------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 1,052 1,101
---------------------------------------------------------------------------------------------------------------------------
Taxes payable 21 5,262 6,741
---------------------------------------------------------------------------------------------------------------------------
Other payables 22 1,830 1,519
---------------------------------------------------------------------------------------------------------------------------
Other creditors 23 24,161 26,459
---------------------------------------------------------------------------------------------------------------------------
Accrued expenses 24 512 652
---------------------------------------------------------------------------------------------------------------------------
Short-term debentures payable 27 9,921 --
---------------------------------------------------------------------------------------------------------------------------
Current portion of long-term loans 25 15,198 14,298
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 167,792 143,910
-------------------------------------------------------------------------------------------------------------------------------
Long-term liabilities
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans 26 103,492 94,087
---------------------------------------------------------------------------------------------------------------------------
Debentures payable 27 3,500 3,500
---------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 28 782 820
---------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 107,774 98,407
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 16 -- 198
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities 275,566 242,515
Minority interests 29,383 31,216
-------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
---------------------------------------------------------------------------------------------------------------------------
Share capital 29 86,702 86,702
---------------------------------------------------------------------------------------------------------------------------
Capital reserve 30 37,121 37,121
---------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public welfare fund of RMB 13,514 million
(2004: RMB 9,558 million)) 31 34,028 26,116
---------------------------------------------------------------------------------------------------------------------------
Unrecognised investment losses (594) (713)
---------------------------------------------------------------------------------------------------------------------------
Retained profits (Including dividend proposed after the balance sheet date in
respect of year 2005 of RMB 7,803 million (2004: RMB 6,936 million)) 40 58,366 37,124
-------------------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 215,623 186,350
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' funds 520,572 460,081
-------------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved by the Board of Directors on 31
March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director and Head of Accounting
(Authorised Chief Financial Division
representative) Officer
The notes on pages 92 to 122 form part of these financial statements.
BALANCE SHEET
at 31 December 2005
Note 2005 2004
RMB millions RMB millions
Assets
-------------------------------------------------------------------------------------------------------------------------------
Current assets
-------------------------------------------------------------------------------------------------------------------------------
Cash at bank and in hand 4 5,124 6,299
---------------------------------------------------------------------------------------------------------------------------
Bills receivable 5 1,334 1,597
---------------------------------------------------------------------------------------------------------------------------
Trade accounts receivable 6 8,826 8,245
---------------------------------------------------------------------------------------------------------------------------
Other receivables 7 9,604 19,625
---------------------------------------------------------------------------------------------------------------------------
Advance payments 8 4,118 4,358
---------------------------------------------------------------------------------------------------------------------------
Inventories 9 49,862 33,951
---------------------------------------------------------------------------------------------------------------------------
Total current assets 78,868 74,075
-------------------------------------------------------------------------------------------------------------------------------
Long-term equity investments (Including equity investment differences of
RMB 2,017 million (2004: RMB 400 million)) 10 133,203 124,211
-------------------------------------------------------------------------------------------------------------------------------
Fixed assets
---------------------------------------------------------------------------------------------------------------------------
Fixed assets, at cost 294,206 271,120
---------------------------------------------------------------------------------------------------------------------------
Less: Accumulated depreciation 123,747 113,572
---------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets before impairment losses 11 170,459 157,548
---------------------------------------------------------------------------------------------------------------------------
Less: Provision for impairment losses on fixed assets 11 4,191 4,038
---------------------------------------------------------------------------------------------------------------------------
Net book value of fixed assets 166,268 153,510
---------------------------------------------------------------------------------------------------------------------------
Construction materials 12 555 93
---------------------------------------------------------------------------------------------------------------------------
Construction in progress 13 38,937 28,779
---------------------------------------------------------------------------------------------------------------------------
Total fixed assets 205,760 182,382
-------------------------------------------------------------------------------------------------------------------------------
Intangible assets and other assets
-------------------------------------------------------------------------------------------------------------------------------
Intangible assets 14 4,238 4,261
---------------------------------------------------------------------------------------------------------------------------
Long-term deferred expenses 15 2,656 2,530
---------------------------------------------------------------------------------------------------------------------------
Total intangible assets and other assets 6,894 6,791
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets 16 3,203 3,708
-------------------------------------------------------------------------------------------------------------------------------
Total assets 427,928 391,167
-------------------------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' funds
-------------------------------------------------------------------------------------------------------------------------------
Current liabilities
-------------------------------------------------------------------------------------------------------------------------------
Short-term loans 17 6,940 16,254
---------------------------------------------------------------------------------------------------------------------------
Bills payable 18 19,077 21,589
---------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 19 28,833 21,137
---------------------------------------------------------------------------------------------------------------------------
Receipts in advance 20 12,491 6,106
---------------------------------------------------------------------------------------------------------------------------
Wages payable 2,525 1,854
---------------------------------------------------------------------------------------------------------------------------
Staff welfare payable 514 498
---------------------------------------------------------------------------------------------------------------------------
Taxes payable 21 2,075 3,170
---------------------------------------------------------------------------------------------------------------------------
Other payables 22 527 442
---------------------------------------------------------------------------------------------------------------------------
Other creditors 23 22,914 34,156
---------------------------------------------------------------------------------------------------------------------------
Accrued expenses 24 173 430
---------------------------------------------------------------------------------------------------------------------------
Short-term debentures payable 27 9,921 --
---------------------------------------------------------------------------------------------------------------------------
Current portion of long-term loans 25 12,144 11,506
---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 118,134 117,142
-------------------------------------------------------------------------------------------------------------------------------
Long-term liabilities
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans 26 89,113 82,332
---------------------------------------------------------------------------------------------------------------------------
Debentures payable 27 3,500 3,500
---------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 28 315 438
---------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 92,928 86,270
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities 16 -- 16
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities 211,062 203,428
-------------------------------------------------------------------------------------------------------------------------------
Shareholders' funds
-------------------------------------------------------------------------------------------------------------------------------
Share capital 29 86,702 86,702
---------------------------------------------------------------------------------------------------------------------------
Capital reserve 30 37,797 37,797
---------------------------------------------------------------------------------------------------------------------------
Surplus reserves (Including statutory public welfare fund of
RMB 13,514 million (2004: RMB 9,558 million)) 31 34,028 26,116
---------------------------------------------------------------------------------------------------------------------------
Retained profits (Including dividend proposed after the balance sheet date
in respect of year 2005 of RMB 7,803 million (2004: RMB 6,936 million)) 40 58,339 37,124
---------------------------------------------------------------------------------------------------------------------------
Total shareholders' funds 216,866 187,739
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' funds 427,928 391,167
-------------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved by the Board of Directors on 31
March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director and Head of Accounting
(Authorised Chief Financial Division
representative) Officer
The notes on pages 92 to 122 form part of these financial statements.
CONSOLIDATED INCOME STATEMENT AND PROFIT APPROPRIATION STATEMENT for the year
ended 31 December 2005
Note 2005 2004
RMB millions RMB millions
Income from principal operations 32 799,115 590,632
-------------------------------------------------------------------------------------------------------------------------------
Less: Cost of sales 668,249 459,207
-------------------------------------------------------------------------------------------------------------------------------
Sales taxes and surcharges 33 17,152 16,203
-------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 113,714 115,222
-------------------------------------------------------------------------------------------------------------------------------
Add: Profit from other operations 839 1,102
-------------------------------------------------------------------------------------------------------------------------------
Less: Selling expenses 22,690 19,477
-------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 23,330 23,167
-------------------------------------------------------------------------------------------------------------------------
Financial expenses 34 5,266 4,331
-------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 35 6,411 6,396
-------------------------------------------------------------------------------------------------------------------------
Operating profit 56,856 62,953
-------------------------------------------------------------------------------------------------------------------------------
Add: Investment income 36 813 1,088
-------------------------------------------------------------------------------------------------------------------------------
Subsidy income 37 9,415 --
-------------------------------------------------------------------------------------------------------------------------
Non-operating income 367 665
-------------------------------------------------------------------------------------------------------------------------
Less: Non-operating expenses 38 5,969 11,171
-------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 61,482 53,535
-------------------------------------------------------------------------------------------------------------------------------
Less: Income tax 39 18,903 16,060
-------------------------------------------------------------------------------------------------------------------------------
Minority interests 2,902 5,670
-------------------------------------------------------------------------------------------------------------------------
Add: (Reversal of) unrecognised investment losses (119) 470
-------------------------------------------------------------------------------------------------------------------------------
Net profit 39,558 32,275
-------------------------------------------------------------------------------------------------------------------------------
Add: Retained profits at the beginning of the year 37,124 19,975
-------------------------------------------------------------------------------------------------------------------------------
Distributable profits 76,682 52,250
-------------------------------------------------------------------------------------------------------------------------------
Less: Transfer to statutory surplus reserve 31 3,956 3,228
-------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 31 3,956 3,228
-------------------------------------------------------------------------------------------------------------------------
Distributable profits to shareholders 68,770 45,794
-------------------------------------------------------------------------------------------------------------------------------
Less: Distribution of ordinary shares' final dividend 40 6,936 5,202
-------------------------------------------------------------------------------------------------------------------------------
Distribution of ordinary shares' interim dividend 40 3,468 3,468
-------------------------------------------------------------------------------------------------------------------------
Retained profits at the end of the year (Including dividend proposed after
the balance sheet date in respect of year 2005 of RMB 7,803 million
(2004: RMB 6,936 million)) 40 58,366 37,124
-------------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved by the Board of Directors on 31
March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director and Head of Accounting
(Authorised Chief Financial Division
representative) Officer
The notes on pages 92 to 122 form part of these financial statements.
INCOME STATEMENT AND PROFIT APPROPRIATION STATEMENT
for the year ended 31 December 2005
Note 2005 2004
RMB millions RMB millions
Income from principal operations 32 532,621 397,789
-------------------------------------------------------------------------------------------------------------------------------
Less: Cost of sales 480,866 336,089
-------------------------------------------------------------------------------------------------------------------------------
Sales taxes and surcharges 33 11,249 10,094
-------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 40,506 51,606
-------------------------------------------------------------------------------------------------------------------------------
Add: Profit from other operations 512 108
-------------------------------------------------------------------------------------------------------------------------------
Less: Selling expenses 14,672 13,055
-------------------------------------------------------------------------------------------------------------------------------
Administrative expenses 14,573 15,523
-------------------------------------------------------------------------------------------------------------------------
Financial expenses 34 3,539 2,770
-------------------------------------------------------------------------------------------------------------------------
Exploration expenses, including dry holes 35 5,052 4,951
-------------------------------------------------------------------------------------------------------------------------
Operating profit 3,182 15,415
-------------------------------------------------------------------------------------------------------------------------------
Add: Investment income 36 51,646 39,374
-------------------------------------------------------------------------------------------------------------------------------
Subsidy income 37 6,584 --
-------------------------------------------------------------------------------------------------------------------------
Non-operating income 224 377
-------------------------------------------------------------------------------------------------------------------------
Less: Non-operating expenses 38 3,967 7,879
-------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 57,669 47,287
-------------------------------------------------------------------------------------------------------------------------------
Less: Income tax 39 18,138 14,769
-------------------------------------------------------------------------------------------------------------------------------
Net profit 39,531 32,518
-------------------------------------------------------------------------------------------------------------------------------
Add: Retained profits at the beginning of the year 37,124 19,732
-------------------------------------------------------------------------------------------------------------------------------
Distributable profits 76,655 52,250
-------------------------------------------------------------------------------------------------------------------------------
Less: Transfer to statutory surplus reserve 31 3,956 3,228
-------------------------------------------------------------------------------------------------------------------------------
Transfer to statutory public welfare fund 31 3,956 3,228
-------------------------------------------------------------------------------------------------------------------------
Distributable profits to shareholders 68,743 45,794
-------------------------------------------------------------------------------------------------------------------------------
Less: Distribution of ordinary shares' final dividend 40 6,936 5,202
-------------------------------------------------------------------------------------------------------------------------------
Distribution of ordinary shares' interim dividend 40 3,468 3,468
-------------------------------------------------------------------------------------------------------------------------
Retained profits at the end of the year (Including dividend proposed after the balance
sheet date in respect of year 2005 of RMB 7,803 million (2004: RMB 6,936 million)) 40 58,339 37,124
-------------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved by the Board of Directors on 31
March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director and Head of Accounting
(Authorised Chief Financial Division
representative) Officer
The notes on pages 92 to 122 form part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2005
Note 2005 2004
RMB millions RMB millions
Cash flows from operating activities
-------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 965,505 712,682
---------------------------------------------------------------------------------------------------------------------------
Rentals received 387 368
---------------------------------------------------------------------------------------------------------------------------
Government grants received 9,415 --
---------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 3,572 3,640
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 978,879 716,690
---------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (790,429) (549,408)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (5,629) (6,871)
---------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (18,710) (16,304)
---------------------------------------------------------------------------------------------------------------------------
Value added tax paid (27,928) (25,961)
---------------------------------------------------------------------------------------------------------------------------
Income tax paid (20,998) (16,858)
---------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (17,288) (16,045)
---------------------------------------------------------------------------------------------------------------------------
Other cash paid relating to operating activities (12,934) (15,104)
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (893,916) (646,551)
---------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities (a) 84,963 70,139
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
-------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of investments 417 186
---------------------------------------------------------------------------------------------------------------------------
Dividends received 668 322
---------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 510 315
---------------------------------------------------------------------------------------------------------------------------
Cash received on maturity of time deposits with financial institutions 1,462 2,217
---------------------------------------------------------------------------------------------------------------------------
Other cash received relating to investing activities 386 359
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 3,443 3,399
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets (65,031) (66,693)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets of jointly controlled entities (2,474) (6,035)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for purchase of investments (3,605) (1,225)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for purchase of time deposits with financial institutions (565) (1,932)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of operating assets and related liabilities from Sinopec Group Company (3,128) (3,652)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of subsidiaries (4,324) --
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (79,127) (79,537)
---------------------------------------------------------------------------------------------------------------------------
Net cash flow from investing activities (75,684) (76,138)
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
-------------------------------------------------------------------------------------------------------------------------------
Cash received from contribution from minority shareholders 129 1,008
---------------------------------------------------------------------------------------------------------------------------
Cash received from issuance of corporate bonds, net of issuing expenses 9,875 3,472
---------------------------------------------------------------------------------------------------------------------------
Cash received from borrowings 550,557 391,832
---------------------------------------------------------------------------------------------------------------------------
Cash received from borrowings of jointly controlled entities 3,954 3,014
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 564,515 399,326
---------------------------------------------------------------------------------------------------------------------------
Cash repayments of borrowings (557,432) (377,855)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, profits distribution or interest expenses (17,365) (13,538)
---------------------------------------------------------------------------------------------------------------------------
Dividends paid to minority shareholders by subsidiaries (1,611) (775)
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (576,408) (392,168)
---------------------------------------------------------------------------------------------------------------------------
Net cash flow from financing activities (11,893) 7,158
-------------------------------------------------------------------------------------------------------------------------------
Effects of changes in foreign exchange rate (22) 1
-------------------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (b) (2,636) 1,160
-------------------------------------------------------------------------------------------------------------------------------
The notes on pages 92 to 122 form part of these financial statements.
Note 2005 2004
RMB millions RMB millions
(a) Reconciliation of net profit to cash flows from operating activities:
-------------------------------------------------------------------------------------------------------------------------------
Net profit 39,558 32,275
---------------------------------------------------------------------------------------------------------------------------
Add:(Reversal of)/provision for allowance for doubtful accounts (144) 2,050
---------------------------------------------------------------------------------------------------------------------------
Provision for diminution in value of inventories 82 433
----------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 30,845 30,766
----------------------------------------------------------------------------------------------------------------------
Amortisation of intangible assets 986 476
----------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 1,851 4,628
----------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 77 88
----------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 2,202 3,989
----------------------------------------------------------------------------------------------------------------------
Financial expenses 5,266 4,331
----------------------------------------------------------------------------------------------------------------------
Dry hole costs 2,992 2,976
----------------------------------------------------------------------------------------------------------------------
Investment income (890) (843)
----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities (less: assets) (1,733) (2,439)
----------------------------------------------------------------------------------------------------------------------
Increase in inventories (25,078) (16,927)
----------------------------------------------------------------------------------------------------------------------
Increase in operating receivables (2,256) (4,245)
----------------------------------------------------------------------------------------------------------------------
Increase in operating payables 28,303 6,911
----------------------------------------------------------------------------------------------------------------------
Minority interests 2,902 5,670
----------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 84,963 70,139
---------------------------------------------------------------------------------------------------------------------------
(b) Net (decrease)/increase in cash and cash equivalents:
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 13,745 16,381
---------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the year 16,381 15,221
---------------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (2,636) 1,160
---------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved by the Board of Directors on 31
March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director and Head of Accounting
(Authorised Chief Financial Division
representative) Officer
The notes on pages 92 to 122 form part of these financial statements.
CASH FLOW STATEMENT
for the year ended 31 December 2005
Note 2005 2004
RMB millions RMB millions
Cash flows from operating activities:
-------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of goods and rendering of services 645,438 474,149
---------------------------------------------------------------------------------------------------------------------------
Rentals received 273 201
---------------------------------------------------------------------------------------------------------------------------
Government grants received 6,584 --
---------------------------------------------------------------------------------------------------------------------------
Other cash received relating to operating activities 2,929 2,760
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 655,224 477,110
---------------------------------------------------------------------------------------------------------------------------
Cash paid for goods and services (568,978) (382,856)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for operating leases (4,991) (5,391)
---------------------------------------------------------------------------------------------------------------------------
Cash paid to and on behalf of employees (9,946) (8,539)
---------------------------------------------------------------------------------------------------------------------------
Value added tax paid (13,623) (13,460)
---------------------------------------------------------------------------------------------------------------------------
Income tax paid (3,396) (4,474)
---------------------------------------------------------------------------------------------------------------------------
Taxes paid other than value added tax and income tax (11,372) (10,319)
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (628,537) (442,890)
---------------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities (a) 26,687 34,220
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
-------------------------------------------------------------------------------------------------------------------------------
Cash received from sale of investments 102 62
---------------------------------------------------------------------------------------------------------------------------
Dividends received 36,700 6,379
---------------------------------------------------------------------------------------------------------------------------
Net cash received from sale of fixed assets and intangible assets 169 178
---------------------------------------------------------------------------------------------------------------------------
Cash received on maturity of time deposits with financial institutions 184 605
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 37,278 7,368
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of fixed assets and intangible assets (44,167) (41,477)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for purchase of investments (6,927) (3,156)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for purchase of time deposits with financial institutions (46) (617)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of operating assets and related liabilities from Sinopec Group Company (3,128) (3,652)
---------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisition of subsidiaries (4,324) --
---------------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (58,592) (48,902)
-------------------------------------------------------------------------------------------------------------------------------
Net cash flow from investing activities (21,314) (41,534)
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
-------------------------------------------------------------------------------------------------------------------------------
Cash received from issuance of corporate bonds, net of issuing expenses 9,875 3,472
-----------------------------------------------------------------------------------------------------------------------
Cash received from borrowings 348,381 255,218
-----------------------------------------------------------------------------------------------------------------------
Sub-total of cash inflows 358,256 258,690
-----------------------------------------------------------------------------------------------------------------------
Cash repayments of borrowings (349,794) (239,933)
-----------------------------------------------------------------------------------------------------------------------
Cash paid for dividends, profits distribution or interest expenses (14,872) (11,737)
-----------------------------------------------------------------------------------------------------------------------
Sub-total of cash outflows (364,666) (251,670)
-----------------------------------------------------------------------------------------------------------------------
Net cash flow from financing activities (6,410) 7,020
-------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (b) (1,037) (294)
-------------------------------------------------------------------------------------------------------------------------------
The notes on pages 92 to 122 form part of these financial statements.
CASH FLOW STATEMENT
for the year ended 31 December 2005
notes to the cash flow statement
2005 2004
RMB millions RMB millions
(a) Reconciliation of net profit to cash flow from operating activities:
-------------------------------------------------------------------------------------------------------------------------------
Net profit 39,531 32,518
---------------------------------------------------------------------------------------------------------------------------
Add:(Reversal of)/provision for allowance for doubtful accounts (448) 2,159
---------------------------------------------------------------------------------------------------------------------------
(Reversal of)/provision for diminution in value of inventories (17) 190
-----------------------------------------------------------------------------------------------------------------------
Depreciation of fixed assets 15,186 13,349
-----------------------------------------------------------------------------------------------------------------------
Amortisation of intangible assets 755 346
-----------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 1,082 3,417
-----------------------------------------------------------------------------------------------------------------------
Impairment losses on long-term investments 14 --
-----------------------------------------------------------------------------------------------------------------------
Net loss on disposal of fixed assets and intangible assets 1,681 2,555
-----------------------------------------------------------------------------------------------------------------------
Financial expenses 3,539 2,770
-----------------------------------------------------------------------------------------------------------------------
Dry hole costs 2,271 2,184
-----------------------------------------------------------------------------------------------------------------------
Investment income (34,690) (27,948)
-----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities (less: assets) 489 (2,198)
-----------------------------------------------------------------------------------------------------------------------
Increase in inventories (16,356) (6,523)
-----------------------------------------------------------------------------------------------------------------------
Decrease/(increase) in operating receivables 12,853 (756)
-----------------------------------------------------------------------------------------------------------------------
Increase in operating payables 797 12,157
-----------------------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 26,687 34,220
---------------------------------------------------------------------------------------------------------------------------
(b) Net decrease in cash and cash equivalents:
-------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year 5,014 6,051
---------------------------------------------------------------------------------------------------------------------------
Less: Cash and cash equivalents at the beginning of the year 6,051 6,345
---------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,037) (294)
---------------------------------------------------------------------------------------------------------------------------
These financial statements have been approved by the Board of Directors on 31
March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren Liu Yun
Chairman President Director and Head of Accounting
(Authorised Chief Financial Division
representative) Officer
The notes on pages 92 to 122 form part of these financial statements.
NOTES ON THE FINANCIAL STATEMENTS
for the year ended 31 December 2005
1 STATUS OF THE COMPANY
China Petroleum & Chemical Corporation (the "Company") was established on
25 February 2000 as a joint stock limited company.
According to the State Council's approval to the "Preliminary Plan for the
Reorganisation of China Petrochemical Corporation" ( the "Reorganisation"),
the Company was established by China Petrochemical Corporation ("Sinopec
Group Company"), which transferred its core businesses together with the
related assets and liabilities at 30 September 1999 to the Company. Such
assets and liabilities had been valued jointly by China United Assets
Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets
Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation ("registered valuers"). The net asset value was determined at
RMB 98,249,084,000. The valuation was reviewed and approved by the Ministry
of Finance (the "MOF") (Cai Ping Zi [2000] No. 20 "Comments on the Review
of the Valuation Regarding the Formation of a Joint Stock Limited Company
by China Petrochemical Corporation").
In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 "Reply to the
Issue Regarding Management of State-Owned Equity by China Petroleum and
Chemical Corporation" issued by the MOF, 68.8 billion domestic state-owned
shares with a par value of RMB 1.00 each were issued to Sinopec Group
Company, the amount of which is equivalent to 70% of the above net asset
value transferred from Sinopec Group Company to the Company in connection
with the Reorganisation.
Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 "Reply on the
Formation of China Petroleum and Chemical Corporation", the Company
obtained the approval from the State Economic and Trade Commission on 21
February 2000 for the formation of a joint stock limited company.
The Company took over the exploration, development and production of crude
oil and natural gas, refining, chemicals and related sales and marketing
business of Sinopec Group Company after the establishment of the Company.
Pursuant to the resolution passed at the Extraordinary General Meeting held
on 24 August 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from
Sinopec Group Company for a consideration of RMB 6.45 billion.
Pursuant to the resolution passed at the Board of Directors' meeting held
on 28 October 2003, the Company acquired the principal assets and
associated liabilities related to the 380 kiloton ethylene production and
distribution equipment from Sinopec Group Maoming Petrochemical Company
("Sinopec Maoming"), for a consideration of RMB 3.3 billion (hereinafter
referred to as the "Acquisition of Ethylene Assets").
Pursuant to the resolution passed at the Board of Directors' meeting held
on 29 December 2003, the Company acquired the entire operating assets and
liabilities of Tahe Oilfield Petrochemical Factory ("Tahe Petrochemical")
and Xi'an Petrochemical Main Factory ("Xi'an Petrochemical") from Sinopec
Group Company, for considerations of RMB 0.14 billion and RMB 0.22 billion,
respectively (hereinafter referred to as the "Acquisition of Refining
Assets").
Pursuant to the resolutions passed at the Extraordinary General Meeting
held on 21 December 2004, the Company acquired certain operating assets and
associated liabilities of refining, petrochemicals, catalysts and gas
stations (the "Acquisition of Acquired Assets") from Sinopec Group Company
for a consideration of RMB 5.36 billion. In connection with these
acquisitions, the Group disposed of certain assets and liabilities related
to its oilfield downhole operation (the "Disposal of Downhole Assets") to
Sinopec Group Company for a consideration receivable of RMB 1.71 billion,
resulting in a net consideration of RMB 3.65 billion payable to Sinopec
Group Company.
2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted by the Company and its
subsidiaries ("the Group") are in conformity with the Accounting Standards
for Business Enterprises and "Accounting Regulations for Business
Enterprises" and other relevant regulations issued by the Ministry of
Finance of the PRC.
(a) Accounting year
The accounting year of the Group is from 1 January to 31 December.
(b) Basis of consolidation
The Group prepared the consolidated financial statements according to
"Accounting Regulations for Business Enterprises" and Cai Kuai Zi
[1995] No.11 "Provisional regulations on consolidated financial
statements" issued by the MOF.
The consolidated financial statements include the financial statements
of the Company and all of its principal subsidiaries. A subsidiary is a
company held by the Company directly or indirectly, of more than 50%
(excluding 50%) of the equity interest, or the Company holds less than
50% of the equity interest of a company but has effective controlling
power. The consolidated income statement of the Company only includes
the results of the subsidiaries during the period when the Company
holds more than 50% of the equity interests or holds less than 50% of
equity interest but has effective controlling power. The effect of
minority interests on equity and profit/loss attributable to minority
shareholders are separately shown in the consolidated financial
statements. For those subsidiaries whose assets and results of
operation are not significant and have no significant effect on the
Group's consolidated financial statements, the Company does not
consolidate these subsidiaries, but accounts for under the equity
method in the long-term equity investments.
Where the accounting policies adopted by the subsidiaries are different
from the policies adopted by the Company, the financial statements of
the subsidiaries have been adjusted in accordance with the accounting
policies adopted by the Company on consolidation. All significant
inter-company balances and transactions, and any unrealised gains
arising from inter-company transactions, have been eliminated on
consolidation.
For those jointly controlled entities which the Company has joint
control with other investors under contractual arrangement, the Company
consolidates their assets, liabilities, revenues, costs and expenses
based on the proportionate consolidation method according to its
percentage of holding of equity interest in those entities in the
consolidated financial statements.
(c) Basis of preparation and measurement basis
The financial statements of the Group have been prepared on an accrual
basis under the historical costs convention, unless otherwise stated.
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Reporting currency and translation of foreign currencies The Group's
reporting currency is Renminbi.
Foreign currency transactions during the year are translated into
Renminbi at exchange rates quoted by the People's Bank of China ("PBOC
rates") prevailing on the transaction dates. Foreign currency monetary
assets and liabilities are translated into Renminbi at the PBOC rates
at the balance sheet date. Exchange gains and losses on foreign
currency translation, except for those directly relating to the
construction of fixed assets (see note 2(i)), are dealt with in the
income statement.
The results of overseas subsidiaries are translated into Renminbi at
the annual average PBOC rates. The balance sheet items are translated
into Renminbi at the PBOC rates at the balance sheet date. The
resulting exchange gains or losses are accounted for as foreign
currency exchange differences.
(e) Cash equivalents
Cash equivalents held by the Group are short-term and highly liquid
investments which are readily convertible into known amounts of cash
and are subject to an insignificant risk of change in value.
(f) Allowance for doubtful accounts
Trade accounts receivable showing signs of uncollectibility are
identified individually and allowance is then made based on the
probability of being uncollectible. In respect of trade accounts
receivable showing no sign of uncollectibility, allowance is made with
reference to the ageing analysis and management's estimation based on
past experience. Allowances for other receivables are determined based
on the nature and corresponding collectibility. Specific approval from
management is required for allowances made in respect of significant
doubtful accounts.
(g) Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realisable value.
Inventories are measured at their actual cost upon acquisition. The
cost of inventories is calculated using the weighted average method. In
addition to the purchase cost of raw material, work in progress and
finished goods include direct labour and an appropriate allocation of
manufacturing overheads.
Any excess of the cost over the net realisable value of each item of
inventories is recognised as a provision for diminution in the value of
inventories. Net realisable value is the estimated selling price in the
normal course of business less the estimated costs to completion and
the estimated expenses and related taxes to make the sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence. Consumables are expensed when being consumed.
Inventories are recorded by perpetual method.
(h) Long-term equity investments
Where the Group has the power to control, jointly control or exercise
significant influence over an investee enterprise, the investment is
accounted for under the equity method whereby the investment is
initially recorded at cost and adjusted thereafter for any post
acquisition change in the Group's share of the shareholders' funds in
the investee enterprise.
Equity investment dfference, which is the difference between the
initial investment cost and the Group's share of shareholders' funds of
the investee enterprise, is accounted for as follows:
-- Any excess of the initial investment cost over the share of
shareholders' funds of the investee enterprise is amortised on a
straight-line basis. The amortisation period is determined
according to the investment period as stipulated in the relevant
agreement, or not more than 10 years if the investment period is
not specified in the agreement. The unamortised balance is included
in long-term equity investments at the year end.
-- Any shortfall of the initial investment cost over the share of
shareholders' funds of the investee is recognised in capital
reserve - reserve for equity investment acquired after the issuance
of Cai Kuai [2003] No.10 "Questions and answers on implementing
Accounting Regulations for Business Enterprises and related
accounting standards (II)". If the investment was acquired before
the issuance of Cai Kuai [2003] No.10 "Questions and answers on
implementing Accounting Regulations for Business Enterprises and
related accounting standards (II)", such shortfall is amortised on
a straight-line basis over the investment period as stipulated in
the relevant agreement, or 10 years if the investment period is not
specified in the agreement. The unamortised balance is included in
long-term equity investments at the year end.
Where the Group does not control, jointly control or exercise
significant influence over an investee enterprise, the investment is
accounted for under the cost method, stating it at the initial
investment cost. Investment income is recognised when the investee
enterprise declares a cash dividend or distributes profits.
Upon the disposal or transfer of long-term equity investments, the
difference between the proceeds received and the carrying amount of the
investments is recognised in the income statement.
The Group makes provision for impairment losses on long-term equity
investments (see note 2(w)).
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Fixed assets and construction in progress
Fixed assets represent the assets held by the Group for use in the
production of goods and for administrative purposes with useful life
over 1 year and comparatively high unit value.
Fixed assets are stated in the balance sheet at cost or revalued amount
less accumulated depreciation and impairment losses (see note 2(w)).
Construction in progress is stated in the balance sheet at cost or
revalued amount less impairment losses (see note 2(w)). The revalued
amount represents the amount of assets, which is determined by
revaluation carried out in accordance with the relevant rules and
regulations.
All direct and indirect costs related to the purchase or construction
of fixed assets, incurred before the assets are ready for their
intended uses, are capitalised as construction in progress. Those costs
include borrowing costs (including foreign exchange differences arising
from the loan principal and the related interest) on specific
borrowings for the construction of the fixed assets during the
construction period.
Construction in progress is transferred to fixed assets when the asset
is ready for its intended use. No depreciation is provided against
construction in progress.
Fixed assets of the Group are depreciated using the straight-line
method over their estimated useful lives. The estimated useful lives
and the estimated rate of residual values adopted for respective
classes of fixed assets are as follows:
Estimated Estimated rate of
useful lives residual value
Land and buildings 15-45 years 3%-5%
----------------------------------------------------------------------------------------------------------
Oil and gas properties 10-14 years 0%-3%
----------------------------------------------------------------------------------------------------------
Plant, machinery, equipment, vehicles and others 4-18 years 3%
----------------------------------------------------------------------------------------------------------
Oil depots and storage tanks 8-14 years 3%
----------------------------------------------------------------------------------------------------------
Service stations 25 years 3%-5%
----------------------------------------------------------------------------------------------------------
(j) Oil and gas properties
Costs of development wells and the related support equipment are
capitalised. The cost of exploratory wells is initially capitalised as
construction in progress pending determination of whether the well has
found proved reserves. Exploratory well costs are charged to expenses
upon the determination that the well has not found proved reserves.
However, in the absence of a determination of the discovery of proved
reserves, exploratory well costs are not carried as an asset for more
than one year following completion of drilling. If, after one year has
passed, a determination of the discovery of proved reserves cannot be
made, the exploratory well costs are impaired and charged to expense.
All other exploration costs, including geological and geophysical
costs, are charged to the income statement in the period as incurred.
(k) Intangible assets
Intangible assets are stated in the balance sheet at cost or revalued
amount less accumulated amortisation and provision for impairment
losses (see note 2(w)). Amortisation is provided on a straight-line
basis. The amortisation period is the shorter of the contracted
beneficial period and the effective period stipulated by law.
Amortisation is provided over 10 years if it is not specified in
contracts or stipulated by law.
Intangible assets include exploration and production right. Exploration
and production right are amortised on a straight-line basis over the
average period of the production rights of the related oil fields.
(l) Pre-operating expenditures
Except for the acquisition and constructions of fixed assets, all
expenses incurred during the start-up period are aggregated in
long-term deferred expenses and then fully charged to the income
statement in the month operations commence.
(m) Debentures payable
Debentures payable is stated in the balance sheet based on the proceeds
received upon issuance. Interest expenses are calculated based on
actual interest rate.
(n) Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum
and chemical products and all other items are recorded when the
customer accepts the goods and the significant risks and rewards of
ownership and title have been transferred to the buyer. No revenue is
recognised if there are significant uncertainties regarding recovery of
the consideration due, the possible return of goods, or when the amount
of revenue and the costs incurred or to be incurred in respect of the
transaction cannot be measured reliably.
Revenue from the rendering of services only involving in one accounting
year is recognised in the income statement upon completion. If a
transaction lasts more than one accounting years, when the outcome of
the transaction involving the rendering of services can be estimated
reliably, revenue from the rendering of services is recognised in the
income statement in proportion to the stage of completion of the
transaction based on the progress of work performed; or when the
outcome of the transaction involving the rendering of services cannot
be estimated reliably, revenues recognised only to the extent that
costs incurred are expected to be recoverable.
Interest income is recognised on a time proportion basis according to
the principal outstanding and the applicable rate.
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(o) Income tax
Income tax is recognised using the tax effect accounting method. Income
tax for the year comprises current tax paid and payable and movement of
deferred tax assets and liabilities.
Current tax is calculated at the applicable tax rate on taxable income.
Deferred tax is provided using the liability method, for timing
differences between accounting profit before tax and the taxable income
arising from the differences in the tax and accounting treatment of
income and expenses or loss.
The tax value of losses expected to be available for utilisation
against future taxable income is set off against the deferred tax
liability within the same legal tax unit and jurisdiction. A valuation
allowance is provided for the tax value of losses to reduce the
deferred tax asset to the amount that is more likely than not to be
realised through future taxable income.
(p) Borrowing costs
Borrowing costs incurred on specific borrowings for the construction of
fixed assets are capitalised into the cost of the fixed assets during
the construction period until the fixed assets are ready for their
intended uses.
Except for the above, other borrowing costs are recognised as financial
expenses in the income statement when incurred.
(q) Repairs and maintenance expenses
Repairs and maintenance expenses are recognised in the income statement
when incurred.
(r) Environmental expenditures
Environmental expenditures relating to circumstances arising as a
result of the current or past businesses are recognised in the income
statement when incurred.
(s) Research and development costs
Research and development costs are recognised in the income statement
when incurred.
(t) Operating leases
Operating lease payments are charged as expenses on a straight-line
basis over the period of the respective leases.
(u) Dividends
Dividends appropriated to shareholders are recognised in the income
statement and profit appropriation statement when approved. Dividends
proposed or approved after the balance sheet date but before the date
on which the financial statements are authorised for issue are
separately disclosed under shareholders' funds in the balance sheet.
(v) Retirement benefits
Pursuant to the relevant laws and regulations in the PRC, the Group has
joined a defined contribution retirement plan for the employees
arranged by a governmental organisation. The Group makes contributions
to the retirement scheme at the applicable rate(s) based on the
employees' salaries. The contributions are charged to the income
statement on an accrual basis. After the payment of the contributions
under the retirement plan, the Group does not have any other
obligations in this respect.
(w) Provision for impairment
The carrying amounts of assets (including long-term equity investments,
fixed assets, construction in progress, intangible assets and other
assets) are reviewed regularly to determine whether their recoverable
amounts have declined below their carrying amounts. Assets are tested
for impairment whenever events or changes in circumstances indicate
that their recorded carrying amounts may not be recoverable. When such
a decline has occurred, the carrying amount is reduced to the
recoverable amount. The amount by which the carrying amount is reduced
is the impairment loss.
The recoverable amount is the greater of the net selling price and the
present value of the estimated future cash flows arising from the
continuous use of the asset and from the disposal of the asset at the
end of its useful life.
Provision for impairment loss is calculated on an item by item basis
and recognised as an expense in the income statement. However, when a
deficit between the initial investment cost and the Group's share of
the shareholders' funds of the investee enterprise has been credited to
the capital reserve, any impairment losses for long-term equity
investment are firstly set off against the difference initially
recognised in the capital reserve relating to the investment and any
excess impairment losses are then recognised in the income statement.
If there is an indication that there has been a change in the estimates
used to determine the recoverable amount and as a result the estimated
recoverable amount is greater than the carrying amount of the asset,
the impairment loss recognised in prior years is reversed. Reversals of
impairment losses are recognised in the income statement. Impairment
losses are reversed to the extent of the asset's carrying amount that
would have been determined had no impairment loss been recognised in
prior years. In respect of the reversal of an impairment loss for a
long-term equity investment, the reversal starts with the impairment
losses that had previously been recognised in the income statement and
then the impairment losses that had been charged to capital reserve.
(x) Related parties
If the Group has the power, directly or indirectly, to control, jointly
control or exercise significant influence over another party, or vice
versa, or where the Group and one or more parties are subject to common
control from another party, they are considered to be related parties.
Related parties may be individuals or enterprises.
2 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(y) Provisions and contingent liabilities
Provisions are recognised when the Group has a present obligation as a
result of a past event, it is probable that an outflow of economic
benefits will be required to settle the obligations and a reliable
estimate can be made.
Where it is not probable that the settlement of the above obligation
will cause an outflow of economic benefits, or the amount of the
outflow cannot be estimated reliably, the obligation is disclosed as a
contingent liability.
3 TAXATION
Major taxes applicable to the Group and the Company comprise income tax,
consumption tax, resources tax and value added tax.
Income tax rate is 33% and that of certain branches and subsidiaries is
15%.
Consumption tax is levied on gasoline and diesel at a rate of RMB 277.6 per
tonne and RMB 117.6 per tonne respectively.
For the period from 1 January 2005 to 30 June 2005, resources tax is levied
on crude oil and natural gas at rates ranging from RMB 8 per tonne to RMB
30 per tonne and RMB 2 to RMB 15 per 1000 cubic metres respectively. For
the period from 1 July 2005 to 31 December 2005, resources tax is levied on
crude oil and natural gas at rates ranging from RMB 14 per tonne to RMB 30
per tonne and RMB 7 to RMB 15 per 1000 cubic metres respectively.
Value added tax rate for liquefied petroleum gas, natural gas and certain
agricultural products is 13% and that for other products is 17%.
The branches, subsidiaries and jointly controlled entities granted with tax
concession are set out below:
Name of branches, subsidiaries
and jointly controlled entities Preferential tax rate Reasons for granting concession
Sinopec National Star Xinan Branch of China 15% Tax preferential policy in the western part
----------------------------------------------------------------------------------------------------------------------------
Sinopec National Star Xibei Branch 15% Tax preferential policy in the western part
of China
----------------------------------------------------------------------------------------------------------------------------
Sinopec Southern Exploration Branch 15% Tax preferential policy in the western part
of China
----------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical Company Limited 15% The first batch of joint stock enterprise
which successfully got listed overseas
----------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre Company Limited 15% The first batch of joint stock enterprise
which successfully got listed overseas
----------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 15% High technology enterprise
----------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum Company Limited 15% High technology enterprise
----------------------------------------------------------------------------------------------------------------------------
Petro-CyberWorks Information Technology Company 15% High technology enterprise
Limited
----------------------------------------------------------------------------------------------------------------------------
Shanghai Secco Petrochemical Company Limited 2-year exemption and
3-year 50% reduction Foreign investment enterprise
----------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited 2-year exemption and
3-year 50% reduction Foreign investment enterprise
----------------------------------------------------------------------------------------------------------------------------
4 CASH AT BANK AND IN HAND
The Group
2005 2004
Original Original
currency Exchange RMB currency Exchange RMB
millions rates millions millions rates millions
Cash in hand
---------------------------------------------------------------------------------------------------------------------------
Renminbi 207 115
------------------------------------------------------------------------------------------------------------------------
Cash at bank
---------------------------------------------------------------------------------------------------------------------------
Renminbi 9,229 12,621
------------------------------------------------------------------------------------------------------------------------
US Dollars 76 8.0702 616 96 8.2765 795
------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollars 63 1.0403 66 47 1.0637 50
------------------------------------------------------------------------------------------------------------------------
Japanese Yen 277 0.0687 19 220 0.0797 18
------------------------------------------------------------------------------------------------------------------------
Euro 2 9.5797 21 1 11.2627 10
------------------------------------------------------------------------------------------------------------------------
10,158 13,609
---------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
---------------------------------------------------------------------------------------------------------------------------
Renminbi 4,588 4,657
------------------------------------------------------------------------------------------------------------------------
US Dollars -- 8.0702 1 2 8.2765 14
------------------------------------------------------------------------------------------------------------------------
Total cash at bank and in hand 14,747 18,280
---------------------------------------------------------------------------------------------------------------------------
4 CASH AT BANK AND IN HAND (Continued)
The Company
2005 2004
Original Original
currency Exchange RMB currency Exchange RMB
millions rates millions millions rates millions
Cash in hand
---------------------------------------------------------------------------------------------------------------------------
Renminbi 12 107
------------------------------------------------------------------------------------------------------------------------
Cash at bank
---------------------------------------------------------------------------------------------------------------------------
Renminbi 3,075 4,892
------------------------------------------------------------------------------------------------------------------------
US Dollars 1 8.0702 10 1 8.2765 6
------------------------------------------------------------------------------------------------------------------------
3,097 5,005
---------------------------------------------------------------------------------------------------------------------------
Deposits at related parties
---------------------------------------------------------------------------------------------------------------------------
Renminbi 2,026 1,280
------------------------------------------------------------------------------------------------------------------------
US Dollars -- 8.0702 1 2 8.2765 14
------------------------------------------------------------------------------------------------------------------------
Total cash at bank and in hand 5,124 6,299
---------------------------------------------------------------------------------------------------------------------------
Deposits at related parties represent deposits placed at Sinopec Finance
Company Limited. Deposits interest is calculated based on market rate.
5 BILLS RECEIVABLE
Bills receivable represents mainly the bills of acceptance issued by banks
for sales of goods and products.
6 TRADE ACCOUNTS RECEIVABLE
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Amounts due from subsidiaries -- -- 6,252 5,026
--------------------------------------------------------------------------------------------------------------------------
Amounts due from Sinopec Group Company and fellow 3,049 2,349 518 858
subsidiaries
--------------------------------------------------------------------------------------------------------------------------
Amounts due from associates 572 89 10 19
--------------------------------------------------------------------------------------------------------------------------
Amounts due from jointly controlled entities 505 -- 229 --
Others 13,546 10,989 4,136 5,179
--------------------------------------------------------------------------------------------------------------------------
17,672 13,427 11,145 11,082
--------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,140 3,671 2,319 2,837
--------------------------------------------------------------------------------------------------------------------------
Total 14,532 9,756 8,826 8,245
--------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts is analysed as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 3,671 3,185 2,837 2,299
--------------------------------------------------------------------------------------------------------------------------
Provision for the year 328 931 186 708
--------------------------------------------------------------------------------------------------------------------------
Written back for the year (503) (85) (424) (37)
--------------------------------------------------------------------------------------------------------------------------
Written off for the year (356) (360) (280) (133)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 3,140 3,671 2,319 2,837
--------------------------------------------------------------------------------------------------------------------------
6 TRADE ACCOUNTS RECEIVABLE (Continued)
Ageing analysis on trade accounts receivable is as follows:
The Group
2005 2004
Amount Allowance Amount Allowance
RMB millions %RMB millions % RMB millions % RMB millions %
Within one year 14,320 81.0 49 0.3 9,546 71.1 390 4.1
----------------------------------------------------------------------------------------------------------------------------
Between one and two years 279 1.6 101 36.2 308 2.3 83 26.9
----------------------------------------------------------------------------------------------------------------------------
Between two and three years 158 0.9 115 72.8 527 3.9 361 68.5
----------------------------------------------------------------------------------------------------------------------------
Over three years 2,915 16.5 2,875 98.6 3,046 22.7 2,837 93.1
----------------------------------------------------------------------------------------------------------------------------
Total 17,672 100.0 3,140 13,427 100.0 3,671
----------------------------------------------------------------------------------------------------------------------------
The Company
2005 2004
Amount Allowance Amount Allowance
RMB millions %RMB millions % RMB millions % RMB millions %
Within one year 8,721 78.1 45 0.5 8,103 73.1 275 3.4
----------------------------------------------------------------------------------------------------------------------------
Between one and two years 164 1.5 52 31.7 193 1.8 66 34.2
----------------------------------------------------------------------------------------------------------------------------
Between two and three years 95 0.9 70 73.7 334 3.0 251 75.1
----------------------------------------------------------------------------------------------------------------------------
Over three years 2,165 19.5 2,152 99.4 2,452 22.1 2,245 91.6
----------------------------------------------------------------------------------------------------------------------------
Total 11,145 100.0 2,319 11,082 100.0 2,837
----------------------------------------------------------------------------------------------------------------------------
Major trade accounts receivable of the Group at 31 December 2005 are set
out below:
Percentage on trade
Name of debtor Balance accounts receivable
RMB millions %
Guangdong Nanhua Petroleum Company Limited 921 5.2
------------------------------------------------------------------------------------------------------------------------
Dongxing Oil Industry Limited 697 3.9
------------------------------------------------------------------------------------------------------------------------
Sinopec Railway Oil Marketing Company Limited 330 1.9
------------------------------------------------------------------------------------------------------------------------
SK Corporation 232 1.3
------------------------------------------------------------------------------------------------------------------------
Sinochem Singapore Petroleum International Company Limited 216 1.2
Major trade accounts receivable of the Group at 31 December 2004 are set
out below:
Percentage on trade
Name of debtor Balance accounts receivable
RMB millions %
Baling Petrochemical Yueyang Petrochemical Company 393 2.9
------------------------------------------------------------------------------------------------------------------------
Qingdao Petrochemical Plant 379 2.8
------------------------------------------------------------------------------------------------------------------------
Petrolimex Vietnam 311 2.3
------------------------------------------------------------------------------------------------------------------------
Phibro GmbH 294 2.2
------------------------------------------------------------------------------------------------------------------------
Maoming Petrochemical Shihua Company Limited 248 1.8
------------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 41, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of trade accounts receivable.
During the years ended 31 December 2005 and 2004, the Group and the Company
had no individually significant trade accounts receivable been fully or
substantially provided for.
During the years ended 31 December 2005 and 2004, the Group and the Company
had no individually significant write off or recover of doubtful debts
which had been fully or substantially provided for in prior years.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant trade accounts receivable that aged over three years.
7 OTHER RECEIVABLES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Amounts due from subsidiaries -- -- 1,740 11,004
----------------------------------------------------------------------------------------------------------------------------
Amounts due from Sinopec Group Company and fellow 3,059 6,135 2,708 5,616
subsidiaries
----------------------------------------------------------------------------------------------------------------------------
Amounts due from associates 521 308 501 260
----------------------------------------------------------------------------------------------------------------------------
Others 11,419 9,515 7,855 6,168
----------------------------------------------------------------------------------------------------------------------------
14,999 15,958 12,804 23,048
----------------------------------------------------------------------------------------------------------------------------
Less: Allowance for doubtful accounts 3,512 3,496 3,200 3,423
----------------------------------------------------------------------------------------------------------------------------
Total 11,487 12,462 9,604 19,625
----------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts is analysed as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 3,496 2,348 3,423 1,967
----------------------------------------------------------------------------------------------------------------------------
Provision for the year 446 1,245 176 1,514
----------------------------------------------------------------------------------------------------------------------------
Written back for the year (415) (41) (386) (26)
----------------------------------------------------------------------------------------------------------------------------
Written off for the year (15) (56) (13) (32)
----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 3,512 3,496 3,200 3,423
----------------------------------------------------------------------------------------------------------------------------
Ageing analysis of other receivables is as follows:
The Group
2005 2004
Amount Allowance Amount Allowance
RMB millions %RMB millions % RMB millions % RMB millions %
Within one year 9,167 61.1 15 0.2 8,577 53.8 14 0.2
---------------------------------------------------------------------------------------------------------------------------
Between one and two years 676 4.5 33 4.9 485 3.0 17 3.5
---------------------------------------------------------------------------------------------------------------------------
Between two and three years 447 3.0 338 75.6 3,549 22.2 430 12.1
---------------------------------------------------------------------------------------------------------------------------
Over three years 4,709 31.4 3,126 66.4 3,347 21.0 3,035 90.7
---------------------------------------------------------------------------------------------------------------------------
Total 14,999 100.0 3,512 15,958 100.0 3,496
---------------------------------------------------------------------------------------------------------------------------
The Company
2005 2004
Amount Allowance Amount Allowance
RMB millions %RMB millions % RMB millions % RMB millions %
Within one year 7,127 55.7 5 0.1 16,168 70.1 12 0.1
---------------------------------------------------------------------------------------------------------------------------
Between one and two years 491 3.8 19 3.9 923 4.0 592 64.1
---------------------------------------------------------------------------------------------------------------------------
Between two and three years 748 5.8 622 83.1 2,620 11.4 48 1.8
---------------------------------------------------------------------------------------------------------------------------
Over three years 4,438 34.7 2,554 57.5 3,337 14.5 2,771 83.0
---------------------------------------------------------------------------------------------------------------------------
Total 12,804 100.0 3,200 23,048 100.0 3,423
---------------------------------------------------------------------------------------------------------------------------
Major other receivables of the Group at 31 December 2005 are set out below:
Percentage on
Name of debtor Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 1,507 10.0
---------------------------------------------------------------------------------------------------------------------
Fujian Quanzhou Qu Finance Bureau Current Account 375 2.5
---------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 208 1.4
---------------------------------------------------------------------------------------------------------------------
Ningbo Taiyi Real Estate Company Limited Current Account 192 1.3
---------------------------------------------------------------------------------------------------------------------
Qingdao Qirun Petrochemical Company Limited Current Account 162 1.0
---------------------------------------------------------------------------------------------------------------------
7 OTHER RECEIVABLES (Continued)
Major other receivables of the Group at 31 December 2004 are set out below:
Percentage on
Name of debtor Particulars Balance other receivables
RMB millions %
China Petrochemical Corporation Current Account 2,502 15.7
--------------------------------------------------------------------------------------------------------------------
Jinhuang Real Estate Company Limited Current Account 219 1.4
---------------------------------------------------------------------------------------------------------------------
China Ruilian Industrial Group Corporation Current Account 184 1.2
---------------------------------------------------------------------------------------------------------------------
Anhui Jinyu Highway Development Company Limited Current Account 121 0.8
---------------------------------------------------------------------------------------------------------------------
Anhui He Chao Wu Highway Company Limited Current Account 107 0.7
---------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 41, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of other receivables.
During the years ended 31 December 2005 and 2004, the Group and the Company
had no individually significant other receivables been fully or
substantially provided for.
During the years ended 31 December 2005 and 2004, the Group and the Company
had no individually significant write off or recover of doubtful debts
which had been fully or substantially provided for in prior years.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant other receivables that aged over three years.
8 ADVANCE PAYMENTS
All advance payments are aged within one year.
Except for the balances disclosed in Note 41, there is no amount due from
shareholders who hold 5% or more voting right of the Company included in
the balance of advance payments.
9 INVENTORIES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Raw materials 53,350 32,581 25,471 14,544
--------------------------------------------------------------------------------------------------------------------------
Work in progress 9,422 8,341 4,659 3,605
--------------------------------------------------------------------------------------------------------------------------
Finished goods 23,163 20,804 17,980 15,163
--------------------------------------------------------------------------------------------------------------------------
Spare parts and consumables 3,893 3,098 2,061 1,033
--------------------------------------------------------------------------------------------------------------------------
89,828 64,824 50,171 34,345
--------------------------------------------------------------------------------------------------------------------------
Less: Provision for diminution in value of inventories 892 906 309 394
--------------------------------------------------------------------------------------------------------------------------
88,936 63,918 49,862 33,951
--------------------------------------------------------------------------------------------------------------------------
All of the above inventories are purchased or self-manufactured.
Provision for diminution in value of inventories is mainly against finished
goods and spare parts.
Provision for diminution in value of inventories is analysed as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 906 519 394 226
--------------------------------------------------------------------------------------------------------------------------
Provision for the year 262 621 64 314
--------------------------------------------------------------------------------------------------------------------------
Written back for the year (180) (188) (81) (124)
--------------------------------------------------------------------------------------------------------------------------
Written off (96) (46) (68) (22)
--------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 892 906 309 394
--------------------------------------------------------------------------------------------------------------------------
The cost of inventories recognised as costs and expenses by the Group and
the Company amounted to RMB 683,375 million (2004: RMB 473,724 million) and
RMB 488,592 million (2004: RMB 343,269 million) for the year ended 31
December 2005, respectively.
10 LONG-TERM EQUITY INVESTMENTS
The Group
Unlisted Provision
stock and Equity for
Listed stock other equity investment impairment
investment investment differences losses Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2005 790 12,589 383 (353) 13,409
----------------------------------------------------------------------------------------------------------------------------
Additions for the year -- 2,942 1,820 -- 4,762
----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 81 754 -- -- 835
----------------------------------------------------------------------------------------------------------------------------
Long-term equity investments accounted
for as a jointly controlled entity -- (3,516) -- -- (3,516)
----------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received (48) (407) -- -- (455)
----------------------------------------------------------------------------------------------------------------------------
Disposals for the year -- (715) -- -- (715)
----------------------------------------------------------------------------------------------------------------------------
Amortisation for the year -- -- (200) -- (200)
----------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- 26 26
----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 823 11,647 2,003 (327) 14,146
----------------------------------------------------------------------------------------------------------------------------
The Company
Unlisted Provision
stock and Equity for
Listed stock other equity investment impairment
investment investment differences losses Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2005 49,731 74,235 400 (155) 124,211
----------------------------------------------------------------------------------------------------------------------------
Additions for the year -- 9,821 1,818 -- 11,639
----------------------------------------------------------------------------------------------------------------------------
Reclassification (6,856) 6,856 -- -- --
----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from investments
accounted for under the equity method 8,371 26,444 -- -- 34,815
----------------------------------------------------------------------------------------------------------------------------
Dividends receivable/received (2,682) (34,404) -- -- (37,086)
----------------------------------------------------------------------------------------------------------------------------
Disposals for the year -- (227) -- -- (227)
----------------------------------------------------------------------------------------------------------------------------
Amortisation for the year -- -- (201) -- (201)
----------------------------------------------------------------------------------------------------------------------------
Movement of provision for impairment losses -- -- -- 52 52
----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 48,564 82,725 2,017 (103) 133,203
----------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses is analysed as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 353 271 155 160
-------------------------------------------------------------------------------------------------------------------------
Additions for the year 77 96 14 2
-------------------------------------------------------------------------------------------------------------------------
Written back for the year (17) (8) -- (2)
-------------------------------------------------------------------------------------------------------------------------
Written off (86) (6) (66) (5)
-------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 327 353 103 155
-------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 and 2004, the Group and the Company had no individually
significant long-term equity investments which had been provided for.
Other equity investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas and chemical
activities and operations. This includes non-consolidated investments which
the Group has over 50% equity interest but the costs of investment are not
significant or the Group has no control on the entities. Stock investments
of the Company represent investments in subsidiaries, associates and
jointly controlled entities. Details of the Company's principal
subsidiaries are set out in Note 42.
10 LONG-TERM EQUITY INVESTMENTS (Continued)
At 31 December 2005, details of listed stock investment of the Group
(associates) are as follows:
Shares of
Percentage profits Market
of equity Balance accounted Balance price as
Type of interest Initial at 1 for under Dividends at 31 at 31
Name of investee equity No. of held by investment January the equity receivable/ December December
enterprise interest shares the Group cost 2005 method received 2005 2005*
millions RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Sinopec Shengli Legal 96 26.33% 223 461 62 (29) 494 722
Oil Field Dynamic person
Co Ltd shares
---------------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Legal 186 38.68% 124 329 19 (19) 329 547
Taishan Petroleum person
Co Ltd shares
---------------------------------------------------------------------------------------------------------------------------------
790 81 (48) 823
---------------------------------------------------------------------------------------------------------------------------------
* Information of market price is sourced from Shenzhen Stock Exchange.
At 31 December 2005, details of principal unlisted stock and other equity
investment of the Group (including associates) are as follows:
Share of
profits
Percentage Balance accounted
Initial of equity at 1 Addition for under Dividends
Name of investment Investment interest held January for the the equity receivable/
investee enterprise cost period by the Group 2005 year method received
RMB millions RMB millions RMB millions RMB millions RMB millions
Sinopec Finance Company
Limited (i) (ii) 1,205 -- 40% 1,311 -- 262 (56)
--------------------------------------------------------------------------------------------------------------------------------
China Aviation Oil Supply
Company Limited (ii) 1,102 -- 29% -- 1,102 -- --
--------------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum National
Gas Corporation (i) (ii) 300 -- 30% 912 -- 241 (195)
--------------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical Industry
Park Development Company
Limited (ii) 608 30 years 38% 651 -- 10 (2)
--------------------------------------------------------------------------------------------------------------------------------
China Shipping & Sinopec
Suppliers Company
Limited (ii) 438 -- 50% 468 -- 41 --
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Changjiang Fuel
Company Limited (ii) 190 20 years 50% 251 -- 41 (39)
--------------------------------------------------------------------------------------------------------------------------------
Hunan Highway Industrial
Development Company
Limited (i) (ii) 215 -- 49% 218 -- 5 (2)
--------------------------------------------------------------------------------------------------------------------------------
Beijng International Trust
and Investment Company
Limited 200 -- 8% -- 200 -- --
--------------------------------------------------------------------------------------------------------------------------------
Zhejiang Express Petroleum
Development Company
Limited (i) (ii) 174 30 years 50% -- 174 3 --
--------------------------------------------------------------------------------------------------------------------------------
China Gas Holdings Ltd 136 -- 11% 136 -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Sinopec Railway Oil
Marketing Company
Limited (ii) 74 20 years 50% 110 24 40 (48)
--------------------------------------------------------------------------------------------------------------------------------
[TABLE CONTINUED]
Balance at
31
Name of December
investee enterprise 2005
RMB millions
Sinopec Finance Company
Limited (i) (ii) 1,517
---------------------------------------------
China Aviation Oil Supply
Company Limited (ii) 1,102
---------------------------------------------
Shanghai Petroleum National
Gas Corporation (i) (ii) 958
---------------------------------------------
Shanghai Chemical Industry
Park Development Company
Limited (ii) 659
---------------------------------------------
China Shipping & Sinopec
Suppliers Company
Limited (ii) 509
---------------------------------------------
Sinopec Changjiang Fuel
Company Limited (ii) 253
---------------------------------------------
Hunan Highway Industrial
Development Company
Limited (i) (ii) 221
---------------------------------------------
Beijng International Trust
and Investment Company
Limited 200
---------------------------------------------
Zhejiang Express Petroleum
Development Company
Limited (i) (ii) 177
---------------------------------------------
China Gas Holdings Ltd 136
---------------------------------------------
Sinopec Railway Oil
Marketing Company
Limited (ii) 126
---------------------------------------------
(i) These entities are principal associates of the Company.
(ii) These entities are principal associates of the Group.
No provision for individually significant impairment losses or individually
significant equity investment difference was made for the long-term equity
investments as set out above.
At 31 December 2005, the Group's and the Company's proportion of the total
investments to the net assets was 7% (2004: 7%) and 61% (2004: 66%),
respectively.
At 31 December 2005, the Group's and the Company's equity investment
differences represent mainly the equity investment difference resulting
from the acquisition of the minority interests of Sinopec Beijing Yanhua
Petrochemical Company Limited in 2005. The equity investment difference is
amortised on a straight-line basis over 10 years. The balance at 31
December 2005 is RMB 1,041 million.
11 FIXED ASSETS
The Group - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 170,457 117,063 64,775 163,075 4,092 519,462
------------------------------------------------------------------------------------------------------------------------------
Addition for the year 151 172 934 307 150 1,714
------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 22,094 8,066 13,687 18,370 381 62,598
------------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity -- -- -- 1,315 -- 1,315
------------------------------------------------------------------------------------------------------------------------------
Reclassification (157) (432) 204 289 96 --
------------------------------------------------------------------------------------------------------------------------------
Disposals (3,419) (2,860) (2,927) (3,173) (245) (12,624)
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 189,126 122,009 76,673 180,183 4,474 572,465
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 86,550 56,614 11,657 87,282 1,407 243,510
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 11,217 6,913 2,986 9,447 282 30,845
------------------------------------------------------------------------------------------------------------------------------
Reclassification (78) (214) 78 160 54 --
------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (2,948) (2,153) (1,245) (2,204) (194) (8,744)
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 94,741 61,160 13,476 94,685 1,549 265,611
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 94,385 60,849 63,197 85,498 2,925 306,854
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 83,907 60,449 53,118 75,793 2,685 275,952
------------------------------------------------------------------------------------------------------------------------------
The Company - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 61,025 87,893 61,413 57,719 3,070 271,120
Addition for the year 151 113 267 38 120 689
Transferred from construction in progress 13,213 5,676 9,033 2,063 371 30,356
Transferred to subsidiaries -- -- (577) -- -- (577)
Reclassification (130) (176) 276 (2) 32 --
Disposals (1,781) (1,546) (2,864) (978) (213) (7,382)
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 72,478 91,960 67,548 58,840 3,380 294,206
------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 26,483 42,803 11,117 32,112 1,057 113,572
Depreciation charge for the year 4,559 4,688 2,873 2,886 180 15,186
Transferred to subsidiaries -- -- (66) -- -- (66)
Reclassification (65) (49) 99 (1) 16 --
Written back on disposal (1,631) (1,181) (1,214) (734) (185) (4,945)
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 29,346 46,261 12,809 34,263 1,068 123,747
------------------------------------------------------------------------------------------------------------------------------
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 43,132 45,699 54,739 24,577 2,312 170,459
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 34,542 45,090 50,296 25,607 2,013 157,548
------------------------------------------------------------------------------------------------------------------------------
11 FIXED ASSETS (Continued)
The Group - by asset class
Plant,
Oil depots, machinery,
storage equipment,
Land and Oil and gas tanks and vehicles and
buildings properties service stations others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 47,107 151,945 59,963 260,447 519,462
-------------------------------------------------------------------------------------------------------------------------------
Addition for the year 730 64 228 692 1,714
-------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 2,462 20,985 13,521 25,630 62,598
-------------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity 469 -- -- 846 1,315
-------------------------------------------------------------------------------------------------------------------------------
Reclassification (406) (802) 650 558 --
-------------------------------------------------------------------------------------------------------------------------------
Disposals (1,044) (2,251) (2,145) (7,184) (12,624)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 49,318 169,941 72,217 280,989 572,465
-------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 19,988 77,666 10,493 135,363 243,510
-------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,778 10,593 2,878 15,596 30,845
-------------------------------------------------------------------------------------------------------------------------------
Reclassification (98) (430) 153 375 --
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (538) (1,933) (786) (5,487) (8,744)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 21,130 85,896 12,738 145,847 265,611
-------------------------------------------------------------------------------------------------------------------------------
Net book value:
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 28,188 84,045 59,479 135,142 306,854
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 27,119 74,279 49,470 125,084 275,952
-------------------------------------------------------------------------------------------------------------------------------
The Company - by asset class
Plant,
Oil depots, machinery,
storage equipment,
Land and Oil and gas tanks and vehicles and
buildings properties service stations others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 25,187 53,307 56,824 135,802 271,120
-------------------------------------------------------------------------------------------------------------------------------
Addition for the year 132 64 174 319 689
-------------------------------------------------------------------------------------------------------------------------------
Transferred from construction in progress 989 12,266 9,033 8,068 30,356
-------------------------------------------------------------------------------------------------------------------------------
Transferred to subsidiaries (9) -- (529) (39) (577)
-------------------------------------------------------------------------------------------------------------------------------
Reclassification (469) (551) 651 369 --
-------------------------------------------------------------------------------------------------------------------------------
Disposals (552) (944) (2,097) (3,789) (7,382)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 25,278 64,142 64,056 140,730 294,206
-------------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 9,672 24,299 10,116 69,485 113,572
-------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,046 4,193 2,488 7,459 15,186
-------------------------------------------------------------------------------------------------------------------------------
Transferred to subsidiaries (3) -- (41) (22) (66)
-------------------------------------------------------------------------------------------------------------------------------
Reclassification (111) (309) 154 266 --
-------------------------------------------------------------------------------------------------------------------------------
Written back on disposal (275) (825) (774) (3,071) (4,945)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 10,329 27,358 11,943 74,117 123,747
-------------------------------------------------------------------------------------------------------------------------------
Net book value:
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 14,949 36,784 52,113 66,613 170,459
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 15,515 29,008 46,708 66,317 157,548
-------------------------------------------------------------------------------------------------------------------------------
The fixed assets and construction in progress of the Group at 30 September
1999 were revalued by registered valuers in the PRC. The valuation was
reviewed and approved by the MOF (Note 1). Surplus on revaluation was RMB
29,093 million and deficit on revaluation was RMB 3,210 million. A net
surplus on revaluation of RMB 25,883 million was resulted which has been
incorporated in the Group's financial statements since the year ended 31
December 1999.
11 FIXED ASSETS (Continued)
In accordance with the relevant rules and regulations in respect of the
acquisition of Sinopec National Star, the fixed assets and construction in
progress of Sinopec National Star have been revalued by a firm of
independent valuers in the PRC. Surplus on revaluation of RMB 541 million
has been incorporated in the Group's financial statements since the year
ended 31 December 2001.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Ethylene Assets, the fixed assets and construction in
progress of Sinopec Maoming have been revalued by a firm of independent
valuers in the PRC. Deficit on revaluation of RMB 86 million has been
incorporated in the Group's financial statements since the year ended 31
December 2003.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Refining Assets, the fixed assets and construction in
progress of Tahe Petrochemical and Xi'an Petrochemical have been revalued
by a firm of independent valuers in the PRC. Surplus on revaluation of RMB
82 million has been incorporated in the Group's financial statements since
the year ended 31 December 2003.
In accordance with the relevant rules and regulations in respect of the
Acquisition of Acquired Assets, the related fixed assets and construction
in progress have been revalued by a firm of independent valuers in the PRC.
Surplus on revaluation of RMB 492 million has been incorporated in the
Group's financial statements since the year ended 31 December 2004.
At 31 December 2005, the carrying amounts of fixed assets that were pledged
by the Group and the Company were RMB 83 million (2004: RMB 123 million)
and RMB 10 million (2004: RMB 10 million), respectively.
Provision for impairment losses on fixed assets is analysed as follows:
The Group - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 783 64 1,769 3,200 5,816
--------------------------------------------------------------------------------------------------------------------------
Addition for the year 60 -- 366 1,425 1,851
--------------------------------------------------------------------------------------------------------------------------
Written off for the year -- (53) (865) (515) (1,433)
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 843 11 1,270 4,110 6,234
--------------------------------------------------------------------------------------------------------------------------
The Company - by segment
Exploration Marketing
and and
production Refining distribution Chemicals Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 720 13 1,737 1,568 4,038
--------------------------------------------------------------------------------------------------------------------------
Addition for the year 60 -- 351 671 1,082
--------------------------------------------------------------------------------------------------------------------------
Written off for the year -- (2) (847) (80) (929)
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 780 11 1,241 2,159 4,191
--------------------------------------------------------------------------------------------------------------------------
The Group - by asset class
Plant,
Oil depots, machinery,
storage tanks equipment,
Land and Oil and gas and service vehicles
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 331 783 1,249 3,453 5,816
--------------------------------------------------------------------------------------------------------------------------
Addition for the year 79 60 261 1,451 1,851
--------------------------------------------------------------------------------------------------------------------------
Written off for the year (59) -- (593) (781) (1,433)
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 351 843 917 4,123 6,234
--------------------------------------------------------------------------------------------------------------------------
11 FIXED ASSETS (Continued)
The Company - by asset class
Plant,
Oil depots, machinery,
storage tanks equipment,
Land and Oil and gas and service vehicles
buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 184 720 1,249 1,885 4,038
--------------------------------------------------------------------------------------------------------------------------
Addition for the year 21 60 261 740 1,082
--------------------------------------------------------------------------------------------------------------------------
Written off for the year (51) -- (575) (303) (929)
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 154 780 935 2,322 4,191
--------------------------------------------------------------------------------------------------------------------------
Provision for impairment losses recognised on fixed assets of the chemicals
segment of the Group of RMB 1,425 million (2004: RMB 2,747 million) for the
year ended 31 December 2005 relate to certain chemicals production
facilities that are held for use. The carrying values of these facilities
were written down to their recoverable values. The primary factor resulting
in the provision for impairment losses of the chemicals segment was due to
higher operating and production costs caused by the increase in the prices
of raw materials that are not expected to be recovered through an increase
in selling price.
Provision for impairment losses recognised on fixed assets of the marketing
and distribution segment of the Group of RMB 366 million (2004: RMB 1,769
million) for the year ended 31 December 2005 primarily relate to certain
service stations that were closed during the year. In measuring the amounts
of impairment charges, the carrying amounts of these assets were compared
to the present value of the expected future cash flows of the assets, as
well as information about sales and purchases of similar properties in the
same geographic area.
The factors resulting in the exploration and production segment of the
Group provision for impairment losses of RMB 60 million (2004: RMB 98
million) for the year ended 31 December 2005 were unsuccessful development
drilling and high operating and development costs for certain small oil
fields. The carrying values of these oil and gas properties were written
down to a recoverable value which was determined based on the present
values of the expected future cash flows of the assets. The oil and gas
pricing was a factor used in the determination of the present values of the
expected future cash flows of the assets and had an impact on the
recognition of the asset impairment.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant fixed assets which were temporarily idle or pending for
disposal.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant fully depreciated fixed assets which were still in use.
12 CONSTRUCTION MATERIALS
At 31 December 2005 and 2004, the Group's and the Company's construction
materials mainly represent the actual cost of materials such as steel and
copper to be used for construction projects.
13 CONSTRUCTION IN PROGRESS
The Group
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 9,262 8,215 13,451 13,535 1,513 45,976
--------------------------------------------------------------------------------------------------------------------------
Addition for the year 25,894 14,036 10,192 9,003 1,014 60,139
--------------------------------------------------------------------------------------------------------------------------
Addition for the year of jointly
controlled entities 814 -- -- 1,830 -- 2,644
--------------------------------------------------------------------------------------------------------------------------
Proportionate share of a new jointly
controlled entity -- -- -- 5,461 -- 5,461
--------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,992) -- -- -- -- (2,992)
--------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets and other
assets (22,094) (8,066) (13,687) (18,927) (381) (63,155)
--------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 10,884 14,185 9,956 10,902 2,146 48,073
--------------------------------------------------------------------------------------------------------------------------
The interest rates per annum at which borrowing costs were capitalised
during the year by the Group ranged from 3.3% to 6.6% (2004: 3.1% to 6.0%).
The Group's proportionate share of the jointly controlled entities'
construction in progress at 31 December 2005 in the exploration and
production and the chemicals segments were RMB 2,888 million (2004: RMB
2,053 million) and RMB 504 million (2004: RMB 8,171 million), respectively.
At 31 December 2005, major construction projects of the Group are as
follows:
Accumulated
At 31 Percentage interest
Budgeted At 1 January Addition December of Source of capitalised at 31
Project name amount 2005 for the year 2005 completion funding December 2005
RMB millions RMB millions RMB millions RMB millions RMB millions
The Group
---------------------------------------------------------------------------------------------------------------------------------
Yizheng-Changling Crude 4,820 893 2,994 3,887 81% Bank loans & 45
Oil Pipeline Project self-financing
---------------------------------------------------------------------------------------------------------------------------------
1,000,000 tonnes Ethylene 7,494 509 2,008 2,517 34% Bank loans & 33
Reconstruction and self-financing
Expansion Project
---------------------------------------------------------------------------------------------------------------------------------
Middle East Sour Crude 4,438 350 2,100 2,450 55% Bank loans & 14
Processing and Clean Fuel self-financing
Production Supporting
Project
---------------------------------------------------------------------------------------------------------------------------------
Chaoyang Square Project 2,800 906 200 1,106 40% Self-financing --
---------------------------------------------------------------------------------------------------------------------------------
Coal in replacement of Oil 1,256 603 468 1,071 85% Bank loans & 29
Technology Improvement self-financing
Project
---------------------------------------------------------------------------------------------------------------------------------
The Company
Exploration Marketing
and and
production Refining distribution Chemicals Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
At 1 January 2005 6,607 6,759 9,941 3,978 1,494 28,779
----------------------------------------------------------------------------------------------------------------------------
Addition for the year 16,528 12,119 7,445 5,778 915 42,785
----------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,271) -- -- -- -- (2,271)
----------------------------------------------------------------------------------------------------------------------------
Transferred to fixed assets (13,213) (5,676) (9,033) (2,063) (371) (30,356)
----------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 7,651 13,202 8,353 7,693 2,038 38,937
----------------------------------------------------------------------------------------------------------------------------
The interest rates per annum at which borrowing costs were capitalised for
the year ended 31 December 2005 by the Company ranged from 3.3% to 6.6%
(2004: 3.1% to 6.0%).
14 INTANGIBLE ASSETS
The Group
Exploration
Computer and
software Technical production
license know-how right Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 852 2,286 3,163 635 6,936
Addition for the year 183 660 -- 1,134 1,977
Disposals (2) -- -- (166) (168)
Other decrease -- -- -- (287) (287)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 1,033 2,946 3,163 1,316 8,458
-------------------------------------------------------------------------------------------------------------------------------
Accumulated Amortisation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 185 841 468 97 1,591
Amortisation charge for the year 490 315 117 64 986
Written back on disposal (2) -- -- (26) (28)
Other decrease -- -- -- (15) (15)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 673 1,156 585 120 2,534
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net book value:
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 360 1,790 2,578 1,196 5,924
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 667 1,445 2,695 538 5,345
Except for the exploration and production right, the above intangible
assets were acquired from third parties. The Company acquired Sinopec
National Star together with the exploration and production right from
Sinopec Group Company. The exploration and production right was valued with
reference to the proved reserves of the associated oil fields. The
amortisation period of the exploration and production right was 27 years.
The amortisation periods of other intangible assets range from 4 to 40
years. At 31 December 2005, the remaining amortisation period of the
exploration and production right was 22 years.
The Company
Exploration
Computer and
software Technical production
license know-how right Others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 671 1,316 3,163 421 5,571
Addition for the year 155 2 -- 713 870
Disposals (1) -- -- (163) (164)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 825 1,318 3,163 971 6,277
-------------------------------------------------------------------------------------------------------------------------------
Accumulated Amortisation:
-------------------------------------------------------------------------------------------------------------------------------
At 1 January 2005 120 673 468 49 1,310
Amortisation charge for the year 467 130 117 41 755
Written back on disposal (1) -- -- (25) (26)
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 586 803 585 65 2,039
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Net book value:
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 239 515 2,578 906 4,238
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 551 643 2,695 372 4,261
Except for the exploration and production right, the above intangible
assets were acquired from third parties. The Company acquired Sinopec
National Star together with the exploration and production right from
Sinopec Group Company. The exploration and production right was valued with
reference to the proved reserves of the associated oil fields. The
amortisation period of the exploration and production right was 27 years.
The amortisation periods of other intangible assets range from 4 to 40
years. At 31 December 2005, the remaining amortisation period of the
exploration and production right was 22 years.
15 LONG-TERM DEFERRED EXPENSES
Long-term deferred expenses primarily represent prepaid rental expenses
over one year and catalysts expenditures.
16 DEFERRED TAX ASSETS AND LIABILITIES
The Group
Deferred tax assets Deferred tax liabilities Net balance
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
--------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 3,900 2,524 -- -- 3,900 2,524
Non-current
Fixed assets 1,642 1,566 -- (198) 1,642 1,368
Tax value of losses carried forward 128 66 -- -- 128 66
Others 31 10 -- -- 31 10
--------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 5,701 4,166 -- (198) 5,701 3,968
--------------------------------------------------------------------------------------------------------------------------------
The Company
Deferred tax assets Deferred tax liabilities Net balance
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
-------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 1,635 2,245 -- -- 1,635 2,245
Non-current
Fixed assets 1,553 1,457 -- (16) 1,553 1,441
Others 15 6 -- -- 15 6
-------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 3,203 3,708 -- (16) 3,203 3,692
-------------------------------------------------------------------------------------------------------------------------------
17 SHORT-TERM LOANS
The Group's and the Company's short-term loans represent:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Short-term bank loans 15,392 20,009 3,094 10,527
--------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 732 6,714 3,846 5,727
--------------------------------------------------------------------------------------------------------------------------------
Total 16,124 26,723 6,940 16,254
--------------------------------------------------------------------------------------------------------------------------------
The Group's and the Company's weighted average interest rates per annum on
short-term loans were 4.0% (2004: 3.9%) and 3.2% (2004: 4.0%) respectively
at 31 December 2005. The majority of the above loans are unsecured.
Except for the balance disclosed in Note 41, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of short-term loans.
At 31 December 2005 and 2004, the Group and the Company had no significant
overdue short-term loan.
18 BILLS PAYABLE
Bills payable primarily represented bank accepted bills for the purchase of
material, goods and products. The repayment term is normally from three to
six months.
19 TRADE ACCOUNTS PAYABLE
The ageing analysis of trade accounts payable is as follows:
The Group
2005 2004
RMB millions % RMB millions %
Within 3 months 40,932 77.3 12,868 54.1
-----------------------------------------------------------------------------------------------------------------------
Between 3 and 6 months 10,542 19.9 9,110 38.3
Over 6 months 1,493 2.8 1,814 7.6
-----------------------------------------------------------------------------------------------------------------------
Total 52,967 100.0 23,792 100.0
-----------------------------------------------------------------------------------------------------------------------
The Company
2005 2004
RMB millions % RMB millions %
Within 3 months 22,129 76.7 13,462 63.7
-----------------------------------------------------------------------------------------------------------------------
Between 3 and 6 months 5,792 20.1 6,183 29.3
Over 6 months 912 3.2 1,492 7.0
-----------------------------------------------------------------------------------------------------------------------
Total 28,833 100.0 21,137 100.0
-----------------------------------------------------------------------------------------------------------------------
Except for the balances disclosed in Note 41, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of trade accounts payable.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant trade accounts payable aged over three years.
20 RECEIPTS IN ADVANCE
Except for the balances disclosed in Note 41, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of receipts in advance.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant receipts in advance aged over one year.
21 TAXES PAYABLE
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Value added tax (2,240) (1,119) (1,796) (1,377)
-----------------------------------------------------------------------------------------------------------------
Consumption tax 1,348 1,443 1,031 1,146
Income tax 5,029 5,391 2,494 3,142
Business tax 45 99 25 37
Other taxes 1,080 927 321 222
-----------------------------------------------------------------------------------------------------------------
Total 5,262 6,741 2,075 3,170
-----------------------------------------------------------------------------------------------------------------
The provision for PRC current income tax is based on a statutory rate of
33% of the assessable income of the Group and the Company as determined in
accordance with the relevant tax rules and regulations of the PRC during
the years ended 31 December 2005 and 2004, except for certain branches and
subsidiaries of the Company, which are taxed at a preferential rate of 15%,
and certain jointly controlled entities of the Company, which are entitled
to a tax holiday of a tax-free period for the first two years and a 50%
reduction in income tax for the following three years.
22 OTHER PAYABLES
At 31 December 2005 and 2004, the Group's and the Company's other payables
primarily represented payables for resources compensation fee and education
surcharge.
23 OTHER CREDITORS
At 31 December 2005 and 2004, the Group's and the Company's other creditors
primarily represented payables for constructions.
Except for the balances disclosed in Note 41, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of other creditors.
At 31 December 2005 and 2004, the Group and the Company had no individually
significant other creditors aged over three years.
24 ACCRUED EXPENSES
At 31 December 2005 and 2004, the Group's and the Company's accrued
expenses primarily represented accrued interest expenses, repair and
maintenance expenses, research and development expenses and other
production expenses.
25 CURRENT PORTION OF LONG-TERM LOANS
The Group's and the Company's current portion of long-term loans represent:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Long-term bank loans
-------------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 11,952 8,500 9,694 6,247
-------------------------------------------------------------------------------------------------------------------------------
-- Japanese Yen loans 615 805 615 798
-- US Dollar loans 2,206 2,841 1,710 2,341
-- Euro loans 24 28 24 28
-- Hong Kong Dollar loans 82 3 -- --
-------------------------------------------------------------------------------------------------------------------------------
14,879 12,177 12,043 9,414
-------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans of jointly controlled entities
-------------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 82 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans 111 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
193 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Long-term other loans
-------------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 22 88 -- 61
-------------------------------------------------------------------------------------------------------------------------------
-- US Dollar loans 4 33 1 31
-------------------------------------------------------------------------------------------------------------------------------
26 121 1 92
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company and fellow subsidiaries
-------------------------------------------------------------------------------------------------------------------------------
-- Renminbi loans 100 2,000 100 2,000
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
Total current portion of long-term loans 15,198 14,298 12,144 11,506
-------------------------------------------------------------------------------------------------------------------------------
At 31 December 2005 and 2004, the Group and the Company had no significant overdue long-term loan.
26 LONG-TERM LOANS
The Group's and the Company's long-term loans represent:
The Group The Company
Interest rate and final maturity 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Third parties debts
-------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from interest free
to 5.8% per annum at 31 December 2005
with maturities through 2013 59,769 52,227 54,792 45,233
-------------------------------------------------------------------------------------------------------------------------------
Japanese Yen loans Interest rates ranging from 2.6% to 5.8%
per annum at 31 December 2005
with maturities through 2024 3,394 4,562 3,394 4,556
-------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from interest free
to 7.4% per annum at 31 December 2005
with maturities through 2031 5,056 7,729 3,571 5,278
-------------------------------------------------------------------------------------------------------------------------------
Euro loans Fixed rate at 6.7% per annum
at 31 December 2005 with
maturities through 2010 117 165 117 165
-------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar loans Floating rate at Hong Kong Prime
Rate plus 0.8% to 1.1% per annum at 31 December
2005
with maturities through 2007 94 5 -- --
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 14,879 12,177 12,043 9,414
-------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans 53,551 52,511 49,831 45,818
-------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans of jointly controlled entities
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Floating rate at 90% of PBOC's base
lending rate per annum at 31 December 2005
with maturities through 2021 5,710 2,415 -- --
-------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Floating rate at London Interbank
Offer Rate plus 0.4% to 0.7% per annum at 31
December 2005 with maturities
through 2021 4,296 2,048 -- --
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 193 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans of jointly controlled entities 9,813 4,463 -- --
-------------------------------------------------------------------------------------------------------------------------------
Long-term other loans
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest rates ranging from
interest free to 5.0% per annum
at 31 December 2005 with
maturities through 2008 170 359 37 200
-------------------------------------------------------------------------------------------------------------------------------
US Dollar loans Interest rates ranging from interest
free to 2.0% per annum at 31 December 2005 with
maturities through 2015 51 110 34 89
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 26 121 1 92
-------------------------------------------------------------------------------------------------------------------------------
Long-term other loans 195 348 70 197
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company and fellow subsidiaries
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Interest free with maturity in 2020 35,561 35,561 35,561 35,561
Renminbi loans Interest rates ranging from
5.0% to 5.2% per annum
at 31 December 2005 with
maturities through 2009 4,401 3,204 3,751 2,756
-------------------------------------------------------------------------------------------------------------------------------
Less: Current portion 100 2,000 100 2,000
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company and fellow subsidiaries 39,862 36,765 39,212 36,317
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans of jointly controlled entities
from Sinopec Group Company and fellow subsidiaries
-------------------------------------------------------------------------------------------------------------------------------
Renminbi loans Floating rate at 90% of PBOC's base
lending rate applicable to three-year
tenor loan per annum at 31 December 2005
with maturities through 2021 71 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Long-term loans of jointly controlled entities
from Sinopec Group Company and fellow subsidiaries 71 -- -- --
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
103,492 94,087 89,113 82,332
-------------------------------------------------------------------------------------------------------------------------------
26 LONG-TERM LOANS (Continued)
The maturity analysis of the Group's and the Company's long-term loans is
as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Between one and two years 18,787 15,886 16,420 12,363
------------------------------------------------------------------------------------------------------------------------
Between two and five years 39,142 36,041 34,771 31,279
After five years 45,563 42,160 37,922 38,690
------------------------------------------------------------------------------------------------------------------------
Total long-term loans 103,492 94,087 89,113 82,332
------------------------------------------------------------------------------------------------------------------------
At 31 December 2005, the Group and the Company had secured loans from third
parties amounting to RMB 35 million (2004: RMB 40 million) and RMB 13
million (2004: RMB 9 million) respectively. At 31 December 2005, the Group
had loans secured by long-term investments from third parties amounting to
RMB 3,899 million (2004: RMB nil). All long-term other loans are unsecured.
Except for the balances disclosed in Note 41, there is no amount due to
shareholders who hold 5% or more voting right of the Company included in
the balance of long-term loans.
27 DEBENTURES PAYABLE
The Group and the Company
Interest rate and final maturity 2005 2004
RMB millions RMB millions
Short-term corporate bonds Effective rate at 2.54% per annum, redeemable in April 2006 (i) 9,921 --
---------------------------------------------------------------------------------------------------------------------------------
Corporate bonds Fixed rate at 4.61% per annum, redeemable in February 2014 (ii) 3,500 3,500
---------------------------------------------------------------------------------------------------------------------------------
(i) The Company issued six-month corporate bonds of face value at RMB 10
billion to corporate investors in PRC debenture market on 24 October
2005, at a discounted value of RMB 98.75 per RMB 100 par value, with
an effective yield at 2.54% per annum with maturity in April 2006.
(ii) The Company issued ten years corporate bonds of RMB 3.5 billion to
PRC citizens as well as PRC legal and non-legal persons on 24
February 2004, guaranteed by Sinopec Group Company with a fixed
interest rate at 4.61% per annum and annual interest payment
schedule. Interest payable for the current period was included in
accrued expenses.
28 OTHER LONG-TERM LIABILITIES
Other long-term liabilities primarily represent provision for future
dismantlement of oil and gas properties, the costs arising from
environmental restoration and specific research and development projects.
29 SHARE CAPITAL
The Group and the Company
2005 2004
RMB millions RMB millions
Registered, issued and fully paid:
-----------------------------------------------------------------------------------------------------------------------
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
16,780,488,000 H shares of RMB 1.00 each 16,780 16,780
2,800,000,000 A shares of RMB 1.00 each 2,800 2,800
-----------------------------------------------------------------------------------------------------------------------
86,702 86,702
-----------------------------------------------------------------------------------------------------------------------
The Company was established on 25 February 2000 with a registered capital
of 68.8 billion state-owned domestic shares with a par value of RMB 1.00
each, which were all held by Sinopec Group Company (see Note 1).
Pursuant to the resolutions passed in the Extraordinary General Meeting of
the Company held on 25 July 2000 and the approval from relevant
authorities, the Company issued 15,102,439,000 H shares with a par value of
RMB 1.00 each in its initial global offering in October 2000. The shares
include 12,521,864,000 H shares and 25,805,750 American Depositary Shares
("ADSs", each representing 100 H shares) at prices of HK$ 1.59 and US$
20.645 respectively. As part of the offering, 1,678,049,000 shares were
offered in placing to Hong Kong and overseas investors.
In July 2001, the Company issued 2,800,000,000 domestic listed A shares
with a par value of RMB 1.00 each at RMB 4.22.
All the domestic ordinary shares and H shares rank pari passu in all
material aspects.
KPMG Huazhen had verified the above paid-in capital. The capital
verification reports, KPMG-C (2000) CV No. 0007, KPMG-C (2001) CV No. 0002
and KPMG-C (2001) CV No. 0006 were issued on 22 February 2000, 27 February
2001 and 23 July 2001 respectively.
30 CAPITAL RESERVE
The movements in capital reserve are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 37,121 36,852 37,797 36,852
----------------------------------------------------------------------------------------------------------------------
Government grants (i) -- 269 -- 269
Reserve for equity investment (ii) -- -- -- 676
----------------------------------------------------------------------------------------------------------------------
Balance at 31 December 37,121 37,121 37,797 37,797
----------------------------------------------------------------------------------------------------------------------
(i) During the year ended 31 December 2004, the Group received subsidy on
investments amounted to RMB 269 million, pursuant to Fa Gai Tou Zi
[2004] No. 1248 "Notice on the Enterprise Technology Reform and
Industry Upgrade regarding the First Batch State Debt's Project Fund
Plan in 2004" issued by the National Development and Reform
Commission and the MOF. This fund is used for technology improvement
projects.
(ii) During the year ended 31 December 2004, the Company invested in
certain newly established subsidiaries with certain non-monetary
assets. The initial investment costs are determined based on the
assets' revalued amount. The shortfalls of the initial investment
costs over the Company's share of the shareholders' funds in these
subsidiaries resulting from the surplus of the assets' revalued
amount over the carrying amount are recognised in the Company's
capital reserve. Such reserve for equity investment has been
eliminated in the Group's consolidated financial statements.
31 SURPLUS RESERVES
Movements in surplus reserves are as follows:
The Group and the Company
Statutory Statutory Discretionary
surplus public surplus
reserve welfare fund reserve Total
RMB millions RMB millions RMB millions RMB millions
At 1 January 2004 6,330 6,330 7,000 19,660
----------------------------------------------------------------------------------------------------------------------
Appropriation of net profit 3,228 3,228 -- 6,456
----------------------------------------------------------------------------------------------------------------------
At 31 December 2004 9,558 9,558 7,000 26,116
----------------------------------------------------------------------------------------------------------------------
At 1 January 2005 9,558 9,558 7,000 26,116
----------------------------------------------------------------------------------------------------------------------
Appropriation of net profit 3,956 3,956 -- 7,912
----------------------------------------------------------------------------------------------------------------------
At 31 December 2005 13,514 13,514 7,000 34,028
----------------------------------------------------------------------------------------------------------------------
The Articles of Association of the Company and the following profit
appropriation plans had been approved at the Extraordinary General Meeting
held on 25 July 2000:
(a) 10% of the net profit is transferred to the statutory surplus
reserve;
(b) 5% to 10% of the net profit is transferred to the statutory public
welfare fund; and
(c) after the transfer to the statutory surplus reserve and the statutory
public welfare fund, a transfer to discretionary surplus reserve can
be made upon the passing of a resolution at the shareholders'
meeting.
32 INCOME FROM PRINCIPAL OPERATIONS
The income from principal operations represents revenue from sales of crude
oil, natural gas, petroleum and chemical products net of value added tax.
The Group's segmental information is set out in Note 46.
During the year ended 31 December 2005, revenue from sales to top five
customers amounted to RMB 62,115 million (2004: RMB 58,691 million) which
accounted for 8% (2004: 10%) of income from principal operations of the
Group.
33 SALES TAXES AND SURCHARGES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Consumption tax 12,430 11,847 8,932 7,981
------------------------------------------------------------------------------------------------------------------------
City construction tax 2,575 2,505 1,297 1,261
Education surcharge 1,305 1,243 658 624
Resources tax 634 452 201 114
Business tax 208 156 161 114
------------------------------------------------------------------------------------------------------------------------
Total 17,152 16,203 11,249 10,094
------------------------------------------------------------------------------------------------------------------------
34 FINANCIAL EXPENSES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Interest expenses incurred 7,166 4,909 4,596 3,067
-------------------------------------------------------------------------------------------------------------------------
Less: Capitalised interest expenses 601 327 455 231
-------------------------------------------------------------------------------------------------------------------------
Net interest expenses 6,565 4,582 4,141 2,836
-------------------------------------------------------------------------------------------------------------------------
Interest income (382) (359) (123) (144)
-------------------------------------------------------------------------------------------------------------------------
Foreign exchange losses 79 167 17 130
Foreign exchange gains (996) (59) (496) (52)
-------------------------------------------------------------------------------------------------------------------------
Total 5,266 4,331 3,539 2,770
-------------------------------------------------------------------------------------------------------------------------
35 EXPLORATION EXPENSES
Exploration expenses include geological and geophysical expenses and
written off of dry hole costs.
36 INVESTMENT INCOME
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Investment income accounted for under the cost method 255 216 76 84
-------------------------------------------------------------------------------------------------------------------------------
Amortisation of equity investment differences (200) (186) (201) (157)
Impairment losses of investment (77) (96) (14) (2)
Investment income accounted for under the equity method 835 1,154 51,785 39,449
-------------------------------------------------------------------------------------------------------------------------------
Total 813 1,088 51,646 39,374
-------------------------------------------------------------------------------------------------------------------------------
37 SUBSIDY INCOME
The Group received a cash government grant from the Ministry of Finance of
the PRC of RMB 9,415 million (2004: RMB nil) as a compensation of loss
incurred due to the distortion of the correlation of domestic refined
petroleum product prices and the crude oil prices during the year ended 31
December 2005. There are no unfilled conditions and other contingencies
attached to the receipt of this government grant. There is no assurance
that the Group will continue to receive such grant in the future.
38 NON-OPERATING EXPENSES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Loss on disposal of fixed assets 2,422 4,304 1,826 2,733
----------------------------------------------------------------------------------------------------------------------
Impairment losses on fixed assets 1,851 4,628 1,082 3,417
Fines, penalties and compensation 160 280 149 273
Donations 203 275 144 91
Employee reduction expenses (Note) 369 919 119 745
Others 964 765 647 620
----------------------------------------------------------------------------------------------------------------------
Total 5,969 11,171 3,967 7,879
----------------------------------------------------------------------------------------------------------------------
Note: During the year ended 31 December 2005, in accordance with the
Group's voluntary employee reduction plan, the Group recorded
employee reduction expenses of RMB 369 million relating to the
reduction of approximately 7,000 employees.
During the year ended 31 December 2004, in accordance with the
Group's voluntary employee reduction plan, and in connection with the
Acquisition of Acquired Assets from and Disposal of Downhole Assets
to Sinopec Group Company, the Group recorded employee reduction
expenses of RMB 919 million relating to the reduction of
approximately 24,000 employees.
39 INCOME TAX
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Provision for PRC income tax for the year 20,159 18,405 17,137 16,815
-----------------------------------------------------------------------------------------------------------------------------
Deferred taxation (1,733) (2,439) 489 (2,198)
Adjustment for provision for income tax in
respect of proceeding year 477 94 512 152
-----------------------------------------------------------------------------------------------------------------------------
Total 18,903 16,060 18,138 14,769
-----------------------------------------------------------------------------------------------------------------------------
40 DIVIDENDS
(a) Dividends of ordinary shares proposed after the balance sheet date
Pursuant to a resolution passed at the Board of Directors' meeting on
31 March 2006, a final dividend in respect of the year ended 31
December 2005 of RMB 0.09 per share totalling RMB 7,803 million was
proposed for shareholders' approval at the Annual General Meeting.
(b) Dividends of ordinary shares declared during the year
Pursuant to the Articles of Association of the Company and the
resolution passed at the Directors' meeting on 26 August 2005, an
interim dividend for the year ending 31 December 2005 of RMB 0.04
(2004: RMB 0.04) per share totalling RMB 3,468 million (2004: RMB
3,468 million) was declared.
Pursuant to the shareholders' approval at the Annual General Meeting
on 18 May 2005, a final dividend of RMB 0.08 per share totalling RMB
6,936 million in respect of the year ended 31 December 2004 was
declared and paid on 18 May 2005.
Pursuant to the shareholders' approval at the Annual General Meeting
on 18 May 2004, a final dividend of RMB 0.06 per share totalling RMB
5,202 million in respect of the year ended 31 December 2003 was
declared and paid on 28 June 2004.
41 RELATED PARTIES AND RELATED PARTY TRANSACTIONS
(a) Related parties having the ability to exercise control over the Group
The name of the company : China Petrochemical Corporation
Registered address : No. 6A, Huixin East Street, Chaoyang District, Beijing
Principal activities : Processing crude oil into refined products and petrochemical products,
petrochemical products which include: petrochemical products made
from crude oil and natural gas; production, sale and import and
export of synthetic fibre and synthetic fibre monomer.
Relationship with the Group : Ultimate holding company
Types of legal entity : State-owned
Authorised representative : Chen Tonghai
Registered capital : RMB 104,912 million
There is no movement in the above registered capital for the year ended 31
December 2005.
Change of the Company's equity interests held by Sinpec Group Company is as
follows:
From 1 January 2005 to 19 December 2005 67.92%
From 20 December 2005 to 31 December 2005 71.23%
(b) Related parties not having the ability to exercise control over the
Group
Related parties under common control of a parent company with the
Company:
Sinopec Finance Company Limited
Nanjing Chemical Industry Company Limited
Sichuan Vinylon Company Nanjing Petrochemical Company
Qingjiang Petrochemical Limited Liability Company
Baoding Petrochemical Company
Baling Petrochemical Yueyang Petrochemical Company
Tianjin United Chemical Company
Zhanjiang Dongxing Petroleum Corporation Company Limited
Qingdao Petrochemical Company
Baling Petrochemical Company Limited
Jinling Petrochemical Company Limited
Yangzi Petrochemical Company Limited
Guangdong Nanhua Petroleum Company Limited
Associates of the Company:
Sinopec Railway Oil Marketing Company Limited
Sinopec Changjiang Fuel Company Limited
China Shipping & Sinopec Suppliers Company Limited
41 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)
(b) Related parties not having the ability to exercise control over the
Group (Continued)
Jointly controlled entities of the Group:
Shanghai Secco Petrochemical Company Limited
BASF-YPC Company Limited
Yueyang Sinopec and Shell Coal Gasification Company Limited
Block A Oil Field in the Western Area Chengdao in Bohai Bay
(c) The principal related party transactions carried out in the ordinary
course of business are as follows:
Note 2005 2004
RMB millions RMB millions
Sales of goods (i) 95,123 72,015
Purchases (ii) 48,454 40,911
Transportation and storage (iii) 1,959 2,003
Exploration and development services (iv) 17,001 14,446
Production related services (v) 10,653 9,123
Ancillary and social services (vi) 1,790 1,776
Operating lease charges (vii) 3,213 3,365
Agency commission income (viii) 48 41
Intellectual property license fee paid (ix) 9 10
Interest received (x) 52 59
Interest paid (xi) 994 622
Net deposits (withdrawn from)/placed with related parties (xii) (82) 407
Net loans (paid to)/obtained from related parties (xiii) (4,714) 3,787
The amounts set out in the table above in respect of the years ended 31
December 2005 and 2004 represent the relevant costs to the Group and
income from related parties as determined by the corresponding contracts
with the related parties.
At 31 December 2005 and 2004, there were no guarantees given to banks by
the Group in respect of banking facilities to Sinopec Group Company and
fellow subsidiaries.
The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course
of business and on normal commercial terms or in accordance with the
agreements governing such transactions, and this has been confirmed by
the independent non-executive directors.
Notes:
(i) Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary
materials.
(ii) Purchases represent the purchase of material and utility supplies
directly related to the Group's operations such as the
procurement of raw and ancillary materials and related services,
supply of water, electricity and gas.
(iii) Transportation and storage represent the cost for the use of
railway, road and marine transportation services, pipelines,
loading, unloading and storage facilities.
(iv) Exploration and development services comprise direct costs
incurred in the exploration of crude oil such as geophysical,
drilling, well testing and well measurement services.
(v) Production related services represent ancillary services rendered
in relation to the Group's operations such as equipment repair
and general maintenance, insurance premium, technical research,
communications, fire fighting, security, product quality testing
and analysis, information technology, design and engineering,
construction which includes the construction of oilfield ground
facilities, refineries and chemical plants, manufacture of
replacement parts and machinery, installation, project management
and environmental protection.
(vi) Ancillary and social services represent expenditures for social
welfare and support services such as educational facilities,
media communication services, sanitation, accommodation,
canteens, property maintenance and management services.
(vii) Operating lease charges represent the rental paid to Sinopec
Group Company for operating leases in respect of land, buildings
and equipments.
(viii) Agency commission income represents commission earned for acting
as an agent in respect of sales of products and purchase of goods
of certain entities owned by Sinopec Group Company.
(ix) Intellectual property license fee represents reimbursement paid
to Sinopec Group Company for fees required to maintain the
validity of certain licenses for trademarks, patents, technology
and computer software.
(x) Interest received represents interest received from deposits
placed with Sinopec Finance Company Limited, a finance company
controlled by Sinopec Group Company. The applicable interest rate
is determined in accordance with the prevailing saving deposit
rate.
(xi) Interest paid represents interest charges on the loans obtained
from Sinopec Group Company and Sinopec Finance Company Limited.
(xii) Deposits were withdrawn from/placed with Sinopec Finance Company
Limited.
(xiii) The Group obtained/repaid loans from/to Sinopec Group Company and
Sinopec Finance Company Limited. The calculated periodic balance
of average loan for the year ended 31 December 2005, which is
based on monthly average balances, was RMB 42,518 million (2004:
RMB 42,696 million).
41 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued)
In connection with the Reorganisation, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social
and supporting services to the Group and 2) the Group will sell certain
goods to Sinopec Group Company. These agreements impacted the operating
results of the Group for the year ended 31 December 2005. The terms of
these agreements are summarised as follows:
(a) The Company entered into an Agreement for Mutual Provision of
Products and Ancillary Services ("Mutual Provision Agreement")
with Sinopec Group Company in which Sinopec Group Company has
agreed to provide the Group with certain ancillary production
services, construction services, information advisory services,
supply services and other services and products. While each of
Sinopec Group Company and the Company is permitted to terminate
the Mutual Provision Agreement upon at least six months' notice,
Sinopec Group Company agrees not to terminate the agreement if
the Group is unable to obtain comparable services from a third
party. The pricing policy for these services and products
provided by Sinopec Group Company to the Group is as follows:
o the government-prescribed price;
o where there is no government-prescribed price, the
government guidance price;
o where there is neither a government-prescribed price nor a
government guidance price, the market price; or
o where none of the above is applicable, the price to be
agreed between the parties, which shall be based on a
reasonable cost incurred in providing such services plus a
profit margin not exceeding 6%.
(b) The Company has entered into an Agreement for Provision of
Cultural and Educational, Health Care and Community Services with
Sinopec Group Company effective from 1 January 2000 in which
Sinopec Group Company has agreed to provide the Group with
certain cultural, educational, health care and community services
on the same pricing terms and termination conditions as agreed to
in the above Mutual Provision Agreement.
(c) The Company has entered into a number of lease agreements with
Sinopec Group Company to lease certain land and buildings at a
rental of approximately RMB 2,557 million and RMB 568 million,
respectively, per annum. The Company and Sinopec Group Company
can renegotiate the rental amount every three years for land and
every year for buildings, such amount not to exceed the market
price as determined by an independent third party. The Group has
the option to terminate these leases upon six months notice to
Sinopec Group Company.
(d) The Company has entered into agreements with Sinopec Group
Company effective from 1 January 2000 under which the Group has
been granted the right to use certain trademarks, patents,
technology and computer software developed by Sinopec Group
Company. The Group will reimburse Sinopec Group Company for fees
required to maintain the validity of these licenses.
(e) The Company has entered into a service station franchise
agreement with Sinopec Group Company under which its service
station and retail stores would exclusively sell the refined
products supplied by the Group.
(d) Balances with related parties
The balances with the Group's related parties at 31 December 2005 and
2004 are as follows:
The ultimate holding company Other related companies
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Cash and cash equivalent -- -- 4,589 4,671
Trade accounts receivable -- -- 4,126 2,438
Advance payments and other receivables 1,507 2,502 1,986 3,391
Trade accounts payable -- -- 3,005 1,527
Receipts in advance -- -- 1,726 1,218
Other creditors 986 4,851 4,432 4,828
Short-term loans -- -- 732 6,714
Long-term loans (including current portion) (Note) -- -- 40,033 38,765
Note: The Sinopec Group Company had borrowed an interest free loan for
20 years amounted to RMB 35,561 million to the Group through
Sinopec Finance Company Limited which was included in the
long-term loans.
42 PRINCIPAL SUBSIDIARIES
The Company's principal subsidiaries are limited companies operating in the
PRC and had been consolidated into the Group's financial statements for the
year ended 31 December 2005. Except for Sinopec Kantons Holdings Limited,
which is incorporated in Bermuda, the companies below are incorporated in
the PRC. The following list contains only the particulars of subsidiaries
which principally affected the results or assets of the Group:
Percentage of
Registered equity interest
capital/paid-up held by the
Name of enterprise capital Group Principal activities
RMB millions %
China Petrochemical International Company Limited 1,704 100.00 Trading of crude oil and
petrochemical products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanshan Petrochemical Company Limited 3,404 100.00 Manufacturing of chemical products
("Beijing Yanhua") (i)
------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited 1,700 100.00 Marketing and distribution of
refined petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company Limited 29,000 100.00 Exploration and production of
crude oil and natural gas
------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical 2,253 50.00 Manufacturing of plastics,
Company Limited (ii) intermediate petrochemical products
and petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical Company Limited 1,950 82.05 Manufacturing of intermediate
petrochemical products and
petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical 7,200 55.56 Manufacturing of synthetic fibres,
Company Limited resin and plastics, intermediate
petrochemical products and
petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining Chemical 1,154 79.73 Manufacturing of intermediate
Company Limited petrochemical products and
petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings Limited HK$104 72.40 Trading of crude oil and petroleum
products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum Group 147 46.25 Marketing and distribution of
Company Limited (ii) refined petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix Company Limited (ii) 519 40.72 Manufacturing of petrochemical
products and petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical Company Limited 2,330 84.98 Manufacturing of intermediate
petrochemical products and
petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre 4,000 42.00 Production and sale of polyester
Company Limited (ii) chips and polyester fibres
------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and 2,524 71.32 Manufacturing of intermediate
Chemical Company Limited petrochemical products and
petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum Company Limited 875 70.85 Exploration and production of crude
oil and natural gas
------------------------------------------------------------------------------------------------------------------------------
Zhongyuan Petrochenmical Company Limited 2,400 93.51 Manufacturing of chemical products
Sinopec Shell (Jiangsu) Petrochemical 830 60.00 Marketing and distribution of refined
Marketing Company Limited petroleum products
------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) Petrochemical 800 60.00 Marketing and distribution of refined
Company Limited petroleum products
------------------------------------------------------------------------------------------------------------------------------
Sinopec Qingdao Refining and 800 85.00 Manufacturing of intermediate
Chemical Company Limited petrochemical products and
petroleum products
------------------------------------------------------------------------------------------------------------------------------
(i) During the year the Group acquired the entire 1,012,000,000 H shares,
representing approximately 29.99% of the issued share capital of
Beijing Yanhua.
(ii) The Company consolidated the results of these entities because the
Company controlled the board of these entities and had the power to
govern their financial and operating policies.
43 PRINCIPAL JOINTLY CONTROLLED ENTITIES
At 31 December 2005, the Group's and the Company's principal jointly
controlled entities are as follows:
Percentage of
Percentage of equity interest
Registered equity interest held by the
Name of jointly capital/paid-up held by the Group's
controlled entities capital Company subsidiaries Principal activities
%
Shanghai Secco Petrochemical Registered capital 30.00 20.00 Manufacturing and
distribution of
Company Limited USD 901,440,964 petrochemical products
-------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited Registered capital 30.00 10.00 Manufacturing and distribution
RMB 8,793,000,000 of petrochemical products
-------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Registered capital 50.00 -- Manufacturing and
distribution of
Gasification Company Limited USD 45,588,700 industrial gas
-------------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western Area -- -- 43.00 Exploration and production of
Chengdao in Bohai Bay crude oil and natural gas
-------------------------------------------------------------------------------------------------------------------------------
44 COMMITMENTS
Operating lease commitments
The Group and the Company lease service stations and other equipment
through non-cancellable operating leases. These operating leases do not
contain provisions for contingent lease rentals. None of the rental
agreements contain escalation provisions that may require higher future
rental payments.
At 31 December 2005, the future minimum lease payments of the Group and the
Company under operating leases are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 3,593 3,452 3,424 3,272
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 3,442 3,343 3,363 3,237
Between two and three years 3,388 3,278 3,319 3,213
Between three and four years 3,357 3,245 3,292 3,188
Between four and five years 3,353 3,225 3,290 3,170
After five years 95,176 97,527 93,601 95,968
-----------------------------------------------------------------------------------------------------------------------------
Total 112,309 114,070 110,289 112,048
-----------------------------------------------------------------------------------------------------------------------------
Capital commitments
At 31 December 2005, the capital commitments are as follows:
2005 2004
RMB millions RMB millions
The Group
-----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 71,666 43,001
Authorised but not contracted for 84,213 60,173
-----------------------------------------------------------------------------------------------------------------------------
155,879 103,174
-----------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities
-----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 2,160 3,157
Authorised but not contracted for 60 2,088
-----------------------------------------------------------------------------------------------------------------------------
2,220 5,245
-----------------------------------------------------------------------------------------------------------------------------
The Company
-----------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 55,496 28,143
Authorised but not contracted for 45,938 37,619
-----------------------------------------------------------------------------------------------------------------------------
101,434 65,762
-----------------------------------------------------------------------------------------------------------------------------
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interests in associates.
44 COMMITMENTS (Continued)
Exploration and production licenses
Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the
license is issued. The Ministry of Land and Resources also issues
production licenses to the Group on the basis of the reserve reports
approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation was given by the State
Council. The maximum term of the production licenses issued to the Group is
55 years as a special dispensation was given by the State Council. The
Group's production license is renewable upon application by the Group 30
days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB
208 million for the year ended 31 December 2005 (2004: RMB 189 million).
Estimated future annual payments are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 107 90 74 60
---------------------------------------------------------------------------------------------------------------------------
Between one and two years 112 120 81 85
---------------------------------------------------------------------------------------------------------------------------
Between two and three years 59 75 49 47
---------------------------------------------------------------------------------------------------------------------------
Between three and four years 67 67 58 55
---------------------------------------------------------------------------------------------------------------------------
Between four and five years 56 74 49 64
---------------------------------------------------------------------------------------------------------------------------
After five years 239 279 108 143
---------------------------------------------------------------------------------------------------------------------------
Total 640 705 419 454
---------------------------------------------------------------------------------------------------------------------------
45 CONTINGENT LIABILITIES
(a)The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the business
assumed by the Company in the Reorganisation, no other liabilities were
assumed by the Company, and the Company is not jointly and severally
liable for other debts and obligations incurred by Sinopec Group Company
prior to the Reorganisation.
(b)At 31 December 2005, guarantees given by the Group and the Company to
banks in respect of banking facilities granted to the parties below are
as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 2,583 2,656
----------------------------------------------------------------------------------------------------------------------------
Associates and jointly controlled entities 79 4,828 11,986 12,059
----------------------------------------------------------------------------------------------------------------------------
Total 79 4,828 14,569 14,715
----------------------------------------------------------------------------------------------------------------------------
The Company monitors the conditions that are subject to the guarantees
to identify whether it is probable that a loss has occurred, and
recognises any such losses under guarantees when those losses are
estimable. At 31 December 2005 and 2004, it is not probable that the
Company will be required to make payments under the guarantees. Thus no
liability has been accrued for a loss related to the Company's
obligation under the guarantees arrangement.
Environmental contingencies
To date, the Group has not incurred any significant expenditure for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC
government, however, has moved and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to
considerable uncertainties which affect the Group's ability to estimate the
ultimate cost of remediation efforts. These uncertainties include: i) the
exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold; ii) the extent
of required cleanup efforts; iii) varying costs of alternative remediation
strategies; iv) changes in environmental remediation requirements; and v)
the identification of new remediation sites. The amount of such future cost
is indeterminable due to such factors as the unknown magnitude of possible
contamination and the unknown timing and extent of the corrective actions
that may be required. Accordingly, the outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. The Group paid normal routine
pollutant discharge fee of approximately RMB 493 million for the year ended
31 December 2005 (2004: RMB 248 million).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management is of the opinion that any resulting
liabilities will not have a material adverse effect on the financial
position or operating results of the Group.
46 SEGMENTAL INFORMATION
The Group has five operating segments as follows:
(i) Exploration and production - which explores and develops oil fields,
produces crude oil and natural gas and sells such products to the
refining segment of the Group and external customers.
(ii) Refining - which processes and purifies crude oil, which is sourced
from the exploration and production segment of the Group and external
suppliers, and manufactures and sells petroleum products to the
chemicals and marketing and distribution segments of the Group and
external customers.
(iii) Marketing and distribution - which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals - which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products to
external customers.
(v) Others - which largely comprise the trading activities of the import
and export companies of the Group and research and development
undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production, refining, marketing and distribution,
chemicals, and others businesses separately. The reportable segments are
each managed separately because they manufacture and/or distribute distinct
products with different production processes and due to their distinct
operating and gross margin characteristics. In view of the fact that the
Company and its subsidiaries operate mainly in the PRC, no geographical
segment information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of
the Group's segments are the same as those described in the principal
accounting policies (see Note 2). Corporate administrative costs and assets
are not allocated to the operating segments; instead, operating segments
are billed for direct corporate services. Inter-segment transfer pricing is
based on cost plus an appropriate margin, as specified by the Group's
policy.
Reportable information on the Group's operating segments is as follows:
2005 2004
RMB millions RMB millions
Income from principal operations
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production
External sales 19,862 16,109
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 84,423 59,914
-----------------------------------------------------------------------------------------------------------------------------
104,285 76,023
-----------------------------------------------------------------------------------------------------------------------------
Refining
-----------------------------------------------------------------------------------------------------------------------------
External sales 82,810 71,333
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 386,456 281,215
-----------------------------------------------------------------------------------------------------------------------------
469,266 352,548
-----------------------------------------------------------------------------------------------------------------------------
Marketing and distribution
-----------------------------------------------------------------------------------------------------------------------------
External sales 459,292 342,840
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 3,172 2,831
-----------------------------------------------------------------------------------------------------------------------------
462,464 345,671
-----------------------------------------------------------------------------------------------------------------------------
Chemicals
-----------------------------------------------------------------------------------------------------------------------------
External sales 160,783 112,078
-----------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 12,199 10,040
-----------------------------------------------------------------------------------------------------------------------------
172,982 122,118
-----------------------------------------------------------------------------------------------------------------------------
Others
-----------------------------------------------------------------------------------------------------------------------------
External sales 76,368 48,272
--------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 44,897 30,873
-----------------------------------------------------------------------------------------------------------------------------
121,265 79,145
-----------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (531,147) (384,873)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Income from principal operations 799,115 590,632
-----------------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 40,118 36,073
Refining 477,843 340,360
Marketing and distribution 427,308 306,309
Chemicals 149,431 96,994
Others 118,152 78,410
Elimination of inter-segment cost of sales (527,451) (382,736)
-----------------------------------------------------------------------------------------------------------------------------
Cost of sales, sales taxes and surcharges 685,401 475,410
-----------------------------------------------------------------------------------------------------------------------------
Profit from principal operations
-----------------------------------------------------------------------------------------------------------------------------
Exploration and production 59,732 37,997
Refining (7,838) 12,005
Marketing and distribution 35,156 39,362
Chemicals 23,551 25,123
Others 3,113 735
-----------------------------------------------------------------------------------------------------------------------------
Profit from principal operations 113,714 115,222
-----------------------------------------------------------------------------------------------------------------------------
47 POST BALANCE SHEET EVENTS
On 12 November 2005, the Group announced its proposal to privatise Sinopec
Zhenhai Refining & Chemical Company Limited ("Zhenhai"), a non-wholly owned
subsidiary in which the Group holds approximately 71.3% of the equity
interests. According to the proposal, the Group will acquire the entire
723,754,468 H shares, representing approximately 28.7% of the issued share
capital of Zhenhai at HK$ 10.60 per share. The total consideration required
to be paid by the Group is approximately HK$ 7,762 million which will be
settled in cash. Pursuant to the resolution passed in the Special General
Meeting of Zhenhai on 12 January 2006, the shareholders of H shares in
Zhenhai agreed to dispose of and sell their shares in Zhenhai to the Group
at the above mentioned price.
On 15 February 2006, the Group announced its proposals of voluntary general
offers for Sinopec Qilu Petrochemical Company Limited, Sinopec Yangzi
Petrochemical Company Limited, Sinopec Zhongyuan Petroleum Company Limited
and Sinopec Shengli Oilfield Dynamic Company Limited, being non-wholly
owned subsidiaries and an associate in which the Group holds approximately
82%, 85%, 71% and 26% of the equity interests, respectively. According to
the proposals, the Group will acquire the entire shares not held by the
Group in Sinopec Qilu Petrochemical Company Limited, Sinopec Yangzi
Petrochemical Company Limited, Sinopec Zhongyuan Petroleum Company Limited
and Sinopec Shengli Oilfield Dynamic Company Limited. The acquisitions have
been approved by the relevant PRC governmental and regulatory bodies on 6
March 2006. The total consideration required to be paid by the Group is
approximately RMB 14,247 million which will be settled in cash.
48 EXTRAORDINARY GAINS AND LOSSES
Pursuant to "Questions and answers in the prepayment of information
disclosures of companies issuing public shares, No.1 -- Extraordinary gains
and losses" (2004 revised), the extraordinary gains and losses of the Group
are as follows:
2005 2004
MB millions RMB millions
Extraordinary gains and losses for the year:
-----------------------------------------------------------------------------------------------------------------------------
Loss on disposal of fixed assets 2,422 4,304
Employee reduction expenses 369 919
Donations 203 275
Gain on disposal of long-term equity investments (25) (2)
Other non-operating income and expenses, excluding impairment losses on long-lived assets 757 380
Written back of provisions for impairment losses in previous years (1,115) (322)
Subsidy income (9,415) --
Tax effect 2,245 (1,833)
-----------------------------------------------------------------------------------------------------------------------------
Total (4,559) 3,721
-----------------------------------------------------------------------------------------------------------------------------
49 OTHER SIGNIFICANT EVENTS
The Group had no any other significant event required to disclose as at the
approval date of these financial statements.
REPORT OF THE INTERNATIONAL AUDITORS
[GRAPHIC OMITTED]
To the Shareholders of
China Petroleum & Chemical Corporation
(Established in The People's Republic of China with limited liability)
We have audited the financial statements on pages 124 to 163 which have been
prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible for the preparation of financial
statements which give a true and fair view. In preparing financial statements
which give a true and fair view it is fundamental that appropriate accounting
policies are selected and applied consistently, that judgements and estimates
are made which are prudent and reasonable and that the reasons for any
significant departure from applicable accounting standards are stated.
It is our responsibility to form an independent opinion, based on our audit, on
those financial statements and to report our opinion solely to you, as a body,
and for no other purpose. We do not assume responsibility towards or accept
liability to any other person for the contents of this report.
BASIS OF OPINION
We conducted our audit in accordance with Hong Kong Standards on Auditing
issued by the Hong Kong Institute of Certified Public Accountants. An audit
includes examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation
of the financial statements, and of whether the accounting policies are
appropriate to the Company's and the Group's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
financial statements. We believe that our audit provides a reasonable basis for
our opinion.
OPINION
In our opinion, the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 2005 and of the
Group's profit and cash flows for the year then ended and have been properly
prepared in accordance with International Financial Reporting Standards
promulgated by the International Accounting Standards Board and the disclosure
requirements of the Hong Kong Companies Ordinance.
KPMG
Certified Public Accountants
Hong Kong, China, 31 March 2006
(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING
STANDARDS ("IFRS")CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2005
(Amounts in millions, except per share data)
Note 2005 2004
RMB RMB
Turnover and other operating revenues
-----------------------------------------------------------------------------------------------------------------------------
Turnover 3 799,115 597,197
-----------------------------------------------------------------------------------------------------------------------------
Other operating revenues 4 24,002 22,586
-----------------------------------------------------------------------------------------------------------------------------
823,117 619,783
-----------------------------------------------------------------------------------------------------------------------------
Other income 5 9,415 --
-----------------------------------------------------------------------------------------------------------------------------
Operating expenses
-----------------------------------------------------------------------------------------------------------------------------
Purchased crude oil, products and operating supplies and expenses (653,056) (443,590)
-----------------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses 6 (33,709) (31,843)
-----------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation (31,413) (32,342)
Exploration expenses, including dry holes (6,411) (6,396)
Personnel expenses 7 (18,483) (18,634)
Employee reduction expenses 8 (369) (919)
Taxes other than income tax 9 (17,152) (16,324)
Other operating expenses, net 10 (5,125) (6,666)
-----------------------------------------------------------------------------------------------------------------------------
Total operating expenses (765,718) (556,714)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Operating profit 66,814 63,069
-----------------------------------------------------------------------------------------------------------------------------
Finance costs
-----------------------------------------------------------------------------------------------------------------------------
Interest expense 11 (5,920) (4,583)
-----------------------------------------------------------------------------------------------------------------------------
Interest income 382 374
Foreign exchange losses (79) (223)
Foreign exchange gains 996 61
-----------------------------------------------------------------------------------------------------------------------------
Net finance costs (4,621) (4,371)
-----------------------------------------------------------------------------------------------------------------------------
Investment income 178 111
-----------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates 857 797
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Profit before taxation 63,228 59,606
-----------------------------------------------------------------------------------------------------------------------------
Taxation 12 (19,388) (17,815)
-----------------------------------------------------------------------------------------------------------------------------
Profit for the year 43,840 41,791
-----------------------------------------------------------------------------------------------------------------------------
Attributable to:
-----------------------------------------------------------------------------------------------------------------------------
Equity shareholders of the Company 40,920 36,019
-----------------------------------------------------------------------------------------------------------------------------
Minority interests 2,920 5,772
-----------------------------------------------------------------------------------------------------------------------------
Profit for the year 43,840 41,791
-----------------------------------------------------------------------------------------------------------------------------
Dividends payable to equity shareholders of the Company attributable to the year: 16
-----------------------------------------------------------------------------------------------------------------------------
Interim dividend declared during the year 3,468 3,468
Final dividend proposed after the balance sheet date 7,803 6,936
11,271 10,404
-----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share 17 0.47 0.42
-----------------------------------------------------------------------------------------------------------------------------
The notes on pages 130 to 163 form part of these financial statements.
CONSOLIDATED BALANCE SHEET
At 31 December 2005
(Amounts in millions)
Note 2005 2004
RMB RMB
Non-current assets
-------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 18 314,573 284,123
-------------------------------------------------------------------------------------------------------------------------
Construction in progress 19 48,267 46,185
Investments 21 2,926 2,538
Interest in associates 22 9,217 10,222
Deferred tax assets 28 6,072 4,558
Lease prepayments 1,908 750
Long-term prepayments and other assets 24 9,067 5,947
-------------------------------------------------------------------------------------------------------------------------
Total non-current assets 392,030 354,323
-------------------------------------------------------------------------------------------------------------------------
Current assets
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 13,745 16,381
-------------------------------------------------------------------------------------------------------------------------
Time deposits with financial institutions 1,002 1,899
Trade accounts receivable 25 14,532 9,756
Bills receivable 25 7,143 7,812
Inventories 26 89,474 64,329
Prepaid expenses and other current assets 27 19,395 20,094
-------------------------------------------------------------------------------------------------------------------------
Total current assets 145,291 120,271
-------------------------------------------------------------------------------------------------------------------------
Current liabilities
-------------------------------------------------------------------------------------------------------------------------
Short-term debts 29 40,411 32,307
-------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 29 832 8,714
Trade accounts payable 30 52,967 23,792
Bills payable 30 23,243 30,797
Accrued expenses and other payables 31 48,167 45,276
Income tax payable 5,029 5,391
Total current liabilities 170,649 146,277
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Net current liabilities (25,358) (26,006)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 366,672 328,317
-------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
-------------------------------------------------------------------------------------------------------------------------
Long-term debts 29 67,059 60,822
----------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 29 39,933 36,765
Deferred tax liabilities 28 5,902 5,636
Other liabilities 782 1,008
-------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 113,676 104,231
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
252,996 224,086
-------------------------------------------------------------------------------------------------------------------------
Equity
-------------------------------------------------------------------------------------------------------------------------
Share capital 32 86,702 86,702
-------------------------------------------------------------------------------------------------------------------------
Reserves 33 136,854 106,338
-------------------------------------------------------------------------------------------------------------------------
Total equity attributable to equity shareholders of the Company 223,556 193,040
-------------------------------------------------------------------------------------------------------------------------
Minority interests 29,440 31,046
-------------------------------------------------------------------------------------------------------------------------
Total equity 252,996 224,086
Approved and authorised for issue by the board of directors on 31 March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren
Chairman President Director and Chief Financial Officer
The notes on pages 130 to 163 form part of these financial statements.
BALANCE SHEET
At 31 December 2005
(Amounts in millions)
Note 2005 2004
RMB RMB
(Restated)
Non-current assets
--------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 18 170,711 158,011
--------------------------------------------------------------------------------------------------------------------------
Construction in progress 19 39,086 28,948
Investments in subsidiaries 20 75,579 66,930
Investments 21 1,037 158
Interest in associates 22 5,933 6,424
Interest in jointly controlled entities 23 7,280 3,763
Deferred tax assets 28 3,220 3,724
Long-term prepayments and other assets 24 4,316 3,660
--------------------------------------------------------------------------------------------------------------------------
Total non-current assets 307,162 271,618
--------------------------------------------------------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 5,014 6,051
--------------------------------------------------------------------------------------------------------------------------
Time deposits with financial institutions 110 248
Trade accounts receivable 25 8,826 8,245
Bills receivable 25 1,334 1,597
Inventories 26 50,417 34,044
Prepaid expenses and other current assets 27 15,556 26,471
--------------------------------------------------------------------------------------------------------------------------
Total current assets 81,257 76,656
--------------------------------------------------------------------------------------------------------------------------
Current liabilities
--------------------------------------------------------------------------------------------------------------------------
Short-term debts 29 25,059 20,033
--------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 29 3,946 7,727
Trade accounts payable 30 28,833 21,137
Bills payable 30 19,077 21,589
Accrued expenses and other payables 31 40,559 45,565
Income tax payable 2,494 3,142
--------------------------------------------------------------------------------------------------------------------------
Total current liabilities 119,968 119,193
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Net current liabilities (38,711) (42,537)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Total assets less current liabilities 268,451 229,081
--------------------------------------------------------------------------------------------------------------------------
Non-current liabilities
--------------------------------------------------------------------------------------------------------------------------
Long-term debts 29 53,401 49,515
--------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow subsidiaries 29 39,212 36,317
Deferred tax liabilities 28 2,216 2,025
Other liabilities 315 626
--------------------------------------------------------------------------------------------------------------------------
Total non-current liabilities 95,144 88,483
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
173,307 140,598
--------------------------------------------------------------------------------------------------------------------------
Equity
--------------------------------------------------------------------------------------------------------------------------
Share capital 32 86,702 86,702
--------------------------------------------------------------------------------------------------------------------------
Reserves 33 86,605 53,896
--------------------------------------------------------------------------------------------------------------------------
Total equity 173,307 140,598
--------------------------------------------------------------------------------------------------------------------------
Approved and authorised for issue by the board of directors on 31 March 2006.
Chen Tonghai Wang Tianpu Zhang Jiaren
Chairman President Director and Chief Financial Officer
The notes on pages 130 to 163 form part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 2005
(Amounts in millions)
Note 2005 2004
RMB RMB
Net cash generated from operating activities (a) 76,497 69,081
------------------------------------------------------------------------------------------------------------------------
Investing activities
------------------------------------------------------------------------------------------------------------------------
Capital expenditure (63,135) (67,583)
------------------------------------------------------------------------------------------------------------------------
Capital expenditure by jointly controlled entities (2,474) (6,035)
Purchase of investments and investments in associates (2,942) (1,162)
Proceeds from disposal of investments and investments in associates 417 186
Proceeds from disposal of property, plant and equipment 510 317
Acquisition of minority interests in subsidiaries (4,324) --
Purchase of time deposits with financial institutions (565) (1,932)
Maturity of time deposits with financial institutions 1,462 2,217
------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (71,051) (73,992)
------------------------------------------------------------------------------------------------------------------------
Financing activities
------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans 550,557 399,440
------------------------------------------------------------------------------------------------------------------------
Proceeds from bank and other loans of jointly controlled entities 3,954 3,014
Proceeds from issuance of corporate bonds, net of issuing expenses 9,875 3,472
Repayments of bank and other loans (557,432) (388,809)
Distributions to minority interests (1,611) (775)
Contributions from minority interests 129 1,008
Dividend paid (10,404) (8,670)
Cash and cash equivalent distributed to Sinopec Group Company (3,128) (3,652)
------------------------------------------------------------------------------------------------------------------------
Net cash (used in)/generated from financing activities (8,060) 5,028
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (2,614) 117
------------------------------------------------------------------------------------------------------------------------
Effect of foreign exchange rate changes (22) 1
Cash and cash equivalents at 1 January 16,381 16,263
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at 31 December 13,745 16,381
------------------------------------------------------------------------------------------------------------------------
The notes on pages 130 to 163 form part of these financial statements.
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December
2005 (Amounts in millions)
(a) Reconciliation of profit before taxation to net cash generated from
operating activities
2005 2004
RMB RMB
Operating activities
---------------------------------------------------------------------------------------------------------------------------
Profit before taxation 63,228 59,606
---------------------------------------------------------------------------------------------------------------------------
Adjustments for:
Depreciation, depletion and amortisation 31,413 32,342
Dry hole costs 2,992 2,976
Share of profits less losses from associates (857) (797)
Investment income (178) (111)
Interest income (382) (374)
Interest expense 5,920 4,583
Unrealised foreign exchange (gains)/losses (852) 150
Loss on disposal of property, plant and equipment, net 2,095 1,686
Impairment losses on long-lived assets 1,851 3,919
---------------------------------------------------------------------------------------------------------------------------
Operating profit before changes in working capital 105,230 103,980
---------------------------------------------------------------------------------------------------------------------------
Increase in trade accounts receivable (4,773) (494)
---------------------------------------------------------------------------------------------------------------------------
Decrease/(increase) in bills receivable 669 (1,529)
Increase in inventories (24,998) (16,526)
Decrease in prepaid expenses and other current assets 1,647 3,022
(Increase)/decrease in lease prepayments (715) 60
Increase in long-term prepayments and other assets (2,628) (4,199)
Increase in trade accounts payable 28,799 599
(Decrease)/increase in bills payable (7,554) 6,530
Increase/(decrease) in accrued expenses and other payables 7,952 (391)
Decrease in other liabilities (227) (334)
---------------------------------------------------------------------------------------------------------------------------
Cash generated from operations 103,402 90,718
---------------------------------------------------------------------------------------------------------------------------
Interest received 386 374
---------------------------------------------------------------------------------------------------------------------------
Interest paid (6,961) (5,450)
Investment and dividend income received 668 322
Income tax paid (20,998) (16,883)
---------------------------------------------------------------------------------------------------------------------------
Net cash generated from operating activities 76,497 69,081
---------------------------------------------------------------------------------------------------------------------------
The notes on pages 130 to 163 form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2005
(Amounts in millions)
Statutory Discre-
Reva- Statutory public tionary
Share Capital Share luation surplus welfare surplus Other Retained
capital reserve premium reserve reserve fund reserve reserves earnings
RMB RMB RMB RMB RMB RMB RMB RMB RMB
Balance at 1 January 2004 86,702 (18,960) 18,072 30,341 6,330 6,330 7,000 3,868 31,832
----------------------------------------------------------------------------------------------------------------------
Net loss recognised directly
in equity:
Revaluation surplus of
Petrochemical and
Catalyst Assets -- (257) -- 257 -- -- -- 257 --
----------------------------------------------------------------------------------------------------------------------
Impairment losses on
revalued assets (Note 10) -- -- -- (709) -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
-- (257) -- (452) -- -- -- 257 --
----------------------------------------------------------------------------------------------------------------------
Profit for the year -- -- -- -- -- -- -- -- 36,019
----------------------------------------------------------------------------------------------------------------------
Total recognised income for
the year -- (257) -- (452) -- -- -- 257 36,019
----------------------------------------------------------------------------------------------------------------------
Final dividend for 2003
(Note 16) -- -- -- -- -- -- -- -- (5,202)
----------------------------------------------------------------------------------------------------------------------
Interim dividend for 2004
(Note 16) -- -- -- -- -- -- -- -- (3,468)
----------------------------------------------------------------------------------------------------------------------
Appropriation (Note (a)
and (b)) -- -- -- -- 3,228 3,228 -- -- (6,456)
Revaluation surplus
realised -- -- -- (1,891) -- -- -- -- 1,891
Realisation of deferred
tax on land use rights -- -- -- -- -- -- -- (5) 5
Transfer from retained
earnings to other
reserves -- -- -- -- -- -- -- 1,499 (1,499)
Net assets distributed
to Sinopec Group Company
(Note (e)) -- -- -- -- -- -- -- (2,244) --
Consideration for
Acquisition of
Petrochemical and
Catalyst Assets (Note 1) -- -- -- -- -- -- -- (3,128) --
----------------------------------------------------------------------------------------------------------------------
Distributions to minority
interests net of
contribution -- -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 86,702 (19,217) 18,072 27,998 9,558 9,558 7,000 247 53,122
----------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 86,702 (19,217) 18,072 27,998 9,558 9,558 7,000 247 53,122
----------------------------------------------------------------------------------------------------------------------
Profit for the year -- -- -- -- -- -- -- -- 40,920
Final dividend for
2004 (Note 16) -- -- -- -- -- -- -- -- (6,936)
Interim dividend for
2005 (Note 16) -- -- -- -- -- -- -- -- (3,468)
Appropriation (Note
(a) and (b)) -- -- -- -- 3,956 3,956 -- -- (7,912)
Revaluation surplus
realised -- -- -- (1,656) -- -- -- -- 1,656
Realisation of deferred
tax on land use
rights -- -- -- -- -- -- -- (5) 5
Acquisition of minority
interests in
subsidiaries -- -- -- -- -- -- -- -- --
Distributions to
minority interests
net of contribution -- -- -- -- -- -- -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 86,702 (19,217) 18,072 26,342 13,514 13,514 7,000 242 77,387
----------------------------------------------------------------------------------------------------------------------
Chart continued:
Total equity
attributable
to equity
shareholders
of the Minority Total
Company interests equity
RMB RMB RMB
Balance at 1 January 2004 171,515 26,051 197,566
-------------------------------------------------------------------
Net loss recognised directly
in equity:
Revaluation surplus of
Petrochemical and
Catalyst Assets 257 -- 257
-------------------------------------------------------------------
Impairment losses on
revalued assets (Note 10) (709) -- (709)
-------------------------------------------------------------------
(452) -- (452)
-------------------------------------------------------------------
Profit for the year 36,019 5,772 41,791
-------------------------------------------------------------------
Total recognised income for
the year 35,567 5,772 41,339
-------------------------------------------------------------------
Final dividend for 2003
(Note 16) (5,202) -- (5,202)
-------------------------------------------------------------------
Interim dividend for 2004
(Note 16) (3,468) -- (3,468)
-------------------------------------------------------------------
Appropriation (Note (a)
and (b)) -- -- --
Revaluation surplus
realised -- -- --
Realisation of deferred
tax on land use rights -- -- --
Transfer from retained
earnings to other
reserves -- -- --
Net assets distributed
to Sinopec Group Company
(Note (e)) (2,244) -- (2,244)
Consideration for
Acquisition of
Petrochemical and
Catalyst Assets (Note 1) (3,128) -- (3,128)
-------------------------------------------------------------------
Distributions to minority
interests net of
contribution -- (777) (777)
-------------------------------------------------------------------
Balance at 31 December 2004 193,040 31,046 224,086
-------------------------------------------------------------------
Balance at 1 January 2005 193,040 31,046 224,086
-------------------------------------------------------------------
Profit for the year 40,920 2,920 43,840
Final dividend for
2004 (Note 16) (6,936) -- (6,936)
Interim dividend for
2005 (Note 16) (3,468) -- (3,468)
Appropriation (Note
(a) and (b)) -- -- --
Revaluation surplus
realised -- -- --
Realisation of deferred
tax on land use
rights -- -- --
Acquisition of minority
interests in
subsidiaries -- (2,957) (2,957)
Distributions to
minority interests
net of contribution -- (1,569) (1,569)
-------------------------------------------------------------------
Balance at 31 December 2005 223,556 29,440 252,996
-------------------------------------------------------------------
Notes:
(a) According to the Company's Articles of Association, the Company is required
to transfer 10% of its net profit, as determined in accordance with the PRC
Accounting Rules and Regulations, to statutory surplus reserve until the
reserve balance reaches 50% of the registered capital. The transfer to this
reserve must be made before distribution of a dividend to shareholders.
Statutory surplus reserve can be used to make good previous years' losses,
if any, and may be converted into share capital by the issue of new shares
to shareholders in proportion to their existing shareholdings or by
increasing the par value of the shares currently held by them, provided
that the balance after such issue is not less than 25% of the registered
capital. During the year ended 31 December 2005, the Company transferred
RMB 3,956 million (2004: RMB 3,228 million), being 10% of the current
year's net profit determined in accordance with the PRC Accounting Rules
and Regulations, to this reserve.
(b) According to the Company's Articles of Association, the Company is required
to transfer 5% to 10% of its net profit, as determined in accordance with
the PRC Accounting Rules and Regulations, to the statutory public welfare
fund. This fund can only be utilised on capital items for the collective
benefits of the Company's employees such as the construction of
dormitories, canteen and other staff welfare facilities. This fund is
non-distributable other than on liquidation. The transfer to this fund must
be made before distribution of a dividend to shareholders.
Pursuant to the Company's Articles of Associations and a resolution passed
at the Directors' meeting on 26 August 2005, the directors authorised to
transfer RMB 1,804 million (2004: RMB 1,504 million) for the six-month
period ended 30 June 2005, being 10% of the net profit for the six-month
period ended 30 June 2005 determined in accordance with the PRC Accounting
Rules and Regulations, to this fund.
The directors authorised the transfer of RMB 2,152 million (2004: RMB 1,724
million), subject to the shareholders' approval, being 10% of the net
profit for the six-month period ended 31 December 2005 determined in
accordance with the PRC Accounting Rules and Regulations, to this fund.
(c) The usage of the discretionary surplus reserve is similar to that of
statutory surplus reserve.
(d) According to the Company's Articles of Association, the amount of retained
earnings available for distribution to equity shareholders of the Company
is the lower of the amount determined in accordance with the PRC Accounting
Rules and Regulations and the amount determined in accordance with IFRS. At
31 December 2005, the amount of retained earnings available for
distribution was RMB 20,591 million, being the amount determined in
accordance with IFRS. Final dividend of RMB 7,803 million (2004: RMB 6,936
million) proposed after the balance sheet date has not been recognised as a
liability at the balance sheet date.
(e) The net assets distributed to Sinopec Group Company during the year ended
31 December 2004 represent certain net assets retained, including certain
property, plant and equipment with net book value of RMB 1,840 million and
certain construction in progress with net book value of RMB 232 million, by
Sinopec Group Company in connection with the Acquisition of Petrochemical
and Catalyst Assets. These transactions were recorded at historical cost
and were reflected as changes in other reserves in the year the acquisition
occurred.
(f) The capital reserve represents (i) the difference between the total amount
of the par value of shares issued and the amount of the net assets
transferred from Sinopec Group Company in connection with the
Reorganisation and (ii) the difference between the considerations paid over
the amount of the net assets acquired from Sinopec National Star, Sinopec
Maoming, Xi'an Petrochemical, Tahe Petrochemical, Tianjin Petrochemical,
Luoyang Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants.
(g) The application of the share premium account is governed by Sections 178
and 179 of the PRC Company Law.
The notes on pages 130 to 163 form part of these financial statements.
NOTES ON THE FINANCIAL STATEMENTS
for the year ended 31 December 2005
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION
Principal activities
China Petroleum & Chemical Corporation (the "Company") is an energy and
chemical company that, through its subsidiaries (hereinafter collectively
referred to as the "Group"), engages in fully integrated oil and gas and
chemical operations in the People's Republic of China (the "PRC"). Oil and
gas operations consist of exploring for, developing and producing crude oil
and natural gas; transporting crude oil, natural gas and products by
pipelines; refining crude oil into finished petroleum products; and
marketing crude oil, natural gas and refined petroleum products. Chemical
operations include the manufacture and marketing of a wide range of
chemicals for industrial uses.
Organisation
The Company was established in the PRC on 25 February 2000 as a joint stock
limited company as part of the reorganisation (the "Reorganisation") of
China Petrochemical Corporation ("Sinopec Group Company"), the ultimate
holding company of the Group and a ministry-level enterprise under the
direct supervision of the State Council of the PRC. Prior to the
incorporation of the Company, the oil and gas and chemical operations of
the Group were carried on by oil administration bureaux, petrochemical and
refining production enterprises and sales and marketing companies of
Sinopec Group Company.
On 25 February 2000, in connection with the Reorganisation, certain of
Sinopec Group Company's core oil and gas and chemical operations and
businesses together with the related assets and liabilities were
transferred to the Company. In consideration for Sinopec Group Company
transferring such oil and gas and chemical operations and businesses and
the related assets and liabilities to the Company, the Company issued 68.8
billion domestic state-owned ordinary shares with a par value of RMB 1.00
each to Sinopec Group Company. The shares issued to Sinopec Group Company
on 25 February 2000 represented the entire registered and issued share
capital of the Company at that date. The oil and gas and chemical
operations and businesses transferred to the Company related to (i) the
exploration, development and production of crude oil and natural gas, (ii)
the refining, transportation, storage and marketing of crude oil and
petroleum products, and (iii) the production and sale of chemicals
(collectively the "Predecessor Operations").
Pursuant to the resolution passed at the Extraordinary General Meeting held
on 24 August 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from
Sinopec Group Company for a consideration of RMB 6.45 billion (hereinafter
referred to as the "Acquisition of Sinopec National Star").
Pursuant to the resolution passed at the Directors' meeting on 28 October
2003, the Group acquired the equity interest of Sinopec Group Maoming
Petrochemical Company ("Sinopec Maoming") from Sinopec Group Company, for a
consideration of RMB 3.3 billion which was paid in 2004 (hereinafter
referred to as the "Acquisition of Ethylene Assets").
Pursuant to the resolution passed at the Directors' meeting on 29 December
2003, the Group acquired the equity interest of Xi'an Petrochemical Main
Factory ("Xi'an Petrochemical") and Tahe Oilfield Petrochemical Factory
("Tahe Petrochemical") from Sinopec Group Company, for considerations of
RMB 221 million and RMB 135 million, respectively which were paid in 2004
(hereinafter referred to as the "Acquisition of Refining Assets").
Pursuant to the resolutions passed at the Extraordinary General Meeting
held on 21 December 2004, the Group acquired the equity interest of Sinopec
Group Tianjin Petrochemical Company ("Tianjin Petrochemical"), Sinopec
Group Luoyang Petrochemical General Plant ("Luoyang Petrochemical"),
Zhongyuan Petrochemical Company Limited ("Zhongyuan Petrochemical"),
Sinopec Group Guangzhou Petrochemical General Plant ("Guangzhou
Petrochemical") and certain catalyst plants ("Catalyst Plants") from
Sinopec Group Company for a total consideration of RMB 3,128 million which
was fully paid in 2005 (hereinafter referred to as the "Acquisition of
Petrochemical and Catalyst Assets").
Basis of presentation
As the Group, Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical,
Tahe Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants are under the
common control of Sinopec Group Company, these acquisitions are considered
as "combination of entities under common control" and accounted for in a
manner similar to a pooling-of-interests ("as-if pooling-of-interests
accounting"). Accordingly, the assets and liabilities acquired from Sinopec
National Star, Sinopec Maoming, Xi'an Petrochemical, Tahe Petrochemical,
Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan Petrochemical,
Guangzhou Petrochemical and Catalyst Plants have been accounted for at
historical cost and the financial statements of the Group for periods prior
to the combination have been restated to include the results of operations
of Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical, Tahe
Petrochemical, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical, Guangzhou Petrochemical and Catalyst Plants on a combined
basis. In connection with these acquisitions, certain assets, primarily
property, plant and equipment and construction in progress, were retained
by Sinopec Group Company. The assets retained by Sinopec Group Company were
reflected as a distribution in the equity attributable to equity
shareholders of the Company. The considerations for these acquisitions were
treated as equity transactions.
The accompanying financial statements have been prepared in accordance with
IFRS promulgated by the International Accounting Standards Board ("IASB").
IFRS includes International Accounting Standards ("IAS") and related
interpretations. These financial statements also comply with the disclosure
requirements of the Hong Kong Companies Ordinance and the applicable
disclosure provisions of the Rules Governing the Listing of Securities on
The Stock Exchange of Hong Kong Limited. A summary of the principal
accounting policies adopted by the Group and the Company is set out in Note
2. These accounting policies have been consistently applied by the Group
and the Company, except those disclosed in Note 43.
The IASB has issued a number of new and revised IFRS that are effective or
available for early adoption for accounting periods beginning on or after 1
January 2005. Information on the changes in accounting policies resulting
from initial application of these new and revised IFRS for the current and
prior accounting periods reflected in these financial statements is
provided in Note 43.
The accompanying financial statements are prepared on the historical cost
basis as modified by the revaluation of certain property, plant and
equipment (Note 18).
1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PRESENTATION (Continued)
The preparation of the financial statements in accordance with IFRS
requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both
current and future periods.
Key assumptions and estimation made by management in the application of
IFRS that have significant effect on the financial statements and have a
significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities in the next year are disclosed in Note 41.
2 PRINCIPAL ACCOUNTING POLICIES
(a)Basis of consolidation
The consolidated financial statements comprise the Company and its
subsidiaries, and the Group's interest in associates and jointly
controlled entities.
(i)Subsidiaries
Subsidiaries are those entities controlled by the Company. Control
exists when the Company has the power, directly or indirectly, to
govern the financial and operating policies of an entity so as to
obtain benefits from its activities.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
effectively commences until the date that control effectively ceases.
Minority interests at the balance sheet date, being the portion of
the net assets of subsidiaries attributable to equity interests that
are not owned by the Company, whether directly or indirectly through
subsidiaries, are presented in the consolidated balance sheet and
statement of changes in equity within equity, separately from equity
attributable to the equity shareholders of the Company. Minority
interests in the results of the Group are presented on the face of
the consolidated income statement as an allocation of the total
profit or loss for the year between minority interests and the equity
shareholders of the Company.
In the Company's balance sheet, investments in subsidiaries are
stated at cost less impairment losses (Note 2(k)).
The particulars of the Group's principal subsidiaries are set out in
Note 38.
(ii)Interest in associates
An associate is an entity, not being a subsidiary, in which the Group
or the Company exercises significant influence over its management.
Significant influence is the power to participate in the financial
and operating policy decisions of the investee but is not control or
joint control over those policies.
Investments in associates are accounted for in the consolidated
financial statements using the equity method from the date that
significant influence commences until the date that significant
influence ceases.
In the Company's balance sheet, investments in associates are stated
at cost less impairment losses (Note 2(k)).
(iii)Jointly controlled entities
A jointly controlled entity is an entity over which the Group or the
Company can exercise joint control with other venturers. Joint
control is the contractually agreed sharing of control over an
economic activity.
Investments in jointly controlled entities are accounted for in the
consolidated financial statements on a proportionate consolidation
basis. Under this method, the Group combines its proportionate share
of the jointly controlled entity's turnover and expenses with each
major turnover and expense caption of the Group's income statement
and combines its proportionate share of the jointly controlled
entity's assets and liabilities with each major asset and liability
caption of the Group's balance sheet, from the date that joint
control commences until the date that joint control ceases.
In the Company's balance sheet, investments in jointly controlled
entities are stated at cost less impairment losses (Note 2(k)).
(iv)Transactions eliminated on consolidation
Inter-company balances and transactions and any unrealised gains
arising from inter-company transactions are eliminated on
consolidation. Unrealised gains arising from transactions with
associates and jointly controlled entities are eliminated to the
extent of the Group's interest in the entity. Unrealised losses are
eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
(b)Translation of foreign currencies
The presentation currency of the Group is Renminbi. Foreign currency
transactions during the year are translated into Renminbi at the
applicable rates of exchange quoted by the People's Bank of China ("PBOC
rates") prevailing on the transaction dates. Foreign currency monetary
assets and liabilities are translated into Renminbi at the PBOC rates at
the balance sheet date.
Exchange differences, other than those capitalised as construction in
progress, are recognised as income or expense in the income statement.
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(c)Cash and cash equivalents
Cash equivalents consist of time deposits with financial institutions
with an initial term of less than three months when purchased. Cash
equivalents are stated at cost, which approximates fair value.
(d)Trade accounts and other receivables
Trade accounts and other receivables are initially recognised at fair
value and thereafter stated at amortised cost less impairment losses for
bad and doubtful debts (Note 2(k)).
(e)Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realisable value. Cost includes the cost of
purchase computed using the weighted average method and, in the case of
work in progress and finished goods, direct labour and an appropriate
proportion of production overheads. Net realisable value is the
estimated selling price in the ordinary course of business, less the
estimated costs of completion and the estimated costs necessary to make
the sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence.
(f)Property, plant and equipment
An item of property, plant and equipment is initially recorded at cost,
less accumulated depreciation and impairment losses (Note 2(k)). The
cost of an asset comprises its purchase price, any directly attributable
costs of bringing the asset to working condition and location for its
intended use. Subsequent to the revaluation (Note 18), which was based
on depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and impairment
losses. Revaluations are performed periodically to ensure that the
carrying amount does not differ materially from that which would be
determined using fair value at the balance sheet date. The Group
recognises in the carrying amount of an item of property, plant and
equipment the cost of replacing part of such an item when that cost is
incurred if it is probable that the future economic benefits embodied
with the item will flow to the Group and the cost of the item can be
measured reliably. All other expenditure is recognised as an expense in
the income statement in the year in which it is incurred.
Gains or losses arising from the retirement or disposal of an item of
property, plant and equipment, other than oil and gas properties, are
determined as the difference between the net disposal proceeds and the
carrying amount of the item and are recognised as income or expense in
the income statement on the date of retirement or disposal. On disposal
of a revalued asset, the related revaluation surplus is transferred from
the revaluation reserve to retained earnings.
Depreciation is provided to write off the cost/revalued amount of items
of property, plant and equipment, other than oil and gas properties,
over its estimated useful life on a straight-line basis, after taking
into account its estimated residual value, as follows:
Buildings 15 to 45 years
Plant, machinery, equipment, oil depots, staroge tanks and others 4 to 18 years
Service stations 25 years
Where parts of an item of property, plant and equipment have different
useful lives, the cost or valuation of the item is allocated on a
reasonable basis between the parts and each part is depreciated
separately. Both the useful life of an asset and its residual value, if
any, are reassessed annually.
(g)Oil and gas properties
The Group uses the successful efforts method of accounting for its oil
and gas producing activities. Under this method, costs of development
wells and the related support equipment are capitalised. The cost of
exploratory wells is initially capitalised as construction in progress
pending determination of whether the well has found proved reserves. The
impairment of exploratory well costs occurs upon the determination that
the well has not found proved reserves. Exploratory wells that find oil
and gas reserves in any area requiring major capital expenditure are
expensed unless the well has found a sufficient quantity of reserves to
justify its completion as a producing well if the required capital
expenditure is made, and drilling of the additional exploratory wells is
under way or firmly planned for the near future. However, in the absence
of a determination of the discovery of proved reserves, exploratory well
costs are not carried as an asset for more than one year following
completion of drilling. If, after one year has passed, a determination
of the discovery of proved reserves cannot be made, the exploratory well
costs are impaired and charged to expense. All other exploration costs,
including geological and geophysical costs, other dry hole costs and
annual lease rentals, are expensed as incurred. Capitalised costs
relating to proved properties are amortised at the field level on a
unit-of-production method. The amortisation rates are determined based
on oil and gas reserves estimated to be recoverable from existing
facilities over the shorter of the economic lives of crude oil and
natural gas reservoirs and the terms of the relevant production
licenses.
Gains and losses on the disposal of proved oil and gas properties are
not recognised unless the disposal encompasses an entire property. The
proceeds on such disposals are credited to the carrying amounts of oil
and gas properties.
(h)Lease prepayments
Lease prepayments represent land use rights paid to the relevant
government authorities. Land use rights are carried at cost less
accumulated amortisation and impairment losses (Note 2(k)). Amortisation
is provided to write off the cost of lease prepayments on a
straight-line basis over the respective periods of the rights.
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(i)Construction in progress
Construction in progress represents buildings, oil and gas properties,
various plant and equipment under construction and pending installation,
and is stated at cost less impairment losses (Note 2(k)). Cost comprises
direct costs of construction as well as interest charges, and foreign
exchange differences on related borrowed funds to the extent that they
are regarded as an adjustment to interest charges, during the periods of
construction.
Construction in progress is transferred to property, plant and equipment
when the asset is substantially ready for its intended use.
No depreciation is provided in respect of construction in progress.
(j)Investments
Investments in equity securities, other than investments in
subsidiaries, associates and jointly controlled entities, that do not
have a quoted market price in an active market and whose fair value
cannot be reliably measured are recognised in the balance sheet at cost
less impairment losses (Note 2(k)).
(k)Impairment of assets
(i)Impairment of trade accounts receivable, other receivables and
investment in equity securities, other than investments in
subsidiaries, associates and jointly controlled entities are
accounted as follows:
Trade accounts receivable, other receivables and investment in equity
securities, other than investments in subsidiaries, associates and
jointly controlled entities that are stated at cost or amortised cost
are reviewed at each balance sheet date to determine whether there is
objective evidence of impairment. If any such evidence exists, an
impairment loss is determined and recognised. The impairment loss is
measured as the difference between the carrying amount of the
financial asset and the estimated future cash flows, discounted at
the current market rate of return for a similar financial asset where
the effect of discounting is material. Impairment losses for trade
accounts and other receivables are reversed if in a subsequent period
the amount of the impairment loss decreases. Impairment losses for
investment in equity securities are not reversed.
(ii) Impairment of other long-lived assets is accounted as follows:
The carrying amounts of other long-lived assets, including property,
plant and equipment, construction in progress, lease prepayment,
investments in subsidiaries, associates and jointly controlled
entities, are reviewed periodically in order to assess whether the
recoverable amounts have declined below the carrying amounts. These
assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not
be recoverable. When such a decline has occurred, the carrying amount
is reduced to the recoverable amount. For goodwill, the recoverable
amount is estimated at each balance sheet date.
The recoverable amount is the greater of the fair value less costs to
sell and the value in use. In determining the value in use, expected
future cash flows generated by the asset are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of time value of money and the risks specific to
the asset. Where an asset does not generate cash inflows largely
independent of those from other assets, the recoverable amount is
determined for the smallest group of assets that generates cash
inflows independently (i.e. a cash-generating unit).
The amount of the reduction is recognised as an expense in the
consolidated income statement unless the asset is carried at revalued
amount for which an impairment loss is recognised directly against
any related revaluation reserve to the extent that the impairment
loss does not exceed the amount held in the revaluation reserve for
that same asset. Impairment losses recognized in respect of
cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating unit and
then, to reduce the carrying amount of the other assets in the unit
on a pro rata basis, except that the carrying value of an asset will
not be reduced below its individual fair value less costs to sell, or
value in use, if determinable.
The Group assesses at each balance sheet date whether there is any
indication that an impairment loss recognised for an asset, except in
the case of goodwill, in prior years may no longer exist. An
impairment loss is reversed if there has been a favourable change in
the estimates used to determine the recoverable amount. A subsequent
increase in the recoverable amount of an asset, when the
circumstances and events that led to the write-down or write-off
cease to exist, is recognised as an income unless the asset is
carried at revalued amount. Reversal of an impairment loss on a
revalued asset is credited to the revaluation reserve except for
impairment loss which was previously recognised as an expense in the
income statement; a reversal of such impairment loss is recognised as
an income. The reversal is reduced by the amount that would have been
recognised as depreciation had the write-down or write-off not
occurred. An impairment loss in respect of goodwill is not reversed.
(l)Trade accounts and other payables
Trade accounts and other payables are initially recognised at fair value
and thereafter stated at amortised cost unless the effect of discounting
would be immaterial, in which case they are stated at cost.
(m)Interest-bearing borrowings
Interest bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in profit
or loss over the period of borrowings using the effective interest
method.
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(n)Provisions and contingent liability
A provision is recognised for liability of uncertain timing or amount
when the Group or the Company has a legal or constructive obligation
arising as a result of a past event, it is probable that an outflow of
economic benefits will be required to settle the obligation and a
reliable estimate can be made.
When it is not probable that an outflow of economic benefits will be
required, or the amount cannot be estimated reliably, the obligation is
disclosed as a contingent liability, unless the probability of outflow
of economic benefits is remote. Possible obligations, whose existence
will only be confirmed by the occurrence or non-occurrence of one or
more future events are also disclosed as contingent liabilities unless
the probability of outflow of economic benefits is remote.
(o)Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum
and chemical products and ancillary materials are recorded when the
customer accepts the goods and the significant risks and rewards of
ownership and title have been transferred to the buyer. Revenue from the
rendering of services is recognised in the income statement upon
performance of the services. No revenue is recognised if there are
significant uncertainties regarding recovery of the consideration due,
the possible return of goods, or when the amount of revenue and the
costs incurred or to be incurred in respect of the transaction cannot be
measured reliably.
Interest income is recognised on a time apportioned basis that takes
into account the effective yield on the asset.
Government grants relating to the purchase of assets used for technology
improvements are initially recorded as long-term liabilities when there
is reasonable assurance that they will be received and will offset
against the cost of the related assets upon the transfer of these assets
to property, plant and equipment. The grants are recognised as an income
over the useful life of these property, plant and equipment by way of
reduced depreciation.
A government grant that becomes receivable as compensation for expenses
or losses already incurred with no future related costs shall be
recognised as income of the period in which it becomes receivable.
(p)Borrowing costs
Borrowing costs are expensed in the income statement in the year in
which they are incurred, except to the extent that they are capitalised
as being attributable to the construction of an asset which necessarily
takes a period of time to get ready for its intended use.
(q)Repairs and maintenance expenditure
Repairs and maintenance expenditure is expensed as incurred.
(r)Environmental expenditures
Environmental expenditures that relate to current ongoing operations or
to conditions caused by past operations are expensed as incurred.
Liabilities related to future remediation costs are recorded when
environmental assessments and/or cleanups are probable and the costs can
be reasonably estimated. As facts concerning environmental contingencies
become known to the Group, the Group reassesses its position both with
respect to accrued liabilities and other potential exposures.
(s)Research and development costs
Research and development costs are recognised as expenses in the year in
which they are incurred.
(t)Operating leases
Operating lease payments are charged to the income statement on a
straight-line basis over the period of the respective leases.
(u)Retirement benefits
The contributions payable under the Group's retirement plans are
recognised as expenses in the income statement as incurred and according
to the contribution determined by the plans. Further information is set
out in Note 36.
(v)Income tax
Income tax comprises current and deferred tax. Current tax is calculated
on taxable income by applying the applicable tax rates. Deferred tax is
provided using the balance sheet liability method on all temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is calculated on the basis of the enacted tax rates that
are expected to apply in the period when the asset is realised or the
liability is settled.
The tax value of losses expected to be available for utilisation against
future taxable income is set off against the deferred tax liability
within the same legal tax unit and jurisdiction to the extent
appropriate, and is not available for set-off against the taxable profit
of another legal tax unit. Deferred tax assets are reduced to the extent
that it is no longer probable that the related tax benefit will be
realised.
(w)Dividends
Dividends are recognised as a liability in the period in which they are
declared.
(x)Segmental reporting
A business segment is a distinguishable component of the Group that is
engaged in providing products or services and is subject to risks and
rewards that are different from those of other segments.
2 PRINCIPAL ACCOUNTING POLICIES (Continued)
(y)Goodwill
Goodwill represents amounts arising on acquisition of subsidiaries,
associates or jointly controlled entities. Goodwill represents the
difference between the cost of acquisition and the fair value of the net
identifiable assets acquired.
Goodwill is stated at cost less impairment losses. Goodwill is allocated
to cash-generating units and is tested annually for impairment (Note
2(k)). In respect of associates, the carrying amount of goodwill is
included in the carrying amount of the interest in associates.
3 TURNOVER
Turnover represents revenue from the sales of crude oil, natural gas,
petroleum and chemical products, net of value-added tax.
4 OTHER OPERATING REVENUES
The Group
2005 2004
RMB millions RMB millions
Sale of materials, service and others 23,615 22,213
----------------------------------------------------------------------------------------------------------------------------
Rental income 387 373
----------------------------------------------------------------------------------------------------------------------------
24,002 22,586
----------------------------------------------------------------------------------------------------------------------------
5 OTHER INCOME
The Group received a cash government grant from the Ministry of Finance of
the PRC of RMB 9,415 million (2004: RMB nil) as a compensation of loss
incurred due to the distortion of the correlation of domestic refined
petroleum product prices and the crude oil prices during the year ended 31
December 2005. There are no unfilled conditions and other contingencies
attached to the receipt of this government grant. There is no assurance
that the Group will continue to receive such grant in the future.
6 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following items are included in selling, general and administrative
expenses:
The Group
2005 2004
RMB millions RMB millions
Research and development costs 2,243 1,518
--------------------------------------------------------------------------------------------------------------------------
Operating lease charges 5,514 4,288
Auditors' remuneration - audit services 75 80
--------------------------------------------------------------------------------------------------------------------------
7 PERSONNEL EXPENSES
The Group
2005 2004
RMB millions RMB millions
Wages and salaries 13,601 13,589
---------------------------------------------------------------------------------------------------------------------------
Staff welfare 1,788 1,772
Contributions to retirement schemes 2,269 2,242
Social security contributions 825 1,031
---------------------------------------------------------------------------------------------------------------------------
18,483 18,634
---------------------------------------------------------------------------------------------------------------------------
8 EMPLOYEE REDUCTION EXPENSES
During the year ended 31 December 2005, in accordance with the Group's
voluntary employee reduction plan, the Group recorded employee reduction
expenses of RMB 369 million in respect of the voluntary termination of
approximately 7,000 employees.
During the year ended 31 December 2004, in accordance with the Group's
voluntary employee reduction plan, and in connection with the Acquisition
of Petrochemical and Catalyst Assets from and Disposal of Downhole Assets
to Sinopec Group Company, the Group recorded employee reduction expenses of
RMB 919 million relating to the reduction of approximately 24,000
employees.
9 TAXES OTHER THAN INCOME TAX
The Group
2005 2004
RMB millions RMB millions
Consumption tax 12,430 11,920
--------------------------------------------------------------------------------------------------------------------------
City construction tax 2,575 2,533
Education surcharge 1,305 1,255
Resources tax 634 452
Business tax 208 164
--------------------------------------------------------------------------------------------------------------------------
17,152 16,324
--------------------------------------------------------------------------------------------------------------------------
Consumption tax is levied on producers of gasoline and diesel based on a
tariff rate applied to the volume of sales. City construction tax is levied
on an entity based on its total amount of value-added tax, consumption tax
and business tax.
10 OTHER OPERATING EXPENSES, NET
The Group
2005 2004
RMB millions RMB millions
Fines, penalties and compensations 155 277
-----------------------------------------------------------------------------------------------------------------------------
Donations 203 290
Loss on disposal of property, plant and equipment, net 2,095 1,686
Impairment losses on long-lived assets (Note) 1,851 3,919
Others 821 494
-----------------------------------------------------------------------------------------------------------------------------
5,125 6,666
-----------------------------------------------------------------------------------------------------------------------------
Note:
Impairment losses recognised on long-lived assets of the refining segment
were RMB nil (2004: RMB 14 million) for the year ended 31 December 2005.
Impairment losses recognised on long-lived assets of the chemicals segment
were RMB 1,425 million (2004: RMB 2,747 million) for the year ended 31
December 2005. These impairment losses relate to certain refining and
chemical production facilities that are held for use. The carrying values
of these facilities were written down to their recoverable amounts that
were determined based either on the asset held for use model using the
present value of estimated future cash flows or on the appraised values of
the production facilities. An amount of RMB 1,425 million (2004: RMB 2,052
million) was charged to the income statement. An amount of RMB 709 million
for the year ended 31 December 2004 was charged directly against the
related revaluation reserve in respect of those assets that were carried at
revalued amount. The primary factor resulting in the impairment losses on
long-lived assets of the refining and chemicals segments was due to higher
operating and production costs caused by the increase in the prices of raw
materials that are not expected to be recovered through an increase in
selling price.
Impairment losses recognised on long-lived assets of the marketing and
distribution segment of RMB 366 million (2004: RMB 1,769 million) for the
year ended 31 December 2005 primarily relate to certain service stations
that were closed during the year. In measuring the amounts of impairment
charges, the carrying amounts of these assets were compared to the present
value of the expected future cash flows of the assets, as well as
information about sales and purchases of similar properties in the same
geographic area.
The factors resulting in the exploration and production ("E&P") segment
impairment losses of RMB 60 million for the year ended 31 December 2005
(2004: RMB 98 million) were unsuccessful development drilling and high
operating and development costs for certain small oil fields. The carrying
values of these E&P properties were written down to a recoverable amount
which was determined based on the present values of the expected future
cash flows of the assets. The oil and gas pricing was a factor used in the
determination of the present values of the expected future cash flows of
the assets and had an impact on the recognition of the asset impairment.
11 INTEREST EXPENSE
The Group
2005 2004
RMB millions RMB millions
Interest expense incurred 7,166 5,491
-------------------------------------------------------------------------------------------------------------------------
Less: Interest expense capitalised* (1,246) (908)
-------------------------------------------------------------------------------------------------------------------------
Interest expense 5,920 4,583
-------------------------------------------------------------------------------------------------------------------------
* Interest rates per annum at which borrowing costs were
capitalised for construction in progress 3.3% to 6.6% 3.1% to 6.0%
-------------------------------------------------------------------------------------------------------------------------
12 TAXATION
Taxation in the consolidated income statement represents:
The Group
2005 2004
RMB millions RMB millions
Current tax
---------------------------------------------------------------------------------------------------------------------------
- Provision for the year 20,159 18,441
---------------------------------------------------------------------------------------------------------------------------
- Under-provision in prior years 477 94
Deferred taxation (1,248) (720)
---------------------------------------------------------------------------------------------------------------------------
19,388 17,815
---------------------------------------------------------------------------------------------------------------------------
A reconciliation between actual tax expense and accounting profit at
applicable tax rates is as follows:
The Group
2005 2004
RMB millions RMB millions
Profit before taxation 63,228 59,606
---------------------------------------------------------------------------------------------------------------------------
Expected PRC income tax expense at a statutory tax rate of 33% 20,865 19,670
---------------------------------------------------------------------------------------------------------------------------
Tax effect of non-deductible expenses 450 812
Tax effect of non-taxable income (567) (216)
Tax effect of differential tax rate on subsidiaries' income (Note) (2,010) (2,408)
Tax effect of tax losses not recognised for deferred tax 381 409
Under-provision in prior years 477 94
Tax credit for domestic equipment purchases (208) (546)
---------------------------------------------------------------------------------------------------------------------------
Actual tax expense 19,388 17,815
---------------------------------------------------------------------------------------------------------------------------
Substantially all income before income tax and related tax expense is from
PRC sources.
Note:
The provision for PRC current income tax is based on a statutory rate of
33% of the assessable income of the Group as determined in accordance with
the relevant income tax rules and regulations of the PRC, except for
certain subsidiaries of the Company which are taxed at a preferential rate
of 15%.
13 DIRECTORS' AND SUPERVISORS' EMOLUMENTS
Directors' and supervisors' emoluments are as follows:
Salaries, Retirement
allowances and Discretionary scheme 2005
Name Directors' fee benefits in kind bonuses contributions Total
RMB'000 RMB'000 RMB'000 RMB'000 RMB'000
Executive directors
----------------------------------------------------------------------------------------------------------------------------
Chen Tonghai -- -- -- -- --
Wang Jiming -- 239 225 16 480
Mou Shuling -- 219 212 11 442
Zhang Jiaren -- 227 212 16 455
Cao Xianghong -- 227 212 16 455
Liu Genyuan -- -- -- -- --
Gao Jian -- -- -- -- --
Fan Yifei -- -- -- -- --
Cao Yaofeng -- 133 134 12 279
Independent non-executive directors
Chen Qingtai 27 -- -- -- 27
Ho Tsu Kwok
Charles 21 -- -- -- 21
Shi Wanpeng 24 -- -- -- 24
Zhang Youcai 21 -- -- -- 21
Supervisors
Wang Zuoran -- -- -- -- --
Wang Peijun -- -- -- -- --
Wang Xianwen -- -- -- -- --
Zhang Baojian -- -- -- -- --
Kang Xianzhang -- -- -- -- --
Su Wensheng -- 164 22 16 202
Cui Guoqi -- 105 42 7 154
Zhang Xianglin -- 82 88 11 181
Zhang Haichao -- 89 95 10 194
Independent supervisors
Cui Jianming 24 -- -- -- 24
Li Yonggui 24 -- -- -- 24
----------------------------------------------------------------------------------------------------------------------------
Total 141 1,485 1,242 115 2,983
----------------------------------------------------------------------------------------------------------------------------
2004 147 1,495 2,355 202 4,199
----------------------------------------------------------------------------------------------------------------------------
Executive directors and supervisors also participate in the Group's share
appreciation rights plan (Note 36).
14 SENIOR MANAGEMENT'S EMOLUMENTS
For the year ended 31 December 2005, of the five highest paid individuals,
four (2004: one) are directors whose emoluments are disclosed in Note 13.
The aggregate of the emoluments in respect of the five highest paid
individuals are as follows:
2005 2004
RMB'000 RMB'000
Salaries and other emoluments 2,269 1,622
---------------------------------------------------------------------------------------------------------------------------
Retirement scheme contributions 77 65
---------------------------------------------------------------------------------------------------------------------------
2,346 1,687
---------------------------------------------------------------------------------------------------------------------------
An analysis of emoluments paid to the five highest paid individuals by
number of individuals and emolument range is as follows:
2005 2004
Number Number
Nil to HK$ 1,000,000 5 5
----------------------------------------------------------------------------------------------------------------------------
15 PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE COMPANY
The consolidated profit attributable to equity shareholders of the Company
includes a profit of RMB 26,668 million (2004 (restated): RMB 4,758
million) which has been dealt with in the financial statements of the
Company.
16 DIVIDENDS
Dividends payable to equity shareholders of the Company attributable to the
year represent:
2005 2004
RMB millions RMB millions
Dividends declared and paid during the year of RMB 0.04 per share
(2004: RMB 0.04 per share) 3,468 3,468
-----------------------------------------------------------------------------------------------------------------------------
Dividends declared after the balance sheet date of RMB 0.09 per share
(2004: RMB 0.08 per share) 7,803 6,936
-----------------------------------------------------------------------------------------------------------------------------
11,271 10,404
-----------------------------------------------------------------------------------------------------------------------------
Pursuant to the Company's Articles of Association and a resolution passed
at the Directors' meeting on 26 August 2005, the directors authorised to
declare an interim dividends for the year ended 31 December 2005 of RMB
0.04 (2004: RMB 0.04) per share totalling RMB 3,468 million (2004: RMB
3,468 million), which was paid on 30 September 2005 (2004: 30 September
2004).
16 DIVIDENDS (Continued)
Pursuant to a resolution passed at the Directors' meeting on 31 March 2006,
a final dividend in respect of the year ended 31 December 2005 of RMB 0.09
(2004: RMB 0.08) per share totalling RMB 7,803 million (2004: RMB 6,936
million) was proposed for shareholders' approval at the Annual General
Meeting. Final dividend of RMB 7,803 million (2004: RMB 6,936 million)
proposed after the balance sheet date has not been recognised as a
liability at the balance sheet date.
Dividends payable to equity shareholders of the Company attributable to the
previous financial year, approved and paid during the year represent:
2005 2004
RMB millions RMB millions
Final dividends in respect of the previous financial year, approved
and paid during the year of RMB 0.08 per share (2004: RMB 0.06 per share) 6,936 5,202
----------------------------------------------------------------------------------------------------------------------------
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2005, a final dividend of RMB 0.08 per share totalling RMB 6,936
million in respect of the year ended 31 December 2004 was declared and paid
on 27 June 2005.
Pursuant to the shareholders' approval at the Annual General Meeting on 18
May 2004, a final dividend of RMB 0.06 per share totalling RMB 5,202
million in respect of the year ended 31 December 2003 was declared and paid
on 28 June 2004.
17 BASIC EARNINGS PER SHARE
The calculation of basic earnings per share for the year ended 31 December
2005 is based on the profit attributable to equity shareholders of the
Company of RMB 40,920 million (2004: RMB 36,019 million) and the weighted
average number of shares of 86,702,439,000 (2004: 86,702,439,000) during
the year.
The amount of diluted earnings per share is not presented as there were no
dilutive potential ordinary shares in existence during the years presented.
18 PROPERTY, PLANT AND EQUIPMENT
The Group - by segment:
Exploration Marketing Corporate
and and and
production Refining distribution Chemicals others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 177,962 105,237 54,482 160,289 3,788 501,758
Additions 1,402 793 1,555 314 169 4,233
Transferred from construction in progress 17,428 13,489 9,283 9,460 304 49,964
Acquired from Sinopec Group Company (Note 35) -- 805 1,536 -- -- 2,341
Revaluation in connection with the Acquisition of
Petrochemical and Catalyst Assets -- 35 -- 206 16 257
------------------------------------------------------------------------------------------------------------------------------
Disposals (1,085) (3,354) (1,511) (4,253) (179) (10,382)
------------------------------------------------------------------------------------------------------------------------------
Disposals to Sinopec Group Company (Note 35) (3,631) -- -- -- -- (3,631)
Less: Amount distributed to
Sinopec Group Company in connection
with the Acquisition of Petrochemical
and Catalyst Assets -- (95) -- (2,794) (6) (2,895)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 192,076 116,910 65,345 163,222 4,092 541,645
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 192,076 116,910 65,345 163,222 4,092 541,645
------------------------------------------------------------------------------------------------------------------------------
Additions 151 126 382 271 150 1,080
Transferred from construction in progress 22,094 8,121 14,017 18,457 381 63,070
Proportionate share of a jointly controlled entity -- -- -- 1,028 -- 1,028
Reclassification (157) (432) 204 289 96 --
Disposals (3,052) (2,859) (2,927) (3,164) (245) (12,247)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 211,112 121,866 77,021 180,103 4,474 594,576
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 84,604 50,901 10,014 84,285 1,223 231,027
Depreciation charge for the year 12,042 7,594 2,624 9,156 289 31,705
Impairment losses for the year 98 14 1,769 2,747 -- 4,628
Acquired from Sinopec Group Company (Note 35) -- 458 -- -- -- 458
Written back on disposals (942) (2,323) (942) (3,157) (103) (7,467)
Disposals to Sinopec Group Company (Note 35) (1,774) -- -- -- -- (1,774)
Less: Amount distributed to
Sinopec Group Company in connection
with the Acquisition of Petrochemical
and Catalyst Assets -- (64) -- (989) (2) (1,055)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 94,028 56,580 13,465 92,042 1,407 257,522
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 94,028 56,580 13,465 92,042 1,407 257,522
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 10,887 6,972 3,013 9,392 282 30,546
Impairment losses for the year 60 -- 366 1,425 -- 1,851
Reclassification (78) (214) 78 160 54 --
Written back on disposals (2,687) (2,206) (2,110) (2,719) (194) (9,916)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 102,210 61,132 14,812 100,300 1,549 280,003
Net book value:
---------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 93,358 54,336 44,468 76,004 2,565 270,731
---------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 98,048 60,330 51,880 71,180 2,685 284,123
At 31 December 2005 108,902 60,734 62,209 79,803 2,925 314,573
18 PROPERTY, PLANT AND EQUIPMENT (Continued)
The Company - by segment:
Exploration Marketing Corporate
and and and
production Refining distribution Chemicals others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 62,555 72,523 52,999 61,488 2,807 252,372
Additions 437 706 459 55 72 1,729
Transferred from construction in progress 9,056 11,035 8,320 2,205 304 30,920
Acquired from Sinopec Group Company (Note 35) -- 805 1,536 -- -- 2,341
Transferred from a subsidiary -- 5,158 -- -- -- 5,158
Revaluation in connection with the Acquisition of
Petrochemical and Catalyst Assets -- 35 -- 206 16 257
------------------------------------------------------------------------------------------------------------------------------
Disposals (361) (2,101) (1,331) (1,301) (123) (5,217)
------------------------------------------------------------------------------------------------------------------------------
Disposals to Sinopec Group Company (Note 35) (2,103) -- -- -- -- (2,103)
Less: Amount distributed to
Sinopec Group Company in connection
with the Acquisition of Petrochemical
and Catalyst Assets -- (95) -- (2,794) (6) (2,895)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 69,584 88,066 61,983 59,859 3,070 282,562
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 69,584 88,066 61,983 59,859 3,070 282,562
------------------------------------------------------------------------------------------------------------------------------
Additions 151 113 267 38 120 689
Transferred from construction in progress 13,213 5,772 9,363 2,069 371 30,788
Transferred to subsidiaries -- -- (577) -- -- (577)
Reclassification (130) (176) 276 (2) 32 --
Disposals (1,415) (1,546) (2,864) (978) (213) (7,016)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 81,403 92,229 68,448 60,986 3,380 306,446
Accumulated depreciation:
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 28,732 36,633 9,640 33,139 954 109,098
Depreciation charge for the year 4,707 4,728 2,320 2,724 188 14,667
Impairment losses for the year 98 14 1,737 1,568 -- 3,417
Acquired from Sinopec Group Company (Note 35) -- 458 -- -- -- 458
Transferred from a subsidiary -- 2,682 -- -- -- 2,682
Written back on disposals (355) (1,662) (805) (748) (83) (3,653)
Disposals to Sinopec Group Company (Note 35) (1,063) -- -- -- -- (1,063)
Less: Amount distributed to
Sinopec Group Company in connection
with the Acquisition of Petrochemical
and Catalyst Assets -- (64) -- (989) (2) (1,055)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 32,119 42,789 12,892 35,694 1,057 124,551
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 32,119 42,789 12,892 35,694 1,057 124,551
------------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 5,048 4,742 2,920 2,892 180 15,782
Impairment losses for the year 60 -- 351 671 -- 1,082
Transferred to subsidiaries -- -- (66) -- -- (66)
Reclassification (65) (49) 99 (1) 16 --
Written back on disposals (1,371) (1,183) (2,061) (814) (185) (5,614)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 35,791 46,299 14,135 38,442 1,068 135,735
Net book value:
------------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 33,823 35,890 43,359 28,349 1,853 143,274
------------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 37,465 45,277 49,091 24,165 2,013 158,011
At 31 December 2005 45,612 45,930 54,313 22,544 2,312 170,711
18 PROPERTY, PLANT AND EQUIPMENT (Continued)
The Group - by asset class:
Oil depots, Plant,
storage tanks machinery,
Oil and gas and service equipment
Buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 44,728 158,634 46,337 252,059 501,758
Additions 342 450 1,301 2,140 4,233
Transferred from construction in progress 2,357 17,428 12,461 17,718 49,964
Acquired from Sinopec Group Company (Note 35) -- -- 1,533 808 2,341
Revaluation in connection with the Acquisition of
Petrochemical and Catalyst Assets 1 -- -- 256 257
---------------------------------------------------------------------------------------------------------------------------
Disposals (927) (586) (1,099) (7,770) (10,382)
Disposals to Sinopec Group Company (Note 35) (97) (2,362) -- (1,172) (3,631)
Less: Amount distributed to
Sinopec Group Company in connection
with the Acquisition of Petrochemical
and Catalyst Assets (1,550) -- -- (1,345) (2,895)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 44,854 173,564 60,533 262,694 541,645
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 44,854 173,564 60,533 262,694 541,645
---------------------------------------------------------------------------------------------------------------------------
Additions 96 64 228 692 1,080
Transferred from construction in progress 2,462 20,985 13,851 25,772 63,070
Proportionate share of a jointly controlled entity 182 -- -- 846 1,028
Reclassification (406) (802) 650 558 --
Disposals (1,034) (1,884) (2,145) (7,184) (12,247)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 46,154 191,927 73,117 283,378 594,576
Accumulated depreciation:
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 18,975 77,582 8,785 125,685 231,027
Depreciation charge for the year 1,768 9,211 2,332 18,394 31,705
Impairment losses for the year 325 98 1,249 2,956 4,628
Acquired from Sinopec Group Company (Note 35) -- -- -- 458 458
Written back on disposals (428) (541) (585) (5,913) (7,467)
Disposals to Sinopec Group Company (Note 35) (22) (1,207) -- (545) (1,774)
Less: Amount distributed to
Sinopec Group Company in connection
with the Acquisition of Petrochemical
and Catalyst Assets (310) -- -- (745) (1,055)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 20,308 85,143 11,781 140,290 257,522
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 20,308 85,143 11,781 140,290 257,522
---------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,712 10,263 2,914 15,657 30,546
Impairment losses for the year 79 60 261 1,451 1,851
Reclassification (98) (430) 153 375 --
Written back on disposals (597) (1,672) (1,379) (6,268) (9,916)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 21,404 93,364 13,730 151,505 280,003
Net book value:
---------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 25,753 81,052 37,552 126,374 270,731
---------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 24,546 88,421 48,752 122,404 284,123
At 31 December 2005 24,750 98,563 59,387 131,873 314,573
18 PROPERTY, PLANT AND EQUIPMENT (Continued)
The Company - by asset class:
Oil depots, Plant,
storage tanks machinery,
Oil and gas and service equipment
Buildings properties stations and others Total
RMB millions RMB millions RMB millions RMB millions RMB millions
Cost/valuation:
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 26,487 54,288 44,974 126,623 252,372
Additions 253 43 248 1,185 1,729
Transferred from construction in progress 1,248 8,854 11,715 9,103 30,920
Acquired from Sinopec Group Company (Note 35) -- -- 1,533 808 2,341
Transferred from a subsidiary 216 -- -- 4,942 5,158
Revaluation in connection with the Acquisition of
Petrochemical and Catalyst Assets 1 -- -- 256 257
---------------------------------------------------------------------------------------------------------------------------
Disposals (742) (238) (1,075) (3,162) (5,217)
---------------------------------------------------------------------------------------------------------------------------
Disposals to Sinopec Group Company (Note 35) (75) (1,081) -- (947) (2,103)
Less: Amount distributed to
Sinopec Group Company in connection
with Acquisition of Petrochemical
and Catalyst Assets (1,550) -- -- (1,345) (2,895)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 25,838 61,866 57,395 137,463 282,562
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 25,838 61,866 57,395 137,463 282,562
---------------------------------------------------------------------------------------------------------------------------
Additions 132 64 174 319 689
Transferred from construction in progress 989 12,266 9,363 8,170 30,788
Transferred to subsidiaries (9) -- (529) (39) (577)
Reclassification (469) (551) 651 369 --
Disposals (552) (578) (2,097) (3,789) (7,016)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 25,929 73,067 64,957 142,493 306,446
Accumulated depreciation:
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2004 9,905 26,711 8,518 63,964 109,098
Depreciation charge for the year 1,028 3,941 2,218 7,480 14,667
Impairment losses for the year 186 98 1,249 1,884 3,417
Acquired from Sinopec Group Company (Note 35) -- -- -- 458 458
Transferred from a subsidiary 101 -- -- 2,581 2,682
Written back on disposals (356) (238) (582) (2,477) (3,653)
Disposals to Sinopec Group Company (Note 35) (17) (578) -- (468) (1,063)
Less: Amount distributed to
Sinopec Group Company in connection
with Acquisition of Petrochemical
and Catalyst Assets (310) -- -- (745) (1,055)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 10,537 29,934 11,403 72,677 124,551
---------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 10,537 29,934 11,403 72,677 124,551
---------------------------------------------------------------------------------------------------------------------------
Depreciation charge for the year 1,046 4,682 2,524 7,530 15,782
Impairment losses for the year 21 60 261 740 1,082
Transferred to subsidiaries (3) -- (41) (22) (66)
Reclassification (111) (309) 154 266 --
Written back on disposals (326) (565) (1,349) (3,374) (5,614)
---------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 11,164 33,802 12,952 77,817 135,735
Net book value:
---------------------------------------------------------------------------------------------------------------------------
At 1 January 2004 16,582 27,577 36,456 62,659 143,274
---------------------------------------------------------------------------------------------------------------------------
At 31 December 2004 15,301 31,932 45,992 64,786 158,011
At 31 December 2005 14,765 39,265 52,005 64,676 170,711
The Group's proportionate share of the jointly controlled entities' net
book value of property, plant and equipment at 31 December 2005 in the
exploration and production and the chemicals segments were RMB 398 million
(2004: RMB 412 million) and RMB 14,889 million (2004: RMB 17 million),
respectively.
As required by the relevant PRC regulations with respect to the
Reorganisation, the property, plant and equipment of the Group at 30
September 1999 were valued for each asset class by China United Assets
Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets
Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation, independent valuers registered in the PRC, on a depreciated
replacement cost basis. The value of property, plant and equipment was
determined at RMB 159,788 million. The surplus on revaluation of RMB 32,320
million, net of amounts allocated to minority interests, was incorporated
in the financial statements of the Group at 31 December 1999.
In connection with the Acquisition of Sinopec National Star, the property,
plant and equipment of Sinopec National Star were revalued at 31 December
2000, by a firm of independent valuers and approved by the MOF. The value
of property, plant and equipment of Sinopec National Star pursuant to the
valuation, based on a depreciated replacement cost basis, was determined at
RMB 4,373 million, resulting in a surplus on revaluation of RMB 1,136
million, net of amounts allocated to minority interest.
18 PROPERTY, PLANT AND EQUIPMENT (Continued)
In connection with the Acquisition of Ethylene Assets, the property, plant
and equipment of Sinopec Maoming were revalued at 30 June 2003, by a firm
of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of Sinopec Maoming
pursuant to the valuation, based on a depreciated replacement cost basis,
was determined at RMB 5,100 million, which approximated the net historical
carrying value of the assets.
In connection with the Acquisition of Refining Assets, the property, plant
and equipment of the Refining Assets were revalued at 31 October 2003, by a
firm of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of the Refining
Assets pursuant to the valuation, based on a depreciated replacement cost
basis, was determined at RMB 461 million, which approximated the net
historical carrying value of the assets.
In connection with the Acquisition of Petrochemical and Catalyst Assets,
the property, plant and equipment of the Petrochemical and Catalyst Assets
were revalued at 30 June 2004, by a firm of independent valuers in
accordance with the relevant rules and regulations. The value of property,
plant and equipment of the Petrochemical and Catalyst Assets pursuant to
the valuation, based on a depreciated replacement cost basis, was
determined at RMB 11,895 million, which approximated the net historical
carrying value of the assets.
In accordance with IAS 16, subsequent to these revaluations, which was
based on depreciated replacement costs, property, plant and equipment are
carried at revalued amount, being the fair value at the date of the
revaluation less any subsequent accumulated depreciation and impairment
losses. Revaluation is performed periodically to ensure that the carrying
amount does not differ materially from that which would be determined using
fair value at the balance sheet date. Based on a revaluation performed as
of 31 December 2004, which was based on depreciated replacement costs, the
carrying value of property, plant and equipment did not differ materially
from their fair value.
19 CONSTRUCTION IN PROGRESS
The Group
Exploration and Marketing and Corporate and
production Refining distribution Chemicals others Total
RMB millions RMB millions RMBmillions RMB millions RMB millions RMB millions
Balance at 1 January 2004 5,535 8,470 7,941 6,957 451 29,354
------------------------------------------------------------------------------------------------------------------------------
Additions 22,808 13,479 15,123 10,711 1,381 63,502
Additions by jointly controlled entities 1,323 -- -- 5,178 -- 6,501
Less: Amount distributed to
Sinopec Group Company in connection
with Acquisition of Petrochemical
and Catalyst Assets -- (1) -- (216) (15) (232)
------------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,976) -- -- -- -- (2,976)
------------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and equipment (17,428) (13,489) (9,283) (9,460) (304) (49,964)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 9,262 8,459 13,781 13,170 1,513 46,185
------------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 9,262 8,459 13,781 13,170 1,513 46,185
------------------------------------------------------------------------------------------------------------------------------
Additions 25,894 14,001 10,572 9,115 1,014 60,596
------------------------------------------------------------------------------------------------------------------------------
Additions by jointly controlled entities 814 -- -- 1,830 -- 2,644
Proportionate share of a jointly controlled entity -- -- -- 5,461 -- 5,461
Dry hole costs written off (2,992) -- -- -- -- (2,992)
Transferred to property, plant and equipment
and other assets (22,094) (8,121) (14,017) (19,014) (381) (63,627)
------------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 10,884 14,339 10,336 10,562 2,146 48,267
------------------------------------------------------------------------------------------------------------------------------
The Group's proportionate share of the jointly controlled entities'
construction in progress at 31 December 2005 in the E&P and the chemicals
segments were RMB 2,888 million (2004: RMB 2,053 million) and RMB 504
million (2004: RMB 8,171 million), respectively.
The Company
Exploration and Marketing and Corporate and
production Refining distribution Chemicals others Total
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Balance at 1 January 2004 4,501 7,424 6,680 1,594 432 20,631
-----------------------------------------------------------------------------------------------------------------------------
Additions 13,346 10,497 11,911 4,442 1,381 41,577
Transferred from a subsidiary -- 76 -- -- -- 76
Less: Amount distributed to
Sinopec Group Company in connection
with Acquisition of Petrochemical
and Catalyst Assets -- (1) -- (216) (15) (232)
-----------------------------------------------------------------------------------------------------------------------------
Dry hole costs written off (2,184) -- -- -- -- (2,184)
-----------------------------------------------------------------------------------------------------------------------------
Transferred to property, plant and equipment (9,056) (11,035) (8,320) (2,205) (304) (30,920)
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2004 6,607 6,961 10,271 3,615 1,494 28,948
-----------------------------------------------------------------------------------------------------------------------------
Balance at 1 January 2005 6,607 6,961 10,271 3,615 1,494 28,948
-----------------------------------------------------------------------------------------------------------------------------
Additions 16,528 12,084 7,825 5,845 915 43,197
Dry hole costs written off (2,271) -- -- -- -- (2,271)
Transferred to property, plant and equipment (13,213) (5,772) (9,363) (2,069) (371) (30,788)
-----------------------------------------------------------------------------------------------------------------------------
Balance at 31 December 2005 7,651 13,273 8,733 7,391 2,038 39,086
-----------------------------------------------------------------------------------------------------------------------------
20 INVESTMENTS IN SUBSIDIARIES
The Company
2005 2004
RMB millions RMB millions
(Restated)
Investments in subsidiaries, at cost 75,579 66,930
----------------------------------------------------------------------------------------------------------------------------
Details of the Company's principal subsidiaries at 31 December 2005 are set
out in Note 38.
21 INVESTMENTS
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Unlisted investments, at cost 3,253 2,891 1,140 313
----------------------------------------------------------------------------------------------------------------------------
Less: Impairment losses (327) (353) (103) (155)
----------------------------------------------------------------------------------------------------------------------------
2,926 2,538 1,037 158
----------------------------------------------------------------------------------------------------------------------------
Unlisted investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas activities and
operations. The Group has no significant investments in marketable
securities.
The impairment losses relating to investments for the year ended 31
December 2005 amounted to RMB 77 million (2004: RMB 96 million).
22 INTEREST IN ASSOCIATES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
(Restated)
Investments in associates, at cost -- -- 5,933 6,424
--------------------------------------------------------------------------------------------------------------------------
Share of net assets 9,217 10,222 -- --
--------------------------------------------------------------------------------------------------------------------------
9,217 10,222 5,933 6,424
--------------------------------------------------------------------------------------------------------------------------
The Group's investments in associates are with companies primarily engaged
in the oil and gas and chemical operations in the PRC. These investments
are individually and in the aggregate not material to the Group's financial
condition or results of operations for all periods presented. The share of
associates' taxation for the year ended 31 December 2005 was RMB 420
million (2004: RMB 340 million). The principal investments in associates,
all of which are incorporated in the PRC, are as follows:
Percentage of
Percentage equity held
Form of of equity by the
business Particulars of issued held by the Company's
Name of company structure and paid up capital Company subsidiaries Principal activities
% %
Shengli Oil Field Dynamic Incorporated 364,027,608 ordinary 26.33 -- Exploration of crude oil
Company Limited shares of RMB 1.00 each and distribution of
("Dynamic")* petrochemical products
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Shandong Taishan Incorporated 480,793,320 ordinary 38.68 -- Trading of petroleum
Petroleum Company Limited shares of RMB 1.00 each products and decoration
stations of service gas
("Taishan")*
-----------------------------------------------------------------------------------------------------------------------------
Sinopec Finance Incorporated Registered capital 38.22 2.00 Provision of non-banking
Company Limited RMB 2,500,000,000 financial services
-----------------------------------------------------------------------------------------------------------------------------
Shanghai Petroleum National Incorporated Registered capital 30.00 -- Exploration and production
Gas Corporation RMB 900,000,000 of crude oil and natural
gas
-----------------------------------------------------------------------------------------------------------------------------
Shanghai Chemical Incorporated Registered capital -- 38.26 Planning, development and
Industry Park Development RMB 2,372,439,000 operation of the Chemical
Industry
Company Limited Park in Shanghai, the PRC
-----------------------------------------------------------------------------------------------------------------------------
China Shipping & Sinopec Incorporated Registered capital -- 50.00 Transportation of
Suppliers Company Limited RMB 876,660,000 petroleum products
-----------------------------------------------------------------------------------------------------------------------------
China Aviation Oil Supply Incorporated Registered capital -- 29.00 Marketing and distribution
Company Limited RMB 3,800,000,000 of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------
* Shares of Dynamic and Taishan are listed on the Shenzhen Stock Exchange.
Shares held by the Company are domestic state-owned A shares which are
not admitted for trading in any stock exchange in the PRC. The market
value of the Company's investments in Dynamic and Taishan based on the
quoted market price are RMB 772 million (2004: RMB 479 million) and RMB
547 million (2004: RMB 1,516 million) respectively at 31 December 2005.
23 INTEREST IN JOINTLY CONTROLLED ENTITIES
The Company
2005 2004
RMB millions RMB millions
(Restated)
Investments in jointly controlled entities, at cost 7,280 3,763
----------------------------------------------------------------------------------------------------------------------------
The Group's investments in jointly controlled entities are primarily
engaged in the oil and gas and chemical operations in the PRC, principal
interests in jointly controlled entities are as follows:
Percentage of
Percentage equity held
Form of of equity by the
business Particulars of issued held by the Company's
Name of company structure and paid up capital Company subsidiaries Principal activities
% %
Shanghai Secco Petrochemical Incorporated Registered capital 30.00 20.00 Manufacturing and
Company Limited distribution of
USD 901,440,964 petrochemical products
-------------------------------------------------------------------------------------------------------------------------------
BASF-YPC Company Limited Incorporated Registered capital 30.00 10.00 Manufacturing and
distribution of
RMB 8,793,000,000 petrochemical products
-------------------------------------------------------------------------------------------------------------------------------
Yueyang Sinopec and Shell Coal Incorporated Registered capital 50.00 -- Manufacturing and
distribution of
Gasification Company Limited USD 45,588,700 industrial gas
-------------------------------------------------------------------------------------------------------------------------------
Block A Oil Field in the Western Unincorporated -- -- 43.00 Exploration and
Area Chengdao in Bohai Bay production of
crude oil and natural gas
-------------------------------------------------------------------------------------------------------------------------------
Included in the consolidated financial statements are the following items
that represent the Group's proportionate share of the jointly controlled
entities' financial condition, results of operations and cash flows.
2005 2004
RMB millions RMB millions
Results of operations:
----------------------------------------------------------------------------------------------------------------------------
Operating revenue 10,082 313
Expenses 9,773 450
Net profit/(loss) 309 (137)
----------------------------------------------------------------------------------------------------------------------------
2005 2004
RMB millions RMB millions
Financial condition:
----------------------------------------------------------------------------------------------------------------------------
Current assets 2,631 520
Non-current assets 19,522 10,913
Current liabilities 2,543 1,699
Non-current liabilities 10,177 4,463
Net assets 9,433 5,271
----------------------------------------------------------------------------------------------------------------------------
2005 2004
RMB millions RMB millions
Cash flows:
----------------------------------------------------------------------------------------------------------------------------
Net cash (used in)/generated from operating activities (1,434) 233
Net cash used in investing activities (2,474) (6,035)
Net cash generated from financing activities 4,011 5,909
----------------------------------------------------------------------------------------------------------------------------
24 LONG-TERM PREPAYMENTS AND OTHER ASSETS
Long-term prepayments and other assets primarily represent prepaid rental
expenses over one year, computer software, goodwill and catalysts.
25 TRADE ACCOUNTS AND BILLS RECEIVABLES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Amounts due from third parties 13,546 10,989 4,136 5,179
------------------------------------------------------------------------------------------------------------------------------
Amounts due from subsidiaries -- -- 6,252 5,026
Amounts due from Sinopec Group Company and fellow subsidiaries 3,049 2,349 518 858
Amounts due from associates 572 89 10 19
Amounts due from jointly controlled entities 505 -- 229 --
------------------------------------------------------------------------------------------------------------------------------
17,672 13,427 11,145 11,082
------------------------------------------------------------------------------------------------------------------------------
Less: Impairment losses for bad and doubtful debts (3,140) (3,671) (2,319) (2,837)
------------------------------------------------------------------------------------------------------------------------------
14,532 9,756 8,826 8,245
------------------------------------------------------------------------------------------------------------------------------
Bills receivable 7,143 7,812 1,334 1,597
------------------------------------------------------------------------------------------------------------------------------
21,675 17,568 10,160 9,842
------------------------------------------------------------------------------------------------------------------------------
25 TRADE ACCOUNTS AND BILLS RECEIVABLES (Continued)
The ageing analysis of trade accounts and bills receivables (net of
impairment losses for bad and doubtful debts) is as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 21,414 16,968 10,010 9,425
--------------------------------------------------------------------------------------------------------------------------------
Between one and two years 178 225 112 127
--------------------------------------------------------------------------------------------------------------------------------
Between two and three years 43 166 25 83
--------------------------------------------------------------------------------------------------------------------------------
Over three years 40 209 13 207
--------------------------------------------------------------------------------------------------------------------------------
21,675 17,568 10,160 9,842
--------------------------------------------------------------------------------------------------------------------------------
Sales are generally on a cash term. Credit is generally only available for
major customers with well-established trading records. Amounts due from
Sinopec Group Company and fellow subsidiaries are repayable under the same
terms. The impairment losses for bad and doubtful debts of trade accounts
and bills receivables for the year ended 31 December 2005 amounted to RMB
328 million (2004: RMB 935 million).
26 INVENTORIES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Crude oil and other raw materials 53,333 32,562 25,471 14,544
--------------------------------------------------------------------------------------------------------------------------------
Work in progress 9,422 8,341 4,659 3,605
--------------------------------------------------------------------------------------------------------------------------------
Finished goods 23,163 20,804 17,980 15,163
--------------------------------------------------------------------------------------------------------------------------------
Spare parts and consumables 4,448 3,528 2,616 1,126
--------------------------------------------------------------------------------------------------------------------------------
90,366 65,235 50,726 34,438
--------------------------------------------------------------------------------------------------------------------------------
Less: Allowance for diminution in value of inventories (892) (906) (309) (394)
--------------------------------------------------------------------------------------------------------------------------------
89,474 64,329 50,417 34,044
--------------------------------------------------------------------------------------------------------------------------------
The cost of inventories recognised as an expense in the consolidated income
statement amounted to RMB 683,902 million for the year ended 31 December
2005 (2004: RMB 474,961 million), including the write-down of inventories
amounted to RMB 262 million (2004: RMB 648 million) and the reversal of
write-down of inventories made in prior years amounted to RMB 276 million
(2004: RMB 261 million) mainly arising from the sales of inventories.
27 PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Advances to third parties 1,754 1,600 909 740
--------------------------------------------------------------------------------------------------------------------------------
Amounts due from Sinopec Group Company and fellow
subsidiaries 2,954 5,585 2,559 5,002
--------------------------------------------------------------------------------------------------------------------------------
Amounts due from subsidiaries -- -- 2,964 11,908
--------------------------------------------------------------------------------------------------------------------------------
Other receivables 1,781 2,161 742 1,223
--------------------------------------------------------------------------------------------------------------------------------
Purchase deposits 2,496 2,547 1,106 2,059
--------------------------------------------------------------------------------------------------------------------------------
Prepayments in connection with construction work
and equipment purchases 5,583 4,727 4,584 2,679
--------------------------------------------------------------------------------------------------------------------------------
Prepaid value-added tax and customs duty 4,288 3,166 2,184 2,600
--------------------------------------------------------------------------------------------------------------------------------
Amounts due from associates 539 308 508 260
--------------------------------------------------------------------------------------------------------------------------------
19,395 20,094 15,556 26,471
--------------------------------------------------------------------------------------------------------------------------------
28 DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and deferred tax liabilities are attributable to the
items detailed in the table below:
The Group:
Assets Liabilities Net balance
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
----------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 3,904 2,528 -- -- 3,904 2,528
----------------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,642 1,566 (1,619) (1,704) 23 (138)
----------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation -- -- (4,217) (3,932) (4,217) (3,932)
----------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward,
net of valuation allowances 128 66 -- -- 128 66
----------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 359 366 -- -- 359 366
----------------------------------------------------------------------------------------------------------------------------------
Others 39 32 (66) -- (27) 32
----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 6,072 4,558 (5,902) (5,636) 170 (1,078)
----------------------------------------------------------------------------------------------------------------------------------
The Company:
Assets Liabilities Net balance
2005 2004 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions RMB millions RMB millions
Current
----------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 1,635 2,245 -- -- 1,635 2,245
----------------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 1,553 1,457 (1,083) (983) 470 474
----------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation -- -- (1,066) (1,042) (1,066) (1,042)
----------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 17 16 -- -- 17 16
----------------------------------------------------------------------------------------------------------------------------------
Others 15 6 (67) -- (52) 6
----------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets/(liabilities) 3,220 3,724 (2,216) (2,025) 1,004 1,699
----------------------------------------------------------------------------------------------------------------------------------
A valuation allowance on deferred tax assets is recorded if it is probable
that some portion or all of the deferred tax assets will not be realised
through the recovery of taxes previously paid and/or future taxable income.
The allowance is subject to ongoing adjustments based on changes in
circumstances that affect the Group's assessment on the realisability of
the deferred tax assets. The Group has reviewed its deferred tax assets at
the balance sheet date. Based on this review, valuation allowances of RMB
381 million (2004: RMB 409 million) were provided for the year ended 31
December 2005. The Group determined the valuation allowance based on
management's assessment of the probability that taxable profit will be
available over the period which the deferred tax assets can be realised or
utilised. In assessing the probability, both positive and negative evidence
was considered, including whether it is probable that the operations will
have future taxable profits over the periods which the deferred tax assets
are deductible or utilised and whether the tax losses result from
identifiable causes which are unlikely to recur. Based on this assessment,
a valuation allowance was provided to reduce the deferred tax asset to the
amount that is probable to be realised.
As at 31 December 2005, certain subsidiaries of the Company had tax value
of losses carried forward for PRC income tax purpose, provided for
valuation allowance, of RMB 4,072 million which were available to offset
future PRC taxable income of respective subsidiaries, if any. RMB 503
million, RMB 425 million, RMB 751 million, RMB 1,239 million and RMB 1,154
million expire in 2006, 2007, 2008, 2009 and 2010, respectively.
28 DEFERRED TAX ASSETS AND LIABILITIES (Continued)
Movements in the deferred tax assets and liabilities are as follows:
The Group
Recognised in
Balance at Recognised in consolidated Balance at
1 January other income 31 December
2004 reserves statement 2004
RMB millions RMB millions RMB millions RMB millions
Current
----------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 1,446 -- 1,082 2,528
----------------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (709) -- 571 (138)
----------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (3,618) -- (314) (3,932)
----------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation
allowance (Note) 923 (266) (591) 66
----------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 373 -- (7) 366
----------------------------------------------------------------------------------------------------------------------------------
Others 53 -- (21) 32
----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets (1,532) (266) 720 (1,078)
----------------------------------------------------------------------------------------------------------------------------------
Recognised in
Balance at Recognised in consolidated Balance at
1 January other income 31 December
2005 reserves statement 2005
RMB millions RMB millions RMB millions RMB millions
Current
----------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 2,528 -- 1,376 3,904
----------------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (138) -- 161 23
----------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (3,932) -- (285) (4,217)
----------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation
allowance 66 -- 62 128
----------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 366 -- (7) 359
----------------------------------------------------------------------------------------------------------------------------------
Others 32 -- (59) (27)
----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities)/assets (1,078) -- 1,248 170
----------------------------------------------------------------------------------------------------------------------------------
The Company
Recognised in
Balance at Recognised in consolidated Balance at
1 January other income 31 December
2004 reserves statement 2004
RMB millions RMB millions RMB millions RMB millions
Current
----------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 1,249 -- 996 2,245
----------------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment (213) -- 687 474
----------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (986) -- (56) (1,042)
----------------------------------------------------------------------------------------------------------------------------------
Tax value of losses carried forward, net of valuation
allowance (Note) 670 (266) (404) --
----------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 16 -- -- 16
----------------------------------------------------------------------------------------------------------------------------------
Others 35 -- (29) 6
----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets/(liabilities) 771 (266) 1,194 1,699
----------------------------------------------------------------------------------------------------------------------------------
Recognised in
Balance at Recognised in consolidated Balance at
1 January other income 31 December
2005 reserves statement 2005
RMB millions RMB millions RMB millions RMB millions
Current
---------------------------------------------------------------------------------------------------------------------------------
Receivables and inventories 2,245 -- (610) 1,635
----------------------------------------------------------------------------------------------------------------------------------
Non-current
----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 474 -- (4) 470
----------------------------------------------------------------------------------------------------------------------------------
Accelerated depreciation (1,042) -- (24) (1,066)
----------------------------------------------------------------------------------------------------------------------------------
Lease prepayments 16 -- 1 17
----------------------------------------------------------------------------------------------------------------------------------
Others 6 -- (58) (52)
----------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets/(liabilities) 1,699 -- (695) 1,004
----------------------------------------------------------------------------------------------------------------------------------
Note:
At 31 December 2004, deferred tax assets of RMB 266 million were
distributed to Sinopec Group Company in connection with the Acquisition of
Petrochemical and Catalyst Assets.
29 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES
Short-term debts represent:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Third parties' debts
-----------------------------------------------------------------------------------------------------------------------------------
Short-term bank loans 15,392 20,009 3,094 10,527
-----------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term bank loans 14,879 12,177 12,043 9,414
-----------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term other loans 26 121 1 92
----------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term bank loans of jointly
controlled entities 193 -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
15,098 12,298 12,044 9,506
-----------------------------------------------------------------------------------------------------------------------------------
Corporate bonds (a) 9,921 -- 9,921 --
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
40,411 32,307 25,059 20,033
-----------------------------------------------------------------------------------------------------------------------------------
Loans from Sinopec Group Company and fellow
subsidiaries
-----------------------------------------------------------------------------------------------------------------------------------
Short-term loans
----------------------------------------------------------------------------------------------------------------------------------
732 6,714 3,846 5,727
----------------------------------------------------------------------------------------------------------------------------------
Current portion of long-term loans 100 2,000 100 2,000
-----------------------------------------------------------------------------------------------------------------------------------
832 8,714 3,946 7,727
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
41,243 41,021 29,005 27,760
-----------------------------------------------------------------------------------------------------------------------------------
The Group's and the Company's weighted average interest rates on short-term loans were 4.0% (2004: 3.9%) and 3.2% (2004: 4.0%)
at 31 December 2005, respectively.
Long-term debts comprise:
The Group The Company
Interest rate and final maturity 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Third parties' debts
-----------------------------------------------------------------------------------------------------------------------------------
Long-term bank loans
Renminbi denominated Interest rates ranging from
interest free to 5.8%
per annum at 31 December 2005
with maturities through 2013 59,769 52,227 54,792 45,233
-----------------------------------------------------------------------------------------------------------------------------------
Japanese Yen denominated Interest rates ranging from
2.6% to 5.8% per annum at
31 December 2005
with maturities through 2024 3,394 4,562 3,394 4,556
-----------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from
interest free to 7.4% per
annum at 31 December 2005
with maturities through 2031 5,056 7,729 3,571 5,278
-----------------------------------------------------------------------------------------------------------------------------------
Euro denominated Fixed interest rate at 6.7%
per annum at 31 December 2005
with maturities through 2010 117 165 117 165
-----------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar Floating rate at Hong Kong
denominated Prime Rate plus 0.8% to 1.1%
per annum at 31 December 2005
with maturities through 2007 94 5 -- --
-----------------------------------------------------------------------------------------------------------------------------------
68,430 64,688 61,874 55,232
-----------------------------------------------------------------------------------------------------------------------------------
Long-term other loans
-----------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from
interest free to 5.0% per annum
at 31 December 2005
with maturities through 2008 170 359 37 200
-----------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Interest rates ranging from
interest free to 2.0%
per annum at 31 December 2005
with maturities through 2015 51 110 34 89
-----------------------------------------------------------------------------------------------------------------------------------
221 469 71 289
-----------------------------------------------------------------------------------------------------------------------------------
Corporate bonds
-----------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Fixed interest rate at 4.61%
per annum at 31 December 2005
with maturity in February 2014 (b) 3,500 3,500 3,500 3,500
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
72,151 68,657 65,445 59,021
-----------------------------------------------------------------------------------------------------------------------------------
29 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)
The Group The Company
Interest rate and final maturity 2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Long-term bank loans of jointly controlled entities
----------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Floating rate at 90% of PBOC's
base lending rate per annum
at 31 December 2005
with maturities through 2021 5,710 2,415 -- --
----------------------------------------------------------------------------------------------------------------------------------
US Dollar denominated Floating rate at London Interbank
Offer Rate plus 0.4% to 0.7% per
annum at 31 December 2005
with maturities through 2021 4,296 2,048 -- --
----------------------------------------------------------------------------------------------------------------------------------
10,006 4,463 -- --
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Total third parties' long-term debts 82,157 73,120 65,445 59,021
----------------------------------------------------------------------------------------------------------------------------------
Less: Current portion (15,098) (12,298) (12,044) (9,506)
----------------------------------------------------------------------------------------------------------------------------------
67,059 60,822 53,401 49,515
----------------------------------------------------------------------------------------------------------------------------------
Long-term loans from Sinopec Group Company and fellow subsidiaries
----------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest free with maturity in 2020 35,561 35,561 35,561 35,561
----------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Interest rates ranging from 5.0% to
5.2% per annum at 31 December 2005
with maturities through 2009 4,401 3,204 3,751 2,756
-----------------------------------------------------------------------------------------------------------------------------------
Long-term loans of jointly controlled entities from Sinopec Group
Company and fellow subsidiaries
-----------------------------------------------------------------------------------------------------------------------------------
Renminbi denominated Floating rate at 90% of PBOC's
base lending rate applicable to
three-year tenor loan per annum
at 31 December 2005 with
maturities through 2021 71 -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Less: Current portion (100) (2,000) (100) (2,000)
-----------------------------------------------------------------------------------------------------------------------------------
39,933 36,765 39,212 36,317
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
106,992 97,587 92,613 85,832
-----------------------------------------------------------------------------------------------------------------------------------
(a) The Company issued six-month corporate bonds of face value at RMB 10
billion to corporate investors in PRC debenture market on 24 October
2005, at a discounted value of RMB 98.75 per RMB 100 par value, with an
effective yield at 2.54% per annum with maturity in April 2006.
(b) The Company issued ten years corporate bonds of RMB 3.5 billion to PRC
citizens as well as PRC legal and non-legal persons on 24 February 2004
with a fixed interest rate at 4.61% per annum.
Third parties' loans of RMB 35 million of the Group at 31 December 2005
(2004: RMB 40 million) were secured by certain of the Group's property,
plant and equipment. The net book value of property, plant and equipment
of the Group pledged as security amounted to RMB 83 million at 31
December 2005 (2004: RMB 123 million).
Third parties' loans of RMB 13 million of the Company at 31 December
2005 (2004: RMB 9 million) were secured by certain of the Company's
property, plant and equipment. The net book value of property, plant and
equipment of the Company pledged as security amounted to RMB 10 million
at 31 December 2005 (2004: RMB 10 million).
The aggregate maturities of long-term debts and loans from Sinopec Group
Company and fellow subsidiaries are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 15,198 14,298 12,144 11,506
-------------------------------------------------------------------------------------------------------------------------------
Between one and two years 18,787 15,886 16,420 12,363
-------------------------------------------------------------------------------------------------------------------------------
Between two and five years 39,142 36,041 34,771 31,279
-------------------------------------------------------------------------------------------------------------------------------
After five years 49,063 45,660 41,422 42,190
-------------------------------------------------------------------------------------------------------------------------------
122,190 111,885 104,757 97,338
-------------------------------------------------------------------------------------------------------------------------------
Included in short-term and long-term debts and loans from Sinopec Group
Company and fellow subsidiaries of the Group are the follow amounts
denominated in a currency other than the functional currency of the
entity to which they relate:
2005 2004
millions millions
US Dollar USD2,158 USD2,494
-------------------------------------------------------------------------------------------------------------------------------
Japanese Yen JPY50,507 JPY60,889
-------------------------------------------------------------------------------------------------------------------------------
Euro EUR12 EUR15
-------------------------------------------------------------------------------------------------------------------------------
Hong Kong Dollar HKD128 HKD732
-------------------------------------------------------------------------------------------------------------------------------
30 TRADE ACCOUNTS AND BILLS PAYABLES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Amounts due to third parties 49,962 22,265 12,032 10,435
---------------------------------------------------------------------------------------------------------------------------------
Amounts due to subsidiaries -- -- 15,805 9,876
---------------------------------------------------------------------------------------------------------------------------------
Amounts due to Sinopec Group Company and fellow
subsidiaries 2,304 1,527 996 826
---------------------------------------------------------------------------------------------------------------------------------
Amounts due to jointly controlled entities 650 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Amounts due to associates 51 -- -- --
---------------------------------------------------------------------------------------------------------------------------------
52,967 23,792 28,833 21,137
---------------------------------------------------------------------------------------------------------------------------------
Bills payable 23,243 30,797 19,077 21,589
---------------------------------------------------------------------------------------------------------------------------------
76,210 54,589 47,910 42,726
---------------------------------------------------------------------------------------------------------------------------------
Amounts due to Sinopec Group Company and fellow subsidiaries are repayable in accordance with normal commercial terms.
The maturities of trade accounts and bills payables are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Due within 1 month or on demand 44,194 25,444 23,251 21,839
---------------------------------------------------------------------------------------------------------------------------------
Due after 1 month but within 6 months 31,704 28,877 24,353 20,807
---------------------------------------------------------------------------------------------------------------------------------
Due after 6 months 312 268 306 80
---------------------------------------------------------------------------------------------------------------------------------
76,210 54,589 47,910 42,726
---------------------------------------------------------------------------------------------------------------------------------
31 ACCRUED EXPENSES AND OTHER PAYABLES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Amounts due to Sinopec Group Company and fellow
subsidiaries 7,144 10,897 4,538 7,336
---------------------------------------------------------------------------------------------------------------------------------
Amounts due to subsidiaries -- -- 7,032 15,010
---------------------------------------------------------------------------------------------------------------------------------
Accrued expenditures 19,566 17,213 13,984 11,801
---------------------------------------------------------------------------------------------------------------------------------
Taxes other than income tax 3,090 3,717 1,415 2,079
---------------------------------------------------------------------------------------------------------------------------------
Receipts in advance 12,368 7,387 9,133 5,013
---------------------------------------------------------------------------------------------------------------------------------
Advances from third parties 1,226 1,009 1,100 961
---------------------------------------------------------------------------------------------------------------------------------
Others 4,773 5,053 3,357 3,365
---------------------------------------------------------------------------------------------------------------------------------
48,167 45,276 40,559 45,565
---------------------------------------------------------------------------------------------------------------------------------
32 SHARE CAPITAL
The Group and the Company
2005 2004
RMB millions RMB millions
Registered, issued and fully paid
--------------------------------------------------------------------------------------------------------------------------
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
--------------------------------------------------------------------------------------------------------------------------
16,780,488,000 overseas listed H shares of RMB 1.00 each 16,780 16,780
--------------------------------------------------------------------------------------------------------------------------
2,800,000,000 domestic listed A shares of RMB 1.00 each 2,800 2,800
--------------------------------------------------------------------------------------------------------------------------
86,702 86,702
--------------------------------------------------------------------------------------------------------------------------
The Company was established on 25 February 2000 with a registered capital
of 68.8 billion domestic state-owned shares with a par value of RMB 1.00
each. Such shares were issued to Sinopec Group Company in consideration for
the assets and liabilities of the Predecessor Operations transferred to the
Company (Note 1).
Pursuant to the resolutions passed at an Extraordinary General Meeting held
on 25 July 2000 and approvals from relevant government authorities, the
Company is authorised to increase its share capital to a maximum of 88.3
billion shares with a par value of RMB 1.00 each and offer not more than
19.5 billion shares with a par value of RMB 1.00 each to investors outside
the PRC. Sinopec Group Company is authorised to offer not more than 3.5
billion shares of its shareholdings in the Company to investors outside the
PRC. The shares sold by Sinopec Group Company to investors outside the PRC
would be converted into H shares.
In October 2000, the Company issued 15,102,439,000 H shares with a par
value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750
American Depositary Shares ("ADSs", each representing 100 H shares), at
prices of HK$ 1.59 per H share and US$ 20.645 per ADS, respectively, by way
of a global initial public offering to Hong Kong and overseas investors. As
part of the global initial public offering, 1,678,049,000 domestic
state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company
were converted into H shares and sold to Hong Kong and overseas investors.
In July 2001, the Company issued 2.8 billion domestic listed A shares with
a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to
natural persons and institutional investors in the PRC.
All A shares and H shares rank pari passu in all material aspects.
33 RESERVES
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
(Restated)
Capital reserve
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January (19,217) (18,960) 13,672 13,672
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus of Petrochemical and Catalyst Assets -- (257) -- --
-----------------------------------------------------------------------------------------------------------------------------------
At 31 December (19,217) (19,217) 13,672 13,672
-----------------------------------------------------------------------------------------------------------------------------------
Share premium
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January/31 December 18,072 18,072 18,072 18,072
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation reserve
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 27,998 30,341 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus of Petrochemical and Catalyst Assets -- 257 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued assets -- (709) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised (1,656) (1,891) -- --
-----------------------------------------------------------------------------------------------------------------------------------
At 31 December 26,342 27,998 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Statutory surplus reserve
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 9,558 6,330 9,558 6,330
-----------------------------------------------------------------------------------------------------------------------------------
Appropriation 3,956 3,228 3,956 3,228
-----------------------------------------------------------------------------------------------------------------------------------
At 31 December 13,514 9,558 13,514 9,558
-----------------------------------------------------------------------------------------------------------------------------------
Statutory public welfare fund
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 9,558 6,330 9,558 6,330
-----------------------------------------------------------------------------------------------------------------------------------
Appropriation 3,956 3,228 3,956 3,228
-----------------------------------------------------------------------------------------------------------------------------------
___________________________________________________________________________________________________________________________________
At 31 December 13,514 9,558 13,514 9,558
-----------------------------------------------------------------------------------------------------------------------------------
Discretionary surplus reserve
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January/31 December 7,000 7,000 7,000 7,000
-----------------------------------------------------------------------------------------------------------------------------------
Other reserves
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 247 3,868 247 3,868
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus of Petrochemical and Catalyst Assets -- 257 -- 257
-----------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land use rights (5) (5) (5) (5)
-----------------------------------------------------------------------------------------------------------------------------------
Transfer from retained earnings to other reserves -- 1,499 -- 1,499
-----------------------------------------------------------------------------------------------------------------------------------
Net assets distributed to Sinopec Group Company -- (2,244) -- (2,244)
-----------------------------------------------------------------------------------------------------------------------------------
Consideration for Acquisition of Petrochemical and
Catalyst Assets -- (3,128) -- (3,128)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
At 31 December 242 247 242 247
-----------------------------------------------------------------------------------------------------------------------------------
Retained earnings
-----------------------------------------------------------------------------------------------------------------------------------
At 1 January 53,122 31,832 (4,211) 1,511
-----------------------------------------------------------------------------------------------------------------------------------
Profit for the year attributable to equity shareholders
of the Company 40,920 36,019 43,113 10,898
-----------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2003 (Note 16) -- (5,202) -- (5,202)
-----------------------------------------------------------------------------------------------------------------------------------
Interim dividend for 2004 (Note 16) -- (3,468) -- (3,468)
-----------------------------------------------------------------------------------------------------------------------------------
Final dividend for 2004 (Note 16) (6,936) -- (6,936) --
-----------------------------------------------------------------------------------------------------------------------------------
Interim dividend for 2005 (Note 16) (3,468) -- (3,468) --
-----------------------------------------------------------------------------------------------------------------------------------
Appropriation (7,912) (6,456) (7,912) (6,456)
-----------------------------------------------------------------------------------------------------------------------------------
Revaluation surplus realised 1,656 1,891 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Realisation of deferred tax on land use rights 5 5 5 5
-----------------------------------------------------------------------------------------------------------------------------------
Transfer from retained earnings to other reserves -- (1,499) -- (1,499)
-----------------------------------------------------------------------------------------------------------------------------------
At 31 December 77,387 53,122 20,591 (4,211)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
136,854 106,338 86,605 53,896
-----------------------------------------------------------------------------------------------------------------------------------
34 COMMITMENTS AND CONTINGENT LIABILITIES
Operating lease commitments
The Group leases service stations and other equipment through
non-cancellable operating leases. These operating leases do not contain
provisions for contingent lease rentals. None of the rental agreements
contain escalation provisions that may require higher future rental
payments.
At 31 December 2005 and 2004, the future minimum lease payments under
operating leases are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 3,593 3,452 3,424 3,272
---------------------------------------------------------------------------------------------------------------------------------
Between one and two years 3,442 3,343 3,363 3,237
----------------------------------------------------------------------------------------------------------------------------------
Between two and three years 3,388 3,278 3,319 3,213
----------------------------------------------------------------------------------------------------------------------------------
Between three and four years 3,357 3,245 3,292 3,188
----------------------------------------------------------------------------------------------------------------------------------
Between four and five years 3,353 3,225 3,290 3,170
----------------------------------------------------------------------------------------------------------------------------------
Thereafter 95,176 97,527 93,601 95,968
----------------------------------------------------------------------------------------------------------------------------------
112,309 114,070 110,289 112,048
----------------------------------------------------------------------------------------------------------------------------------
34 COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Capital commitments
At 31 December 2005 and 2004, capital commitments are as follows:
2005 2004
RMB millions RMB millions
The Group
----------------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 71,666 43,001
----------------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 84,213 60,173
----------------------------------------------------------------------------------------------------------------------------------
155,879 103,174
----------------------------------------------------------------------------------------------------------------------------------
Jointly controlled entities
----------------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 2,160 3,157
----------------------------------------------------------------------------------------------------------------------------------
Authorised but not contracted for 60 2,088
----------------------------------------------------------------------------------------------------------------------------------
2,220 5,245
----------------------------------------------------------------------------------------------------------------------------------
The Company
----------------------------------------------------------------------------------------------------------------------------------
Authorised and contracted for 55,496 28,143
Authorised but not contracted for 45,938 37,619
----------------------------------------------------------------------------------------------------------------------------------
101,434 65,762
----------------------------------------------------------------------------------------------------------------------------------
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interest in associates.
Exploration and production licenses
Exploration licenses for exploration activities are registered with the
Ministry of Land and Resources. The maximum term of the Group's exploration
licenses is 7 years, and may be renewed twice within 30 days prior to
expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the
license is issued. The Ministry of Land and Resources also issues
production licenses to the Group on the basis of the reserve reports
approved by relevant authorities. The maximum term of a full production
license is 30 years unless a special dispensation was given by the State
Council. The maximum term of production licenses issued to the Group is 55
years as a special dispensation was given to the Group by the State
Council. The Group's production license is renewable upon application by
the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were RMB 208 million for
the year ended 31 December 2005 (2004: RMB 189 million).
Estimated future annual payments are as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Within one year 107 90 74 60
-----------------------------------------------------------------------------------------------------------------------------
Between one and two years 112 120 81 85
Between two and three years 59 75 49 47
Between three and four years 67 67 58 55
Between four and five years 56 74 49 64
Thereafter 239 279 108 143
-----------------------------------------------------------------------------------------------------------------------------
640 705 419 454
-----------------------------------------------------------------------------------------------------------------------------
Contingent liabilities
(a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the business
assumed by the Company in the Reorganisation, no other liabilities were
assumed by the Company, and the Company is not jointly and severally
liable for other debts and obligations incurred by Sinopec Group
Company prior to the Reorganisation.
(b) At 31 December 2005 and 2004, guarantees given to banks in respect of
banking facilities granted to the parties below were as follows:
The Group The Company
2005 2004 2005 2004
RMB millions RMB millions RMB millions RMB millions
Subsidiaries -- -- 2,583 2,656
--------------------------------------------------------------------------------------------------------------------------------
Associates and jointly controlled entities 79 4,828 11,986 12,059
--------------------------------------------------------------------------------------------------------------------------------
79 4,828 14,569 14,715
--------------------------------------------------------------------------------------------------------------------------------
The Group monitors the conditions that are subject to the guarantees to
identify whether it is probable that a loss has occurred, and recognise
any such losses under guarantees when those losses are estimable. At 31
December 2005 and 2004, it is not probable that the Group will be
required to make payments under the guarantees. Thus no liability has
been accrued for a loss related to the Group's obligation under these
guarantee arrangements.
34 COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
Environmental contingencies
To date, the Group has not incurred any significant expenditures for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse
effect on the financial position or operating results of the Group. The PRC
government, however, has moved, and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to
considerable uncertainties which affect the Group's ability to estimate the
ultimate cost of remediation efforts. These uncertainties include i) the
exact nature and extent of the contamination at various sites including,
but not limited to refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold, ii) the extent
of required cleanup efforts, iii) varying costs of alternative remediation
strategies, iv) changes in environmental remediation requirements, and v)
the identification of new remediation sites. The amount of such future cost
is indeterminable due to such factors as the unknown magnitude of possible
contamination and the unknown timing and extent of the corrective actions
that may be required. Accordingly, the outcome of environmental liabilities
under proposed or future environmental legislation cannot reasonably be
estimated at present, and could be material. The Group paid normal routine
pollutant discharge fees of approximately RMB 493 million for the year
ended 31 December 2005 (2004: RMB 248 million).
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities
will not have a material adverse effect on the financial position or
operating results of the Group.
35 RELATED PARTY TRANSACTIONS
Parties are considered to be related to the Group if the Group has the
ability, directly or indirectly, to control or jointly control the party or
exercise significant influence over the party in making financial and
operating decisions, or vice versa, or where the Group and the party are
subject to common control or common significant influence. Related parties
may be individuals (being members of key management personnel, significant
shareholders and/or their close family members) or other entities and
include entities which are under the significant influence of related
parties of the Group where those parties are individuals, and
post-employment benefit plans which are for the benefit of employees of the
group or of any entity that is a related party of the Group.
(a) Transactions with Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities The Group is part of a
larger group of companies under Sinopec Group Company, which is owned
by the PRC government, and has significant transactions and
relationships with Sinopec Group Company and fellow subsidiaries.
Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from
transactions among unrelated parties.
The principal related party transactions with Sinopec Group Company and
fellow subsidiaries, associates and jointly controlled entities, which
were carried out in the ordinary course of business, are as follows:
Note 2005 2004
RMB millions RMB millions
Sales of goods (i) 95,123 63,507
-----------------------------------------------------------------------------------------------------------------------------
Purchases (ii) 48,454 36,828
Transportation and storage (iii) 1,959 2,003
Exploration and development services (iv) 17,001 14,446
Production related services (v) 10,653 9,036
Ancillary and social services (vi) 1,790 1,740
Operating lease charges (vii) 3,213 3,297
Agency commission income (viii) 48 41
Intellectual property license fee paid (ix) 9 10
Interest received (x) 52 59
Interest paid (xi) 994 622
Net deposits (withdrawn from)/placed with related parties (xii) (82) 340
Net loans (repaid to)/obtained from related parties (xiii) (4,714) 1,575
The amounts set out in the table above in respect of the years ended 31
December 2005 and 2004 represent the relevant costs to the Group as
determined by the corresponding contracts with the related parties.
At 31 December 2005 and 2004, there were no guarantees given to banks by
the Group in respect of banking facilities to Sinopec Group Company and
fellow subsidiaries. Guarantees given to banks by the Group in respect
of banking facilities to associates are disclosed in Note 34.
The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course
of business and on normal commercial terms or in accordance with the
agreements governing such transactions, and this has been confirmed by
the independent non-executive directors.
Notes:
(i) Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary
materials.
(ii) Purchases represent the purchase of materials and utility supplies
directly related to the Group's operations such as the procurement
of raw and ancillary materials and related services, supply of
water, electricity and gas.
(iii) Transportation and storage represent the cost for the use of
railway, road and marine transportation services, pipelines,
loading, unloading and storage facilities.
(iv) Exploration and development services comprise direct costs
incurred in the exploration and development such as geophysical,
drilling, well testing and well measurement services.
35 RELATED PARTY TRANSACTIONS (Continued)
(a) Transactions with Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities (Continued)
(v) Production related services represent ancillary services
rendered in relation to the Group's operations such as
equipment repair and general maintenance, insurance premium,
technical research, communications, fire fighting, security,
product quality testing and analysis, information technology,
design and engineering, construction which includes the
construction of oilfield ground facilities, refineries and
chemical plants, manufacture of replacement parts and
machinery, installation, project management and environmental
protection.
(vi) Ancillary and social services represent expenditures for
social welfare and support services such as educational
facilities, media communication services, sanitation,
accommodation, canteens, property maintenance and management
services.
(vii) Operating lease charges represent the rental paid to Sinopec
Group Company for operating leases in respect of land,
buildings and equipment.
(viii) Agency commission income represents commission earned for
acting as an agent in respect of sales of products and
purchase of materials for certain entities owned by Sinopec
Group Company.
(ix) Intellectual property license fee represents reimbursement
paid to Sinopec Group Company for fees required to maintain
the validity of certain licenses, trademarks, patents,
technology and computer software.
(x) Interest received represents interest received from deposits
placed with Sinopec Finance Company Limited, a finance
company controlled by Sinopec Group Company. The applicable
interest rate is determined in accordance with the prevailing
saving deposit rate. The balance of deposits at 31 December
2005 was RMB 4,589 million (2004: RMB 4,671 million).
(xi) Interest paid represents interest charges on the loans and
advances obtained from Sinopec Group Company and Sinopec
Finance Company Limited.
(xii) Deposits were withdrawn from/placed with Sinopec Finance
Company Limited.
(xiii) The Group repaid loans to/obtained loans from Sinopec Group
Company and Sinopec Finance Company Limited.
In connection with the Reorganisation, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social
and supporting services to the Group and 2) the Group will sell certain
goods to Sinopec Group Company. The terms of these agreements are
summarised as follows:
(a) The Company has entered into a non-exclusive Agreement for Mutual
Provision of Products and Ancillary Services ("Mutual Provision
Agreement") with Sinopec Group Company effective from 1 January
2000 in which Sinopec Group Company has agreed to provide the
Group with certain ancillary production services, construction
services, information advisory services, supply services and other
services and products. While each of Sinopec Group Company and the
Company is permitted to terminate the Mutual Provision Agreement
upon at least six months notice, Sinopec Group Company has agreed
not to terminate the agreement if the Group is unable to obtain
comparable services from a third party. The pricing policy for
these services and products provided by Sinopec Group Company to
the Group is as follows:
| the government-prescribed price;
| where there is no government-prescribed price, the
government-guidance price;
| where there is neither a government-prescribed price nor a
government-guidance price, the market price; or
| where none of the above is applicable, the price to be agreed
between the parties, which shall be based on a reasonable cost
incurred in providing such services plus a profit margin not
exceeding 6%.
(b) The Company has entered into a non-exclusive Agreement for
Provision of Cultural and Educational, Health Care and Community
Services with Sinopec Group Company effective from 1 January 2000
in which Sinopec Group Company has agreed to provide the Group
with certain cultural, educational, health care and community
services on the same pricing terms and termination conditions as
agreed to in the above Mutual Provision Agreement.
(c) The Company has entered into a series of lease agreements with
Sinopec Group Company to lease certain land and buildings at a
rental of approximately RMB 2,557 million and RMB 568 million,
respectively, per annum. The Company and Sinopec Group Company can
renegotiate the rental amount every three years for land and every
year for buildings and the amount should not exceed the market
price as determined by an independent third party. The Group has
the option to terminate these leases upon six months notice to
Sinopec Group Company.
(d) The Company has entered into agreements with Sinopec Group Company
effective from 1 January 2000 under which the Group has been
granted the right to use certain trademarks, patents, technology
and computer software developed by Sinopec Group Company. The
Group will reimburse Sinopec Group Company for fees required to
maintain the validity of these licenses.
(e) The Company has entered into a service stations franchise
agreement with Sinopec Group Company effective from 1 January 2000
under which its service stations and retail stores would
exclusively sell the refined products supplied by the Group.
As discussed in Note 1, pursuant to the resolutions passed at the
Extraordinary General Meeting held on 21 December 2004, the Group
acquired the equity interests of Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical, Guangzhou Petrochemical and
Catalyst Plants from Sinopec Group Company for a total consideration
payable of RMB 3,128 million. In addition, the Group acquired certain
individual assets and liabilities from Sinopec Group Company, including
certain property, plant and equipment with net book value of RMB 1,883
million, for a total consideration payable of RMB 2,232 million. In
connection with these acquisitions, the Group disposed of certain
property, plant and equipment, with net book value of RMB 1,857 million,
and certain other assets and liabilities, related to its oilfield
downhole operation (the "Downhole Assets") to Sinopec Group Company for
a total consideration receivable of RMB 1,712 million, which
approximated the net carrying value of the assets and liabilities,
resulting in a net cash consideration of RMB 3,648 million payable to
Sinopec Group Company. The consideration was fully paid during the year
ended 31 December 2005.
35 RELATED PARTY TRANSACTIONS (Continued)
(a) Transactions with Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities (Continued) Amounts due
from/to Sinopec Group Company and fellow subsidiaries, associates
and jointly controlled entities included in respective accounts
caption are summarised as follows:
2005 2004
RMB millions RMB millions
Trade accounts receivable 4,126 2,438
---------------------------------------------------------------------------------------------------------------------------------
Prepaid expenses and other current assets 3,493 5,893
---------------------------------------------------------------------------------------------------------------------------------
Total amounts due from Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities 7,619 8,331
---------------------------------------------------------------------------------------------------------------------------------
Trade accounts payable 3,005 1,527
---------------------------------------------------------------------------------------------------------------------------------
Accrued expenses and other payables 7,144 10,897
Short-term loans and current portion of long-term loans from
Sinopec Group Company and fellow subsidiaries 832 8,714
---------------------------------------------------------------------------------------------------------------------------------
Long-term loans excluding current portion from Sinopec Group Company and
fellow subsidiaries 39,933 36,765
---------------------------------------------------------------------------------------------------------------------------------
Total amounts due to Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities 50,914 57,903
---------------------------------------------------------------------------------------------------------------------------------
Amounts due from/to Sinopec Group Company and fellow subsidiaries,
associates and jointly controlled entities, other than short-term loans
and long-term loans, bear no interest, are unsecured and are repayable
in accordance with normal commercial terms. The terms and conditions
associated with short-term loans and long-term loans payable to Sinopec
Group Company and fellow subsidiaries are set out in Note 29.
As at and for the year ended 31 December 2005, no impairment losses for
bad and doubtful debts were recorded in respect of amounts due from
Sinopec Group Company and fellow subsidiaries, associates and jointly
controlled entities.
(b) Key management personnel emoluments
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of
the Group, directly or indirectly, including directors and supervisors
of the Group. The key management personnel compensations are as follows:
2005 2004
RMB '000 RMB '000
Short-term employee benefits 2,868 3,997
-----------------------------------------------------------------------------------------------------------------------------
Retirement scheme contributions 115 202
-----------------------------------------------------------------------------------------------------------------------------
2,983 4,199
-----------------------------------------------------------------------------------------------------------------------------
Total emoluments are included in "personnel expenses" as disclosed in
Note 7.
Key management personnel also participate in the Group's share
appreciation rights plan (Note 36).
(c)Contributions to defined contribution retirement plans The Group
participates in various defined contribution retirement plans organised
by municipal and provincial governments for its staff. The details of
the Group's employee benefits plan are disclosed in Note 36. As at 31
December 2005, there was no material outstanding contribution to
post-employment benefit plans.
(d)Transactions with other state-owned entities in the PRC The Group is a
state-owned entity and operates in an economic regime currently
predominated by state-owned entities. Apart from transactions with
Sinopec Group Company and fellow subsidiaries, the Group conducts a
majority of its business activities with entities directly or indirectly
owned or controlled by the PRC government and numerous government
authorities and agencies (collectively referred to as "state-owned
entities") in the ordinary course of business. These transactions, which
include sales and purchase of goods and ancillary materials, rendering
and receiving services, lease of assets, purchase of property, plant and
equipment and obtaining finance, are carried out at terms similar to
those that would be entered into with non-state-owned entities and have
been reflected in the financial statements. The Group believes that it
has provided meaningful disclosure of related party transactions as
summarised above.
36 EMPLOYEE BENEFITS PLAN
As stipulated by the regulations of the PRC, the Group participates in
various defined contribution retirement plans organised by municipal and
provincial governments for its staff. The Group is required to make
contributions to the retirement plans at rates ranging from 17.0% to 30.0%
of the salaries, bonuses and certain allowances of its staff. A member of
the plan is entitled to a pension equal to a fixed proportion of the salary
prevailing at his or her retirement date. The Group has no other material
obligation for the payment of pension benefits associated with these plans
beyond the annual contributions described above. The Group's contributions
for the year ended 31 December 2005 were RMB 2,269 million (2004: RMB 2,242
million).
The Company implemented a share appreciation rights plan for members of its
management, including the key management personnel, in order to provide
further incentives to these employees. Under this plan, share appreciation
rights were granted in units with each unit representing one H share. No
shares will be issued under the share appreciation rights plan.
Under the plan, all share appreciation rights have an exercise period of
five years. A recipient of share appreciation rights may not exercise the
rights in the first 3 years after the date of grant. As at each of the
third, fourth and fifth anniversary of the date of grant, the total number
of share appreciation rights exercisable may not in aggregate exceed 30%,
70% and 100%, respectively, of the total share appreciation rights granted
to such person.
During the year ended 31 December 2003, the Company granted 258.6 million
share appreciation right units to eligible employees accordingly. No share
appreciation rights were granted during the years ended 31 December 2004
and 2005.
The exercise price of share appreciation rights initially granted is the
initial public offering price of the Company's H shares. Upon exercise of
the share appreciation rights, a recipient will receive, subject to any
applicable withholding tax, a cash payment in RMB , translated from the
Hong Kong dollar amount equal to the product of the number of share
appreciation rights exercised and the difference between the exercise price
and average market price of the Company's H shares for the exercise period
based on the applicable exchange rate between RMB and Hong Kong dollar at
the date of the exercise.
The Company recognises compensation expense of the share appreciation
rights over the applicable vesting period. For the year ended 31 December
2005, compensation expense recognised was RMB 19 million (2004: RMB 150
million). As at 31 December 2005, the carrying amount of liability arising
from share appreciation rights was RMB 289 million (2004: RMB 270 million).
37 SEGMENTAL REPORTING
The Group has five operating segments as follows:
(i) Exploration and production, which explores and develops oil fields,
produces crude oil and natural gas and sells such products to the
refining segment of the Group and external customers.
(ii) Refining, which processes and purifies crude oil, which is sourced
from the exploration and production segment of the Group and
external suppliers, and manufactures and sells petroleum products
to the chemicals and marketing and distribution segments of the
Group and external customers.
(iii) Marketing and distribution, which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals, which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products
mainly to external customers.
(v) Corporate and others, which largely comprise the trading activities
of the import and export companies of the Group and research and
development undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production, refining, marketing and distribution,
chemicals, and corporate and others businesses separately. The reportable
segments are each managed separately because they manufacture and/or
distribute distinct products with different production processes and due to
their distinct operating and gross margin characteristics. In view of the
fact that the Company and its subsidiaries operate mainly in the PRC, no
geographical segment information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of
the Group's segments are the same as those described in the principal
accounting policies (Note 2). Corporate administrative costs and assets are
not allocated to the operating segments; instead, operating segments are
charged for direct corporate services. Inter-segment transfer pricing is
based on cost plus an appropriate margin, as specified by the Group's
policy.
37 SEGMENTAL REPORTING (Continued)
Reportable information on the Group's business segments is as follows:
2005 2004
RMB millions RMB millions
Turnover
--------------------------------------------------------------------------------------------------------------------------------
Exploration and production
External sales 19,862 15,970
--------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 84,423 60,053
--------------------------------------------------------------------------------------------------------------------------------
104,285 76,023
--------------------------------------------------------------------------------------------------------------------------------
Refining
--------------------------------------------------------------------------------------------------------------------------------
External sales 82,810 63,388
--------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 386,456 289,699
--------------------------------------------------------------------------------------------------------------------------------
469,266 353,087
--------------------------------------------------------------------------------------------------------------------------------
Marketing and distribution
--------------------------------------------------------------------------------------------------------------------------------
External sales 459,292 342,840
--------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 3,172 2,831
--------------------------------------------------------------------------------------------------------------------------------
462,464 345,671
--------------------------------------------------------------------------------------------------------------------------------
Chemicals
--------------------------------------------------------------------------------------------------------------------------------
External sales 160,783 126,013
--------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 12,199 12,510
--------------------------------------------------------------------------------------------------------------------------------
172,982 138,523
--------------------------------------------------------------------------------------------------------------------------------
Corporate and others
--------------------------------------------------------------------------------------------------------------------------------
External sales 76,368 48,986
--------------------------------------------------------------------------------------------------------------------------------
Inter-segment sales 44,897 32,046
--------------------------------------------------------------------------------------------------------------------------------
121,265 81,032
--------------------------------------------------------------------------------------------------------------------------------
Elimination of inter-segment sales (531,147) (397,139)
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Turnover 799,115 597,197
--------------------------------------------------------------------------------------------------------------------------------
Other operating revenues
--------------------------------------------------------------------------------------------------------------------------------
Exploration and production 10,745 9,283
Refining 5,421 5,186
Marketing and distribution 1,358 755
Chemicals 5,841 6,170
Corporate and others 637 1,192
--------------------------------------------------------------------------------------------------------------------------------
Other operating revenues 24,002 22,586
--------------------------------------------------------------------------------------------------------------------------------
Other income
--------------------------------------------------------------------------------------------------------------------------------
Refining 9,415 --
--------------------------------------------------------------------------------------------------------------------------------
Total other income 9,415 --
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
832,532 619,783
--------------------------------------------------------------------------------------------------------------------------------
2005 2004
RMB millions RMB millions
Result
--------------------------------------------------------------------------------------------------------------------------------
Operating profit
By segment
- Exploration and production 46,871 25,614
--------------------------------------------------------------------------------------------------------------------------------
- Refining (3,505) 5,943
- Marketing and distribution 10,350 14,716
- Chemicals 14,296 18,721
- Corporate and others (1,198) (1,925)
--------------------------------------------------------------------------------------------------------------------------------
Total operating profit 66,814 63,069
--------------------------------------------------------------------------------------------------------------------------------
Share of profits less losses from associates
--------------------------------------------------------------------------------------------------------------------------------
- Exploration and production 326 447
--------------------------------------------------------------------------------------------------------------------------------
- Refining 23 58
- Marketing and distribution 241 302
- Chemicals 1 (164)
- Corporate and others 266 154
--------------------------------------------------------------------------------------------------------------------------------
Aggregate share of profits less losses from associates 857 797
--------------------------------------------------------------------------------------------------------------------------------
Finance costs
--------------------------------------------------------------------------------------------------------------------------------
Interest expense (5,920) (4,583)
--------------------------------------------------------------------------------------------------------------------------------
Interest income 382 374
Foreign exchange losses (79) (223)
Foreign exchange gains 996 61
--------------------------------------------------------------------------------------------------------------------------------
Net finance costs (4,621) (4,371)
--------------------------------------------------------------------------------------------------------------------------------
Investment income 178 111
--------------------------------------------------------------------------------------------------------------------------------
Profit before taxation 63,228 59,606
--------------------------------------------------------------------------------------------------------------------------------
Taxation (19,388) (17,815)
--------------------------------------------------------------------------------------------------------------------------------
Profit for the year 43,840 41,791
--------------------------------------------------------------------------------------------------------------------------------
37 SEGMENTAL REPORTING (Continued)
Assets and liabilities dedicated to a particular segment's operations are
included in that segment's total assets and liabilities. Assets which
benefit more than one segment or are considered to be corporate assets are
not allocated. "Unallocated assets" consists primarily of cash and cash
equivalents, time deposits with financial institutions, investments and
deferred tax assets. "Unallocated liabilities" consists primarily of
short-term and long-term debts, loans from Sinopec Group Company and fellow
subsidiaries, income tax payable, deferred tax liabilities and other
liabilities.
Interest in and earnings from associates are included in the segments in
which the associates operate. Information on associates is included in Note
22. Additions to long-lived assets by operating segment are included in
Notes 18 and 19.
2005 2004
RMB millions RMB millions
Assets
---------------------------------------------------------------------------------------------------------------------------------
Segment assets
- Exploration and production 123,631 110,509
---------------------------------------------------------------------------------------------------------------------------------
- Refining 135,731 111,878
- Marketing and distribution 102,935 93,722
- Chemicals 115,942 105,032
- Corporate and others 20,570 17,574
---------------------------------------------------------------------------------------------------------------------------------
Total segment assets 498,809 438,715
---------------------------------------------------------------------------------------------------------------------------------
Interests in associates
---------------------------------------------------------------------------------------------------------------------------------
- Exploration and production 1,494 1,396
---------------------------------------------------------------------------------------------------------------------------------
- Refining 521 314
- Marketing and distribution 4,298 2,410
- Chemicals 1,092 4,315
- Corporate and others 1,812 1,787
Aggregate interests in associates 9,217 10,222
---------------------------------------------------------------------------------------------------------------------------------
Unallocated assets 29,295 25,657
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Total assets 537,321 474,594
---------------------------------------------------------------------------------------------------------------------------------
Liabilities
---------------------------------------------------------------------------------------------------------------------------------
Segment liabilities
- Exploration and production 18,882 16,241
---------------------------------------------------------------------------------------------------------------------------------
- Refining 26,486 28,130
- Marketing and distribution 23,713 23,419
- Chemicals 19,442 16,528
- Corporate and others 35,855 15,547
---------------------------------------------------------------------------------------------------------------------------------
Total segment liabilities 124,378 99,865
---------------------------------------------------------------------------------------------------------------------------------
Unallocated liabilities 159,947 150,643
---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 284,325 250,508
---------------------------------------------------------------------------------------------------------------------------------
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.
2005 2004
RMB millions RMB millions
Capital expenditure
---------------------------------------------------------------------------------------------------------------------------------
Exploration and production 23,095 21,234
Refining 14,127 14,272
Marketing and distribution 10,954 16,678
Chemicals 9,386 11,025
Corporate and others 1,164 1,550
---------------------------------------------------------------------------------------------------------------------------------
58,726 64,759
---------------------------------------------------------------------------------------------------------------------------------
Capital expenditure of jointly controlled entities
---------------------------------------------------------------------------------------------------------------------------------
Exploration and production 772 1,323
Chemicals 1,830 5,178
---------------------------------------------------------------------------------------------------------------------------------
2,602 6,501
---------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortisation
---------------------------------------------------------------------------------------------------------------------------------
Exploration and production 10,915 12,066
Refining 7,053 7,730
Marketing and distribution 3,026 2,759
Chemicals 9,697 9,325
Corporate and others 722 462
---------------------------------------------------------------------------------------------------------------------------------
31,413 32,342
---------------------------------------------------------------------------------------------------------------------------------
Impairment losses on long-lived assets recognised in income statement
---------------------------------------------------------------------------------------------------------------------------------
Exploration and production 60 98
Refining -- 14
Marketing and distribution 366 1,769
Chemicals 1,425 2,038
---------------------------------------------------------------------------------------------------------------------------------
1,851 3,919
---------------------------------------------------------------------------------------------------------------------------------
Impairment losses on revalued long-lived assets recognised in equity attributable to
equity shareholders of the Company
---------------------------------------------------------------------------------------------------------------------------------
Chemicals -- 709
---------------------------------------------------------------------------------------------------------------------------------
38 PRINCIPAL SUBSIDIARIES
At 31 December 2005, the following list contains the particulars of
subsidiaries which principally affected the results or assets of the Group.
Percentage of equity
Particulars of Type of held by the
issued legal held by the Company's
Name of company capital entity Company subsidiary Principal activities
(millions) % %
China Petrochemical International RMB 1,704 Limited 100.00 -- Trading of crude oil and
Company Limited company petrochemical products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Beijing Yanshan Petrochemical RMB 3,404 Limited 100.00 -- Manufacturing of chemical
Company Limited ("Beijing Yanhua") (i) company products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Sales Company Limited RMB 1,700 Limited 100.00 -- Marketing and distribution
company of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shengli Oilfield Company Limited RMB 29,000 Limited 100.00 -- Exploration and
company production of
crude oil and natural gas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Fujian Petrochemical RMB 2,253 Limited 50.00 -- Manufacturing of plastics,
Company Limited (ii) company intermediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qilu Petrochemical RMB 1,950 Limited 82.05 -- Manufacturing of
Company Limited company intermediate
petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shanghai Petrochemical RMB 7,200 Limited 55.56 -- Manufacturing of synthetic
Company Limited company fibres, resin and plastics,
intermediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shijiazhuang Refining- RMB 1,154 Limited 79.73 -- Manufacturing of
Chemical Company Limited company intermediate
petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Kantons Holdings Limited HK$ 104 Limited -- 72.40 Trading of crude oil and
company petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Petroleum Group RMB 147 Limited 46.25 -- Marketing and
distribution of
refined petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Wuhan Phoenix RMB 519 Limited 40.72 -- Manufacturing of
Company Limited (ii) company petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yangzi Petrochemical RMB 2,330 Limited 84.98 -- Manufacturing of
Company Limited company intermediate petrochemical
products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Yizheng Chemical Fibre RMB 4,000 Limited 42.00 -- Production and sale of
Company Limited (ii) company polyester chips and
polyester fibres
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhenhai Refining and RMB 2,524 Limited 71.32 -- Manufacturing of
Chemical Company Limited company intermediate
petrochemical products and
petroleum products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petroleum RMB 875 Limited 70.85 -- Exploration and
Company Limited company production of
crude oil and natural gas
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Zhongyuan Petrochemical RMB 2,400 Limited 93.51 -- Manufacturing of chemical
Company Limited company products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Shell (Jiangsu) Petroleum RMB 830 Limited 60.00 -- Marketing and distribution
Marketing Company Limited company of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
BP Sinopec (Zhejiang) Petroleum RMB 800 Limited 60.00 -- Marketing and distribution
Company Limited company of refined petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Sinopec Qingdao Refining and RMB 800 Limited 85.00 -- Manufacturing of
Chemical Company Limited company intermediate petrochemical
products and petroleum
products
-----------------------------------------------------------------------------------------------------------------------------------
Except for Sinopec Kantons Holdings Limited, which is incorporated in
Bermuda, all of the above principal subsidiaries are incorporated in the
PRC.
(i) During the year ended 31 December 2005, the Group acquired the
entire 1,012,000,000 H shares, representing approximately 29.99% of
the issued share capital of Beijing Yanhua from minority interests
at HK$ 3.80 per share. The total consideration paid by the Group
was approximately RMB 4,088 million which was settled in cash. The
excess of the cost of purchase over the fair value of the
underlying assets and liabilities (on a proportionate share) was
recorded as goodwill, amounting to RMB 1,157 million, which is
included in long-term prepayments and other assets.
(ii) The Group consolidated the results of the entity because the Group
controlled the board of this entity and had the power to govern its
financial and operating policies.
39 FINANCIAL INSTRUMENTS
Financial assets of the Group include cash and cash equivalents, time
deposits with financial institutions, investments, trade accounts
receivable, bills receivable, amounts due from Sinopec Group Company and
fellow subsidiaries, advances to third parties, amounts due from
associates, and other receivables. Financial liabilities of the Group
include bank and other loans, loans from Sinopec Group Company and fellow
subsidiaries, trade accounts payable, bills payable, amounts due to Sinopec
Group Company and fellow subsidiaries, receipts in advance, and advances
from third parties. The Group has no derivative instruments that are
designated and qualified as hedging instruments at 31 December 2005 and
2004.
Credit risk
The carrying amounts of cash and cash equivalents, time deposits with
financial institutions, trade accounts and bills receivables, and other
current assets, except for prepayments and deposits, represent the Group's
maximum exposure to credit risk in relation to financial assets.
The majority of the Group's trade accounts receivable relate to sales of
petroleum and chemical products to related parties and third parties
operating in the petroleum and chemical industries. The Group performs
ongoing credit evaluations of its customers' financial condition and
generally does not require collateral on trade accounts receivable. The
Group maintains an impairment loss for bad and doubtful debts and actual
losses have been within management's expectations. No single customer
accounted for greater than 10% of total revenues.
No other financial assets carry a significant exposure to credit risk.
Currency risk
Substantially all of the revenue-generating operations of the Group are
transacted in Renminbi, which is not fully convertible into foreign
currencies. On 1 January 1994, the PRC government abolished the dual rate
system and introduced a single rate of exchange as quoted by the People's
Bank of China. However, the unification of the exchange rate does not imply
convertibility of Renminbi into United States dollars or other foreign
currencies. All foreign exchange transactions continue to take place either
through the People's Bank of China or other banks authorised to buy and
sell foreign currencies at the exchange rates quoted by the People's Bank
of China. Approval of foreign currency payments by the People's Bank of
China or other institutions requires submitting a payment application form
together with suppliers' invoices, shipping documents and signed contracts.
With the authorisation from the PRC government, the People's Bank of China
announced that the PRC government reformed the exchange rate regime by
moving into a managed floating exchange rate regime based on market supply
and demand with reference to a basket of currencies on 21 July 2005. The
exchange rate of US dollars against RMB was adjusted to 8.11 yuan per US
dollar with effect from the time of 19:00 hours on 21 July 2005.
Other than the amounts as disclosed in Note 29, the amounts of other
financial assets and liabilities of the Group are substantially denominated
in the functional currency of respective entity of the Group.
Interest rate risk
The interest rates and terms of repayment of short-term and long-term debts
of the Group are disclosed in Note 29.
Fair values
The disclosures of the fair value estimates, methods and assumptions, set
forth below for the Group's financial instruments, are made to comply with
the requirements of IAS 32 and IAS 39 and should be read in conjunction
with the Group's consolidated financial statements and related notes. The
estimated fair value amounts have been determined by the Group using market
information and valuation methodologies considered appropriate. However,
considerable 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 Group has not developed an internal valuation model necessary to make
the estimate of the fair value of loans from Sinopec Group Company and
fellow subsidiaries as it is not considered practicable to estimate their
fair value because the cost of obtaining discount and borrowing rates for
comparable borrowings would be excessive based on the Reorganisation of the
Group, its existing capital structure, and the terms of the borrowings.
The following table presents the carrying amount and fair value of the
Group's long-term indebtedness other than loans from Sinopec Group Company
and fellow subsidiaries at 31 December 2005 and 2004:
2005 2004
RMB millions RMB millions
Carrying amount 82,157 73,120
------------------------------------------------------------------------------------------------------------------
Fair value 82,161 73,263
The fair value of long-term indebtedness is estimated by discounting future
cash flows thereon using current market interest rates offered to the Group
for debts with substantially the same characteristics and maturities.
Investments are unlisted equity securities, and 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 fair values of all other financial instruments approximate their
carrying amounts due to the nature or short-term maturity of these
instruments.
40 MAJOR DOMESTIC SUPPLIERS
The Group's major domestic suppliers of crude oil and refined petroleum
products are China National Petroleum Corporation and its subsidiaries
("CNPC Group") and China National Offshore Oil Corporation and its
subsidiaries ("CNOOC Group"). Failure in negotiating another contract with
another key supplier at similar terms and costs could have a severe and
significant impact on the Group's results of operations.
The following table presents the aggregate amount of crude oil purchased by
refining segment and refined petroleum products purchased by marketing and
distribution segment from CNPC Group and the amount of crude oil purchased
by refining segment from CNOOC Group during the years ended 31 December
2005 and 2004:
2005 2004
RMB millions RMB millions
CNPC Group 44,814 30,214
---------------------------------------------------------------------------------------------------------------------
CNOOC Group 14,143 11,438
41 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 financial statements. The Group bases the assumptions and estimates
on historical experience and on various other assumptions that the Group
believes to be reasonable and which form the basis for making judgements
about matters that are not readily apparent from other sources. On an
on-going 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 those policies and the sensitivity
of reported results to changes in conditions and assumptions are factors to
be considered when reviewing the financial statements. The principal
accounting policies are set forth in Note 2. The Group believes the
following critical accounting policies involve the most significant
judgements and estimates used in the preparation of the 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 business.
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 related depreciation rates.
Despite the inherent imprecision in these engineering estimates, these
estimates are used in determining depreciation expense and impairment
expense. Depreciation rates are determined based on estimated proved
developed reserve quantities (the denominator) and capitalised costs of
producing properties (the numerator). Producing properties' capitalised
costs are amortised based on the units of oil or gas produced.
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. 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 are not readily available. In determining the value
in use, expected cash flows generated by the asset are discounted to their
present value, which requires significant judgement relating to level of
sale volume, selling price and amount of operating costs. The Group 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. The Group
reviews the estimated useful lives of the assets regularly 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 taking into account anticipated
technological changes. The depreciation expense for future periods is
adjusted if there are significant changes from previous estimates.
Impairment for bad and doubtful debts
The Group estimates impairment losses for bad and doubtful debts resulting
from the inability of the customers to make the required payments. The
Group bases the estimates on the aging 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.
42 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT
NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED 31 DECEMBER 2005
Up to the date of issue of these financial statements, the IASB has issued
the following amendments, new standards and interpretations which are not
yet effective for the annual accounting period ended 31 December 2005 and
which have not been adopted in these financial statements:
Effective for accounting
period beginning on or after
IFRS 6, Exploration for and evaluation of mineral resources 1 January 2006
------------------------------------------------------------------------------------------------------------------------------
IFRS 7, Financial instruments: disclosures 1 January 2007
IFRIC 4, Determining whether an arrangement contains a lease 1 January 2006
IFRIC 5, Rights to interests arising from decommissioning, restoration environmental
rehabilitation funds 1 January 2006
IFRIC 6, Liabilities arising from participating in a specific market - Waste electrical
and electronic equipment 1 December 2005
IFRIC 7, Applying the restatement approach under IAS 29, Financial reporting in
hyperinflationary economies 1 March 2006
IFRIC 8, Scope of IFRS 2 1 May 2006
IFRIC 9, Reassessment of Embedded Derivatives 1 June 2006
Amendment to IAS 1, Presentation of financial statements: capital disclosures 1 January 2007
Amendment to IAS 19, Employee benefits - Actuarial Gains and Losses, Group Plans
and Disclosures 1 January 2006
Amendment to IAS 21, Net investment in a foreign operation 1 January 2006
Amendments to IAS 39, Financial instruments: Recognition and measurement:
- Cash flow hedge accounting of forecast intragroup transactions 1 January 2006
------------------------------------------------------------------------------------------------------------------------------
- The fair value option 1 January 2006
- Financial guarantee contracts 1 January 2006
Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards 1 January 2006
------------------------------------------------------------------------------------------------------------------------------
The Group is in the process of making an assessment of what the impact of
these amendments, new standards and new interpretations is expected to be
in the period of initial application. Up to the date of issuance of these
financial statements, the Group believes that the adoption of IFRIC 4,
IFRIC 5, IFRIC6, IFRIC 7, IFRIC 8, IFRIC 9 and the amendments to IAS 19,
IAS 21 and IFRS 1 are not applicable to any of the Group's operations and
that the adoption of the remainder of the above amendments, new standards
and new interpretations is unlikely to have a significant impact on the
Group's results of operations and financial position.
43 CHANGES IN PRINCIPAL ACCOUNTING POLICIES
The IASB has issued a number of new and revised IFRS that are effective for
accounting periods beginning on or after 1 January 2005.
The accounting policies of the Group after the adoption of these new and
revised IFRS have been summarised in Note 2. The following sets out
information on the significant changes in accounting policies for the
current and prior accounting periods reflected in these financial
statements.
(a) Minority interests (IAS 1 "Presentation of financial statements" and IAS
27 "Consolidated and separate financial statements") In prior years,
minority interests at the balance sheet date were presented in the
consolidated balance sheet separately from liabilities and as deduction
from net assets. Minority interests in the results of the Group for the
year were also separately presented in the consolidated statement of
income as a deduction before arriving at the profit attributable to
shareholders.
With effect from 1 January 2005, in order to comply with IAS 1 and IAS
27, the Group has changed its accounting policy relating to presentation
of minority interests. Under the new accounting policy, minority
interests are presented in the consolidated balance sheet within equity,
separately from the equity attributable to equity shareholders of the
Company, and minority interests in the results of the Group for the year
to be presented on the face of the consolidated income statement as an
allocation of the total profit or loss for the year between the minority
interests and equity shareholders of the Company. The presentations of
minority interests in the consolidated balance sheet, consolidated
income statement and consolidated statement of changes in equity for the
comparative period have been restated accordingly.
(b)Accounting for investments in subsidiaries, associates and jointly
controlled entities (IAS 27 "Consolidated and separate financial
statements", IAS 28 "Investments in associates" and IAS 31 "Interests in
joint ventures") In prior years, in the balance sheet of the Company
investments in subsidiaries, associates and jointly controlled entities
are accounted for using the equity method.
With effect from 1 January 2005, in order to comply with IAS 27, IAS 28
and IAS 31, investments in subsidiaries, associates and jointly
controlled entities are accounted for using the cost method. Investments
in subsidiaries, interest in associates, interest in jointly controlled
entities and reserves balance in the balance sheet of the Company for
the comparative period has been restated accordingly. There was no
impact to the Group's consolidated financial statements.
The following table discloses the adjustments that have been made in
accordance with IAS 27, IAS 28 and IAS 31 to each of the line items in
the balance sheet of the Company as previously reported as at 31
December 2004.
Effect on new
accounting policies
2004 (increase/
(as previously (decrease) 2004
reported) in net assets) (as restated)
RMB millions RMB millions RMB millions
Investments in subsidiaries 118,451 (51,521) 66,930
Interest in associates 7,540 (1,116) 6,424
Interest in jointly controlled entities 3,568 195 3,763
Reserves 106,338 (52,442) 53,896
43 CHANGES IN PRINCIPAL ACCOUNTING POLICIES (Continued)
(c) Related party disclosures (IAS 24 "Related party disclosures") The
definition of related parties under IAS 24 as disclosed in Note 35 has
been expanded to clarify that related parties include entities that are
under the significant influence of a related party that is an
individual (i.e. key management personnel, significant shareholders
and/or their close family members) and post-employment benefit plans
which are for the benefit of employees of the Group or of any entity
that is a related party of the Group.
With effect from 1 January 2005, in order to comply with IAS 24, the
Group has made further disclosure of key management personnel
compensation and contributions to post-retirement benefit plans.
(d) Property, Plant and Equipment (IAS 16 "Property, Plant and Equipment")
With effect from 1 January 2005, IAS 16 requires an entity to determine
cost, useful life and depreciation charge separately for each
significant part of an item of property, plant and equipment, and
derecognise the carrying amount of a part of an item of property, plant
and equipment if that part has been replaced. IAS 16 also requires an
entity to include the costs of dismantlement, removal or restoration,
the obligation for which an entity incurs as a consequence of
installing the item in the cost of that item of property, plant and
equipment. The change in accounting policy relating to these new
requirements of IAS 16 did not have a material impact on the Group's
financial statements.
44 POST BALANCE SHEET EVENT
On 12 November 2005, the Group announced its proposal to acquire all of the
equity interests which the Group does not own of Sinopec Zhenhai Refining &
Chemical Company Limited ("Zhenhai"), a non-wholly owned subsidiary in
which the Group holds approximately 71.3% of the equity interests.
According to the proposal, the Group will acquire the entire 723,754,468 H
shares, representing approximately 28.7% of the issued share capital of
Zhenhai at HK$ 10.60 per share. The total consideration required to be paid
by the Group is approximately HK$ 7,762 million which will be settled in
cash. Pursuant to the resolution passed in the Special General Meeting of
Zhenhai on 12 January 2006, the shareholders of H shares in Zhenhai agreed
to dispose of and sell their shares in Zhenhai to the Group at the above
mentioned price.
On 15 February 2006, the Group announced its proposals to acquire all of
the equity interests which the Group does not own of Sinopec Qilu
Petrochemical Company Limited, Sinopec Yangzi Petrochemical Company
Limited, Sinopec Zhongyuan Petroleum Company Limited and Sinopec Shengli
Oilfield Dynamic Company Limited, being non-wholly owned subsidiaries and
an associate in which the Group holds approximately 82%, 85%, 71% and 26%
of the equity interests, respectively. According to the proposals, the
Group will acquire the entire shares not held by the Group in Sinopec Qilu
Petrochemical Company Limited, Sinopec Yangzi Petrochemical Company
Limited, Sinopec Zhongyuan Petroleum Company Limited and Sinopec Shengli
Oilfield Dynamic Company Limited. The total consideration required to be
paid by the Group is approximately RMB 14,247 million which will be settled
in cash. On 6 March 2006, these proposals were approved by the relevant PRC
governmental and regulatory body.
45 COMPARATIVE FIGURES
Certain comparative figures have been adjusted as a result of the changes
in accounting policies. Further details are disclosed in Note 43.
46 PARENT AND ULTIMATE HOLDING COMPANY
The directors consider the parent and ultimate holding company of the Group
as at 31 December 2005 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 FINANCIAL STATEMENTS PREPARED UNDER THE PRC ACCOUNTING
RULES AND REGULATIONS AND IFRS
Other than the differences in the classifications of certain financial
statements captions and the accounting for the items described below, there are
no material differences between the Group's financial statements prepared under
the PRC Accounting Rules and Regulations and IFRS. The reconciliation presented
below is included as supplemental information, is not required as part of the
basic financial statements and does not include differences related to
classification, display or disclosures. Such information has not been subject
to independent audit or review. The major differences are:
(i) Depreciation of oil and gas properties
Under the PRC Accounting Rules and Regulations, oil and gas properties
are depreciated on a straight-line basis. Under IFRS, oil and gas
properties are depreciated on the unit of production method.
(ii) Capitalisation of general borrowing costs
Under the PRC Accounting Rules and Regulations, only borrowing costs on
funds that are specifically borrowed for construction are capitalised
as part of the cost of property, plant and equipment. Under IFRS, to
the extent that funds are borrowed generally and used for the purpose
of obtaining a qualifying asset, the borrowing costs should be
capitalised as part of the cost of that asset.
(iii) Pre-operating expenditures
Under the PRC Accounting Rules and Regulations, expenditures incurred
during the start-up period are aggregated in long-term deferred
expenses and charged to the income statement when operations commence.
Under IFRS, expenditures on start-up activities are recognised as an
expense when they are incurred.
(iv) Equity investment differences
Under the PRC Accounting Rules and Regulations, equity investment
difference, being the excess of the initial investment cost over the
investor's share of equity of the investee enterprise, is amortised on
a straight-line basis. The amortisation period is determined according
to the investment period as stipulated in the relevant agreement, or
less than ten years if the investment period is not specified in the
agreement.
Under IFRS, goodwill, being the excess of the cost of the business
combination over the investor's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities, is not
amortised. Instead, goodwill is tested for impairment annually, or more
frequently if events or changes in circumstance indicate that it might
be impaired.
(v) Unrecognised losses of subsidiaries
Under the PRC Accounting Rules and Regulations, the results of
subsidiaries are included in the Group's consolidated income statement
to the extent that the subsidiaries' accumulated losses do not result
in their carrying amount being reduced below zero. Further losses are
debited to a separate reserve in the shareholders' funds. Any profits
earned by the subsidiaries subsequently are firstly credited to this
reserve before being included in the Group's consolidated income
statement to the extent that the aggregate amounts credited do not
exceed the accumulated losses debited to this reserve previously for
that same subsidiary.
Under IFRS, the results of subsidiaries are included in the Group's
consolidated income statement from the date that control effectively
commences until the date that control effectively ceases.
(vi) Acquisitions of Sinopec National Star, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants Under the
PRC Accounting Rules and Regulations, the acquisitions of Sinopec
National Star, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical and Catalyst Plants (the "Acquisitions") are accounted
for by the acquisition method. Under the acquisition method, the income
of an acquiring enterprise includes the operations of the acquired
enterprise subsequent to the acquisition. The difference between the
cost of acquiring Sinopec National Star and the fair value of the net
assets acquired is capitalised as an exploration and production right,
which is amortised over 27 years. The costs of acquiring Tianjin
Petrochemical, Luoyang Petrochemical, Zhongyuan Petrochemical and
Catalyst Plants approximated the fair value of the net assets acquired.
Under IFRS, as the Group, Sinopec National Star, Tianjin Petrochemical,
Luoyang Petrochemical, Zhongyuan Petrochemical and Catalyst Plants are
under the common control of Sinopec Group Company, the Acquisitions are
considered "combination of entities under common control" which are
accounted in a manner similar to a pooling-of-interests ("as-if
pooling-of-interests accounting"). Accordingly, the assets and
liabilities of Sinopec National Star, Tianjin Petrochemical, Luoyang
Petrochemical, Zhongyuan Petrochemical and Catalyst Plants acquired
have been accounted for at historical cost and the financial statements
of the Group for periods prior to the Acquisitions have been restated
to include the financial condition and results of operations of Sinopec
National Star, Tianjin Petrochemical, Luoyang Petrochemical, Zhongyuan
Petrochemical and Catalyst Plants on a combined basis. The
considerations paid by the Group are treated as equity transactions.
(vii) Revaluation of land use rights
Under the PRC Accounting Rules and Regulations, land use rights are
carried at revalued amount. Under IFRS, land use rights are carried at
historical cost less amortisation. Accordingly, the surplus on the
revaluation of land use rights, credited to revaluation reserve, was
eliminated.
(viii) Government grant
Under the PRC Accounting Rules and Regulations, government grants
relating to the purchase of equipment used for technology improvements
should be credited to capital reserve. Under IFRS, government grants
relating to the purchase of equipment used for technology improvements
are initially recorded as long-term liabilities and are offset against
the cost of assets to which the grants related when construction
commences. Upon transfer to property, plant and equipment, the grants
are recognised as an income over the useful life of the property, plant
and equipment by way of reduced depreciation charge.
(ix) Impairment losses on revalued assets
Under the PRC Accounting Rules and Regulations, impairment losses on
property, plant and equipment are recognised as an expense in the
income statement. Under IFRS, impairment loss on a revalued asset is
recognised directly against any related revaluation reserve to the
extent that the impairment loss does not exceed the amount held in the
revaluation reserve for that same asset.
(x) Disposal of oil and gas properties
Under the PRC Accounting Rules and Regulations, gains and losses arising
from the retirement or disposal of an individual item of oil and gas
properties are recognised as an income or expense in the income statement
and are measured as the difference between the estimated net disposal
proceeds and the carrying amount of the asset.
Under IFRS, gains and losses on the retirement or disposal of an individual
item of proved oil and gas properties are not recognised unless the
retirement or disposal encompasses an entire property. The costs of the
asset abandoned or retired are charged to accumulated depreciation with the
proceeds received on disposals credited to the carrying amounts of oil and
gas properties.
(xi) Minority interests
Under the PRC Accounting Rules and Regulations, minority interests at the
balance sheet date are presented in the consolidated balance sheet
separately from liabilities and as deduction from the shareholders' funds.
Minority interests in the results of the Group for the period are also
separately presented in the consolidated income statement as deduction
before arriving at the net profit.
Under IFRS, minority interests at the balance sheet date are presented in
the consolidated balance sheet within equity, separately from the equity
attributable to the equity holders of the Company, and minority interests
in the results of the Group for the period are presented on the face of the
consolidated income statement as an allocation of the total profit or loss
for the period between the minority interests and the equity holders of the
Company.
Effects of major differences between the net profit under the PRC
Accounting Rules and Regulations and the profit for the year under IFRS are
analysed as follows:
Note 2005 2004
RMB millions RMB millions
Net profit under the PRC Accounting Rules and Regulations 39,558 32,275
Adjustments:
Depreciation of oil and gas properties (i) 751 761
Capitalisation of general borrowing costs, net of depreciation effect (ii) 507 480
Pre-operating expenditures (iii) 435 (288)
Equity investment differences (iv) 200 --
Unrecognised losses of subsidiaries (v) 119 (531)
Acquisition of Sinopec National Star (vi) 117 117
Acquisitions of Tianjin Petrochemical, Luoyang Petrochemical,
Zhongyuan Petrochemical and Catalyst Plants (vi) -- 2,119
Reduced amortisation on revaluation of land use rights (vii) 24 19
Reduced depreciation on government grants (viii) 4 3
Impairment losses on revalued assets (ix) -- 709
Disposal of oil and gas properties, net of depreciation effect (x) (310) 2,110
Effects of the above adjustments on taxation (485) (1,755)
Minority interests (xi) 2,920 5,772
Profit for the year under IFRS* 43,840 41,791
Effects of major differences between the shareholders' funds under the PRC
Accounting Rules and Regulations and the total equity under IFRS are
analysed as follows:
Note 2005 2004
RMB millions RMB millions
Shareholders' funds under the PRC Accounting Rules and Regulations 215,623 186,350
Adjustments:
Depreciation of oil and gas properties (i) 12,233 11,482
Capitalisation of general borrowing costs (ii) 2,112 1,605
Pre-operating expenditures (iii) (22) (457)
Equity investment differences (iv) 200 --
Acquisition of Sinopec National Star (vi) (2,578) (2,695)
Revaluation of land use rights (vii) (953) (977)
Government grants (viii) (588) (592)
Disposal of oil and gas properties (x) 3,060 3,370
Effects of the above adjustments on taxation (5,531) (5,046)
Minority interests (xi) 29,440 31,046
--------------------------------------------------------------------------------------------------------------------------------
Total equity under IFRS* 252,996 224,086
--------------------------------------------------------------------------------------------------------------------------------
* The above figure is extracted from the financial statements prepared in accordance with IFRS which have been audited
by KPMG.
(D) SUPPLEMENTAL INFORMATION FOR NORTH AMERICAN SHAREHOLDERS
The Group's accounting policies conform with IFRS which differ in certain
significant respects from accounting principles generally accepted in the
United States of America ("US GAAP"). Information relating to the nature and
effect of such differences are set out below. The US GAAP reconciliation
presented below is included as supplemental information, is unaudited, is not
required as part of the basic financial statements and does not include
differences related to classification, display or disclosures.
(a) Foreign exchange gains and losses
In accordance with IFRS, foreign exchange differences on funds borrowed for
construction are capitalised as property, plant and equipment to the extent
that they are regarded as an adjustment to interest costs during the
construction period. Under US GAAP, all foreign exchange gains and losses
on foreign currency debts are included in current earnings. For the years
presented herein, the US GAAP adjustments represent the amortisation effect
of such originating adjustments described above. Accordingly, the carrying
amount of property, plant and equipment under IFRS was higher than the
amount under US GAAP by RMB 241 million (2004: RMB 295 million) as of 31
December 2005.
(b) Capitalisation of property, plant and equipment
In the years prior to those presented herein, certain adjustments arose
between IFRS and US GAAP with regard to the capitalisation of interest and
pre-production results under IFRS that were reversed and expensed under US
GAAP. For the years presented herein, there were no adjustments related to
the capitalisation of interest and pre-production results and the US GAAP
adjustments represent the amortisation effect of such originating
adjustments described above. The amounts were fully amortised as of 31
December 2004. Accordingly, there was no difference in the carrying amount
of property, plant and equipment under IFRS and US GAAP as of 31 December
2005 and 2004.
(c) Revaluation of property, plant and equipment
As required by the relevant PRC regulations with respect to the
Reorganisation, the property, plant and equipment of the Group were
revalued at 30 September 1999. In addition, the property, plant and
equipment of Sinopec National Star, Sinopec Maoming, Refining Assets, and
Petrochemical and Catalyst Assets were revalued at 31 December 2000, 30
June 2003, 31 October 2003 and 30 June 2004, respectively, in connection
with the Acquisitions. Under IFRS, such revaluations result in an increase
in equity with respect to the increase in carrying amount of certain
property, plant and equipment above their historical cost bases and a
charge to income with respect to the reduction in carrying amount of
certain property, plant and equipment below their historical cost bases.
Under US GAAP, property, plant and equipment are stated at their historical
cost less accumulated depreciation. However, as a result of the tax
deductibility of the net revaluation surplus, a deferred tax asset related
to the reversal of the revaluation surplus is created under US GAAP with a
corresponding increase in equity.
In addition, under IFRS, on disposal of a revalued asset, the related
revaluation surplus is transferred from the revaluation reserve to retained
earnings. Under US GAAP, the gain and loss on disposal of an asset is
determined with reference to the asset's historical carrying amount and
included in current earnings.
Accordingly, the carrying amount of property, plant and equipment under
IFRS was higher than the amount under US GAAP by RMB 1,838 million (2004:
RMB 7,692 million) as of 31 December 2005.
(d) Exchange of assets
During 2002, the Company and Sinopec Group Company entered into an asset
swap transaction. Under IFRS, the cost of property, plant and equipment
acquired in an exchange for a dissimilar item of property, plant and
equipment is measured at fair value. Under US GAAP, as the exchange of
assets was between entities under common control, the assets received from
Sinopec Group Company are measured at historical cost. The difference
between the historical cost of the net assets transferred and the net
assets received is accounted for as an equity transaction. For the years
presented herein, the US GAAP adjustments represent the amortisation effect
of such originating adjustments described above. Accordingly, the carrying
amount of property, plant and equipment under IFRS was higher than the
amount under US GAAP by RMB 509 million (2004: RMB 532 million) as of 31
December 2005.
(e) Reversal of impairment of long-lived assets
Under IFRS, impairment charges are recognised when a long-lived asset's
carrying amount exceeds the higher of an asset's fair value less costs to
sell and value in use, which incorporates discounting the asset's estimated
future cash flows.
Under US GAAP, determination of the recoverability of a long-lived asset is
based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an
impairment loss is recognised. Measurement of an impairment loss for a
long-lived asset is based on the difference between the asset's carrying
value and the fair value of the asset.
In addition, under IFRS, a subsequent increase in the recoverable amount of
an asset is reversed to the consolidated income statement to the extent
that an impairment loss on the same asset was previously recognised as an
expense when the circumstances and events that led to the write-down or
write-off cease to exist. The reversal is reduced by the amount that would
have been recognised as depreciation had the write-off not occurred. Under
US GAAP, an impairment loss establishes a new cost basis for the impaired
asset and the new cost basis should not be adjusted subsequently other than
for further impairment losses.
For the years presented herein, the US GAAP adjustment represents the
effect of reversing the recovery of previous impairment charges recorded
under IFRS. Accordingly, the carrying amount of property, plant and
equipment under IFRS was higher than the amount under US GAAP by RMB 456
million (2004: RMB 532 million) as of 31 December 2005.
(f) Capitalised interest on investment in associates
Under IFRS, investment accounted for by the equity method is not considered
a qualifying asset for which interest is capitalised. Under US GAAP, an
investment accounted for by the equity method while the investee has
activities in progress necessary to commence its planned principal
operations, provided that the investee's activities include the use of
funds to acquire qualifying assets for its operations, is a qualifying
asset for which interest is initially capitalised and subsequently
amortised when the operation of the qualifying assets begin. Accordingly,
the carrying amount of the interest in associates under IFRS was lower than
the amount under US GAAP by RMB 486 million (2004: RMB 526 million) as of
31 December 2005.
(g) Goodwill
Under IFRS, with reference to IFRS 3, "Business Combination", goodwill
arising from a business combination for which the agreement date is on or
after 31 March 2004 is not amortised, or goodwill arising from a business
combination for which the agreement date was before 31 March 2004 is no
longer amortised from the first annual reporting period beginning on or
after 31 March 2004. Instead, goodwill is tested for impairment annually.
Under US GAAP, with reference to Statement of Financial Accounting
Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS No.142"),
goodwill is no longer amortised beginning 1 January 2002. Instead, goodwill
is reviewed for impairment upon adoption of SFAS No.142 and annually
thereafter.
As a result, there is no difference in respect of goodwill amortisation
effective 1 January 2005. Accordingly, the carrying amount of the goodwill
under IFRS was lower than the amount under US GAAP by RMB 43 million (2004:
RMB 43 million) as of 31 December 2005.
(h) Presentation of minority interests
Under IFRS, minority interests at the balance sheet date are presented in
the consolidated balance sheet within equity, separately from the equity
attributable to the equity shareholders of the Company, and minority
interests in the results of the Group for the period are presented on the
face of the consolidated income statement as an allocation of the profit
for the year between the minority interests and the equity shareholders of
the Company. Under US GAAP, minority interests at the balance sheet date
are presented in the consolidated balance sheet either as liabilities or
separately from liabilities and equity. Minority interests in the results
of the Group for the period are also separately presented in the
consolidated income statement as deduction before arriving at the net
income.
(i) Companies included in consolidation
Under IFRS, the Group consolidates less than majority owned entities in
which the Group has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain benefits from
its activities, and proportionately consolidates jointly controlled
entities in which the Group has joint control with other venturers.
However, US GAAP requires that any entity of which the Group owns 20% to
50% of total outstanding voting stock not be consolidated nor
proportionately consolidated, but rather be accounted for under the equity
method. Accordingly, certain of the Group's subsidiaries, of which the
Group owns between 40.72% to 50% of the outstanding voting stock, and the
Group's jointly controlled entities are not consolidated nor
proportionately consolidated under US GAAP and instead accounted for under
the equity method. This exclusion does not affect the profit attributable
to equity shareholders of the Company or the total equity attributable to
the equity shareholders of the Company reconciliations between IFRS and US
GAAP.
Presented below is summarised financial information prepared in accordance
with US GAAP of such subsidiaries and jointly controlled entities.
Years ended 31 December
2005 2004
RMB millions RMB millions
Revenues 53,768 28,004
Profit before taxation 286 1,373
Net (loss)/profit (204) 969
At 31 December
2005 2004
RMB millions RMB millions
Current assets 12,101 7,084
Total assets 64,560 41,213
Current liabilities 8,901 7,222
Total liabilities 31,727 16,452
Total equity 32,833 24,761
The effect on profit attributable to equity shareholders of the Company of
significant differences between IFRS and US GAAP is as follows:
Reference Years ended 31 December
in note 2005 2005 2004
above US$ millions RMB millions RMB millions
Profit attributable to equity shareholders of the Company under IFRS 5,071 40,920 36,019
US GAAP adjustments:
Foreign exchange gains and losses (a) 7 54 60
Capitalisation of property, plant and equipment (b) -- -- 22
Depreciation on revalued property, plant and equipment (c) 498 4,016 4,301
Disposal of property, plant and equipment (c) 228 1,838 2,099
Exchange of assets (d) 3 23 23
Depreciation effect of reversal of impairment of long-lived assets (e) 9 76 29
Capitalised interest on investments in associates,
net of amortisation effect (f) (5) (40) 205
Goodwill amortisation for the year (g) -- -- 13
Deferred tax effect of US GAAP adjustments (221) (1,786) (2,277)
Minority interests (h) (61) (489) (519)
Profit attributable to equity shareholders of the Company under US GAAP 5,529 44,612 39,975
----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share under US GAAP US$0.06 RMB0.51 RMB0.46
----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per ADS under US GAAP* US$6.38 RMB51.45 RMB46.11
----------------------------------------------------------------------------------------------------------------------------
* Basic and diluted earnings per ADS is calculated on the basis that one ADS is equivalent to 100 shares.
The effect on the total equity attributable to equity shareholders of the
Company of significant differences between IFRS and US GAAP is as follows:
Reference At 31 December
in note 2005 2005 2004
above US$ millions RMB millions RMB millions
Total equity attributable to equity shareholders of the Company under IFRS 27,701 223,556 193,040
--------------------------------------------------------------------------------------------------------------------------------
US GAAP adjustments:
Foreign exchange gains and losses (a) (30) (241) (295)
--------------------------------------------------------------------------------------------------------------------------------
Revaluation of property, plant and equipment (c) (228) (1,838) (7,692)
Exchange of assets (d) (63) (509) (532)
Reversal of impairment of long-lived assets (e) (57) (456) (532)
Capitalised interest on investments in associates (f) 60 486 526
Goodwill (g) 5 43 43
Effect of US GAAP adjustments on deferred tax assets 115 921 2,720
Effect of US GAAP adjustments on deferred tax liabilities (17) (134) (147)
Minority interests (h) 28 230 719
--------------------------------------------------------------------------------------------------------------------------------
Total equity attributable to equity shareholders of the Company under US GAAP 27,514 222,058 187,850
--------------------------------------------------------------------------------------------------------------------------------
Note: United States dollar equivalents
For the convenience of readers, amounts in Renminbi have been
translated into United States dollars at the rate of US$1.00 = RMB
8.0702 being the noon buying rate in New York City on 31 December
2005 for cable transfers in Renminbi as certified for customs
purposes by the Federal Reserve Bank of New York. No representation
is made that the Renminbi amounts could have been, or could be,
converted into United States dollars at that rate.
(E) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
In accordance with the United States Statement of Financial Accounting
Standards No. 69, "Disclosures about Oil and Gas Producing Activities" ("SFAS
No. 69"), this section provides supplemental information on oil and gas
exploration and producing activities of the Group at 31 December 2005 and 2004,
and for the years then ended in the following six separate tables. Tables I
through III provide historical cost information under US GAAP pertaining to
capitalised costs related to oil and gas producing activities; costs incurred
in exploration and development; and results of operations related to oil and
gas producing activities. Tables IV through VI present information on the
Group's estimated net proved reserve quantities; standardised measure of
discounted future net cash flows; and changes in the standardised measure of
discounted future net cash flows.
Table I: Capitalised costs related to oil and gas producing activities
2005 2004
RMB millions RMB millions
Property cost -- --
--------------------------------------------------------------------------------------------------------------------------
Wells and related equipment and facilities 176,785 158,422
Supporting equipment and facilities 12,997 12,324
Uncompleted wells, equipment and facilities 10,884 9,262
--------------------------------------------------------------------------------------------------------------------------
Total capitalised costs 200,666 180,008
--------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation, depletion, amortisation and impairment allowances (87,140) (79,541)
--------------------------------------------------------------------------------------------------------------------------
Net capitalised costs 113,526 100,467
--------------------------------------------------------------------------------------------------------------------------
Table II: Cost incurred in exploration and development
2005 2004
RMB millions RMB millions
Exploration 9,086 8,272
-------------------------------------------------------------------------------------------------------------------------
Development 21,192 20,681
-------------------------------------------------------------------------------------------------------------------------
Total cost incurred 30,278 28,953
-------------------------------------------------------------------------------------------------------------------------
Table III: Results of operations for oil and gas producing activities
2005 2004
RMB millions RMB millions
Revenues
-------------------------------------------------------------------------------------------------------------------------
Sales 14,121 11,833
-------------------------------------------------------------------------------------------------------------------------
Transfers 84,423 60,053
-------------------------------------------------------------------------------------------------------------------------
98,544 71,886
-------------------------------------------------------------------------------------------------------------------------
Production costs excluding taxes (20,982) (17,182)
Exploration expenses (6,411) (6,396)
Depreciation, depletion, amortisation and impairment provisions (10,332) (11,457)
Taxes other than income tax (1,654) (1,144)
-------------------------------------------------------------------------------------------------------------------------
Income before income tax 59,165 35,707
-------------------------------------------------------------------------------------------------------------------------
Income tax expense (19,525) (11,783)
-------------------------------------------------------------------------------------------------------------------------
Results of operations from producing activities 39,640 23,924
-------------------------------------------------------------------------------------------------------------------------
The results of operations for producing activities for the years ended 31
December 2005 and 2004 are shown above. Revenues include sales to unaffiliated
parties and transfers (essentially at third-party sales prices) to other
segments of the Group. All revenues reported in this table do not include
royalties to others as there were none. In accordance with SFAS No. 69, income
taxes are based on statutory tax rates, reflecting allowable deductions and tax
credits. General corporate overhead and interest income and expense are
excluded from the results of operations.
Table IV: Reserve quantities information
The Group's estimated net proved underground oil and gas reserves and changes
thereto for the years ended 31 December 2005 and 2004 are shown in the
following table.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not
on escalations based upon future conditions. Due to the inherent uncertainties
and the limited nature of reservoir data, estimates of underground reserves are
subject to change as additional information becomes available.
Proved reserves do not include additional quantities recoverable beyond the
term of the relevant production licenses, or that may result from extensions of
currently proved areas, or from application of improved recovery processes not
yet tested and determined to be economical. The Group's estimated proved
reserves do not include any quantities that are recoverable through application
of tertiary recovery techniques.
Proved developed reserves are the quantities expected to be recovered through
existing wells with existing equipment and operating methods.
"Net" reserves exclude royalties and interests owned by others and reflect
contractual arrangements in effect at the time of the estimate.
2005 2004
Proved developed and undeveloped reserves (oil) (million barrels)
-------------------------------------------------------------------------------------------------------
Beginning of year 3,267 3,257
Revisions of previous estimates 26 23
Improved recovery 142 127
Extensions and discoveries 138 134
Production (279) (274)
End of year 3,294 3,267
-------------------------------------------------------------------------------------------------------
Proved developed reserves
-------------------------------------------------------------------------------------------------------
Beginning of year 2,808 2,786
-------------------------------------------------------------------------------------------------------
End of year 2,870 2,808
-------------------------------------------------------------------------------------------------------
Proved developed and undeveloped reserves (gas) (billion cubic feet)
-------------------------------------------------------------------------------------------------------
Beginning of year 3,033 2,888
Revisions of previous estimates (42) (95)
Extensions and discoveries 183 447
Production (222) (207)
End of year 2,952 3,033
-------------------------------------------------------------------------------------------------------
Proved developed reserves
-------------------------------------------------------------------------------------------------------
Beginning of year 1,398 1,249
-------------------------------------------------------------------------------------------------------
End of year 1,557 1,398
-------------------------------------------------------------------------------------------------------
Table V: Standardised measure of discounted future net cash flows
The standardised measure of discounted future net cash flows, related to the
above proved oil and gas reserves, is calculated in accordance with the
requirements of SFAS No. 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting
year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved
reserves based on year-end cost indices, assuming continuation of year-end
economic conditions. Estimated future income taxes are calculated by applying
appropriate year-end statutory tax rates to estimated future pre-tax net cash
flows, less the tax basis of related assets. Discounted future net cash flows
are calculated using 10% midperiod discount factors. This discounting requires
a year-by-year estimate of when the future expenditure will be incurred and
when the reserves will be produced.
The information provided does not represent management's estimate of the
Group's expected future cash flows or value of proved oil and gas reserves.
Estimates of proved reserve quantities are imprecise and change over time as
new information becomes available. Moreover, probable and possible reserves,
which may become proved in the future, are excluded from the calculations. The
arbitrary valuation prescribed under SFAS No. 69 requires assumptions as to the
timing and amount of future development and production costs. The calculations
are made for the years ended 31 December 2005 and 2004 and should not be relied
upon as an indication of the Group's future cash flows or value of its oil and
gas reserves.
2005 2004
RMB millions RMB millions
Future cash flows 1,401,283 1,003,511
----------------------------------------------------------------------------------------------------------------------
Future production costs (440,743) (350,012)
Future development costs (26,994) (25,577)
Future income tax expenses (270,607) (174,060)
----------------------------------------------------------------------------------------------------------------------
Undiscounted future net cash flows 662,939 453,862
----------------------------------------------------------------------------------------------------------------------
10% annual discount for estimated timing of cash flows (304,893) (204,183)
----------------------------------------------------------------------------------------------------------------------
Standardised measure of discounted future net cash flows 358,046 249,679
----------------------------------------------------------------------------------------------------------------------
Table VI: Changes in the standardised measure of discounted future net cash flows
2005 2004
RMB millions RMB millions
Sales and transfers of oil and gas produced, net of production costs (61,346) (46,145)
----------------------------------------------------------------------------------------------------------------------
Net changes in prices and production costs 130,221 69,305
Net change due to extensions, discoveries and improved recoveries 56,131 36,209
Revisions of previous quantity estimates 3,964 2,204
Previously estimated development costs incurred during the year 8,134 7,148
Accretion of discount 21,352 16,176
Net change in income taxes (50,397) (22,733)
Others 308 213
----------------------------------------------------------------------------------------------------------------------
Net change for the year 108,367 62,377
----------------------------------------------------------------------------------------------------------------------
CORPORATE INFORMATION
STATUTORY NAME
[GRAPHIC OMITTED]
ENGLISH NAME
China Petroleum & Chemical Corporation
CHINESE ABBREVIATION
[GRAPHIC OMITTED]
ENGLISH ABBREVIATION
Sinopec Corp.
LEGAL REPRESENTATIVE
Mr. Chen Tonghai
REGISTERED ADDRESS AND PLACE OF BUSINESS
6A Huixindong Street
Chaoyang District
Beijing, PRC
Postcode : 100029
Tel. : 86-10-64990060
Fax : 86-10-64990022
Website : http://www.sinopec.com.cn
E-mail addresses : ir@sinopec.com.cn
media@sinopec.com.cn
PLACE OF BUSINESS IN HONG KONG
12th Floor, Office Tower
Convention Plaza
1 Harbour Road
Wanchai
Hong Kong
AUTHORISED REPRESENTATIVES
Mr. Wang Jiming
Mr. Chen Ge
SECRETARY TO THE BOARD OF DIRECTORS
Mr. Chen Ge
REPRESENTATIVE ON SECURITIES MATTERS
Mr. Huang Wensheng
Address : 6A Huixindong Street
Chaoyang District
Beijing, PRC
Postcode : 100029
Tel. : 86-10-64990060
Fax : 86-10-64990022
NEWSPAPERS FOR INFORMATION DISCLOSURE
Hong Kong Economic Times (Hong Kong)
South China Morning Post (Hong Kong)
(in English)
China Securities Journal
Shanghai Securities News
Securities Times
INTERNET WEBSITE PUBLISHING ANNUAL REPORT
DESIGNATED BY THE CHINA SECURITIES REGULATORY COMMISSION
http://www.sse.com.cn
LEGAL ADVISORS
People's Republic of China:
Haiwen & Partners
Room 1711, Beijing Silver Tower
No. 2, Dong San Huan North Road
Chaoyang District
Beijing
PRC
Postcode: 100027
Hong Kong:
Herbert Smith
23rd Floor, Gloucester Tower
11 Pedder Street
Central, Hong Kong
United States:
Skadden, Arps, Slate, Meagher & Flom LLP
30th Floor, Tower II, Lippo Centre
89 Queensway
Hong Kong
PRINCIPAL BANKERS
Bank of China
410 Fuchengmenwai Street
Xicheng District
Beijing, PRC
Industrial and Commercial Bank of China
55 Fuxingmennei Avenue
Xicheng District
Beijing, PRC
China Construction Bank
25 Finance Street
Xicheng District
Beijing, PRC
China Development Bank
29 Fuchengmenwai Street
Xicheng District
Beijing, PRC
REGISTRARS
H Shares:
Hong Kong Registrars Limited
Rooms 1712 to 1716
17th Floor, Hopewell Centre
183 Queen's Road East
Hong Kong
A Shares:
China Securities Registration and Clearing
Company Limited Shanghai Branch Company
72 Pu Jian Road
Pudong District
Shanghai, PRC
DEPOSITARY FOR ADRs
The US:
Citibank, N.A.
388 Greenwich St., 14th Floor
New York NY 10013
United States of America
COPIES OF THIS ANNUAL REPORT ARE AVAILABLE AT
The PRC:
China Petroleum & Chemical Corporation
Board Secretariat
6A Huixindong Street
Chaoyang District
Beijing PRC
The US:
Citibank, N.A.
388 Greenwich St., 14th Floor
New York NY 10013
United States of America
The UK:
Citibank, N.A.
Citigroup Centre
Canada Square, Canary Wharf
London E14 5LB, U.K.
PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES
H Shares:
Hong Kong Stock Exchange
Stock name: Sinopec Corp
Stock code: 0386
ADRs:
New York Stock Exchange
Stock name: SINOPEC CORP
Stock code: SNP
London Stock Exchange
Stock name: SINOPEC CORP
Stock code: SNP
A Shares:
Shanghai Stock Exchange
Stock name: Sinopec Corp
Stock code: 600028
FIRST REGISTRATION DATE OF
SINOPEC CORP.
25 February 2000
FIRST REGISTRATION PLACE OF
SINOPEC CORP.
6A Huixindong Street, Chaoyang District,
Beijing, PRC
ENTERPRISE LEGAL BUSINESSES LICENSE REGISTRATION NO.
1000001003298 (10-10)
TAXATION REGISTRATION NO.
Jing Guo Shui Chao Zi 110105710926094
NAMES AND ADDRESSES OF AUDITORS OF SINOPEC CORP.
Domestic Auditors : KPMG Huazhen Certified
Public Accountants
Address : 8/F, Office Tower E2
Oriental Plaza
1 East Chang An Avenue
Dong Cheng District
Beijing 100738, PRC
Overseas Auditors : KPMG Certified Public
Accountants
Address : 8th Floor
Prince's Building
Central, Hong Kong
DOCUMENTS FOR INSPECTION
The following documents will be available for inspection during normal business
hours after 31 March 2006 (Friday) at the registered address of Sinopec Corp.
upon requests by the relevant regulatory authorities and shareholders in
accordance with the Articles of Association of Sinopec Corp. and the laws and
regulations of the PRC:
a) The original annual report signed by the Chairman and the President;
b) The original audited financial statements and audited consolidated
financial statements of Sinopec Corp. for the year ended 31 December 2005,
prepared in accordance with IFRS and the PRC Accounting Rules and
Regulations and signed by the Chairman, the President, the Chief Financial
Officer and the head of the accounting division of Sinopec Corp.;
c) The original auditors' reports in respect of the above financial statements
signed by the auditors; and
d) All original copies of the documents and announcements Sinopec Corp. has
published in the newspapers stipulated by the CSRC during the reporting
period.
By Order of the Board
Chen Tonghai
Chairman
Beijing, PRC, 31 March 2006
CONFIRMATION FROM THE DIRECTORS AND SENIOR MANAGEMENT
According to the relevant provisions and requirements of the Securities Law of
the People's Republic of China and the Contents and Formats Standard No.2
Concerning Information Disclosure of Companies Offering Shares to the Public -
Contents and Formats of Annual Report (revised 2005) constituted by China
Securities Regulatory Commission, as the Board Directors and Senior Management
of Sinopec Corp., we have carefully reviewed the 2005 annual report and
accounts of Sinopec Corp. and concluded that this annual report truly and
objectively represents the Company's business performance in 2005, contains no
false representations, misleading statements or material omissions and complies
with the requirements of the China Securities Regulatory Commission and other
relevant regulatory bodies.
Signatures of the Directors and Senior Management
/s/ Chen Tonghai /s/ Wang Jiming /s/ Mou Shuling
Chen Tonghai Wang Jiming Mou Shuling
/s/ Zhang Jiaren /s/ Cao Xianghong /s/ Liu Genyuan
Zhang Jiaren Cao Xianghong Liu Genyuan
/s/ Gao Jian /s/ Fan Yifei /s/ Chen Qingtai
Gao Jian Fan Yifei Chen Qingtai
/s/ Ho Tsu Kwok, Charles /s/ Shi Wanpeng /s/ Zhang Youcai
Ho Tsu Kwok, Charles Shi Wanpeng Zhang Youcai
/s/ Cao Yaofeng /s/ Wang Tianpu /s/ Zhang Jianhua
Cao Yaofeng Wang Tianpu Zhang Jianhua
/s/ Wang Zhigang /s/ Cai Xiyou /s/ Dai Houliang
Wang Zhigang Cai Xiyou Dai Houliang
/s/ Zhang Haichao /s/ Chen Ge
Zhang Haichao Chen Ge
March 31, 2006
This annual report is published in both English and Chinese. Should any
conflict regarding meaning arises, the Chinese version shall prevail.