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Sinopec Corp. Reports Profit Increase for 1H05
despite Challenging Environment
Beijing, People's Republic of China (PRC) - August 29, 2005 - China Petroleum & Chemical Corporation (“Sinopec Corp" or "the Company") (HKEX: 386; NYSE:SNP; LSE: SNP; CH: 600028) today announced its financial results for the first half of fiscal year 2005.
Under IFRS, the turnover and other operating revenues of the Company totaled RMB 368.45 billion (US$44.50 billion), an increase of 31.85% over the first half of 2004. Profit attributable to equity holders of the parent amounted to RMB 19.65 billion (US$2.37 billion), an increase of 17.36% over the first half of 2004. Earnings per share was RMB 0.227 based on the number of shares outstanding at the end of the reporting period.
Under the PRC Accounting Rules and Regulations, revenues from principal operations totaled RMB 359.24 billion (US$43.39 billion), an increase of 35.20% over the first half of 2004. Net profit totaled RMB 18.04 billion (US$2.18 billion), an increase of 19.98% compared to the first half of 2004. Earnings per share was RMB 0.208 based on the number of shares outstanding at the end of the reporting period.
“During the first half of 2005, international prices of crude oil were very volatile and the price differential between domestic and overseas refined oil products widened further due to the austerity price controls on domestic refined oil products.Such price controls kept domestically refined oil product prices substantially lower than crude oil prices.Despite this challenging environment, the Company successfully managed to deliver fairly strong resultsby optimizing resource allocation, adjusting its corporate structure, strengthening internal management and maximizing the synergies between the energy and petrochemical businesses.” commented Sinopec Corp. Chairman, Chen Tonghai.
The Board of Directors has approved the payment of an interim dividend of RMB 0.04 per share for the first half of 2005. This is equivalent to RMB 4.00 (US$0.48) per American Depositary Share (ADS).
Key Financial Performance and Indicators
Prepared in accordance with international financial reporting standards
Six-month period ended 30June2005 / Six-month period ended 30June2004 / Year-over-year % changeTurnover and other operating revenues(RMB millions) / 368,454 / 279,445 / 31.85
Operating profit(RMB millions) / 33,682 / 28,562 / 17.93
Profit for the period attributable to equity holders of the parent(RMB millions) / 19,653 / 16,746 / 17.36
Return on capital employed (%)* / 6.17 / 6.13 / 4 bps
Earnings per share (RMB/share) / 0.227 / 0.193 / 17.36
Net cash flow from operating activities(RMB millions) / 21,082 / 20,698 / 1.86
Net assets per share (RMB/share) / 2.373 / 2.226 / 6.59
Adjusted net assets per share (RMB/share) / 2.310 / 2.187 / 5.62
Prepared in accordance with PRC accounting rules and regulations
Six-month period ended 30June2005 / Six-month period ended 30June2004 / Year-over-year % changeIncome from principal operations (RMB millions) / 359,248 / 265,709 / 35.20
Net profit(RMB millions) / 18,044 / 15,039 / 19.98
Net profit before non-operating profits/losses(RMB millions) / 18,087 / 16,332 / 10.75
Return on net assets (%) (Fully diluted) (RMB millions) / 9.13 / 8.73 / 4.58
Return on net assets (%) (Weighted average) (RMB millions) / 9.29 / 8.82 / 5.33
Earnings per share (RMB/share) / 0.208 / 0.173 / 20.23
Net cash flow from operating activities(RMB millions) / 25,044 / 21,694 / 15.44
Operating Performance by Segments
Six-month period ended 30June2005(RMB millions) / Six-month period ended 30June2004(RMB millions) / Year-over-year % changeExploration and Production Segment
Operating revenue / 48,023 / 37,236 / 29.0
Operating expenses / 30,228 / 26,716 / 13.1
Operating profit / 17,795 / 10,520 / 69.2
Refining Segment
Operating revenue / 210,969 / 161,234 / 30.8
Operating expenses / 212,265 / 156,947 / 35.2
Operating profit / (1,296) / 4,287 / (130.2)
Marketing and Distribution Segment
Operating revenue / 208,616 / 158,235 / 31.8
Operating expenses / 201,973 / 149,666 / 34.9
Operating profit / 6,643 / 8,569 / (22.5)
Chemicals Segment
Operating revenue / 86,016 / 65,228 / 31.9
Operating expenses / 75,201 / 59,223 / 27.0
Operating profit / 10,815 / 6,005 / 80.1
Corporate and other segment
Operating revenue / 53,493 / 36,827 / 45.3
Operating expenses / 53,768 / 37,646 / 42.8
Operating profit / (275) / (819) / (66.4)
Business Review
Exploration and Production
Crude oil production reached 136.69 million barrels and natural gas production reached 104.8 billion cubic feet, an increase of 0.62% and 4.74% respectively over the same period of 2004.In the first half of 2005, relying on theory and technological innovation, the Company strengthened progressive exploration and focused on pre-exploration in new blocks. Remarkable exploration results were achieved with respect to hidden oil and gas reserves in the mature blocks in Eastern China and important progress was accomplished in exploration in Southwestern China. However, since some exploration wells were not completed by the end of the reporting period, they were not included in the evaluations, resulting in a decline in newly added proved oil and gas reserves evaluated in accordance with SEC rules. At the end of the reporting period, proved oil and gas reserves increased by 0.48% compared to the end of 2004. In the first half of 2005, the average crude price realized by the Company during the first half of 2005 was US$39.40 per barrel, up by 33.0% over the same period last year. The natural gas price realized was US$2.26 per thousand cubic feet, up by 8.70% over the same period last year. The Company increased partial down hole operations in order to stabilize and increase oil and gas production in the older blocks. This, combined with price increases of water and electricity resulted in an increase of 11.15% in lifting cost to US$6.89/barrel compared to the same period last year. The Exploration and Production Segment realized operational returns of RMB 17.80 billion(US$2.15 billion), up by 69.15% over the same period last year.
Summary of Exploration and Production Operations
Six-month period ended 30June2005 / Six-month period ended 30June2004 / Year-over-year % changeCrude oil production (million barrels) / 136.69 / 135.85 / 0.62
Natural gas production (billion cubic feet) / 104.80 / 100.06 / 4.74
Newly added proved oil reserves (million barrels) / 172.04 / 269.86 / 36.50
Six-month period ended 30June2005 / Six-month period ended 31December2004 / % change
Proved oil and gas reserves at the end of the reporting period (million barrels) / 3,791.00 / 3,773.00 / 0.48
Note:Crude oil production is converted at 1 tonne = 7.1 barrels, and natural gas production is converted at 1 cubic meter = 35.31 cubic feet.
Refining
The Company strengthened facilities operations management to reach full utilization in order to meet market demand. This was accomplished while improving the overall quality standards of refined products as well as implementing facilities maintenance requirements. In the first half of the year, crude processing volumes reached 68.08 million tons, a 4.77% increase compared to the same period last year.Through optimized resource procurement, the Company took advantage of the price spread between sour and sweet crude and light and heavy crudeto process larger volumes of sour and heavy crude in order to reduce procurement costs.Sour crude throughput increased 25.99% over the same period last year. Furthermore, the Company managed to mitigate the adverse effects of austerity price controls on domestic refined oil products through various measures.The refining margin was US$2.32/barrel, a decrease of 43.0% compared to the same period last year. Cashoperating cost for the refining segment decreased to US$1.93/barrel from US$1.98/barrel during the same period last year. Refining in the first half of 2005 recorded a loss of RMB 1.30 billion(US$157 million).
Summary of Refining Operations
Six-month period ended 30June2005 / Six-month period ended 30June2004 / Year-over-year % changeCrude processing volume (million tonnes) / 68.08 / 64.98 / 4.77
Sour crude processing volume (million tonnes) / 16.87 / 13.39 / 25.99
Gasoline, diesel oil and kerosene output (million tones) / 41.02 / 39.17 / 4.72
Gasoline (million tonnes) / 11.32 / 11.42 / (0.88)
Diesel oil (million tonnes) / 26.31 / 24.72 / 6.43
Kerosene (million tonnes) / 3.39 / 3.03 / 11.88
Light Chemical feedstock (million tonnes) / 10.16 / 8.92 / 13.90
Light yield (%) / 74.24 / 74.06 / 18 bps
Refining yield (%) / 93.11 / 93.10 / 1 bps
Note:Crude processing volume is converted at 1 tonne = 7.35 barrels.
Marketing and Distribution
The Company focused on meeting domestic market demand through various procurement channels. Total domestic sales of refined products reached 50.77 million tonnes, an increase of 11.61% compared to the same period last year. The Company also proactively expanded itsmarket, resulting in anincrease in retail and direct sales. The proportion of retail and direct sales to the Company’s total domestic sales increased to 78.69% from 76.24% in the same period last year. Furthermore, the widespread application of IC cards at petrol stations reached new highs as the cards were used in 13,000 petrol stations. The company implemented several measures to mitigate the adverse effects of austerity price controls on domestic refined oil products, optimized its marketing structures and increased retail and direct sales. Marketing and Distribution operations realized an income of RMB 6.64 billion(US$802 million), a 22.48% decrease over the same period last year.
Summary of Marketing and Distribution Operations
Six-month period ended 30 June 2005 / Six-month period ended 30 June 2004 / Year-over-year % changeTotal domestic sales volume of refined oil products (million tonnes) / 50.77 / 45.49 / 11.61
Retail volume (million tonnes) / 29.56 / 25.12 / 17.68
Direct sales volume (million tonnes) / 10.39 / 9.56 / 8.68
Wholesale volume (million tonnes) / 10.82 / 10.81 / 0.09
Average annual throughput per petrol station (tonne/station) / 2,200 / 1,986 / 10.78
Total number of petrol stations / 30,352 / 30,682 / (1.08)
Number of self-operated petrol stations / 26,870 / 25,306 / 6.18
Number of franchised petrol stations / 3,482 / 5,376 / (35.23)
Chemicals Segment
In the first half of 2005, capitalizing on the upturn cycle in the chemical sector, the Company fully utilized the newly added production capacity and reinforced operation management to ensure safe, long-term and full-capacity production.The production of major chemical products experienced growth, but at varied paces. The production volume of ethylene reached 2.434 million tons, an increase of 16.96% over the same period last year, while the production of other major chemical products, such as synthetic resin, synthetic rubber and monomers and polymers for synthetic fiber, also increased. . The Company actively pursued the reform of its chemical marketing systems and on10 May 2005, a chemical sales subsidiary was established. This is a critical adjustment that allows the Company to establish and develop a unified chemical product marketing network to build a unified image, improve market competitiveness, and maximize overall efficiency. Thanks to the continuous optimization of the Company’s asset structure over the past few years, the chemical segment realized an operating profit of RMB10.82 billion(US$1.31 billion), an 80.10% increase over the same period last year.
Production of Major Petrochemical Products (1) Unit: thousand tonnes
Six-month period ended 30June2005 / Six-month period ended 30June2004 / Year-over-year % changeEthylene / 2,434 / 2,081 / 16.96
Synthetic resin / 3,528 / 3,102 / 13.73
Performance compound resins / 1,689 / 1,545 / 9.32
Synthetic fiber monomers and polymers / 3,152 / 3,030 / 4.03
Synthetic fiber / 756 / 824 / (8.25)
Differential fiber / 384 / 359 / 6.96
Synthetic rubber / 308 / 297 / 3.70
Urea / 998 / 1,322 / (24.51)
Note: 1. The operation data of 2004 and the first half of 2005 include that of the chemical assets acquired from Sinopec Group Company and its subsidiaries (excluding the Company) (“Sinopec Group”) in the second half of 2004.
2. 100% production of the two joint venture ethylene projects of YPC-BASF and Shanghai Secco was included.
Production of Major Petrochemical Products (2) Unit: thousand tonnes
Six-month period ended 30June2005 / Six-month period ended 30June2004 / Year-over-year % changeEthylene / 2,434 / 1,863 / 30.65
Synthetic resin / 3,528 / 2,806 / 25.73
Performance compound resins / 1,689 / 1,478 / 14.28
Synthetic fiber monomers and polymers / 3,152 / 2,443 / 29.02
Synthetic fiber / 756 / 641 / 17.94
Differential fiber / 384 / 289 / 32.87
Synthetic rubber / 308 / 297 / 3.70
Urea / 998 / 1,322 / (24.51)
Note: 1. The operation data of the first half of 2004 exclude that of the chemical assets acquired from Sinopec Group Company in the second half of 2004, and the operation data of the first half of 2005 include the chemical assets acquired from Sinopec Group Company in 2004.
2. 100% production of the two joint venture ethylene projects of YPC-BASF and Shanghai Secco was included.
Cost Reduction
In the first half of 2005, the Company adopted a series of measures to reduce costs. This included optimizing resource allocation and fully exploiting the newly built logistics system to reduce transportation costs, increasing sour heavy crude throughputto reduce procurement costs, and further optimizing the operation of facilities to cut down on energy and material consumption. In the first half of 2005, total cost reduction was RMB1,282million(US$155 million), including RMB 285 million(US$34 million) from Exploration and Production, RMB 365 million (US$44 million)from Refining, RMB 230 million (US$28 million) from Marketing and Distribution and RMB 402 million(US$49 million) from Chemicals. In addition, the Company implemented measures to improve efficiency through a net reduction in staff of 20,500 people during the first half of 2005.
Capital Expenditure
In the first half of 2005, the Company’s total capital expenditure was RMB 22.55 billion(US$2.72 billion), accounting for 36.37% of the total planned capital expenditure of RMB 62.0 billion (US$7.49 billion) for 2005. Capital expenditure for Exploration and Production totaled RMB 10.08 billion(US$1.22 billion) as the Company achieved a number of important exploration results through the strengthening of progressive exploration and pre-exploration in new blocks. The newly built production capacity of crude oil and natural gas was 2.712 million tonnes per year and 900 million cubic meters per year, respectively. Capital expenditure for Refining was RMB 3.45 billion(US$417 million). The second phase of the construction of the Ningbo-Shanghai-Nanjing crude oil pipeline was in its completion stage. The Yizheng-Changling crude oil pipeline started construction, and a number of refining revamping and expansion projects were running smoothly. Capital expenditure for Chemicals was RMB 2.24 billion(US$271 million). The second round of the Maoming ethylene revamping project and the fertilizer facilities revamping project in Jinling were proceeding as planned. Capital expenditure for Marketing and Distribution was RMB 6.38 billion (US$771 million). A portion of the refined oil product pipeline in southwest China was put to use, and the construction, acquisition and revamping of petrol stations were carried out according to schedule. Capital expenditure for Corporate and Others amounted to RMB 396 million (US$47.83 million). Total capital expenditure for joint venture projects such as Shanghai Secco amounted to RMB 1.85 billion (US$223million).
Business Prospects
Looking to the second half of 2005, the Company expects that international crude prices will continue to be volatile and the global refining and chemical industry will continue to expand. Domestically, China’s economy should continue to grow rapidly and demand for petroleum and petrochemical products should increase steadily. The adjustment to China’s exchange rate and the minor appreciation of the Renminbi on July 21, 2005 was conducive to lowering crude procurement costs and helped reduce import prices for chemical products. The Company also expects that the Chinese government will continue to tightly control oil product prices.
Confronted with such a complicated market environment, the Company will adopt flexible operating strategiesand minimize operational risks. The Company will particularly focus on the following:
Exploration and Production - the Company intends to implement its resource strategy, accelerate exploration and development, and aim to realize a 100% reserve replacement ratio for the whole year. In addition, the Company will focus on production capacity construction in western Tahe, Shengli shallow sea blocks, etc. Capitalizing on high crude oil prices, the Company will increase the production of high-cost crude oil and proactively develop the natural gas market. In the second half of 2005, the Company plans to produce 140.2 million barrels of crude oil and 109 billion cubic feet of natural gas.
Refining - the Company will closely monitor changes in the international crude oil market, adhere to its strategy of multi-resources of crude, and work to increase the procurement and refining volume of sour and heavy crude to reduce costs. Meanwhile, the Company will make full use of crude oil pipelines and optimize resource flow and allocation to reduce the cost of transportation and storage. Based on market demands, the Company will adjust and optimize its refining plan and product mix to increase the production of high value-added products. Furthermore, the Company plans to reinforce the process technology management of its facilities to ensure safe, stable, and full-load operations. In the second half of 2005, the Company plans to process 72 million tonnes of crude oil.
Marketing and Distribution - the Company will carefully monitor market trends and strive to expand total sales volume of refined products through active sales promotion. In addition, the Company will consolidate the operation management of petrol stations, further increase the throughput per station and increase its share of the end-customer market by improving service quality. The Company will fully utilize its modern logistics system and optimize resource allocation to further reduce transportation costs. Furthermore, the Company will attempt to accelerate the construction of refined oil product pipelines and petrol stations in key areas while adjusting the layout of depots and optimizing its marketing network. The popularization of IC cards will be accelerated to realize the target of “One Card, All Sinopec Stations”. In the second half of 2005, the Company will target its total domestic sales volume of refined oil products at 52 million tonnes, including 30.4 million tonnes of retail volume and 10.6 million tonnes of direct sales volume.
Chemical - the Company will capitalize on the economic expansion cycle, fully exploit its newly built chemical production capacity and ensure full-load operation of its facilities to expand the production of major chemicals. Responding to market trends, the Company will work to increase the production of products that cater to the market and the production of performance compounds and differential fiber. In addition, the Company will concentrate on the newly established chemical sales subsidiary to enhance the overall advantages of chemical production and market competitiveness. In the second half of 2005, the Company plans to produce 2.75 million tonnes of ethylene.
In the second half of 2005, faced with severe challenges despite a favorable market environment, the Company will continue to adhere to the operating strategy of “Reform, Restructuring, Innovation and Development”, taking full advantage of all opportunities to realize the production and operation objectives set for the whole year and deliver sound operation results.