Sinopec's Net Profit Surges by 40% to RMB 27.9 Billion in 1H2017

BEIJING, Aug. 27, 2017 /PRNewswire/ -- China Petroleum & Chemical Corporation ("Sinopec" or the "Company")(HKEX: 386; SSE: 600028; NYSE: SNP) today announced its interim results for the six months ended 30 June 2017.

Financial Highlights:

• In accordance with the International Financial Reporting Standards (IFRS), the Company's operating profit reached RMB 39.3 billion. Profit attributable to equity shareholders of the Company was RMB 27.9 billion, surged by 40.1% year on year. Basic earnings per share were RMB 0.231 (1H2016: RMB 0.165).
• In accordance with China Accounting Standards for Business Enterprises ("ASBE"), the Company's operating income reached RMB 1,166 billion. Operating profit was RMB 45.0 billion, surged by 31.3% year on year. Net profit attributable to the equity shareholders of the Company was RMB 27.1 billion, up by 40.7% year on year. Basic earnings per share were RMB 0.224 (1H2016: RMB 0.159).
• In accordance with IFRS, the Company's liability-to-asset ratio was 43.22%, representing a decrease of 1.31 percentage points compared with the end of last year, reflecting a solid financial position. The Company's cash and cash equivalents (including time deposits) increased by 12.9% as compared to the beginning of this year, maintaining a healthy cash flow level.
• The Board of Directors declared an interim dividend of RMB0.10 per share, up by 26.6% year on year.

Business Highlights:

In the first half of 2017, global economy recorded moderate recovery and Chinese economy maintained steady growth with gross domestic product (GDP) up by 6.9% year on year. With abundant supply, domestic refined oil products market witnessed strong competition. According to the statistics, domestic consumption of refined oil products increased by 5.5% compared with the first half of 2016, among which gasoline and kerosene consumption maintained strong growth momentum, and diesel consumption reversed its downward trend and realised growth year on year. Domestic demand for natural gas accelerated, up by 15.2% compared with the first half of 2016. Domestic consumption of major chemicals grow significantly with consumption of ethylene equivalent up by 10.5% year on year, and gross margin for chemical products remained strong.

• Exploration and Production: the Company focused on reserve increase and development returns through our operation and production with superior results achieved. In exploration, our major direction maintained to focus on identification of high quality, large scale and low cost reserves. Its continuing efforts in exploration paid off with major discoveries in a number of regions. The Company attached great importance to the development of natural gas and actively promoted Phase II of Fuling Shale Gas development project. In the first half of 2017, loss from the upstream segment was significantly reduced and realized positive free cash flow.
• Refining: the Company maintained high operational utilisation rates of refining facilities. Refined oil products mix has been optimized to address market demand changes, more high value-added products were produced. The Company actively promoted refined oil products quality upgrading and optimised crude oil sourcing to lower feedstock cost. The advantages of centralised marketing took full play. In the first half of 2017, this segment recorded an Earnings Before Interest and Tax ("EBIT") of RMB 29.8 billion. Excluding the impact from the floor-price policy from the same period of last year, EBIT surged by 26.7% year on year.
• Marketing and Distribution: the Company took full advantages of its integrated business and distribution network to actively respond to over-supplied and competitive market conditions, and achieved good operational results. The Company flexibly adjusted marketing strategies and promoted branding gasoline. By means of "Internet +" and other marketing measures, the Company promoted rapid growth of new business, put more efforts on cultivation of major products and self-owned brand products. Transaction value of emerging business was RMB 27.8 billion, up by 50% from the first half of 2016. In the first half of 2017, this segment recorded an EBIT of RMB 18.0 billion, up by 8.0% year on year.
• Chemicals: based on contribution of the marginal benefit and gross margin of chemical facilities, the Company optimised operations based on marginal contribution and gross margin of chemical facilities to promote profitability. The Company deepened adjustments of feedstock mix to reduce chemical feedstock cost, and pressed ahead optimisation of product slate, producing more market-oriented and high value-added products, strengthened the integration among production, sales, R&D and application, and intensified efforts on R&D, production and promotion of new products. In the first half of 2017, this segment recorded an EBIT of RMB 16.5 billion, surged by 34.9% year on year.

Mr. Wang Yupu, Chairman of Sinopec, said, "During the first half of 2017, we fully implemented value-oriented growth, innovation driven development, integrated resource allocation, openness to cooperation, and green, low-carbon development strategies and achieved solid operating results. Looking into the second half of 2017, we expect more reform measures to be announced by the Chinese government to revitalise real economy, the "Belt and Road" Initiative, synergetic development of Beijing-Tianjin-Hebei and the Yangtze River Economic Belt development will be further implemented. The China's economy will maintain steady growth and drives the demand of refined oil products and petrochemical products as well as creates new growth opportunities for petroleum and petrochemical industry. The Company will continue to focus on supply-side structural reform, progressing with growth stabilisation, market expansion, cost reduction, structural adjustments, reform, and consolidating the basis as to deliver superior business results, providing larger value for our country, our shareholders, our staff, and our society."

Business Review

Exploration and Production

In the first half of 2017, facing with low oil prices, the Company focused on reserve increase and development returns through our operation and production with superior results achieved. In exploration, our major direction maintained to focus on identification of high quality, large scale and low cost reserves. Number of new oil discoveries were made in Tahe Basin of Xinjiang, Junggar Basin, Shengli Oilfield and North Jiangsu Basin, and new natural gas discoveries were made in Sichuan Basin and Ordos Basin. In development, natural decline rate of natural fields was well controlled through refined development. Importance was attached to natural gas development, through expediting natural gas capacity construction in the Hangjinqi area of Erdos and fully promoting Phase II of Fuling Shale Gas development project. Production in the first half of 2017 was 221.38 million barrels of oil equivalent, up by 1.1% year on year, of which domestic crude production was 123.16 million barrels, overseas crude production was 22.82 million barrels, and total gas production was 452.12 billion cubic feet, increased 16.3% compared to the same period of last year.

In the first half of 2017, operating revenues of the segment were RMB 74.1 billion, representing an increase of 41.1% year on year. This was mainly due to increased crude oil prices and expanded scale of LNG business. In the first half of 2017, the oil and gas lifting cost was RMB 767.3 per tonne, representing an increase of 3.2% year on year. In the first half of 2017, the segment applied low-cost development principle throughout its production and operation processes, and realized good results. Operating loss of this segment was RMB 18.3 billion in the first half of 2017, a decrease of RMB 3.6 billion compared with the same period of last year. 

Exploration and Production: Summary of Operations

Refining

In the first half of 2017, our refined oil products mix has been optimized to address market demand changes, more high value-added products were produced and diesel-to-gasoline ratio further decreased to 1.15. We actively promoted refined oil products quality upgrading, and the GB VI quality upgrading plan for "2+26" cities in North China completed ahead of schedule. Crude oil sourcing optimisation continued to lower our feedstock cost, and export of refined oil products was increased moderately to help maintain high operational utilisation rates of refining facilities. The advantages of centralised marketing took full play, and profitability of asphalt, lubricant and LPG was maintained. In the first half of 2017, we processed 118 million tonnes of crude oil, increased by 1.6% compared to the same period of last year, and produced 74.11 million tonnes of refined oil products, with production of gasoline and kerosene up by 1.4% and 5.9% respectively, from levels in the first half of 2016.

In the first half of 2017, operating revenues of the segment were RMB 488.2 billion, representing an increase of 23.0% year on year. This was mainly attributable to increased prices of products.

In the first half of 2017, the refining margin (defined as sales revenues less crude oil and refining feedstock costs and taxes other than income tax, divided by the throughput of crude oil and refining feedstock) was RMB 473.7 per tonne, representing a decrease of 7.9% year on year. In the first of 2016, crude oil prices dropped below the lower threshold prescribed in the domestic refined oil product pricing mechanism for some period, and domestic refined oil prices were not cut during the corresponding period. In the first half of 2017, such phenomenon did not occur, as the result the prices spread between products and feedstock narrowed compared with the same period of 2017. The segment managed to improve its refining margin by advancing oil products quality upgrading and optimising product mix. In the first half of 2017, the segment realised an operating profit of RMB 29.4 billion, representing a decrease of RMB 3.2 billion year on year.

Refining: Summary of Operations

Note: Includes 100% of production of domestic joint ventures.

Marketing and Distribution

In the first half of 2017, we took full advantages of our integrated business and distribution network to actively respond to over-supplied and competitive market conditions, and achieved good operational results. We optimised internal and external resources, put all efforts to expand market, and realised sustained growth in total sales volume of refined oil products. We flexibly adjusted our marketing strategies, promoted branding gasoline and increased retail volume of premium gasoline. We carried out new operational models and optimised layout of service stations, and expedited revamping of storage and transportation facilities of refined oil products to further improve our distribution network. We proactively promote vehicle natural gas business, expediting the construction and operation of CNG/LNG stations, vehicle natural gas sales volume increased by 28.2% year on year. The total sales volume of refined oil products in the first half of 2017 was up by 1.4% from the corresponding period last year to 98.55 million tonnes, of which domestic sales accounted for 87.22 million tonnes, up by 0.8%. By means of "Internet +" and other marketing measures, we promoted rapid growth of new business, put more efforts on cultivation of major products and self-owned brand products, transaction value of emerging business (non-fuel) was RMB 27.8 billion, up by 50% from the first half of 2016.

In the first half of 2017, the operating revenues of the segment were RMB 606.0 billion, increased by 21.0% year on year. This was mainly due to the increasing refined oil products prices. In the first half of 2017, the total sales volume and margin refined oil products increased as a result of the segment efforts in expanding market. The segment's operating profit was RMB 16.6 billion, representing an increase of RMB 0.8 billion year on year.

Marketing and Distribution: Summary of Operations

Chemicals

We continued the "basic and high end" chemical business development concept to promote effective supply. In the first half of 2017, based on contribution of the marginal benefit and gross margin of chemical facilities, we optimised operations based on marginal contribution and gross margin of chemical facilities to promote profitability. Ethylene production for the first half of 2017 was 5.609 million tonnes, up by 2.4% from the corresponding period last year. We deepened adjustments of feedstock mix to reduce chemical feedstock cost, and pressed ahead optimisation of product slate, producing more market-oriented and high value-added products, strengthened the integration among production, sales, R&D and application, and intensified efforts on R&D, production and promotion of new products, with the ratio of performance compound reaching 62% up by 4 percent points from the same period of last year, and the differential ratio of synthetic fiber reaching 88.2% up by 4.9 percent points year on year. At the same time, implementing low inventory marketing strategy, putting advantages of marketing network into full play, conducting differentiated and tailor-made measures, the Company provided whole-process solutions and value-added services to our customers. In the first half of 2017, total chemicals sales volume increased by 13.6% from the corresponding period last year to 37.30 million tonnes.

In the first half of 2017, operating revenues of the chemicals segment were RMB 208.4 billion, representing an increase of 39.7% year on year, which was mainly due to significant increasing chemical products prices and sale volume year on year. In the first half of 2017, the operating expenses of the segment were RMB 196.3 billion, representing an increase of 40.7% year on year, which was mainly due to a significant increase of feedstock prices. The segment's operating profit in the first half of 2017 was RMB 12.2 billion, representing an increase of 25.6% year on year.

Major Chemical Products: Summary of Operations              Unit of production: 1,000 tonne

Note: Includes 100% of production of domestic joint ventures.

Health, Safety and the Environment

The Company valued safe production and intensified safety supervision. In the first half of this year, we strengthened identification and prevention of risks, further tightened hazard management of tank farms, reinforced on-site safety supervision and management, advanced contractor health and safety control and tightened safety management of key areas including offshore operations, well control, coal mines and hydrogen sulfide. Above all, we achieved safe production and operations.

By active implementation of our green and low-carbon strategy, we promoted the integrated management of energy and environmental protection, pushed forward pollution prevention and treatment, deeply implemented "Energy Efficiency Doubling" plan and continued to advance carbon asset management. Energy conservation, pollution reduction and carbon reduction all recorded remarkable results. In the first half of 2017, energy intensity was down by 1.8%, industrial water consumption was down by 1.2%, chemical oxygen demand in discharged water was down by 2.3%, sulfur dioxide emissions were down by 4.3% from levels in the corresponding period last year, and all hazardous chemicals, discharged water, gas, and solid waste were properly treated.

Capital Expenditures

Focusing on quality and returns of investment, the Company continuously optimised its investment projects. In the first half of 2017, total capital expenditures were RMB 15.953 billion. Capital expenditures for the exploration and production segment were RMB 6.870 billion, mainly for oil and gas capacity building, Tianjin LNG Terminal Project, Wen 23 Gas Storage Project, boosting project of Sichuan-to-East China Pipeline as well as overseas projects. Capital expenditures for the refining segment were RMB 3.672 billion, mainly for the Zhongke integrated refining and chemical project, product mix adjustments of ZRCC and Maoming, and GB VI gasoline and diesel quality upgrading projects. Capital expenditures for the marketing and distribution segment were RMB 2.500 billion, mainly for constructing refined oil products depots, pipelines and service stations. Capital expenditures for the chemicals segment were RMB 2.594 billion, mainly for integrated refining and chemical projects of Zhongke and Gulei and the high-efficiency and environmental friendly aromatics project in Hainan refinery. Capital expenditures for corporate and others were RMB 317 million, mainly for R&D facilities and information technology application projects.

Business Prospects

Looking into the second half of 2017, we expect more reform measures to be announced by the Chinese government to revitalise real economy, the "Belt and Road" Initiative, synergetic development of Beijing-Tianjin-Hebei and the Yangtze River Economic Belt development will be further implemented. The China's economy will maintain steady growth and drives the demand of refined oil products and petrochemical products as well as creates new growth opportunities for petroleum and petrochemical industry. Along with the adjustments of China's energy structure, demand of natural gas as cleaner energy resources will maintain robust growth rate. For the second half of 2017, the international crude oil prices are expected to fluctuate at a low level.

In the second half of 2017, in accordance with our objective of progressing at a steady pace to continually focus on growth stabilisation, market expansion, cost reduction, structural adjustments, reform, and consolidating the basis for the Company's further development. Our focuses are as following aspects:

For Exploration and Production, we will continue to advance high-efficiency exploration activities, enlarge economical recoverable reserve and raise reserve production ratio. In crude oil development, we will accelerate profitable development of new oilfields and profitable re-opening of suspended wells, optimise development structure of oilfields, control natural decline rate and solidify basis for stable production. In natural gas development, we will advance key projects for capacity construction, strengthen the efficiency of developed gas fields, optimise natural gas production and marketing plans and advance facilities construction. In the second half of 2017, we plan to produce 148 million barrels of crude oil, of which domestic production will account for 125 million barrels and overseas production will account for 23 million barrels. We plan to produce 427.5 billion cubic feet of natural gas during the period.

For Refining, we will center on the structural reform on the supply side and accelerate the construction of four regional refining centers. Based on market demand and industrial trend, we will optimise product mix and produce more gasoline, jet fuel, light oil and other high value-added products. We will complete GB V standard of regular diesel upgrading project, and accelerate upgrading progress of GB VI standard gasoline. We will fine-tune crude oil procurement and resource allocation to reduce procurement cost, fully optimise operations and ensure safe and stable production, take full play of integrated advantages of production and marketing to further optimise processing scheduling. We plan to process 118 million tonnes of crude in the second half of the year.

For Marketing and Distribution, we will coordinate scale and efficiency of the business, short-term and long-term goals, set up flexible operation strategies, optimize resources allocation, sparing no effort to expand markets and our business scale. We will further improve retail network layout, solidify and promote the advantages of e-commerce development. We will step up construction of natural gas stations to expand vehicle natural gas market. We will explore a new type of business model integrating "Internet-Marketing-Services" with IT technology and boost the growth of emerging business (non-fuel). In the second half, we plan to sell 87.78 million tonnes of refined oil products in the domestic market in the second half of 2017.

For Chemicals, we will continue to adjust our feedstock structure to lower costs, fine-tune our product slate, improve the coordinating mechanism between production, marketing, research and application, advance new product development, promotion and application, deliver more specialty and high-end products and speed up the upgrading of synthetic resin, synthetic rubber and synthetic fiber. We will deepen the structural adjustments of facilities and optimise production and operation based on contribution of the marginal contribution and gross margin so as to enhance efficiency and profitability. Meanwhile, we will better our marketing network, improve customer services and provide integrated solutions and value-added services. We plan to produce 6.05 million tonnes of ethylene in the second half of 2017.

In the second half of the year, the Company will continue to focus on supply-side structural reform, upgrade growth pattern to enhance efficiency and profitability, and fully implement value-oriented growth, innovation driven development, integrated resource allocation, openness to cooperation, and green, low-carbon development strategies so as to deliver superior business results.

Appendix: Key financial data and indicators

FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH ASBE

Principal accounting data

Principal financial indicators

FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH IFRS

Principal accounting data

Principal financial indicators

The following table sets forth the operating revenues, operating expenses and operating profit/(loss) by each segment before elimination of the inter-segment transactions for the periods indicated, and the percentage changes between the first half of 2017 and the first half of 2016.

About Sinopec Corp.

Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include the exploration and production, pipeline transportation and sale of petroleum and natural gas; the sale, storage and transportation of petroleum products, petrochemical products, coal chemical products, synthetic fibre and other chemical products; the import and export, including an import and export agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information.

Sinopec Corp. sets 'fueling beautiful life' as its corporate mission, puts 'people, responsibility, integrity, precision, innovation and win-win' as its corporate core values, pursues strategies of value-orientation, innovation-driven development, integrated resource allocation, open cooperation, and green and low-carbon growth, and strives to achieve its corporate vision of building a world leading energy and chemical company.

Disclaimer

This press release includes "forward-looking statements". All statements, other than statements of historical facts that address activities, events or developments that Sinopec Corp. expects or anticipates will or may occur in the future (including but not limited to projections, targets, reserve volume, other estimates and business plans) are forward-looking statements. Sinopec Corp.'s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to the price fluctuation, possible changes in actual demand, foreign exchange rate, results of oil exploration, estimates of oil and gas reserves, market shares, competition, environmental risks, possible changes to laws, finance and regulations, conditions of the global economy and financial markets, political risks, possible delay of projects, government approval of projects, cost estimates and other factors beyond Sinopec Corp.'s control. In addition, Sinopec Corp. makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.

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SOURCE China Petroleum & Chemical Corporation