Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2017

Commission File Number: 1-12158

 

 

Sinopec Shanghai Petrochemical Company Limited

(Translation of registrant’s name into English)

 

 

 

No. 48 Jinyi Road, Jinshan District, Shanghai, 200540

The People’s Republic of China

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

 

 

 


Table of Contents

EXHIBITS

 

Exhibit

Number

    
99.1    2017 Interim Report.


Table of Contents

SIGNATURES

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.

 

 

    SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED
Date: September 11, 2017     By:  

/s/ Wang Zhiqing

    Name:   Wang Zhiqing
    Title:   President


Table of Contents

Exhibit 99.1

LOGO

( A joint stock limited company incorporated in the People’s Republic of China ) Stock code: 00338 Hong Kong 600688 Shanghai SHI New York 2017 INTERIM REPORT


Table of Contents

CONTENTS

 

2

  Important Message

3

  Definitions

4

  Major Financial Data and Indicators

7

  Report of the Directors

25

  Major Events

35

  Change in Share Capital of Ordinary Shares and Shareholders Status

39

  Directors, Supervisors, Senior Management and Others

45

  Documents for Inspection

46

  Report on Review of Interim Financial Information
  A.  Condensed Consolidated Interim Financial Information Prepared under International Financial Reporting Standards (unaudited)

47

  Interim Condensed Consolidated Income Statement

48

  Interim Condensed Consolidated Statement of Comprehensive Income

49

  Interim Condensed Consolidated Balance Sheet

51

  Interim Condensed Consolidated Statement of Changes in Equity

52

  Interim Condensed Consolidated Statement of Cash Flows

53

  Notes to the Condensed Consolidated Interim Financial Information
  B.  Interim Financial Statements Prepared under China Accounting Standards for Business Enterprises (unaudited)

78

  Consolidated and Company Balance Sheets

80

  Consolidated and Company Income Statements

82

  Consolidated and Company Cash Flow Statements

84

  Consolidated Statement of Changes in Shareholders’ Equity

85

  Statement of Changes in Shareholders’ Equity

86

  Notes to the Financial Statements

198

  Supplementary Information to the Financial Statements

201

  Written Confirmation on the 2017 Interim Report Issued by Directors, Supervisors and Senior Management

202

  Corporate Information

 

 

1


Table of Contents

IMPORTANT MESSAGE

 

(1) The Board, the Supervisory Committee of Sinopec Shanghai Petrochemical Company Limited and its Directors, Supervisors and senior management warrant the truthfulness, accuracy and completeness of the information contained in this 2017 interim report, and warrant that there are no false representations or misleading statements contained in, or material omissions from, the interim report of the Company, and severally and jointly accept responsibility.

 

(2) Directors who have not attended the Board meeting for considering and approving the 2017 interim report of the Company:

 

Name of Director

  

Position

  

Reason for Absence

  

Name of Proxy

Lei Dianwu    Director    Business Engagement    Zhang Yimin
Mo Zhenglin    Director    Business Engagement    Zhang Yimin

 

(3) The interim financial report for the six months ended 30 June 2017 is unaudited.

 

(4) Mr. Wang Zhiqing, Chairman and President, Mr. Zhou Meiyun, Executive Director and Chief Financial Officer overseeing the accounting operations; and Mr. Zhang Feng, Financial Officer, person in charge of Accounting Department (Accounting Chief), hereby warrant the truthfulness, accuracy and completeness of the financial report contained in the 2017 interim report.

 

(5) The Company did not distribute the half-year profit for 2017 nor was there any capitalisation of capital reserves.

 

(6) The statements regarding the Company’s plans for future development and operations are forward-looking statements and do not constitute any commitments to investors. Investors should pay attention to the relevant investment risks.

 

(7) There was no incident of appropriation of funds by the controlling shareholder of the Company and its connected parties for non-operational purposes.

 

(8) The Company did not provide external guarantees in violation of the required decision-making procedures.

 

(9) Reminder of Major Risks

Potential risks are elaborated in this interim report. Please refer to “Management Discussion and Analysis” in “Report of the Directors” for details of the potential risks arising from the future development of the Company.

 

(10) The 2017 interim report is published in both Chinese and English. In the event of any discrepancy between the English and Chinese versions, the Chinese version shall prevail.

 

2


Table of Contents

DEFINITIONS

In this report, unless the context otherwise specifies, the following terms shall have the following meanings:

 

“Company” or “Sinopec Shanghai”    Sinopec Shanghai Petrochemical Company Limited
“Board”   

the board of directors of the Company

“Director(s)”   

the Director(s) of the Company

“Supervisory Committee”   

the Supervisory Committee of the Company

“Supervisor”   

the Supervisor(s) of the Company

“PRC” or “China”   

the People’s Republic of China

“Reporting Period”   

the six months ended 30 June 2017

“Hong Kong Stock Exchange”   

The Stock Exchange of Hong Kong Limited

“Shanghai Stock Exchange”   

The Shanghai Stock Exchange

“Group”   

the Company and its subsidiaries

“Sinopec Group”   

China Petrochemical Corporation

“Sinopec Corp.”   

China Petroleum & Chemical Company

“Hong Kong Listing Rules”   

The Rules Governing the Listing of Securities on the Hong Kong Stock Exchange

“Shanghai Listing Rules”   

The Rules Governing the Listing of Securities on the Shanghai Stock Exchange

“Model Code for Securities Transactions”   

the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the Hong Kong Listing Rules

“Securities Law”   

the PRC Securities Law

“Company Law”   

the PRC Company Law

“CSRC”   

China Securities Regulatory Commission

“Articles of Association”   

the articles of association of the Company

“Hong Kong Stock Exchange website”   

www.hkexnews.hk

“Shanghai Stock Exchange website”   

www.sse.com.cn

“Website of the Company”   

www.spc.com.cn

“HSE”   

Health, Safety, and Environment

“COD”   

Chemical Oxygen Demand

“EVA”   

Ethylene Vinyl Acetate

“SFO”   

the Securities and Futures Ordinance of Hong Kong (Chapter 571 of the Laws of Hong Kong)

“Corporate Governance Code”   

the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules

“Share Option Incentive Scheme”   

the A Shares Share Option Incentive Scheme of the Company

 

3


Table of Contents

MAJOR FINANCIAL DATA AND INDICATORS

Prepared under China Accounting Standards for Business Enterprises (“CAS”)

 

(1) Major Accounting Data and Financial Indicators

 

  1. Major Accounting Data

 

Major accounting data

   The Reporting
Period
(January to June)
     Corresponding
period of the
previous year
     Unit: RMB’000
Increase/decrease as
compared to the
corresponding period of
the previous year (%)
 

Operating income

     43,106,950        36,993,191        16.53  

Total profit

     3,251,226        4,050,004        -19.72  

Net profit attributable to equity shareholders of the Company

     2,575,479        3,096,675        -16.83  

Net profit attributable to equity shareholders of the Company excluding non-recurring items

     2,571,583        3,117,585        -17.52  

Net cash generated from operating activities

     2,358,780        4,645,024        -49.22  
     As at the end
of the Reporting
Period
     As at the
end of the
previous year
     Increase/decrease at
the end of the
Reporting Period as
compared to the end of
the previous year (%)
 

Net assets attributable to equity shareholders of the Company

     24,655,092        24,750,048        -0.38  
  

 

 

    

 

 

    

 

 

 

Total assets

     37,301,664        34,123,693        9.31  
  

 

 

    

 

 

    

 

 

 

 

4


Table of Contents

MAJOR FINANCIAL DATA AND INDICATORS (continued)

Prepared under CAS

 

  2. Major Financial Indicators

 

Major financial indicators

   The Reporting
Period
(January to June)
     Corresponding
period of the
previous year
     Increase/decrease as
compared to the
corresponding period of
the previous year (%)
 

Basic earnings per share
(RMB/Share)

     0.238        0.287        -17.07  

Diluted earnings per share
(RMB/Share)

     0.238        0.287        -17.07  

Basic earnings per share excluding non-recurring items (RMB/Share)

     0.238        0.289        -17.65  

Return on net assets
(weighted average) (%)*

     9.821        14.465       
Decreased by 4.644
percentage points
 
 

Return on net assets excluding non-recurring items (weighted average) (%)*

     9.805        14.555       
Decreased by 4.75
percentage points
 
 

 

* The above-mentioned net assets do not include minority shareholders’ interests.

 

(2) Differences between Financial Statements Prepared under CAS and International Financial Reporting Standards (“IFRS”)

 

                          Unit: RMB’000  
     Net profit attributable to equity
shareholders of the Company
     Net assets attributable to equity
shareholders of the Company
 
     The Reporting
Period
     Corresponding period
of the previous year
     At the end of the
Reporting Period
     At the beginning
of the Reporting Period
 

Prepared under CAS

     2,575,479        3,096,675        24,655,092        24,750,048  

Prepared under IFRS

     2,598,499        3,148,609        24,628,014        24,721,965  

For a detailed description of the differences between financial statements prepared under CAS and IFRS, please refer to the Supplementary Information to the Financial Statements prepared under CAS.

 

5


Table of Contents

MAJOR FINANCIAL DATA AND INDICATORS (continued)

Prepared under CAS

 

(3) Non-recurring Profit and Loss Items

 

     Unit: RMB’000  

Non-recurring profit and loss items

   Amount  

Net loss from disposal of non-current assets

     -5,130  

Employee reduction expenses

     -8,806  

Government grants recorded in current period’s profit and loss (excluding government grants pursuant to the State’s unified standard sum or quota to closely related corporate business)

     30,548  

Income from external entrusted loans

     694  

Other non-operating income and expenses other than those mentioned above

     -10,830  

Effect attributable to minority interests (after tax)

     -1,041  

Income tax effect

     -1,539  
  

 

 

 

Total

     3,896  
  

 

 

 

 

6


Table of Contents

  REPORT OF THE DIRECTORS

 

  (1) Management Discussion and Analysis of the Overall Operations during the Reporting Period

(The following discussion and analysis should be read in conjunction with the unaudited financial report of the Group and the notes in this interim report. Unless otherwise specified, certain financial data involved hereinafter are extracted from the unaudited interim financial report prepared in accordance with IFRS.)

1. Review of the Company’s operations during the Reporting Period

The first half of 2017 saw continuation of a moderate recovery in the global economy, and there was a temporary relief of the previous political uncertainty. The easing monetary policies have promoted more rapid growth, while higher global commodity prices have stimulated both international trade and demand. Consequently, the economies of both developed and emerging economies have improved. While the Chinese economy continued to fluctuate within a reasonable range, there were evident signs of a steady economic development. Particularly, economic growth rate remained stable and a GDP (gross domestic product) growth of 6.9% was recorded in the first half of the year, representing an increase of 0.2 percentage point as compared to the same period of last year. The overall economic operations of the petrochemical industry in the PRC was good. After continuous adjustments over the last few years, the supply and demand structure has improved and development capacity and standards have been strengthened, resulting in a restorative growth. However, problems such as market volatility, weak investment sentiment, increased pressure on external trades and costs rebounding at a faster pace, continued to exist.

The Group made substantial efforts in maintaining stable operations of its equipment, optimizing production and operations, reducing costs and expenses and expanding market share in the first half of 2017. These efforts served to ensure the safety and stability of the enterprise, sound operations in its production, and successful completion of facility overhaul and revamp. As the Group started the equipment overhaul in the first half of the year, there was a reduction in the volume of crude oil processed and a corresponding decrease in the amount of products. Meanwhile, prices of raw material, refined oil and petrochemical products increased significantly compared to the same period of last year. A growth in sales was recorded during the Reporting Period. For the six months ended 30 June 2017, the Group’s turnover reached RMB43,081.4 million, an increase of RMB6,112.9 million, representing an increase of 16.54% as compared to the same period of last year. The profit before tax was RMB3,274.2 million (profit before tax for the same period of last year was RMB4,101.9 million), representing a decrease of RMB827.7 million from the same period of last year. Profit after tax and non-controlling shareholder interests was RMB2,598.5 million (profit for the same period of last year was RMB3,148.6 million), representing a decrease of RMB550.1 million from the same period of last year.

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

In the first half of 2017, the total production volume of the Group reached 6,095,400 tons, representing a year-on-year decrease of 6.38%. From January to June, the Group processed 6,804,200 tons of crude oil (including 1,148,900 tons of crude oil processed on a sub-contract basis), representing a year-on-year decrease of 7.48%. The production volume of refined oil products in total reached 4,064,500 tons, representing a year-on-year decrease of 8.40%. Among these, the output of gasoline was 1,516,600 tons, representing a year-on-year decrease of 2.94%; the diesel output was 1,806,000 tons, representing a year-on-year decrease of 11.42%; and the jet fuel output was 741,900 tons, representing a year-on-year decrease of 11.23%. The Group produced 355,400 tons of ethylene and 284,800 tons of paraxylene, representing a year-on-year decrease of 14.32% and 13.91%, respectively. The Group also produced 465,000 tons of synthetic resins and plastic (excluding polyesters and polyvinyl alcohol), representing a year-on-year decrease of 11.80%; 321,600 tons of synthetic fibre monomers, representing a year-on-year decrease of 3.51%; 200,900 tons of synthetic fibre polymers, representing a year-on-year decrease of 7.63%; and 95,700 tons of synthetic fibres, representing a year-on-year decrease of 13.32%. For the first half of the year, the sales to output ratio and debt recovery ratio of the Group were 99.19% and 100%, respectively.

The Group achieved progress in HSE and ensured all equipment were operating steadily. During the first half of 2017, the Group strictly implemented the HSE accountability system at all levels and strengthened the specific performance evaluation in terms of HSE management. Source management was strengthened for environmental protection and source management of oil sewage has begun on a pilot basis. With consistent efforts in promoting comprehensive environmental controls, the total emission of various pollutants continued to show a downward trend. While the compliance rate for sewage emission has reached 100%, the total emission of COD, ammonia nitrogen, sulfur dioxide and nitrogen oxides decreased by 4.78%, 15.40%, 31.24% and 18.24%, respectively compared with the same period of last year. Moreover, the Group has strengthened management over its operations and production as well as the management and appraisal over unscheduled suspensions. As a result, the frequency and durations of unscheduled suspensions have decreased by 60.00% and 72.97%, respectively, compared with the same period of last year. The Group’s equipment maintained stable operation as a whole. Out of the 80 key technical and economic indicators covered in the assessment, 39 of them achieved a better performance than last year, representing a year-on-year improvement rate of 48.75%, while 24 of them reached the advanced industry level, representing an industry advance ratio of 30.00%. The Group successfully completed the equipment overhaul in the second quarter, where substantial improvement and revamp were made to the No. 3 atmospheric and vacuum distillation series and the old ethylene plant. At present, all equipment that underwent overhaul are operating normally and steadily.

 

8


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

The Group further implemented optimization of production and operations as well as reduction of costs and expenses. During the first half of 2017, the Group continued to adhere to the profit forecast mechanism of dynamic optimization. Based on the profit forecast, the Group adjusted the equipment workload, the configuration of raw materials and products, and the processing workflow to maximize profitability. By optimizing the operations of catalyst facilities and outsourcing the processing of low octane gasoline components, the Group has improved the blending process of gasoline, as well as increased gasoline output and proportion of high-grade gasoline. The aggregate diesel to gasoline ratio was 1.19:1 (2016: 1.35:1), representing a further reduction of 0.16 as compared to the whole year last year. Besides, the Group has also optimized the raw material configuration of ethylene cracking and reduced the cost of ethylene raw materials by optimizing the desulphurization and sweetening process of liquefied light hydrocarbon, and the direct delivery of medium pressure hydrogenated heavy Naphtha to pre-hydrogenation facility. As part of its ongoing reduction of costs and expenses, the Group continued to make vigorous efforts in controls and assessment over costs on catalysts, additives and solvents, and implemented a cost control accountability system on a departmental basis. The Group also fully utilized its indirectly owned subsidiary Shanghai Jinmao International Trading Company Ltd. (“Jinmao International”), as a platform to develop offshore trading and reduce costs of foreign exchange settlement and sales. In the first half of the year, operation volume reached 1,003,100 tons, representing a year-on-year increase of 48.50%.

The Group made progress in project construction, technological development and digitalization. During the first half of 2017, we further improved the Company’s industrial development under the “13th Five-Year Plan” and continued advancing progress of projects such as the 300,000 tons/year alkylation plant and revamps in thermal power cogeneration with ultra low emission and energy saving project. The Group also actively implemented environmental management projects, including completion and operational commencement of several projects, such as the revamp of No. 3 and No. 4 sulfur recovery units for compliant exhaust emission, the compliant emission of No. 2 boiler of the thermal power division, which have made outstanding achievements in emission reduction. The Group also actively worked with Jiaxing government to synchronize with the construction of Shanghai demonstration area. Combined with the construction of “G60 Science and Innovation Corridor”, the Group was actively seeking cooperation opportunities in the area around Ping Hu City and signed a cooperation memorandum with Ping Hu New Material Industry Park. Besides, the Group also accelerated development of the integrated technology of PAN (Polyacrylonitrile) based carbon fibre, development of large tow fibre precursor technology and the research and development of high performance carbon fibre product series. The Group has also put efforts in research and development (“R&D”) projects, such as the technology for industrialization and product development of specialized materials for high performance bimodal HDPE (high-density polyethylene) pipelines. In the first half of the year, the Group developed and manufactured 129,400 tons of new products and 345,400 tons of new synthetic resins products and specialized polyolefin materials, with a differentiation rate for synthetic fibres at 87.55%. The Group also submitted 19 patent applications and obtained 15 patent rights. Moreover, the Group accelerated the promotion of its in-depth “digitalization and industrialization”, and its operation management system and customer service information system have passed inspection and acceptance procedure.

 

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REPORT OF THE DIRECTORS (continued)

 

To further enhance corporate governance, the Group took proactive measures in the first half of the year to optimize its corporate governance structure, the R&D system and mechanism, and the talent development system. The Group also streamlined the organizational structure through adjusting and optimizing its entities with a view to steadily enhancing the Group’s operational efficiency. A pilot system has been established to optimize talent development system and to improve the employee performance evaluation system, thereby developing channels for flexible talent recruitment and development. To control the total number of employees, the Group promoted the outsourcing of its business projects.

The following table sets forth the Group’s sales volume and net sales after business tax and surcharges for the Reporting Period:

 

     For the six months ended 30 June  
     2017      2016  
     Sales      Net Sales             Sales      Net Sales         
     volume      (RMB             volume      (RMB         
     (’000 tons)      Million)      %      (’000 tons)      Million)      %  

Synthetic fibres

     90.7        1,032.0        2.8        105.1        966.1        3.1  

Resins and plastics

     591.7        4,689.2        12.7        664.7        4,609.8        15.0  

Intermediate petrochemicals

     882.6        4,722.2        12.7        1,016.7        4,105.7        13.3  

Petroleum products

     3,955.9        14,270.1        38.5        4,100.2        11,669.6        37.9  

Trading of petrochemical products

     —          11,941.7        32.2        —          9,003.3        29.2  

Others

     —          420.9        1.1        —          427.8        1.5  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     5,520.9        37,076.1        100.0        5,886.7        30,782.3        100.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

In the first half of 2017, net sales of the Group amounted to RMB37,076.1 million, representing an increase of 20.45% over the same period of last year. Among which, net sales of synthetic fibres, resins and plastics, intermediate petrochemical products, petroleum products and trading of petrochemical products increased by 6.82%, 1.72%, 15.02%, 22.28% and 32.64%, respectively. The increase in net sales of products was mainly due to a general increase in the unit prices of products during the Reporting Period as compared to the same period of last year. The increase in the net sales from the trading of petrochemical products was mainly attributable to the increase in the business volume of Jinmao International, an indirectly owned subsidiary of the Group, during the Reporting Period. In the first half of the year, the Group’s net sales of “Others” decreased by 1.64% over the same period of last year, which was mainly attributable to the decrease in the Group’s revenue from oil processed on a sub-contract basis, as compared to the same period of last year.

Most of the Group’s products are sold in Eastern China.

In the first half of 2017, the Group’s cost of sales increased by 27.79% year-on-year to RMB34,266.0 million, representing 92.42% of total net sales.

 

10


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

The Group’s main raw material is crude oil. The global crude oil prices showed a stable but declining pattern in the first half of 2017. Crude oil prices maintained at US$50-60/barrel in January to May, then prices showed signs of decline from June. In the first half of 2017, the highest and lowest closing prices of Brent crude oil futures were US$57.10/barrel and US$44.82/barrel, respectively, and the half-year average price was approximately US$52.74/barrel, representing a year-on-year increase of 33.18%. The highest and lowest closing prices of West Texas Intermediate crude oil futures were US$54.45/barrel and US$42.53/ barrel, respectively, and the half-year average price was approximately US$50.05/barrel, representing a year-on-year increase of 26.55%. The highest and lowest closing prices of Dubai crude oil futures were US$58.55/barrel and US$43.55/barrel, respectively, and the half-year average price was approximately US$52.13/barrel, representing a year-on-year increase of 40.66%.

In the first half of 2017, the average unit cost of crude oil processed by the Group (for its own account) was RMB2,653.83/ton, representing an increase of RMB908.59/ton over the same period of last year, or an increase of 52.06%. The Group processed a total of 5,655,300 tons of crude oil (excluding crude oil processed on a sub-contract basis), representing a decrease of 381,900 tons over the same period of last year. Taken together, the total costs of processed crude oil increased by RMB4,472 million. Processing costs decreased by RMB666 million due to a decrease in the volume of crude oil processed. The increase in unit cost of processed crude oil brought costs up by RMB5,138 million. In the first half of 2017, the Group’s cost of crude oil accounted for 43.80% of the total cost of sales.

In the first half of 2017, the Group’s cost for other ancillary materials amounted to RMB4,136.2 million, which is basically the same as that of same period of last year. During the Reporting Period, the Group’s depreciation and maintenance expenses decreased by 2.07% year-on-year to RMB918.5 million and RMB751.6 million respectively, mainly due to the decrease in depreciation expenses during the Reporting Period as certain fixed assets were fully depreciated. Maintenance expenses grew by 20.26% year-on-year, mainly due to an increase in maintenance work during the Reporting Period, which led to the rise in maintenance costs. Fuel and power expenses increased by 19.24% year-on-year to RMB998 million during the Reporting Period, mainly due to the increase in the unit purchase price of coal.

In the first half of 2017, sales and administrative expenses of the Group amounted to RMB237.6 million, representing a decrease of 6.53% as compared with RMB254.2 million over the same period of last year. This was mainly due to the decrease in transportation and loading fees during the Reporting Period.

In the first half of 2017, other operating income of the Group amounted to RMB53.5 million, representing an increase of RMB19.0 million over the same period of last year. This was mainly due to an increase in government subsidy during the Reporting Period.

In the first half of 2017, the Group’s net finance income amounted to RMB95.9 million, compared to RMB7.0 million in net finance income over the same period of last year. This was mainly due to a significant increase in interest income during the Reporting Period.

In the first half of 2017, the Group’s profit after tax and non-controlling shareholder interests was RMB2,598.5 million, representing a decrease of RMB550.1 million as compared with RMB3,148.6 million over the same period of last year.

 

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REPORT OF THE DIRECTORS (continued)

 

Liquidity and Capital Resources

The Group’s net cash inflow generated from operating activities amounted to RMB2,350.2 million in the first half of 2017 as compared to a net cash inflow of RMB4,613.4 million over the same period of last year, which was mainly due to profit before tax during the Reporting Period amounted to RMB3,274.2 million (profit before tax of the same period of last year was RMB4,101.9 million.

In the first half of 2017, the Group’s net cash generated from investing activities amounted to RMB111.0 million as compared to a net cash used of RMB5.9 million over the same period of last year. This was primarily attributable to a year-on-year increase in the dividends received by the Group from joint ventures and associate companies during the Reporting Period, resulting in an increase of RMB258.8 million in net cash generated from investing activities.

In the first half of 2017, the Group’s net cash generated from financing activities amounted to RMB63.4 million, compared to a net cash used of RMB1,235.9 million over the same period of last year, primarily attributable to the decrease of RMB3,040.3 million in cash paid by the Group for loan repayment during the Reporting Period.

Borrowings and Debts

The Group’s long-term borrowings are mainly used in capital expansion projects. In general, the Group arranges long-term borrowings according to its capital expenditure plans. On the whole, there is no seasonal borrowings. Short-term borrowings are used to replenish the Group’s working capital requirements during the normal course of production. During the first half of 2017, the Group’s total borrowings increased by RMB67.0 million to RMB613.4 million as at the end of the Reporting Period as compared to the beginning of the Reporting Period, mainly due to the increase of short-term borrowings by RMB67.0 million. As at 30 June 2017, the total borrowings of the Group at fixed interest rates amounted to RMB500 million.

Capital Expenditures

In the first half of 2017, the Group’s capital expenditures amounted to RMB398 million, mainly attributable to the implementation of various projects, including management of latent hazards of refined oil pipelines connecting Sinopec Shanghai to Chenshan, the transformation of sulfur recovery equipment for compliance with the standard for exhaust emission, the recycling project of oil tank and railway bridge of the Storage Division, the transformation of cogeneration unit for compliance with the emission standard, the transformation of No. 2 olefin cracking burner for low nitrogen burning and the closed rectification project of the fuel yard of the Thermal Power Division.

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

In the second half of 2017, the Group plans to complete the transformation of sulfur recovery equipment for compliance with the standard for exhaust emission, the recycling project of oil tank and railway bridge of the Storage Division, the transformation of cogeneration unit for compliance with the emission standard, the transformation of No. 2 olefin cracking burner for low nitrogen burning and the closed rectification project of the fuel yard of Thermal Power Division. The Group also plans to start the 300,000 tons/year alkylation plant project, the closed de-coking environmental governance project No. 2 of delayed coking equipment and the transformation of No. 3 and No. 4 boilers for compliance with the emission standard of the Thermal Power Division. The Group’s planned capital expenditures would be funded from the resources including cash generated from operations and from bank financing.

Gearing Ratio

As at 30 June 2017, the Group’s gearing ratio was 32.91% (As at 30 June 2016: 30.20%). The ratio is calculated using the following formula: total liabilities/total assets.

The Group’s Employees

As at 30 June 2017, the total number of enrolled employees of the Group was 10,721, among which the number of production staff was 6,398, the number of sales, financial and other staff was 3,179 and the number of administrative staff was 1,144. 51.49% of the Group’s employees were college graduates or above. In the first half of 2017, the total employees’ remuneration and benefits paid by the Group amounted to RMB1,204,364,000.

The Group’s employees and Directors are remunerated with reference to their position, performance, experience and prevailing salary trends in the market. Other benefits include the Share Option Incentive Scheme and the State-managed retirement pension scheme. The Group also provides professional and vocational training to employees.

Income Tax

The Enterprise Income Tax Law of the PRC took effect from 1 January 2008, subsequent to which the income tax rate for enterprises was uniformly adjusted to 25%. The income tax rate applicable to the Group in 2017 is 25%.

Disclosure Required by the Hong Kong Listing Rules

Save as disclosed herein, pursuant to paragraph 40 of Appendix 16 to the Hong Kong Listing Rules, the Company confirms that there were no material differences between the existing information of the Company relating to the matters as set out in paragraph 32 of Appendix 16 to the Hong Kong Listing Rules and the relevant information disclosed in the Company’s 2016 annual report.

 

13


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

2. Market Outlook and Work Plans for the Second Half of the Year

The global economy is expected to continue recovering moderately in the second half of 2017. Policy uncertainties in the developed European nations and the US will reduce, which will strengthen the confidence of investors and consumers. Infrastructure investment in countries along the “Belt and Road initiative”, especially in the PRC, will grow rapidly and give a strong boost to trade and economic development. The growth rate of international trade and investment would increase substantially, while the rebound in commodity prices would drive the growth of the emerging economies. Against the backdrop of further structural reforms in the supply-side in China and acceleration of the innovation-driven development strategy, there will be further positive changes to economic development. The Group made firm advances in line with “cutting overcapacity and excess inventory, deleveraging, reducing costs and strengthening areas of weakness” to improve the supply and demand balance. However, the prevailing volatilities and uncertainties of the global economy and the structural imbalance accumulated over a long period in the PRC will remain prominent. While China’s economic growth is expected to maintain a smooth and stable trend, the petrochemical industry in the PRC will continue capacity reduction and speed up transformation and upgrade as its top priority. Competition in refined oil market will become increasingly intense with the promulgation of the opinion of the State on the reform of the oil and gas system. It is anticipated that there will not be any fundamental improvement of the oversupply condition while the successive approvals of large-scale refinery and petrochemical projects such as the 40 million tons refining and petrochemical integration project in Zhoushan City, Zhejiang Province, will exacerbate the problem of excessive capacity. The increasingly stringent safety and environmental policies would also add greater pressure and challenges to the petrochemical corporations.

The global demand for petroleum is expected to improve in the second half of 2017 which may result in a decrease in petroleum inventory around the world. However, the crude oil market will still face uncertainty and several bearish factors that will restrain increases in oil prices. For instance, production volume of Libya and Nigeria may still increase, the status of increase in crude oil production of the United States, whether OPEC and non-OPEC oil producing countries would strictly adhere to the agreement to reduce output, and the possibility of another round of rate hikes in the United States, which may trigger a stronger US dollar. The timing for attaining a balance between the global demand and supply of petroleum is expected to be delayed in the second half of 2017 and the average price for Brent crude oil may hover below US$55 per barrel.

In the second half of 2017, the Group will place more emphasis on enhancing development quality with the primary goal of increasing profitability. The Group will also coordinate to bring about safe and stable operations, enhancement of profitability, and future development in order to achieve its annual targets and missions.

 

14


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

  (i) Continue to consolidate the foundation for safety and environmental protection to ensure the stable operation of equipment. The Company will actively launch the “I Perform a Diagnosis for Safety” activity to identify safety risks, eliminate hidden safety hazards and prevent accidents. Meanwhile, the Company will proactively implement the comprehensive governance project of hidden safety hazards and the environment. It will also continue to strengthen efforts in management and assessment of unscheduled suspension of operation, and the stable operation of equipment after maintenance to ensure its technical economic indicators can achieve the annual assessment target.

 

  (ii) Continue to work aggressively on optimization and further enhancement of efficiency. The Company will adhere to its “prior planning to win” principle to optimize dynamic estimation throughout the whole process, emphasize on securing crude oil resources by optimizing and adjusting crude oil procurement strategy and controlling inventory within a reasonable level. The Company will continue to optimize the constitution of refined oil products by increasing the output of gasoline while decreasing diesel output, while raising the proportion of high-grade refined oil at the same time. The Company will adequately explore ethylene and propane resources in refining and petrochemical facilities, optimize raw materials for ethylene equipment with a view to enhancing the hydrocarbon recovery rate and lowering the production cost of ethylene. Optimization will also be carried out for the production technique to raise the loading of reorganization equipment in an effort to increase the production volume of Xylene. The Company will increase its efforts in reducing costs and expenses, and expand the coverage of the related measures. The link between production and sales plan of various products, such as acrylic fibres, polyester fibre and plastic, as well as the linkage between demand and supply of materials will be improved to reduce inventory cost.

 

  (iii) Actively promote key investment projects and implement R&D projects. The Company will continue to push ahead the implementation of various projects, such as the transformation of cogeneration unit for compliance with the emission standard by Sinopec Shanghai and the No. 2 ethylene cracking burner for low nitrogen burning, and commencement of the preparation works of projects such as 300,000 tons/ year alkylation plant project, the optimization of spinning procedure of Jinyang Acrylic Fibre plant, the transformation project of No. 3 and No. 4 burners for ultra clean discharge. The Company will closely monitor the progress of key R&D projects to ensure that the T300 carbon fibre equipment can achieve its production target at full capacity, while further promoting and expanding the applications of carbon fibre at the same time. The Company will focus on implementing construction of “smart plant”, accelerating the optimization of the entire refining and petrochemical integration process, and the launch of application of industrial robots, etc.

 

  (iv) Strengthen corporate management and foster a harmonious and stable environment. The Company will focus on adjusting and optimizing the organizational structure, initiate the trial run of horizontal management model of secondary units, streamline the technical units of equipment department and secondary units, and consolidate and integrate the professional services units. The Company also plans to improve the performance assessment system to continuously enhance the corporate management. The Company will continue to optimize the human resources structure and enhance the service quality of its employees. The Company will also conduct corporate stability risk assessment, formulate and implement various targeted measures in order to create a harmonious and stable environment for its production and operations as well as its reform and development.

 

15


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

(2) Analysis of the Company’s Principal Performance during the Reporting Period (Certain of the following financial data is extracted from the unaudited interim report prepared under CAS)

 

  1. Analysis of Changes in the Related Financial Data

 

                          Unit: RMB’000

Item

   As at 30
June 2017
     As at 31
December 2016
     Change
(%)
    

Reason for change

Cash at bank and on hand

     7,955,926        5,440,623        46.23     

Profit of the Reporting Period and a relatively abundant cash flow

Accounts receivable

     1,776,299        1,656,580        7.23     

Increases in the business volume of the trading business segment with an increase in accounts receivable

Short-term borrowings

     613,421        546,432        12.26     

Slight increase in credit loans

Accounts payable

     5,817,181        5,082,470        14.46     

Increases in the business volume of the trading business segment with an increase in accounts payable

Dividends payable

     2,720,473        20,473        13,188.10     

Increase in dividends declared during the Reporting Period

 

16


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

                          Unit: RMB’000
     For the six months ended
30 June
     Change       

Item

   2017      2016      (%)     

Reason for change

Revenue

     43,106,950        36,993,191        16.53     

Increase in the price of petrochemical products and growth in the business of the trading segment

Cost of sales

     32,841,971        25,177,628        30.44     

Increase in the costs of crude oil and other raw materials

Finance expenses – net

     -88,839        1,983        -4,580.03     

Substantial increase in the interest income during the Reporting Period

Asset impairment losses

     36,142        150,004        -75.91     

The amount of the provision of fixed asset impairment for the Reporting Period was relatively small

Income tax expenses

     671,073        948,241        -29.23     

Decrease in the profit in the Reporting Period

Net profit attributable to shareholders of the Company

     2,575,479        3,096,675        -16.83     

Decrease in the profit in the Reporting Period

Net cash generated from operating activities

     2,358,780        4,645,024        -49.22     

Decrease in profit level in the Reporting Period

Net cash generated from/ (used in) investment activities

     111,004        -5,941        -1,968.44     

Increase in the investment returns in the Reporting Period

Net cash generated from/ (used in) financing activities

     54,803        -1,267,427        -104.32     

Reduce in the amount of loan repayment in the Reporting Period

Research and development costs

     11,323        47,144        -75.98     

Full amortization of the research and development costs of carbon fibre project

 

17


Table of Contents

REPORT OF THE DIRECTORS (continued)

 

(3) Analysis of Business Operations by Industry, Product and Geographical Location Segment

 

  1. Principal Operations by Industry or Product

 

                                      Unit: RMB’000
Principal Operations by Industry or Product

By industry or product

   Revenue     Cost of
operations
     Gross
profit
margin
(%)
    Increase/
decrease in
revenue as
compared to
same period
of last year
(%)
     Increase/
decrease in
cost of
operations as
compared to
same period
of last year
(%)
    

Increase/decrease

in gross profit

margin as

compared

to same period of last year

Synthetic fibres

     1,062,461       1,127,830        -6.15       6.35        21.38      Decreased by 13.14 percentage points

Resins and plastics

     4,811,255       3,822,509        20.55       1.35        14.01      Decreased by 8.82 percentage points

Intermediate petrochemicals

     4,861,394       3,259,968        32.94       14.50        19.64      Decreased by 2.88 percentage points

Petroleum products

     19,970,061       12,398,802        37.91 Note      13.88        38.97      Decreased by 11.21 percentage points

Trading of petrochemical products

     11,949,099       11,866,164        0.69       32.71        32.91      Decreased by 0.15 percentage point

Others

     210,628       146,611        30.39       6.81        28.89      Decreased by 12.26 percentage points

Note: This gross profit margin is calculated according to the price of petroleum products which includes consumption tax. Gross profit margin of petroleum products after deducting consumption tax was 9.23%.

 

  2. Revenue by Geographical Location

 

            Unit: RMB’000  

Geographical location

   Revenue      Increase/decrease in revenue
as compared to the same
period of last year (%)
 

Eastern China

     35,413,813        18.26  

Other regions in China

     1,511,123        -22.57  

Exports

     6,182,014        21.30  

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

(4) Analysis of Assets and Liabilities

 

                                        Unit: RMB’000  
     As at 30 June 2017      As at 31 December 2016      Change of
amount on
30 June 2017
as compared
to 31 December
2016 (%)
     Major reason of the change  

Item

   Amount      % of
total
assets
     Amount      % of
total
assets
       

Inventories

     7,016,933        18.81        6,159,473        18.05        13.92       
Increase in the crude oil and
petroleum products prices
 
 

Short-term borrowings

     613,421        1.64        546,432        1.60        12.26       
Decrease in loan due to
decrease in capital demand
 
 

Accounts payable

     5,817,181        15.59        5,082,470        14.89        14.46       
Increase in the crude oil
price
 
 

 

(5) Analysis of Core Competitiveness

As one of the largest integrated petrochemical enterprises in China with an integrated refinery and petrochemical capacity, the Company possesses competitive business scale and strength, which have made it a major manufacturer of refined oil, intermediate petrochemical products, synthetic resins and synthetic fibres in China. The Company also has its self-owned utilities and environmental protection systems, as well as sea transport, inland shipping, rail transport and road transport ancillary facilities.

The Company’s major competitive advantages include quality, geographical location and its vertically integrated production. The Company has over 40 years of petrochemical production and management experience, and has accumulated extensive resources in the petrochemical industry. The Company has won several quality product awards from the central and local governments. Located at the core region of Yangtze River Delta, the most economically active region in China with strong demand for petrochemical products, the Company has built a comprehensive logistics system and supporting facilities with close geographic proximity with most of its clients which enables the Company to enjoy the convenience of coastal and inland shipping. This gave it a competitive edge in terms of transportation costs and timely delivery. The Company has leveraged its advantages in integrated refinery and petrochemical capacity to actively strengthen product structure, while continuously improving products quality and variety. The Company has also improved production technology and boosted capacity of key upstream equipment to maximize the use and the efficiency in the utilisation of its corporate resources, and is therefore able to achieve strong and sustainable development.

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

(6) Analysis of Investments

 

  1. Entrusted Wealth Management and Entrusted Loans

 

  (i) Entrusted wealth management

The Company did not engage in entrusted wealth management during the Reporting Period.

 

  (ii) Entrusted loans

 

                                                             Unit: RMB’000  

Name of Borrower

   Amount
of
entrusted
loan
     Loan
period
     Interest
rate of
loan
%
     Whether
it is
overdue
     Whether
it is a
connected
transaction
     Whether
it has
been
renewed
     Whether
it is
under
litigation
     Source of
funds and
whether the
funds are
from
fund-raising
     Connected
relationship
     Expected
income
 

Chevron Phillips Chemicals (Shanghai) Corporation

     12,000       
30/08/2016 -
29/08/2017
 
 
     1.75        No        No        No        No        No        Nil        35  
     12,000       
29/09/2016 -
29/09/2017
 
 
     1.75        No        No        No        No        No        Nil        52  
     28,000       
29/11/2016 -
28/11/2017
 
 
     1.75        No        No        No        No        No        Nil        203  
     12,000       
27/12/2016 -
26/12/2017
 
 
     1.75        No        No        No        No        No        Nil        104  
     12,000       
22/01/2017 -
21/01/2018
 
 
     1.75        No        No        No        No        No        Nil        119  

Note: The aforementioned entrusted loans are loans provided by Shanghai Golden Phillips Petrochemical Company Limited, a subsidiary of the Group, to the shareholders in proportion to its shareholdings.

 

  2. Application of Fund Raised

During the Reporting Period, the Company did not raise fund, nor has it used the fund raised from the previous reporting periods.

 

  3. Analysis of the Principal Subsidiaries and the Companies in which the Company has Investment Interests

Due to the decrease in the cost of raw materials, gross profit of products increased. Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”), an associate company of the Group, recorded a net profit of RMB2,359 million during the Reporting Period, profit attributable to the Group is RMB472 million, representing 18.83% of net profit attributable to equity shareholders of the Company during the Reporting Period.

 

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REPORT OF THE DIRECTORS (continued)

 

  4. Projects Funded by Non-Fund Raising Capital

 

            Unit: RMB’00,000,000  

Major project

   Total project
investment
     Amount of project
investment in the
Reporting Period
     Status as at
30 June 2017
 

The EVA production device with a capacity of 100,000 tons/year

     11.32        —          Preliminary design  

Sinopec Shanghai transformation project for standard emission of cogeneration units

     2.89        0.14        Construction in progress  

The transformation project for low nitrogen burning of No.2 olefin cracking furnace

     1.34        0.59        Construction in progress  

The airtight transformation project of the fuel yard of the Thermal Power Division

     1.00        0.18        Construction in progress  

The transformation project of the oil refining department for standard emission of sulfur recovery unit

     0.54        0.29        Completed  

 

(7) Other Disclosure Items

 

  1. Risk exposure

 

  (i) The cyclical characteristics of the petroleum and petrochemicals markets and price volatility in crude oil and petrochemical products may have an adverse impact on the Group’s operations

A large part of the Group’s operating revenue is derived from the sales of refined oil and petrochemical products. Historically, such products have been cyclical in nature and relatively sensitive to macroeconomic changes. Changes in regional and global economic conditions, productivity and output, prices and supply of raw materials, consumer demand and prices and supply of substitutes also have an effect. From time to time, these factors have a material impact on the prices of the Group’s products in regional and global markets. Given the reduction of tariffs and other import restrictions as well as the relaxation of control by the PRC government over the distribution and pricing of products, a substantial number of the Group’s products will increasingly be subject to the cyclical impact in the regional and global markets. In addition, the prices of crude oil and petrochemical products will remain volatile, and uncertain. Higher crude oil prices and lower petrochemical products prices are likely to have an adverse impact on the Group’s business, operating results and financial condition.

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

  (ii) The Group may be exposed to risks associated with the procurement of imported crude oil and may not be able to pass on all increased costs due to rising crude oil price

At present, the Group consumes a significant amount of crude oil for the production of petrochemical products. More than 95% of the crude oil consumption is imported. In recent years, crude oil prices have been subject to significant fluctuations due to a variety of factors, and the Group cannot rule out the possibility of any major unexpected event which may cause a suspension in crude oil supply. The Group has attempted to mitigate the effects of increased costs from rising crude oil prices by passing them on to the customers, but the ability to do so is subject to market conditions and government control. Since there is a time-lag between increases in crude oil prices and increases in petrochemical product prices, higher costs cannot be totally offset by raising the selling prices. In addition, the State also imposes strict control over the distribution of some petroleum products in China. For instance, some of the Group’s petroleum products are required to be sold to designated customers (such as subsidiaries of Sinopec Corp). Hence, when crude oil prices are high, the higher costs cannot be totally offset by raising the selling prices of the Group’s petroleum products.

 

  (iii) Substantial capital expenditures and financing requirements are required for the Group’s development plans, presenting a number of risks and uncertainties

The petrochemical industry is a capital-intensive industry. The Group’s ability to maintain and raise income, net income and cash flows is closely connected with ongoing capital expenditures. The Group’s estimated capital expenditures is estimated to amount to approximately RMB1,500.0 million in 2017, which will be met by financing activities and by internal funding. The Group’s actual capital expenditures may vary significantly due to the Group’s ability to generate sufficient cash flows from operations, investments and other factors that are beyond the Group’s control. Furthermore, there is no assurance as to the completion, cost or outcome of the Group’s fund raising projects.

The Group’s ability to secure external financing in the future is subject to a number of uncertainties which include the Company’s operating results, financial conditions and cash flows in the future; China’s economic conditions and the market conditions for the Group’s products; financing costs and conditions of the financial market, and issuance of government approval documents, as well as other risks associated with the development of infrastructure projects in China and so forth. The Group’s failure to secure sufficient financing required for its operations or development plans may have an adverse impact on the Group’s business, operating results and financial condition.

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

  (iv) The Group’s business operations may be affected by existing or future environmental protection regulations

The Group is subject to a number of environmental protection laws and regulations in China. Waste products (waste water, waste gas and waste residue) are generated during the Group’s production operations. Currently, the Group’s operations fully comply with all applicable Chinese environmental protection laws and regulations. However, the Chinese government may further enforce stricter environmental standards, and the Group cannot assure that the central or local governments will not issue more regulations or enforce stricter regulations which may cause the Group to incur additional expenses on environmental protection measures.

 

  (v) Changes in the monetary policy and fluctuations in the value of Renminbi may have an adverse impact on the Group’s business and operating results

The exchange rate of the Renminbi against the US Dollar and other foreign currencies may fluctuate and is subject to alterations due to changes in the political and economic situations. In July 2005, the PRC government overhauled its policy of pegging the value of the Renminbi to the US dollar by permitting the Renminbi to fluctuate within a certain band against a basket of foreign currencies. Since the adoption of this new policy, the value of the Renminbi against the US dollar fluctuates daily. In addition, the Chinese government has been under international pressure to further ease its exchange rate policy, and may as a result further change its currency policy. A small portion of our cash and cash equivalents are denominated in foreign currencies, including the US dollar. Any increase in the value of Renminbi against other currencies, including the US dollar, may decrease the Renminbi value of our cash and cash equivalents that are denominated in foreign currencies. On the other hand, most of our revenue is denominated in Renminbi, but a major part of our procurement of crude oil, certain equipment and certain debt repayments are denominated in foreign currencies. Any devaluation of Renminbi in the future will increase our costs and jeopardize profitability. Any devaluation of Renminbi may also have an adverse impact on the value of dividends payable in foreign currencies by the Group for H shares and American Depository Securities.

 

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Table of Contents

REPORT OF THE DIRECTORS (continued)

 

  (vi) Connected transactions may have an adverse impact on the Group’s business and economic efficiency

The Group, from time to time, conducts and will continue to conduct transactions with the Group’s controlling shareholder Sinopec Corp. and Sinopec Group, Sinopec Corp.’s controlling shareholder, as well as their connected parties (subsidiaries or associates). These connected transactions include the provision of the following services by such connected parties to the Group: raw materials purchases, agency sale of petrochemical products, construction, installation and engineering design services, petrochemicals industry insurance services and financial services, and the sale of petroleum and petrochemical products by the Group to Sinopec Corp. and its connected parties. These connected transactions and services conducted by the Group are carried out under normal commercial terms and in accordance with the relevant agreements. However, if Sinopec Corp. and Sinopec Group refuse to conduct such transactions or revise the agreements with the Group in a manner unfavorable to the Group, the Group’s business and business efficiency will be adversely impacted. Furthermore, Sinopec Corp. competes with the Group in certain sectors directly or indirectly or has an interest in businesses that compete with the Group. Since Sinopec Corp. is the controlling shareholder of the Group and its own interests may conflict with those of the Group, it may act for its own benefit regardless of the Group’s interests.

 

  (vii) Risks associated with control by the major shareholder

Sinopec Corp., the controlling shareholder of the Company, owns 5,460,000,000 A shares of the Company, which represents 50.56% of the total number of shares of the Company and gives it an absolute controlling position. Sinopec Corp. may, by using its controlling position, exercise influence over the Group’s production operations, fund allocations, appointment or removal of senior management and so forth, thereby adversely affecting the Group’s production operations as well as minority shareholders’ interests.

 

24


Table of Contents

MAJOR EVENTS

 

(1) General Meeting

 

Meeting session

  Date    

Designated websites for enquiry of
publication of the resolutions

   Date of publication
of the resolutions
 

2016 annual general meeting

    15 June 2017     Shanghai Securities News, China Securities Journal and Securities Times; the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company      16 June 2017  

 

(2) Plan for Ordinary Shares Profit Distribution or Capital Reserves Capitalization

 

  1. The Formulation, Implementation or Adjustment of Cash Dividend Policy

The 2016 Profit Distribution Plan was considered and approved at the 2016 annual general meeting held on 15 June 2017: to distribute a dividend of RMB2.50 per 10 shares (including tax) totalling RMB2,700,000,000 based on the total number of issued shares of 10.8 billion as at the record date for dividend payment. The relevant announcement was published in Shanghai Securities News, China Securities Journal and Securities Times on 16 June 2017 and was uploaded to the websites of the Hong Kong Stock Exchange, Shanghai Stock Exchange and the Company. On 6 July 2017, the Company published an announcement on the implementation of profit distribution plan for A shares for the year 2016. The record date for A shares dividend payment is 12 July 2017 and the ex-dividend date is 13 July 2017. The dividend payment date for both H shares and A public shares is 13 July 2017. The Profit Distribution Plan has been implemented as scheduled.

 

  2. Plan for Profit Distribution or Capital Reserves Capitalization during the Reporting Period

Nil.

 

(3) Performance of Undertakings

 

  1. Undertakings Made by the De Facto Controller, Shareholders, Connected Parties, Purchaser of the Company and the Company during the Reporting Period or Continuing up to the Reporting Period

Undertakings about the Share Reform Scheme

The Company disclosed “The Explanatory Memorandum on the Share Reform Scheme (the Revised Draft)” on 20 June 2013, in which the Company’s controlling shareholder, Sinopec Corp., made the following major undertakings that continued up to the Reporting Period:

Sinopec Corp. shall continue to support the development of Sinopec upon the completion of the share reform scheme, and shall use the Company as a platform for the development of related businesses in the future.

 

25


Table of Contents

MAJOR EVENTS (continued)

 

For details, please refer to “The Explanatory Memorandum on the Share Reform Scheme (the Revised Draft)” (Full Version) published in Shanghai Securities News and China Securities Journal on 20 June 2013, as well as the relevant announcements uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

The draft of share reform scheme was reviewed and approved at the A shares shareholders’ meeting held on 8 July 2013. After the implementation of the share reform scheme on 20 August 2013, the Company’s A shares resumed trading, and the non-circulating shares previously held by non-circulating shares shareholders attained the right of circulation. For details of the implementation of the share reform scheme, please refer to the “Implementation Report on Sinopec Shanghai Petrochemical Company Limited Share Reform Scheme” published in China Securities Journal and Shanghai Securities News on 14 August 2013 and uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

With regard to the aforementioned undertakings, the Company did not notice any violation of the undertakings.

 

(4) Appointment and Dismissal of Auditors

During the Reporting Period, the Company has not changed the auditors.

 

(5) Material Lawsuits or Arbitration

The Company has no material lawsuits or arbitration during the Reporting Period.

 

(6) Punishment and Reprimand of the Listed Company and its Directors, Supervisors, Senior Management, Controlling Shareholders, De Facto Controller and Purchaser

During the Reporting Period, Mr. Pan Fei, independent non-executive Director, informed the Board that he has received an Advance Notice of Administrative Penalties and Prohibition to Access the Market issued by the CSRC. The CSRC intended to issue a warning and impose a fine of RMB50,000 on Mr. Pan in relation to the suspected illegal acts of information disclosure of Jiangsu Yabaite Technology Co., Ltd. (“Yabaite”) during Mr. Pan’s tenure as an independent director of Yabaite. The above information has been set out in the announcement dated 29 June 2017. On 7 July 2017, Mr. Pan Fei tendered his resignation as an independent non-executive Director and Chairman of the Audit Committee and member of the Strategy Committee of the Board due to personal work arrangement. His resignation took effect upon the election of a new independent non-executive Director at the first extraordinary general meeting of the Company of 2017 held on 2 August 2017.

Save as disclosed above, during the Reporting Period, the Company and its Directors, Supervisors, senior management, controlling shareholder, de facto controller and purchasers had not been investigated, administratively punished, publicly criticized by the CSRC nor publicly censured by the stock exchanges.

 

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MAJOR EVENTS (continued)

 

(7) Credit Status of the Listed Company and its Controlling Shareholder and De Facto Controller during the Reporting Period

During the Reporting Period, the Company and its controlling shareholder and de facto controller were not involved in any events regarding failure to perform obligations under a judgment of courts nor have they had any relatively large amount of debts which have become due and outstanding.

 

(8) Share Option Incentive Scheme

 

  1. Share Option Incentive Scheme Disclosed in Relevant Announcements

 

Summary

  

Index of enquiry

The fifth meeting of the Eighth Session of the Board considered and passed the “Resolution on the adjustment to list of grantees and amount of initial grant under the Share Option Incentive Scheme” and the “Resolution on implementation of the initial grant under the Share Option Incentive Scheme”.

  

Published in China Securities Journal, Shanghai Securities News, Securities Times on 7 January 2015 and uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

The 18th meeting of the Eighth Session of the Board considered and passed the “Resolution on the adjustment of peer benchmark enterprises of the A Shares Share Option Incentive Scheme of the Company”.

  

Published in China Securities Journal, Shanghai Securities News and Securities Times on 16 March 2017 and uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

The “Resolution on the adjustment of peer benchmark enterprises of the A Shares Share Option Incentive Scheme of the Company” was considered and passed at the 2016 annual general meeting.

  

Published in China Securities Journal, Shanghai Securities News and Securities Times on 16 June 2017 and uploaded to the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

 

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MAJOR EVENTS (continued)

 

  2. Share Option Incentive Scheme

 

  (i) Date and number of the initial grant

Date of grant of A shares share options: 6 January 2015

Number of A shares share options grantees: 214 persons

Number of A shares share options granted: 38,760,000

 

  (ii) Outstanding share options of Directors, chief executive and substantial shareholder during the Reporting Period

As at the beginning of the Reporting Period, the total number of outstanding A shares share options held by a total of five persons including directors, chief executive and substantial shareholders, and Mr. Jin Wenmin, Vice President, were 2,540,000.

As at the end of the Reporting Period, the total number of outstanding A shares share options held by the four persons, including Mr. Wang Zhiqing, Chairman and President, Mr. Gao Jinping, Vice Chairman and Vice President, Mr. Jin Qiang, Director and Vice President, Mr. Guo Xiaojun, Director, Vice President, Secretary to the Board and Joint Company Secretary, and Mr. Jin Wenmin, Vice President, were 2,110,000. Mr. Ye Guohua, former Director and Chief Financial Officer, resigned on 26 January 2017. Pursuant to the relevant terms of the Share Option Incentive Scheme, the 430,000 A shares share options granted to him lapsed during the Reporting Period.

 

  (iii) Outstanding share options granted to employees other than the persons mentioned in item (ii)

As at the beginning of the Reporting Period, the total number of outstanding A shares share options held by the Company’s key business personnel were 35,970,000.

During the Reporting Period, a total of 900,000 A shares share options granted to the Company’s key business personnel lapsed due to resignation of grantees and other reasons. As at the end of the Reporting Period, the total number of outstanding A shares share options held by the Company’s key business personnel was 35,070,000.

 

  (iv) Exercise price of the initial grant and adjustment of the exercise price

According to the principle disclosed by the Company on the determination of exercise price, the exercise price of the initial grant was RMB4.20 per share (in the event of dividend payment, capitalisation of capital reserves, bonus issue, subdivision or reduction of shares or placement of shares during the validity period, the exercise price shall be adjusted according to the Share Option Incentive Scheme). On 15 June 2016, the 2015 Profit Distribution Plan was considered and passed at the 2015 annual general meeting of the Company, whereby cash dividend of RMB1.00 was paid for every 10 shares. On 15 June 2017, the 2016 Profit Distribution Plan was considered and passed at the 2016 annual general meeting of the Company, whereby cash dividend of RMB2.50 was paid for every 10 shares, and the exercise price was adjusted to RMB3.85 per share.

 

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MAJOR EVENTS (continued)

 

  (v) Validity period and exercise arrangement for the initial grant

The validity period of the share options is five years commencing from the grant date, but is subject to the exercise arrangements. The exercisable period for the share options is three years commencing from the expiry of the two-year period after the grant date. There are three exercisable periods (one year for each exercisable period, same below) under the Share Option Incentive Scheme. Upon the fulfillment of the exercise conditions, 40%, 30% and 30% of the total number of share options granted shall become exercisable within the 1st, 2nd and 3rd exercisable periods, respectively.

 

Stage

  

Arrangement

   Exercise Ratio Cap  

Grant Date

  

Determined by the Board upon fulfillment of the conditions for grant under the Share Option Incentive Scheme

     —    

1st Exercisable Period

  

Commencing on the first trading day upon the expiry of the 24-month period following the grant date and ending on the last trading day preceding the expiry of the 36-month period following the grant date

     40

2nd Exercisable Period

  

Commencing on the first trading day upon the expiry of the 36-month period following the grant date and ending on the last trading day preceding the expiry of the 48-month period following the grant date

     30

3rd Exercisable Period

  

Commencing on the first trading day upon the expiry of the 48-month period following the grant date and ending on the last trading day preceding the expiry of the 60-month period following the grant date

     30

Save as disclosed herein, no A shares share options were granted pursuant to the Share Option Incentive Scheme or exercised by any grantees or cancelled or lapsed during the Reporting Period.

 

  (vi) Update on the Share Options Incentive Scheme up to the report date

At the third meeting of the Ninth Session of the Board of the Company held on 23 August 2017, “Resolution in respect of adjustment to the participants list and the number of share options of the A Shares Share Option Incentive Scheme of Sinopec Shanghai”, “Resolution in respect of adjustment to the exercise price of share options initially granted under the A Shares Share Option Incentive Scheme of Sinopec Shanghai” and “Resolution in respect of determination of the exercise date and fulfillment of exercise conditions for the first exercisable period of share options initially granted under the A Shares Share Option Incentive Scheme of Sinopec Shanghai” were considered and passed. A total of 2,410,000 A shares share options held by 15 participants shall lapse due to their resignation and other reasons. A total of 2,733,000 A shares share options held by 27 participants shall lapse after adjustment due to job transfer and other reasons.

 

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MAJOR EVENTS (continued)

 

A total of 5,143,000 A shares share options shall lapse after adjustment. The total number of outstanding A shares share options after adjustment is 33,617,000. For the first exercisable period, a total of 14,212,500 A shares share options granted is exercisable.

 

(9) Major Connected Transactions

 

  1. Connected Transactions related to Daily Operations

During the Reporting Period, pursuant to the Mutual Product Supply and Sales Services Framework Agreement entered into with the controlling shareholder of the Company, Sinopec Corp., and the de facto controller Sinopec Group on 23 August 2016, the Company purchased raw materials from Sinopec Group, Sinopec Corp. and their associates and sold petroleum products and petrochemicals products and leased properties to Sinopec Corp. and its associates, and Sinopec Corp. and its associates provided agency sales services for petrochemical products to the Company. Pursuant to the Comprehensive Services Framework Agreement entered into between the Company and the Company’s de facto controller Sinopec Group on 23 August 2016, the Company obtained construction installation, engineering design, petrochemical industry insurance and financial services from Sinopec Group and its associates.

The abovementioned transactions under the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement constituted continuing connected transactions under Chapter 14A of the Hong Kong Listing Rules and constituted day-to-day connected transactions under the Shanghai Listing Rules. The Company has disclosed the two agreements and the respective continuing connected transactions under the agreements in the announcement dated 23 August 2016 and the circular dated 2 September 2016. These two agreements and the respective continuing connected transactions under the agreements, together with the associated annual caps from 2017 to 2019, were considered and approved at the first extraordinary general meeting of 2016 held on 18 October 2016.

During the Reporting Period, the relevant continuing connected transactions were conducted in accordance with the terms of the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement. The transaction amounts of the respective continuing connected transactions did not exceed the caps of the respective continuing connected transactions approved at the first extraordinary general meeting of 2016.

 

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MAJOR EVENTS (continued)

 

The table below sets out the amounts of the continuing connected transactions of the Company with Sinopec Corp. and Sinopec Group during the Reporting Period:

 

                        Unit: RMB’000  

Type of connected transactions

  

Connected parties

   Annual
cap for
2017
     Transaction
amount during
the Reporting
Period
     Percentage of
the transaction amount
of the same type of
transaction
(%)
 

Mutual Product Supply and Sales Services Framework Agreement

           

Purchases of raw materials

   Sinopec Group, Sinopec Corp. and their associates      63,257,000        18,570,990        56.55

Sales of petroleum and petrochemical products

   Sinopec Corp. and its associates      82,507,000        21,483,561        49.84

Property leasing

   Sinopec Corp. and its associates      36,000        13,878        60.44

Agency sales of petrochemical products

   Sinopec Corp. and its associates      195,000        50,595        100

Comprehensive Services Framework Agreement

           

Construction installation and engineering design services

   Sinopec Group and its associates      1,788,000        53,476        13.42

Petrochemical industry insurance services

   Sinopec Group and its associates      140,000        63,387        97.32

Financial services

   Sinopec Group and its associates      200,000        0        —    

On 5 December 2016, the Company entered into an asset leasing agreement (the “Lease Agreement”) with Baishawan branch of Sinopec Petroleum Reserve Company Limited (“Baishawan Branch”), a wholly-owned subsidiary of the Company’s de facto controller Sinopec Group. Pursuant to the Lease Agreement, the Company rents the oil tanks and ancillary facilities from Baishawan Branch at an annual rent up to RMB53,960,000 (exclusive of VAT), with the leasing period from 1 January 2016 to 31 December 2018. The Lease Agreement was considered and approved at the 16th meeting of the Eighth Session of the Board on 24 November 2016. Related announcements were published on the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company, as well as on Shanghai Securities News, China Securities Journal and Securities Times on 25 November 2016. During the Reporting Period, the Company incurred leasing cost of RMB26,980,000.

 

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MAJOR EVENTS (continued)

 

On 27 April 2017, the Company considered and approved the “Resolution on waiver of the pre-emptive rights in the assigned equity interests in a joint venture company, a connected transaction under the Shanghai Listing Rules” at the 19th meeting of the Eighth Session of the Board to give up its pre-emptive rights in acquiring the 50% equity interests in Shanghai SECCO held by BP Chemical East China Investment Company Limited (“BP East China”). Sinopec Corp. intended to acquire the above equity interests through its subsidiary, Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd (“Sinopec Shanghai Gaoqiao”). Shanghai SECCO is a joint venture company of the Company, Sinopec Corp. and BP East China. Sinopec Corp. is a connected party of the Company. The Company’s waiver of its pre-emptive rights to acquire the equity interests in the co-invested company with the connected party constituted a connected transaction under the Shanghai Listing Rules. The transaction did not constitute a connected transaction under the Hong Kong Listing Rules. On 15 June 2017, the Company considered and passed the above connected transaction at its 2016 annual general meeting. Related announcements were published on the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company, as well as on Shanghai Securities News, China Securities Journal and Securities Times on 28 April 2017 and 16 June 2017, respectively.

 

  2. Credits and Liabilities with Connected Parties

 

                                      Unit: RMB’000  
          Funds provided to
connected parties
     Funds provided by connected
parties to the listed company
 
     Connected    Opening      Amount of      Closing      Opening      Amount of      Closing  

Connected party

  

relationship

   balance      transaction      balance      balance      transaction      balance  

Sinopec Corp. and its subsidiaries, joint venture companies and associates & Sinopec Group and its subsidiaries

   Controlling shareholder, de facto controller and its connected parties      179        0        179        71,924        21,020        50,904  

Note 1: The period-end balance of the funds provided by the Group to the connected parties was mainly unsettled receivables arising from the provision of services and pipeline leases to Sinopec Corp., its subsidiaries and associates.

Note 2: The period-end balance of the funds provided by the connected parties to the Group was mainly unsettled payables arising from the services regarding construction installation and engineering design provided by Sinopec Group and its subsidiaries.

The prices of the continuing connected transactions conducted by the Company with Sinopec Group, Sinopec Corp. and their associates were determined, upon negotiations among the parties, on the basis of (i) State regulated prices, (ii) State guidance prices; or (iii) market prices. Such connected transactions were entered into in line with the Company’s production and operational needs. Accordingly, the aforementioned continuing connected transactions did not have a significant adverse impact on the Company’s independence.

 

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MAJOR EVENTS (continued)

 

(10) Material Contracts and their Performance

 

  1. Entrustments, Sub-contracts and Lease Arrangements

During the Reporting Period, the Company had no entrustments, sub-contracts or lease arrangements that generated 10% or more of the gross profit of the Company for the period.

 

  2. Guarantees

There were no guarantees provided by the Company during the Reporting Period.

 

  3. Other Major Contracts

There were no other major contracts of the Company during the Reporting Period.

 

(11) Environmental Protection Situation of Key Pollutant-discharging Companies and their Subsidiaries as Announced by the Ministry of Environmental Protection

The Company is one of the contaminating enterprises under Intensive Monitoring and Control by the State proclaimed by the Ministry of Environmental Protection. According to Measures for Self-Monitoring and Information Disclosure by the Enterprises subject to Intensive Monitoring and Control of the State (Trial Implementation) (國家重點監控企業自行監測及信息公開辦法(試行)), the Company has disclosed to the public on the website of the Shanghai Environmental Protection Bureau the sites of the source of pollution, pollutant types and concentration of pollution which are subject to intensive monitoring and control of the State.

The Company, as a manufacturing enterprise in the petrochemical industry, consistently places environmental protection as its top priority. The Company continues to participate in ISO14001 Environmental Management System Certification. In January 2013, the Company received certifications from the Shanghai Audit Center of Quality regarding quality (GB/T 19001: 2008), environment (GB/T 24001: 2004) and occupational health and safety (GB/T28001: 2011). On 26 October 2016, the continued use of the title “All-China Environmentally Friendly Enterprise” (「中華環境好友企業」) was approved.

In 2017, the Company practiced development concepts of “Innovation, Coordination, Green, Openness and Sharing” persisted in green development and low-carbon strategy, adapted itself to the new norm of environment protection, continuously promoted the comprehensive environmental remediation in Jinshan District, carried on the sixth round of environmental protection three-year action and volatile organic compounds (“VOCs”) special treatment, implemented various measures to reduce emissions in order to realize economic, environmental and social effectiveness and achieve a multi-win situation. Besides, the Company standardized the management of environmental protection of the “Three Simultaneous Activities” for construction projects to keep on improving environmental protection capability.

 

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MAJOR EVENTS (continued)

 

In the first half of 2017, the Company actively organized and implemented environmental protection and improvement projects, accelerated the construction of the “Refining sulfur unit exhaust” and “Improvement of low-nitrogen burners for the heating furnace” projects. In the first half of 2017, the emissions of sulfur dioxide and nitrogen oxides decreased by 31.24% and 18.24% year-on-year, respectively. At the same time, the compliance rate on both waste water and waste gas emissions were 100%, and all hazardous wastes were disposed of properly with a rate of 100%. The Company continually implements LDAR (Leak Detection and Repair) work and emission reduction of VOCs, to ensure the attainment of the emission reduction targets issued by the Municipal Environmental Protection Bureau. In the first half of 2017, a total of 736,069 sealing points were inspected, a total of 1,417 leakage points were detected, and a total of 1,289 leakage points were repaired. The repair rate was 90.97%.

In the first half of 2017, the Company paid a total of pollution discharge fees of RMB50,712,600 to the Shanghai Environmental Protection Bureau.

In the first half of 2017, the Company had 8 incidents of environmental administrative punishment, involving a total fine of RMB880,000. The main reasons for the punishment were: ineffective control on stable operations and continuous compliance of environmental management facilities, insufficient attention to the hazardous waste site management, insufficient control on the on-site emissions of production plants, and poor implementation of regular inspection and timely repairment in LDAR work.

 

(12) Corporate Governance

The Company acted in strict compliance with regulatory legislations such as the Company Law, the Securities Law, the Corporate Governance Principles for Listed Companies and the Guidelines for Establishing the Independent Directors System for Listed Companies issued by the CSRC, as well as the relevant requirements of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the New York Stock Exchange to push forward the innovation of the Company’s system and management, to improve the corporate governance structure, and to strengthen the establishment of the Company’s system in order to enhance the overall image of the Company.

 

(13) Event after the Reporting Period

At the third meeting of the Ninth Session of the Board of the Company held on 23 August 2017, “Resolution in respect of adjustment to the participants list and the number of share options of the A Shares Share Option Incentive Scheme of Sinopec Shanghai”, “Resolution in respect of adjustment to the exercise price of share options initially granted under the A Shares Share Option Incentive Scheme of Sinopec Shanghai” and “Resolution in respect of determination of the exercise date and fulfillment of exercise conditions for the first exercisable period of share options initially granted under the A Shares Share Option Incentive Scheme of Sinopec Shanghai” were considered and passed. A total of 2,410,000 A shares share options held by 15 participants shall lapse due to their resignation and other reasons. A total of 2,733,000 A shares share options held by 27 participants shall lapse after adjustment due to job transfer and other reasons. A total of 5,143,000 A shares share options shall lapse after adjustment. The total number of outstanding A shares share options after adjustment is 33,617,000. For the first exercisable period, a total of 14,212,500 A shares share options granted is exercisable.

 

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CHANGE IN SHARE CAPITAL OF ORDINARY SHARES AND SHAREHOLDERS

 

(1) Change in Share Capital of Ordinary Shares during the Reporting Period

 

  1. Change in share capital of ordinary shares during the Reporting Period

There were no changes in the total number of shares and the share capital structure of the Company during the Reporting Period.

 

(2) Issue of Securities

 

  1. Issue of Securities during the Reporting Period

During the Reporting Period, the Company did not issue any securities.

 

  2. Change in the Company’s Total Number of Ordinary Shares, Shareholding Structure and the Company’s Assets and Liabilities

There were no changes in the Company’s total number of shares, shareholding structure and the Company’s assets and liabilities as a result of bonus issues or share placements during the Reporting Period.

 

  3. Employees Shares

The Company had no employees shares as at the end of the Reporting Period.

 

(3) Shareholders

 

  1. Total Number of Shareholders

 

Number of shareholders of ordinary shares as at the end of the Reporting Period

     107,178  

 

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CHANGE IN SHARE CAPITAL OF ORDINARY SHARES AND SHAREHOLDERS (continued)

 

  2. Shareholding of the Top Ten Shareholders as at the End of the Reporting Period

Shareholding of the top ten shareholders

 

                                              Unit: Shares  
         

Increase/
decrease

of shareholding

   

Number of
shares held

at the end of
the Reporting

          Number of                    
          during the             trading                    
          Reporting       Percentage of     restricted     Pledged/Frozen        

Name of shareholders (Full name)

  Class of
shares
    Period
(shares)
    Period
(shares)
    shareholding
(%)
    shares held
(shares)
    Status of
shares
    Number of
shares
    Nature of
shareholders
 

China Petroleum & Chemical Corporation

    A shares       0       5,460,000,000       50.56       0       None       0      
State-owned
legal person
 
 

HKSCC (Nominees) Limited

    H shares       331,000       3,455,297,321       31.99       0       Unknown       —        
Overseas legal
person
 
 

China Securities Finance Corporation Limited

    A shares       153,956,949       486,060,039       4.50       0       None       0       Others  

Central Huijin Investment Ltd.

    A shares       0       67,655,800       0.63       0       None       0       Others  

China Life Insurance Company Limited-Dividend-Individual-Dividend-005L-FH002 Shanghai

    A shares       -593,473       31,978,667       0.30       0       None       0       Others  

Shanghai Kangli Industry and Trade Co., Ltd

    A shares       0       22,375,300       0.21       0       None       0       Others  

Bank of China Limited - China New Economy Flexible Allocation Hybrid Start-up Securities Investment Fund

    A shares       0       19,645,656       0.18       0       None       0       Others  

Abu Dhabi Investment Authority

    A shares       -583,020       18,172,619       0.17       0       None       0       Others  

NSSF Combination 412

    A shares       1,913,800       15,499,197       0.14       0       None       0       Others  

Bank of China Limited - Huatai Pinebridge Quantitative Index Enhanced Equity Securities Investment Fund

    A shares       Unknown       14,324,939       0.13       0       None       0       Others  

Note on connected relationship or acting in concert of the above shareholders

     





Among the above-mentioned shareholders, Sinopec Corp., a State-owned legal person, does
not have any connected relationship with the other shareholders, and does not constitute an
act-in-concert party under the Administrative Measures on Acquisition of Listed Companies.
Among the above-mentioned shareholders, HKSCC (Nominees) Limited is a nominee. Apart
from the above, the Company is not aware of any connected relationship among the other
shareholders, or whether any other shareholder constitutes an act-in-concert party under the
Administrative Measures on Acquisition of Listed Companies.
 
 
 
 
 
 
 

 

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CHANGE IN SHARE CAPITAL OF ORDINARY SHARES AND SHAREHOLDERS (continued)

 

(4) Change in Controlling Shareholder or De Facto Controller

 

  During the Reporting Period, there was no change in the controlling shareholder or the de facto controller of the Company.

 

(5) Interests and Short Positions of the Substantial Shareholders of the Company in Shares and Underlying Shares of the Company

As at 30 June 2017, so far as was known to the Directors and chief executive of the Company, the interests and short positions of the Company’s substantial shareholders (being those who are entitled to exercise or control the exercise of 5% or more of the voting power at any general meeting of the Company but excluding the Directors, chief executive and Supervisors) who are required to disclose their interests pursuant to Divisions 2 and 3 of Part XV of the SFO, in the shares and underlying shares of the Company or as recorded in the register of interests required to be kept under Section 336 of the SFO were as set out below:

Interests in ordinary shares of the Company

 

                   Percentage of      Percentage of         

Name of shareholder

   Interests held or
deemed as held (shares)
     Note      total issued
shares of the
Company
(%)
     total issued
shares of the
relevant class
(%)
     Capacity  

China Petroleum & Chemical Corporation

    


5,460,000,000
A shares (L)
Promoter legal
person shares
 
 
 
 
        50.56        74.74        Beneficial owner  

BlackRock, Inc.

    
242,638,937
H shares (L)
 
 
     (1      2.25        6.94       
Interest of controlled
corporation
 
 
    
1,136,000 H
shares (S)
 
 
     (2      0.01        0.03       
Interest of controlled
corporation
 
 

Corn Capital Company Ltd

    
187,478,000
H shares (L)
 
 
     (3      1.74        5.36        Beneficial owner  

Qian Liying

    
187,478,000
H shares (L)
 
 
     (3      1.74        5.36       
Interest of controlled
corporation
 
 

(L): Long position; (S): Short position

 

Notes: (1) Of the H shares (long position) held by BlackRock, Inc., 5,692,400 H shares (long position) were held through cash settled unlisted derivatives.

 

    (2) Of the H shares (short position) held by BlackRock, Inc., 934,000 H shares (short position) were held through cash settled unlisted derivatives.

 

    (3) These shares were held by Corn Capital Company Ltd. Qian Liying held 70% interests in Corn Capital Company Ltd. Pursuant to the SFO, Qian Liying was deemed to be interested in the shares held by Corn Capital Company Ltd.

 

    (4) Based on the information obtained by the Directors from the website of the Hong Kong Stock Exchange and as far as the Directors are aware, Sinopec Group directly and indirectly owns 71.32% of the issued share capital of Sinopec Corp. as at 30 June 2017. By virtue of such relationship, Sinopec Group is deemed to have an interest in the 5,460,000,000 A shares of the Company directly owned by Sinopec Corp.

 

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CHANGE IN SHARE CAPITAL OF ORDINARY SHARES AND SHAREHOLDERS (continued)

 

Save as disclosed above, as at 30 June 2017, the Directors have not been notified by any person (other than the Directors, chief executive and Supervisors) that he or she had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO or as recorded in the register of interests required to be kept by the Company under Section 336 of the SFO.

 

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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS

 

(1) Change in Shareholdings

 

  1. Changes in Shareholdings of the Current Directors, Supervisors and Senior Management and those Resigned during the Reporting Period

 

                        Unit: Shares  

Name

  

Position

   Number of shares
held at the
beginning of the
Reporting Period
     Number of shares
held at the

end of the
Reporting Period
     Change in
the number
of shares
during the
Reporting
Period
 

Wang Zhiqing

  

Executive Director, Chairman and President

     Nil        Nil        No Change  

Wu Haijun

  

Executive Director and Vice Chairman

     Nil        Nil        No Change  

Gao Jinping

  

Executive Director, Vice Chairman and Vice President

     Nil        Nil        No Change  

Jin Qiang

  

Executive Director and Vice President

     Nil        Nil        No Change  

Guo Xiaojun

  

Executive Director, Vice President, Secretary to the Board and Joint Company Secretary

     Nil        Nil        No Change  

Zhou Meiyun

  

Executive Director, Vice President and Chief Financial Officer

     Nil        Nil        No Change  

Lei Dianwu

  

Non-executive Director

     Nil        Nil        No Change  

Mo Zhenglin

  

Non-executive Director

     Nil        Nil        No Change  

Zhang Yimin

  

Independent non-executive Director

     Nil        Nil        No Change  

Liu Yunhong

  

Independent non-executive Director

     Nil        Nil        No Change  

Du Weifeng

  

Independent non-executive Director

     Nil        Nil        No Change  

Pan Fei*

  

Independent non-executive Director

     Nil        Nil        No Change  

Li Yuanqin*

  

Independent non-executive Director

     Nil        Nil        No Change  

Zhang Jianbo*

  

Chairman of the Supervisory Committee and Supervisor

     Nil        Nil        No Change  

Zuo Qiang

  

Supervisor

     Nil        Nil        No Change  

Li Xiaoxia

  

Supervisor

     Nil        Nil        No Change  

Zhai Yalin

  

Supervisor

     Nil        Nil        No Change  

Fan Qingyong

  

Supervisor

     Nil        Nil        No Change  

Zheng Yunrui

  

Independent Supervisor

     Nil        Nil        No Change  

Choi Ting Ki

  

Independent Supervisor

     Nil        Nil        No Change  

Jin Wenmin

  

Vice President

     Nil        Nil        No Change  

Ye Guohua

  

Former Executive Director, Vice President and Chief Financial Officer

     Nil        Nil        No Change  

 

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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

 

* On 7 July 2017, Mr. Pan Fei requested to resign from his positions as independent non-executive Director, Chairman of the Audit Committee and member of the Strategy Committee due to personal work arrangement. Mr. Pan’s resignation took effect upon the election of a new independent non-executive Director at the first extraordinary general meeting of 2017 of the Company held on 2 August 2017.
* On 2 August 2017, Ms. Li Yuanqin was appointed as independent non-executive Director at the first extraordinary general meeting of 2017. She was also appointed as the Chairman of the Audit Committee and member of the Strategy Committee at the second meeting of the Ninth Session of the Board on the same day.
* On 11 July 2017, Mr. Zhang Jianbo requested to resign from his positions as Chairman of the Supervisory Committee and Supervisor due to a change of job assignment. Mr. Zhang’s resignation took effect upon the submission of the resignation letter to the Supervisory Committee of the Company on 11 July 2017.

 

(2) A Shares Share Options Held by the Directors, Supervisors and Senior Management during the Reporting Period

 

                                Unit: A shares share options  

Name

 

Position

  Number of
A shares
share options
held at the
beginning of
the Reporting
Period
    Number of
A shares
share options
granted
during the
Reporting
Period
    Number of
exercisable A
shares
share options
during the
Reporting
Period
    Number of
A shares
share options
exercised
during the
Reporting
Period
    Number of
A shares
share options
cancelled/
lapsed
during the
Reporting
Period
    Number of
A shares share
options held at
the end of the
Reporting
Period
 

Wang Zhiqing

  Executive Director, Chairman and President     500,000       0       0       0       0       500,000  

Gao Jinping

 

Executive Director, Vice Chairman and Vice President

    500,000       0       0       0       0       500,000  

Ye Guohua*

 

Executive Director, Vice President and Chief Financial Officer

    430,000       0       0       0       430,000       0  

Jin Qiang

 

Executive Director and Vice President

    430,000       0       0       0       0       430,000  

Guo Xiaojun

 

Executive Director, Vice President, Secretary to the Board and Joint Company Secretary

    430,000       0       0       0       0       430,000  

Jin Wenmin

 

Vice President

    250,000       0       0       0       0       250,000  
   

 

 

           

 

 

 

Total

      2,540,000               2,110,000  

 

* On 26 January 2017, Mr. Ye Guohua requested to resign from his position. Pursuant to the term of the Share Option Incentive Scheme, the share options granted to Mr. Ye lapsed.

 

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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

 

(3) Changes in Directors, Supervisors and Senior Management during the Reporting Period

 

Name

  

Position held

   Change    Reason/Former Position  

Ye Guohua

   Executive Director, Vice President and Chief Financial Officer    Resigned      Resignation on own accord  

Zhang Jianbo

   Secretary to the Board and Joint Company Secretary    Resigned      Resignation on own accord  

Guo Xiaojun

   Secretary to the Board and Joint Company Secretary    Appointed      —    

Zhang Jianbo

   Chairman of the Supervisory Committee and Supervisor    Appointed      —    

Zhou Meiyun

   Executive Director, Vice President and Chief Financial Officer    Elected      —    

Pan Fei

   Independent non-executive Director    Elected      Former Independent Supervisor  

Choi Ting Ki

   Independent Supervisor    Elected      Former Independent non-executive Director  

Pan Fei*

   Independent non-executive Director    Resigned      Resignation on own accord  

Zhang Jianbo*

   Chairman of the Supervisory Committee and Supervisor    Resigned      Resignation on own accord  

Li Yuanqin*

   Independent non-executive Director    Elected      —    

 

* On 7 July 2017, Mr. Pan Fei requested to resign from his positions as independent non-executive Director, Chairman of the Audit Committee and member of the Strategy Committee due to personal work arrangement. Mr. Pan’s resignation took effect upon the election of a new independent non-executive Director at the first extraordinary general meeting of 2017 of the Company held on 2 August 2017.
* On 2 August 2017, Ms. Li Yuanqin was appointed as an independent non-executive Director at the first extraordinary general meeting of 2017. She was also appointed as the Chairman of the Audit Committee and member of the Strategy Committee at the second meeting of the Ninth Session of the Board on the same day.
* On 11 July 2017, Mr. Zhang Jianbo requested to resign from his positions as a Chairman of the Supervisory Committee and Supervisor due to a change of job assignment. Mr. Zhang’s resignation took effect upon the submission of the resignation letter to the Supervisory Committee of the Company on 11 July 2017.

 

(4) Interests and Short Positions of the Directors, Chief Executive and Supervisors in the Shares, Underlying Shares and Debentures of the Company or Its Associated Corporations

As at 30 June 2017, the interests and short positions of the Directors, chief executive and Supervisors of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or to be recorded in the register of interests required to be kept under Section 352 of the SFO; or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions set out in Appendix 10 to the Hong Kong Listing Rules were as follows:

 

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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

 

Interests in underlying shares of the Company

 

          Number of                      
          underlying                      
          shares held                      
          in respect                      
          of A shares                      
          share options            Percentage of         
          under the     Percentage of      total issued         
          Share Option     total issued      shares of         
          Incentive     shares of the      the relevant         

Name

  

Position held

   Scheme (shares)     Company (%)      class (%)      Capacity  

Wang Zhiqing

  

Executive Director, Chairman and President

     500,000  (L)      0.005        0.007        Beneficial owner  

Gao Jinping

  

Executive Director, Vice Chairman and Vice President

     500,000  (L)      0.005        0.007        Beneficial owner  

Jin Qiang

  

Executive Director and Vice President

     430,000  (L)      0.004        0.006        Beneficial owner  

Guo Xiaojun

  

Executive Director, Vice President, Secretary to the Board and Joint Company Secretary

     430,000  (L)      0.004        0.006        Beneficial owner  

(L): Long position

Save as disclosed above, as at 30 June 2017, so far as was known to the Directors, chief executive and Supervisors of the Company, none of the Directors, chief executive or Supervisors of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations which were required to be disclosed or recorded pursuant to the SFO and the Hong Kong Listing Rules as mentioned above.

 

(5) Changes in Directors’ and Supervisors’ Information

Disclosure of changes in Directors’ and Supervisors’ information pursuant to Rule 13.51B(1) of the Hong Kong Listing Rules are set out as below:

 

  1. From 15 June 2017, Mr. Choi Ting Ki’s position changed from independent non-executive Director to independent Supervisor and he resigned as Chairman of the Audit Committee.

 

  2. From 15 June 2017, Mr. Pan Fei’s Note position changed from independent Supervisor to independent non-executive Director and he was appointed as Chairman of the Audit Committee and member of the Strategy Committee.

 

  3. On 15 June 2017, Mr. Guo Xiaojun, executive Director and Vice President was appointed as Secretary to the Board, Joint Company Secretary and member of the Strategy Committee.

 

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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

 

  4. Mr. Wang Zhiqing, executive Director, Chairman & President, was appointed as Chairman of the Strategy Committee; Mr. Zhou Meiyun, executive Director, Mr. Lei Dianwu and Mr. Mo Zhenglin, non-executive Directors and Mr. Pan Fei Note, independent non-executive Director, were appointed as members of the Strategy Committee, effective on 15 June 2017.

 

  5. The remuneration of Mr. Zheng Yunrui and Mr. Choi Ting Ki, independent Supervisors, was determined in accordance with the “Remuneration Payment Method for Independent Supervisors” approved at the Company’s 2016 AGM. Pursuant to the “Remuneration Payment Method for Independent Supervisors”, the standard allowance of independent Supervisors is RMB100,000 per annum payable by two instalments. The Company shall reimburse the independent Supervisors out of pocket expenses necessarily incurred in carrying out their duties in accordance with the Articles of Association and the travel expenses incurred for attending Supervisory Committee meetings, Board meetings and shareholders meetings.

 

  6. Mr. Zheng Yunrui, independent Supervisor, was appointed as member of the Expert Advisory Committee of Yangpu District of Shanghai People’s Procuratorate, and arbitrator of Shanghai No. 2 Intermediate People’s Court effective on 24 March 2017 and 26 June 2017, respectively.

Mr. Zheng submitted his written resignation to the board of directors of Yangzhou Chenhua New Material Co., Ltd. (“Chenhua”) on 17 April 2017 due to personal reason. Mr. Zheng’s resignation will become effective upon filling of his vacancy at the first extraordinary general meeting of 2017 of Chenhua.

 

  7. Mr. Zhou Meiyun, executive Director, ceased to be the manager of the Finance Department of Shanghai SECCO in April 2017.

 

  8. Mr. Liu Yunhong, independent non-executive Director, was appointed as an independent director of Shenergy Company Limited and Bank of Guiyang Co. Ltd. (both listed on the Shanghai Stock Exchange, stock code: 600642 and 601997, respectively) in May and July 2017, respectively.

 

Note: On 7 July 2017, Mr. Pan Fei tendered his resignation as an independent non-executive Director and Chairman of the Audit Committee and member of the Strategy Committee due to personal work arrangement. The resignation of Mr. Pan Fei took effect upon the election of a new independent non-executive Director in the first extraordinary general meeting of 2017 of the Company held on 2 August 2017.

 

(6) Audit Committee

On 22 August 2017, the Audit Committee of the Ninth Session of the Board held its first meeting, primarily to review the interim financial report of the Group for the Reporting Period.

 

(7) Purchase, Sale and Redemption of the Company’s Securities

During the Reporting Period, the Company did not purchase, sell or redeem any of the Company’s securities (for the definition of “securities”, please refer to paragraph 1 of Appendix 16 to the Hong Kong Listing Rules).

 

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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND OTHERS (continued)

 

(8) Compliance with Corporate Governance Code

During the Reporting Period, the Company applied and complied with all code provisions set out in the Corporate Governance Code contained in Appendix 14 to the Hong Kong Listing Rules except for the deviation from code provision A.2.1 of the Corporate Governance Code as set out below.

Corporate Governance Code provision A.2.1: The roles of chairman and chief executive should be separate and should not be performed by the same individual.

Deviation: Mr. Wang Zhiqing was appointed as the Chairman and the President (equivalent to chief executive) of the Company.

Reason: Mr. Wang Zhiqing has extensive experience in the operations and management of petrochemicals enterprise. Mr. Wang is the most suitable candidate to serve both the positions of Chairman and President of the Company. For the time being, the Company has not been able to identify another person who is in possession of better or similar competency and talent as Mr. Wang to serve either of the above positions.

 

(9) Compliance with Model Code for Securities Transactions

The Company has adopted and implemented the Model Code for Securities Transactions to regulate the securities transactions of the Directors and Supervisors. After making specific enquiries with all of the Directors and Supervisors and having obtained written confirmations from each Director and Supervisor, no incident of non-compliance with the Model Code for Securities Transactions by the Directors and Supervisors during the Reporting Period was noted by the Company.

The Model Code for Securities Transactions is also applicable to the senior management who may be in possession of unpublished inside information of the Company. No incident of non-compliance with the Model Code for Securities Transactions by the senior management of the Company was noted by the Company.

 

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Table of Contents

DOCUMENTS FOR INSPECTION

 

(1) 2017 interim report signed by the Chairman;

 

(2) Financial statements signed and sealed by the legal representative, chief financial officer and accounting chief of the Company;

 

(3) Originals of all documents and announcements of the Company which were disclosed in the newspapers designated by the CSRS during the Reporting Period;

 

(4) Written confirmation of the interim report signed by the Company’s directors, supervisors and senior management.

The Company keeps all the documents listed above at the Company’s Secretariat, the address of which is as follows:

No.48 Jinyi Road, Jinshan District, Shanghai, PRC,

Postal code: 200540

Chairman: Wang Zhiqing

Date of filing approved by the Board: 23 August 2017

 

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LOGO    LOGO

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

TO THE BOARD OF DIRECTORS OF SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED

(Incorporated in the People’s Republic of China with limited liability)

Introduction

We have reviewed the interim financial information set out on pages 47 to 77, which comprises the interim condensed consolidated balance sheet of Sinopec Shanghai Petrochemical Company Limited (the “Company”) and its subsidiaries (together, the “Group”) as at 30 June 2017 and the related interim condensed consolidated statement of income, comprehensive income, changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 “Interim Financial Reporting” issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of this interim financial information in accordance with International Accounting Standard 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting”.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 23 August 2017

 

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A. Condensed consolidated interim financial information prepared under
   International Financial Reporting Standards (unaudited)
   Sinopec Shanghai Petrochemical Company Limited - For the six months ended 30 June 2017

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

 

          Unaudited  
          Six-month period ended 30 June  
     Note    2017
RMB’000
    2016
RMB’000
 

Revenue

   6      43,081,380       36,968,510  

Sales taxes and surcharges

        (6,005,273     (6,186,162
     

 

 

   

 

 

 

Net sales

        37,076,107       30,782,348  

Cost of sales

        (34,265,969     (26,814,760
     

 

 

   

 

 

 

Gross profit

        2,810,138       3,967,588  
     

 

 

   

 

 

 

Selling and administrative expenses

        (237,647     (254,238

Other operating income

        53,533       34,497  

Other operating expenses

        (7,326     (8,909

Other losses - net

   7      (5,454     (25,696
     

 

 

   

 

 

 

Operating profit

   6      2,613,244       3,713,242  
     

 

 

   

 

 

 

Finance income

   7      119,203       41,500  

Finance expenses

   7      (23,269     (34,549

Share of profit of investments accounted for using the equity method

        565,068       381,745  
     

 

 

   

 

 

 

Profit before income tax

        3,274,246       4,101,938  

Income tax expense

   8      (671,073     (948,241
     

 

 

   

 

 

 

Profit for the period

        2,603,173       3,153,697  
     

 

 

   

 

 

 

Profit attributable to:

       

- Owners of the Company

        2,598,499       3,148,609  

- Non-controlling interests

        4,674       5,088  
     

 

 

   

 

 

 
        2,603,173       3,153,697  
     

 

 

   

 

 

 

Earnings per share attributable to owners of the Company for the period (expressed in RMB per share)

       

Basic earnings per share

   9      RMB0.241       RMB0.292  
     

 

 

   

 

 

 

Diluted earnings per share

   9      RMB0.240       RMB0.291  
     

 

 

   

 

 

 

The notes on pages 53 to 77 form an integral part of this condensed consolidated interim financial information.

 

Wang Zhiqing    Zhou Meiyun
Chairman and President    Director and Chief Financial Officer

 

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

     Unaudited  
     Six-month period ended 30 June  
     2017
RMB’000
    2016
RMB’000
 

Profit for the period

     2,603,173       3,153,697  

Other comprehensive losses for the period - net of tax

     (552     —    
  

 

 

   

 

 

 

Total comprehensive income for the period

     2,602,621       3,153,697  
  

 

 

   

 

 

 

Profit attributable to:

    

- Owners of the Company

     2,597,947       3,148,609  

- Non-controlling interests

     4,674       5,088  
  

 

 

   

 

 

 

Total comprehensive income for the period

     2,602,621       3,153,697  
  

 

 

   

 

 

 

The notes on pages 53 to 77 form an integral part of this condensed consolidated interim financial information.

 

Wang Zhiqing    Zhou Meiyun
Chairman and President    Director and Chief Financial Officer

 

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INTERIM CONDENSED CONSOLIDATED BALANCE SHEET

 

     Note     Unaudited
30 June

2017
RMB’000
     Audited
31 December
2016
RMB’000
 

Assets

       

Non-current assets

       

Lease prepayment and other assets

       831,557        705,456  

Property, plant and equipment

     11       12,791,321        13,474,287  

Deferred income tax assets

       100,543        103,091  

Investment properties

       390,537        380,429  

Construction in progress

       959,490        717,672  

Investments accounted for using the equity method

     12       3,793,956        3,688,794  
    

 

 

    

 

 

 
       18,867,404        19,069,729  
    

 

 

    

 

 

 

Current assets

       

Inventories

       7,016,933        6,159,473  

Trade receivables

     13       603,800        414,944  

Bills receivable

     13       1,052,398        1,238,620  

Other receivables

     13       213,690        165,798  

Prepayments

       139,340        165,804  

Amounts due from related parties

     13,19(c)       1,280,095        1,290,619  

Cash and cash equivalents

     14       7,955,926        5,440,623  
    

 

 

    

 

 

 
       18,262,182        14,875,881  
    

 

 

    

 

 

 

Total assets

       37,129,586        33,945,610  
    

 

 

    

 

 

 

Equity

       

Equity attributable to owners of the Company

       

Share capital

     9       10,800,000        10,800,000  

Reserves

     18       13,828,014        13,921,965  
    

 

 

    

 

 

 
       24,628,014        24,721,965  

Non-controlling interests

       282,311        281,270  
    

 

 

    

 

 

 

Total equity

       24,910,325        25,003,235  
    

 

 

    

 

 

 

 

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INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (continued)

 

     Note     Unaudited
30 June

2017
RMB’000
     Audited
31 December
2016
RMB’000
 

Liabilities

       

Current liabilities

       

Borrowings

     15       613,421        546,432  

Trade payables

     17       2,276,634        2,123,904  

Advance from customers

       424,270        462,992  

Bills payable

     17       88,000        5,000  

Other payables

     17       3,732,398        2,139,378  

Amounts due to related parties

     17,19(c)       4,960,990        3,044,304  

Income tax payable

       123,548        620,365  
    

 

 

    

 

 

 
       12,219,261        8,942,375  
    

 

 

    

 

 

 

Total liabilities

       12,219,261        8,942,375  
    

 

 

    

 

 

 

Total equity and liabilities

       37,129,586        33,945,610  
    

 

 

    

 

 

 

The notes on pages 53 to 77 form an integral part of this condensed consolidated interim financial information.

 

Wang Zhiqing    Zhou Meiyun
Chairman and President    Director and Chief Financial Officer

 

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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

         Unaudited  
         Attributable to owners of the Company              
         Share     Other     Retained           Non-controlling     Total  
         capital     reserves     profits     Total     interests     equity  
     Note   RMB’000     RMB’000     RMB’000     RMB’000     RMB’000     RMB’000  

Balance at 1 January 2017

       10,800,000       4,237,276       9,684,689       24,721,965       281,270       25,003,235  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period ended 30 June 2017

       —         (552     2,598,499       2,597,947       4,674       2,602,621  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends proposed and approved

   10     —         —         (2,700,000     (2,700,000     —         (2,700,000

Employees share option scheme

   18(a)     —         8,102       —         8,102       —         8,102  

Dividends paid by subsidiaries to non-controlling interests

       —         —         —         —         (3,633     (3,633

Appropriation of safety production fund

   18(b)     —         22,015       (22,015     —         —         —    
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at 30 June 2017

       10,800,000       4,266,841       9,561,173       24,628,014       282,311       24,910,325  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         Unaudited  
         Attributable to owners of the Company              
         Share
capital
    Other
reserves
    Retained
profits
    Total     Non-controlling
interests
    Total equity  
     Note   RMB’000     RMB’000     RMB’000     RMB’000     RMB’000     RMB’000  

Balance at 1 January 2016

       10,800,000       4,201,666       4,795,616       19,797,282       297,038       20,094,320  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period ended 30 June 2016

       —         —         3,148,609       3,148,609       5,088       3,153,697  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends proposed and approved

       —         —         (1,080,000     (1,080,000     —         (1,080,000

Employees share option scheme

   18(a)     —         11,350       —         11,350       —         11,350  

Dividends paid by subsidiaries to non-controlling interests

       —         —         —         —         (25,508     (25,508

Appropriation of safety production fund

   18(b)     —         39,441       (39,441     —         —         —    
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at 30 June 2016

       10,800,000       4,252,457       6,824,784       21,877,241       276,618       22,153,859  
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The notes on pages 53 to 77 form an integral part of this condensed consolidated interim financial information.

 

Wang Zhiqing    Zhou Meiyun
Chairman and President    Director and Chief Financial Officer

 

51


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INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 

            Unaudited  
            Six-month period ended 30 June  
     Note      2017
RMB’000
    2016
RMB’000
 

Cash flows from operating activities

       

Cash generated from operations

        3,525,195       5,046,061  

Interest paid

        (8,553     (31,576

Income tax paid

        (1,166,415     (401,037
     

 

 

   

 

 

 

Net cash generated from operating activities

        2,350,227       4,613,448  
     

 

 

   

 

 

 

Cash flows from investing activities

       

Dividends received from joint ventures and associates

        459,354       200,595  

Cash received from entrusted lending

        24,000       42,000  

Interest received

        83,599       42,435  

Cash received from three-month time deposit

        500,000       —    

Net proceeds/(payments) from disposal of property, plant and equipment

        791       (1,730

Cash payment of three-month time deposit

        (500,000     —    

Purchases of property, plant and equipment and other long-term assets

        (444,740     (265,241

Cash payment of entrusted lending

        (12,000     (24,000
     

 

 

   

 

 

 

Net cash generated from/(used in) investing activities

        111,004       (5,941
     

 

 

   

 

 

 

Cash flows from financing activities

       

Proceeds from borrowings

        101,647       1,864,657  

Repayments of borrowings

        (34,658     (3,075,000

Dividends paid by subsidiaries to non-controlling interests

        (3,633     (25,508
     

 

 

   

 

 

 

Net cash generated from/(used in) financing activities

        63,356       (1,235,851
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        2,524,587       3,371,656  

Cash and cash equivalents at beginning of the period

        5,440,623       1,077,430  

Exchange (loss)/gains on cash and cash equivalents

        (9,284     2,220  
     

 

 

   

 

 

 

Cash and cash equivalents at end of the period

     14        7,955,926       4,451,306  
     

 

 

   

 

 

 

The notes on pages 53 to 77 form an integral part of this condensed consolidated interim financial information.

 

Wang Zhiqing    Zhou Meiyun
Chairman and President    Director and Chief Financial Officer

 

52


Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

 

  1 General information

Sinopec Shanghai Petrochemical Company Limited (“the Company”), located in Jinshan District of Shanghai, is one of the largest refining-chemical integrated petrochemical companies in China. It is one of the subsidiaries of China Petroleum & Chemical Corporation (“Sinopec Corp.”). The Company and its subsidiaries (the “Group”) are principally engaged in processing the crude oil into synthetic fibres resins and plastics intermediate petrochemical and petroleum product.

This condensed consolidated interim financial information is presented in thousands of Renminbi Yuan (RMB), unless otherwise stated. This condensed consolidated interim financial information was approved for issue on 23 August 2017.

This condensed consolidated interim financial information has been reviewed, not audited.

 

  2 Basis of preparation

This condensed consolidated interim financial information for the six-month period ended 30 June 2017 has been prepared in accordance with International Accounting Standard 34 (“IAS 34”), ‘Interim financial reporting’. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

 

  3 Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2016 as described in those annual financial statements.

 

  (a) New and amended standards adopted by the Group

The following new and amended standards and interpretations are effective for the financial year beginning on 1 January 2017. None of them have a material impact on the Group.

 

    Amendments to IAS 7, ‘Statement of cash flows’

 

    Amendments to IAS 12, ‘Income taxes’

 

    Amendment to IFRS 12, ‘Disclosure of interest in other entities’

There are no other amended standards or interpretations that are effective for the first time for this interim period that could be expected to have a material impact on the Group.

 

53


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  3 Accounting policies (continued)

 

  (b) New standards and interpretations not yet adopted

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2017 and have not been applied in preparing this condensed consolidated interim financial information. Those applicable to the Group are listed below.

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and derecognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the whole of IAS 39. IFRS 9 introduces a new model for the recognition of impairment losses – the expected credit losses (ECL) model, which constitutes a change from the incurred loss model in IAS 39. IFRS 9 applies to all hedging relationships, with the exception of portfolio fair value hedges of interest rate risk. The new guidance better aligns hedge accounting with the risk management activities of an entity and provides relief from the more “rule-based” approach of IAS 39. IFRS 9 is effective for annual periods beginning on or after 1 January 2018. It is expected to have no significant impact on the consolidated financial statement of the Group.

IFRS 15, ‘Revenue from contracts with customers’, establishes a comprehensive framework for determining when to recognize revenue and how much revenue to recognise through a 5-step approach. IFRS 15 provides specific guidance on capitalisation of contract cost and licence arrangements. It also includes a cohesive set of disclosure requirements about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. The core principle is that a company should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. IFRS 15 replaces the previous revenue standards: IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’ and the related Interpretations on revenue recognition: IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 15 ‘Agreements for the Construction of Real Estate’, IFRIC 18 ‘Transfers of Assets from Customers’ and SIC-31 ‘Revenue—Barter Transactions Involving Advertising Services’. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018.

As at 30 June 2017,no significant impact was identified and Management is still assessing the effects of applying the new standard on the Group’s financial statements. The Group does not intend to adopt the standard before its effective date and will make more detailed assessments of the impact.

 

54


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  3 Accounting policies (continued)

 

  (b) New standards and interpretations not yet adopted (continued)

IFRS 16, ‘Leases’, provides updated guidance on the definition of leases, and the guidance on the combination and separation of contracts. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. IFRS 16 requires lessees to recognise lease liability reflecting future lease payments and a ‘right-of-use-asset’ for almost all lease contracts, with an exemption for certain short-term leases and leases of low value assets. The lessors accounting stays almost the same as under IAS 17 ‘Leases’. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted if IFRS 15 is also applied.

The standard will affect primarily the accounting for the Group’s operating leases when the Group is as the leasee in those leases. As at the reporting date, the Group has non-cancellable operating lease commitments, as disclosed in Note 20. Most of the commitments are covered by the exception for short-term and low value leases under new IFRS 16 standard. The Group is still evaluating the effects of the new standard on the other lease commitments with the lease term greater than one year. At this stage, the Group does not intend to adopt the standard before its effective date.

 

  4 Estimates

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial information, the significant judgements made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2016.

 

  5 Financial risk management

 

  (a) Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The interim condensed consolidated financial information do not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2016.

There have been no changes in the risk management policies since 31 December 2016.

 

55


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  5 Financial risk management (continued)

 

  (b) Foreign exchange risk

The Group’s major operational activities are carried out in Mainland China and a majority of the transactions are denominated in RMB. The Group is exposed to foreign exchange risk arising from the recognised assets and liabilities (mainly trade receivables, trade payables and cash and cash equivalents), and future transactions denominated in foreign currencies, primarily with respect to USD. The Group’s finance department at its headquarter is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk.

As at 30 June 2017, if RMB had strengthened/weakened by 5% against the foreign currencies with all other variables held constant, the Group’s net profit for the six-month period ended 30 June 2017 would have been RMB17,101 thousands increased/decreased (31 December 2016: RMB23,139 thousands increased/decreased in net profit) as a result of foreign exchange gains/losses which is mainly resulted from the translation of USD denominated trade receivables and trade payables.

 

  (c) Offsetting financial assets and financial liabilities

 

  (i) Financial assets

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Gross amounts of recognised amounts due from related parties

     1,333,621        1,403,442  

Gross amounts of recognised amounts due to a related party set off in the balance sheet

     (53,526      (112,823
  

 

 

    

 

 

 

Net amounts of amounts due from related parties presented in the balance sheet

     1,280,095        1,290,619  
  

 

 

    

 

 

 

 

56


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  5 Financial risk management (continued)

 

  (c) Offsetting financial assets and financial liabilities (continued)

 

  (ii) Financial liabilities

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Gross amounts of recognised amounts due to related parties

     5,014,516        3,157,127  

Gross amounts of recognised amounts due from a related party set off in the balance sheet

     (53,526      (112,823
  

 

 

    

 

 

 

Net amounts of amounts due to related parties presented in the balance sheet

     4,960,990        3,044,304  
  

 

 

    

 

 

 

According to the offsetting master arrangement entered into in October 2014 between the Company and its related party, Shanghai Secco Petrochemical Company Limited, the relevant financial assets and liabilities of each operating agreement between the Group and Shanghai Secco Petrochemical Company Limited, are settled on a net basis each month.

 

57


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  6 Segment information

The basis of segmentation and the basis of measurement of segment profit or losses, and assets and liabilities are consistent with those of the annual financial statements for the year ended 31 December 2016.

 

     Six-month period ended  
            2017                   2016        
     Total
segment
revenue
RMB’000
     Inter
segment
revenue
RMB’000
    Revenue
from
external
customers
RMB’000
     Total
segment
revenue
RMB’000
     Inter
segment
revenue
RMB’000
    Revenue
from
external
customers
RMB’000
 

Synthetic fibres

     1,062,461        —         1,062,461        999,011        —         999,011  

Resins and plastics

     4,842,058        (30,803     4,811,255        4,787,639        (40,622     4,747,017  

Intermediate petrochemicals

     9,593,171        (4,731,777     4,861,394        8,939,032        (4,693,316     4,245,716  

Petroleum products

     22,729,508        (2,759,447     19,970,061        19,059,944        (1,524,150     17,535,794  

Trading of petrochemical products

     12,507,380        (558,281     11,949,099        9,710,137        (706,127     9,004,010  

All others segments

     933,194        (506,084     427,110        701,252        (264,290     436,962  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

     51,667,772        (8,586,392     43,081,380        44,197,015        (7,228,505     36,968,510  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Profit from operations

     

Synthetic fibres

     (241,435      (228,822

Resins and plastics

     484,332        712,019  

Intermediate petrochemicals

     748,810        761,914  

Petroleum products

     1,622,166        2,457,322  

Trading of petrochemical products

     34,848        26,765  

Others

     (35,477      (15,956
  

 

 

    

 

 

 

Total consolidated profit from operations

     2,613,244        3,713,242  
  

 

 

    

 

 

 

Net finance income

     95,934        6,951  

Share of profit of investments accounted for using the equity method

     565,068        381,745  
  

 

 

    

 

 

 

Profit before taxation

     3,274,246        4,101,938  
  

 

 

    

 

 

 

 

58


Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  6 Segment information (continued)

 

     As at      As at  
     30 June
2017
Total assets
RMB’000
     31 December
2016
Total assets
RMB’000
 

Allocated assets

     

Synthetic fibres

     1,167,016        1,405,804  

Resins and plastics

     2,084,541        1,821,576  

Intermediate petrochemicals

     4,346,718        4,441,418  

Petroleum products

     14,197,602        13,426,863  

Trading of petrochemical products

     2,331,997        1,186,590  

Others

     2,412,343        2,323,376  
  

 

 

    

 

 

 

Allocated assets

     26,540,217        24,605,627  
  

 

 

    

 

 

 

Unallocated assets

     

Investments accounted for using the equity method

     3,793,956        3,688,794  

Cash and cash equivalents

     6,561,956        5,440,623  

Deferred tax assets

     100,543        103,091  

Others

     132,914        107,475  
  

 

 

    

 

 

 

Unallocated assets

     10,589,369        9,339,983  
  

 

 

    

 

 

 

Total assets

     37,129,586        33,945,610  
  

 

 

    

 

 

 

 

59


Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  6 Segment information (continued)

 

     As at      As at  
     30 June
2017
Total liabilities
RMB’000
     31 December
2016
Total liabilities
RMB’000
 

Allocated liabilities

     

Synthetic fibres

     340,076        344,287  

Resins and plastics

     1,032,747        1,118,166  

Intermediate petrochemicals

     1,063,304        1,126,031  

Petroleum products

     4,488,617        4,323,580  

Trading of petrochemical products

     2,030,650        1,407,484  

Others

     63,867        76,395  
  

 

 

    

 

 

 

Allocated liabilities

     9,019,261        8,395,943  
  

 

 

    

 

 

 

Unallocated liabilities

     

Borrowings

     500,000        546,432  

Others

     2,700,000        —    
  

 

 

    

 

 

 
     3,200,000        546,432  
  

 

 

    

 

 

 

Total liabilities

     12,219,261        8,942,375  
  

 

 

    

 

 

 

 

60


Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  7 Profit before income tax

 

  (a) Finance income - net

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Interest income

     114,935        39,989  

Net foreign exchange gain

     4,268        1,511  
  

 

 

    

 

 

 

Finance income

     119,203        41,500  
  

 

 

    

 

 

 

Interest on bank and other borrowings

     (23,269      (34,549
  

 

 

    

 

 

 

Finance expenses

     (23,269      (34,549
  

 

 

    

 

 

 

Finance income – net

     95,934        6,951  
  

 

 

    

 

 

 

 

  (b) Other losses – net

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Net losses on disposal of property, plant and equipment

     (5,130      (23,977

Others

     (324      (1,719
  

 

 

    

 

 

 
     (5,454      (25,696
  

 

 

    

 

 

 

 

61


Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  7 Profit before income tax (continued)

 

  (c) Operating items

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Amortisation of lease prepayments

     (8,706      (8,706

Depreciation

     (804,729      (820,141

Research and development costs

     (11,323      (47,144

Write-down of inventories – net

     (17,243      (37,944

Impairment of property, plant and equipment

     (18,874      (112,063

Net loss on disposal of property, plant and equipment

     (5,130      (23,977

During the six-month period ended 30 June 2017, as a result of upgrade of environment protection facilities, the Company made impairment provisions of RMB18,874 thousands to reduce the carrying amounts of Smoke Processing Facility to their estimated net realizable values as these items were going to be disposed of in near future (six-month period ended 30 June 2016: RMB112,063 thousands).

 

  8 Income tax expense

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Provision for PRC income tax for the period

     (668,525      (964,869

Deferred taxation

     (2,548      16,628  
  

 

 

    

 

 

 
     (671,073      (948,241
  

 

 

    

 

 

 

The provision for PRC income tax is calculated at the rate of 25% (six-month period ended 30 June 2016: 25%) on the estimated taxable income of the six-month period ended 30 June 2017 determined in accordance with relevant income tax rules and regulations.

 

62


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  9 Earnings per share

 

  (a) Basic

The calculation of basic profit per share is based on the profit attributable to equity shareholders of the Company for the six-month period ended 30 June 2017 of RMB2,598,499 thousands (six-month period ended 30 June 2016: profit of RMB3,148,609 thousands) and 10,800,000,000 shares (six-month period ended 30 June 2016: 10,800,000,000 shares) in issue during the interim period.

 

  (b) Diluted

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

The Company has dilutive potential ordinary shares from share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s A shares for the six-month period ended 30 June 2017) based on the monetary value of the subscription rights attached to outstanding share options. The number of ordinary shares in issue is compared with the number of shares that would have been issued assuming the exercise of the share options. The calculation of the diluted earnings per share for the six-month period ended 30 June 2017 and the six-month period ended 30 June 2016 was shown as:

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Earnings

     

Profit attributable to owners of the Company

     2,598,499        3,148,609  
  

 

 

    

 

 

 

Weighted average number of ordinary shares in issue (thousands of shares)

     10,800,000        10,800,000  

Adjustments for share options granted (thousands of shares)

     11,923        6,961  
  

 

 

    

 

 

 

Weighted average number of ordinary shares for diluted earnings per share (thousands of shares)

     10,811,923        10,806,961  
  

 

 

    

 

 

 

Diluted earnings per share (RMB per share)

     0.240        0.291  
  

 

 

    

 

 

 

 

63


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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  10 Dividends

Pursuant to a resolution passed at the Annual General Meeting held on 15 June 2017, a total dividend of RMB2,700,000 thousands was declared for the year ended 31 December 2016 and subsequently paid in July 2017. The Board of Directors did not propose any dividend in respect of the six-month period ended 30 June 2017.

Pursuant to a resolution passed at the Annual General Meeting held on 15 June 2016, a total dividend of RMB1,080,000 thousands was declared for the year ended 31 December 2015 and subsequently paid in July 2016. The Board of Directors did not propose any dividend in respect of the six-month period ended 30 June 2016.

 

  11 Property, plant and equipment

 

                 Vehicles and        
     Buildings
RMB’000
    Plant and
machinery
RMB’000
    other
equipment
RMB’000
    Total
RMB’000
 

Six-month period ended 30 June 2016

        

Opening net book amount

     1,318,440       12,710,384       354,495       14,383,319  

Additions

     —         57,583       7,589       65,172  

Disposals

     (311     (20,818     (1,118     (22,247

Reclassification

     (743     (2,530     3,273       —    

Transferred from construction in progress

     —         244,247       5,016       249,263  

Charge for the period

     (53,759     (727,702     (31,902     (813,363

Impairment losses

     —         (104,878     (7,184     (112,062
  

 

 

   

 

 

   

 

 

   

 

 

 

Closing net book amount

     1,263,627       12,156,286       330,169       13,750,082  
  

 

 

   

 

 

   

 

 

   

 

 

 

Six-month period ended 30 June 2017

        

Opening net book amount

     1,259,193       11,863,517       351,577       13,474,287  

Additions

     —         —         45       45  

Disposals

     (142     (5,144     (635     (5,921

Reclassification

     (23,066     20,990       2,076       —    

Transferred from construction in progress

     —         147,024       9,597       156,621  

Transferred to investment property

     (16,687     —         —         (16,687

Charge for the period

     (44,999     (719,951     (33,200     (798,150

Impairment losses

     —         (18,874     —         (18,874
  

 

 

   

 

 

   

 

 

   

 

 

 

Closing net book amount

     1,174,299       11,287,562       329,460       12,791,321  
  

 

 

   

 

 

   

 

 

   

 

 

 

In the six month period ended 30 June 2017, the amount of depreciation expense charged to cost of sales and selling and administrative expense were RMB793,457 thousands and RMB4,693 thousands, respectively (Six month period ended 30 June 2016: RMB808,895 thousands and RMB4,468 thousands, respectively).

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  12 Investments accounted for using the equity method

 

 

     Six-months period ended 30 June
2017

RMB’000
 

Beginning of the period

     3,688,794  

Share of profit

     565,068  

Other comprehensive losses

     (552

Cash dividends distribution

     (459,354
  

 

 

 

End of the period

     3,793,956  
  

 

 

 

 

  13 Trade and other receivables

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Trade receivables

     603,828        414,962  

Less: allowance for doubtful debts

     (28      (18
  

 

 

    

 

 

 
     603,800        414,944  
  

 

 

    

 

 

 

Bills receivable

     1,052,398        1,238,620  

Amounts due from related parties (Note 19(c))

     1,280,095        1,290,619  
  

 

 

    

 

 

 
     2,936,293        2,944,183  
  

 

 

    

 

 

 

Other receivables (i)

     213,690        165,798  
  

 

 

    

 

 

 
     3,149,983        3,109,981  
  

 

 

    

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  13 Trade and other receivables (continued)

 

(i) As at 30 June 2017, entrusted lendings of RMB76,000 thousands included in other receivables was made by the Group at interest rates of 1.75% per annum, which will be due within twelve months from 30 June 2017 (31 December 2016: RMB88,000 thousands at interest rates of 1.75% per annum).

As at 30 June 2017, the Group didn’t have any trade receivable which was past due but not impaired (31 December 2016: nil).

Amounts due from related parties represent trade-related balances.

The ageing analysis of trade receivables, bills receivable and amounts due from related parties (net of impairment losses for bad and doubtful debts) based on invoice date is as follows:

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Within one year

     2,936,262        2,944,162  

Above one year

     31        21  
  

 

 

    

 

 

 
     2,936,293        2,944,183  
  

 

 

    

 

 

 

Bills receivable represent short-term bank acceptance receivables that entitle the Group to receive the full face amount of the receivables from the banks at maturity, which generally range from one to six months from the date of issuance. Historically, the Group had experienced no credit losses on bills receivable.

As at 30 June 2017, no trade receivables or bills receivable was pledged as collateral (31 December 2016: nil).

Sales to third parties are generally on cash basis and letter of credit against payment. Subject to negotiation, credit term is generally only available for major customers with well-established trading records.

 

  14 Cash and cash equivalents

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Cash deposits with a related party (Note 19(c))

     42,967        169,261  

Cash at bank and in hand

     7,912,959        5,271,362  
  

 

 

    

 

 

 
     7,955,926        5,440,623  
  

 

 

    

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  15 Borrowings

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Short term loans

     

- Short term bank loans

     613,421        546,432  

As at 30 June 2017, no borrowings were secured by property, plant and equipment (31 December 2016: nil).

The Group has the following undrawn facilities:

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Expiring within one year

     20,323,983        1,704,966  

Expiring beyond one year

     1,500,000        21,959,224  
  

 

 

    

 

 

 
     21,823,983        23,664,190  
  

 

 

    

 

 

 

These facilities have been arranged to finance the working capitals as well as ongoing investments on long-term assets.

The Company does not have any exposure to collateralised debt obligations. The Company has sufficient headroom to enable it to conform to covenants on its existing borrowings. The Company has sufficient undrawn financing facilities to service its operating activities and ongoing investments.

 

  16 Fair value of financial assets and liabilities measured at amortised cost

Financial assets and financial liabilities not measured at fair value mainly represent cash and cash equivalents, bills receivable, trade receivables and other receivables (except for the prepayments), trade and other payables (except for the staff salaries and welfare payables and other taxes payables) and borrowings. As at 30 June 2017, the carrying amounts of these financial assets and liabilities not measured at fair value is a reasonable approximation of their fair value.

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  17 Trade and other payables

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Trade payables

     2,276,634        2,123,904  

Bills payable

     88,000        5,000  

Amounts due to related parties (Note 19(c))

     4,960,990        3,044,304  
  

 

 

    

 

 

 
     7,325,624        5,173,208  
  

 

 

    

 

 

 

Staff salaries and welfares payable

     106,256        37,634  

Taxes payable (exclude income tax payable)

     1,443,930        1,538,062  

Interest payable

     1,300        465  

Dividends payable

     1,355,473        20,473  

Construction and maintenance payable

     502,723        191,043  

Other liabilities

     322,716        351,701  
  

 

 

    

 

 

 
     3,732,398        2,139,378  
  

 

 

    

 

 

 
     11,058,022        7,312,586  
  

 

 

    

 

 

 

As at 30 June 2017 and 31 December 2016, all trade and other payables of the Group were non-interest bearing, and their fair value, which are not financial liabilities, approximated their carrying amounts due to their short maturities.

As at 30 June 2017, the amounts due to related parties included the dividend payable due to Sinopec Corp. of RMB1,365,000 thousands (31 December 2016: nil).

As at 30 June 2017 and 31 December 2016, the ageing analysis of the trade payables (including amounts due to related parties of trading in nature) and bills payable based on invoice date were as follows:

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Within one year

     5,929,970        5,151,868  

Between one and two years

     18,010        7,373  

Over two years

     12,644        13,967  
  

 

 

    

 

 

 
     5,960,624        5,173,208  
  

 

 

    

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  18 Reserves

 

  (a) Share option reserve

Pursuant to the resolution of the fifth meeting of the eighth session of the Board of Directors of the Company on 6 January 2015, the proposal regarding the list of participants and the number of share options under the share option incentive scheme was approved.

According to the Company’s share option incentive scheme, the grant date of share options was 6 January 2015, and there were a total of 38,760 thousand share options granted to 214 participants (0.359% of the total ordinary share capital issued). Each share option has a right to purchase an ordinary A share listed in PRC starting from the exercisable date at the exercise price under vesting conditions. The options were divided into three tranches of 40%, 30% and 30% of the total share options granted, respectively. Each tranche had independent vesting conditions relevant to years 2015, 2016 and 2017, respectively, which were listed as following:

 

    weighted average rate of return on equity of the Group should be no less than 9% for 2015, 9.5% for 2016 and 10% for 2017 in respect to the three tranche;

 

    for each year of 2015, 2016 and 2017, the compound annual growth rate in net profit based on the net profit of 2013 should achieve 5%;

 

    for each year of 2015, 2016 and 2017, proportion of the main business revenue in the total revenue should be no less than 99%;

 

    for each year of 2015, 2016 and 2017, each of the above three conditions should be no lower than the 75% level of peer companies; and

 

    achieving the target budget set by the Sinopec Corp. in 2015, 2016 and 2017, respectively.

The participant should serve the Group at the required position from the grant date. Exercisable amount of each tranche depended on the time for which the participant served the Group during each year of 2015, 2016 and 2017. Upon the fulfilment of relevant vesting conditions, the share options of each tranche shall become exercisable at its exercisable date.

The fair value of the employee services received in exchange for the grant of this equity-settled, share-based compensation plan is recognised as an expense on a straight-line basis over the vesting period of each tranche. The total amount to be expensed is determined by reference to the fair value of the options granted excluding the impact of any service and non-market performance vesting conditions. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital and share premium.

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  18 Reserves (continued)

 

  (a) Share option reserve (continued)

 

As at the grand date, the exercise price of each option was RMB4.2. During the vesting period, the exercise price would be adjusted according to the declaration of dividends or any changes of total shares. As at 30 June 2017, the outstanding share options of each tranche, their exercisable date and exercise price are as follows. These outstanding share options will expire in twelve months after each first exercisable date.

The share options outstanding as at 30 June 2017, the first exercisable dates and exercise prices:

 

First exercisable date

   Exercise price
(per share in RMB)
     Outstanding
share options
 

6 January 2017

     3.85        15,404,000  

6 January 2018

     3.85        10,888,000  

6 January 2019

     3.85        10,888,000  

The total fair value of share options at the grant date was RMB65,412 thousands, which has been valued by an external valuation expert using Black-Scholes valuation model.

The significant inputs into the model were as follows:

 

     Granting date  

Spot share price

     RMB4.51  

Exercise price

     RMB4.20  

Expected volatility

     41.20%  

Maturity (years)

     5.00  

Risk-free interest rate

     3.39%~3.67%  

Dividend yield

     1.00%  

As at 30 June 2017, no share option had been exercised yet.

Share option expenses of RMB8,102 thousands have been recognised in the interim condensed consolidated income statement for the six-month period ended 30 June 2017 (six-month period ended 30 June 2016: 11,350 thousands).

 

  (b) For the six-month period ended 30 June 2017, the Group transferred RMB22,015 thousands (six-month period ended 30 June 2016: RMB39,441 thousands) from retained earnings to reserves for the safety production fund determined according to relevant PRC regulations.

 

  (c) For the six-month period ended 30 June 2017 and six-month period ended 30 June 2016, no transfers were made to the statutory surplus reserve or the discretionary surplus reserve.

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  19 Related-party transactions

The following is a list of the Group’s major related parties:

 

Names of related parties

  

Relationship with the Company

China Petrochemical Corporation (“Sinopec Group”)    Ultimate parent company
China Petroleum & Chemical Corporation (“Sinopec Corp.”)    Immediate parent company
Sinopec Huadong Sales Company Limited    Subsidiary of the immediate parent company
China International United Petroleum and Chemical Company Limited    Subsidiary of the immediate parent company
China Petrochemical International Company Limited    Subsidiary of the immediate parent company
Sinopec Chemical Commercial Holding Company Limited    Subsidiary of the immediate parent company
Sinopec Finance Company Limited (“Sinopec Finance”)    Subsidiary of the ultimate parent company
Shanghai Secco Petrochemical Co., Ltd. (“Shanghai Secco”)    Associate of the Group
BOC-SPC Gases Co., Ltd.    Joint venture of the Group

The following is a summary of significant balances and transactions between the Group and its related parties except for the dividends payable as disclosed in Note 10 and Note 17.

 

  (a) Most of the transactions undertaken by the Group during the six-month period ended 30 June 2017 have been affected on such terms as determined by Sinopec Corp. and relevant PRC authorities.

Sinopec Corp. negotiates and agrees the terms of crude oil supply with suppliers on a group basis, which is then allocated among its subsidiaries, including the Group, on a discretionary basis. Sinopec Corp. also owns a widespread petroleum products sales network and possesses a fairly high market share in domestic petroleum products market, which is subject to extensive regulation by the PRC government.

The Group has entered into a mutual product supply and sales services framework agreement with Sinopec Corp. Pursuant to the agreement, Sinopec Corp. provides the Company with crude oil, other petrochemical raw materials and agent services. On the other hand, the Group provides Sinopec Corp. with petroleum products, petrochemical products and property leasing services.

The pricing policy for these services and products provided under the agreement is as follows:

 

    if there are applicable State (central and local government) tariffs, the pricing shall follow the State tariffs;

 

    if there are no State tariffs, but there are applicable State’s guidance prices, the pricing shall follow the State’s guidance prices; or

 

    if there are no State tariffs or State’s guidance prices, the pricing shall be determined in accordance with the prevailing market prices (including any bidding prices).

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  19 Related-party transactions (continued)

 

  (a) (continued)

 

Transactions between the Group and Sinopec Corp, its subsidiaries and joint ventures during the six-month period ended 30 June 2017 and the six-month period ended 30 June 2016 were as follows:

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Sales of petroleum products

     18,385,259        16,582,384  

Sales other than petroleum products

     2,789,038        2,548,304  

Purchases of crude oil

     15,503,972        9,190,466  

Purchases other than crude oil

     2,695,179        2,012,603  

Sales commissions

     50,595        46,872  

Rental income

     13,878        14,217  

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  19 Related-party transactions (continued)

 

  (b) Other transactions between the Group and Sinopec Group and its subsidiaries, associates and joint ventures of the Group during the six-month period ended 30 June 2017 and the six-month period ended 30 June 2016 were as follows:

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Sales of goods and service fee income

     

- Sinopec Group and its subsidiaries

     4,741        33,577  

- Associates and joint ventures of the Group

     1,455,674        860,318  
  

 

 

    

 

 

 
     1,460,415        893,895  
  

 

 

    

 

 

 

Purchases

     

- Sinopec Group and its subsidiaries

     371,839        74,350  

- Associates and joint ventures of the Group

     2,020,608        1,732,059  
  

 

 

    

 

 

 
     2,392,447        1,806,409  
  

 

 

    

 

 

 

Insurance premiums

     

- Sinopec Group and its subsidiaries

     63,387        60,895  

Interest income

     

- Sinopec Finance

     5,025        127  

Loans repayment

     

- Sinopec Finance

     —          300,000  
  

 

 

    

 

 

 

Interest expenses

     

- Sinopec Finance

     —          2,278  
  

 

 

    

 

 

 

Construction and installation cost

     

- Sinopec Group and its subsidiaries

     53,476        61,316  
  

 

 

    

 

 

 

The directors of the Company are of the opinion that the transactions with Sinopec Corp., its subsidiaries and joint ventures, Sinopec Group and its subsidiaries, associates and joint ventures of the Group as disclosed in Notes 19(a) and 19(b) were conducted in the ordinary course of business, on normal commercial terms and in accordance with the agreements governing such transactions.

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  19 Related-party transactions (continued)

 

  (c) The relevant amounts due from/to Sinopec Corp., its subsidiaries and joint ventures, Sinopec Group and its subsidiaries, associates and joint ventures of the Group, arising from purchases, sales and other transactions as disclosed in Notes 19(a) and 19(b), are summarised as follows:

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Amounts due from related parties

     

- Sinopec Corp., its subsidiaries and joint ventures

     1,190,719        1,226,972  

- Sinopec Group and its subsidiaries

     452        331  

- Associates and joint ventures of the Group

     88,924        63,316  
  

 

 

    

 

 

 
     1,280,095        1,290,619  
  

 

 

    

 

 

 

Amounts due to related parties

     

- Sinopec Corp., its subsidiaries and joint ventures

     4,661,292        2,620,546  

- Sinopec Group and its subsidiaries

     41,718        387,788  

- Associates and joint ventures of the Group

     257,980        35,970  
  

 

 

    

 

 

 
     4,960,990        3,044,304  
  

 

 

    

 

 

 

Cash deposits, maturing within three months

     

- Sinopec Finance (i)

     42,967        169,261  
  

 

 

    

 

 

 

 

(i) As at 30 June 2017 and 31 December 2016, cash deposits at Sinopec Finance were charged at an interest rate of 0.35% per annum.

Except for cash deposits at Sinopec Finance from Sinopec Finance, the balances with related parties as above are unsecured, interest-free and repayable on demand.

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  19 Related-party transactions (continued)

 

  (d) Key management personnel compensation, post-employment benefit plans and share options

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 personnel compensations are as follows:

 

     Six-month period ended 30 June  
     2017
RMB’000
     2016
RMB’000
 

Short-term employee benefits

     3,492        3,267  

Post-employment benefits

     74        73  

Share-based payments

     460        671  
  

 

 

    

 

 

 
     4,026        4,011  
  

 

 

    

 

 

 

 

  (e) Commitments with related parties

 

  (1) Construction and installation cost

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Sinopec Group and its subsidiaries

     25,864        4,310  

 

  (2) Operating lease commitments – Group company as lessee

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Sinopec Group and its subsidiaries

     

No later than 1 year

     59,160        53,960  

Later than 1 year and no later than 2 years

     29,580        53,960  
  

 

 

    

 

 

 
     88,740        107,920  
  

 

 

    

 

 

 

Except for the above, the Group had no other material commitments with related parties as at 30 June 2017 and 31 December 2016, which are contracted, but not included in the interim financial report.

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  19 Related-party transactions (continued)

 

  (f) Investment commitments with related parties

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Capital contribution to Shanghai Secco

     111,263        111,263  

Pursuant to the resolution of the 18th meeting of the 7th term of Board of Directors on 5 December 2013, it was approved to make capital contribution of USD30,017 thousands (RMB182,804 thousands equivalent) to Shanghai Secco, an associate of the Group. The capital to Shanghai Secco will be contributed in RMB by instalments. The capital contribution is mainly to meet the funding needs of the implementation of the “260,000 tons of AN-2 project” (“AN-2 project”), and “90,000 tons of BEU-2 project” (“BEU-2 project”).

On 10 December 2013, the Company contributed the first instalment of RMB60,000 thousands for AN-2 project. As at 5 March 2014, the Company contributed the first instalment of RMB11,541 thousands for BEU-2 project. According to the approval by Shanghai Municipal Commission of Commerce as issued on 19 October 2015, the rest of the capital contribution to Shanghai Secco should be within 50 years starting

from its registration date.

Except for the above, the Group and the Company had no other material commitments with related parties

as at 30 June 2017, which are contracted, but not included in the financial statements.

 

  20 Commitments

 

  (a) Capital commitments

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

Property, plant and equipment

     

Contracted but not provided for

     305,770        5,300  

Authorised but not contracted for

     1,124,076        908,036  
  

 

 

    

 

 

 
     1,429,846        913,336  
  

 

 

    

 

 

 

 

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NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION (continued)

 

  20 Commitments (continued)

 

  (b) Operating lease commitments – the Group as lessee

Besides the lease agreement disclosed in the forgoing Note 19 (e), the Group also entered into other various non-cancellable operating lease agreements. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

 

     As at
30 June 2017
RMB’000
     As at
31 December 2016
RMB’000
 

No later than 1 year

     61,144        60,125  

Later than 1 year and no later than 2 years

     31,222        54,438  

Later than 2 year and no later than 3 years

     910        384  

Later than 3 years

     3,033        3,207  
  

 

 

    

 

 

 
     96,309        118,154  
  

 

 

    

 

 

 

 

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B. Interim Financial Statements Prepared under China Accounting Standards for Business Enterprises (unaudited)

CONSOLIDATED AND COMPANY BALANCE SHEETS

AS AT 30 JUNE 2017

 

    

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 
          

30 JUNE

2017
(UNAUDITED)

     31 DECEMBER
2016
    

30 JUNE

2017
(UNAUDITED)

     31 DECEMBER
2016
 

ASSETS

   Note     Consolidated      Consolidated      Company      Company  

Current assets

             

Cash at bank and on hand

     4 (1)      7,955,926        5,440,623        6,561,956        4,421,143  

Notes receivable

     4 (2)      1,082,328        1,267,920        836,997        1,097,011  

Accounts receivable

     4 (4), 13(1)      1,776,299        1,656,580        891,743        1,211,039  

Advances to suppliers

     4 (6)      77,501        29,340        40,651        21,409  

Interests receivable

     4 (3)      42,932        11,596        38,002        11,553  

Other receivables

     4 (5), 13(2)      64,923        56,545        46,692        36,345  

Inventories

     4 (7)      7,016,933        6,159,473        6,240,795        5,374,425  

Other current assets

     4 (8)      245,340        253,804        156,047        157,771  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

       18,262,182        14,875,881        14,812,883        12,330,696  
    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets

             

Long-term equity investments

     4 (9), 13(3)      3,938,956        3,838,794        5,090,416        4,972,861  

Investment properties

     4 (10)      390,537        380,429        421,649        413,943  

Fixed assets

     4 (11), 13(4)      12,818,399        13,502,370        12,560,600        13,219,994  

Construction in progress

     4 (12)      959,490        717,672        958,211        717,294  

Intangible assets

     4 (13)      397,410        406,116        329,718        335,877  

Long-term prepaid expenses

     4 (14)      434,147        299,340        423,049        287,578  

Deferred tax assets

     4 (15)      100,543        103,091        93,870        99,057  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-current assets

       19,039,482        19,247,812        19,877,513        20,046,604  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

       37,301,664        34,123,693        34,690,396        32,377,300  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

78


Table of Contents

CONSOLIDATED AND COMPANY BALANCE SHEETS (continued)

AS AT 30 JUNE 2017

 

 

    

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 
LIABILITIES AND         

30 JUNE

2017
(UNAUDITED)

     31 DECEMBER
2016
    

30 JUNE

2017
(UNAUDITED)

     31 DECEMBER
2016
 

SHAREHOLDERS’ EQUITY

   Note     Consolidated      Consolidated      Company      Company  

Current liabilities

             

Short-term borrowings

     4 (17)      613,421        546,432        614,000        632,000  

Notes payable

     4 (18)      88,000        5,000        55,000        —    

Accounts payable

     4 (19)      5,817,181        5,082,470        3,833,950        3,729,702  

Advances from customers

     4 (20)      428,809        476,806        309,728        447,647  

Employee benefits payable

     4 (21)      106,256        37,634        97,542        30,989  

Taxes payable

     4 (22)      1,567,478        2,158,427        1,539,669        2,106,163  

Interest payable

     4 (23)      1,300        465        423        470  

Dividends payable

     4 (24)      2,720,473        20,473        2,720,473        20,473  

Other payables

     4 (25)      876,343        614,668        831,294        608,660  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

       12,219,261        8,942,375        10,002,079        7,576,104  
    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities

             

Deferred income

     4 (26)      145,000        150,000        145,000        150,000  

Total liabilities

       12,364,261        9,092,375        10,147,079        7,726,104  
    

 

 

    

 

 

    

 

 

    

 

 

 

Shareholders’ equity

             

Share capital

     1, 4 (27)      10,800,000        10,800,000        10,800,000        10,800,000  

Capital surplus

     4 (28)      542,730        534,628        542,730        534,628  

Other comprehensive income

     4 (29)      17,661        18,213        17,661        18,213  

Specific reserve

     4 (30)      22,361        346        20,726        —    

Surplus reserve

     4 (31)      5,100,401        5,100,401        5,100,401        5,100,401  

Undistributed profits

     4 (32)      8,171,939        8,296,460        8,061,799        8,197,954  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity attributable to equity shareholders of the Company

       24,655,092        24,750,048        24,543,317        24,651,196  
    

 

 

    

 

 

    

 

 

    

 

 

 

Non-controlling interests

     4 (33)      282,311        281,270        —          —    
    

 

 

    

 

 

    

 

 

    

 

 

 

Total shareholders’ equity

       24,937,403        25,031,318        24,543,317        24,651,196  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and shareholders’ equity

       37,301,664        34,123,693        34,690,396        32,377,300  
    

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes form an integral part of these financial statements.

 

 

   

 

   

 

Chairman and President     Director and Chief Financial Officer     Accounting Chief
Wang Zhiqing     Zhou Meiyun     Zhang Feng

 

79


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CONSOLIDATED AND COMPANY INCOME STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

            Six Months Ended 30 June      Six Months Ended 30 June  
            2017      2016      2017      2016  
            (UNAUDITED)      (UNAUDITED)      (UNAUDITED)      (UNAUDITED)  

Items

   Note      Consolidated      Consolidated      Company      Company  

Revenue

     4(34), 13(5)        43,106,950        36,993,191        30,538,444        27,195,559  

Less: Cost of sales

     4(34), 13(5)        32,841,971        25,177,628        20,387,572        15,516,828  

Taxes and surcharges

     4(35)        6,005,273        6,186,162        5,995,639        6,183,034  

Selling and distribution expenses

     4(36)        222,774        235,672        174,200        184,934  

General and administrative expenses

     4(37)        1,413,059        1,544,793        1,344,941        1,468,342  

Financial expenses - net

     4(38)        (88,839)        1,983        (92,022)        5,359  

Asset impairment losses

     4(41)        36,142        150,004        50,182        139,940  

Add: Investment income

     4(40), 13(6)        560,068        376,745        539,227        397,411  

Including: Share of profit of associates and joint ventures

        560,068        376,745        539,227        397,411  

Operating profit

        3,236,638        4,073,694        3,217,159        4,094,533  

Add: Non-operating income

     4(42)        35,117        17,364        30,336        15,993  

Including: Profits on disposal of non-current assets

        2,154        2,548        1,780        1,894  

Less: Non-operating expenses

     4(43)        20,529        41,054        20,015        40,927  

Including: Losses on disposal of non-current assets

        7,284        26,525        7,136        26,398  

Total profit

        3,251,226        4,050,004        3,227,480        4,069,599  

Less: Income tax expenses

     4(44)        671,073        948,241        663,635        935,490  
     

 

 

    

 

 

    

 

 

    

 

 

 

Net profit

        2,580,153        3,101,763        2,563,845        3,134,109  

Attributable to shareholders of the Company

        2,575,479        3,096,675        —          —    

Non-controlling interests

        4,674        5,088        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 

Other comprehensive income

        (552)        —          (552)        —    
     

 

 

    

 

 

    

 

 

    

 

 

 

 

80


Table of Contents

CONSOLIDATED AND COMPANY INCOME STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

           Six Months Ended 30 June      Six Months Ended 30 June  
           2017      2016      2017      2016  
           (UNAUDITED)      (UNAUDITED)      (UNAUDITED)      (UNAUDITED)  

Items

   Note     Consolidated      Consolidated      Company      Company  

Total comprehensive income

       2,579,601        3,101,763        2,563,293        3,134,109  

Attributable to shareholders of the Company

       2,574,927        3,096,675        —          —    

Non-controlling interests

       4,674        5,088        —          —    

Earnings per share

             

Basic earnings per share (RMB)

     4 (45)      0.238        0.287        —          —    

Diluted earnings per share (RMB)

     4 (45)      0.238        0.287        —          —    

The accompanying notes form an integral part of these financial statements.

 

 

   

 

   

 

Chairman and President     Director and Chief Financial Officer     Accounting Chief
Wang Zhiqing     Zhou Meiyun     Zhang Feng

 

81


Table of Contents

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

           Six Months Ended 30 June     Six Months Ended 30 June  
          2017     2016     2017     2016  
          (UNAUDITED)     (UNAUDITED)     (UNAUDITED)     (UNAUDITED)  

Items

  

Note

   Consolidated     Consolidated     Company     Company  

Cash flows from operating activities

           

Cash received from sale of goods or rendering of services

        48,049,792       40,959,820       35,114,634       30,642,588  

Refund of taxes and surcharges

        30,724       19,829       —         —    

Cash received relating to other operating activities

   4(46)      27,963       9,662       23,555       9,099  
     

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total of cash inflows

        48,108,479       40,989,311       35,138,189       30,651,687  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid for goods and services

        (35,324,087     (26,427,676     (22,687,660     (16,365,281

Cash paid to and on behalf of employees

        (1,139,673     (1,191,300     (1,057,237     (1,108,144

Payments of taxes and surcharges

        (9,066,272     (8,467,073     (9,020,705     (8,415,782

Cash paid relating to other operating activities

   4(46)      (219,667     (258,238     (280,974     (562,958

Sub-total of cash outflows

        (45,749,699     (36,344,287     (33,046,576     (26,452,165
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows generated from operating activities

   4(47), 13(7)      2,358,780       4,645,024       2,091,613       4,199,522  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities

           

Cash received from entrusted lendings

        24,000       42,000       —         —    

Cash received from returns on investments

        459,354       200,595       421,120       178,200  

Net cash received from disposal of fixed assets

        791       —         381       —    

Cash received relating to other investing activities

   4(46)      583,599       42,435       575,011       27,952  

Sub-total of cash inflows

        1,067,744       285,030       996,512       206,152  
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash paid to acquire fixed assets and other long-term assets

        (444,740     (265,241     (421,500     (264,844
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash paid in disposal of fixed assets

        —         (1,730     —         (2,407

Investment in an associate

        (12,000     (24,000     —         —    

Cash paid relating to other investing activities

        (500,000     —         (500,000     —    
     

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total of cash outflows

        (956,740     (290,971     (921,500     (267,251
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows used in/(generated from) investing activities

        111,004       (5,941     75,012       (61,099
     

 

 

   

 

 

   

 

 

   

 

 

 

 

82


Table of Contents

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

           Six Months Ended 30 June     Six Months Ended 30 June  
           2017     2016     2017     2016  
           (UNAUDITED)     (UNAUDITED)     (UNAUDITED)     (UNAUDITED)  

Items

   Note     Consolidated     Consolidated     Company     Company  

Cash flows from financing activities

          

Cash received from borrowings

       101,647       1,864,657       18,000       2,276,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total of cash inflows

       101,647       1,864,657       18,000       2,276,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Cash repayments of borrowings

       (34,658     (3,075,000     (36,000     (3,443,000

Cash paid for distribution of dividends or profits and interest expenses

       (12,186     (57,084     (7,812     (31,806
    

 

 

   

 

 

   

 

 

   

 

 

 

Including: Cash payments for dividends or profit to non-controlling shareholders of subsidiaries

       (3,633     (25,508     —         —    
    

 

 

   

 

 

   

 

 

   

 

 

 

Sub-total of cash outflows

       (46,844     (3,132,084     (43,812     (3,474,806
    

 

 

   

 

 

   

 

 

   

 

 

 

Net cash flows used in/(generated from) financing activities

       54,803       (1,267,427     (25,812     (1,198,806
    

 

 

   

 

 

   

 

 

   

 

 

 

Effect of foreign exchange rate changes on cash and cash equivalents

       (9,284     2,220       —         —    
    

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

       2,515,303       3,373,876       2,140,813       2,939,617  

Add: Cash and cash equivalents at the beginning of the period

     4 (1)      5,440,623       1,077,430       4,421,143       942,264  
    

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

     4 (1)      7,955,926       4,451,306       6,561,956       3,881,881  
    

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes form an integral part of these financial statements.

 

 

   

 

   

 

Chairman and President     Director and Chief Financial Officer     Accounting Chief
Wang Zhiqing     Zhou Meiyun     Zhang Feng

 

83


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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

           Attributable to equity shareholders of the Company           Total
shareholders’
equity
 
           Share      Capital      Other
comprehensive
    Specific     Surplus      Undistributed     Non-
controlling
   

Items

   Note     capital      surplus      income     reserve     reserve      profits     interests    

Balance at 1 January 2016

       10,800,000        516,624        —         953       4,493,260        4,028,025       297,038       20,135,900  
    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Movements for the six months ended 30 June 2016 (unaudited)

                     

Total comprehensive income

                     

Net profit for the period

       —          —          —         —         —          3,096,675       5,088       3,101,763  

Employees share option scheme

       —          11,350        —         —         —          —         —         11,350  

Appropriation of profits

                     

Distribution to the shareholders

     4 (32)      —          —          —         —         —          (1,080,000     (25,508     (1,105,508

Specific reserve

                     

Accrued

     4 (30)      —          —          —         53,343       —          —         —         53,343  

Utilised

     4 (30)      —          —          —         (13,902     —          —         —         (13,902
    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at 30 June 2016 (unaudited)

       10,800,000        527,974        —         40,394       4,493,260        6,044,700       276,618       22,182,946  
    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at 1 January 2017

       10,800,000        534,628        18,213       346       5,100,401        8,296,460       281,270       25,031,318  
    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Movements for the six months ended 30 June 2017 (unaudited)

                     

Total comprehensive income

                     

Net profit for the period

       —          —          —         —         —          2,575,479       4,674       2,580,153  

Other comprehensive loss

     4 (29)      —          —          (552     —         —          —         —         (552

Employees share option scheme

     4 (28)      —          8,102        —         —         —          —         —         8,102  

Appropriation of profits

                     

Distribution to the shareholders

     4 (32)      —          —          —         —         —          (2,700,000     (3,633     (2,703,633

Specific reserve

                     

Accrued

     4 (30)      —          —          —         46,320       —          —         —         46,320  

Utilised

     4 (30)      —          —          —         (24,305     —          —         —         (24,305
    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at 30 June 2017 (unaudited)

       10,800,000        542,730        17,661       22,361       5,100,401        8,171,939       282,311       24,937,403  
    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes form an integral part of these financial statements.

 

 

   

 

   

 

Chairman and President     Director and Chief Financial Officer     Accounting Chief
Wang Zhiqing     Zhou Meiyun     Zhang Feng

 

84


Table of Contents

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

                   Other                        Total  
     Share      Capital      comprehensive     Specific     Surplus      Undistributed     shareholders’  

Items

   capital      surplus      income     reserve     reserve      profits     equity  

Balance at 1 January 2016

     10,800,000        516,624        —         —         4,493,260        3,813,684       19,623,568  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Movements for the six months ended 30 June 2016 (unaudited)

                 

Total comprehensive income

                 

Net profit for the period

     —          —          —         —         —          3,134,109       3,134,109  

Employees share option scheme

     —          11,350        —         —         —          —         11,350  

Appropriation of profits

                 

Distribution to the shareholders

     —          —          —         —         —          (1,080,000     (1,080,000

Specific reserve

                 

Accrued

     —          —          —         50,340       —          —         50,340  

Utilised

     —          —          —         (12,974     —          —         (12,974
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at 30 June 2016 (unaudited)

     10,800,000        527,974        —         37,366       4,493,260        5,867,793       21,726,393  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at 1 January 2017

     10,800,000        534,628        18,213       —         5,100,401        8,197,954       24,651,196  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Movements for the six months ended 30 June 2017 (unaudited)

                 

Total comprehensive income

                 

Net profit for the period

     —          —          —         —         —          2,563,845       2,563,845  

Other comprehensive loss

     —          —          (552     —         —          —         (552

Employees share option scheme

     —          8,102        —         —         —          —         8,102  

Appropriation of profits

                 

Distribution to the shareholders

     —          —          —         —         —          (2,700,000     (2,700,000

Specific reserve

                 

Accrued

     —          —          —         44,220       —          —         44,220  

Utilised

     —          —          —         (23,494     —          —         (23,494
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at 30 June 2017 (unaudited)

     10,800,000        542,730        17,661       20,726       5,100,401        8,061,799       24,543,317  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes form an integral part of these financial statements.

 

 

   

 

   

 

Chairman and President     Director and Chief Financial Officer     Accounting Chief                
Wang Zhiqing     Zhou Meiyun     Zhang Feng

 

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NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

1 General information

Sinopec Shanghai Petrochemical Company Limited (“the Company”), formerly Shanghai Petrochemical Company Limited, was established in the People’s Republic of China (“the PRC”) on 29 June 1993 with registered capital of RMB4,000,000,000, invested by its holding company-China National Petrochemical Corporation; these shares were converted from assets of former Shanghai Petrochemical Complex.

H shares were listed on the Hong Kong Stock Exchange on 26 July 1993, and listed on the New York Stock Exchange in the form of American Depositary Shares at the same time; the A shares were listed on the Shanghai Stock Exchange on 8 November 1993.

Sinopec Group completed its reorganisation on 25 February 2000. After the reorganisation, China Petroleum & Chemical Corporation (“Sinopec Corp.”) was established. As part of the reorganisation, Sinopec Group transferred its 4,000,000,000 of the Company’s state-owned legal shares, which represented 55.56 percent of the issued share capital of the Company, to Sinopec Corp.. Sinopec Corp. became the largest shareholder of the Company.

The Company changed its name to Sinopec Shanghai Petrochemical Company Limited on 12 October 2000.

As at 30 June 2017, total Share capital of the Company were 10,800,000,000 thousands, 1 Yuan per share.

The Company and its subsidiaries (“the Group”) is a highly integrated entity which processes crude oil into synthetic fibres, resins and plastics, intermediate petrochemicals and petroleum products.

Details of the Company’s principal subsidiaries are set out in Note 5.

These financial statements were authorised for issue by the Board of Directors on 23 August 2017.

 

2 Summary of significant accounting policies and accounting estimates

The Group determines the accounting policies and accounting estimates based on its production and management features, mainly reflecting in provision for decline in the value of inventories (Note 2(11)), depreciation of fixed assets (Note 2(14)), impairment of long-term assets (Note 2(19)), share-based payments (Note 2(23)), revenue recognition (Note 2(25)) and income tax (Note 2(27)) etc.

The key assumptions adopted by the Group in evaluating significant accounting policies and accounting estimates are listed in Note 2(31).

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (1) Basis of preparation

The financial statements have been prepared in accordance with the Basic Standard and each specific standards of the Accounting Standards for Business Enterprises issued by the Ministry of Finance on 15 February 2006 and subsequent period, and relevant regulations issued thereafter (hereafter referred to as “the Accounting Standard for Business Enterprises” or “CAS”) and disclosure requirements in the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No.15 – General Provisions on Financial Reporting issued by the China Securities Regulatory Commission.

The financial statements are prepared on a going concern basis.

 

  (2) Statement of compliance with the Accounting Standards for Business Enterprises

The financial statements of the Company for the six months ended 30 June 2017 are in compliance with the Accounting Standards for Business Enterprises, and truly and completely present the financial position as of 30 June 2017 and the operating results, cash flows and other information for the period then ended of the Group and the Company.

 

  (3) Accounting period

The Company’s accounting year starts on 1 January and ends on 31 December. The financial statements cover period from 1 January 2017 to 30 June 2017.

 

  (4) Recording currency

The recording currency is Renminbi (RMB).

 

  (5) Business combinations

 

  (a) Business combinations involving enterprises under common control

The consideration paid and net assets obtained by the absorbing party in a business combination are measured at the carrying amount. The difference between the carrying amount of the net assets obtained from the combination and the carrying amount of the consideration paid for the combination is treated as an adjustment to capital surplus (share premium). If the capital surplus (share premium) is not sufficient to absorb the difference, the remaining balance is adjusted against retained earnings. Costs directly attributable to the combination are included in profit or loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debt securities for the business combination are included in the initially recognised amounts of the equity or debt securities.

 

87


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (5) Business combinations (continued)

 

  (b) Business combinations involving enterprises not under common control

The cost of combination and identifiable net assets obtained by the acquirer in a business combination are measured at fair value at the acquisition date. Where the cost of the combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognised as goodwill; where the cost of combination is lower than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognised in profit or loss for the current period. Costs directly attributable to the combination are included in profit or loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debt securities for the business combination are included in the initially recognised amounts of the equity or debt securities.

 

  (6) Preparation of consolidated financial statements

The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries.

Subsidiaries are consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary that is acquired in a business combination involving enterprises under common control, it is included in the consolidated financial statements from the date when it, together with the Company, comes under common control of the ultimate controlling party. The portion of the net profits realised before the combination date is presented separately in the consolidated income statement.

In preparing the consolidated financial statements, where the accounting policies and the accounting periods of the Company and subsidiaries are inconsistent, the financial statements of the subsidiaries are adjusted in accordance with the accounting policies and the accounting period of the Company. For subsidiaries acquired from business combinations involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition date.

 

88


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (6) Preparation of consolidated financial statements (continued)

 

All significant intra-group balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion of subsidiaries’ equity and the portion of a subsidiaries’ net profits and losses and comprehensive incomes for the period not attributable to Company are recognised as non-controlling interests, net profit attributed to non-controlling interests and incomes attributed to non-controlling interests and presented separately in the consolidated financial statements under equity, net profits and total comprehensive income respectively. Unrealised profits and losses resulting from the sale of assets by the Company to its subsidiaries are fully eliminated against net profit attributable to owners of the parent. Unrealised profits and losses resulting from the sale of assets by a subsidiary to the Company are eliminated and allocated between net profit attributable to owners of the parent and non-controlling interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealised profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to owners of the parent and non-controlling interests in accordance with the allocation proportion of the parent in the subsidiary. Unrealised profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to owners of the parent and non-controlling interests in accordance with the allocation proportion of the parent in the subsidiary.

If the accounting treatment of a transaction which considers the Group as an accounting entity is different from that considers the Company or its subsidiaries as an accounting entity, it is adjusted from the perspective of the Group.

 

  (7) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, deposits that can be readily drawn on demand, and short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

  (8) Foreign currency translation

Foreign currency transactions

Foreign currency transactions are translated into RMB using the exchange rates prevailing at the dates of the transactions.

At the balance sheet date, monetary items denominated in foreign currencies are translated into RMB using the spot exchange rates on the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currencies that are measured at historical costs are translated into RMB at the balance sheet date using the spot exchange rates at the date of the transactions. The effect of exchange rate changes on cash is presented separately in the cash flow statement.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (9) Financial instrument

 

  (a) Financial assets

 

  (i) Financial assets classification

Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, receivables, available-for-sale financial assets and held-to-maturity investments. The classification of financial assets depends on the Group’s intention and ability to hold the financial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term.

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets on the balance sheet if management intends to dispose of them within 12 months after the balance sheet date.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed maturity and fixed or determinable payments that management has the positive intention and ability to hold to maturity. Held-to-maturity investments with maturities over 12 months when the investments were made but are due within 12 months at the balance sheet date are included in the current portion of non-current assets; held-to maturity investments with maturities no more than 12 months when the investments were made are included in other current assets.

 

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Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (9) Financial instrument (continued)

 

  (a) Financial assets (continued)

 

  (ii) Recognition and measurement

Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, the related transaction costs incurred at the time of acquisition are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initially recognised amounts.

Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method.

Gains or losses arising from change in the fair value of financial assets at fair value through profit or loss are recognised in profit or loss. Interests and cash dividends received during the period in which such financial assets are held, as well as the gains or losses arising from disposal of these assets are recognised in profit or loss for the current period.

Gains or losses arising from change in fair value of available-for-sale financial assets are recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from translation of monetary financial assets. When such financial assets are derecognised, the cumulative gains or losses previously recognised directly into equity are recycled into profit or loss for the current period. Interests on available-for-sale investments in debt instruments calculated using the effective interest method during the period in which such investments are held and cash dividends declared by the investee on available-for-sale investments in equity instruments are recognised as investment income, which is recognised in profit or loss for the period.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (9) Financial instrument (continued)

 

  (a) Financial assets (continued)

 

  (iii) Impairment of financial assets

The Group assesses the carrying amounts of financial assets other than those at fair value through profit or loss at each balance sheet date. If there is objective evidence that a financial asset is impaired, an impairment loss is provided for.

Objective evidence indicating impairment of financial assets refers to the matter that actually occurs after the initial recognition of financial assets, it will affect estimated future cash flows of financial assets, and its impact can be reliably measured.

The objective evidence that indicate the impairment of available-for-sale investment in equity instruments includes a significant or prolonged decline in the fair value of available-for-sale investment in equity instruments. The Group assesses all kinds of available-for-sale investments in equity instruments individually at balance sheet date. Impairment loss should be recognised if the fair value of investments in equity instruments is less than 50% (50% inclusive) of its initial investment cost or in the case that the fair value has been less than the initial investment cost for more than one year (one year inclusive). The Group will consider other relevant factors, such as the price volatility, to determine whether an impairment loss should be recognised for the equity instrument if the decline in the fair value of an equity instrument is more than 20% (20% inclusive) but less than 50% of its initial investment cost.

When an impairment loss on a financial asset carried at amortised cost has occurred, the amount of loss is provided for at the difference between the asset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed and the amount of reversal is recognised in profit or loss.

In the case of impairment of available-for-sale financial assets measured at fair value, the cumulative loss arising from the decline in fair value that had been recognised directly in equity is removed from equity and recognised in impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, it’s fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed and recognised in profit or loss for the current year. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, the increase in its fair value in a subsequent period is recognised in equity directly.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (9) Financial instrument (continued)

 

  (a) Financial assets (continued)

 

  (iii) Impairment of financial assets (continued)

 

If an impairment loss on an available-for-sale financial asset measured at cost incurs, the amount of loss is measured at the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The previously recognised impairment loss will not be reversed in subsequent periods.

 

  (iv) Derecognition of financial assets

A financial asset is derecognised when it meets one of the following conditions:

 

    If the Group’s contractual rights to the cash flows from the financial asset expire.

 

    Or if the Group transfers substantially all the risks and rewards of ownership of the financial asset to another party.

 

    Or if the Group has neither transferred nor retained substantially all of the risks and rewards of the asset, but the Group has ceased the control over the financial asset.

On derecognition of a financial asset, the difference between the carrying amount and the aggregate consideration received and the accumulative amount of the changes of fair value originally recorded in the shareholders’ equity is recognised in profit or loss.

 

  (b) Financial liabilities

Financial liabilities are classified into two categories at initial recognition: financial liabilities at fair value through profit or loss and other financial liabilities. The financial liabilities of the Group mainly comprise other financial liabilities, including payables, borrowings.

Payables comprise accounts payables, notes payable and other payables and are recognised at fair value at initial recognition. Payables are measured at amortised cost using the effective interest method.

Borrowings and debentures payable are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (9) Financial instrument (continued)

 

  (b) Financial liabilities (continued)

 

Other financial liabilities with maturities no more than one year are classified as current liabilities. Other financial liabilities with maturities over one year but are due within one year at the balance sheet date are classified as the current portion of non-current liabilities. Others are classified as non-current liabilities.

A financial liability is derecognised or partly derecognised when the current obligation is discharged or partly discharged. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished and the consideration paid, shall be recognised in profit or loss.

 

  (c) Determination of fair value of financial instruments

The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument that is not traded in an active market is determined by using a valuation technique which is applicable in the current situation and support with enough available data and other information. Valuation techniques mainly include market approach and income approach.

When a valuation technique is used to establish the fair value of a financial instrument, it chooses the inputs which are consistent with the asset or liability’s characteristics considered by market participants in the transaction of the relevant asset or liability and makes the maximum use of relevant observable inputs. Unobservable inputs are used when it is unavailable or impracticable to obtain relevant observable inputs.

 

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Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (10) Receivables

Receivables comprise accounts receivable and other receivables. Accounts receivable arising from sale of goods or rendering of services are initially recognised at fair value of the contractual payments from the buyers or service recipients.

 

  (a) Receivables that are individually significant and subject to separate provision

Receivables with amounts that are individually significant are subject to separate assessment for impairment. If there exists objective evidence that the Group will not be able to collect the amount under the original terms, a provision for impairment of that receivable is made.

Judgement basis or criteria for receivables that are individually significant is over RMB10,000 thousands.

The method of providing for bad debts for those individually significant amounts is as follows: the amount of the present value of the future cash flows expected to be derived from the receivable below its carrying amount.

 

  (b) Receivables that are combined into certain groups and subject to provision by groups

Receivables with amounts that are not individually significant and those receivables that have been individually assessed for impairment and have not been found impaired are classified into certain groupings based on their credit risk characteristics. The provision for bad debts is determined based on the historical loss experience for the groupings of receivables with similar credit risk characteristics, taking into consideration of the current circumstances.

Basis for determination of groups is as follows:

 

Group Name    Criteria
Group 1    Groups of receivables with similar credit risk characteristics
Group 2    Receivables for related parties except for the accounts receivables that
   are individually significant and subject to separate provision

 

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Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (10) Receivables (continued)

 

  (b) Receivables that are combined into certain groups and subject to provision by groups (continued)

 

Methods of determining provision for bad debts by groupings are as follows:

 

Group Name    Method for provision
Group 1    Ageing analysis method
Group 2    Percentage of bad debt provision is 0%

Ratios of provision for bad debts used in the ageing analysis method for groups are as follows:

 

     Provisions as a percentage
of accounts receivable
    Provisions as a percentage
of other receivables
 

Within one year

     —         —    

Over one year but within two years

     30     30

Over two years but within three years

     60     60

Over three years

     100     100

 

  (c) Receivables that are individually insignificant but subject to separate provision

The reason for making separate assessment for provision for bad debts is that there exists objective evidence that the Group will not be able to collect the amount under the original terms of the receivable.

The provision for bad debts is determined based on the amount of the present value of the future cash flows expected to be derived from the receivable below its carrying amount.

 

  (d) When the Group transfers the accounts receivable to the financial institutions without recourse, the difference between the proceeds received from the transaction and their carrying amounts and the related taxes is recognised in profit or loss for the current period.

 

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Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (11) Inventories

 

  (a) Categories of inventories

Inventories include raw materials, work in progress, finished goods, spare parts and consumables, and are measured at the lower of cost and net realisable value.

 

  (b) Measurement of cost of inventories

Cost is determined using the weighted average method. The cost of finished goods and work in progress comprise raw materials, direct labour and systematically allocated production overhead based on the normal production capacity.

 

  (c) Basis for determining net realisable value of inventories and method of provision for impairment of inventories

Provision for decline in the value of inventories is determined at the excess amount of the carrying amounts of the inventories over their net realisable value. Net realisable value is determined based on the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.

 

  (d) The Group adopts the perpetual inventory system.

 

  (e) Amortisation methods for low-value consumables

Low-value consumables are expensed upon issuance.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (12) Long-term equity investments

Long-term equity investments comprise the Company’s long-term equity investments in its subsidiaries, the Group’s long-term equity investments in its joint ventures and associates

Subsidiaries are the investees over which the Company is able to exercise control. A joint venture is a joint arrangement which is structured through a separate vehicle over which the Group has joint control together with other parties and only has rights to the net assets of the arrangement based on legal forms, contractual terms and other facts and circumstances. An associate is the investee over which the Group has significant influence by participating in the financial and operating policy decisions.

Investments in subsidiaries are presented in the Company’s financial statements using the cost method, and are adjusted to the equity method when preparing the consolidated financial statements. Investments in joint ventures and associates are accounted for using the equity method.

 

  (a) Initial recognition

For long-term equity investments acquired through a business combination: The initial investment cost of a long-term equity investment obtained through a business combination involving enterprises under common control is the Company’s share of the carrying amount of the subsidiary’s equity at the combination date. For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost is the combined cost issued by the Company, in exchange for control of the acquire.

For long-term equity investment acquired other than through a business combination, the initial investment cost is recognised at the actual consideration paid if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities.

 

  (b) Subsequent measurement

Under the cost method of accounting, long-term equity investments are measured at initial investment cost, investment income is recognised in profit or loss for the cash dividends or profit distribution declared by the investee.

For long-term equity investments accounted for using the equity method, where the initial investment cost exceeds the fair value of the Group’s share of the investee’s identifiable net assets at the time of acquisition, the investment is initially measured at cost; Where the initial investment cost is less than the fair value of the Group’s share of the investee’s identifiable net assets at the time of acquisition, the difference is included in profit or loss for the current period and the cost of the long-term equity investment is adjusted upwards accordingly.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (12) Long-term equity investments (continued)

 

  (b) Subsequent measurement (continued)

 

Under the equity method of accounting, the Group recognises the investment income according to its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term interests that, in substance, form part of the investor’s net investment in the investee are reduced to zero. However, if the Group has obligations for additional losses and the criteria with respect to recognition of provisions under the accounting standards on contingencies are satisfied, the Group continues recognising the investment losses and the provisions. For changes in shareholders’ equity of the investee other than those arising from its net profit or loss, the Group records its proportionate share directly into capital surplus, provided that the Group’s proportion of shareholding in the investee remains unchanged. The carrying amount of the investment is reduced by the Group’s share of the profit distribution or cash dividends declared by an investee. The unrealised profits or losses arising from the intra-group transactions amongst the Group and its investees are eliminated in proportion to the Group’s equity interest in the investees, and then based on which the investment gain or losses are recognised. For the loss on the intra-group transaction amongst the Group and its investees attributable to asset impairment, and the related unrealised loss is not eliminated.

 

  (c) Definition of control, joint control or significant influence over the investees

Control refers to the power to govern the financial and operating policies of an investee, so as to obtain benefits from their operating activities. In determining whether the Company is able to exercise control over the investee, the effect of potential voting rights of the investee shall be considered, such as convertible debts and warrants currently exercisable.

Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control.

Significant influence refers to the power to participate in making decisions on the financial and operating policies of an enterprise, but not the power to control, or jointly control, the formulation of such policies with other parties.

 

  (d) Impairment of long-term equity investments

The carrying amounts of long-term equity investments in subsidiaries, joint ventures and associates are reduced to the recoverable amounts when the recoverable amounts are below their carrying amounts (Note 2(19)).

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (13) Investment properties

Investment properties, including land use rights that have already been leased out, buildings that are held for the purpose of leasing and buildings that is being constructed or developed for future use for leasing, are measured initially at cost. Subsequent expenditures incurred in relation to an investment property are included in the cost of the investment property when it is probable that the associated economic benefits will flow to the Group and their costs can be reliably measured; otherwise, the expenditures are recognised in profit or loss in the period in which they are incurred.

The Group adopts the cost model for subsequent measurement of investment properties. Buildings and land use rights are depreciated or amortised to their estimated net residual values over their estimated useful lives. The estimated useful lives, the estimated net residual values that are expressed as a percentage of cost and the annual depreciation rates of investment properties are as follows:

 

     Estimated useful
lives
   Estimated net
residual values
    Annual
depreciation rates

Buildings

   30-40 years      3   2.43%-3.23%

When an investment property is transferred to owner-occupied properties, it is reclassified as fixed asset or intangible asset at the date of the transfer. When an owner-occupied property is transferred out for earning rentals or for capital appreciation, the fixed asset or intangible asset is reclassified as investment properties at its carrying amount at the date of the transfer. The carrying amount before is deemed as the entry value after at the time of the transfer.

The investment property’s estimated useful life, net residual value and depreciation method applied are reviewed and adjusted as appropriate at each year-end.

An investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The net amount of proceeds from sale, transfer, retirement or damage of an investment property after its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.

When the recoverable amount of investment properties is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2(19)).

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (14) Fixed assets

 

  (a) Recognition and initial measurement of fixed assets

Fixed assets comprise buildings, plant and machinery, vehicles and other equipment, etc.

Fixed asset is recognized when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. Fixed assets purchased or constructed by the Group are initially measured at cost at the time of acquisition. The fixed assets injected by the state-owned shareholder during the restructuring were initially recorded at the valuated amount approved by the relevant authorities managing state-owned assets.

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. The carrying amount of the replaced part is derecognised. All the other subsequent expenditures are recognised in profit or loss in the period in which they are incurred.

 

  (b) Depreciation methods of fixed assets

Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets that have been provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.

The estimated useful lives, the estimated residual values expressed as a percentage of cost and the annual depreciation rates of fixed assets are as follows:

 

     Estimated
useful lives
     Estimated net
residual values
     Annual
depreciation rates
 

Buildings

     12-40 years        0%-5%        2.4%-8.3%  

Plant and machinery

     12-20 years        0%-5%        4.8%-8.3%  

Vehicles and other equipment

     4-20 years        0%-5%        4.8%-25.0%  

The estimated useful life, the estimated net residual value of a fixed asset and the depreciation method applied to the asset are reviewed, and adjusted as appropriate at each year-end.

 

  (c) When the recoverable amount of fixed assets is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2(19)).

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (14) Fixed assets (continued)

 

  (d) Disposal of fixed assets

A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds from disposals on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.

 

  (15) Construction in progress

Construction in progress is measured at actual cost. Actual cost comprises construction costs, installation costs, borrowing costs that are eligible for capitalisation and other costs necessary to bring the fixed assets ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month. When the recoverable amount of construction in progress is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2(19)).

 

  (16) Borrowing costs

The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that needs a substantially long period of time for its intended use commence to be capitalised and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalisation of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use and the borrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed.

For the specific borrowings obtained for the acquisition or construction of a fixed asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by deducting any interest income earned from depositing the unused specific borrowings in the banks or any investment income arising on the temporary investment of those borrowings during the capitalisation period.

For the general borrowings obtained for the acquisition or construction of a fixed asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by applying the weighted average effective interest rate of general borrowings, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specific borrowings. The effective interest rate is the rate at which the estimated future cash flows during the period of expected duration of the borrowings or applicable shorter period are discounted to the initial amount of the borrowings.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (17) Intangible assets

Intangible assets include land use rights and patents, and are measured at cost. The intangible assets injected by the state-owned shareholder during the restructuring were initially recorded at the valuated amount approved by the relevant authorities managing state-owned assets.

 

  (a) Land use rights

Land use rights are amortised on the straight-line basis over their approved use period of 30-50 years. If the acquisition costs of the land use rights and the buildings located thereon cannot be reasonably allocated between the land use rights and the buildings, all of the acquisition costs are recognised as fixed assets.

 

  (b) Patents

Patents are amortised on a straight-line basis over the patent protection period of 10-28 years as stipulated by the laws.

 

  (c) Periodical review of useful life and amortisation method

For an intangible asset with a finite useful life, review of its useful life and amortisation method is performed at each year-end, with adjustment made as appropriate.

 

  (d) Research and development

The expenditure on an internal research and development project is classified into expenditure on the research phase and expenditure on the development phase based on its nature and whether there is material uncertainty that the research and development activities can form an intangible asset at end of the project.

Expenditure on the research phase is recognised in profit or loss in the period in which it is incurred. Expenditure on the development phase is capitalised only if all of the following conditions are satisfied:

 

    it is technically feasible to complete the research and development project so that it will be available for use or sale;

 

    management intends to complete the research and development project, and use or sell it;

 

    it can be demonstrated how the research and development project will generate economic benefits;

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (17) Intangible assets (continued)

 

  (d) Research and development (continued)

 

    there are adequate technical, financial and other resources to complete the development and the ability to use or sell the research and development project; and

 

    the expenditure attributable to the research and development project during its development phase can be reliably measured.

Other development expenditures that do not meet the conditions above are recognised in profit or loss in the period in which they are incurred. Development costs previously recognised as expenses are not recognised as an asset in a subsequent period. Capitalised expenditure on the development phase is presented as development costs in the balance sheet and transferred to intangible assets at the date that the asset is ready for its intended use.

 

  (e) Impairment of intangible assets

When the recoverable amount of an intangible asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount (Note 2(19)).

 

  (18) Long-term prepaid expenses

Long-term prepaid expenses mainly include the catalyst expenditures, leasehold improvements and other expenditures that have been incurred but should be recognised as expenses over more than one year in the current and subsequent periods. Long-term prepaid expenses with the book value net of estimated residual value are amortised on the straight-line basis over the expected beneficial periods and are presented at actual expenditure net of accumulated amortisation.

Catalyst expenditures are amortised on a straight-line method within 2 to 5 years.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (19) Impairment of long-term assets

Fixed assets, construction in progress, intangible assets with finite useful lives, long-term prepaid expenses, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that the assets may be impaired at the balance sheet date; intangible assets which are not ready for their intended use should be tested for impairment at least on an annual basis, irrespective of whether there is any indication that it may be impaired. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognised on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.

Once the above asset impairment loss is recognised, it will not be reversed for the value recovered in the subsequent periods.

 

  (20) Safety production costs

According to the decision of the State Council on Further Strengthening the work of production safety (Guofa No.2 2004), Shanghai Municipal Government to implement the State Council on Further Strengthening corporate safety work notice (Hufufa No.35 2010) and Safe production costs extraction and use of management practices (Caiqi No.16 2012) issued by the Ministry of Finance and the national production safety supervision administration on 2 February 2012, The Group extracted safety production costs in a certain percentage of sales revenue from the dangerous goods in previous year, which is used for safety costs.

The safety production costs, accrued in accordance with the above regulations, shall be charged in relevant costs or profit and loss, and in the specific reserve. Safety production costs, which belong to expenses, directly offset the special reserves. If the costs formed into fixed assets, the special reserves shall be offset according to the cost forming into fixed assets, and recognize the same amount of accumulated depreciation. This fixed asset shall no longer accrue depreciation in the following period.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (21) Employee benefits

Employee benefits include short-term employee benefits, post-employment benefit and termination benefits provided in various forms of consideration in exchange for service rendered by employees or compensations for the termination of employment relationship.

 

  (a) Short-term employee benefits

Short-term employee benefits include employee wages or salaries, bonus, allowances and subsidies, staff welfare, premiums or contributions on medical insurance, work injury insurance and maternity insurance, housing funds, union running costs and employee education costs, short-term paid absences. The employee benefit liabilities are recognised in the accounting period in which the service is rendered by the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevant assets. Employee benefits which are non-monetary benefits are measured at fair value.

 

  (b) Post-employment benefits

The Group classifies post-employment benefit plans as either defined contribution plans or defined benefit plans. Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into a separate fund and will have no obligation to pay further contributions; and Defined benefit plans are post-employment benefit plans other than defined contribution plans. During the reporting period, the Group’s post-employment benefits mainly include basic pensions, unemployment insurance and supplemental basic pensions, all of which belong to the defined contribution plans.

Basic pensions

Employees of the Group participate in the defined basic pension insurance plan set up and administered by local labour and social protection authorities. Monthly payments of premiums on the basic pensions are calculated according to prescribed bases and percentage by the relevant local authorities. When employees retire, the relevant local authorities are obliged to pay the basic pensions to them. The amounts based on the above calculations are recognised as liabilities in the accounting period in which the service has been rendered by the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevant assets.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (21) Employee benefits (continued)

 

  (c) Termination benefits

When the Group terminates the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognised in profit or loss when both of the following conditions are satisfied:

 

    The Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly.

 

    The Group is not allowed to withdraw from termination plan or redundancy offer unilaterally.

Termination benefits expected to be paid in one year are listed as current liabilities.

 

  (22) Profit distribution

Proposed profit distribution is recognised as a liability in the period in which it is approved by the Shareholders’ meeting.

 

  (23) Share-based payments

 

  (a) Types of Share-based payment

The term “share-based payment” refers to a transaction in which an enterprise grants equity instruments or undertakes equity-instrument-based liabilities in return for services from employee or other parties. Equity instruments include equity instruments of the Company itself or its subsidiaries.

Equity-settled share-based payment transactions

The Group’s share option incentive plans are equity-settled share-based payments and are measured at fair value of equity instruments granted to employees on the date of the grant. If the right cannot be exercised until the vesting period comes to an end and until the prescribed performance conditions are met, then within the vesting period, the services obtained in the current period shall, based on the best estimate of the number of vested equity instruments, be included in the relevant costs or expenses and the capital reserves shall be increased accordingly at the fair value of the equity instruments on the date of the grant. If the subsequent information indicates that the number of vested equity instruments is different from the previous estimate, an adjustment shall be made and on the vesting date, and the estimate shall be adjusted to equal the number of the actually vested equity instruments. On the vesting date, an enterprise shall, based on the number of the equity instruments of which the right is actually exercised, confirm share capital and share premium, and carry forward the capital surplus recognised within the vesting period.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (23) Share-based payments (continued)

 

  (b) Method for determining the fair value of share options

The Group uses Black-Scholes valuation model to determine the fair value of the share options.

 

  (c) Estimate basis of the the number of options

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. As at the vesting date, the estimates of the number of options should be same with the actual exercised number.

 

  (d) Accounting treatment for share-based payments exercise

When the options are exercised at the vesting date, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (and share premium).

 

  (24) Provisions

Provisions for contingent liabilities etc. are recognised when the Group has a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably.

A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency, such as the risks, uncertainties and the time value of money, are taken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value of money is material, the best estimate is determined by discounting the related future cash outflows. The increase in the discounted amount of the provision arising from passage of time is recognised as interest expense.

The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (25) Revenue recognition

The amount of revenue is determined in accordance with the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of discounts and returns.

Revenue is recognised when the economic benefits associated with the transaction will flow to the Group, the related revenue can be reliably measured, and the specific revenue recognition criteria have been met for each type of the Group’s activities as described below:

 

  (a) Sale of goods

Revenue from sale is recognised when all of the general conditions stated above and the following conditions are satisfied: the significant risks and rewards of ownership of goods have been transferred to the buyer, as well as the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. The Group recognises revenue when goods are sent to designated place and confirmed receipt by customers according to the terms of contract.

 

  (b) Rendering of services

The Group provides service to external parties. The related revenue is recognised using the percentage of completion method, with the stage of completion being determined based on proportion of costs incurred to date to the estimated total costs.

 

  (c) Transfer of asset use rights

Interest income is determined by using the effective interest method, based on the length of time for which the Group’s cash is used by others.

Income from an operating lease is recognised on a straight-line basis over the period of the lease.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (26) Government grants

Government grants are transfers of monetary or non-monetary assets from the government to the Group at nil consideration, including refund of taxes and financial subsidies, etc.

A government grant is recognised when the conditions attached to it can be complied with and the government grant can be received. For a government grant in the form of transfer of monetary assets, the grant is measured at the amount received or receivable. For a government grant in the form of transfer of non-monetary assets, it is measured at fair value; if the fair value is not reliably determinable, the grant is measured at nominal amount.

A government grant related to an asset means grant that used for acquisition, construction or otherwise to form long-term assets. A government grant related to income is grant in addition to government grant related to an asset.

A government grant related to an asset is recognised initially as deferred income and amortised to profit or loss on a straight-line basis over the useful life of the asset. A grant measured at nominal amount is recognised in profit or loss for the period immediately.

A government grant related to income that compensates the Group for expenses to be incurred in the subsequent periods is recognised initially as deferred income and recognised in profit or loss in the same periods in which the expenses are recognised. A grant that compensates the Group for expenses incurred is recognised in profit or loss immediately.

 

  (27) Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred tax asset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.

Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, deductible losses and tax credits can be utilised.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

(27) Deferred tax assets and deferred tax liabilities (continued)

 

Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, associates and joint ventures will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilised, the corresponding deferred tax assets are recognised.

Deferred tax assets and liabilities are offset when:

 

    the deferred taxes are related to the same tax payer within the Group and the same taxation authority; and,

 

    that tax payer within the Group has a legally enforceable right to offset current tax assets against current tax liabilities.

 

  (28) Leases

A lease that in substance transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease. Lease payments under an operating lease are recognised on a straight-line basis over the period of the lease, and are either capitalised as part of the cost of related assets, or charged as an expense for the current period.

 

  (29) Related parties

If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control or joint control from another party, they are considered to be related parties. Related parties may be individuals or enterprises. Enterprises with which the Company is under common control only from the State and that have no other related party relationships are not regarded as related parties of the Group. Related parties of the Group and the Company include, but are not limited to:

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (29) Related parties (continued)

 

  a. the Company’s parent;

 

  b. the Company’s subsidiaries;

 

  c. enterprises that are controlled by the Company’s parent;

 

  d. investors that have joint control or exercise significant influence over the Group;

 

  e. enterprises or individuals if a party has control or joint control over both the enterprises or individuals and the Group;

 

  f. joint ventures of the Group, including subsidiaries of joint ventures;

 

  g. associates of the Group, including subsidiaries of associates;

 

  h. principal individual investors of the Group and close family members of such individuals;

 

  i. key management personnel of the Group and close family members of such individuals;

 

  j. key management personnel of the Company’s parent company;

 

  k. close family members of key management personnel of the Company’s parents; and

 

  l. other enterprises that are controlled or jointly controlled by principal individual investors, key management personnel of the Group, or close family members of such individuals.

In addition to the related parties stated above determined in accordance with the requirements of CAS, the following enterprises and individuals(but not limited to) are considered as related parties based on the disclosure requirements of Administrative Procedures on the Information Disclosures of Listed Companies issued by the CSRC:

 

  m. enterprises or individuals that act a concert, that hold 5% or more of the Company’s shares;

 

  n. individuals who directly or indirectly hold more than 5% of the Company’s shares and their close family members, supervisors of the listed companies and their close family members;

 

  o. enterprises that satisfied any of the aforesaid conditions in (a), (c) or (m) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement;

 

  p. individuals who satisfied any of the aforesaid conditions in (i), (j) or (n) during the past 12 months or will satisfy them within the next 12 months pursuant to a relevant agreement; and

 

  q. enterprises, other than the Company and the subsidiaries controlled by the Company, which are controlled directly or indirectly by an individual defined in (i), (j), (n) or (p), or in which such an individual assumes the position of a director or senior executive.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (30) Segment information

The Group identifies operating segments based on the internal organisation structure, management requirements and internal reporting system, and discloses segment information of reportable segments which is determined on the basis of operating segments.

An operating segment is a component of the Group that satisfies all of the following conditions: (1) the component is able to earn revenue and incur expenses from its ordinary activities; (2) whose operating results are regularly reviewed by the Group’s management to make decisions about resources to be allocated to the segment and to assess its performance, and (3) for which the information on financial position, operating results and cash flows is available to the Group. If two or more operating segments have similar economic characteristics and satisfy certain conditions, they are aggregated into one single operating segment.

 

  (31) Significant accounting policies and accounting estimates

The Group continually evaluates the critical accounting estimates and key judgments applied based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

The critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting year are outlined below:

 

  (i) Estimated useful life and residual value of fixed assets

The Group assessed the reasonableness of estimated useful life of fixed assets in line with the historical experience on the basis of similar function or characteristic for the assets. If there are significant changes in estimated useful lives and residual value from previous years, the depreciation expenses for future periods are adjusted.

The Group reviews and adjusts the useful lives and estimated residual value of the assets regularly at the end of each year end.

 

  (ii) Impairment of long-term assets

Long-term assets are reviewed for impairment at each balance sheet date when events or changes in circumstance have indicated that their carrying amounts may not be recoverable. If any such evidence indicated that their carrying amounts may not be recoverable, the carrying amounts exceed the recoverable amounts would be recognized as impairment loss and accounted in current profit or loss.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Summary of significant accounting policies and accounting estimates (continued)

 

  (31) Significant accounting policies and accounting estimates (continued)

 

  (ii) Impairment of long-term assets (continued)

 

The recoverable amount of an asset (or an asset group) is the greater of its net selling price and its present value of expected future cash flows. In assessing value in use, significant judgements are exercised over the assets’ (or the asset group’s) production and sales, selling prices, related operating expenses and discount rate to calculate the present value. All relevant materials which can be obtained are used for estimation of the recoverable amount, including the estimation of the production, selling prices and related operating expenses based on reasonable and supportable assumptions.

 

  (iii) Inventory provision

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 represents 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. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical cost of sales. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated.

 

  (iv) Income taxes

There are many transactions and events for which the ultimate tax determination is uncertain during the ordinary course of business. Significant judgment is required from the Group in determining the provision for income taxes in each of these jurisdictions. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

In addition, the Group recognises deferred tax assets only to the extent that it is probable that future taxable profit will be available against the assets which can be realised or utilized. If profit forecasts deviate from original estimates, the deferred tax assets will need to be adjusted in future, which has significant impact on profit.

In making the assessment of whether it is probable the Group will realise or utilise the deferred tax assets, management primarily relies on the generation of future taxable income to support the recognition of deferred tax assets. In order to fully utilise the deferred tax assets recognised at 30 June 2016, the Group would need to generate future taxable income of at least RMB351 million (unaudited). Based on estimated forecast and historical experience, management believes that it is probable that the Group will generate sufficient taxable income.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

3 Taxation

 

  (1) The main categories and rates of taxes applicable to the Group are set out below:

 

Category

  

Tax base

   Tax rate  
Enterprise income tax    Taxable income      25%  
Value-added tax (“VAT”) (a)    Taxable value-added amount (Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less deductible VAT input of the current period)      6%, 11%, 13% and 17%  
Business tax (a)    Taxable turnover amount      5%  
Consumption tax    Taxable sales amount     
Gasoline: RMB2,110 per ton;
diesel oil: RMB1,411 per ton
 
 

City maintenance and construction tax

   Consumption tax payable, business tax payable and VAT payable      1% and 7%  

 

(a) Revenue from transportation industry, modern service industry, tangible asset leasing, port service and warehousing service are subject to VAT, the applicable tax rate of revenue from tangible assets leasing is 17%, and revenue from modern service, port service and warehousing service income is 6%.

 

4 Notes to the consolidated financial statements

 

  (1) Cash at bank and on hand

 

     30 June 2017 (unaudited)      31 December 2016  

Cash on hand

     11        5  

Cash at bank

     7,955,904        5,440,410  

Other monetary funds

     11        208  
     7,955,926        5,440,623  

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (2) Notes receivable

 

     30 June 2017 (unaudited)      31 December 2016  

Bank acceptance notes

     1,082,328        1,267,920  

All of the above notes held are short-term acceptance notes due within six months. No notes receivables, included in the above, were transferred to accounts receivable due to non-performance of the issuers for the six months ended 30 June 2017 (unaudited).

 

  (a) As at 30 June 2017, the Group has no notes receivable which are pledged for the issuance of letters of credit (unaudited) (31 December 2016: Nil).

 

  (b) As at 30 June 2017, the Group’s endorsed or discounted notes receivable which are still undue are as follows (unaudited):

 

     Derecognised      Not derecognised  

Bank acceptance notes

     337,978        —    

 

  (3) Interest receivable

 

     30 June 2017 (unaudited)      31 December 2016  

Interest on bank deposits

     42,895        11,553  

Interest on entrusted loans

     37        43  
     42,932        11,596  

 

116


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (4) Accounts receivable

 

     30 June 2017 (unaudited)      31 December 2016  

Amounts due from related parties (Note 7(6))

     1,172,499        1,241,636  

Amounts due from third parties

     603,828        414,962  
  

 

 

    

 

 

 
     1,776,327        1,656,598  

Less: Provision for bad debts

     (28      (18
  

 

 

    

 

 

 
     1,776,299        1,656,580  
  

 

 

    

 

 

 

 

  (a) The ageing of accounts receivable is analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Within one year

     1,776,268        1,656,559  

Over one year but within two years

     32        24  

Over two years but within three years

     22        10  

Over three years

     5        5  
  

 

 

    

 

 

 
     1,776,327        1,656,598  

Less: Provision for bad debts

     (28      (18
  

 

 

    

 

 

 
     1,776,299        1,656,580  
  

 

 

    

 

 

 

As at 30 June 2017, the Group has no any significant overdue accounts receivable (unaudited) (31 December 2016: Nil).

 

117


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (4) Accounts receivable (continued)

 

  (b) Accounts receivable by categories are analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
 

Individually significant and subject to separate provision

     —          —          —          —          —          —          —          —    

Subject to provision by groups:

                       

- Group 1

     603,828        33.99        28        0.01        414,962        25.05        18        0.01  

- Group 2

     1,172,499        66.01        —          —          1,241,636        74.95        —          —    

Individually insignificant but subject to separate provision

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,776,327        100.00        28        —          1,656,598        100.00        18        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Classification of accounts receivable: refer to Note 2(10(b)).

 

  (c) Subject to provision by Group 1 are as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Amount      Percentage
(%)
     Amount      Amount      Percentage
(%)
 

Within one year

     603,769               —          414,923        —          —    

Over one year but within two years

     32        10        30.00        24        7        30.00  

Over two years but within three years

     22        13        60.00        10        6        60.00  

Over three years

     5        5        100.00        5        5        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     603,828        28        —          414,962        18        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There are no collateral over the above accounts receivable with provision for bad debts (unaudited).

 

118


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (4) Accounts receivable (continued)

 

  (d) During the period, the Group assessed the impairment on an individual basis in accordance with the accounting policy as described in Note 2(10), and there were no provision for accounts receivable that are individually significant or insignificant but assessed for impairment individually (unaudited).

 

  (e) During the period, the Group had no accounts receivable with fully or substantially write-off or write-back of bad debts which had been fully or substantially provided for in prior years (unaudited).

 

  (f) There are no significant accounts receivable that are written off during the current period (unaudited).

 

  (g) As at 30 June 2017, the top five accounts receivable by borrowers are summarised as follows (unaudited):

 

     Amount      Provision for bad debts      Percentage of total
accounts receivable (%)
 

Total top five accounts receivable

     1,350,009        —          76.00

 

  (h) Accounts receivable derecognised due to the transfer of financial assets this period amounted to RMB2,758,970 thousands (unaudited) (for the six months ended 30 June 2016: RMB1,176,930 thousands (unaudited)), the relating amount recorded in financial expenses was RMB9,969 thousands (unaudited) (for the six months ended 30 June 2016: RMB3,495 thousands (unaudited)).

 

  (i) As at 30 June 2017, the Group had no accounts receivable which are pledged for the issuance of letters of credit (31 December 2016: Nil).

 

  (5) Other receivables

 

     30 June 2017 (unaudited)      31 December 2016  

Amounts due from related parties (Note 7(6))

     8,932        1,486  

Receivables from the third parties

     56,980        56,033  
  

 

 

    

 

 

 
     65,912        57,519  

Less: Provision for bad debts

     (989      (974
  

 

 

    

 

 

 
     64,923        56,545  
  

 

 

    

 

 

 

 

119


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (5) Other receivables (continued)

 

  (a) The ageing of other receivables is analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Within one year

     64,841        56,448  

Over one year but within two years

     89        139  

Over two years but within three years

     50        —    

Over three years

     932        932  
  

 

 

    

 

 

 
     65,912        57,519  

Less: Provision for bad debts

     (989      (974
  

 

 

    

 

 

 
     64,923        56,545  
  

 

 

    

 

 

 

As at 30 June 2017, the Group has no any significant overdue other receivables (unaudited) (31 December 2016: Nil).

 

  (b) Other receivables by categories are analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
 

Individually significant and subject to separate provision

     —          —          —          —          —          —          —          —    

Subject to provision by groups:

                       

- Group 1

     56,980        86.45        989        1.74        56,033        97.42        974        1.74  

- Group 2

     8,932        13.55        —          —          1,486        2.58        —          —    

Individually insignificant but subject to separate provision

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     65,912        100.00        989        —          57,519        100.00        974        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Classification of other receivable: refer to Note 2(10(b)).

 

120


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (5) Other receivables (continued)

 

  (c) The groups of other receivable in which provisions are made using ageing analysis method are analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Amount      Percentage
(%)
     Amount      Amount      Percentage
(%)
 

Within one year

     55,909        —          —          54,962        —          —    

Over one year but within two years

     89        27        30.00        139        42        30.00  

Over two years but within three years

     50        30        60.00        —          —          —    

Over three years

     932        932        100.00        932        932        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     56,980        989        —          56,033        974        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (d) During the period, the Group assessed the impairment on an individual basis in accordance with the accounting policy as described in Note 2(10), and there were no provision for other receivables that are individually significant or insignificant but assessed for impairment individually (unaudited).

 

  (e) During the period, the Group had no material other receivables with fully or substantially write-off or write-back of bad debts which had been fully or substantially provided for in prior years (unaudited).

 

  (f) There are no significant other receivables that are written off during the current period (unaudited).

 

121


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (5) Other receivables (continued)

 

  (g) As at 30 June 2017, the top five other receivables are as follows (unaudited):

 

     Nature      Amount      Ageing      Percentage
of total other
receivables
    Provision
for bad
debts
 

Jinshan Tax Bureau

     Export tax refund        48,579        Within one year        73.70     —    

Shanghai Petrochemical BOC Gases Co., Ltd (“BOC-SPC”)

     Business transaction        7,416        Within one year        11.25     —    

Sinopec Huadong Sales Company Limited

     Business transaction        1,217        Within one year        1.85     —    

Shanghai Secco Petrochemical Company Limited (“Shanghai Secco”)

     Business transaction        179        Within one year        0.27     —    

Shanghai Gulf Petrochemical Company Limited

     Business transaction        149        Within one year        0.23     —    
     

 

 

       

 

 

   
        57,540           87.30  
     

 

 

       

 

 

   

 

  (6) Advances to suppliers

 

     30 June 2017 (unaudited)      31 December 2016  

Amounts advance to related parties (Note 7(6))

     68,734        18,197  

Amounts advance to third parties

     8,767        11,143  
  

 

 

    

 

 

 
     77,501        29,340  
  

 

 

    

 

 

 

 

  (a) The ageing of advances to suppliers is analysed as follows:

 

     30 June 2017 (unaudited)     31 December 2016  
     Amount      Percentage (%)     Amount      Percentage (%)  

Within one year

     77,501        100.00     29,340        100.00

 

122


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (6) Advances to suppliers (continued)

 

  (b) As at 30 June 2017, the top five advances to suppliers are summarised as follows (unaudited):

 

     Amount      Percentage of total advances to suppliers (%)  

Total top five advances to suppliers

     71,591        92.37

 

  (7) Inventories

 

  (a) Inventories by categories are as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross
carrying
amount
     Provision for
declines in
the value of
inventories
    Carrying
amount
     Gross
carrying
amount
     Provision for
declines in
the value of
inventories
    Carrying
amount
 

Raw materials

     4,235,862        (309     4,235,553        3,863,647        (309     3,863,338  

Work in progress

     958,816        (31,281     927,535        1,004,580        (44,453     960,127  

Finished goods

     1,673,692        (19,236     1,654,456        1,154,679        (22,583     1,132,096  

Spare parts and consumables

     261,666        (62,277     199,389        266,189        (62,277     203,912  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
     7,130,036        (113,103     7,016,933        6,289,095        (129,622     6,159,473  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

  (b) Provision for declines in the value of inventories is analysed as follows:

 

     31 December
2016
     Increases      Decreases
Sold
     30 June 2017
(unaudited)
 

Raw materials

     309        —          —          309  

Work in progress

     44,453        2,409        (15,581      31,281  

Finished goods

     22,583        14,834        (18,181      19,236  

Spare parts and consumables

     62,277        —          —          62,277  
  

 

 

    

 

 

    

 

 

    

 

 

 
     129,622        17,243        (33,762      113,103  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

123


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (7) Inventories (continued)

 

  (c) Provision for declines in the value of inventories are analysed as follows:

 

    

Basis for determining net realisable value

  

Reason for sold
(unaudited)

Raw materials

   The estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.    Not available

Work in progress

   Same as above    Sold in current period

Finished goods

   The estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale and related taxes.    Sold in current period

Spare parts and consumables

   Same as above    Not available

 

  (8) Other current assets

 

     30 June 2017 (unaudited)      31 December 2016  

Entrusted lendings due within one year

     76,000        88,000  

Long-term prepaid expenses – the current part (Note 4(14))

     155,358        157,926  

VAT deductible

     12,909        7,878  

Prepayment of enterprise income tax

     1,073        —    
  

 

 

    

 

 

 
     245,340      253,804  
  

 

 

    

 

 

 

 

124


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (9) Long-term equity investments

 

     30 June 2017 (unaudited)      31 December 2016  

Joint ventures (a)

     184,478        190,697  

Associates (b)

     3,754,478        3,648,097  
     3,938,956        3,838,794  

Less: Provision for impairment of long-term equity investment

     —          —    
  

 

 

    

 

 

 
     3,938,956        3,838,794  
  

 

 

    

 

 

 

There are no significant restrictions over the realisation of the Group’s long-term equity investment.

 

  (a) Joint ventures

 

            Current period movement         
     31 December
2016
     Additional/
negative
investment
     Net
profit/(loss)
adjusted by
equity method
     Cash
dividends
declared
in current
period
    Impairment
provided in
current
period
     30 June
2017
(unaudited)
 

Joint ventures of subsidiaries

                

Shanghai Jinpu Plastic Packing Materials Company Limited (“Jinpu”)

     —          —          —          —         —          —    

Shanghai Petrochemical Yangu Gas Development Company Limited (“Yangu Gas”)

     50,558        —          48        —         —          50,606  

BOC-SPC

     140,139        —          15,733        (22,000     —          133,872  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     190,697        —          15,781        (22,000     —          184,478  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Interests in joint ventures, refer to Note 5(2).

 

125


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (9) Long-term equity investments (continued)

 

  (b) Associates

 

            Current period movement        
     31 December
2016
     Additional/
negative
investment
     Net
profit/(loss)
adjusted by
equity method
    Cash
dividends
declared in
current
period
    Impairment
provided in
current
period
     Change in
other
equity
    30 June
2017
(unaudited)
 

Associates of the Company

                 

Shanghai Secco

     2,031,277        —          471,880       (421,120     —          —         2,082,037  

Shanghai Chemical Industry Park Development Company Limited (“Chemical Industry Park”)

     1,451,077        —          67,347       —         —          (552     1,517,872  

Associates of subsidiaries

                 

Shanghai Jinsen Hydrocarbon Resins Company Limited (“Jinsen”)

     73,301        —          (3,270     —         —          —         70,031  

Shanghai Azbil Automation Company Limited (“Azbil”)

     44,237        —          4,425       (6,800     —          —         41,862  

Others

     48,205        —          3,905       (9,434     —          —         42,676  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     3,648,097        —          544,287       (437,354     —          (552     3,754,478  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Interests in associates, refer to Note 5(2).

 

126


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (10) Investment properties

 

     Buildings  

Cost

  

31 December 2016

     540,493  

Transferred from fixed assets (Note 4(11))

     37,639  
  

 

 

 

30 June 2017 (unaudited)

     578,132  
  

 

 

 

Accumulated depreciation

  

31 December 2016

     160,064  

Transferred from fixed assets (Note 4(11))

     20,952  

Depreciation charged in current period

     6,579  
  

 

 

 

30 June 2017 (unaudited)

     187,595  
  

 

 

 

Carrying amount

  

30 June 2017 (unaudited)

     390,537  
  

 

 

 

31 December 2016

     380,429  
  

 

 

 

For the six months ended 30 June 2017, depreciation charges amounted to RMB6,579 thousands (unaudited) (for the six months ended 30 June 2016: RMB6,778 thousands (unaudited)), without impairment provided (unaudited) (for the six months ended 30 June 2016: Nil (unaudited)).

 

127


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (11) Fixed assets

 

     Buildings      Plant and
machinery
     Vehicles and
other equipment
     Total  

Cost

           

31 December 2016

     3,843,548        41,435,818        1,924,383        47,203,749  

Reclassification in current period

     (23,066      20,990        2,076        —    

Increase in current period

     —          —          45        45  

Transfer from construction in progress (Note 4(12))

     —          147,024        9,597        156,621  

Decrease in current period

     (1,309      (67,847      (12,022      (81,178

Transfer from investment properties (Note 4(10))

     (37,639      —          —          (37,639

30 June 2017 (unaudited)

     3,781,534        41,535,985        1,924,079        47,241,598  

Accumulated depreciation

           

31 December 2016

     2,303,581        28,714,701        1,511,546        32,529,828  

Reclassification in current period

     312        (719      407        —    

Current period charges

     45,031        720,922        33,202        799,155  

Decrease in current period

     (1,167      (62,541      (11,387      (75,095

Transfer from investment properties (Note 4(10))

     (20,952      —          —          (20,952

30 June 2017 (unaudited)

     2,326,805        29,372,363        1,533,768        33,232,936  

Impairment provision

           

31 December 2016

     279,099        831,225        61,227        1,171,551  

Current period charges

     —          18,874        —          18,874  

Decrease in current period

     —          (162      —          (162

30 June 2017 (unaudited)

     279,099        849,937        61,227        1,190,263  

Carrying amount

           

30 June 2017 (unaudited)

     1,175,630        11,313,685        329,084        12,818,399  

31 December 2016

     1,260,868        11,889,892        351,610        13,502,370  

 

128


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (11) Fixed assets (continued)

 

During the year ended 30 June 2017, the Company and its subsidiaries made impairment provision of RMB18,874 thousands (unaudited) against these property, plant and equipment which will be redundant and permanently withdrawn from use and replaced by new facilities (2015: RMB112,062 thousands (unaudited)).

As at 30 June 2017 (unaudited) and 31 December 2016, the Group had no pledged fixed assets.

For the sixth months ended 30 June 2017, the depreciation expenses amounted to RMB799,155 thousands (unaudited) (for the sixth months ended 30 June 2016: RMB825,856 thousands (unaudited)), of which RMB754,633 thousands (unaudited), RMB4,693 thousands (unaudited) and RMB39,829 thousands (unaudited) (for the sixth months ended 30 June 2016: RMB781,309 thousands (unaudited), RMB4,468 thousands (unaudited) and RMB40,079 thousands (unaudited)) were charged in cost of sales, selling and distribution expenses and general and administrative expenses respectively.

The amount of fixed assets transferred from construction in progress was RMB156,621 thousands (unaudited) (for the sixth months ended 30 June 2016: RMB249,263 thousands (unaudited)).

 

  (12) Construction in progress

 

     30 June 2017 (unaudited)      31 December 2016  
     Original
cost
     Impairment
provision
    Carrying
amount
     Original
cost
     Impairment
provision
    Carrying
amount
 

Construction in progress

     969,665        (10,175     959,490        727,847        (10,175     717,672  

 

129


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (12) Construction in progress (continued)

 

The movement of the Group’s major construction in progress is listed as follows:

 

Projects name

  Budget     31 December
2016
    Increase
in current
year
    Transferred to
fixed assets in
current year
(Note 4(11))
    30 June
2017
(unaudited)
    Percentage
of actual cost
to budget
    Project
progress
    Accumulative
capitalized
borrowing
costs
    Current year
capitalized
borrowing
costs
    Current year
borrowing cost
capitalizing rate
    Source of funds

100,000 tons/year EVA production plant

    1,131,520       236,907       —         —         236,907       20.94     20.94     1,081       —         —      

Cogeneration unit emission reduction project

    288,981       —         13,875       —         13,875       4.80     4.80     11       11       2.87   Equity funds
and
borrowings

2 # olefin cracking furnace low nitrogen combustion transformation project

    134,190       —         58,691       —         58,691       43.74     43.74     121       121       2.87   Equity funds
and
borrowings

Thermal Power fuel tank closed rectification project

    99,800       —         17,669       —         17,669       17.70     17.70     13       13       2.87   Equity funds
and
borrowings

Reconstruction of tail gas discharge from sulfur unit in oil refining department

    54,173       —         28,516       (28,516     —         52.64     52.64     49       49       2.87   Equity funds
and
borrowings

Oil refining department equipment update in 2016

    51,090       17,982       1,316       (1,342     17,956       54.93     54.93     —         —         —       Equity funds
and
borrowings

Olefin department equipment update in 2016

    42,590       20,682       —         (13,946     6,736       58.52     58.52     —         —         —       Equity funds

Storage and transportation department finished oil shipping factory facilities expansion project

    35,240       22,000       1,725       (23,725     —         67.33     67.33     —         —         —       Equity funds

Public utilities department equipment update in 2016

    32,430       14,186       825       (9,610     5,401       51.55     51.55     —         —         —       Equity funds

Aromatic Hydrocarbon Oily Waste Water Treatment Project

    27,688       87       13,833       —         13,920       50.27     50.27     —         —         —       Equity funds

Aromatic hydrocarbon furnace heating furnace additional

                     

CEMS monitoring system project

    26,705       —         6,829       —         6,829       25.57     25.57     —         —         —       Equity funds

3 # atmospheric and vacuum distillation unit heating furnace waste heat recovery system renovation

    25,603       —         9,426       —         9,426       36.82     36.82     —         —         —       Equity funds

Environmental Protection Department of Sewage Pretreatment and Regional Odor Treatment Phase II Project

    25,078       —         11,443       —         11,443       45.63     45.63     —         —         —       Equity funds

 

130


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (12) Construction in progress (continued)

 

Projects name

  Budget     31 December
2016
    Increase
in current
year
    Transferred to
fixed assets in
current year
(Note 4(11))
    30 June
2017
(unaudited)
    Percentage
of actual cost
to budget
    Project
progress
    Accumulative
capitalized
borrowing
costs
    Current year
capitalized
borrowing
costs
    Current year
borrowing cost
capitalizing rate
    Source of funds

Storage and transportation department chemical terminal 1#,3#, berth to increase oil and gas recycling facilities project

    23,430       7,511       5,498       —         13,009       55.52     55.52     —         —         —       Equity funds

Aromatic hydrocarbon heating furnace low nitrogen combustion transformation project

    23,139       —         11,049       —         11,049       47.75     47.75     —         —         —       Equity funds

Storage and transportation department Asphalt tank area odor treatment project

    21,722       —         11,271       —         11,271       51.89     51.89     —         —         —       Equity funds

Fanglian total reduction of electrical equipment hidden danger management project

    20,784       —         14,488       —         14,488       69.71     69.71     —         —         —       Equity funds

Thermoelectricity department equipment update in 2016

    19,080       5,215       —         (4,889     326       35.05     35.05     —         —         —       Equity funds

Thermoelectricity department furnace 1#,4#, slag transformation

    19,070       16,364       933       —         17,297       90.70     90.70     —         —         —       Equity funds

Department of Polyester 2 # oxidation combined with tail gas lift emission reduction project

    17,027       —         9,175       —         9,175       53.89     53.89     —         —         —       Equity funds

Other Business Unit Minor Project

      386,913       181,877       (74,593     494,197           —         —         —       Equity funds
   

 

 

   

 

 

   

 

 

   

 

 

         

 

 

     
      727,847       398,439       (156,621     969,665             194      
   

 

 

   

 

 

   

 

 

   

 

 

         

 

 

     

Less: provision for impairment

      (10,175     —         —         (10,175            
   

 

 

   

 

 

   

 

 

   

 

 

             
      717,672       398,439       (156,621     959,490              
   

 

 

   

 

 

   

 

 

   

 

 

             

 

131


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (12) Construction in progress (continued)

 

For the sixth months ended 30 June 2017, the Group has capitalised borrowing costs amounted to RMB194 thousands on qualifying assets (unaudited) (for the sixth months ended 30 June 2016: RMB1,788 thousands (unaudited)).

For the sixth months ended 30 June 2017 and 31 December 2016, the Group ceased the construction of 50,000 tons per year ethanolamine project and fully provided impairment for this project at its carrying amounts of RMB10,175 thousands.

 

  (13) Intangible assets

 

     Land use rights      Other intangible assets      Total  

Cost

        

30 June 2017 (unaudited) and 31 December 2016

     708,972        95,370        804,342  

Accumulated amortisation

        

31 December 2016

     329,267        68,959        398,226  

Charge in current period

     7,245        1,461        8,706  

30 June 2017 (unaudited)

     336,512        70,420        406,932  

Carrying amount

        

30 June 2017 (unaudited)

     372,460        24,950        397,410  

31 December 2016

     379,705        26,411        406,116  

For the six months ended 30 June 2017, amortisation expenses of intangible assets amounted to RMB8,706 thousands (unaudited) (for the six months ended 30 June 2016: RMB8,706 thousands (unaudited)).

 

132


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (14) Long-term prepaid expenses

 

     31 December
2016
    Increase in
current
period
     Amortisation
in current
period
    30 June
2017
(unaudited)
 

Catalysts

     445,349       236,329        (103,293     578,385  

Leaseholding improvements

     11,205       —          (555     10,650  

Others

     712       —          (242     470  
  

 

 

   

 

 

    

 

 

   

 

 

 
     457,266       236,329        (104,090     589,505  

Less: within one year

     (157,926          (155,358
  

 

 

        

 

 

 
     299,340            434,147  
  

 

 

        

 

 

 

 

  (15) Deferred tax assets and deferred tax liabilities

 

  (a) Deferred tax assets before offsetting

 

     30 June 2017 (unaudited)      31 December 2016  
     Deductible
temporary
differences and
deductible losses
     Deferred
tax assets
     Deductible
temporary
differences and
deductible losses
     Deferred
tax assets
 

Provision for bad debts and inventory provision

     66,998        16,749        83,491        20,873  

Provision for impairment of fixed assets

     703,640        175,910        684,928        171,232  

Difference in depreciation

     (430,409      (107,602      (396,301      (99,076

Provision for impairment of construction in progress

     10,175        2,544        10,175        2,544  

Share-based payments

     48,808        12,202        40,706        10,176  

Other deferred tax assets

     26,318        6,580        15,764        3,942  
  

 

 

    

 

 

    

 

 

    

 

 

 
     425,530        106,383        438,763        109,691  
  

 

 

    

 

 

    

 

 

    

 

 

 

Including:

           

To be recovered within 12 months (inclusive)

        33,455           40,309  

To be recovered over 12 months

        72,928           69,382  
     

 

 

       

 

 

 
        106,383           109,691  
     

 

 

       

 

 

 

 

133


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (15) Deferred tax assets and deferred tax liabilities (continued)

 

  (b) Deferred tax liabilities before offsetting

 

     30 June 2017 (unaudited)      31 December 2016  
     Taxable temporary
differences
     Deferred tax
liabilities
     Taxable temporary
differences
     Deferred tax
liabilities
 

Capitalised borrowing costs

     (23,360      (5,840      (26,396      (6,600
  

 

 

    

 

 

    

 

 

    

 

 

 

Including:

           

To be recovered within 12 months (inclusive)

        (2,101         (2,101

To be recovered over 12 months

        (3,739         (4,499
     

 

 

       

 

 

 
        (5,840         (6,600
     

 

 

       

 

 

 

 

  (c) Deductible temporary differences and deductible losses that are not recognised as deferred tax assets are analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Deductible temporary differences

     534,585        534,585  

Deductible losses

     457,388        432,634  
  

 

 

    

 

 

 
     991,973        967,219  
  

 

 

    

 

 

 

As accounting policies stated in Note 2(27), and it is not probable that future taxable income against which the deductible temporary differences and deductible losses can be utilised in some subsidiaries of the Company, such subsidiaries have not recognised deferred tax assets.

As at 30 June 2017, Zhejiang Jinyong Acrylic Fibre Company Limited (“Jinyong”) has not recognised deferred tax assets in respect of its fixed assets impairment provision of RMB456,623 thousands, inventory provision of RMB46,190 thousands (unaudited) (31 December 2016: Jinyong has not recognised deferred tax assets in respect of its fixed assets impairment provision of RMB456,623 thousands, inventory provision of RMB46,190 thousands).

As at 30 June 2017, other subsidiaries of the Company have not recognised deferred tax assets of RMB31,772 thousands (31 December 2016: RMB31,772 thousands).

 

134


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (15) Deferred tax assets and deferred tax liabilities (continued)

 

  (c) Deductible temporary differences and deductible losses that are not recognised as deferred tax assets are analysed as follows: (continued)

 

As accounting policies stated in Note 2(27), the Group not recognised deferred tax assets as it is not probable that future taxable profit against which the losses can be utilized will be available for the Group pursuant to latest tax laws, these accumulated losses will expire from 2016 to 2021.

 

     30 June 2017      31 December 2016  

Jinyong

     175,512        161,887  

Shanghai Golden Conti Petrochemical

     

Company Limited (“Jindi”)

     193,939        171,800  

Shanghai Petrochemical Investment Development

     

Company Limited (“Toufa”)

     60,361        72,813  

Jinshan Hotel

     27,576        26,134  
  

 

 

    

 

 

 
     457,388        432,634  
  

 

 

    

 

 

 

 

  (d) Deductible losses that are not recognised as deferred tax assets will expire in the following years:

 

     30 June 2017 (unaudited)      31 December 2016  

2017

     66,762        68,211  

2018

     63,733        63,733  

2019

     70,723        70,723  

2020

     140,591        140,591  

2021

     76,971        89,376  

2022

     38,608        —    
  

 

 

    

 

 

 
     457,388        432,634  
  

 

 

    

 

 

 

 

135


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (15) Deferred tax assets and deferred tax liabilities (continued)

 

  (e) The net balance of deferred tax assets and liabilities after offsetting is as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Offsetting amount of
deferred tax assets
and deferred tax
liabilities
     Deferred
tax assets - net
     Offsetting amount of
deferred tax assets and
deferred tax liabilities
     Deferred
tax
assets - net
 

Deferred tax assets

     (5,840      100,543        (6,600      103,091  

Deferred tax liabilities

     5,840        —          6,600        —    

 

  (16) Provision for assets impairment

 

     31      Increase in      Decrease in current period     30 June  
     December
2016
     current
period
     Reversal     Sold/
write-off
    2017
(unaudited)
 

Provision for bad debts

     992        25        —         —         1,017  

Including: Provision for bad debts of accounts receivable (Note 4(4))

     18        10        —         —         28  

Provision for bad debts of other receivables (Note 4(5))

     974        15        —         —         989  

Provision for declines in the value of inventories (Note 4(7))

     129,622        17,243        (33,762     —         113,103  

Impairment provisions for fixed asset (Note 4(11))

     1,171,551        18,874        —         (162     1,190,263  

Impairment provision for construction in progress (Note 4(12))

     10,175        —          —         —         10,175  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     1,312,340        36,142        (33,762     (162     1,314,558  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

136


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (17) Short-term borrowings

Classification of short-term borrowings

 

     Currency      30 June 2017 (unaudited)      31 December 2016  

Unsecured

        

- Bank borrowings

     RMB        613,421        546,432  

As at 30 June 2017, the weighted average interest rate of short-term borrowings is 2.87%-4.35% per annum (unaudited) (31 December 2016: 2.65%-4.5% per annum).

As at 30 June 2017, there are no short-term borrowings which are due but have not been repaid (unaudited) (31 December 2016: Nil).

 

  (18) Notes payable

 

     30 June 2017 (unaudited)      31 December 2016  

Bank acceptance notes

     88,000        5,000  

 

  (19) Accounts payable

 

     30 June 2017 (unaudited)      31 December 2016  

Related parties (Note 7(6))

     3,540,547        2,958,566  

Third parties

     2,276,634        2,123,904  
     5,817,181        5,082,470  

As at 30 June 2017 (unaudited) and 31 December 2016, there are no individually significant accounts payable aged over one year.

 

137


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (20) Advances from customers

 

     30 June 2017 (unaudited)      31 December 2016  

Related parties (Note 7(6))

     4,539        13,814  

Third parties

     424,270        462,992  
  

 

 

    

 

 

 
     428,809        476,806  
  

 

 

    

 

 

 

Advances from customers are mainly advances on sales.

As at 30 June 2017 (unaudited) and 31 December 2016, there are no advances from customers that are individually significant aged over one year (31 December 2016: Nil).

 

  (21) Employee benefits payable

 

     30 June 2017 (unaudited)      31 December 2016  

Short-term employee benefits payable

     85,217        16,960  

Defined contribution plans payable

     21,039        20,674  
  

 

 

    

 

 

 
     106,256        37,634  
  

 

 

    

 

 

 

 

138


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (21) Employee benefits payable (continued)

 

  (a) Short-term employee benefits

 

     31
December
2016
     Increase in
current
period
     Decrease in
current
period
     30 June
2017
(unaudited)
 

Wages and salaries, bonuses, allowances and subsidies

     —          652,626        (600,841      51,785  

Staff welfare

     —          147,154        (147,154      —    

Social insurances

     12,058        83,998        (83,995      12,061  

Including: Medical insurance

     9,840        61,351        (61,447      9,744  

                 Work injury insurance

     1,227        7,566        (7,509      1,284  

                 Maternity insurance

     991        6,169        (6,127      1,033  

                 Supplementary medical insurance

     —          8,912        (8,912      —    

Housing funds

     —          71,309        (71,309      —    

Compensation for lay-off

     —          8,806        (8,806      —    

Others

     4,902        68,952        (52,483      21,371  
  

 

 

    

 

 

    

 

 

    

 

 

 
     16,960        1,032,845        (964,588      85,217  
  

 

 

    

 

 

    

 

 

    

 

 

 

In accordance with the Group voluntary employee reduction plan, employee reduction expenses amounted to RMB8,806 thousands for the sixth months ended 30 June 2017 (unaudited) (for the sixth months ended 30 June 2016: RMB4,647 thousands (unaudited)).

 

139


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (21) Employee benefits payable (continued)

 

  (b) Defined contribution plans

 

     31 December
2016
     Increase in
current
period
     Decrease in
current period
     30 June
2017
(unaudited)
 

Basic pensions

     19,684        123,388        (122,552      20,520  

Unemployment insurance

     990        5,641        (6,112      519  

Supplemental basic pensions

     —          34,388        (34,388      —    
  

 

 

    

 

 

    

 

 

    

 

 

 
     20,674        163,417        (163,052      21,039  
  

 

 

    

 

 

    

 

 

    

 

 

 

As stipulated by the regulations of the PRC, the Group participates in a defined contribution retirement plan organised by the Shanghai Municipal Government for its staff.

In addition, pursuant to the document “Order of the Ministry of Labour and Social Security No.20” dated 6 January 2004 issued by the Ministry of Labour of the PRC, the Group has set up a supplementary defined contribution retirement plan for the benefit of employees. Employees who have served the Group for more than one year may participate in this plan. The Group and participating employees make defined contributions to their pension saving accounts according to the plan. The assets of this plan are held separately from those of the Group in an independent fund administered by a committee consisting of representatives from the employees and the Group.

The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. For the sixth months ended 30 June 2017, the Group’s contribution to the above two plans amounted to RMB123,388 thousands (unaudited) and RMB34,388 thousands (unaudited) respectively (for the sixth months ended 30 June 2016: RMB128,170 thousands (unaudited) and RMB35,363 thousands (unaudited) respectively).

 

140


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (22) Taxes payable

 

     30 June 2017 (unaudited)      31 December 2016  

Consumption tax payable

     937,397        938,495  

Value added tax payable

     325,195        345,894  

Enterprise income tax payable

     123,548        620,365  

City maintenance and construction tax payable

     88,545        89,511  

Educational surcharge payable

     63,368        64,316  

Housing property tax payable

     8,135        21,794  

Land use tax payable

     8,105        25,493  

Individual income tax payable

     4,900        16,933  

Others

     8,285        35,626  
  

 

 

    

 

 

 
     1,567,478        2,158,427  
  

 

 

    

 

 

 

 

  (23) Interest payable

 

     30 June 2017 (unaudited)      31 December 2016  

Interest payable for short-term borrowings

     500        465  

Others

     800        —    
  

 

 

    

 

 

 
     1,300        465  
  

 

 

    

 

 

 

 

  (24) Dividends payable

 

     30 June 2017 (unaudited)      31 December 2016  

Dividends payable

     2,720,473        20,473  

 

141


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (25) Other payables

 

     30 June 2017 (unaudited)      31 December 2016  

Related parties (Note 7(6))

     50,904        71,924  

Third parties

     825,439        542,744  
  

 

 

    

 

 

 
     876,343        614,668  
  

 

 

    

 

 

 

 

  (a) As at 30 June 2016 (unaudited), there are no other payables that are individually significant aged over one year besides unpaid guaranty deposit.

 

  (b) Other payables by categories are analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Equipment project and repair charges

     502,723        191,043  

Accrued expenses

     74,141        90,394  

Service charge

     56,997        66,037  

Payable to related parties (Note 7(6))

     50,904        71,924  

Guaranty deposit

     37,131        38,352  

Sales discount

     30,807        25,700  

Deposits

     16,392        12,828  

Social insurance withholding

     10,177        9,723  

Others

     97,071        108,667  
  

 

 

    

 

 

 
     876,343        614,668  
  

 

 

    

 

 

 

 

  (26) Deferred income

 

Government grants project

   31
December
2016
     Increase in
current
period
     Recognised in
non-operating income
in current period
    30 June
2017
(unaudited)
     Related to
assets/related
to income
 

Investment subsidies for Chemical Industry

     150,000        —          (5,000     145,000       

Related
to
assets
 
 
 

 

142


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (27) Share capital

 

     31 December
2016
     Current period movement      30 June
2017
(unaudited)
 
        Issue new
share
     Stock
dividend
     Transfer from
capital surplus
to paid-in capital
     Others      Subtotal     

Non-restricted shares -

                    

RMB ordinary A shares listed in PRC

     7,305,000        —          —          —          —          —          7,305,000  

Foreign investment H shared listed overseas

     3,495,000        —          —          —          —          —          3,495,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     10,800,000        —          —          —          —          —          10,800,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company was founded in Shanghai, PRC on 29 June 1993 with registered capital of RMB4,000,000,000 invested by its holding company-China National Petrochemical Corporation; these shares were converted from assets of former Shanghai Petrochemical Complex.

Approved by Zheng Wei Fa No. [1993] 30 issued by the State Council Securities Committee, the Company launched its Initial Public Offering (“IPO”) in July 1993 and September 1993 in Hong Kong, New York and Shanghai to issue 2.23 billion shares, including 1.68 billion H shares and 550 million A shares. The 550 million A shares included 400 million individual shares (including 150 million shares issued to SPC employees) and 150 million legal person shares. H shares were listed on the Hong Kong Stock Exchange on 26 July 1993, and listed on the New York Stock Exchange in the form of American Depositary Shares at the same time; the A shares were listed on the Shanghai Stock Exchange on 8 November 1993.

After the IPO, the total quantity of shares issued by the Company was 6.23 billion, including 4 billion state-owned shares, 150 million legal person shares, 400 million individual shares, and 1.68 billion H shares.

 

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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (27) Share capital (continued)

According to the plan stated in the prospectus issued in July 1993, and approved by the China Securities Regulatory Commission, the Company issued 320 million ordinary A shares with a par value of RMB1 each at an issuing price of RMB2.4 each during the period from 5 April to 10 June 1994. These shares were listed on the Shanghai Stock Exchange on 4 July 1994. By then, the total quantity of shares issued was expanded from 6.23 billion to 6.55 billion.

On 22 August 1996, the Company issued 500 million H shares to overseas investors; on 6 January 1997, another 150 million H shares were issued to overseas investors. By then, the total quantity of shares issued was expanded to 7.2 billion, including 2.33 billion H shares.

In 1998, China National Petrochemical Corporation was restructured to Sinopec Group.

Sinopec Corp. was founded on 28 February 2000 based on the approved assets restructuring of Sinopec Group. As part of the restructuring, the shares of the Company held by the Sinopec Group were injected in Sinopec Corp.; after the restructuring, the ownership of 4 billion state-owned shares of the Company held by the Sinopec Group were transferred to Sinopec Corp., and the shares were changed to state-owned legal person shares in nature.

All the A and H shares rank pari passu in all respects.

Pursuant to the ‘Approval on matters relating to the Share Segregation Reform of Sinopec Shanghai Petrochemical Company Limited’ issued by the State-owned Assets Supervision and Administration Commission of the State Council (State Owned Property [2013] No.443), a General Meeting of A share shareholders was held on 8 July 2013 and passed the resolution of ‘Share Segregation Reform of Sinopec Shanghai Petrochemical Company Limited (Amendment)’ (“the share segregation reform resolution”) which was published by the Company on Shanghai Stock Exchange (“SSE”) website on 20 June 2013. According to the Share Segregation Reform Resolution, the controlling shareholder of the Company, Sinopec Corp., offered shareholders of circulating A shares 5 shares for every 10 circulating A shares they held on 16 August 2013, aggregating 360,000,000 A shares, for the purpose of obtaining the listing rights of its non-circulating shares in the A Shares market. From 20 August 2013 (“the circulation date”), all the Company’s non-circulating A shares have been granted circulating rights on Shanghai Stock Exchange (“SSE”). As part of the restricted conditions, Sinopec Corp. committed that all the 3,640,000,000 A shares held were not allowed to be traded on SSE or transferred within 12 months from the circulation date (“the restriction period”). After the restriction period, Sinopec Corp. can only sell no more than 5 and 10 percent of its total shares within 12 and 24 months, respectively. The former 150,000,000 non-circulating A shares held by social legal persons were also prohibited to be traded on SSE or transferred within 12 months from the circulation date.

The resolution were approved by the extraordinary general meeting of shareholders, A share class shareholders meeting and H share class shareholders meeting on 22 Oct 2013, respectively. As at 30 June 2017, total shares of the Company were 10,800,000 thousands.

 

144


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (27) Share capital (continued)

Since the implementation of share segregation reform resolution on 20 August 2013, the Company’s non-circulating A shares had been granted circulating rights. As part of the restricted conditions, 5,460,000,000 A shares (equivalent to ten percent of the total number of Sinopec Shanghai Petrochemical Company’s shares) held by Sinopec Corp. and 225,000,000 A shares held by social legal persons had achieved circulation as at 30 June 2017.

 

            Current period movement         
     31 December
2015
     Issue new
share
     Stock
dividend
     Transfer from
capital surplus
to paid-in capital
     Others      Subtotal      30 June
2016
(unaudited)
 

Restricted shares -

                    

Domestic legal persons shares

     4,380,000        —          —          —          —          —          4,380,000  

Non-restricted shares -

                    

RMB ordinary A shares listed in PRC

     2,925,000        —          —          —          —          —          2,925,000  

Foreign investment H shared listed overseas

     3,495,000        —          —          —          —          —          3,495,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     10,800,000        —          —          —          —          —          10,800,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (28) Capital surplus

 

     31 December
2016
     Increase in
current period
     Decrease in
current period
     30 June 2017
(unaudited)
 

Government grants

     412,370        —          —          412,370  

Refund of harbor construction charge

     32,485        —          —          32,485  

Share-based payment recognised in shareholders’ equity (a)

     40,706        8,102        —          48,808  

Others

     49,067        —          —          49,067  
  

 

 

    

 

 

    

 

 

    

 

 

 
     534,628        8,102        —          542,730  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

145


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (28) Capital surplus (continued)

 

     31 December
2015
     Increase in
current period
     Decrease in
current period
     30 June 2016
(unaudited)
 

Government grants

     412,370        —          —          412,370  

Refund of harbor construction charge

     32,485        —          —          32,485  

Share-based payment recognised in shareholders’ equity (a)

     22,702        11,350        —          34,052  

Others

     49,067        —          —          49,067  
  

 

 

    

 

 

    

 

 

    

 

 

 
     516,624        11,350        —          527,974  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) Share-based payments

Pursuant to the resolution of the fifth meeting of the eighth session of the Board of Directors of the Company on 6 January 2015, the proposal regarding the list of participants and the number of share options under the share option incentive scheme was approved.

According to the Company’s share option incentive scheme, the grant date of share options was 6 January 2015, and there were a total of 38,760 thousand share options granted to 214 participants (0.359% of the total ordinary share capital issued). Each share option has a right to purchase an ordinary A share listed in PRC on vesting date at an exercise price of RMB4.20 under vesting conditions. The options are exercisable starting two years from the grant date, subject to the following vesting conditions:

 

    RoE of the Group should be no less than 9% for 2015, 9.5% for 2016 and 10% for 2017 in respect to the three vesting periods;

 

    achieving the target compound annual growth rate of 5% in net profit for 2015, 2016 and 2017, respectively based on the net profit of 2013;

 

    proportion of the main business revenue in the total revenue should be no less than 99%;

 

    each of the above three conditions should be no lower than the 75% level of peer companies; and

 

    achieving the target budget set by the Sinopec Corp

 

146


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (28) Capital surplus (continued)

 

  (a) Share-based payments (continued)

The participant should serve the Group at the required position from the grant date. Exercisable amount of each tranche depended on the time for which the participant served the Group during each. Upon the fulfilment of relevant vesting conditions, the share options of each tranche shall become exercisable at its exercisable date.

As at 31 December 2017, the outstanding share options which will expire in twelve months after the vesting dates and their exercise prices are as follows:

 

Vesting date

   Exercise price      Outstanding shares  
     (per share in RMB)      (unaudited)  

6 January 2017

     3.85        15,404,000  

6 January 2018

     3.85        10,888,000  

6 January 2019

     3.85        10,888,000  

 

  (b) Changes in number of share options in current year

 

     As at
30 June 2017 (unaudited)
 

Outstanding stock options issued in the beginning of the year

     38,510,000  

Number of share options granted in current year

     —    

Number of share options exercised in current year

     —    

Number of share options invalid in current year

     (1,330,000
  

 

 

 

Outstanding stock options issued in the end of the year

     37,180,000  
  

 

 

 

 

147


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (28) Capital surplus (continued)

 

  (c) Fair value of share options as at grant date

The total fair value of share options has been valued by an external valuation expert using Black-Scholes valuation model. As at the grant date, the significant inputs into the model were as follows:

 

Exercise price (Renminbi: Yuan)

     4.20  

Maturity (years)

     5.00  

Spot share price (Renminbi: Yuan)

     4.51  

Expected volatility

     41.20

Dividend yield

     1.00

Risk-free interest rate

     3.39%-3.67%  

The total fair value of share options at the grant date was RMB65,412 thousands.

 

  (d) Effect of share-based payment transactions on the financial position and financial performance

 

     For the six months
ended 30 June
2017 (unaudited)
 

Total expense recognised for the Equity-settled share-based payment in consolidated income statement

     8,102  

Accumulated amount recognised for the Equity-settled share-based payment in capital surplus

     48,808  

 

148


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (29) Other comprehensive income

 

     Other comprehensive income in
Balance Sheet
     Other comprehensive income in 2017 Income Statement  
     31 December
2016
     After-tax
attributable
to the
parent
company
    30 June
2017
(Unaudited)
     Current year
before
income tax
amount
    Less:
Pre-included
other
comprehensive
income
transferred
out this year
     Less:
income
tax
expense
     After-tax
attributable
to the
parent
company
    After-tax
attributable
to minority
shareholders
 

Other comprehensive income reclassificated in the future

                    

Under the equity method after the invested entity will be reclassified into the share of profits and losses of other comprehensive income

     18,213        (552     17,661        (552     —          —          (552     —    

 

  (30) Specific reserve

 

     31 December
2016
     Accrued during the
period
     Utilised during
the period
    30 June 2017
(unaudited)
 

Safety production costs

     346        46,320        (24,305     22,361  
     31 December
2015
     Accrued during the
period
     Utilised during
the period
    30 June 2016
(unaudited)
 

Safety production costs

     953        53,343        (13,902     40,394  

Specific reserve represents unutilised safety production fund accrued in accordance with state regulations (Note 2(20)).

 

149


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (31) Surplus reserve

 

     31 December
2016
     Increase in
current period
     Decrease in
current period
     30 June 2017
(unaudited)
 

Statutory surplus reserve

     4,999,046        —          —          4,999,046  

Discretionary surplus reserve

     101,355        —          —          101,355  
  

 

 

    

 

 

    

 

 

    

 

 

 
     5,100,401        —          —          5,100,401  
  

 

 

    

 

 

    

 

 

    

 

 

 
     31 December
2015
     Increase in
current period
     Decrease in
current period
     30 June 2016
(unaudited)
 

Statutory surplus reserve

     4,391,905        —          —          4,391,905  

Discretionary surplus reserve

     101,355        —          —          101,355  
  

 

 

    

 

 

    

 

 

    

 

 

 
     4,493,260        —          —          4,493,260  
  

 

 

    

 

 

    

 

 

    

 

 

 

In accordance with the Company Law and the Company’s Articles of Association, the Company should appropriate 10% of net profit for the year to the statutory surplus reserve, and the Company can cease appropriation when the statutory surplus reserve accumulated to more than 50% of the registered capital. The statutory surplus reserve can be used to make up for the loss or increase the share capital after approval from the appropriate authorities. No Statutory surplus reserve was provided during current period (unaudited) (for the six months ended 30 June 2016: Nil (unaudited)).

The Company appropriates for the discretionary surplus reserve should be proposed by the board of directors and approved by the General Meeting of Shareholders. The discretionary surplus reserve can be used to make up for the loss or increase the share capital after approval from the appropriate authorities. No discretionary surplus reserve was provided in current period (unaudited) (for the six months ended 30 June 2016: Nil (unaudited)).

 

150


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (32) Undistributed profits

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Undistributed profits at the beginning of the period

     8,296,460        4,028,025  

Add: Net profit attributable to equity shareholders of the parent company for the current period

     2,575,479        3,096,675  

Less: Ordinary shares dividends payable

     (2,700,000      (1,080,000
  

 

 

    

 

 

 

Undistributed profits at the end of the period

     8,171,939        6,044,700  
  

 

 

    

 

 

 

Pursuant to the resolution of the shareholders’ meeting on 15 June 2017, a dividend in respect of the year ended 31 December 2016 of RMB0.25 per share, amounting to a total dividend of RMB2,700,000 thousands was declared(unaudited) (for the six months ended 30 June 2016: RMB0.1 per share (including tax), amounting to a total dividend of RMB10,800,000 thousand(unaudited)).

 

  (33) Non-controlling interests

Attributable to the non-controlling interests of the Group:

 

     30 June 2017 (unaudited)      31 December 2016  

Shanghai Golden Phillips Petrochemical Company Limited (“Jinfei”)

     169,476        173,212  

China Jinshan Associated Trading Corporation (“Jinmao”)

     76,451        70,841  

Shanghai Jinchang Engineering Plastics Company Limited (“Jinchang”)

     42,395        43,228  

Jinyong

     (6,011      (6,011
  

 

 

    

 

 

 
     282,311        281,270  
  

 

 

    

 

 

 

 

151


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (34) Revenue and cost of sales

 

     Six months ended 30 June  
     2017 (unaudited)      2016 (unaudited)  
     Revenue      Cost of sales      Revenue      Cost of sales  

Main operations

     42,864,898        32,621,884        36,729,912        24,970,180  

Other operations

     242,052        220,087        263,279        207,448  
  

 

 

    

 

 

    

 

 

    

 

 

 
     43,106,950        32,841,971        36,993,191        25,177,628  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) Main operations revenue and main operations cost

The Group mainly operates in petrochemical industry.

Analysis by product is as follows:

 

     Six months ended 30 June  
     2017 (unaudited)      2016 (unaudited)  
     Main operations
revenue
     Main operations
cost
     Main operations
revenue
     Main operations
cost
 

Synthetic fibres

     1,062,461        1,127,830        999,011        929,160  

Resins and plastics

     4,811,255        3,822,509        4,747,017        3,352,638  

Intermediate petrochemicals

     4,861,394        3,259,968        4,245,716        2,724,786  

Petroleum products

     19,970,061        12,398,802        17,535,794        8,921,854  

Trading

     11,949,099        11,866,164        9,004,010        8,927,994  

Others

     210,628        146,611        198,364        113,748  
  

 

 

    

 

 

    

 

 

    

 

 

 
     42,864,898        32,621,884        36,729,912        24,970,180  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

152


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (35) Taxes and surcharges

 

       Six months ended 30 June       
       2017
(unaudited)
     2016
(unaudited)
    

Tax base and rate

Consumption tax

       5,129,889        5,294,575      According to relevant PRC tax regulations, since 1 January 2009, the Group is required to pay consumption tax based on the Group’s sales of gasoline and diesel rate according to the applicable tax rate (Note 3(1))

City maintenance and construction tax

       478,072        514,502      1% and 7% of actual payments of consumption, business tax and VAT during the period

Educational surcharge and others

       347,476        374,731      5% of actual payments of consumption, business tax and VAT during the period

Business tax

       —          2,354      5% of taxable turnover amount

Others

       49,836        —       
    

 

 

    

 

 

    
       6,005,273      6,186,162       
    

 

 

    

 

 

    

 

  (36) Selling and distribution expenses

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Transportation fee

     103,552        122,574  

Sales commission

     50,595        46,872  

Storage and logistics expenses

     33,393        30,956  

Staff costs

     24,632        26,885  

Others

     10,602        8,385  
  

 

 

    

 

 

 
     222,774        235,672  
  

 

 

    

 

 

 

 

153


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NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (37) General and administrative expenses

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Repair and maintenance expenses

     751,630        625,013  

Employee benefits

     462,757        551,828  

Depreciation and amortisation

     48,535        48,785  

Administrative expenses

     32,919        74,918  

Operation and maintenance expenses for information system

     20,119        15,756  

Research and development costs

     11,323        47,144  

Taxation charges

     —          43,276  

Others

     85,776        138,073  
  

 

 

    

 

 

 
     1,413,059        1,544,793  
  

 

 

    

 

 

 

 

  (38) Financial expenses - net

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Interest expenses

     23,269        34,549  

Less: Interest income

     (114,935      (39,989

Exchange loss – net

     (3,943      208  

Others

     6,770        7,215  
  

 

 

    

 

 

 
     (88,839      1,983  
  

 

 

    

 

 

 

 

154


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (39) Expenses by nature

The cost of sales, selling and distribution expenses and general and administrative expenses in the income statement are listed as follows by nature:

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Changes in inventories of finished goods and work in progress

     (489,768      (374,628

Consumed raw materials and low value consumables, etc.

     19,427,213        14,614,108  

Cost of trading products

     11,866,164        8,927,994  

Employee benefits

     1,204,364        1,319,902  

Depreciation and amortisation expenses

     918,530        950,450  

Repair and maintenance expenses

     751,630        625,013  

Transportation expenses

     136,945        153,530  

Agency commission

     50,595        46,872  

Administrative expenses

     32,919        74,918  

Guard and fire expense

     32,253        39,284  

Auditing fees

     3,900        3,900  

Others

     543,059        576,750  
  

 

 

    

 

 

 
     34,477,804      26,958,093  
  

 

 

    

 

 

 

 

  (40) Investment income

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Investment accounted for using the equity method

     560,068        376,745  

There are no severe restrictions on the investee’s ability to transfer investment income to the Group.

 

155


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (41) Asset impairment losses

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Provision for impairment of fixed assets

     18,874        112,062  

Provision for decline in value of inventories

     17,243        37,944  

Provision for bad debt provision/(back)

     25        (2
  

 

 

    

 

 

 
     36,142        150,004  
  

 

 

    

 

 

 

 

  (42) Non-operating income

 

     Six months ended 30 June      Amounts included in non-recurring
profit or loss for the six months
ended 30 June 2017
 
     2017
(unaudited)
     2016
(unaudited)
    

Government grants (a)

     30,548        14,280        30,548  

Gains on disposal of fixed assets

     2,154        2,548        2,154  

Others

     2,415        536        2,415  
  

 

 

    

 

 

    

 

 

 
     35,117        17,364        35,117  
  

 

 

    

 

 

    

 

 

 

 

  (a) Government grants mainly include:

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Fiscal subsidy for scientific research, energy saving and environmental protection

     22,444        8,900  

Amortisation of deferred income

     5,000        5,000  

Others

     3,104        380  
  

 

 

    

 

 

 
     30,548        14,280  
  

 

 

    

 

 

 

 

156


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (43) Non-operating expenses

 

     Six months ended 30 June      Amounts included in non-recurring
profit or loss for the six months
ended 30 June 2017
 
     2017
(unaudited)
     2016
(unaudited)
    

Allowances

     10,942        13,631        10,942  

Losses on disposal of fixed assets

     7,284        26,525        7,284  

Others

     2,303        898        2,303  
  

 

 

    

 

 

    

 

 

 
     20,529        41,054        20,529  
  

 

 

    

 

 

    

 

 

 

 

  (44) Income tax expenses

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Current tax expense for the period based on tax law and regulations

     668,525        964,869  

Deferred income tax

     2,548        (16,628
  

 

 

    

 

 

 
     671,073        948,241  
  

 

 

    

 

 

 

 

157


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

  4 Notes to the consolidated financial statements (continued)

 

  (44) Income tax expenses (continued)

The reconciliation from income tax calculated based on the applicable tax rates and total profit presented in the consolidated income statement to the income tax expenses is listed below:

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Total profit

     3,251,226        4,050,004  

Income tax expenses calculated at applicable tax rates

     812,807        1,012,501  

Tax effect of share of profit of investments accounted for using the equity method

     (140,017      (94,186

Tax effect of non-deductible expenses

     (2,065      —    

Other non-taxable profit

     5,772        10,424  

Under provision for income tax expense in respect of preceding years

     (14,714      3,890  

Utilisation of previously unrecognized tax losses

     (362      —    

Utilisation of previously unrecognised temporary differences

     —          (36

Temporary differences for which no deferred income tax asset was recognised in the period

     —          6,011  

Tax losses for which no deferred income tax asset was recognized in the period

     9,652        9,637  
  

 

 

    

 

 

 

Income tax expenses

     671,073        948,241  
  

 

 

    

 

 

 

 

158


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (45) Earnings per share

 

  (a) Basic earnings per share

Basic earnings per share is calculated by dividing the consolidated net profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding:

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Consolidated net profit attributable to ordinary shareholders of the parent company

     2,575,479        3,096,675  

Weighted average number of the Company’s ordinary shares outstanding (thousands)

     10,800,000        10,800,000  

Basic earnings per share

     0.238        0.287  

 

  (b) Diluted earnings per share

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Diluted consolidated net profit attributable to ordinary shareholders of the parent company

     2,575,479        3,096,675  

Weighted average number of the Company’s ordinary shares outstanding (thousands)

     10,800,000        10,800,000  

Adjustment for share option incentive (thousands) (i)

     11,923        6,961  

Diluted weighted average number of the Company’s ordinary shares outstanding (thousands)

     10,811,923        10,806,961  

Diluted earnings per share

     0.238        0.287  

 

(i) The Company has dilutive potential ordinary shares from share options. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price of the Company’s A shares for the six months ended 30 June 2017) based on the monetary value of the outstanding share options. The number of ordinary shares in issue is compared with the number of shares that would have been issued assuming the exercise of the share options.

 

159


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (46) Notes to consolidated cash flow statement

 

  (a) Cash received relating to other operating activities

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Subsidy income

     25,548        9,280  

Others

     2,415        382  
  

 

 

    

 

 

 
     27,963        9,662  
  

 

 

    

 

 

 

 

  (b) Cash paid relating to other operating activities

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Agency commission

     50,595        46,872  

Storage and logistics expenses

     33,393        28,535  

Administrative expenses

     32,919        74,918  

Operation and maintenance expenses for information system

     20,181        15,756  

Research and development costs

     11,323        47,144  

Security and fire extinguishment expenses

     32,253        39,284  

Others

     39,003        5,729  
  

 

 

    

 

 

 
     219,667        258,238  
  

 

 

    

 

 

 

 

  (c) Cash received relating to other investment activities

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Three-month deposit receipts

     500,000        —    

Interest income

     83,599        42,435  
  

 

 

    

 

 

 
     583,599        42,435  
  

 

 

    

 

 

 

 

160


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (47) Supplementary materials to consolidated cash flow statement

 

  (a) Supplementary materials to consolidated cash flow statement

Reconciliation from net profit to cash flows from operating activities

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Net profit

     2,580,153        3,101,763  

Add: Asset impairment losses

     36,142        150,004  

 Depreciation of investment properties

     6,579        6,778  

 Depreciation of fixed assets

     799,155        825,856  

 Amortisation of intangible assets

     8,706        8,706  

 Amortisation of long-term prepaid expenses

     104,090        109,110  

 Net losses on disposal of fixed assets

     5,130        23,977  

 Financial income -net

     (96,457      (13,804

 Investment income

     (560,068      (376,745

 Decrease/(Increase) in deferred tax assets

     2,548        (16,628

 Decrease in deferred income

     (5,000      (5,000

 Increase in inventories

     (874,703      (491,644

 Increase in operating receivables

     (234,198      (824,979

 Increase in operating payables

     556,586        2,096,839  

 Increase in specific reserve

     22,015        39,441  

 Share-based payment expenses

     8,102        11,350  
  

 

 

    

 

 

 

Net cash flows generated from operating activities

     2,358,780        4,645,024  
  

 

 

    

 

 

 

 

  (b) Net increase in cash and cash equivalents

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Cash and cash equivalents at the end of the period

     7,955,926        4,451,306  

Less: Cash and cash equivalents at the beginning of the period

     (5,440,623      (1,077,430
  

 

 

    

 

 

 

Net increase in cash and cash equivalents

     2,515,303        3,373,876  
  

 

 

    

 

 

 

 

161


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

4 Notes to the consolidated financial statements (continued)

 

  (47) Supplementary materials to consolidated cash flow statement (continued)

 

  (c) Cash and cash equivalents

 

     30 June 2017 (unaudited)      31 December 2016  

Cash

     

Including: Cash on hand

     11        5  

Bank deposits available on demand

     7,955,904        5,440,410  

Other cash at bank and on hand available on demand

     11        208  

Cash and cash equivalents at the end of the period

     7,955,926        5,440,623  

 

  (48) Monetary items denominated in foreign currency

 

     30 June 2017 (unaudited)  
     Balances
denominated in
foreign currency
     Exchange
rate
     Balances
denominated in
RMB
 

Cash at bank and on hand -

        

USD

     90,042        6.7744        609,981  

Accounts receivable -

        

USD

     82,050        6.7744        555,840  

Accounts payable -

        

USD

     239,402        6.7744        1,621,805  

Other payables -

        

USD

     8        6.7744        54  

 

162


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

5 Equity in other entities

 

  (1) Equity in subsidiaries

 

  (a) Main structure of the enterprise Group

 

     Operating    Place of    Business    Shareholding (%)     Acquisition  
     place    Registration    nature    Direct     Indirect     method  

Toufa

   Shanghai    Shanghai    Investment      100.00     —         Establish  

Jinmao

   Shanghai    Shanghai    Trading      67.33     —         Establish  

Jinchang

   Shanghai    Shanghai    Manufacturing      —         74.25     Establish  

Jinfei

   Shanghai    Shanghai    Manufacturing      —         60.00     Establish  

Jinyong

   Ningbo,
Zhejiang
   Ningbo,
Zhejiang
   Manufacturing      75.00     —         Investment  

Jindi

   Shanghai    Shanghai    Manufacturing      —         100.00     Establish  

Shanghai Jinmao Trading Co., Ltd.

   Shanghai    Shanghai    Trading      —         67.33     Establish  

 

  (b) As at 30 June 2017 (unaudited) and 31 December 2016, attributable to non-controlling interests of subsidiaries’ non-controlling shareholders were not significant (Note 4(33)).

 

  (2) Equity in joint ventures and associates

 

  (a) Background information of joint ventures and associates

 

     Main
operating
place
     Place of
Registration
     Business
nature
     Strategic to the
activities of the
Group?
    

 

Shareholding (%)

 
                 Direct      Indirect  

Joint ventures –

                 

BOC-SPC

     Shanghai        Shanghai        Production and sale of industrial gas        Yes        —          50.00  

Jinpu

     Shanghai        Shanghai        Production of polypropylene film        Yes        —          50.00  

Yangu Gas

     Shanghai        Shanghai        Production and sale of industrial gas        Yes        —          50.00  

Significant associates –

                 

Shanghai Secco

     Shanghai        Shanghai       
Manufacturing and distribution of
chemical products
 
 
     Yes        20.00        —    

Chemical Industrial Park

     Shanghai        Shanghai       
Planning, development and operation
of Chemical Industrial Park
 
 
     Yes        38.26        —    

Jinsen

     Shanghai        Shanghai        Production of resin products        Yes        —          40.00  

Azbil

     Shanghai        Shanghai       
Service and maintenance of building
automation systems and products
 
 
     Yes        —          40.00  
                 

Set out below are the summarised financial information for the above companies which are accounted for using the equity method.

 

163


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

5 Equity in other entities (continued)

 

  (2) Equity in joint ventures and associates (continued)

 

  (b) Significant financial information of significant joint ventures

 

     30 June 2017 (unaudited)     31 December 2016  
     BOC-SPC     Jinpu     Yangu Gas     BOC-SPC     Jinpu     Yangu Gas  

Current assets

     83,060       5,765       47,763       80,778       4,327       39,575  

Including: Cash and cash equivalents

     25,212       2,370       31,638       43,356       2,587       27,174  

Non-current assets

     256,529       11,939       60,628       273,096       17,945       66,757  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     339,589       17,704       108,391       353,874       22,272       106,332  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Current liabilities & Non-current liabilities

     (43,821     (23,637     (7,182     (42,067     (24,999     (5,219
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

     295,768       (5,933     101,209       311,807       (2,727     101,113  

Share of net assets recognised at shareholding percentage (i)

     147,884       —         50,606       155,903       —         50,558  

Adjusted items - Offseting the internal transactions unrealised

     (14,012     —         —         (15,764     —         —    

Carrying value of investments in joint venture

     133,872       —         50,606       140,139       —         50,558  
     Six months ended 30 June  
     2017 (unaudited)     2016 (unaudited)  
     BOC-SPC     Jinpu     Yangu Gas     BOC-SPC     Jinpu     Yangu Gas  

Revenue

     193,059       2,924       28,056       179,170       28,661       28,099  

Financial (expenses)/income - net

     (79     383       (128     (397     418       (89

Income tax expenses

     9,594       —         —         7,612       —         —    

Net profit/(loss)

     27,961       (3,206     96       22,326       (73,465     (3,787

Other comprehensive income

     —         —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income/(loss)

     27,961       (3,206     96       22,326       (73,465     (3,787
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Dividends received from associates by the Group for the current period

     22,000       —         —         33,125       —         600  

 

(i) The information above reflects the amounts presented in the financial statements of the joint ventures (and not the Group’s share of those amounts) adjusted for differences in accounting policies between the group and the associates.
(ii) The Group’s share of losses in Jinpu exceeded RMB5,933 thousands to its interest during the year ended 31 December. The Group has no obligations and does not need to make payments on behalf of Jinpu. As a result, the Group did not recognize further losses and the carrying amount of the investment in Jinpu was solely decreased to zero.

 

164


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

5 Equity in other entities (continued)

 

  (2) Equity in joint ventures and associates (continued)

 

  (c) Significant financial information of significant associates

 

     30 June 2017 (Unaudited)     31 December 2016  
           Chemical                       Chemical              
     Shanghai     Industrial                 Shanghai     Industrial              
     Secco     Park     Jinsen     Azbil     Secco     Park     Jinsen     Azbil  

Current assets

     6,419,713       4,370,966       106,631       161,985       5,596,573       4,265,139       110,499       153,980  

Including: Cash and cash equivalents

     2,580,991       2,733,225       45,489       78,233       2,342,720       2,695,719       62,450       86,394  

Non-current assets

     6,040,210       3,344,283       78,762       3,228       6,582,633       3,393,160       83,077       3,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

     12,459,923       7,715,249       185,393       165,213       12,179,206       7,658,299       193,576       157,125  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities

     (2,009,845     (1,156,899     (10,315     (60,558     (1,982,932     (1,299,046     (10,324     (46,532

Non-current liabilities

     —         (1,684,709     —         —         —         (1,655,448     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     (2,009,845     (2,841,608     (10,315     (60,558     (1,982,932     (2,954,494     (10,324     (46,532
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net assets

     10,450,078       4,873,641       175,078       104,655       10,196,274       4,703,805       183,252       110,593  

Share of net assets recognised at shareholding percentage (i)

     2,090,016       1,864,656       70,031       41,862       2,039,256       1,799,677       73,301       44,237  

Adjustment-Unrealized downstream transactions

     (7,979     —         —         —         (7,979     —         —         —    

Adjusted items (ii)

     —         (346,784     —         —         —         (348,600     —         —    

Carrying value of investments in associates

     2,082,037       1,517,872       70,031       41,862       2,031,277       1,451,077       73,301       44,237  

 

165


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

5 Equity in other entities (continued)

 

  (2) Equity in joint ventures and associates (continued)

 

  (c) Significant financial information of significant associates (continued)

 

     Six months ended 30 June  
     2017 (unaudited)      2016 (unaudited)  
     Shanghai
Secco
     Chemical
Industrial
Park
    Jinsen     Azbil      Shanghai
Secco
     Chemical
Industrial
Park
     Jinsen     Azbil  

Revenue

     14,321,141        1,284,017       87,371       102,185        11,524,791        1,218,237        83,531       89,372  

Net profit/(loss)

     2,359,400        176,024       (8,174     11,062        1,679,758        160,638        (4,665     7,445  

Other comprehensive income

     —          (1,442     —         —          —          —          —         —    
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive income/(loss)

     2,359,400        174,582       (8,174     11,062        1,679,758        160,638        (4,665     7,445  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Dividends received from associates by the Group for the current period

     421,120        —         —         6,800        178,200        —          2,936       7,200  

 

  (i) The information above reflects the amounts presented in the financial statements of the associates (and not the Group’s share of those amounts) adjusted for differences in accounting policies between the Group and the associates.

 

  (ii) Unentitled portion represented some piece of lands injected by Government in Chemical Industry as capital reserve and the earnings from this land cannot be shared by other shareholders.

 

  (d) Summarised information of insignificant associates

 

     Six months ended 30 June (unaudited)  
     2017      2016  

Total carrying value of investment made on 30 June

     42,676        44,716  
  

 

 

    

 

 

 

Below total amount are calculated at shareholding percentages

     

Net profit (i)

     3,905        3,933  

Other comprehensive income (i)

     —          —    
  

 

 

    

 

 

 

Total comprehensive income

     3,905        3,933  
  

 

 

    

 

 

 

 

(i) The effects of the fair value of identifiable assets and liabilities at the time of investment acquisition and the adjustment for collective accounting policies are taken into consideration in determining net profit and other comprehensive income.

 

166


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

6 Segment information

Segment information is presented in respect of the Group’s business segments, the format of which is based on the structure of the Group’s internal organisation, management requirement, and internal reporting system.

In a manner consistent with the way in which information is reported internally to the Group’s chief operating decision maker for the purposes of resource allocation and performance assessment, the Group identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments.

The Group evaluates the performance and allocates resources to its operating segments on an operating income basis, without considering the effects of finance expenses, investment income, non-operating income and non-operating expenses. The accounting policies adopted by the operating segments are the same with the policies in Note 2(30). The transfer price of intersegment is recognised with cost plus profit method.

The Group principally operates in five operating segments: petroleum products, intermediate petrochemicals, synthetic fibres, resins and plastics and trading of petrochemical products. Petroleum products, intermediate petrochemicals, synthetic fibres and resins and plastics are produced through intermediate steps from crude oil, the principal raw material. The specific products of each segment are as follows:

 

  (i) The Group’s petroleum products segment is equipped with crude oil distillation facilities used to produce vacuum and atmospheric gas oils used as feedstocks of the Group’s downstream processing facilities. Residual oil and low octane gasoline fuels are co-products of the crude oil distillation process. Part of the residual oil is further processed into qualified refined gasoline and diesel oil. In addition, the Group produces a variety of fuels for transportation, industry and household heating usage, such as diesel oil, jet fuel, heavy oil and liquefied petroleum gas.

 

  (ii) The intermediate petrochemicals segment primarily produces p-xylene, benzene and butadiene. Most of the intermediate petrochemicals produced by the Group are used by the Group as raw materials in the production of other petrochemicals, resins, plastics and synthetic fibres. A portion of the intermediate petrochemicals as well as certain by-products of the production process are sold to outside customers.

 

  (iii) The synthetic fibres segment produces primarily polyester and acrylic fibres, which are mainly used in the textile and apparel industries.

 

  (iv) The resins and plastics segment produces primarily polyester chips, low-density polyethylene resins, polypropylene resins, films and PVA granules. The polyester chips are used to produce polyester fibres, coating and containers. Polyethylene resins and plastics are used to produce insulated cable, mulching films and moulded products such as housewares and toys. Polypropylene resins are used for films, sheets and moulded products such as housewares, toys, consumer electronics and automobile parts.

 

  (v) The Group’s trading of petrochemical products segment primarily engages in importing and exporting of petrochemical products.

 

167


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

6 Segment information (continued)

 

  (vi) All other operating segments represent the operating segments which do not meet the quantitative threshold for determining reportable segments. These include consumer products and services and a variety of other commercial activities, which are not allocated to the above five operating segments.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise long-term equity investments, deferred tax assets, cash at bank and on hand and its related interest income, interest-bearing borrowings, interest expenses, deferred income, corporate assets and related expenses.

 

  (a) Segment information as at and for the six months ended 30 June 2017 is as follows (unaudited):

 

    Synthetic
fibres
    Resins and
plastics
    Intermediate
petrochemicals
    Petroleum
products
    Trading of
petrochemical
products
    Others     Unallocated     Elimination     Total  

Revenue from external customers

    1,062,461       4,811,255       4,861,394       19,970,061       11,949,099       452,680       —         —         43,106,950  

Inter-segment revenue

    —         30,803       4,731,777       2,759,447       558,281       506,084       —         (8,586,392     —    

Cost of sales

    (1,127,830     (3,822,509     (3,259,968     (12,398,802     (11,866,164     (366,698     —         —         (32,841,971

Interest income

    —         —         —         —         —         —         114,935       —         114,935  

Interest expenses

    —         —         —         —         —         —         (23,269     —         (23,269

Investment income

    —         —         —         —         —         —         560,068       —         560,068  

Asset impairment losses

    (12,849     —         (2,054     (2,340     —         (18,899     —         —         (36,142

Depreciation and amortisation

    (42,552     (82,313     (263,728     (476,063     (88     (53,786     —         —         (918,530
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total (loss)/profit

    (243,211     481,258       745,276       1,607,700       34,848       (38,140     663,495       —         3,251,226  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expenses

    —         —         —         —         —         —         (671,073     —         (671,073

Net (loss)/profit

    (243,211     481,258       745,276       1,607,700       34,848       (38,140     (7,578     —         2,580,153  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    1,182,471       2,084,541       4,358,309       14,197,634       2,331,997       2,412,343       10,734,369       —         37,301,664  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    340,076       1,032,747       1,063,304       4,488,617       2,030,650       63,867       3,345,000       —         12,364,261  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

168


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

6 Segment information (continued)

 

  (b) Segment information as at and for the six months ended 30 June 2016 is as follows (unaudited):

 

    Synthetic
fibres
    Resins and
plastics
    Intermediate
petrochemicals
    Petroleum
products
    Trading of
petrochemical
products
    Others     Unallocated     Elimination     Total  

Revenue from external customers

    999,011       4,747,017       4,245,716       17,535,794       9,004,010       461,643       —         —         36,993,191  

Inter-segment revenue

    —         40,622       4,693,316       1,524,150       706,127       264,290       —         (7,228,505     —    

Cost of sales

    (929,160     (3,352,638     (2,724,786     (8,921,854     (8,927,994     (321,196     —         —         (25,177,628

Interest income

    —         —         —         —         —         —         39,989       —         39,989  

Interest expenses

    —         —         —         —         —         —         (34,549     —         (34,549

Investment income

    —         —         —         —         —         —         376,745       —         376,745  

Asset impairment losses

    (57,624     (81,155     (11,225     —         —         —         —         —         (150,004

Depreciation and amortisation

    (73,194     (54,941     (261,646     (450,431     (88     (110,150     —         —         (950,450

Total (loss)/profit

    (229,891     713,166       734,194       2,431,333       21,203       (5,292     385,291       —         4,050,004  

Income tax expenses

    —         —         —         —         —         —         (948,241     —         (948,241

Net (loss)/profit

    (229,891     713,166       734,194       2,431,333       21,203       (5,292     (562,950     —         3,101,763  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    1,583,385       1,624,808       4,390,672       12,257,788       1,455,364       2,257,207       8,355,725       —         31,924,949  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    316,374       867,937       901,151       3,770,122       1,571,094       201,549       2,113,776       —         9,742,003  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

In view of the fact that the Group operates mainly in the PRC, no geographical segment information is presented.

For the six months ended 30 June 2017, revenue from the same customer accounted for 44% (unaudited) of total Group revenue (For the six months ended 30 June 2016: 44% (unaudited)). The revenue from the customer derived from the following segments: intermediate petrochemicals, petroleum products, trading of petrochemical products and other segment.

 

169


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions

 

  (1) Information on the parent company

 

  (a) General information of the parent company

 

    

Place of
registration

  

Business
nature

China Petroleum & Chemical Corporation

   No.22 Chaoyangmen North Street, Chaoyang District, Beijing    Exploring for, extracting and selling crude oil and natural gas; oil refining; production, sale and transport of petrochemical, chemical fibres and other chemical products; pipe transport of crude oil and natural gas; research and development and application of new technologies and information.

The Company’s ultimate controlling party is China Petrochemical Corporation.

 

  (b) Share capital and changes in share capital of the parent company

 

     31 December 2016      Increase in
current period
     Decrease in
current period
     30 June 2017  

China Petroleum & Chemical Corporation

     RMB121.1 billion        —          —          RMB121.1 billion  

 

  (c) The percentages of shareholding and voting rights in the Company held by the parent company

 

     30 June 2017 (unaudited)     31 December 2016  
     Shareholding     Voting rights     Shareholding     Voting rights  

China Petroleum & Chemical Corporation

     50.56     50.56     50.56     50.56

 

170


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (2) Information on the Company’s subsidiaries

The general information and other related information of the subsidiaries is set out in Note 5.

 

  (3) Information on joint ventures and associates

In addition to the major joint ventures and associates disclosed in Note 5(2), related transactions between the Group and other associates are as follows:

 

                          Whether it      Shareholding (%)  
     Operating
place
     Place of
registry
     Business
nature
     is strategic
for group
activities
     Directly      Indirectly  

Shanghai Nanguang Petrochemical Co., Ltd.

     Shanghai        Shanghai       


Petrochemical
products
import and
export
 
 
 
 
     Yes        —          35

Shanghai Jinhuan Petroleum Naphthalene Development Company Limited

     Shanghai        Shanghai       


Petrochemical
products
import and
export
 
 
 
 
     Yes        —          25

Shanghai Chemical Industry Park Logistics Company Limited

     Shanghai        Shanghai       
Products
freight
 
 
     Yes        —          33.33

 

171


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (4) Information on other related parties

 

Names of other related parties

  

Relationship with the Group

Petro-Cyberworks Information Technology Company, Limited.    Subsidiary of the holding company
China International United Petroleum & Chemicals Co., Ltd.    Subsidiary of the holding company
China Petrochemical International Company Limited    Subsidiary of the holding company
China Petrochemical Chemical Company Limited    Subsidiary of the holding company
SinopecI Refining & Sales Company Limited    Subsidiary of the holding company
Sinopec Fuel Oil Sales Company Limited    Subsidiary of the holding company
Sinopec Catalyst Co., Ltd.    Subsidiary of the holding company
Sinopec Yizheng Chemical Fibre Company Limited    Subsidiary of the holding company
China Petrochemical International (Beijing) Co., Ltd    Subsidiary of the holding company
China Petrochemical International (Ningbo) Co., Ltd    Subsidiary of the holding company
China Petrochemical International (Tianjin) Co., Ltd    Subsidiary of the holding company
Sinopec Chemical Sales Co., Ltd    Subsidiary of the holding company
Sinopec Marketing Co., Ltd    Subsidiary of the holding company
Sinopec Chemical Commercial Holding (Hong Kong) Company Limited    Subsidiary of the holding company
Sinopec Europe Company Limited    Subsidiary of the holding company
Sinopec Material & Equipment (East China) Co., Ltd.    Subsidiary of the holding company
Shanghai Gaoqiao Petrochmical Company Limited.    Subsidiary of the holding company
Sinopec Fuel Oil Sales Company Limited    Subsidiary of the holding company
BASF-YPC Company Limited    Joint venture of the holding company
Zhejiang Baling Hengyi Caprolactam Co., Ltd    Joint venture of the holding company
Shanghai Petrochemical Machine Manufacturing Co., Ltd.    Subsidiary of the ultimate holding company
Sinopec Finance Company Limited    Subsidiary of the ultimate holding company
Sinopec Engineering Incorporation    Subsidiary of the ultimate holding company
Sinopec Petroleum Storage and Reserve Limited    Subsidiary of the ultimate holding company
Sinopec Tendering Co., Ltd.    Subsidiary of the ultimate holding company
Nanjing Engineering Company Limited    Subsidiary of the ultimate holding company
The Tenth Construction Company of Sinopec    Subsidiary of the ultimate holding company
The Fourth Construction Company of Sinopec    Subsidiary of the ultimate holding company
Sinopec Fifth Construction Co., Ltd.    Subsidiary of the ultimate holding company
Sinopec Ningbo Engineering Company Limited    Subsidiary of the ultimate holding company
Sinopec Shanghai Engineering Company Limited    Subsidiary of the ultimate holding company
Sinopec Energy Saving Technology Service Company    Subsidiary of the ultimate holding company

 

172


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (5) Related party transactions

Most of the transactions undertaken by the Group during the year ended 31 December 2016 have been affected on such terms as determined by Sinopec Corp. and relevant PRC authorities.

Sinopec Corp. negotiates and agrees the terms of crude oil supply with suppliers on a group basis, which is then allocated among its subsidiaries, including the Group, on a discretionary basis. Sinopec Corp. also owns a widespread petroleum products sales network and possesses a fairly high market share in domestic petroleum products market, which is subject to extensive regulation by the PRC government.

The Group has entered into a mutual product supply and sales services framework agreement with Sinopec Corp. Pursuant to the agreement, Sinopec Corp. provides the Group with crude oil, other petrochemical raw materials and agent services. On the other hand, the Group provides Sinopec Corp. with petroleum products, petrochemical products and property leasing services.

The pricing policy for these services and products under the agreement is as follows:

If there are applicable State (central and local government) tariffs, the pricing shall follow the State tariffs;

If there are no State tariffs, but there are applicable State’s guidance prices, the pricing shall follow the State’s guidance prices; or

If there are no State tariffs or State’s guidance prices, the pricing shall be determined in accordance with the prevailing market prices (including any bidding prices).

In addition to the related party transactions disclosed in Note 4(9), Note 4 (24), Note 4(28), Note 4(32) and Note 4(40), other major related party transactions of the Group are as follows:

 

173


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (5) Related party transactions (continued)

 

  (a) Purchases and sale of goods, rendering and receiving services

Purchases of goods and receiving services:

The Group

 

                   Six months ended 30 June  
                   2017
(unaudited)
    2016
(unaudited)
 

Name of Related Parties

   Category      Transaction type      Amount      Percentage
of the same
category (%)
    Amount      Percentage
of the same
category (%)
 

Sinopec Corp., its subsidiaries and joint ventures

     Purchases        Trade        18,199,151        88.19     11,203,068        68.55

Sinopec Group and its subsidiaries

     Purchases        Trade        371,839        1.80     74,350        0.45

Associates of the Group

     Purchases        Trade        1,842,410        8.93     1,562,414        9.56

Joint ventures of the Group

     Purchases        Trade        178,198        0.86     169,646        1.04

Key management personnel

    

Short-term
employee
benefits
 
 
 
    
Compensation
for services
 
 
     3,492        0.52     3,267        0.43

Key management personnel

    

Retirement
scheme
contributions
 
 
 
    
Compensation
for services
 
 
     74        0.03     73        0.03

Key management personnel

    
Share option
incentive
 
 
    
Compensation
for services
 
 
     460        5.68     671        5.91

 

174


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (5) Related party transactions (continued)

 

  (a) Purchases and sale of goods, rendering and receiving services (continued)

 

Sale of goods, rendering services:

The Group

 

                 Six months ended 30 June  
                 2017
(unaudited)
    2016
(unaudited)
 

Name of Related Parties

   Category    Transaction
type
     Amount      Percentage
of the same
category (%)
    Amount      Percentage
of the same
category (%)
 

Sinopec Corp., its subsidiaries and joint ventures

   Sales/
Service
income
     Trade        21,483,561        49.84     19,228,593        51.99

Sinopec Group and its subsidiaries

   Sales/
Service
income
     Trade        4,741        0.01     33,577        0.09

Associates of the Group

   Sales      Trade        1,328,911        3.08     742,564        2.01

Joint ventures of the Group

   Sales      Trade        126,763        0.29     117,754        0.32

 

175


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (5) Related party transactions (continued)

 

  (b) Related party funding

For the six months ended 30 June 2017, the Group and the Company did not borrow from Sinopec Finance Company Limited (unaudited) (for the six months ended 30 June 2016: Nil).

For the six months ended 30 June 2017, the Group and the Company did not lend any capital to joint ventures (unaudited) (for the six months ended 30 June 2016: 300,000).

 

  (c) Other related transactions

The Group

 

            Six months ended 30 June  
     Transaction Type      2017
(unaudited)
     2016
(unaudited)
 

Sinopec Group and its subsidiaries

     Insurance premiums        63,387        60,895  

Sinopec Finance Company Limited

     Interests received and receivable        5,025        127  

Sinopec Finance Company Limited

     Interests paid and payable        —          2,278  

Sinopec Group and its subsidiaries

     Construction and installation cost        53,476        64,212  

Sinopec Chemical Commercial Holding Company Limited

     Sales commission        50,595        46,872  

Sinopec Corp. and its subsidiaries

     Rental income        13,878        14,217  

 

176


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (6) Receivables from and payables to related parties

Receivables from related parties:

The Group

 

          30 June 2017 (unaudited)      31 December 2016  

Cash at bank and on hand

  

Sinopec Group and its subsidiaries

     42,967        169,261  
     

 

 

    

 

 

 

Notes receivable

  

Sinopec Corp., its subsidiaries and joint ventures

     29,930        29,300  
     

 

 

    

 

 

 

Accounts receivable

  

Sinopec Corp., its subsidiaries and joint ventures

     1,090,838        1,178,168  
  

Associates of the Group

     52,383        44,678  
  

Joint ventures of the Group

     28,826        18,459  
  

Sinopec Group and its subsidiaries

     452        331  
     

 

 

    

 

 

 
        1,172,499        1,241,636  
     

 

 

    

 

 

 

Other receivables

  

Joint ventures of the Group

     7,536        —    
  

Sinopec Corp., its subsidiaries and joint ventures

     1,217        1,307  
  

Associates of the Group

     179        179  
     

 

 

    

 

 

 
        8,932        1,486  
     

 

 

    

 

 

 

Advances to suppliers

  

Sinopec Corp. and its subsidiaries

     68,734        18,197  

 

177


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (6) Receivables from and payables to related parties (continued)

 

Payables to related parties:

The Group

 

          30 June 2017 (unaudited)      31 December 2016  

Accounts payable

  

Sinopec Corp., its subsidiaries and joint ventures

     3,282,117        2,589,376  
  

Associates of the Group

     223,047        19,332  
  

Joint ventures of the Group

     33,656        15,151  
  

Sinopec Group and its subsidiaries

     1,727        334,707  
     

 

 

    

 

 

 
        3,540,547        2,958,566  
     

 

 

    

 

 

 

Other payables

  

Sinopec Group and its subsidiaries

     39,979        52,553  
  

Sinopec Corp., its subsidiaries and joint ventures

     10,686        19,371  
  

Associates of the Group

     239        —    
     

 

 

    

 

 

 
        50,904        71,924  
     

 

 

    

 

 

 

Advances from customers

  

Sinopec Corp., its subsidiaries and joint ventures

     3,489        11,799  
  

Associates of the Group

     1,003        1,485  
  

Joint ventures of the Group

     35        2  
  

Sinopec Group and its subsidiaries

     12        528  
     

 

 

    

 

 

 
        4,539        13,814  
     

 

 

    

 

 

 

Dividends payable

  

Sinopec Corp., its subsidiaries and joint ventures

     1,365,000        —    

 

178


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (7) Commitments with related parties

Commitments with related parties contracted for by the Group at the balance sheet date but are not yet necessary to be recognised on the balance sheet are as follows:

 

  (i) Construction and installation cost:

 

     30 June 2017 (unaudited)      31 December 2016  

Sinopec Group and its subsidiaries

     25,864        4,310  

 

  (ii) Investment commitments with related parties

 

     30 June 2017 (unaudited)      31 December 2016  

Capital contribution to Shanghai Secco

     111,263        111,263  

Pursuant to the resolution of the 18th meeting of the 7th term of Board of Directors on 5 December 2013, it was approved to make capital contribution of USD30,017,124 (RMB182,804 thousands equivalent) to Shanghai Secco, an associate of the Group. The capital to Shanghai Secco will be contributed in RMB by instalments. The capital contribution is mainly to meet the funding needs of the implementation of the “260,000 tons of AN-2 project” (“AN-2 project”), and “90,000 tons of BEU-2 project” (“BEU-2 project”).

As at 10 December 2013, the Company contributed the first instalment of RMB60,000 thousands for AN-2 project. As at 5 March 2014, the Company contributed the first instalment of RMB11,541 thousands for BEU-2 project. According to the approval by Shanghai Municipal Commission of Commerce as issued on 19 October 2015, the rest of the capital contribution to Shanghai Secco should be within 50 years starting from its registration date.

Except for the above, the Group and the Company had no other material commitments with related parties at 30 June 2017, which are contracted, but not included in the financial statements (unaudited).

 

179


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

7 Related parties and related party transactions (continued)

 

  (7) Commitments with related parties (continued)

 

  (iii) Operating lease commitments

 

     30 June 2017 (unaudited)      31 December 2016  

Within a year

     59,160        53,960  

One to two years

     29,580        53,960  
  

 

 

    

 

 

 
     88,740        107,920  
  

 

 

    

 

 

 

 

8 Commitments

 

  (1) Capital commitments

Capital expenditures contracted for by the Group at the balance sheet date but are not yet necessary to be recognised on the balance sheet are as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Purchase of fixed assets contracted but not provided for

     305,770        5,300  

Purchase of fixed assets authorised but not contracted for

     1,124,076        908,036  
  

 

 

    

 

 

 
     1,429,846        913,336  
  

 

 

    

 

 

 

 

  (2) Operating lease commitments

According to the irrevocable operating lease contracts that have been signed, the group should pay the future minimum rent payment summarized as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Within a year

     61,144        60,125  

One to two years

     31,222        54,438  

Two to three years

     910        384  

More than three years

     3,033        3,207  
  

 

 

    

 

 

 
     96,309        118,154  
  

 

 

    

 

 

 

 

180


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

9 Financial risk

The Group’s activities expose it to a variety of financial risks: market risk (primarily currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

 

  (1) Market risk

 

  (a) Foreign exchange risk

The Group’s major operational activities are carried out in Mainland China and a majority of the transactions are denominated in RMB. Nevertheless the Group is exposed to foreign exchange risk arising from the recognised assets and liabilities, and future transactions denominated in foreign currencies, primarily with respect to US dollars. The Group’s finance department at its headquarters is responsible for monitoring the amount of assets and liabilities, and transactions denominated in foreign currencies to minimise the foreign exchange risk.

The foreign exchange risk of the Group is arising from borrowings denominated in EUR. The Group purchased forward exchange contract to avoid foreign exchange risk arising from borrowing denominated in EUR. As at 30 June 2017, the Group does not have undue forward exchange contract (unaudited).

As at 30 June 2017 (unaudited) and 31 December 2016, the carrying amounts in RMB equivalent of the Group’s assets and liabilities denominated in foreign currencies are summarised as follows:

 

     30 June 2017 (unaudited)  
     USD      Others      Total  

Financial assets in foreign currencies –

        

Cash at bank and on hand

     609,981        —          609,981  

Accounts receivable

     555,840        —          555,840  
  

 

 

    

 

 

    

 

 

 
     1,165,821        —          1,165,821  
  

 

 

    

 

 

    

 

 

 

Financial liabilities in foreign currencies –

        

Accounts payable

     1,621,805        —          1,621,805  

Other payables

     54        —          54  
  

 

 

    

 

 

    

 

 

 
     1,621,859        —          1,621,859  
  

 

 

    

 

 

    

 

 

 

 

181


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

9 Financial risk (continued)

 

  (1) Market risk (continued)

 

  (a) Foreign exchange risk (continued)

 

 

     31 December 2016  
     USD      Others      Total  

Financial assets in foreign currencies -

        

Cash at bank and on hand

     249,281        —          249,281  

Accounts receivable

     409,852        —          409,852  
  

 

 

    

 

 

    

 

 

 
     659,133        —          659,133  
  

 

 

    

 

 

    

 

 

 

Financial liabilities in foreign currencies -

        

Accounts payable

     1,275,985        124        1,276,109  

Other payables

     55        —          55  
  

 

 

    

 

 

    

 

 

 
     1,276,040        124        1,276,164  
  

 

 

    

 

 

    

 

 

 

As at 30 June 2017, if the currency had strengthened/weakened by 5% against other currencies while all other variables had been held constant, the Group’s net profit for the period would have been approximately RMB17,101 thousands higher/lower (unaudited) (31 December 2016: RMB23,139 thousands higher/lower in net profit) for various financial assets and liabilities denominated in other currencies.

 

182


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

9 Financial risk (continued)

 

  (1) Market risk (continued)

 

  (b) Interest rate risk

The Group’s interest rate risk arises from short-term and long-term interest bearing borrowings. Financial liabilities issued at floating rates expose the Group to cash flow interest rate risk. Financial liabilities issued at fixed rates expose the Group to fair value interest rate risk. The Group determines the relative proportions of its fixed rate and floating rate contracts depending on the prevailing market conditions. As at 30 June 2017, the Group’s short-term and current portion of long-term borrowings were denominated with floating rates, amounting to RMB113,421 thousands (unaudited) (31 December 2016: RMB46,432 thousands)

The Group’s finance department at its headquarters continuously monitors the interest rate position of the Group. Increases in interest rates will increase the cost of new borrowing and the interest expenses with respect to the Group’s outstanding floating rate borrowings, and therefore could have a material adverse effect on the Group’s financial position. The Group makes adjustments timely with reference to the latest market conditions and may enter into interest rate swap agreements to mitigate its exposure to interest rate risk. During the six months ended 2017 and 2016, the Group did not enter into any interest rate swap agreements (unaudited).

As at 30 June 2017, if interest rates on the floating rate borrowings had risen/fallen by 50 basis points while all other variables had been held constant, the Group’s net profit would have decreased/ increased by approximately RMB425 thousands (unaudited) (31 December 2016: RMB174 thousands).

 

  (2) Credit risk

Credit risk is managed on the grouping basis. Credit risk mainly arises from cash at bank, accounts receivable, other receivables, notes receivable etc.

The Group expects that there is no significant credit risk associated with cash at bank since they are deposited at state-owned banks and other medium or large size listed banks. Management does not expect that there will be any significant losses from non-performance by these counterparties.

In addition, the Group has policies to limit the credit exposure on accounts receivable, other receivables and notes receivable. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial position, the availability of guarantee from third parties, their credit history and other factors such as current market conditions. The credit history of the customers is regularly monitored by the Group. In respect of customers with a poor credit history, the Group will use written payment reminders, or shorten or cancel credit periods, to ensure the overall credit risk of the Group is limited to a controllable extent.

 

183


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

9 Financial risk (continued)

 

  (3) Liquidity risk

Cash flow forecasting is performed by each subsidiary of the Group and aggregated by the Group’s finance department in its headquarters. The Group’s finance department at its headquarters monitors rolling forecasts of the Group’s short-term and long-term liquidity requirements to ensure it has sufficient cash and securities that are readily convertible to cash to meet operational needs, while maintaining sufficient headroom on its undrawn committed borrowing facilities from major financial institutions so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities to meet the short-term and long-term liquidity requirements.

As at 30 June 2017, the Group had standby credit facilities with several PRC financial institutions which provided the Group to borrow up to RMB23,962,763 thousands, of which RMB21,823,983 thousands was unutilised (unaudited).

The financial assets and liabilities of the Group at the balance sheet date are analysed by their maturity date below at their undiscounted contractual cash flows:

 

     30 June 2017 (unaudited)  
     Within 1 year      1 to 2 years      2 to 5 years      Over 5 years      Total  

Short-term borrowings

     613,421        —          —          —          613,421  

Notes payable

     88,000        —          —          —          88,000  

Accounts payable

     5,817,181        —          —          —          5,817,181  

Interest payable

     9,638        —          —          —          9,638  

Dividends payable

     2,720,473        —          —          —          2,720,473  

Other payables

     876,343        —          —          —          876,343  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     10,125,056        —          —          —          10,125,056  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     31 December 2016  
     Within 1 year      1 to 2 years      2 to 5 years      Over 5 years      Total  

Short-term borrowings

     546,432        —          —          —          546,432  

Notes payable

     5,000        —          —          —          5,000  

Accounts payable

     5,082,470        —          —          —          5,082,470  

Interest payable

     12,617        —          —          —          12,617  

Dividends payable

     20,473        —          —          —          20,473  

Other payables

     614,668        —          —          —          614,668  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     6,281,660        —          —          —          6,281,660  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

184


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

10 Fair value estimates

The level in which fair value measurement is categorised is determined by the level of the fair value hierarchy of the lowest level input that is significant to the entire fair value measurement:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

 

  (1) As at 30 June 2017 (unaudited) and 31 December 2016, the Group does not have any assets measured at fair value on a recurring or non-recurring basis.

 

  (2) Financial assets and financial liabilities not measured at fair value but with fair value disclosed

Financial assets and financial liabilities measured at amortised cost mainly include: notes receivable, receivables, current portion of entrusted lendings, short-term borrowings, payables and notes payables.

As at 30 June 2017, the carrying amount of these financial assets and liabilities not measured at fair value are a reasonable approximation of their fair value (unaudited).

 

11 Offseting financial assets and liabilities

 

  (1) Financial assets

The following financial assets are subject to offsetting arrangements:

 

     30 June 2017 (unaudited)      31 December 2016  

Gross amounts of recognised amounts due from related parties

     1,829,825        1,769,403  

Gross amounts of recognised amounts due to related parties set off in the balance sheet

     (53,526      (112,823
  

 

 

    

 

 

 

Net amounts of amounts due from related parties presented in the balance sheet

     1,776,299        1,656,580  
  

 

 

    

 

 

 

 

185


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

11 Offseting financial assets and liabilities (continued)

 

  (2) Financial liabilities

The following financial liabilities are subject to offsetting arrangements:

 

     30 June 2017 (unaudited)      31 December 2016  

Gross amounts of recognised amounts due to related parties

     5,870,707        5,195,293  

Gross amounts of recognised amounts due from related parties set off in the balance sheet

     (53,526      (112,823
  

 

 

    

 

 

 

Net amounts of amounts due to related parties presented in the balance sheet

     5,817,181        5,082,470  
  

 

 

    

 

 

 

For the financial assets and liabilities subject to the offsetting arrangements above, the relevant financial assets and liabilities of each operating agreement between the Group and the counterparty, Shanghai Secco Petrochemical Company Limited, are settled on a net basis.

 

12 Capital management

The Group’s capital management policies aim to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, refund capital to shareholders, issue new shares or sell assets to reduce debts.

The Group’s total capital is calculated as ‘shareholder’s equity’ and ‘total liabilities’ as shown in the consolidated balance sheet. The Group is not subject to external mandatory capital requirements, and monitors capital on the basis of gearing ratio.

As at 30 June 2017, the Group did not have net debt as cash and cash equivalents was greater than short-term borrowings (unaudited). As at 31 December 2016, the Group’s gearing ratio is as follows:

 

186


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements

 

  (1) Accounts receivable

 

     30 June 2017 (unaudited)      31 December 2016  

Amounts due from related parties

     886,941        1,207,477  

Amounts due from third parties

     4,830        3,580  
  

 

 

    

 

 

 
     891,771        1,211,057  

Less: Provision for bad debts

     (28      (18
  

 

 

    

 

 

 
     891,743        1,211,039  
  

 

 

    

 

 

 

 

  (a) The ageing of accounts receivable is analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Within one year

     891,712        1,211,018  

Over one year but within two years

     32        24  

Over two years but within three years

     22        10  

Over three years

     5        5  
  

 

 

    

 

 

 
     891,771        1,211,057  

Less: Provision for bad debts

     (28      (18
  

 

 

    

 

 

 
     891,743        1,211,039  
  

 

 

    

 

 

 

As at 30 June 2017 (unaudited) and 31 December 2016, the Company has no any significant overdue accounts receivable.

 

187


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (1) Accounts receivable (continued)

 

  (b) Accounts receivables are analysed by categories as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
 

Individually significant and subject to separate provision

     —          —          —          —          —          —          —          —    

Subject to provision by groups:

                       

- Group 1

     4,830        0.54        28        0.58        3,580        0.30        18        0.50  

- Group 2

     886,941        99.46        —          —          1,207,477        99.70        —          —    

Individually insignificant but subject to separate provision

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     891,771        100.00        28        —          1,211,057        100.00        18        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Classification of accounts receivable: refer to Note 2(10(b)).

 

  (c) Subject to provision by group 1 are as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Amount      Percentage
(%)
     Amount      Amount      Percentage
(%)
 

Within one year

     4,771        —          —          3,541        —          —    

Over one year but within two years

     32        10        30.00        24        7        30.00  

Over two years but within three years

     22        13        60.00        10        6        60.00  

Over three years

     5        5        100.00        5        5        100.00  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     4,830        28        —          3,580        18        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There are no collateral over the above accounts receivable with provision for bad debts.

 

188


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (1) Accounts receivable (continued)

 

  (d) During the current period, the Company assessed the impairment on an individual basis in accordance with the accounting policy as described in Note 2(10), and there were no provision for accounts receivable that are individually significant or insignificant but assessed for impairment individually (unaudited).

 

  (e) During the period, the Company had no material account receivables with fully or substantially write-off or write-back of bad debts which had been fully or substantially provided for in prior years (unaudited).

 

  (f) During the current period, the Company had no significant accounts receivable that are written off (unaudited).

 

  (g) As at 30 June 2017, top five accounts receivable are summarised as follows (unaudited):

 

     Amount      Provision for bad
debts
     Percentage of total
accounts receivable
 

Total amount of top five accounts receivable

     846,942        —          94.97
  

 

 

    

 

 

    

 

 

 

 

  (h) Accounts receivable from related parties are analysed as below:

 

     30 June 2017 (unaudited)      31 December 2016  
     Amount      Percentage of
total accounts
receivable (%)
     Provision
for bad
debts
     Amount      Percentage of
total accounts
receivable (%)
     Provision
for bad
debts
 

Sinopec Corp., its subsidiaries and joint ventures

     808,198        90.63        —          1,113,313        91.93        —    

Sinopec Group and its subsidiaries

     452        0.05        —          331        0.03        —    

Subsidiaries of the Company

     5,483        0.61        —          30,696        2.53        —    

Associates of the Company

     43,982        4.93        —          44,678        3.69        —    

Joint ventures of the Company

     28,826        3.23        —          18,459        1.52        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     886,941        99.45        —          1,207,477        99.70        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

189


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (1) Accounts receivable (continued)

 

  (i) There are no accounts receivables derecognised due to the transfer of financial assets during the current period (unaudited).

 

  (j) As at 30 June 2017, there are no accounts receivables pledged (unaudited) (31 December 2016: Nil).

 

  (2) Other receivables

 

     30 June 2017 (unaudited)      31 December 2016  

Amounts due from related parties

     848,524        827,158  

Amounts due from third parties

     37,937        34,901  
  

 

 

    

 

 

 
     886,461        862,059  

Less: Provision for bad debts

     (839,769      (825,714
  

 

 

    

 

 

 
     46,692        36,345  
  

 

 

    

 

 

 

 

  (a) The ageing of other receivables is analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  

Within one year

     77,500        64,498  

Over one year but within two years

     27,159        30,699  

Over two years but within three years

     31,260        30,950  

Over three years

     750,542        735,912  
  

 

 

    

 

 

 
     886,461        862,059  

Less: Provision for bad debts

     (839,769      (825,714
  

 

 

    

 

 

 
     46,692        36,345  
  

 

 

    

 

 

 

 

190


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (2) Other receivables (continued)

 

  (b) Other receivables by categories are analysed as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
     Amount      Percentage
(%)
 

Individually significant and subject to separate provision

     839,712        94.73        839,712        100.00        825,672        95.78        825,672        100.00  

Subject to provision by groups

                       

-Group 1

     37,937        4.28        57        0.15        34,901        4.05        42        0.12  

-Group 2

     8,812        0.99        —          —          1,486        0.17        —          —    

Individually insignificant but subject to separate provision

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     886,461        100.00        839,769        —          862,059        100.00        825,714        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Classification of other receivable: refer to Note 2(10(b)).

 

  (c) Subject to provision by group 1 are as follows:

 

     30 June 2017 (unaudited)      31 December 2016  
     Gross carrying amount      Provision for bad debts      Gross carrying amount      Provision for bad debts  
     Amount      Amount      Percentage
(%)
     Amount      Amount      Percentage
(%)
 

Within one year

     37,798        —          —          34,762        —          —    

Over one year but within two years

     89        27        30.00        139        42        30.00  

Over two years but within three years

     50        30        60.00        —          —          —    

Over three years

     —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     37,937        57        —          34,901        42        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

191


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (2) Other receivables (continued)

 

  (d) As at 30 June 2017, separate testing for impairment was made in accordance with accounting policies stated in Note 2(10), the following amounts individually significant were subject to bad debt provision, the balance of other receivables from the Company’s consolidated subsidiary Jinyong was RMB839,712 thousands (unaudited) (31 December 2016: RMB825,672 thousands). Jinyong stopped production till now since August 2008. The additions in this year included labor cost, tax expenses and other fixed expenditures, which were paid by the Company on behalf of Jinyong. The Company provided a full bad debt provision based on the assessment on the possibility of recovery of other receivables. No provision was recognised for other receivables which were not individually significant but subject to bad debt provision (unaudited) (As at 31 December 2016:Nil).

 

  (e) During the current period, the Company had no other receivable with fully or substantially write-off or write-back of bad debts which had been fully or substantially provided for in prior years (unaudited).

 

  (f) During the current period, the Company had no significant other receivable that are written off (unaudited).

 

  (g) As at 30 June 2017, the top five other receivables are as follows (unaudited):

 

     Nature      Amount      Ageing      Percentage of
total other
receivables
    Provision
for bad
debts
 

Zhejiang Jinyong

     Disbursement fee        839,712       
Partially over
three years
 
 
     94.73     839,712  

Jinshan Tax Bureau

    
Consumption tax
refund
 
 
     31,489       

Within

one year

 

 

     3.55     —    

BOC-SPC

    
Business
transaction
 
 
     7,416       

Within

one year

 

 

     0.84     —    

Sinopec Huadong Sales Company Limited

    
Business
transaction
 
 
     1,217       

Within

one year

 

 

     0.14     —    

Shanghai Secco Petrochemical Company Limited (“Shanghai Secco”)

    
Business
transaction
 
 
     179       
Within one
year
 
 
     0.02     —    
     

 

 

       

 

 

   

 

 

 
        880,013           99.28     839,712  
     

 

 

       

 

 

   

 

 

 

 

192


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (3) Long-term equity investments

 

     30 June 2017 (unaudited)      31 December 2016  

Subsidiaries (a)

     1,718,007        1,718,007  

Associates (b)

     3,599,909        3,482,354  
     
     5,317,916        5,200,361  

Less: Provision for impairment of long-term equity investments

     (227,500      (227,500
  

 

 

    

 

 

 
     5,090,416        4,972,861  
  

 

 

    

 

 

 

As at 30 June 2017, the Company has made full provision for the long-term equity investments in its subsidiary Jinyong amounting to RMB227,500 thousands (31 December 2016: RMB227,500 thousands). Jinyong stopped production till now since August 2008. The Company has made full provision for the investment cost based on the estimate of recoverable amount of the Long-term equity investments in this subsidiary.

 

  (a) Subsidiaries

 

     31 December
2016
     Additional/
negative
investment
     30 June 2017
(unaudited)
     Impairment
provision
    Cash dividends
declared in
current period
 

Toufa

     1,473,675        —          1,473,675        —         —    

Jinyong

     227,500        —          227,500        (227,500     —    
             

Jinmao

     16,832        —          16,832        —         —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     1,718,007        —          1,718,007        (227,500     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

  (b) Associates

The information relating to the associates of the Company is disclosed in Note 4 (9)(b).

 

193


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (4) Fixed assets

 

     Buildings      Plant and
machinery
     Vehicles and
other equipment
     Total  

Cost

           

31 December 2016

     3,211,385        39,434,654        1,696,223        44,342,262  

Reclassification in current period

     (23,066      20,990        2,076        —    

Increase in current period

     2,708        —          —          2,708  

Transfer from construction in progress

     —          147,024        9,597        156,621  

Decrease in current period

     (1,053      (67,293      (10,615      (78,961

Transfer to investment properties

     (37,639      —          —          (37,639

30 June 2017 (unaudited)

     3,152,335        39,535,375        1,697,281        44,384,991  

Accumulated depreciation

           

31 December 2016

     2,004,056        27,083,128        1,350,153        30,437,337  

Reclassification in the current period

     312        (719      407        —    

Transfer from investment properties in current year

     815        —          —          815  

Increase in current period

     43,685        700,182        32,743        776,610  

Decrease in current period

     (1,010      (62,022      (10,030      (73,062

Transfer to investment properties

     (20,952      —          —          (20,952

30 June 2017 (unaudited)

     2,026,906        27,720,569        1,373,273        31,120,748  

Provision for impairment

           

31 December 2016

     50,785        625,423        8,723        684,931  

Increase in current period

     —          18,874        —          18,874  

Write-off in the current period

     —          (162      —          (162

30 June 2017 (unaudited)

     50,785        644,135        8,723        703,643  

Carrying amount

           

30 June 2017 (unaudited)

     1,074,644        11,170,671        315,285        12,560,600  

31 December 2016

     1,156,544        11,726,103        337,347        13,219,994  

As at 30 June 2017 (unaudited) and 31 December 2016, the Company had no pledged fixed assets.

 

194


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (4) Fixed assets (continued)

 

For the six months ended 30 June 2017, the depreciation expenses amounted to RMB776,610 thousands (unaudited) (for the six months ended 30 June 2016: RMB801,560 thousands (unaudited)). The amount of depreciation expense charged to cost of sales, selling and distribution expenses, general and administrative expenses were RMB733,590 thousands (unaudited), 4,675 thousands (unaudited) and 38,345 thousands (unaudited) (for the six months ended 30 June 2016: RMB758,425 thousands (unaudited), RMB4,450 thousands (unaudited) and RMB38,685 thousands (unaudited)).

The fixed assets with a carrying amount of RMB95,310 thousands (unaudited) (for the six months ended

30 June 2016: RMB248,947 thousands (unaudited) were transferred from construction in progress.

 

  (5) Revenue and cost of sales

 

     Six months ended 30 June  
     2017 (unaudited)      2016 (unaudited)  
     Revenue      Cost of sales      Revenue      Cost of sales  

Main operations

     30,295,721        20,160,522        26,937,238        15,302,989  

Other operations

     242,723        227,050        258,321        213,839  
  

 

 

    

 

 

    

 

 

    

 

 

 
     30,538,444        20,387,572        27,195,559        15,516,828  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

195


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (6) Investment income

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Investment income accounted for using the equity method (a)

     539,227        397,411  

There are no severe restrictions on the investee’s ability to transfer investment income to the Company.

 

  (a) Income from long-term equity investments accounted for using the equity method is as follow:

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Shanghai Secco

     471,880        335,951  

Chemical Industrial Park

     67,347        61,460  
  

 

 

    

 

 

 
     539,227        397,411  
  

 

 

    

 

 

 

 

196


Table of Contents

NOTES TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

13 Notes to major items of the Company’s financial statements (continued)

 

  (7) Supplementary information on cash flow statements

 

  (a) Reconciliation from net profit to cash flow from operating activities

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Net profit

     2,563,845        3,134,109  

Add:    Provision for assets impairment

     50,182        139,940  

Depreciation of investment properties

     7,088        6,676  

Depreciation of fixed assets

     776,610        801,560  

Amortisation of intangible assets

     6,159        6,158  

Amortisation of long-term prepaid expense

     103,293        108,314  

Losses on disposal of fixed assets

     5,356        24,504  

Financial (income)/expenses – net

     (93,888      3,018  

Investment income

     (539,227      (397,411

Decrease/(Increase) in deferred tax assets

     5,187        (17,066

Decrease in deferred income

     (5,000      (5,000

Increase in inventories

     (883,613      (380,943

Increase in operating receivables

     298,612        (317,212

(Decrease)/Increase in operating payables

     (231,819      1,044,159  

Increase in specific reserve

     20,726        37,366  

Share-based payments expense

     8,102        11,350  
  

 

 

    

 

 

 

Net cash inflow generated from operating activities

     2,091,613        4,199,522  
  

 

 

    

 

 

 

 

  (b) Net increase in cash and cash equivalents

 

Cash and cash equivalents balance at the end of the period

     6,561,956        3,881,881  

Less: Cash and cash equivalents balance at the beginning of the period

     4,421,143        942,264  
  

 

 

    

 

 

 

Net increase in cash and cash equivalents

     2,140,813        2,939,617  
  

 

 

    

 

 

 

 

197


Table of Contents

SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

1 Non-recurring items

 

     Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
 

Net losses on disposal of non-current assets

     (5,130      (23,977

Government grants recognised through profit or loss

     30,548        14,280  

Termination benefits

     (8,806      (4,647

Income from external entrusted lendings

     694        1,002  

Other non-operating expenses other than those mentioned above

     (10,830      (13,993

Tax effect for the above items

     (1,539      6,853  

Effect on non-controlling interests after tax

     (1,041      (428
  

 

 

    

 

 

 
     3,896        (20,910
  

 

 

    

 

 

 

Basis of preparation for extraordinary profit and loss

Pursuant to Announcement [2008] Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public issued by China Securities regulatory commission (CSRC), extraordinary profit and loss arises in various trading and issues that have no direct relation with the normal operations of a company, or that are related with normal operations but affect the users of the statement to make reasonable judgment of the Company’s operation performance and profitability due to the special and occasional nature of such trading and issues.

 

198


Table of Contents

SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

2 Reconciliation between financial statements prepared under CAS and IFRS

The Company is listed on the Stoke Exchange of Hong Kong. The Group prepared financial statements under International Financial Reporting Standards (“IFRS”) which is audited by PricewaterhouseCoopers. There are reconciliation items in the consolidated financial report prepared under CAS and IFRS, the reconciliation items and the amount are listed as follows:

 

     Net profit (Consolidated)      Net assets (Consolidated)  
     Six months ended 30 June      30 June
2017
(unaudited)
     31 December
2016
 
     2017
(unaudited)
     2016
(unaudited)
       

Under CAS

     2,580,153        3,101,763        24,937,403        25,031,318  

Adjustments under IFRS -

           

Government grants (a)

     1,005        12,493        (27,078      (28,083

Safety production costs (b)

     22,015        39,441        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Under IFRS

     2,603,173        3,153,697        24,910,325        25,003,235  
  

 

 

    

 

 

    

 

 

    

 

 

 

Notes:

 

(a) Government grants

Under CAS, government subsidies defined as capital contributions according to the relevant government requirements are not considered a government grant, but instead should be recorded as an increase in capital reserve.

Under IFRS, such grants are offset against the cost of asset to which the grants are related. Upon transfer to property, plant and equipment, the grant is recognised as income over the useful life of the property, plant and equipment by way of a reduced depreciation charge.

 

(b) Safety production costs

Under CAS, safety production costs should be recognised in profit or loss with a corresponding increase in reserve according to PRC regulations. Such reserve is reduced for expenses incurred for safety production purposes or, when safety production related fixed assets are purchased, is reduced by the purchased cost with a corresponding increase in the accumulated depreciation. Such fixed assets are not depreciated thereafter. Under IFRS, expenses are recognised in profit or loss when incurred, and property, plant and equipment are depreciated with applicable methods.

 

199


Table of Contents

SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS (continued)

FOR THE SIX MONTHS ENDED 30 JUNE 2017

(All amounts in thousands of Renminbi Yuan unless otherwise stated)

[English Translation for Reference Only]

 

3 Return on net assets and earnings per share

 

     Weighted average return
on net assets (%)
     Earnings per share  
        Basic (RMB)      Diluted (RMB)  
     Six months ended 30 June      Six months ended 30 June  
     2017
(unaudited)
     2016
(unaudited)
     2017
(unaudited)
     2016
(unaudited)
     2017
(unaudited)
     2016
(unaudited)
 

Net profit attributable to ordinary shareholders of the Company

     9.821        14.465        0.238        0.287        0.238        0.287  

Net profit attributable to shareholders of the Company excluding non-recurring items

     9.805        14.555        0.238        0.289        0.238        0.288  

 

200


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WRITTEN CONFIRMATION ON THE 2017 INTERIM REPORT ISSUED BY DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Pursuant to the requirements of Article 68 of the Securities Law and the relevant requirements of Contents and Formats of Information Disclosure by Listed Companies No. 3 – Contents and Formats of Interim Reports (Revised in 2016), we, being Directors, Supervisors and the senior management of the Company, having carefully studied and reviewed the Company’s 2017 interim report, are of the view that: the Company is in strict compliance with the standardised regulations of financial system of joint stock companies and the 2017 interim report gave a true and fair view of the financial position and operating results of the Company. We warrant that the information contained in the 2017 interim report is true, accurate and complete, and that there are no false or misleading statements contained in or material omissions from this report. We jointly and severally accept full responsibility for the authenticity, accuracy and completeness of the information contained in this report.

 

Signature:         
Directors:         
/s/ Wang Zhiqing    /s/ Wu Haijun    /s/ Gao Jinping    /s/ Jin Qiang
Wang Zhiqing    Wu Haijun    Gao Jinping    Jin Qiang
/s/ Guo Xiaojun    /s/ Zhou Meiyun    /s/ Lei Dianwu    /s/ Mo Zhenglin
Guo Xiaojun    Zhou Meiyun    Lei Dianwu    Mo Zhenglin
/s/ Zhang Yimin    /s/ Liu Yunhong    /s/ Du Weifeng    /s/ Li Yuanqin
Zhang Yimin    Liu Yunhong    Du Weifeng    Li Yuanqin
Supervisors:         
/s/ Zuo Qiang    /s/ Li Xiaoxia    /s/ Zhai Yalin    /s/ Fan Qingyong
Zuo Qiang    Li Xiaoxia    Zhai Yalin    Fan Qingyong
/s/ Zheng Yunrui    /s/ Choi Ting Ki      
Zheng Yunrui    Choi Ting Ki      
Senior Management:         
/s/ Jin Wenmin         
Jin Wenmin         

 

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CORPORATE INFORMATION

 

(1)   Corporate Information
  Legal Chinese Name of the Company      LOGO
  Abbreviation for Legal Chinese Name of the Company      LOGO
  Legal English Name of the Company      Sinopec Shanghai Petrochemical Company Limited
  Abbreviation for Legal English Name of the Company    SPC
  Legal Representative of the Company      Wang Zhiqing
(2)   Contact Persons and Contact Details     
    

        Secretary to the Board

  

        Securities Affairs Representative

  Name    Guo Xiaojun      Wu Yuhong
  Address    48 Jinyi Road, Jinshan District,    48 Jinyi Road, Jinshan District,
     Shanghai, PRC      Shanghai, PRC
     Postal Code: 200540    Postal Code: 200540
  Tel    8621-57943143      8621-57933728
  Fax    8621-57940050      8621-57940050
  E-mail    guoxiaojun@spc.com.cn    wuyh@spc.com.cn

 

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CORPORATE INFORMATION (continued)

 

(3)   Basic Information     
  Registered Address      48 Jinyi Road, Jinshan District, Shanghai, PRC
  Postal Code of Registered Address      200540
  Business Address      48 Jinyi Road, Jinshan District, Shanghai, PRC
  Postal Code of Business Address      200540
  Principal Place of Business in Hong Kong      Room 605, 6/F, Island Place Tower, 510 King’s Road, North Point, Hong Kong
  Website of the Company      www.spc.com.cn
  E-mail address      spc@spc.com.cn
(4)   Information Disclosure and Place for Access to Information
 

Designated newspapers for the publication of Company announcements

 

“Shanghai Securities News”, “China Securities Journal” and “Securities Time”

 

Websites for the publication of the Company’s interim report

 

Shanghai Stock Exchange website, Hong Kong Stock Exchange website and the website of the Company

 

Location of keeping of the Company’s interim report

 

Secretariat Office of the Board, 48 Jinyi Road, Jinshan District, Shanghai, PRC

(5)    Shares Profile of the Company   
    

Share Type

  

Place of listing of the shares

 

Stock Short Name

  

Stock Code

   A Shares    Shanghai Stock Exchange   LOGO    600688
   H Shares    Hong Kong Stock Exchange   SHANGHAI PECHEM    00338
  

American Depository Receipts (ADR)

   New York Stock Exchange   SHI    —  

 

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CORPORATE INFORMATION (continued)

 

(6)    Other Information   

 

Auditors engaged by the Company (Domestic):
  Name    PricewaterhouseCoopers Zhong Tian LLP
  Address    11/F, PricewaterhouseCoopers Center, 2 Corporate Avenue,
    

202 Hubin Road, Huangpu District, Shanghai 200021, PRC

Auditors engaged by the Company (International):
  Name    PricewaterhouseCoopers
  Address    22/F Prince’s Building, 10 Chater Road, Central, Hong Kong

Legal advisors:

 

  PRC Law:   Haiwen & Partners
    20th Floor, Fortune & Finance Center
    No. 5 Dong San Huan Central Road
    Chaoyang District, Beijing, PRC
    Postal Code:100020

 

  Hong Kong Law:   Freshfields Bruckhaus Deringer
    11th Floor, Two Exchange Square
    Central, Hong Kong
  United States Law:   Morrison & Foerster
    425 Market Street
    San Francisco, California 94105-2482
    U.S.A.

Joint Company Secretaries:

Guo Xiaojun, Ng Sin Yee, Clare

Authorised Representatives for Hong Kong Stock Exchange:

Wang Zhiqing, Guo Xiaojun

H Shares Share Registrar:

Hong Kong Registrars Limited

Shops 1712-1716,17 Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong

Depositary:

The Bank of New York Mellon

Computershare

P.O. Box 30170

College Station, TX 77842-3170, U.S.A

Number for International Calls: 1 201-680-6921

Email:shrrelations@cpushareownerservices.com

Website:www.mybnymdr.com

 

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