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| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Title of each class |
Trading Symbol(s) |
Name on | ||
None |
None |
| ☒ | Accelerated F iler |
☐ | Non-Accelerated F iler |
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| Emerging growth company | ||||||||||
| U.S. GAAP ☐ | |
Other ☐ | ||||||
| by the International Accounting Standards Board | ☒ |
* |
This requirement does not apply to the registrant in respect of this filing. |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this annual report that address activities, events or developments which we expect or anticipate will or may occur in the future are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words such as “believe,” “intend,” “expect,” “anticipate,” “project,” “estimate,” “predict,” “plan” and similar expressions are also intended to identify forward-looking statements. These forward-looking statements address, among others, such issues as:
| • | amount and nature of future development; |
| • | future prices of and demand for our products; |
| • | future earnings and cash flow; |
| • | capital expansion programs; |
| • | future plans and capital expenditures; |
| • | expansion and other development trends of the petrochemical industry; |
| • | expected production or processing capacities, including expected Rated Capacities and primary distillation capacities, of units or facilities not yet in operation; |
| • | expansion and growth of our business and operations; and |
| • | our prospective operational and financial information. |
These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties which could cause actual results to differ materially from our expectations, including the risks set forth in “Item 3. Key Information — Risk Factors” and the following:
| • | fluctuations in crude oil and natural gas prices; |
| • | fluctuations in prices of our products; |
| • | failures or delays in achieving production from development projects; |
| • | potential acquisitions and other business opportunities; |
| • | continued availability of capital and financing; |
| • | changes to environmental and economic regulations; |
| • | general economic, market and business conditions, including volatility in interest rates, changes in foreign exchange rates and volatility in commodity markets; and |
| • | other risks and factors beyond our control. |
Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements and readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements should be considered in light of the various important factors set forth above and elsewhere in this annual report, including the risks set forth in “Item 3. Key Information – Risk Factors.” In addition, we cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations.
EXCHANGE RATES
Unless otherwise specified, references in this annual report to “U.S. Dollars” or “U.S.$” are to United States Dollars, references to “HK Dollars” or “HK$” are to Hong Kong Dollars and references to “Renminbi” or “RMB” are to Renminbi yuan, the legal currency of the PRC.
We publish our financial statements in Renminbi. Unless otherwise indicated, all translations from Renminbi to U.S. Dollars have been made at a rate of RMB 6.8972 to U.S. $1.00, the noon buying rate on December 30, 2022 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. We do not represent that Renminbi or U.S. Dollar amounts could be converted into U.S. Dollars or Renminbi, as the case may be, at any particular rate.
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CERTAIN TERMS AND CONVENTIONS
References to “we” or “us” or “Company” or “Group” are references to Sinopec Shanghai Petrochemical Company Limited and our subsidiaries, unless the context requires otherwise. Before our formation, these references relate to the petrochemical businesses carried on by the Complex.
References to “Sinopec Corp.” are references to China Petroleum & Chemical Corporation, the controlling shareholder of the Company.
References to the “Sinopec Group” or “Sinopec” are references to China Petrochemical Corporation, the controlling company of Sinopec Corp.
References to the “Complex” are references to Shanghai Petrochemical Complex, our predecessor founded in 1972.
References to “ADSs” are references to our American Depositary Shares. Each ADS represents 100 H Shares.
References to our “A Shares” are references to 7,328,813,500 A Shares of the Company, par value RMB1.00 per share, which are ordinary shares held by Chinese investors.
References to our “H Shares” are references to our overseas-listed foreign ordinary shares, par value RMB1.00 per share, which are listed and traded on The Stock Exchange of Hong Kong Limited (“HKSE”) under the number “338.”
“Rated Capacity” is the output capacity of a given production plant or, where appropriate, the throughput capacity, calculated by estimating the number of days in a year that the production plant is expected to operate, including downtime for regular maintenance, and multiplying that number by an amount equal to the plant optimal daily output or throughput, as the case may be.
All references to “tons” are references to metric tons.
Unless otherwise noted, references to sales volume are to sales to entities other than us or our divisions and subsidiaries.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
ITEM 3. KEY INFORMATION.
| A. | Reserved |
| B. | Capitalization and Indebtedness. |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds. |
Not applicable.
| D. | Risk Factors. |
An investment in our ADSs involves significant risks. The risks and uncertainties described below are not the only ones we face. You should consider carefully all of the information in this annual report, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in our ADSs. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our ADSs could decline, and you may lose all or part of your investment.
Risks Related to Doing Business in China
The PRC government has significant authority to intervene or influence our operations at any time. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to such oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause our ADSs to significantly decline or loss in value.
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Our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally, which could result in a material adverse change to our operations and the value of our securities.
Furthermore, given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently not required to obtain permission from the PRC government and have not received any denial to list on a U.S. exchange, it is uncertain whether or when we might be required to obtain permission from the PRC government to issue securities, to maintain our listing or to list additional securities on a U.S. exchange in the future. Even if such permission is obtained, it is uncertain whether it will be later denied or rescinded, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors in the United States and result in a material adverse change to our business operations, and damage our reputation, and therefore causing the value of our ADSs to significantly decline or lose their value.
Changes in government regulations and legislation may limit our activities and affect our business operations and the price of our ADSs, and result in risks that affect our future financing plans and securities offerings, the liquidity of our investors, and the enforcement of court judgments and shareholders’ rights.
We are a joint stock limited company incorporated in China, and our controlling shareholder is China Petroleum & Chemical Corporation (a.k.a., Sinopec Corp.), which is in turn controlled by China Petrochemical Corporation. The controlling shareholder of China Petrochemical Corporation is Sinopec Group, which is in turn controlled by the State-owned Assets Supervision and Administration Commission of the State Council of China. Our management makes decisions with respect to our business strategies and operations in accordance with applicable laws and regulations, listing rules, and industrial policies based on procedures stipulated in our articles of association and other corporate governance documents and polices. All major corporate matters relating to our business operations are (i) submitted for the approval of our board of directors, which is required to review and approve certain operational matters, to convene general meetings of shareholders and to present certain matters to the shareholders for their approval, in each case in accordance with our articles of association, (ii) approved by resolutions adopted by our board of directors and/or shareholders, as appropriate, and (iii) carried out under the supervision of our board of supervisors. Because our business strategies are formulated, and our business operations are conducted, based on and pursuant to applicable laws and regulations and industrial policies, any changes thereto that bear on our business operations will likely have an impact on our business and our results of operations.
As an integrated petroleum and petrochemical company operating in China, our business operations may be directly affected by new laws and regulations covering our industries that are enacted by the PRC government or through the exercise of its supervisory power over our industries. The PRC government continues to exercise certain controls over the petroleum and petrochemical industry in China. These control mechanisms include setting periodically the upper limit of the retail prices for gasoline and diesel, collecting special oil income levies, deciding import and export quotas and procedures, setting safety, environmental and quality standards, and formulating policies to save energy and reduce emission.
In addition, the PRC government may continue to make and adopt changes to its existing macroeconomic and industry policies for the petroleum and petrochemical industry, including further reforming and improvement of the pricing mechanisms of refined oil products and natural gas, which could impact the development of the petroleum and petrochemical industry in China and the production and operations of the market players in such industry. Our board of directors and management, when developing and formulating our business plan and operating strategies, are required to take into consideration of those control mechanisms and industry policies, some of which may impose constraints and limitations on our business planning and strategy-making, and we cannot assure you there will not be material adverse effects on our operations and profitability. The Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Version) currently in effect (the “Negative List”), while requiring enterprises incorporated in China and operating in industries that are subject to a foreign investment prohibition to obtain approval from relevant competent government authorities for their overseas securities offerings and listings, does not prohibit or impose restrictions on foreign investments in the petroleum and petrochemical industries. However, we cannot rule out the possibility that the PRC government may in the future amend and revise PRC laws and regulations in this area to advance new energy security policies.
In addition, the Measures for the Security Review of Foreign Investments (“Security Review Measures”), which were issued by the PRC government and came into effect on January 18, 2021, provide that a foreign investor must seek the approval of the competent PRC regulatory authorities prior to investing in key energy and resources sectors that have national security implications where such investment will result in such investor obtaining actual control over the invested enterprises. The Security Review Measures also provide that PRC regulatory authorities should enact implementing rules applicable to the acquisition by foreign investors of publicly-traded securities of listed companies that have or may have national security consequences, and pending the enactment of such implementing rules, there are uncertainties as to whether there are restrictions on open-market purchases of our ADSs by foreign investors under those measures. Given that Sinopec Corp., our controlling shareholder, and its concert parties currently hold approximately 50.55% of our outstanding shares, we do not expect any foreign investor will be able to obtain control over us by investing in our publicly-traded H shares or ADSs.
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The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in
foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi (if any) owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.
Meanwhile, other than approvals and filing processes required under prevailing PRC laws and regulations, our ability to transfer money or other assets out of China or enter into business transactions with non-Chinese parties in the ordinary course of our business have not been substantively affected by the Security Review Measures. If the PRC government, in keeping with its national security policy, promulgates new laws and regulations in the future to regulate and restrict our ability to enter into cross-border transactions or obtain foreign investments, we may be required to make adjustments to our operating and financing plans, which may in turn affect our business operations and financial position, and have material impacts on the value of our ADSs. If, in the future, foreign investments in petroleum and/or petrochemical industries in China become prohibited or restricted, investors in our ADSs may need to seek exit for their investments in accordance with applicable laws and regulations, which may result in a significant decline in the price of our ADSs and materially and adversely affect the value of the investments made in our ADSs by foreign investors.
In addition, on February 17, 2023, the China Securities Regulatory Commission issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (“Trial Measures”). In an effort to reform the regulatory regime for offshore listings, the Trial Measures establish a filing-based administration system for overseas listings of domestic enterprises, enhancing support for domestic companies that wish to go public overseas. If we fail to obtain any requisite approvals or filings with respect to future offerings of our equity securities to foreign investors, or if we inadvertently conclude that such approvals or filings are not required, our ability to execute our financing and equity offering plans may be significantly limited or completely hindered. Any measures taken by the PRC authorities to regulate or exert more control over securities offerings conducted overseas and foreign investments in China-based issuers may limit or hinder our ability to offer or continue to offer securities to investors outside China, and the price of our ADSs may decline significantly, leading to a material adverse effect on the value of investments in our ADSs by investors.
In light of the dynamic nature of the Chinese economy and the continuing development of the PRC legal system, the PRC authorities may promulgate new laws and regulations regulating the petroleum and petrochemical industry, or overall investment and market activities in general. Certain legislative changes are required by law to go through review and comment procedures open to certain market participants or the general public, and to the extent that such changes are made to regulate our business operation, we may have the opportunity to participate in such review and comment procedures during the policy and rule-making process. However, we cannot assure you that the rules or policies finally adopted will not adversely affect our business operations. The new regulations and policies or the amendment of current ones may at times only afford a short period for transition or adjustment, and may influence the implementation of our established business plans and operation strategies. They may also subject us to enhanced compliance scrutiny, result in more compliance costs and expenses, or otherwise adversely affect our business by requiring adjustments to our business plans and operations. For example, the PRC government has recently adopted, and may further adopt, stricter laws and regulations with respect to environmental protection and carbon emissions, which may lead to higher operating costs and expenses, and a prolonged project development timetable. As a result of those new or amended rules and policies, we may not have control over the timing or outcome of approvals of certain of our planned projects, and may encounter significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability, which could in turn adversely affect our operations by raising our operating costs and lowering our profits or otherwise impeding our efforts to improve our operational efficiency and profitability, and further adversely affect the market expectations of our business operations. Depending on the extent to which our operations are so affected, there may be a material change in our operations and the value of our ADSs.
Specifically, the PRC government has recently taken various legislative initiatives in the area of data security and to address market monopoly concerns.
| • | With respect to data security protection, the revised Measures for Cybersecurity Review (the “Measures”) took effect on February 15, 2022 and provide that critical information infrastructure operators, must evaluate potential risks that the deployment of any products and services will have on national security prior to the procurement of such products and services, and must apply for a cybersecurity review if such products and services affect or may affect national security. “Online platform operators” must apply for a cybersecurity review if any of their data processing activities affects or may affect national security. If an “online platform operator” that is in possession of personal data of more than one million users intends to list its securities on a foreign stock exchange, it must apply for a cybersecurity review. However, the Measures have not clarified if any follow-on offering of ADSs by us will be regulated as a “listing shares on a foreign stock exchange” or whether public companies already listed overseas would be subject to regular cybersecurity reviews. During the reporting period of this annual report, we have not received from the CAC, the Ministry of Public Security or its local counterparts, or any industrial regulatory authorities, any notices imposing administrative penalties against us or demanding any remedial actions be taken in relation to data security matters. |
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| • | With respect to anti-monopoly laws and regulations, the PRC Anti-monopoly Law prohibits monopolistic activities by market participants such as the entering into monopoly agreements, the abuse of dominant market position and anti-competitive activities that have or may have an effect of eliminate or reduce competition. In addition, the National Development and Reform Commission (the “NDRC”), the State Administration of Market Regulation (the “SAMR”) and the Cyberspace Administration of China (the “CAC”), among others, jointly issued the Several Opinions on Promotion of the Standardized, Sound and Sustainable Development of Platform Economy (the “Platform Economy Opinions”), which embody legislative and regulatory anti-monopoly initiatives in relation to the “platform economy.” The Platform Economy Opinions focus on the following aspects of the platform economy: formulation and promulgation of regulations on the prohibition of unfair online anti-competitive activities; future issuance of detailed rules applicable to data processing activities conducted by online platform enterprises; the formulation of regulations on pricing; the investigation on monopoly and unfair competition activities; and the enforcement against monopolistic agreements, abuse of dominant market position and unlawful market concentration. |
We do not believe the abovementioned rules currently have a material impact on our capacity to operate our business in the ordinary course, obtain foreign investment, or maintain our listing overseas, however that could change in the future.
Recent greater oversight by the Cyberspace Administration of China (“CAC”) over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business.
The PRC government has recently taken various legislative initiatives in the area of data security and to address market monopoly concerns. On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures (the “CAC Revised Measures”) to replace the original Cybersecurity Review Measures. The CAC Revised Measures took effect on February 15, 2022 and provide that (i) critical information infrastructures operators, or CIIOs, must evaluate potential risks that the deployment of any products and services will have on national security prior to the procurement of such products and services, and must apply for a cybersecurity review if such products and services affect or may affect national security, and “online platform operators” must apply for a cybersecurity review if any of their data processing activities affects or may affect national security, and (ii) if an “online platform operator” that is in possession of personal data of more than one million users intends to list its securities on a foreign stock exchange, it must apply for a cybersecurity review. However, the measures have not clarified if any follow-on offering of ADSs by us will be regulated as a “listing shares on a foreign stock exchange” or whether public companies already listed overseas would be subject to regular cybersecurity reviews. In addition, the NDRC, the SAMR and the CAC, among others, jointly issued the Platform Economy Opinions, which embodies legislative and regulatory anti-monopoly initiatives in relation to the “platform economy.” The Platform Economy Opinions focus on the following aspects of the platform economy: formulation and promulgation of regulations on the prohibition of unfair online anti- competitive activities; future issuance of detailed rules applicable to data processing activities conducted by online platform enterprises; the formulation of regulations on pricing; the investigation on monopoly and unfair competition activities; and the enforcement against monopolistic agreements, abuse of dominant market position and unlawful market concentration. During the reporting period of this annual report, we have not received from the CAC, the Ministry of Public Security or its local counterparts, or any industrial regulatory authorities, any notices imposing administrative penalties against us or demanding any remedial actions be taken in relation to data security matters. We do not believe the abovementioned rules currently have a material impact on our capacity to operate our business in the ordinary course, obtain foreign investment, or maintain our listing overseas, they could in the future. To the extent any current regulation or policy promulgated by the CAC applies to us, we believe we are in full compliance. Up to now, we have not received any notices from the CAC, the Ministry of Public Security or its local counterparts that the company is a critical information infrastructures operator. Based on the advice of counsel provided by Beijing Haiwen Law Firm upon which we have relied, we do not believe that we are subject to the review of, nor require the approval of, the CAC at this time. We can provide no assurance, however, that the CAC will not take a different position, or other regulations and policies that may be issued in the future and their implementation may further require the company to comply with stricter compliance conditions, adjust the company’s business operation mode and business plan, or have a significant impact on our ability to accept foreign investment or maintain its listing in the United States or other overseas markets.
Interpretation and enforcement of Chinese laws and regulations is uncertain and may change quickly, which could result in a material and negative impact our business operation, decrease the value of our ordinary shares and limit the legal protections available to us.
The Chinese legal system is based on statutory law. Under this system, prior court decisions may be cited as persuasive authority, but do not have the binding effect of precedents. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws and considerable progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporate organization and governance, foreign investment, commerce, taxation and trade. Because these laws, regulations and legal requirements are relatively new and prior court decisions have little precedential value, the interpretation and enforcement of these laws, regulations and legal requirements may change quickly and involve greater uncertainty than in other jurisdictions.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
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Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
Substantially all of our operations are conducted in China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. See “Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment” for information about the PRC foreign exchange regulations. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China are still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant influence over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. Our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the Chinese government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China and the rate of China’s economic growth has slowed down. Any continued slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi (if any) owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.
Since 2016, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting processes are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fail to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
Certain judgments obtained against our directors and/or officers by our shareholders may not be enforceable.
We are a joint stock limited company incorporated under the laws of China. The majority of our directors and other members of management reside within China or Hong Kong. As a result, your ability to bring an action against us or against these individuals in the U.S. in the event that you believe your rights have been infringed under the U.S. federal securities laws or otherwise, or the procedures in relation thereto, may be subject to uncertainties. Even if you are successful in bringing an action of this kind, it may be diffcult for you to enforce judgments against us or these individuals in U.S. courts.
In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest. These policies may make it even more difficult to enforce any judgments obtained from foreign courts against such persons compared to other jurisdictions.
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Business and Operational Risk Factors
The coronavirus pandemic has and could continue to materially and adversely affect our business.
In 2022, the global pandemic of COVID-19 continues to spread. With the spread and dominance of the highly contagious Omicron strains, the Company has been affected by multiple rounds of clustered and large-scale infections, which have had an impact on the procurement of raw and auxiliary materials, production and operation, as well as demand for our end products. Our work arrangements, business operations, financial conditions, and business performance have all been negatively affected to varying degrees, and there have been infection cases among our employees. There remains uncertainty as to the future impact of the virus. The extent to which the COVID-19 pandemic impacts our long-term results will depend on future developments which are highly uncertain, unpredictable and beyond our control, including the appearance of new variants, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. Consequently, the COVID-19 pandemic may continue to materially and adversely affect our business, financial condition and results of operations in the current and future years. We are closely monitoring the impacts of COVID-19 pandemic on us.
Our operations may be adversely affected by the cyclical nature of the petroleum and petrochemical markets and by the volatility of prices of crude oil and petrochemical products.
Most of our revenues are attributable to the sale of refined oil and petrochemical products, which have historically been cyclical and sensitive to the availability and price of raw materials and general economic conditions. Markets for many of our products are sensitive to changes in industry capacity and output levels, changes in regional and global economic conditions, the price and availability of substitute products and changes in consumer demand, which from time to time have had a significant impact on our product prices in the regional and global markets. Due to the recent extreme volatility in crude oil prices, the decrease in tariff charges, the removal of other restrictions on importation and the Chinese government’s gradual relaxation of its control of the allocation of products and pricing, many of our products have become increasingly vulnerable to the cyclical nature of regional and global petroleum and petrochemical markets, which may adversely affect our operations.
We consume large amounts of crude oil to manufacture our products of which more than 95% is typically imported. In 2022, crude oil costs accounted for RMB 47.14 billion, or 61.81% of our consolidated annual cost of sales (73.34% of parent company annual cost of sales). As a result, changes in crude oil prices can affect our profitability. In recent years, due to various reasons, the price of crude oil has fluctuated significantly. The volatility of crude oil prices, as well as in the price of other energy products, has increased significantly as a result of the pending conflict between Russia and Ukraine. Russia is a major supplier of crude oil and natural gas to global markets. The sanctions imposed on Russia by numerous countries may result in a material reduction in oil and gas exports from Russia, which could increase price volatility for such products. We expect that the volatility and uncertainty of the prices of crude oil and petrochemical products will continue, and that increasing crude oil prices and declines in prices of petrochemical products may adversely affect our business and results of operations and financial condition.
Some of our major products are subject to government price controls, and we are not able to pass on all cost increases from rising crude oil prices through higher product prices.
We consume large amounts of crude oil to manufacture our products of which more than 95% is typically imported. We attempt to mitigate the effect of increased costs due to rising crude oil prices. However, our ability to pass on these increased costs to our customers is dependent on market conditions and government regulations. Given that the increase of the sales prices of our products may lag behind the increase of crude oil costs, we may fail to completely cover the increased costs by increasing our sales prices, particularly where government regulations restrict the prices of certain of our fuel products. In particular, gasoline, diesel and jet fuel, and liquefied petroleum gas are subject to government price controls at present. In 2020, 2021 and 2022 approximately 43.64%, 47.01%, and 51.40% respectively, of our net sales were from such products subject to price controls. Although the current price-setting mechanism for refined petroleum products in China allows the Chinese government to adjust price in the PRC market when the average international crude oil price fluctuates beyond certain levels within a certain time period (see Item 4. Information on the Company – B. Business Overview – Product Pricing), the Chinese government still retains discretion as to whether or when to adjust the prices of the refined oil products. The Chinese government generally exercises certain price control over refined oil products once international crude oil prices experience a sustained rise or become significantly volatile. For instance, some of our fuel products are required to be sold to designated distributors (such as the subsidiaries of Sinopec Corp.). Because we cannot freely sell our fuel products to take advantage of possible opportunities for higher prices, we may not be able to fully cover increases in crude oil prices by increasing the sale prices of our products, which has had and will possibly continue to have a material adverse effect on our financial condition, results of operations and cash flows.
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Our development and operation plans have significant capital expenditure and financing requirements, which are subject to a number of risks and uncertainties.
The petrochemical business is a capital intensive business. Our ability to maintain and increase our revenues, net profit and cash flows depends upon continued capital spending. Our current business strategy contemplates capital expenditure for 2023 of approximately RMB 3,700.00 million (U.S. $531.26 million), which will be provided through financing activities and use of our own capital. Our actual capital expenditures may vary significantly from these planned amounts, subject to our ability to generate sufficient cash flows from operations, investments and other factors that may be beyond our control. In addition, there can be no assurance as to whether, or at what cost, our capital projects will be completed or the success of these projects if completed.
As of March 31, 2023, we had an aggregate outstanding indebtedness of approximately RMB 5,048.00 million (U.S.$ 836.47 million). Most of our borrowings are with state-controlled banks in China and structured as short term debt obligations with payment due in one year or less. These banks have generally been willing to provide new short term loans while we pay off existing loans. Sinopec Finance Company Limited (“Sinopec Finance”), provided a loan of RMB 700.00 million (US $ 100.51 million) for our debt for the year ended December 31, 2022 and for the three months ended March 31, 2023.
Our ability to obtain external financing in the future and our ability to make timely repayments of our debt obligations are subject to a variety of uncertainties, including: our future results of operations, financial condition and cash flows; the condition of the economy in China and the condition of markets for our products; the cost of financing and the condition of financial markets; the issuance of relevant government approvals and other project risks associated with the development of infrastructure in China; and the continuing willingness of banks to provide new loans as we pay down existing debt.
While we anticipate that we will rely less on borrowings to finance capital expenditures and operations, our business, results of operations and financial condition could be adversely affected if we fail to obtain sufficient funding for our operations or development plans.
Our operations are exposed to risks relating to operating hazards and production safety and we have limited insurance coverage for resulting losses.
Our operations involve the handling and storage of explosives and other hazardous articles. In addition, our operations involve the use of heavy machinery, which involves inherent risks that cannot be entirely eliminated through our preventive efforts. As a result, we may encounter fires, explosions and other unexpected incidents during our operations, which may cause personal injuries or death, property damage, environmental damage, interruption of operations and reputational damages to us. Each of such incidents could have a material adverse impact on our financial condition and results of operations.
We maintain a package of insurance coverage plan through Sinopec Group on our property, facilities and inventory. In addition, we maintain insurance policies for such assets as vehicles and products in transit with third-party commercial insurance companies. Sinopec Group carries out unified insurance for safety production liability insurance and environmental liability insurance. We also insured a safety production liability insurance for one year in August 2022. The annual cumulative compensation caps is RMB 135 million and the compensation caps for each accident is RMB 67.5 million.
We are controlled by Sinopec Corp., whose interests may not be aligned with yours.
As of March 31, 2023, Sinopec Corp. owned 50.55% of our shares. Accordingly, it has voting and management control over us, and its interests may be different from the interests of our other shareholders. Subject to our Articles of Association and applicable laws and regulations, Sinopec Corp. will be in a position to cause us to declare dividends, determine the outcome of corporate actions requiring shareholder approval or effect corporate transactions without the approval of the holders of the H Shares and ADSs. Any such increase in our dividend payout would reduce funds available for reinvestment in our business and any such actions or transactions could adversely affect us or our minority shareholders. Sinopec Corp. may also experience changes in its own business strategy and policies. Although we are not currently aware of any specific changes, they could, in turn, lead Sinopec Corp. to change its policies or practices toward us in ways that we cannot predict, with corresponding unpredictable consequences for our business. Additionally, Sinopec Corp. may leverage its controlling shareholder position to influence our decisions with regard to the manufacturing and operation, allocation of financial resources and appointment and removal of senior management members, which could adversely affect us or our minority shareholders.
We have also engaged from time to time and will continue to engage in a variety of transactions with Sinopec Corp., Sinopec Group, the controlling company of Sinopec Corp., and their various subsidiaries or affiliates which provide a number of services to us, including the supply of raw materials, product distribution and sales agency, project design and installment service, petrochemical industry related insurance and financial services. We also sell oil and petrochemical products to Sinopec Corp. and its affiliates. Our transactions with these companies are governed by a Mutual Product Supply and Sales Services Framework Agreement with Sinopec Corp. and a Comprehensive Services Framework Agreement with Sinopec Group, the terms of which were negotiated on an arm’s-length basis. See Item 7. Major Shareholders and Related Party Transactions – B. Related Party Transactions. Our business and results of operations could be adversely affected if either Sinopec Corp. or Sinopec Group refuses to engage in such transactions or if one of them seeks to amend the contracts with us in a way adverse to us. In addition, Sinopec Corp. has interests in businesses that compete or are likely to compete, either directly or indirectly, with our businesses. Because Sinopec Corp. is our controlling shareholder and its interests may conflict with our own interests, Sinopec Corp. may take actions that favor itself over our interests.
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We could face increasing competition in China.
Our principal market, Eastern China, which is comprised of Shanghai, Shandong, Jiangsu, Anhui, Zhejiang, Jiangxi and Fujian, has enjoyed stronger economic growth and a higher demand for petrochemical products than other regions of China. As a result, we believe that our competitors will try to expand their sales and build up their distribution networks in our principal market. We believe this will have an adverse impact on the production and sale of our major products. Moreover, Chinese private enterprises have gradually overcome technological and funding barriers to extend their business from the downstream processing sector to the upstream petrochemical field. These enterprises have advantages in many areas such as flexibility in operation costs, preferential policy treatments and regional presence, and may use these advantages to compete with us in our target market.
We face increasing foreign competition in our lines of business.
China joined the WTO on December 11, 2001 and committed to eliminate some tariff and non-tariff barriers to foreign competition in the domestic petrochemical industry that benefited us in the past. In particular, China:
| • | has reduced tariffs on imported petrochemicals products that compete with ours; |
| • | increased levels of permitted foreign investment in the domestic petrochemicals industry, allowing foreign investors to own 100% of a domestic petrochemicals company from December 11, 2004; |
| • | has gradually relaxed restrictions on the import of crude oil by non-state-owned companies; |
| • | has granted foreign-owned companies the right to import petrochemical products; and |
| • | has permitted foreign-owned companies to distribute and market fuel products in both retail and wholesale markets in China. |
As a result of these measures, we face increasing competition from foreign companies and imports. In addition, competition for our products has increased, as many overseas companies have switched their focus to sales in China. Furthermore, tariff reductions could reduce our profit margins or otherwise negatively impact our revenue from certain products, including a small number of significant products. The Chinese government may also reduce the tariffs imposed on production equipment that we may import in the future.
Cyber attacks and security breaches may threaten the integrity of our intellectual property and other sensitive information and disrupt our business operations, which could adversely affect our reputation, business and financial position.
We face numerous and evolving global cybersecurity threats, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at us. Cyber attacks and security breaches may include, but are not limited to, attempts to disrupt our operations including our information technology systems and data, gain access to confidential information, insertion of computer viruses, denial of service and other electronic security breaches, whether internal or external through third parties with whom we conduct business. In recent years, a number of major oil and petrochemical companies have been the subject of cyber attacks.
Although we have not experienced any material cybersecurity incidents in the past, we cannot assure you that we will not experience them in the future. Due to the evolving nature of cybersecurity threats, the scope and impact of any future incident cannot be predicted. While we continually work to safeguard our systems and mitigate potential risks, there is no assurance that such actions will be sufficient to prevent cyber attacks or security breaches that manipulate or improperly use our systems or networks, compromise confidential or otherwise protected information, destroy or corrupt data, or otherwise disrupt our operations. The occurrence of such events could disrupt our operations, cause physical harm to people or the environment, damage or destroy assets, compromise business systems, result in proprietary information, including information of our employees, customers, partners and other third parties, being altered, lost, stolen or compromised or otherwise disrupt our business operations. We could incur significant costs to remedy the effects of such a cybersecurity disruption as well as in connection with any resulting regulatory actions and litigation. In addition, a material cybersecurity incident could negatively impact our reputation and our competitive position, which could have an adverse effect on our financial condition and results of operations.
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Risks associated with climate change.
In recent years, the petrochemical industry is facing more and more severe challenges as a result of concerns about global climate change. A series of international, domestic and regional agreements to limit greenhouse gas emissions have been signed and come into force. The Paris climate change agreement adopted in December 2015 included binding commitments by countries that have ratified the agreement since November 2016, which may lead to stricter national and regional measures in the near future. Compliance with these measures may lead to higher capital expenditures, tax expenditures, operating costs and other increased costs, resulting in reduced profits and income. Strategic investment may also be adversely affected.
Legal, Regulatory or Political Risk Factors
Our business operations may be adversely affected by present or future environmental regulations.
We are subject to extensive environmental protection laws and regulations in China. These laws and regulations permit:
| • | the imposition of environmental protection tax for the discharge of waste substances; |
| • | the levy of payments and fines for damages for serious environmental offenses; |
| • | the government to close down or suspend any facility which has caused or may cause environmental damages and require it to correct or stop operations causing environmental damages; and |
| • | lawsuits and liabilities arising from pollutions and damages to the environment and public interests. |
Our production operations produce substantial amounts of waste materials (i.e., waste water, waste gas and waste residue). In addition, our production and operations require environmental-related permits that are subject to renewal, modification and revocation. We were subject to various administrative penalties for violations of the relevant PRC environmental laws and regulations in the past years. See Item 4. Information of the Company – B. Business Overview – Environmental Protection. We have established a system to treat waste materials to prevent and reduce pollution. The Chinese government (including the local governments), however, has moved, and may move further, toward the adoption of more regulations and more stringent environmental standards. On May 31, 2021, the Ministry of ecology and environment issued the guidance on strengthening the prevention and control of the source of ecological environment of high energy consumption and high emission construction projects, strictly approving the environmental impact assessment of “two high” projects such as petrochemical and modern coal chemical industry, and resolutely curbing the blind development of “two high” projects. Chinese national or local authorities may also apply more rigorous enforcement of such regulations which would require us to incur additional expenditures on environmental matters. More stringent environmental requirements or a more rigorous enforcement program could impose significant additional costs on us, and may require us to undertake capital investments to conform with the new requirements. We cannot quantify such additional costs at this time.
If the Chinese government changes current regulations that allow us to make payments in foreign currencies, we may be unable to obtain the foreign currency necessary for our business.
The Renminbi currently is not a freely convertible currency. We receive most of our revenue in Renminbi. A portion of our Renminbi revenue must be converted into other currencies to meet our foreign currency needs, which include, among other things:
| • | debt service costs on foreign currency-denominated debt; |
| • | purchases of imported equipment; |
| • | payment of any cash dividends declared in respect of the H Shares and the ADSs; and |
| • | import of crude oil and other materials. |
Under existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions, including the payment of dividends, without prior approval from the State Administration of Foreign Exchange (“SAFE”) by producing commercial documents evidencing the foreign exchange transactions, provided that they are processed through Chinese banks licensed to engage in foreign exchange transactions. Foreign exchange transactions under the capital account (international revenues and expenditures that increase or decrease debt or equity, including principal payments in respect of foreign currency-denominated obligations) continue to be subject to limitations and require the prior approval of SAFE. These limitations could affect our ability to obtain foreign exchange through debt financing, or to make capital expenditures in foreign currency. The Chinese government has stated publicly that it intends to eventually make the Renminbi freely convertible in the future. However, we cannot predict whether the PRC government will continue its existing foreign exchange policy and when the PRC government will allow free conversion of Renminbi.
If the Chinese government restricts our ability to make payments in foreign currency, we may be unable to obtain the foreign currency necessary for our business. In that case, our business may be materially adversely affected, and we may default on our obligations.
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Changes in the monetary policy and fluctuations in the value of Renminbi may have an adverse impact on Sinopec 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 on the Chinese 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 PRC government has been under international pressure to further ease its exchange rate policy, and may as a result further change its currency policy. Early in 2020, the Renminbi had weakened against the US dollar to levels not seen since 2008, but steadily rebounded at the end of the year.
A small portion of our cash and cash equivalents is denominated in foreign currencies (mainly the U.S. Dollar). As of December 31, 2022, our bank deposits denominated in foreign currencies were equivalent to RMB 195.59 million. Any increase in the value of Renminbi against other currencies, including the U.S. dollar, may decrease the Renminbi value of our cash and cash equivalents that are denominated in foreign currencies.
Although most of our revenue is denominated in Renminbi, most of our procurement of crude oil, certain equipment and certain debt repayments are denominated in foreign currencies. Any depreciation of the Renminbi in the future would increase our costs and adversely affect profitability. In addition, any depreciation of the Renminbi could adversely affect the value of the dividends of our H Shares and ADSs, which we declare in Renminbi and pay in foreign currencies.
Our business may be limited or adversely affected by government regulations.
The Chinese central and local governments continue to exercise a certain degree of control over the petrochemical industry in China by, among other things:
| • | mandating distribution channels for our fuel products; |
| • | setting the allocations and pricing of certain resources, products and services; |
| • | assessing taxes and fees payable; |
| • | setting import and export quotas and procedures; and |
| • | setting safety, environmental and quality standards. |
As a result, we may face significant constraints on our flexibility and ability to expand our business operations or to maximize our profitability. In the past, we have benefited from favorable regulatory policies. Existing policies that favor our industry may change in the future and our business could be adversely affected by any such changes.
Our development plans may require regulatory approval.
We are currently engaged in a number of construction and expansion projects. Most of our projects are subject to governmental review and approval. The timing and cost of completion of these projects will depend on numerous factors, including approvals from relevant government authorities and general economic conditions in China.
While in general we attempt to obtain governmental approval as far in advance as practicable, we are unable to predict the timing and outcome of these governmental reviews and approvals. If any of our important projects required for our future growth are not approved, or not approved on a timely basis, our results of operations and financial condition could be adversely affected.
Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations.
Substantially all of our operations are conducted in China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.
The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the Chinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinese government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.
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While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. Our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the Chinese government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, and since 2012, the rate of China’s economic growth has slowed down. Any prolonged slowdown in the Chinese economy may reduce the demand for our products and services and materially and adversely affect our business and results of operations.
Interpretation and enforcement of Chinese laws and regulations is uncertain.
The Chinese legal system is based on statutory law. Under this system, prior court decisions may be cited as persuasive authority, but do not have the binding effect of precedents. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws and considerable progress has been made in the promulgation of laws and regulations dealing with economic matters, such as corporate organization and governance, foreign investment, commerce, taxation and trade. Because these laws, regulations and legal requirements are relatively new or otherwise undeveloped and not all accessible to the public and because prior court decisions have little precedential value, the interpretation and enforcement of these laws, regulations and legal requirements involve greater uncertainty than in other jurisdictions.
You may not enjoy shareholders’ protections that you would be entitled to in other jurisdictions.
As most of our business is conducted in China, our operations are governed principally by the laws of China. Despite the continuing improvement of the PRC Company Law and Securities Law, Chinese legal provisions for the protection of shareholders’ rights and access to information are different from those applicable to companies formed in the United States, Hong Kong, the United Kingdom and other developed countries or regions. You may not enjoy shareholders’ protections under Chinese law that you would be entitled to in other jurisdictions. We are a foreign private issuer, and therefore exempt from certain rules under the Exchange Act that are applicable to U.S. domestic public companies, such as rules relating to the having a majority of independent directors; independent audit committee members, compensation committee members and nominating committee members; obtaining shareholder approval for certain issuances of securities; or certain reporting requirements and certifications. Because of these exemptions, shareholders may be afforded fewer protections than they otherwise would under corporate governance requirements applicable to U.S. domestic issuers, or shareholders may not be afforded the same information generally available to shareholders holding shares in public companies organized in the United States that are not foreign private issuers.
Our Articles of Association require you to submit your disputes with us and other persons defined by our Articles of Association regarding the Company’s affairs to arbitration. You will have no legal right to a court proceeding with respect to such disputes.
Our Articles of Association require holders of our H Shares or ADSs having a claim against, or a dispute with, us, our directors, supervisors, executive officers or a holder of our A Shares relating to any rights or obligations conferred or imposed by our Articles of Association, the PRC Company Law or other relevant Chinese laws or regulations relating to our affairs, to submit such claim or dispute to arbitration with the China International Economic and Trade Arbitration Commission or to the Hong Kong International Arbitration Center. Our Articles of Association further provide that any arbitration decisions with respect to such disputes or claims shall be final and binding on all parties. As a result, you will have no legal right to a court proceeding with respect to such disputes.
If remedial measures are imposed on the “big four” PRC-based accounting firms, including our predecessor independent registered public accounting firm and successor independent registered public accounting firm, we might not be able to timely file future financial statements in compliance with the requirements of the Exchange Act.
Starting in 2011, the Chinese affiliates of the “big four” accounting firms, including our predecessor independent registered public accounting firm and successor independent registered public accounting firm, were affected by a conflict between the United States and Chinese law. Specifically, for certain United States listed companies operating and audited in China, the SEC and the PCAOB sought to obtain from the Chinese accounting firms access to their audit work papers and related documents. The firms were, however, advised and directed that under Chinese law they could not respond directly to the United States regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the CSRC.
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In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the PRC-based accounting firms, including predecessor independent registered public accounting firm and successor independent registered public accounting firm. In January 2014, an administrative law judge reached an initial decision to impose penalties on the firms including a temporary suspension of their right to practice before the SEC. The accounting firms filed a petition for review of the initial decision. On February 6, 2015, before a review by the Commissioners of the SEC had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The firms will receive matching requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the current proceeding against all four firms. Under the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019.
In the event that the SEC brings new administrative proceedings, listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding PRC-based, United States listed companies and the market price of the ADSs may be adversely affected.
We may be or become a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. investors.
Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Since PFIC status depends on the composition of our income and the composition and value of our assets from time to time, there can be no assurance that we are not currently a PFIC or that we will not be considered a PFIC for the current year, or for any future taxable year. If we are characterized as a PFIC, U.S. investors may suffer adverse tax consequences, including increased U.S. tax liabilities and reporting requirements. For further discussion of the adverse U.S. federal income tax consequences of our possible classification as a PFIC, see Item 10. Additional Information – E. Taxation – U.S. Taxation.
We could be sanctioned or otherwise penalized under relevant U.S. laws if we engage in business with certain entities in Iran or Russia and such transactions are determined by the U.S. governmental authorities to violate U.S. laws.
We have in the past sourced a small portion of crude oil from Iran. The United States has adopted a number of measures since 1996 that provide for the possible imposition of sanctions against non-U.S. companies engaged in certain activities in and with Iran in the energy and other sectors, including, the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”) enacted August 10, 2012 and the Iran Freedom and Counter-Proliferation Act (“IFCA”) enacted January 2, 2013, Section 1245 of the National Defense Authorization Act of 2012 (“NDAA”) enacted December 31, 2011, and Executive Order 13846 of August 6, 2018 that was issued in connection with the termination of the participation by the United States in the Joint Comprehensive Plan of Action, or JCPOA, that became effective January 16, 2016, and resulted in the waiver of certain U.S. sanctions against non-U.S. persons engaging in certain transactions with Iran. The withdrawal was effected in two stages that resulted on November 5, 2018, in the complete re-imposition of the U.S. sanctions that were waived under the JCPOA. On November 5, 2018, the United States also granted a 180-day waiver (that is potentially renewable) under Section 1245 of the NDAA to China (and seven other countries) allowing for the purchase of petroleum from Iran under specified conditions. The NDAA waiver does not authorize transactions that remain prohibited under other U.S. sanctions laws. On April 22, 2019, the U.S. Secretary of State announced that the United States would not grant any further waivers under the NDAA. In February 2021, U.S. President announced that the U.S. would not lift economic sanctions on Iran until Iran complies with the terms of the JCPOA.
The sanctionable activities include certain investments, the provision of goods, services, technology, or support that could contribute to the development of petroleum and petrochemical resources or the production of refined petroleum products in Iran, the exportation of refined petroleum products to Iran, the transportation of crude oil from Iran, or the engagement in a significant transaction for the purchase or acquisition of petroleum or petroleum products from Iran, and the engagement in transactions with certain Iranian specially designated nationals and blocked persons (“SDNs”) as identified and published by U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, the agency primarily responsible for administering U.S. sanctions and embargoes.
We have sourced a small portion of our crude oil from Iran in the past through Sinopec Corp., our current controlling shareholder, and independent third parties, and Iran may continue to be the ultimate source of a small portion of our crude oil. In addition, Sinopec Corp. and Sinopec Group, the controlling shareholder of Sinopec Corp., have engaged in operations in or purchasing crude oil sourced from Iran and may continue to do so in the future. We have no control over the activities of Sinopec Group or Sinopec Corp. in connection with any activities that they may conduct in Iran.
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If our purchases of crude oil from Iran and transactions related thereto are determined to be sanctionable activities by the U.S. President and/or the relevant U.S. governmental authorities, we may be subject to five or more of the twelve sanctions options available under the Iran Sanctions Act of 1996 (as amended) (“ISA”) and the ITRSHRA, which include restrictions on bank financing, outright blocking of the Company’s property within any U.S. jurisdiction, under the control of U.S. persons anywhere in the world, and prohibition of U.S. persons from investing or purchasing a significant amount of equity or debt instruments of the Company. Similar sanctions may also be imposed under Executive Order 13846, the IFCA, and other U.S. laws. In addition, many states in the United States have adopted legislation requiring state pension funds to divest themselves of securities in any company with active business operations in Iran. We cannot assure that we or any of our affiliates will not be sanctioned by the U.S. President and/or the relevant U.S. governmental authorities in light of the activities by us or our affiliates in Iran. The imposition of any such sanctions on us or our affiliates will have a negative impact on our business, reputation or stock price. In addition, purchase of crude oil by Sinopec Corp. subsidiaries that supply us with raw materials may from time to time be sourced from National Iranian Oil Company. This entity has been identified by the U.S. government as an SDN and sanctioned under various laws, including for assisting the government of Iran to avoid sanction and for engaging in activities related to nuclear proliferation. Under Executive Order 13846, the U.S. President can sanction non-U.S. companies that engage in transactions with SDNs such as the National Iranian Oil Company. To the extent we indirectly (or directly) purchase raw materials from this entity, we risk potential U.S. government sanctions. Even absent any U.S. government sanctions, we risk adverse publicity in the world markets, which may impair our reputation and business.
In addition, the conflict between Russia and Ukraine has resulted in the imposition of new sanctions on the Russian energy sector and greater scrutiny of pre-existing sanctions. The continuation of the conflict may result in the imposition of additional or more severe sanctions, and may also generate a higher level of sanctions enforcement activity. The International Emergency Economic Powers Act currently prohibits dealings with designated Russian persons and entities if the transaction involves a nexus to the U.S., such as payment in U.S. dollars. Under U.S. law, penalties could be imposed upon us even if we purchase crude oil or natural gas through a third party, and we are not aware that the purchase was made from an entity subject to U.S. sanctions. The sanctions regime relating to the Russian energy sector is continuing to evolve, and no assurance can be given that the United States or other jurisdictions will not seek to impose penalties upon us if they believed that we had engaged in sanctionable activities. If we were to become involved in sanctions proceedings, our business reputation could be harmed and we could incur substantial costs in order to defend the proceedings or pay any resulting penalties.
Sinopec Group, the controlling shareholder of Sinopec Corp. which is our current controlling shareholder, or its affiliates’ current or future activities in certain countries are the subject of economic sanctions under relevant U.S. laws and could result in negative media and investor attention to us and possible imposition of sanctions on Sinopec Group, which could materially and adversely affect our shareholders.
Sinopec Group undertakes, from time to time and without our involvement, overseas investments and operations in the oil and gas industry, including the exploration and production of oil and gas, refining and Liquefied Natural Gas, or LNG, projects. Sinopec Group’s overseas asset portfolio includes oil and gas development projects in Iran, Sudan and Syria, countries subject to U.S. sanctions and embargoes. We cannot predict the interpretation or implementation of government policy at the U.S. federal, state or local levels with respect to any current or future activities by Sinopec Group or its affiliates in countries or with individuals or entities that are the subject of U.S. sanctions. Similarly, we cannot predict whether U.S. sanctions will be further tightened, or the impact that such actions may have on Sinopec Group. It is possible that the United States could subject Sinopec Group to sanctions due to these activities. Certain U.S. state and local governments and colleges have restrictions on the investment of public funds or endowment funds, respectively, in companies that are members of corporate groups with activities in certain countries that are the subject of U.S. sanctions. These investors may not wish to invest, and may divest their investment, in us because of our relationship with Sinopec Group and its investments and activities in those U.S. government sanctioned countries. It is possible that, as a result of activities by Sinopec Group or its affiliates in countries that are the subject of U.S. sanctions, we may be subject to negative media or investor attention, which may distract management, consume internal resources and affect investors’ perception of our company.
Further, the ISA authorizes the imposition of sanctions on companies that engage in certain activities in and with Iran, especially in Iran’s energy sector. It is possible that Sinopec Group or its affiliates engage in activities that are targeted for sanction purposes by the ISA or other U.S. laws. If the U.S. President determines that Sinopec Group or one of its affiliates in fact engaged in the targeted activities, he would be required under the ISA to impose on Sinopec Group or its affiliates at least five sanctions from among twelve sanctions options available under the ISA, which range from restrictions on U.S. exports or bank financing to outright blocking of Sinopec Group or its affiliate’s property within the United States or in the possession or control of U.S. persons anywhere in the world. In addition, the IFCA requires the U.S. President to block the property of persons and entities within U.S. jurisdiction or control of U.S. persons if he determines that, among other things, such persons or entities are engaged in certain transactions involving the energy, shipping or shipbuilding sectors of Iran or with certain SDNs. It also requires the U.S. President to impose five or more sanctions under the ISA on a person that he determines has knowingly, on or after July 1, 2013, sold, supplied or transferred to or from Iran precious metals or certain other materials (including graphite, aluminum, steel, coal and certain software) if used for specified purposes. If the U.S. President determines that Sinopec Group, or an entity it owns or controls engages in any such activities and if the most extreme sanction under the ISA or other U.S. sanctions laws, blocking, were applied to Sinopec Group’s property, including controlled subsidiaries, Sinopec Group could be prohibited from engaging in business activities in the United States or with U.S. individuals or entities, and U.S. transactions in our securities and distributions to U.S. individuals and entities with respect to our securities could also be prohibited.
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In addition, pursuant to the IFCA, Executive Order 13846 and other U.S. laws, the U.S. government can sanction financial institutions anywhere in the world that engage in certain Iran-related transactions. Such sanctions include prohibiting the financial institution from opening, or imposing strict conditions on maintaining, a correspondent or payable through account in the United States. The potential for financial institutions to be sanctioned for Iran related activities may impact our ability to engage in financial transactions related to Iran transactions.
Risks Related to our ADSs
The trading prices of our ADSs and H Shares have been volatile and may continue to be volatile regardless of our operating performance.
The trading prices of our ADSs and H Shares have been and may continue to be subject to wide fluctuations. The market price for our ADSs may continue to be volatile and subject to wide fluctuations in response to factors including the following:
| • | actual or anticipated fluctuations in our quarterly results of operations; |
| • | changes in financial estimates by securities research analysts; |
| • | conditions in petroleum and petrochemical markets; |
| • | changes in the operating performance or market valuations of other petroleum and petrochemical companies; |
| • | announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments; |
| • | fluctuations of exchange rates between RMB and the U.S. Dollar; and |
| • | general economic or political conditions in China or elsewhere in the world. |
In addition, the stock market in general, and the market prices for companies with operations in China in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. The securities of some PRC-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards Chinese companies listed in the United States in general, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in any inappropriate activities. In particular, the global financial crisis and the ensuing economic recessions in many countries have contributed and may continue to contribute to extreme volatility in the global stock markets. These broad market and industry fluctuations may adversely affect the market price of our ADSs.
We delisted our ADSs from the New York Stock Exchange (“NYSE”) and terminated our depositary agreement with The Bank of New York Mellon, the depositary of the ADSs, which may create difficulties for holders of our ADSs.
On September 6, 2022, we voluntarily delisted our ADSs from the NYSE when the Form 25 Notification of Delisting we filed with the SEC on August 26, 2022 became effective. On March 15, 2023, we terminated the depositary agreement and our ADS program. The depositary, through its custodian, was the record holder of the shares underlying the ADSs. Therefore, only the depositary can exercise shareholder rights relating to the deposited shares. ADS holders, in their capacity, are not able to directly bring a derivative action, examine our accounting books and records and exercise appraisal rights. The depositary also exercised voting and other rights associated with shares underlying ADSs in accordance with the instructions given by ADS holders, and paid to ADS holders dividends and distributions collected from us.
Current holders of ADSs have one year from the termination date of the depositary agreement to exchange their ADSs for the underlying H Shares. During that time, the depositary will continue to act on behalf of the holders of ADSs. After such time, any remaining ADSs holders will not be able to use the depositary to exchange their ADSs but will be entitled, upon surrender of their ADSs, to receive the net proceeds of the depositary’s sale of the underlying H Shares. The termination of the ADS program may significantly limit the liquidity of the market for our ADSs.
Additionally, our H Shares, which underly our ADSs are quoted on the OTC Pink Sheets under the symbol “SPTJF”. The OTC Pink Sheets is a significantly more limited market than the NYSE. The quotation of our H Shares on the OTC Pink Sheets may result in a less liquid market available for existing and potential stockholders to trade our H Shares, could depress the trading price of our H Shares and could have a long-term adverse impact on our ability to raise capital in the future.
Our ADSs may be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act (the “HFCAA”) in the future if the PCAOB is unable to inspect or investigate completely auditors located in China.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or on the over-the-counter trading market in the United States.
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On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or on the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.
ITEM 4. INFORMATION ON THE COMPANY.
A. History and Development of the Company
General Information
We were established in the People’s Republic of China as a joint stock limited company under the PRC Company Law on June 29, 1993 as Shanghai Petrochemical Company Limited. On October 12, 2000, we changed our name to Sinopec Shanghai Petrochemical Company Limited. Our registered office is at No. 48 Jinyi Road, Jinshan District, Shanghai, China 200540. Our telephone number there is (86-21) 5794-1941. Our company website is www.spc.com.cn. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and our other information that file electronically with the SEC.
Our Predecessor
Our predecessor, the Complex, was founded in 1972 as one of the first large scale Chinese petrochemical enterprises using advanced imported technology and equipment. Prior to June 29, 1993, the Complex was wholly-owned by Sinopec Group, at the time a ministerial level enterprise (before its restructuring in 1998). The Complex’s location was chosen because of accessibility by water and land transportation to Shanghai, a major industrial city of China, and the availability of reclaimable land. The Complex was initially under the administration of the Ministry of Textile Industry and in 1983 was placed under the administration of Sinopec.
Construction Projects
The Complex and we, as its successor, have completed six major stages of construction. The first stage of construction (1972-1976) included reclamation of land and the installation of 18 production units. The second stage of construction (1980-1986) increased the Complex’s capacity for processing crude oil and doubled its capacity for synthetic fiber production. The third stage of construction (1987-1992) primarily consisted of the installation of a 300,000 ton Rated Capacity ethylene unit, an additional crude oil refining unit and other units for the production of petrochemical products. The third stage of construction completed our transition from a synthetic fiber producer to a highly integrated producer of a wide variety of petrochemical products. The fourth stage of construction (2000-2002) mainly included the 700,000 ton Ethylene Expansion Project and Coal-Fired Power Plant Expansion Project. The fifth stage of construction (2003-2009) was mainly designed to optimize our structure and realize sustainable development, and mainly included 3,300,000t/a diesel hydrogenation unit, 1,200,000t/a delayed coking unit and other projects implemented for removing “bottlenecks” in refinery, the building of new 600,000t/a paraxylene hydrocarbon complex unit, 150,000t/a C5 segregation unit, 380,000t/a ethane unit, etc..
The Company commenced the sixth stage of construction in 2010 (the “Phase 6 Project”) and completed the project in December 2012. The key component of the Phase 6 Project was the refinery revamping and expansion project. The Phase 6 Project also included the technology development and fine chemicals projects. The purpose of the Phase 6 Project was to improve the Company’s overall industrial structure, core competitiveness and the capability of maintaining sustainable developments. The Phase 6 Project was focused on the objective to achieve intensive utilization of natural resources and the build-up of a complete set of facilities, in accordance with the fundamental industrial model of integrating oil refining and petrochemical production. Through this project, the Company further enhanced its oil refining process and strengthened and expanded the Company’s core businesses while continuing to explore the development of fine chemicals and products with high value added.
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Over the past four decades, the Company has built up an infrastructure system to support its production needs. The Company has its own facilities to supply water, electricity, steam and other utilities and to treat waste water, as well as ocean and inland waterway wharfs and railroad and road transportation facilities.
Our Initial Public Offering and Listing
We were established as a subsidiary of Sinopec on June 29, 1993. In preparation for our initial public offering of ordinary shares, all assets and liabilities of the Complex were transferred either to us or to Sinopec Shanghai Jinshan Industrial Company (“JI”), a separate subsidiary of Sinopec. The Complex’s non-core businesses and assets, such as housing, stores, schools, transportation and medical services, were transferred to JI. The Complex’s core business and assets were transferred to us. The Complex then ceased to exist as a legal entity. In 1998, Sinopec was restructured into a limited liability company under the name of China Petrochemical Corporation (“Sinopec Group”). On February 25, 2000, Sinopec Group transferred its interest in us to its subsidiary, Sinopec Corp. In 1997, JI was restructured and its subsidiaries were either transferred to Sinopec or Shanghai Jinshan District.
Our H Shares commenced listing on the HKSE on July 26, 1993. Our ADSs, each representing 100 H Shares, were listed on the NYSE. The last day of trading of the ADSs on the NYSE was September 6, 2022. Our A Shares are listed on the Shanghai Stock Exchange. We were the first Chinese joint stock limited company to have securities concurrently traded in Hong Kong, the United States and China. On November 8, 1993, our A Shares were included in the Shanghai Stock Exchange Stock Index.
A Share Reform
Pursuant to regulations issued by the CSRC, we were required to obtain shareholder approval for and implement certain share reform. As a result of such share reform, all non-publicly tradable A Shares of the Company would be converted into publicly tradable A Shares and may be sold publicly on the Shanghai Stock Exchange subject to any applicable lock-up period.
In connection with the share reform, the Distribution Proposal regarding 2013 Interim Distribution of Cash Dividend and the Conversion of Capital Fund and Surplus Reserve into Shares of the Company (“Proposal”) was approved at the Company’s 2013 First Extraordinary General Meeting, 2013 First A Shareholders Class Meeting and 2013 First H Shareholders Class Meeting held on October 22, 2013. According to the Proposal, based on the Company’s total share capital of 7,200,000,000 shares as of June 30, 2013, RMB2,421 million of the capital surplus of the Company from its share premium account was used to fund the issue of 3.36 new bonus shares with respect to every 10 issued and outstanding shares, the surplus reserve was used to fund the issue of 1.64 new bonus shares with respect to every 10 issued and outstanding shares, and an interim cash dividend of RMB0.50 (tax included) for every 10 issued and outstanding shares was distributed to all shareholders.
In addition, Sinopec Corp. undertakes under the Proposal that it shall not, within 12 months from the date on which Sinopec Corp. becomes entitled to trade, deal in or transfer its non-publicly tradable shares of the Company in the market (meaning the first trading day after the implementation of the Proposal), trade such shares in the market. Also, after the expiration of the aforesaid 12-month term, the amount of existing non-publicly tradable shares to be disposed of by Sinopec Corp. through trading on the stock exchange shall not represent more than 5% of the total number of our shares held by Sinopec Corp. within the next 12 months, and not more than 10% within the next 24 months.
Immediately upon completion of the conversion of capital surplus and surplus reserve into new shares of the Company, the total number of A Shares of the Company reached, as of December 4, 2013, 7,305,000,000, and the total amount of H Shares of the Company reached 3,495,000,000. Therefore, the Company’s total share capital consists of 10,800,000,000 shares. Sinopec Corp., being the controlling shareholder of the Company, holds 5,460,000,000 A Shares, representing 50.56% of the total share capital of the Company.
The share certificates of new H Shares issued in connection with the share reform were dispatched and the cash dividend was paid to the holders of H Shares on December 4, 2013. The dealings in the new H Shares commenced on December 5, 2013.
The Company exercised its Share Option Incentive Scheme for the first time in August 2017, and the second time in January 2018, and the total number of shares of the Company increased by 14,176, 600 shares and 9,636,900 shares, respectively, upon exercise. Immediately upon completion of the exercise of Share Option Incentive Scheme on February 14, 2018, the total number of A Shares of the Company reached, as of December 4, 2013, 7,328,813,500, and the total amount of H Shares of the Company reached 3,495,000,000.
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On February 17, 2023, the Company canceled 24,528,000 H shares repurchased from the Stock Exchange of Hong Kong during the reporting period. With this cancellation, the total number of shares issued by the Company has been reduced to 10,799,285,500, including 7,328,813,500 A shares and 3,470,472,000 H shares.
Description of Principal Capital Expenditures and Divestitures
For a description of capital expansion projects related to our facilities, see Item 4. Information on the Company – D. Property, Plant and Equipment – Capital Expansion Program.
B. Business Overview
We are one of the major petrochemical companies in China based on 2022 net sales and ethylene production. Our highly integrated petrochemical complex processes crude oil into a broad range of products in four major product areas:
| • | synthetic fibers, |
| • | resins and plastics, |
| • | intermediate petrochemicals, and |
| • | petroleum products. |
Based on 2022 sales volumes, we are a leading Chinese producer of synthetic fibers and resins and plastic products. We believe that we are also a leading competitor in sales of petroleum products and intermediate petrochemicals in our regional markets.
Our net sales by business lines as a percentage of total net sales in each of 2020, 2021 and 2022 are summarized as follows:
Net Sales of RMB61,560.9 million in 2020
| Synthetic fibers |
2.39 | % | ||
| Resins and plastics |
15.30 | % | ||
| Intermediate petrochemicals |
13.33 | % | ||
| Petroleum products |
48.96 | % | ||
| Trading of petrochemical products |
18.81 | % | ||
| Others |
1.21 | % | ||
|
|
|
|||
| Total |
100.00 | % | ||
|
|
|
Net Sales of RMB75,888.8 million in 2021
| Synthetic fibers |
1.81 | % | ||
| Resins and plastics |
13.13 | % | ||
| Intermediate petrochemicals |
14.21 | % | ||
| Petroleum products |
55.19 | % | ||
| Trading of petrochemical products |
14.56 | % | ||
| Others |
1.10 | % | ||
|
|
|
|||
| Total |
100.00 | % | ||
|
|
|
Net Sales of RMB72,654.6 million in 2022
| Synthetic fibers |
0.57 | % | ||
| Resins and plastics |
10.08 | % | ||
| Intermediate petrochemicals |
14.50 | % | ||
| Petroleum products |
57.04 | % | ||
| Trading of petrochemical products |
16.53 | % | ||
| Others |
1.28 | % | ||
|
|
|
|||
| Total |
100.00 | % |
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We derive a substantial portion of our revenues from customers in Eastern China (principally Shanghai and its six neighboring provinces), an area that has experienced economic growth above the national average in recent years. Shown by geographic region and exports, our net sales by business lines as a percentage of total net sales for each of 2020, 2021 and 2022 are as follows:
2020 Net Sales by Region (%)
| Eastern China |
Other parts of China | Exports | ||||||||||
| Synthetic fibers |
89.85 | 10.15 | 0.00 | |||||||||
| Resins and plastics |
91.93 | 8.07 | 0.00 | |||||||||
| Intermediate petrochemicals |
94.72 | 4.06 | 1.22 | |||||||||
| Petroleum products |
91.35 | 0.24 | 8.41 | |||||||||
| Trading of petrochemical products |
61.08 | 5.61 | 33.31 | |||||||||
| Total net sales |
86.92 | 2.64 | 10.45 | |||||||||
2021 Net Sales by Region (%)
| Eastern China |
Other parts of China | Exports | ||||||||||
| Synthetic fibers |
91.68 | 8.32 | 0.00 | |||||||||
| Resins and plastics |
94.99 | 5.01 | 0.00 | |||||||||
| Intermediate petrochemicals |
97.12 | 1.18 | 1.70 | |||||||||
| Petroleum products |
91.80 | 0.39 | 7.81 | |||||||||
| Trading of petrochemical products |
64.54 | 3.11 | 32.35 | |||||||||
| Total net sales |
89.28 | 1.43 | 9.29 | |||||||||
2022 Net Sales by Region (%)
| Eastern China |
Other parts of China | Exports | ||||||||||
| Synthetic fibers |
98.34 | 1.66 | 0.00 | |||||||||
| Resins and plastics |
97.45 | 2.55 | 0.00 | |||||||||
| Intermediate petrochemicals |
97.44 | 0.68 | 1.88 | |||||||||
| Petroleum products |
87.03 | 0.44 | 12.54 | |||||||||
| Trading of petrochemical products |
68.77 | 27.19 | 4.04 | |||||||||
| Total net sales |
87.18 | 1.18 | 11.64 | |||||||||
Doing Business in China
As an integrated petroleum and petrochemical company operating in China, our business operations may be directly affected by new laws and regulations covering our industries that are enacted by the PRC government or the exercise of its supervisory power over our industries. The PRC government continues to exercise certain controls over the petroleum and petrochemical industry in China. These control mechanisms include periodically setting the upper limit of the retail prices for gasoline and diesel, collecting special oil income levies, deciding import and export quotas and procedures, setting safety, environmental and quality standards, and formulating policies to save energy and reduce emission. In addition, the PRC government may continue to make and adopt changes to its existing macroeconomic and industry policies for the petroleum and petrochemical industry, including further reform and improvement of pricing mechanisms of refined oil products and natural gas, which could impact the development of the petroleum and petrochemical industry in China and the production and operations of the market players in such industry. Our board of directors and management, when developing and formulating our business plan and operating strategies, are required to take into consideration those control mechanisms and industry policies, some of which may impose constraints and limitations on our business planning and strategy. We cannot assure you that these control mechanisms will not have a material adverse effect on our operations and profitability.
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The Negative List, while requiring enterprises incorporated in China and operating in industries that are subject to foreign investment prohibition to obtain approval from relevant competent government authorities for their overseas securities offerings and listings, does not prohibit or impose restrictions on foreign investments in the petroleum and petrochemical industries. However, we cannot rule out the possibility that the PRC government may in the future amend and revise PRC laws and regulations in this area to advance new energy security policies. In addition, the Security Review Measures provide that a foreign investor must seek the approval of the competent PRC regulatory authorities prior to investing in key energy and resources sectors that have national security implications where such investment will result in such investor obtaining actual control over the invested enterprises. The Security Review Measures also provides that PRC regulatory authorities should enact implementing rules applicable to the acquisition by foreign investors of publicly-traded securities of listed companies that have or may have national security consequences, and pending the enactment of such implementing rules, there are uncertainties as to whether there are restrictions on open-market purchase of our publicly-traded ADSs by foreign investors under said measures. Given that Sinopec Corp., our controlling shareholder, and its concert parties currently hold approximately 50.55% of our outstanding shares, we do not expect any foreign investor will be able to obtain control over us by investing in our publicly traded H shares or ADSs.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi (if any) owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi.
Meanwhile, other than approvals and filing processes required under prevailing PRC laws and regulations, our ability to transfer money or other assets out of China or enter into business transactions with non-Chinese parties in the ordinary course of our business has not been substantively affected by the Security Review Measures. If the PRC government, in keeping with its national security policy, promulgates new laws and regulations in the future to regulate and restrict our ability to enter into cross-border transactions or obtain foreign investments, we may be required to make adjustments to our operating and financing plans, which may in turn affect our business operations and financial position, and have material impacts on the value of our ADSs. If, in the future, foreign investments in petroleum and/or petrochemical industries in China become prohibited or restricted, investors in our ADSs may need to seek exit for their investments in accordance with applicable laws and regulations, which may result in a significant decline in the price of our ADSs and materially and adversely affect the value of the investments made by such foreign investors.
Our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally. The PRC government has significant authority to intervene or influence our operations at any time, which could result in a material adverse change to our operations and the value of our securities.
Furthermore, given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas, although we are currently not required to obtain permission from the PRC government and have not received any denial to list on a U.S. exchange, it is uncertain whether or when we might be required to obtain permission from the PRC government to maintain our current listing or list additional securities on U.S. exchanges in the future. Even if such permission is obtained, it is uncertain whether it will be later denied or rescinded, which could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors in the United States and result in a material adverse change to our business operations, and damage our reputation, and therefore causing the value of our ADSs to significantly decline or lose their value.
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The PRC government has recently taken various legislative initiatives in the area of data security and to address market monopoly concerns. On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures (the “CAC Revised Measures”) to replace the original Cybersecurity Review Measures. The CAC Revised Measures took effect on February 15, 2022 and provide that (i) critical information infrastructures operators, or CIIOs, must evaluate potential risks that the deployment of any products and services will have on national security prior to the procurement of such products and services, and must apply for a cybersecurity review if such products and services affect or may affect national security, and “online platform operators” must apply for a cybersecurity review if any of their data processing activities affects or may affect national security, and (ii) if an “online platform operator” that is in possession of personal data of more than one million users intends to list its securities on a foreign stock exchange, it must apply for a cybersecurity review. However, the measures have not clarified if any follow-on offering of ADSs by us will be regulated as a “listing shares on a foreign stock exchange” or whether public companies already listed overseas would be subject to regular cybersecurity reviews. In addition, the NDRC, the SAMR and the CAC, among others, jointly issued the Platform Economy Opinions, which embodies legislative and regulatory anti-monopoly initiatives in relation to the “platform economy.” The Platform Economy Opinions focuses on the following aspects of the platform economy: formulation and promulgation of regulations on the prohibition of unfair online anti- competitive activities; future issuance of detailed rules applicable to data processing activities conducted by online platform enterprises; the formulation of regulations on pricing; the investigation on monopoly and unfair competition activities; and the enforcement against monopolistic agreements, abuse of dominant market position and unlawful market concentration. During the reporting period of this annual report, we have not received from the CAC, the Ministry of Public Security or its local counterparts, or any industrial regulatory authorities, any notices imposing administrative penalties against us or demanding any remedial actions be taken in relation to data security matters. We do not believe the abovementioned rules have a material impact on our capacity to operate our business in the ordinary course, obtain foreign investment, or maintain our listing overseas. To the extent any current regulation or policy promulgated by the CAC applies to us, we believe we are in full compliance. Up to now, we have not received any notices from the CAC, the Ministry of Public Security or its local counterparts that the company is a critical information infrastructures operator. Based on the advice of counsel provided by Beijing Haiwen Law Firm upon which we have relied, we do not believe that we are subject to the review of, nor require the approval of, the CAC at this time. We can provide no assurance, however, that the CAC will not take a different position, or other regulations and policies that may be issued in the future and their implementation may further require the company to comply with stricter compliance conditions, adjust the company’s business operation mode and business plan, or have a significant impact on our ability to accept foreign investment or maintain its listing in the United States or other overseas markets.
In light of the dynamic nature of the Chinese economy and the continuing development of the PRC legal system, the PRC authorities may promulgate new laws and regulations regulating the petroleum and petrochemical industry, or overall investment and market activities in general. Certain legislative changes are required by law to go through review and comment procedures open to certain market participants or the general public, and to the extent that such changes are made to regulate our business operation, we may have the opportunity to participate in such review and comment procedures during the policy and rule-making process. However, we cannot assure you that the rules or policies finally adopted will not adversely affect our business operations. The new regulations and policies or the amendment of current ones may at times only afford a short period for transition or adjustment, and may influence the implementation of our established business plans and operation strategies. They may also subject us to enhanced compliance scrutiny, result in more compliance costs and expenses, or otherwise adversely affect our business by requiring adjustments to our business plans and operations. For example, the PRC government has recently adopted, and may further adopt, stricter laws and regulations with respect to environmental protection and carbon emissions, which may lead to higher operating costs and expenses, and a prolonged project development timetable. As a result of those new or amended rules and policies, we may not have control over the timing or outcome of approvals of certain of our planned projects, and may encounter significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize our profitability, which could in turn adversely affect our operations by raising our operating costs and lowering our profits or otherwise impeding our efforts to improve our operational efficiency and profitability, and further adversely affect the market expectations of our business operations. Depending on the extent to which our operations are so affected, there may be a material change in our operations and the value of our ADSs.
The occurrence of any, some or all of the legal and operational risks described above and discussed under the heading “Risks Related to Doing Business in China” under Item 3.C of this Annual Report could cause the value of our securities to significantly decline or lose their value.
The Holding Foreign Companies Accountable Act
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or on the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information-D. Risk Factors- Risks Related to our ADSs—“Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China.”
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Transfer of Cash through Our Organization
Sinopec Shanghai Petrochemical Co Ltd, is a joint stock limited company incorporated in China, and operates its business in China in accordance with the scope of business as set forth in its articles of association. The Company directly and indirectly owns equity interests in its PRC subsidiaries, and there is no variable interest entity within the Group. All cash flows among the Company, the parent company and the subsidiaries represent equity contributions, dividends and distributions, loans and other cash flow items underlying business activities made during the ordinary course of their business.
The Company is not a holding company established solely to hold equity interest in its operating subsidiaries but an operating company and independently generates revenue from its business operations. The Company is not solely relying on dividends and distributions declared and paid by its subsidiaries to satisfy its needs of funding. Having considered the status of its business operation and financial management, the Company has established a centralized treasury system within the group with the aim to effectively coordinate the fund and budget management at group level based on consolidated funding and budgeting regime, for the purpose of maintaining a sufficient cash reserve for the Company while optimizing funding management efficiently. As of December 31, 2022, the Company directly owns more than 90% of total consolidated assets and more than 75% of the consolidated cash and cash equivalents of the group. For the year ended December 31, 2022, the Company directly generated more than 80% of the total consolidated revenue of the group. Therefore, the Company can continue to generate sufficient funding for its business operations. On the other hand, the day-to-day sales from the Company’s business include inter-segment sales in the ordinary course of business, which are eliminated during the preparation of its consolidated financial statements and therefore will not be reflected under the line items of its consolidated revenues. As a result, the Company believes the preparation of cash flow and transfer of assets between the company and its subsidiaries is not meaningful to investors.
Our parent company, China Petroleum & Chemical Corporation (“Sinopec Corp.”) is the largest integrated petroleum company in China. Any cash flow and transfer of assets between our company and our parent company mainly involves (1) distribution of dividends based on shareholding and (2) funds transfer in the normal course of business. As disclosed on page 8 of the Form 20-F, our parent company has from time to time provided a variety of services to us, including the supply of raw materials, product distribution and sales agency, project design and installment service, petrochemical industry related insurance and financial services. We also sell oil and petrochemical products to Sinopec Corp. and its affiliates. These businesses are carried out on normal commercial terms and are in compliance with the relevant regulatory requirements in all material respects, and therefore the corresponding fund flows are not subject to any additional restrictions. Transactions between the Group and Sinopec Corp., its subsidiaries and joint ventures have been separately disclosed in Note 32 Related-party transactions of Item 17. Financial Statements.
The current foreign exchange regulations have significantly reduced the government’s foreign exchange control over transactions under the current account, including trade, services and dividend payments involving foreign exchange transactions. Foreign exchange transactions under capital account (including payment of principal of foreign currency debt) are still subject to strict foreign exchange control and need to be approved by the State Administration of foreign exchange. Such restrictions may affect the company’s ability to obtain foreign exchange through debt or equity financing. The Chinese government has publicly announced its plan for the free convertibility of RMB in the future. However, the company cannot predict whether the government will continue to adopt the current foreign exchange management system and when it will allow the free convertibility of RMB. The company’s income denominated in foreign currency and the exchange of RMB to foreign currency are the main sources of the company’s foreign currency funds. Up to now, the company’s currency exchange has not been significantly restricted, and the company’s ability to carry out daily operations, dividend payment and investment plans has not been significantly affected; The foreign currency currently held by the company is also sufficient to meet the needs of performing the financial obligations denominated in foreign currency. If the company is subject to more stringent foreign exchange control measures in the future, and therefore cannot obtain the required foreign currency through exchange in time, the company’s ability to pay financial obligations denominated in foreign currency according to the business plan may be significantly affected. In the case that the company cannot further obtain sufficient foreign currency funds, the company may therefore breach some foreign-related agreements and fail to pay dividends according to the plan, or unable to further carry out overseas business and investment activities.
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Dividend Distribution Policy
According to the articles of association, our board of directors will determine the payment of dividends, if any, with respect to our shares on a per share basis. Any final dividend for a financial year shall be subject to shareholders’ approval. The board may declare interim and special dividends at any time under general authorization by a shareholders’ ordinary resolution. A decision to declare or to pay any dividends in the future and the amount of any dividends will depend on our results of operations, cash flows, financial condition, the payment by our subsidiaries of cash dividends to us, future prospects and other factors which our directors may determine to be important.
For holders of our H shares, cash dividend payments, if any, shall be declared by our board of directors in Renminbi and paid in Hong Kong dollars. The depositary will convert the Hong Kong dollar dividend payments and distribute them to holders of ADSs in US dollars, less expenses of conversion.
The Company may distribute dividends in the following forms: cash, shares or other forms provided by laws, administrative rules, regulations of competent authorities and regulatory provisions in the place where the Company’s shares are listed. The Company shall give priority to the distribution of dividends in cash. The Company may make interim dividends distribution. The Company shall distribute cash dividends when the Company’s net profit and retained earnings, in separate financial statement, are positive and the Company has adequate cash inflows over the requirements of cash outflows of operation and sustainable development. The cash dividends per annum should not be less than thirty percent of the net profit of the Company in the current year. Dividends in the form of shares will be distributed to the depositary and, except as otherwise described in the Deposit Agreement, will be distributed by the depositary in the form of additional ADSs, to holders of ADSs. The Company will be required to, pursuant to applicable PRC laws and regulations, withhold 10-20% dividend tax (based on the status of the shareholder) for dividends paid to holders of H shares (including ADSs representing such H shares), and make filing pursuant to applicable foreign exchange control procedures for the payment of such dividends. In addition, ADS holders will be required to pay applicable service fees in relation to the distribution of cash dividends pursuant to the Deposit Agreement for the Company’s American Depositary Shares.
In addition, foreign exchange transactions under the capital account, including principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of SAFE. While we have not been denied of our applications for foreign exchange for the payment of our dividends, we cannot rule out the possibility that such control and limitation could affect our ability to obtain foreign exchange to pay cash dividends declared on our H shares (including ADSs representing our H shares). Consequently, we cannot assure that foreign investors’ investment will not be subject to foreign exchange payment risks as a result of these foreign exchange control measures. See “Legal, Regulatory or Political Risk Factors—If the Chinese government changes current regulations that allow us to make payments in foreign currencies, we may be unable to obtain the foreign currency necessary for our business.”
Since the Company’s shares were listed in Hong Kong and the U.S. in 1993, the Company has distributed dividends to its shareholders over 25 times, and has never experienced any restrictions.
During the reporting period of this annual report, the company used its own funds to distribute a final dividend of RMB 0.1 per share (tax included). For the financial year ended December 31, 2021, dividends of RMB 0.1 per share (tax included) were distributed throughout the year. For H-share holders, cash dividends are declared in Renminbi and paid in Hong Kong dollars. After receiving dividends in Hong Kong dollars, the depositary bank converts them into US dollars for distribution to holders of ADS.
According to the relevant laws and regulations of China, the company shall withhold and pay 10% of the dividend tax when distributing dividends to the ADS holders who are paid through the depositary bank. In addition, the ADS holders shall bear the service fees related to cash dividend distribution in accordance with the deposit agreement. In 2021, each ADR (equal to 100 H shares) received a dividend of US $1.56. After deducting the 10% dividend tax withheld and the deposit bank’s distribution fee of US $0.21/ADS for each dividend, the ADS holders actually received US $1.35/ADS. In 2021, the aggregate dividend paid to the ADS holders through the depositary bank was about US $436.32m.
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Permits and Approvals
We are required to obtain permits and approvals for the operation of our business pursuant to applicable PRC laws, regulation and industrial policies. The following chart sets forth our current licenses, allowing us to operate our business in certain places and industries:
| License |
Underlying Business/Activities |
Competent/Approving Authority | ||
| Port Operation License | Providing wharf facilities, storage, etc. for ships | Authorities of transportation | ||
| Newspaper Publishing License | Newspaper publishing | Authorities of press and publication | ||
| Power Business License | Engaging in power business | Authorities of energy management | ||
| Water-taking License | Using water resource | Authorities of water management | ||
| Radiation Safety License | Using specific radioactive sources | Authorities of environment protection management | ||
| Pollutant discharge License | Discharging pollutants into the environment | Authorities of ecological environment management | ||
| Work Safety License | Safe production activities | Authorities of Work Safe Regulation and Supervision (Ministry of Emergency Management and its counterparts) | ||
| Safety Production License for Hazardous Chemicals | Production of hazardous chemicals | Authorities of Work Safe Regulation and Supervision (Ministry of Emergency Management and its counterparts) | ||
| National Industrial Product Production License | Industrial product production | Authorities of quality and technology management | ||
| Mobile Pressure Vessel Filling License | Low pressure liquefied gas filling | Authorities of Work Safe Regulation and Supervision (Ministry of Emergency Management and its counterparts) | ||
| Shanghai Port Shoreline use License | Using shoreline | Authorities of port management | ||
We have obtained all approvals and permits that are material for our business operations under the PRC laws and regulations, and we have not been subject to any material administrative penalties from the PRC regulatory authorities nor have any permissions or approvals ever been denied. However, we cannot rule out the possibility of new requirements for approvals and permits in the future. If we fail to obtain relevant approvals and permits in time, our business operations of may be adversely affected. In addition, pursuant to the Special Regulations of the State Council concerning Offering and Listing of Shares Overseas by Companies Limited by Shares promulgated in 1994, currently in effect, as a PRC company with equity securities listed in the PRC and the U.S., we are required to obtain the prior approval of the China Securities Regulatory Commission (the “CSRC”) for any public offering of equity securities to foreign investors. In addition, we may be subject to legal liabilities under the PRC Securities Law if our offering or the trading of our securities overseas is deemed to “disrupt the order of PRC domestic market and harm legitimate rights and interests of PRC domestic investors”. We have received from the CSRC the approval for our public offerings of equity securities in the past. We are required to continue to comply with the provisions of the PRC Securities Law and we remain subject to the supervision of the PRC regulatory authorities. However, we cannot assure you that we can timely receive such approval if we wish to make any new equity offerings in the future.
If we fail to obtain any requisite approvals with respect to future offerings of our equity securities to foreign investors, or if we inadvertently conclude that such approvals are not required, our ability to execute our financing and equity offering plans may be significantly limited or completely hindered. In the absence of alternative sources of financing, this could impede our efforts to improve our liquidity or expand our business operation, and we cannot assure you that there will not be material negative impacts on our financial condition and result of operations, or a significant decline in the value of our ADSs. Furthermore, we cannot assure you that PRC authorities will not promulgate new laws to further regulate the listing of our ADSs, or impose new compliance obligations for us to maintain the listing of our ADSs. Certain of our actions in relation to our overseas listing may also constitute a violation of PRC Securities Law or other relevant laws, and as a consequence, subject us to penalties, including without limitation fines, limitations on our ability of financing activities, or the suspension or termination of certain aspects of our business operations, which may in turn result in substantial difficulty for us to maintain our listing overseas.
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In addition, on February 17, 2023, the China Securities Regulatory Commission issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (“Trial Measures”). In an effort to reform the regulatory regime for offshore listings, the Trial Measures establish a filing-based administration system for overseas listings of domestic enterprises, enhancing support for domestic companies that wish to go public overseas. If we fail to obtain any requisite approvals or filings with respect to future offerings of our equity securities to foreign investors, or if we inadvertently conclude that such approvals or filings are not required, our ability to execute our financing and equity offering plans may be significantly limited or completely hindered. Any measures taken by the PRC authorities to regulate or exert more control over securities offerings conducted overseas and foreign investments in China-based issuers may limit or hinder our ability to offer or continue to offer securities to investors outside China, and the price of our ADSs may decline significantly, leading to a material adverse effect on the value of investments in our ADSs by investors.
Business Strategies
Our development objectives are to evolve itself into a “leading domestically, first-class globally” energy and chemical and new material enterprise. The key components of the Company’s development strategy are as follows: to take into account both low cost and differentiation, and to focus on both scale and refinement. The Company focuses on value and market orientation, creativity, talents as the backbone of the Company, the emphasis of environment and low carbon emissions and integrated development, to realize low cost and large scale of the upstream, and high value-added and refinement of the downstream. The Company will give full play to its advantages of a wide product chain, diversified products and close monitoring of the market to enhance competitiveness. Under the guidance of the above development strategy, according to the requirements of North-South Transformation Policy raised by Shanghai Government, the Company will (a) actively promote the transition from oil refining to chemical industry, the transition from chemical industry to materials, the transition from materials to high-end products, and the transition from parks to ecology, (b) carry out comprehensive technological transformation and quality upgrades, and (c) further optimize refining product structure to better meet the market needs. The Company will seek to strengthen the core industries of mid-to-high-end new materials such as carbon fiber, and take polyester, polyolefin, elastomer, and C-5 downstream fine chemical new materials as breakthrough and extension for the mid-to-high-end new materials which should help the North-South transformation and the construction of Carbon Valley Green Bay and local industrial parks in Jinshan District. The Company will seek to develop wind, light, fire, and biological integrated power generation and green hydrogen production technology, with a view towards realizing the energy structure transformation from fossil energy to fossil energy combined with renewable energy to achieve energy saving. Through diversified industrial linkage development and cluster agglomeration, the Company plans to build an industrial base with green energy, fine chemical, and high-end material on the north bank of Hangzhou Bay with world-scale and first-class competitiveness.
In 2023, the Company will, adhering to the principle of prioritizing stability while pursuing progress, integrate into the new development landscape and coordinate development and safety in a better way, to lay a solid foundation for its high-quality development on all fronts. In 2023, the Company plans to process a total of 13.6 million tons of crude oil, produce a total of 8.001 million tons of refined oil products, 756,000 tons of ethylene, 680,000 tons of xylene, and 698,700 tons of new synthetic resin products and special materials annually. In order to achieve the business objectives for 2023, the Group will focus on the following five areas of work:
| • | Strengthen safety and environmental protection and improve the level of intrinsic safety |
Learning from the accidents, we exercise full and strict management over the Company, and strengthen the fulfillment of responsibilities. We strictly control risks and ensure safety and environmental protection. We strengthen the control over contractors, promote the review of contractors’ QHSE system, and strengthen the supervision over direct work safety. While enhancing the basic skills training, we optimize the training mode and process. We push forward the effective operation of the HSE management system, improve environmental protection KPI indicators, and meet basic emission standards. In addition, we strictly implement the principles of solid waste reduction, recycling and harmlessness, and advance the construction of waste-free factories.
| • | Strengthen efficiency and reduce costs to improve production and operation |
We implement the target of efficiency improvement and cost reduction throughout production and operation. We put equal emphasis on both process and equipment, to ensure the stable and efficient operation of equipment. We optimize crude oil procurement, transportation and distribution, production operation and maintenance, energy saving and “three new business” (new energy, new materials and new economy), strictly control costs and expenses, and improve cost control. These efforts aim to maximize the overall efficiency of the Company.
| • | Strengthen management to improve efficiency and enhance endogenous momentum |
We keep optimizing the management system and mechanism, further optimize the organizational setup, and improve management efficiency and level. We strengthen organizational performance management by improving assessment, incentives and constraints, and refining the internal management market-oriented working mechanism.
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| • | Focus on transformation and development and promote the development of key projects |
We accelerate transformation and upgrading. We go all out to create a more resilient and higher-value integrated industrial chain, and build an industrial base featuring green energy, fine chemical and high-end materials. We speed up the breakthroughs in core technologies in key fields and the implementation of key projects. During the year, the first phase of 48K large-tow carbon fiber went into commercial operation. We carried out the second phase of equipment construction, made available 100-ton test devices for high-performance carbon fiber and pilot plants for aeronautical composite materials, and accelerated the construction of 250,000 tons/year thermoplastic elastomer projects. We strengthen the construction of platforms of sci-tech innovation and our innovation capability. We promote the application of new technologies and processes in production units. Furthermore, we strengthen the operation and management of joint laboratories with universities to integrate production, learning, research and application.
| • | Strengthen team building and consolidate the foundation for corporate development |
We enhance cadres’ ability to perform their duties and continuously promote the construction of cadre management system. We also further better the talent system. Specifically, we provide the basic skills training for skilled operators, and continue with the business competition themed “big drills and big game”. We refine the plan for training and introducing talents, and improve the management plus assessment and incentive of cutting-edge and urgently-needed talents. These efforts will enable us to maintain the personal interests, long-term interests and fundamental interests of the employees, and enhance the satisfaction and sense of gain of the grass-roots employees.
Principal Products
We produce four principal types of products with different specifications, including synthetic fibers, resins and plastics, intermediate petrochemicals and petroleum products. We use many of the important petroleum products and intermediate petrochemicals we produce in producing our own downstream products.
The following table shows a comparison of the production volume and sales volume in 2022 and 2021 by our major products.
| Product |
Production | Sales | ||||||||||||||||||||||
| 2022 (10,000 tons) |
2021 (10,000 tons) |
Year-on-year change |
2022 (10,000 tons) |
2021 (10,000 tons) |
Year-on-year change |
|||||||||||||||||||
| DieselNote1 |
252.02 | 338.80 | -25.61 | % | 251.84 | 338.10 | -25.51 | % | ||||||||||||||||
| Gasoline |
257.08 | 339.64 | -24.31 | % | 255.84 | 340.23 | -24.80 | % | ||||||||||||||||
| Jet FuelNote1 |
81.70 | 118.45 | -31.03 | % | 66.24 | 99.57 | -33.47 | % | ||||||||||||||||
| Paraxylene |
58.59 | 49.63 | 18.05 | % | 58.54 | 46.53 | 25.81 | % | ||||||||||||||||
| BenzeneNote2 |
30.32 | 30.67 | -1.14 | % | 29.70 | 29.99 | -0.97 | % | ||||||||||||||||
| Ethylene Glycol |
9.57 | 15.07 | -36.50 | % | 6.24 | 4.14 | 50.72 | % | ||||||||||||||||
| Ethylene Oxide |
19.67 | 33.56 | -41.39 | % | 19.23 | 32.78 | -41.34 | % | ||||||||||||||||
| EthyleneNote2 |
59.81 | 71.28 | -16.09 | % | — | — | — | |||||||||||||||||
| Polyethylene |
39.12 | 49.62 | -21.16 | % | 38.28 | 49.63 | -22.87 | % | ||||||||||||||||
| Polypropylene |
39.70 | 45.59 | -12.92 | % | 37.07 | 42.26 | -12.28 | % | ||||||||||||||||
| Polyester PelletNote2 |
10.75 | 34.34 | -68.70 | % | 10.89 | 30.24 | -63.99 | % | ||||||||||||||||
| Acrylic |
1.96 | 7.10 | -72.39 | % | 2.06 | 7.32 | -71.86 | % | ||||||||||||||||
| Polyester Staple |
0 | 2.62 | -100.00 | % | 0 | 2.73 | -100.00 | % | ||||||||||||||||
Notes: 1. Excludes sales volume of proceeds on order.
2. The difference between production and sales are internal sales.
The above-mentioned sales volume does not include the trading of our petrochemical products.
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The following table shows our 2022 net sales by major products as a percentage of total net sales together with the typical uses of these products.
| Product | % of net sales | Typical Use | ||
| SYNTHETIC FIBERS | ||||
| Polyester staple fiber | 0.00 | Textiles and apparel | ||
| Acrylic staple fiber | 0.45 | Cotton type fabrics, wool type fabrics | ||
| Others | 0.12 | |||
| Sub-total |
0.57 | |||
| RESINS AND PLASTICS | ||||
| Polyester chips | 0.95 | Polyester fibers, films and containers | ||
| Polypropylene pellets | 4.16 | Films, ground sheeting, wire and | ||
| cable compound and other injection molding products such as housewares and toys |
||||
| Polyethylene pellets | 4.57 | Films or sheets, injection molding | ||
| products such as housewares, toys and household electrical appliances and automobile parts Polyvinyl alcohol (“PVA”) |
0.00 | PVA fibers, building coating materials and textile starch | ||
| Others | 0.39 | |||
| Sub-total |
10.08 | |||
| INTERMEDIATE PETROCHEMICALS | ||||
| Ethylene | 0.00 | Feedstock for polyethylene, ethylene glycol, polyvinyl chloride and other | ||
| intermediate petrochemicals which can be further processed into resins, plastics and synthetic fiber. |
||||
| Ethylene oxide | 1.73 | Intermediate products for the chemical and pharmaceutical | ||
| industry, including dyes, detergents and adjuvant.. | ||||
| Benzene | 2.82 | Intermediate petrochemical products, styrene, plastics, explosives, dyes, detergents, epoxies and polyamide fiber | ||
| Paraxylene | 5.97 | Intermediate petrochemicals and polyester | ||
| Butadiene | 0.76 | Synthetic rubber and plastics | ||
| Ethylene glycol | 0.35 | Fine chemicals | ||
| Others | 2.87 | |||
| Sub-total |
14.50 | |||
| PETROLEUM PRODUCTS | ||||
| Gasoline | 23.50 | Transportation fuels | ||
| Diesel | 20.05 | Transportation fuels and agricultural machinery fuels | ||
| Jet Fuel | 5.90 | Transportation fuels | ||
| Others | 7.59 | |||
| Sub-total |
57.04 | |||
| Trading of petrochemical products | 16.53 | Import and export trade of petrochemical products (purchased from domestic and overseas suppliers) | ||
| Others | 1.28 | |||
| Total |
100.00 |
The following table provides a detailed description of our major products by industry segment, primary upstream raw materials, transport and storage method, primary downstream application fields and key price-influencing factors:
| Product |
Industry segment |
Primary upstream |
Transport/storage |
Primary downstream |
Key price-influencing | |||||
| Diesel | Petroleum products | Petroleum | Pipeline transportation and shipping/ storage tank | Transportation fuel, agricultural machinery fuel | International crude oil price, government control | |||||
| Gasoline | Petroleum products | Petroleum | Pipeline transportation and shipping/ storage tank | Transportation fuel | International crude oil price, government control | |||||
| Jet Fuel | Petroleum products | Petroleum | Pipeline transportation and shipping/ storage tank | Transportation fuel | International crude oil price, supply- demand balance | |||||
| Paraxylene | Intermediate petrochemicals | Naphtha | Road transportation/ storage tank | Intermediate petrochemical products and polyester | Raw material price, supply-demand balance |
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| Product |
Industry segment |
Primary upstream |
Transport/storage |
Primary downstream |
Key price- | |||||
| Benzene | Intermediate petrochemicals | Naphtha | Road transportation, shipping, rail transportation/ storage tank | Intermediate petrochemical products, styrene, plastic, explosive, dye, detergent, epoxy resin, chinlon | International crude oil price, market supply- demand condition | |||||
| Ethylene Glycol | Intermediate petrochemicals | Naphtha | Road transportation/ storage tank | Fine Chemicals engineering | International crude oil price, market supply- demand condition | |||||
| Ethylene Oxide | Intermediate petrochemicals | Naphtha | Road transportation, pipeline transportation/ storage tank | Chemical and medical industry intermediate products, including dyes, detergents and auxiliary | International crude oil price, market supply- demand condition | |||||
| Ethylene | Intermediate petrochemicals | Naphtha | Road transportation, pipeline transportation, shipping/storage tank | PE, EG, PVC and other raw material for further processing of intermediate petrochemical products such as resins, plastics and synthetic fibres | International crude oil price, supply- demand balance | |||||
| Polyethylene | Resins and plastics | Ethylene | Road transportation, shipping and rail transportation/ warehousing | Film, mulching film, cable insulation material and housewares, toys injection moulding products | Raw material price and market supply- demand condition | |||||
| Polypropylene | Resins and plastics | Propylene | Road transportation, shipping and rail transportation/ warehousing | Film, mulching film, housewares, toys, household appliances and auto parts injection moulding products | Raw material price and market supply- demand condition | |||||
| Polyester chips | Resins and plastics | PTA, EG | Road transportation, shipping and rail transportation/ warehousing | Polyester fibre or film, container | Raw material price and market supply- demand condition | |||||
| Acrylics | Synthetic fibres | Acrylonitrile | Road transportation, shipping and rail transportation/ warehousing | Simple spinning or blend with other material for texture or acrylic top | Raw material price and market supply- demand condition | |||||
| Polyester | Synthetic fibres | Polyester | Road transportation, shipping and rail transportation/warehousing | Texture, apparel | Raw material price and market supply- demand condition |
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Production Processes
The key component of the vertically integrated production facility of the Company is the ethylene facility producing ethylene and propylene and aromatics facility mainly producing paraxylene and benzene. Ethylene is the main raw material for the production of polyethylene and ethylene glycol, while ethylene glycol and PTA polymerization produces polyester. Propylene is the main raw material for the production of acrylics and polypropylene. The above-mentioned products all use crude oil as raw material and are processed through a series of petrochemical facilities. The chart below illustrates in brief the production processes of the Company.
Intermediate Petrochemicals
Ethylene – Ethylene is either directly processed into polypropylene resins or processed into other intermediate petrochemicals. The most important of these is MEG. MEG is a key ingredient in polyester. It is produced by oxidizing ethylene in the ethylene oxide /ethylene glycol unit. Ethylene is also used to produce vinyl acetate which is processed into PVA.
Propylene – Propylene is either processed directly into polypropylene resins or is further processed into other intermediate petrochemicals such as acrylonitrile, acetonitrile, hydroxyl acetonitrile and sodium cyanide. Acrylonitrile is used in producing acrylics.
Vacuum gas oil – VGO is passed through the hydrocracker, and the resulting heavy naphtha is fed into the aromatics plants to produce paraxylene and benzene. Paraxylene is processed into PTA, one of the principal raw materials in producing polyester.
Resins and Plastics and Synthetic Fibers
We process our intermediate petrochemical products into five kinds of synthetic fiber raw materials: (1) polyester, (2) acrylonitrile, (3) polypropylene, (4) polyethylene, and (5) PVA. Each of these five products has its own production line or lines. We further process polyester and acrylonitrile into various types of synthetic fibers.
Polyester – MEG and PTA are fed into a polymerization unit which produces polyester chips and polyester melt. Both chips and melt are used as raw materials in the production of polyester staple and filaments. Some chips are also sold to third parties.
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Polyester staple fiber is a multi-strand fiber cut into short lengths which can be spun into fabric on its own or blended with cotton, wool or flax to produce textiles. Polyester filaments are a class of more highly processed polyester materials which have been drawn and oriented to produce a long thread-like fiber.
Acrylonitrile – We produce polyacrylonitrile by feeding acrylonitrile into a polymerization unit. By passing the polyacrylonitrile through the fiber unit, acrylic fiber and acrylic staple fiber are produced, including cotton and wool type staple fibers. Wool acrylic staple fiber can be processed into acrylic wool strips.
Polypropylene – We produce polypropylene resins by feeding propylene into a polymerization unit. Our fiber grade polypropylene resin is the main ingredient for polypropylene fiber production.
Polyethylene – We have three sets of units producing polypropylene, two of which produce low-density polyethylene (“LDPE”) using the kettle type process, and the other unit produces all density polypropylene products using the Borstar bimodal process.
PVA – PVA granules are produced from vinyl acetate, derived from ethylene.
Raw Materials
In 2022, we continued to strengthen our advantages in refining and chemical integration and leverage the strong adaptability of our refining plants to process more high-sulfur crude oil; we used a Process Industry Modeling System to determine the cost performance of crude oil to further improve the cost control of crude oil purchases; and the total volume of the top ten main types of oil purchased in the whole year of 2022 accounted for 88.54% of the total purchase of crude oil.
To enhance the overall profitability, we optimized our ethylene cracking stocks, adjusted and improved our natural gas and fuel gas structure, optimized our hydrogen system, reduced the emission and increased the efficiency of flare gas, increased the outputs of gasoline and aviation kerosene, and optimized naphtha, residual oil and wax oil processing lines. We further optimized the structure of our finished oil products, achieving a diesel to gasoline ratio of 0.98:1 for 2022. We strengthened our tracking of the margin contribution of our units, and continuously carried out daily profitability measurement for each product so as to promptly detect changes in profitability, quickly adjust the load and running schedule of our production units and afford priority to the production of products with high profitability and market demand.
Crude Oil
Crude oil is our primary raw material and the most significant raw material we purchase from outside sources. In 2022, crude oil accounted for approximately 61.81% of our consolidated annual cost of sales (73.34% of parent company annual cost of sales). Accordingly, the supply and price of crude oil are key factors in determining our profitability.
Supply and Transportation – The crude oil required by us is purchased through Sinopec Corp., as an agent, from foreign sources and Shanghai Nanguang Petrochemical Co., Ltd., as an agent, from domestic sources. During 2022 we did not experience any significant problems in obtaining sufficient crude oil to meet our production needs.
Sinopec Group is responsible for preparing an annual plan on demand and supply for crude oil and petroleum products that forms the basis of the Chinese government’s annual “balancing plan” which effectively dictates our planned volume of crude oil processing in each year. Likewise, under the “balancing plan,” some of our petroleum products are designated for sale to the subsidiaries of Sinopec Group or other designated customers at market prices and we must consult Sinopec Group to sell elsewhere.
We have received confirmation from Sinopec Corp. that it will purchase on our behalf 13.60 million tons of imported crude oil in 2023. Sinopec Corp. has further confirmed that, subject to China’s national crude oil policy and our actual production needs, it will continue to purchase on our behalf sufficient quantities and appropriate types of crude oil, including domestic offshore and imported crude oil, to satisfy our anticipated annual needs. We anticipate that we will fully utilize our supply of crude oil in 2023. We believe that the mix of crude oil feedstock currently available is satisfactory for our 2023 production capacity and targets. Additionally, as part of China’s commitment at its accession into WTO, certain non-state-owned enterprises have been granted an increasing amount of quota to import crude oil. Although we do not expect to obtain crude oil through this channel in the foreseeable future due to the current crude oil supply system, this may provide us with an alternative source of crude oil supply.
Crude Oil Mix – Our refining equipment is designed to process certain grades of crude oil. Therefore, the origin and quality of the crude oil available can be important to our business. We believe that as we have been significantly increasing usage of imported crude oil, we will continue to be able to obtain from the market such imported crude oil that is compatible with our refining equipment. The overall mix of foreign versus domestic crude oil we process in 2023 will depend on a variety of factors, including the amount of future supply of domestic offshore crude oil and the availability, price, quality, processing profitability and compatibility with our refining capabilities of imported crude oil. Provided there are no significant modifications to the existing channels of crude oil supply, we believe that sufficient supplies of crude oil will be available on the domestic or international markets for our 2023 production capacity and goals.
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In 2022, our crude oil was sourced as follows:
| Domestic offshore crude oil |
1.02 | % | ||
| Imported crude oil |
98.98 | % | ||
|
|
|
|||
| Total: |
100.00 | % | ||
|
|
|
We expect that we will continue to rely principally on foreign sources for our crude oil supply. However, we believe that we will be able to maintain our processing efficiency through technological adjustments of our equipment and quality control and that increased use of imported oil will not materially adversely impact our business and results of operations.
Foreign and domestic offshore crude oil is supplied by tanker and pipeline to our oil terminal wharf and oil storage tank. See Item 4.D. Property, Plants and Equipment -Wharfs.
In the past, we have not experienced disruption in our crude oil supply. The crude oil for our atmosphere vacuum distillation facility is mainly supplied from the Ningbo-Shanghai-Nanjing oil pipeline. Due to our ability to obtain crude oil from multiple sources, we are able to meet our normal requirements for crude oil.
Pricing – The price of domestic crude oil shall apply the market –adjusted rate and the imported crude oil is generally sold to us at prevailing international market prices. The average cost of imported crude oil and domestic offshore crude oil in 2022 was RMB 4,675.66 (U.S.$ 695.70) per ton and RMB 5,318.94 (U.S.$ 791.41) per ton, respectively. In 2022, we processed 10,338,313 tons of imported crude oil and 107,022 tons of domestic offshore crude oil (including 378,279 tons of crude oil processed on a sub-contract basis).
Until March 2001 the Chinese government implemented a unified pricing system for crude oil. Each month, the National Development and Reform Commission (“NDRC”) established an indicative price for each grade of domestic onshore crude oil based on comparable international market prices, inclusive of any duties that would have been imposed had the oil been imported. The actual price for domestic onshore oil would be such indicative price plus a surcharge. This surcharge was determined by China National Petroleum Corporation and Sinopec Group to reflect any transportation and other miscellaneous costs that would have been incurred in having the oil delivered to various refineries. Beginning March 2001, NDRC ceased publishing an indicative price. Instead, the indicative price for domestic onshore oil has been calculated and determined directly by China National Petroleum Corporation and Sinopec Group based on the principles and methods formerly applied by NDRC.
On January 13, 2016, NDRC issued the Circular on Several Issues on Further Improving the Pricing Mechanism of Refined Oil (Fa Gai Jia Ge [2016] No. 64) to adjust the existing refined oil pricing mechanism, which include, among other things, (i) setting a price floor of U.S.$40 for the downward adjustment of the crude refined oil. When the international crude oil price drops to U.S.$40 per barrel or below, i.e., the adjustment price floor, the refined oil price in China shall no longer be adjusted downwards; and (ii) creating a reserve for risks associated with the adjustment and control of oil prices. When the international crude oil price drops to U.S.$40 per barrel or below, all unadjusted amount shall be allocated to the reserve above mentioned for use for the purpose of energy saving or reduction of emission, improving the oil quality and securing a safe supply of oil.
We purchase crude oil through Sinopec Corp. and its affiliates from the sources selected and in the quantities confirmed by the Company at market prices. On this basis, we believe that changes in crude oil prices should not have a material effect on our competitiveness with other domestic producers. Nevertheless, any increase in the price of crude oil could have an adverse impact on our profitability to the extent that we are unable to pass cost increases on to our customers.
As of December 31, 2022, the Group had processed a total of 10.4453 million tons of crude oil, indicating a year-on-year decrease of 24.11%, mainly due to the implementation of the largest overhaul in the Company’s history this year. The cost of crude oil processing for the whole year of 2022 was RMB4682.50 /ton, representing an increase of RMB1450.21 /ton or 44.87% from the same period last year. The annual crude oil processing total cost increased by RMB3.96 billion from the same period last year or 9.16%, accounting for 61.81% of the total cost of sales.
Coal
Most of the coal used for electricity generation is purchased through a unified system of procurement by Sinopec Corp.. Coal is transported by rail from the mines to Qinhuangdao port and shipped by barge to Jinshanwei where it is delivered to the plant via a company-owned wharf and conveyer system. Our cost is primarily dependent on coal price and transportation charges.
We expect that our total requirement for coal to generate electricity in 2023 will be approximately 1.90 million tons. In 2022, we consumed approximately 1.7352 million tons of coal, a decrease of 16,900 tons from 2021 of 1.7521 million tons.
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Other Raw Materials
We produce most of the raw materials used as feedstock for our operations. If any of these raw materials, other than ethylene, becomes unavailable from internal production, we believe that there are sufficient alternative sources at reasonable prices and the unavailability of raw materials from internal sources will not have a significant effect on our operations and profitability.
We purchase some ancillary raw materials from outside sources. These raw materials include natural gas, methanol, ammonia, sodium hydroxide, sulfur, acetone, acrylonitrile, PTA, propylene and a variety of catalytic agents. In 2022, the total cost of these materials accounted for approximately 12.05 % of our total cost of sales. We do not expect any difficulties in obtaining a supply of any of these ancillary raw materials in amounts sufficient to meet our needs in the foreseeable future.
Sales and Marketing
Distribution
The distribution of our fuel products is subject to government regulations. We are required to sell certain refined products to the subsidiaries of Sinopec Group or customers designated by Sinopec Group. Since the second half of 2005, Sinopec Group has executed reforms to its system of selling petrochemical products and implemented what it refers to as a “Five Consolidations” strategy featuring “consolidated marketing strategy, consolidated promotion, consolidated logistics optimization, consolidated sales and consolidated branding.” As a result, the sales of our major petrochemical products are now conducted in a consolidated manner by sales agents designated by Sinopec Group. However, we have the autonomy to decide on the distribution method of our other products in accordance with market conditions. The products we sold in 2022 that were subject to planned distribution by Sinopec Group, sales by agents and sales based on our own discretion accounted for 65.31%, 29.09% and 5.60%, respectively, of the total sales volume in 2022.
We generally sell our products to larger trading companies and industrial users with whom we have long-standing relationships, including Sinopec Group or customers designated by Sinopec Group. We believe that the transition to sales of major petrochemical products by agents designated by Sinopec Group will increase our distribution efficiency, reduce horizontal competition and enhance our overall bargaining power, by allowing us to benefit from Sinopec Group’s extensive and highly specialized sales network. It will also allow us to focus more of our resources on reducing production costs and enhancing our technical support.
We use long term contracts to sell most of our products. We did not experience significant write-offs or defaults on our accounts receivable or other trading accounts in 2022. In general we managed to maintain a stable correlation between production and sales in 2022.
Product breakdown
Synthetic Fibers – In 2022, 11.85% of our synthetic fiber products were purchased by provincial and municipal government trading companies that act as intermediaries between us and end-users. List of customers each accounting for more than 25% of the sales in this segment. List of customers each accounting for more than 10% of the sales in this segment: Shanghai Dunshan Textile Co., Ltd. (上海盾杉纺织品有限公司): 21.77%; Jiangsu Zhonghuai Textile New Materials Co., Ltd. (江苏中淮纺织新材料有限公司): 13.85%
Resins and Plastics – In 2022, approximately 52% of our resins and plastics sales were to provincial and municipal government trading companies and approximately 48% were sold to industrial users. No single customer accounted for more than 5% of our sales of resins and plastics in 2022.
Intermediate Petrochemicals – We sell a variety of intermediate petrochemical products, among which the sale volume of petroleum benzene and paraxylene was relatively high in 2022. Shanghai SECCO Petrochemical Company Limited (“SECCO”) is the principal outside consumer of our petroleum benzene. In 2022, we sold 0.1685 million tons of petroleum benzene to SECCO, representing 56.71% of our total 2022 production of such product. List of customers each accounting for more than 10% of sales in this segment: SECCO: 56.71%; SINOPEC Shanghai Gaoqiao Petroleum Chemical Co., Ltd.: 18.61%; Zhejiang Baling Hengyi Caprolactam Co., Ltd.: 9.86%.
Jiaxing Petrochemical Company Limited, Oriental Petrochemical (Shanghai) Corporation and Zhejiang Dushan Energy Co., Ltd. are the outside consumers of our paraxylene. In 2022, we sold 0.2264 million tons, 0.0419 million and 0.3172 million tons of paraxylene, representing 38.16%, 7.06% and 53.47% of our total 2022 production of such product, to Jiaxing Petrochemical Company Limited, Oriental Petrochemical (Shanghai) Corporation respectively and Zhejiang Dushan Energy Co., Ltd., at prices mutually agreed upon by the relevant parties.
Petroleum Products – In 2022, our primary gasoline and diesel customer was East China Branch of Sinopec Sales Company Limited (“SINOPEC East China Company”).
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Trading of Petrochemical Products – In 2022, our largest trading customer for petrochemical products was Sinopec Chemical Commercial Holding Company Limited.
Major Suppliers and Customers
The Group’s top five suppliers in 2022 were China International United Petroleum & Chemical Co., Ltd., East China Branch of Sinopec Sales Company Limited, Materials and Equipment Department of China Petroleum and Chemical Corporation, SECCO, and Shanghai Gas Co., Ltd.. Total procurement costs involving these five suppliers, which amounted to RMB 53,719.8 million, accounted for 74.29 % of the total procurement costs of the Group for the year. Among the top five suppliers, the purchase amount of related parties was RMB 52,304.9 million, accounting for 72.33% of the total annual purchase amount. The procurement from the largest supplier amounted to RMB 45,666.4 million, representing 63.15 % of the total costs of purchases by the Group for the year.
The Group’s top five customers in 2022 were SINOPEC East China Company, China International United Petroleum & Chemical Co., Ltd., Sinopec Sales Company Limited, SECCO and Zhejiang Dushan Energy Co., Ltd.. Total sales to these five customers amounted to RMB 54,719.9 million, representing 66.37% of the Group’s total turnover for the year. Among the sales of the top five customers, the sales of related parties was RMB 52,363.1 million, accounting for 63.51% of the total annual sales. Sales to Sinopec Group’s largest customer amounted to RMB 40,337.00 million, representing 48.93% of Sinopec Group’s total turnover for the year.
To the knowledge of the Board, among the suppliers and customers listed above, Shareholders and Directors of the Company and their close associates have no interest in Shanghai Gas Co., Ltd. and Zhejiang Dushan Energy Co., Ltd.; SECCO is an associate of the Company; China International United Petroleum & Chemical Co., Ltd., SINOPEC East China Company, Materials and Equipment Department of China Petroleum and Chemical Corporation and East China Branch of Sinopec Sales Company Limited and Sinopec Sales Company Limited are subsidiaries of Sinopec Corp., the controlling shareholder of the Company.
Product Pricing
Most of our products are permitted to be sold at market prices. However, four types of petroleum products (gasoline, diesel and jet fuel, and liquefied petroleum gas) that we sell are subject to varying degrees of government pricing control and are, accordingly, sold at prices set by the Chinese government. In 2020, 2021 and 2022, approximately 43.64%, 47.01% and 51.40% of our net sales, respectively, were from products subject to price controls. Price controls may apply to these products in various ways. Such price controls are sometimes applied exclusively to our products, exclusively to our competitors’ products or sometimes applied to neither our products nor our competitors’ products. The Chinese government has adopted changes to the pricing mechanism for domestic refined oil to be indirectly aligned with international crude oil prices in a controlled manner through use of certain formula(s).
For products that are not subject to price controls, we set our prices with reference to prices in the major Chinese chemical commodities markets in Shanghai and other parts of China. We also monitor pricing developments in major international commodities markets, particularly in Southeast Asia. In most cases, we revise product prices each month, or more frequently during periods of price volatility. Due to our economies of scale, brand recognition and high quality of products, we believe that we can continue to price our products competitively.
Competition
We compete principally in the Chinese domestic market where 88.36% of our products in volume were sold in 2022. In addition, we believe the limitation in transportation infrastructure in China and the difficulties involved in transporting petrochemical products force petrochemical companies in China, including us, to compete primarily on a regional basis. In 2022, 87.18% of our net sales were made to customers in Eastern China.
Our Competitive Advantages
We believe our primary competitive advantages are quality of product, pricing, brand recognition, geographic location and vertical integration. We have received many prizes and awards from both central and local government authorities for high product quality. Furthermore, our location on the outskirts of the densely populated and highly industrialized Shanghai area places us in close proximity to many of our customers. This location also gives us convenient access to ocean transport and inland waterways, which results in a competitive advantage in terms of transportation cost and reliability and punctuality of product delivery.
We believe that our vertical integration in business model represents a significant competitive advantage over non-integrated competitors in China, both in terms of reliability in delivery and price. For most downstream products, our vertical integration results in significant savings on transportation and storage costs which would be incurred by less vertically integrated facilities.
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The Domestic Competitive Environment
Prior to 1993, because distribution and pricing of our products were determined in accordance with the state plan, we did not operate in a competitive environment. With the liberalization of control over pricing and product allocation by the Chinese government, competition in the domestic market has been gradually increasing. At the same time, Chinese private enterprises have gradually overcome technological and funding barriers to extend their business from the downstream processing sector to the upstream petrochemical field. These enterprises have advantages in many areas such as flexibility in operation costs, preferential policy treatment and regional presence, and may use these advantages to compete with us in markets for our products.
Foreign Competition and the World Trade Organization
China joined the WTO on December 11, 2001. As part of its membership commitments, China agreed to eliminate certain tariff and non-tariff barriers to foreign competition in the domestic petrochemical industry that benefited us in the past. In accordance with its WTO commitments, China:
| • | has reduced tariffs on imported petrochemicals products that compete with ours; |
| • | increased levels of permitted foreign investment in the domestic petrochemicals industry, allowing foreign investors to own 100% of a domestic petrochemicals company from December 11, 2004; |
| • | has gradually relaxed restrictions on the import of crude oil by non-state owned companies; |
| • | has granted foreign-owned companies the right to import petrochemical products; and |
| • | has permitted foreign-owned companies to distribute and market fuel products in both retail and wholesale markets in China. |
As a result of these measures, we are facing increasing competition from foreign companies and imports. On the other hand, we think that China’s WTO entry and increasing foreign investments in China have contributed and will continue to contribute to the growth of investment and business in China, resulting in an increase in sales opportunities for us.
Our Competitive Position
In the following discussion, internal consumption of resins and intermediate petrochemicals produced by integrated manufacturers in the production of downstream products are treated as sales.
Synthetic Fibers
In 2022, we had an approximate 0.05% share of total domestic polyester and acrylic consumption while imports had an approximate 0.52% share.
The following table summarizes the competitive position of our principal synthetic fibers according to domestic sales in 2022.
| Product |
Our share of domestic consumption |
Our competitive ranking |
Location of principal domestic competitor |
Principal domestic competitor’s share of consumption |
Imports’ share of consumption |
|||||||||||||
| (%) | (%) | (%) | ||||||||||||||||
| Acrylic |
3.37 | 8 | Jilin Province | 55.02 | 7.84 | |||||||||||||
Sources: Zhuochuang Information (www.chem99.com).
Resins and Plastics
In 2022, we had an approximate 1.01% share of total domestic resins and plastics consumption while imports had an approximate 18.84% share. The following table summarizes the competitive position of our principal resins and plastics products according to domestic sales in 2022.
| Product |
Our share of domestic consumption |
Our competitive ranking |
Location of principal domestic competitor |
Principal Domestic competitor’s Share of consumption |
Imports’ share of consumption |
|||||||||||||
| (%) | (%) | (%) | ||||||||||||||||
| Polyester chips |
0.54 | 4 | Jiangsu Province | 4.68 | 1.80 | |||||||||||||
| Polyethylene |
1.05 | 29 | Guangdong Province | 1.59 | 36.27 | |||||||||||||
| Polypropylene |
1.24 | 24 | Zhejiang Province | 3.42 | 9.19 | |||||||||||||
Sources: Zhuochuang Information (www.chem99.com).
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Intermediate Petrochemicals
In 2022, we were one of the largest sellers of intermediate petrochemicals in China, holding an approximate 1.14% share of total domestic consumption, while imports had an approximate 14.50% share of domestic consumption. Ethylene glycol, paraxylene, benzene and butadiene are our major intermediate petrochemical products. In 2022, we were a major producer of ethylene, paraxylene and benzene in China. The following table summarizes the competitive position of our principal intermediate petrochemicals according to domestic sales in 2022.
| Product |
Our share of domestic consumption |
Our competitive ranking |
Location of principal domestic competitor |
Principal Domestic competitor’s Share of consumption |
Imports’ share of consumption |
|||||||||||||
| (%) | (%) | (%) | ||||||||||||||||
| Ethylene glycol |
0.46 | 11 | Zhejiang Province | 5.62 | 35.89 | |||||||||||||
| Paraxylene |
1.71 | 16 | Zhejiang Province | 19.16 | 30.82 | |||||||||||||
| Benzene |
1.60 | 8 | Zhejiang Province | 11.59 | 17.57 | |||||||||||||
| Butadiene |
1.86 | 28 | Jiangsu Province | 1.91 | 4.07 | |||||||||||||
Sources: Zhuochuang Information (www.chem99.com).
Petroleum Products
In 2022, we had an approximate 1.70% share of total domestic petroleum products market while imports had an approximate 7.33% share. Although we have one of the largest refining capabilities in China, we use most of our refining capacity to produce feedstock for our own downstream processing of petrochemical products.
The domestic markets for each of our major petroleum products are geographically concentrated because these markets tend to be highly localized with individual producers controlling a large share of the markets in their locality. In 2022, we sold approximately 88.08% of our petroleum products in Eastern China.
Research and Development, Patents and Licenses, etc.
We have a number of technology development units, including Advanced Materials Innovation Research Institute, the Petrochemical Research Institute, the Plastics Research Institute, and the Environmental Protection Research Institute. These units are charged with various research and development tasks with respect to new technology, new products, new production processes and equipment and environmental protection. Our research and development expenditures in 2020, 2021 and 2022 were RMB 110.6 million, RMB 94.3 million and RMB 130.5 million, respectively. The increase was mainly due to the increase in material cost for research and development of technology in equipment and products.
We are not, in any material aspect, dependent on any patents, licenses, industrial, commercial or financial contracts, or new production processes.
Investments
We established SECCO, a Sino-foreign equity joint venture, in late 2001 with BP Chemicals East China Investments Limited (“BP”) and Sinopec Corp., primarily to build and operate a 900,000 ton Rated Capacity ethylene petrochemical manufacturing facility. SECCO completed construction and commenced its manufacturing operations in 2005. In 2009, SECCO had expanded the capacity of certain facilities to 1,090,000 tons of ethylene per annum. We own 20% of the equity interest of SECCO, while BP and Sinopec Corp. own 50% and 30% interests in SECCO, respectively. In October 2017, BP transferred its 50% equity interests in SECCO to a subsidiary of Sinopec Corp., Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. As a result of equity transfer, we, Sinopec Corp. and Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. own 20%, 30% and 50% interests in SECCO, respectively, and SECCO was converted into a PRC domestic company. The registered capital of SECCO is RMB7,800,811,272.00, all of which had been fully contributed by the shareholders in accordance with their equity percentages in SECCO as of October 18, 2017. In July 2021, SECCO’s paid in capital has reduced from RMB 7,800,811,272 to RMB 500,000,000 and all shareers of SECCO has reduced their capital in proportion to their shareholding ratios. In August 2022, the registered capital of SECCO increased from RMB 500,000,000 to RMB 3,115,180,000 through transfer from surplus reserve. Sinopec Corp., Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. and we increased the registered capital according to the original shareholding ratios. In December 2022, Sinopec Corp. transferred 15% of its equity to INEOS, and Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. transferred 35% of its equity to INEOS. As at December 31, 2022, INEOS, Sinopec Corp., Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. and we owned 50%,15%,15% and 20% interests in SECCO, respectively.
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In 2022, SECCO achieved a sales revenue of RMB 24.10 billion (U.S.$ 3.59 billion), representing a decrease of 18.91% from its sales revenue of RMB 29.72 billion (U.S.$ 4.61 billion) in 2021. SECCO produced 171,535 tons of ethylene in 2022, representing a decrease of 98,029 tons over the previous year. SECCO had a net loss of RMB 1.95 billion (U.S.$ 290.14 million) in 2022, representing a decrease of RMB 5.08 billion (U.S.$ 775.61 million) over the previous year.
Environmental Protection
We are subject to national and local environmental protection regulations, which currently impose a graduated schedule of fees for the discharge of waste substances, require the payment of fines for pollution and provide for the forced closure of any facility that fails to comply with orders requiring it to cease or cure certain environmentally damaging practices. We have established environmental protection systems which consist of pollution control facilities to treat certain of our waste materials and to safeguard against accidents. Because of the nature of our business, however, we store a significant amount of waste substances in the plants and discharge them into the environment after making such waste substances meet the discharge standards. In 2022, the Company paid a total of RMB 12.68 million in environmental taxes, a decrease of 10.74% compared with 2021.
We were subject to various administrative penalties for its violations of the relevant PRC environmental laws and regulations in the past three years. In 2022, we were subject to no administrative penalty for violations of the relevant PRC environmental laws and regulations.
We believe our environmental protection facilities and systems are adequate for the existing national and local environmental protection regulations. In 2022, we continued to carry out various energy-saving and emissions reduction measures in accordance with the relevant domestic energy conservation and emissions reduction requirements, and achieved all energy-saving and emissions reduction goals set by the Chinese government during the year.
As compared with 2021, the emissions of ammonia nitrogen, sulfur dioxide and nitrogen oxide decreased by 57.64%, 23.90%, 10.56%, respectively, and COD emissions increased by 7.19%. The Company achieved a 100% comprehensive standard rate of effluents, a 99.99% standard rate of controlled exhaust gas discharge, and a 100% rate of proper disposal of hazardous waste. The Company continued to progress the LDAR related work. In 2022, we tested a total of 2,902,476 sealing points of production units, detected 8,374 leak points and repaired 8,245 points, with a repair rate of 98.50%.
Insurance
We currently participate in a package of insurance coverage plan through Sinopec Group as its controlled subsidiary, which, as of December 31, 2022, was approximately RMB 46.2429 billion (U.S.$ 6.7046 billion) on our property and facilities and approximately RMB 1,639.23 million (U.S.$ 237.67 million) on our inventory. In addition, we maintain insurance policies for such assets as vehicles and products in transit with third-party’s commercial insurance company. The Sinopec Group insurance coverage is compulsory and applies to all enterprises controlled by Sinopec Group, pursuant to guidelines of Sinopec Group which may not be legally enforceable against Sinopec Group. Thus, there are uncertainties under Chinese law as to what percentage insurance claims we may demand against Sinopec Group.
Cyber Security
We have implemented policies and procedures intended to prevent cyber incidents and to identify and respond to unauthorized intrusions. With respect to our internal internet policies on cybersecurity, we have established an information safety management system and issued internal regulations on cybersecurity, internal hardware and data safety systems and we are gradually implementing measures relating to the office environment information safety management, information system access control, protection from any malicious software, and internal review and audit of information safety risks, in order to prevent loss of information due to cybersecurity incidents, network outages or hardware incidents. In 2022, we did not experience any material cybersecurity incidents or related losses.
Government Regulations
Following the development of several major oil fields and a growth in demand for petroleum and petrochemical products in China in the early 1970s, the Chinese government organized petroleum refining and petrochemical production and processing plants into large complexes that would permit integrated production of petroleum products, intermediate petrochemicals, resins and plastics, and synthetic fibers.
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Although the Chinese government is liberalizing its control over the petroleum and petrochemical industries in China, significant government regulations that limit the business strategies available to us remain. Central government agencies and their local or provincial level counterparts do not own or directly control our production plants. However, they exercise significant control over the petrochemical industry in areas such as pricing, production quotas, quality standards, allocation of raw materials and finished products, allocation of foreign exchange and Renminbi loans for capital construction projects. The Chinese government’s intentions with respect to the development objectives and policies for the petrochemical industry are stated as part of the Five Year Plans for National Economic and Social Development formulated every five years. These plans at both the national and Shanghai municipality level have identified the petrochemical industry as a “development industry.”
Historically, we were supervised by Sinopec, a ministry-level enterprise under the direct supervision of the State Council, China’s highest administrative body. As a result of a governmental restructuring in 1998, we became subject to the administration of the State Bureau of Petroleum and Chemical Industry. After its functions were terminated in March 2001, we became subject to the administration of the State Economic and Trade Commission. The State Economic and Trade Commission was dissolved in March 2003 and its function in directing the reform and management of state-owned enterprises was assumed by the State-owned Assets Supervision and Administration Commission, its function in industry planning and policy making was assumed by NDRC, and its functions in administering domestic trade, coordinating and implementing import and export plans of critical industrial products and raw materials were assumed by the Ministry of Commerce. Since then, we have been subject to the industrial oversight of these three governmental agencies at the national level.
As part of this restructuring, Sinopec was also restructured in July 1998. The succeeding entity, Sinopec Group, was authorized to conduct petrochemical business and to control the exploration of crude oil and natural gas and crude oil refining, mainly in the southern and eastern regions of China. China Petroleum and Natural Gas Corporation, another major state-owned petrochemical company, was also restructured, renamed China National Petroleum Corporation and authorized to conduct the same type of business, mainly in the northern and western regions of China. On December 31, 1999, Sinopec Group completed a reorganization pursuant to which certain of its core oil and gas and chemical operations and businesses and related assets and liabilities were transferred to its subsidiary, Sinopec Corp., currently our controlling shareholder.
Business Operations Relating to Iran and other U.S. Sanctioned Countries
In 2022, we sourced no crude oil from Iran.
In addition, based on feedback to our inquiries to Sinopec Corp., in 2022, it did not source any of its refinery throughputs of crude oil from Iran. Based on Sinopec Corp.’s internal reports and statistics, Sinopec Corp. recorded no revenue or net profit from its trading activities with Iranian companies.
In addition, based on feedback to our inquiries to Sinopec Group, the controlling shareholder of Sinopec Corp., Sinopec Group engaged in a small amount of business activities in Iran such as providing engineering services and designs. Sales revenue and profits from these business activities accounted for 0.02% and 0.13% of its total unaudited sales revenue and profits respectively.
We have no performance obligations under any contract to continue to purchase crude oil sourced from Iran in 2023.
C. Organizational Structure.
Our Subsidiaries
As of December 31, 2022, our significant subsidiaries are listed below. All of the subsidiaries named below are incorporated in China.
| Subsidiary Name | Our ownership interest (%) |
Our voting power (%) |
||||||
| Shanghai Petrochemical Investment Development |
100.00 | 100.00 | ||||||
| China Jinshan Associated Trading Corporation |
67.33 | 67.33 | ||||||
| Shanghai Jinchang Engineering Plastics Company Limited |
74.25 | 71.43 | ||||||
| Shanghai Golden Phillips Petrochemical Company Limited |
100.00 | 100.00 | ||||||
| Shanghai Jinshan Trading Corporation |
67.33 | 67.33 | ||||||
| Zhejiang Jinlian Petrochemical Storage and Transportation Company Limited |
100.00 | 100.00 | ||||||
Sinopec Corp.
We are a member of a group (defined as a parent and all its subsidiaries) for purposes of the disclosure rules of the SEC. The parent company of this group is Sinopec Corp., our controlling shareholder. Sinopec Corp. is operated by separate management and from time to time uses its interest as a shareholder to direct our policies and management.
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Sinopec Corp. is the largest integrated petroleum and petrochemical company in China and one of the largest in Asia in terms of operating revenues. Sinopec Corp. is one of the largest refiners, distributors and marketers of gasoline, diesel, jet fuel and most other major refined products in China and Asia with principal markets in the eastern and southern regions of China. Sinopec Corp. is also a producer and distributor of petrochemicals in China and additionally explores, develops and produces crude oil and natural gas principally to supply its refining and chemical operations.
Subsidiaries
Details of Sinopec Corp.’s principal subsidiaries are given in the table below. Except for Sinopec Kantons Holdings Limited and Sinopec Overseas Investment Holding Limited, which are incorporated in Bermuda and Hong Kong respectively, all of the below principal subsidiaries are incorporated in China.
| Name of Company |
Particulars of issued capital |
Type of legal |
Percentage of equity held by Sinopec Corp. and its subsidiary |
Principal activities | ||||||||
| (millions) | (%) | |||||||||||
| Sinopec International Petroleum Exploration and Production Company Limited | RMB8,250 | Limited company | 100.00 | Investment in exploration, development, production, sales of petroleum and natural gas and other areas | ||||||||
| Sinopec Great Wall Energy and Chemical Company Limited | RMB22,761 | Limited company | 100.00 | Coal chemical industry investment management, production and sale of coal chemical products | ||||||||
| Sinopec Yangzi Petrochemical Company Limited | RMB15,651 | Limited company | 100.00 | Manufacturing of intermediate petrochemical products and petroleum products | ||||||||
| Sinopec Yizheng Chemical Fiber Limited Liability Company | RMB4,000 | Limited company | 100.00 | Production and sale of polyester chips and polyester fibers | ||||||||
| Sinopec Lubricant Company Limited | RMB3,374 | Limited company | 100.00 | Production and sale of lubricant products, lubricant base oil, and petrochemical materials | ||||||||
| Sinopec Qingdao Petrochemical Company Limited | RMB1,595 | Limited company | 100.00 | Manufacturing of intermediate petrochemical products and petroleum products | ||||||||
| Sinopec Chemical Sales Company Limited | RMB1,000 | Limited company | 100.00 | Marketing and distribution of petrochemical products | ||||||||
| China International United Petroleum & Chemical Company Limited | RMB5,000 | Limited company | 100.00 | Trading of crude oil and petrochemical products | ||||||||
| Sinopec Overseas Investment Holding Limited | U.S.$3,423 | Limited company | 100.00 | Investment of overseas business and equity interests management | ||||||||
| Sinopec Catalyst Company Limited | RMB1,500 | Limited company | 100.00 | Production and sale of catalyst products | ||||||||
| China Petrochemical International Company Limited | RMB1,400 | Limited company | 100.00 | Trading of petrochemical products | ||||||||
| Sinopec Beihai Refining and Chemical Limited Liability Company | RMB5,294 | Limited company | 98.98 | Import and processing of crude oil, production, storage and sales of petroleum and petrochemical products | ||||||||
| Sinopec Qingdao Refining and Chemical Company Limited | RMB5,000 | Limited company | 85.00 | Manufacturing of intermediate petrochemical products and petroleum products | ||||||||
| Sinopec Hainan Refining & Chemical Company Limited |
RMB9,606 | Limited company | 100.00 | Manufacturing of intermediate petrochemical products and petroleum products | ||||||||
| Sinopec Marketing Co. | RMB28,403 | Limited company | 70.42 | Marketing and distribution of refined petroleum products | ||||||||
| Sinopec-SK (Wuhan) Petrochemical Company Ltd. | RMB7,193 | Limited company | 59.00 | Production, sale, research and development of petroleum products, petrochemical products, ethylene and downstream derivatives | ||||||||
| Sinopec Kantons Holdings Limited | HK$248 | Limited company | 60.33 | Provision of crude oil jetty services and natural gas pipeline transmission services | ||||||||
| Sinopec Shanghai Gaoqiao Petrochemical Company Limited | RMB10,000 | Limited company | 55.00 | Manufacturing of intermediate petrochemical products and petroleum products | ||||||||
| Sinopec Shanghai Petrochemical Company Limited | RMB10,824 | Limited company | 50.55 | Manufacturing of synthetic fibers, Resin and plastics, intermediate petrochemical products and petroleum products | ||||||||
| Fujian Petrochemical Company Limited | |
RMB10,492 |
|
Limited company | 50.00 | Manufacturing of plastics, intermediate petrochemical products and petroleum products | ||||||
| Zhongke (Guangdong) Refining & Chemical Co., Ltd. | RMB 6,397 | Limited company | 90.30 | Crude oil processing and petroleum product manufacturing | ||||||||
| Sinopec Baling Petrochemical Co., Ltd. | RMB 3,000 | Limited company | 55.00 | Crude oil processing and petroleum product manufacturing | ||||||||
D. Property, Plant and Equipment.
Real Property
Our corporate headquarters and production facilities, occupying an area of approximately 7.03 square kilometers, are located in Jinshanwei, approximately 75 kilometers from downtown Shanghai. The total gross floor area of all our production and other facilities is approximately 2 million square meters. We own all of the buildings and facilities located at the site. We have the right to use the land upon which our buildings and facilities are located for a term of 50 years beginning in 1993 without the payment of any rent or usage fees other than land use taxes. We also have the right to transfer our land use rights to third parties without any payment to the Chinese government, so long as the use of the land remains the same as when the land use right was granted to us and the terms of the land use right we received will be applicable to any transferees.
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Plants and Facilities
The following tables set forth the Rated Capacities of our principal production units. The actual production capacity of a production unit can exceed the Rated Capacity and may be further increased without increasing the Rated Capacity through technical improvements or expansion of such unit. The utilization rate of a production unit is based upon the Rated Capacity rather than actual production capacity and may vary with technical enhancements, changes in production management and scheduling of maintenance.
The following table sets forth the Rated Capacities and weighted average utilization rates of our principal production units for petroleum products and intermediate petrochemicals in 2022:
| Key production facilities |
Designed capacity (tons) | Capacity Utilization (%) | ||||||
| Crude oil distillation facility (2) |
14,000,000 | 89.52 | ||||||
| Hydrocracking facility (2) |
3,000,000 | 88.88 | ||||||
| Ethylene facility |
700,000 | 97.06 | ||||||
| * Aromatics facility (2) |
835,000 | 96.86 | ||||||
| PTA facility |
400,000 | — | ||||||
| Ethylene oxide/Ethylene glycol facility (2) |
525,000 | 77.48 | ||||||
| Catalytic cracking |
3,500,000 | 92.19 | ||||||
| Delayed coking (2) |
2,200,000 | 88.60 | ||||||
| ** Diesel hydrogenation (2) |
3,850,000 | 83.31 | ||||||
| ** Acrylonitrile facility |
650,000 | 100.35 | ||||||
| C-5 Separation (2) |
185,000 | 123.25 | ||||||
| *** Polyester facility (3) |
550,000 | 87.31 | ||||||
| **** Polyester staple fibre facility (2) |
158,000 | — | ||||||
| **** Polyester filament facility |
21,000 | — | ||||||
| ***** Acrylics staple fibre facility (3) |
140,800 | 93.03 | ||||||
| Polyethylene facility (3) |
408,000 | 93.33 | ||||||
| Polypropylene facility (3) |
400,000 | 95.13 | ||||||
| Vinyl acetate facility |
86,100 | 104.41 | ||||||
| * | No.1 PX facility (235,000 tons/year) was suspended for the whole year. |
| ** | No.2 Diesel hydrogenation facility (1,200,000 tons/year) was revamped into acrylonitrile facility by the end of 2016. Annual production is 650,000 tons/year. |
| *** | No.2 polyester fibre facility (300,000 tons/year) and No.3 polyester fibre facility (100,000 tons/year) were suspended for the whole year. |
| **** | Polyester staple fibre facility and polyester filament facility were suspended for the whole year. |
| ***** | Acrylic south unit (46,800 tons/year) and the Acrylic south unit (66,000 tons/year) were suspended for the whole year. |
Our two crude oil distillation units were designed and built in China. In 2022, the actual quantity of crude oil we processed was approximately 10.45 million tons. Our hydrocracker uses technology from United Oil Products Corporation of the United States. Our second ethylene unit uses technology from ABB Lummus Global Inc. of the United States. The aromatics unit uses technology from Universal Oil Products Corporation of the United States. The PTA unit uses technology from Mitsui Petrochemical Corporation of Japan. The ethylene oxide / ethylene glycol unit was constructed using technology from Scientific Design Corporation of the United States.
Our polyester units use technology from Kanebo Corporation of Japan and E.I. Dupont DeNemours & Co. Inc. of the United States. The polyester staple units use technology from Teijin of Japan and Jima of Germany as well as Chinese technology. The polyester filament units use technology from Murata Manufacturing Company Limited and Teijin Corporation of Japan, Barmag AG of Germany and E.I. Dupont DeNemours & Co. Inc. We produce polyethylene in three units; two LDPE units which use technology from Mitsubishi Petrochemical Corporation of Japan and BASF LDPE of Germany; and one high-density polypropylene unit uses the Borstar bimodal polyethylene technology from Northern European Chemical Engineering Company.
The acrylic fiber units were built domestically, based on a design of equipment which had been imported into China in the 1960s and that we substantially improved. In 1996, we acquired two additional acrylic fiber units which use technology from the Kawasaki Corporation of Japan. We produce polypropylene in three identical units using technology from Himont Corporation of Italy. The PVA unit uses technology acquired from Kuraray Corporation of Japan.
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Power Facilities
Our electricity requirements are currently supplied by our own 425 megawatt coal-fired power plant and petroleum coke power plant. These power plants are designed to provide sufficient power supply needed by our facilities. We are connected to the Eastern China electricity grid, which provides a back-up source of power in case of a shortfall in our self-generated power supply.
Other Facilities
We also have facilities to produce industrial water, steam, hydrogen, oxygen and nitrogen which we use in our production facilities.
Maintenance
We engage in production stoppages for facility maintenance and repairs and implement our routine monthly maintenance and repair plans according to the needs of our production facilities, our requirements for product quality, and our commitment to security and environmental protection. The technicians in our facility management department have responsibility for the daily management of maintenance and repair work. We also outsource facility maintenance and repair projects to qualified contractors.
In 2022, the Group focused on building up and implementing stable production as its top priority in production management, and implemented and consolidated its foundation in production operation while cementing safety management. The Company seeks to implement the HSSE management system and put into practice process safety management, and further enhance its ensure equipment integrity assurance regime. We did not encounter serious accidents involving production safety, environmental pollution or occupational poisoning in 2022 except the No.1 ethylene glycol plant explosion accident, which occurred on June 28, 2022 due to a fire broke out in No.1 ethylene glycol plant of the intermediate petrochemicals segment of the Company, causing a fire on surrounding individual pipelines. Net losses due to the fire include (a) writing off of damaged fixed assets and inventories in the amount of RMB7,676 thousand and RMB819 thousand respectively, and (b) compensation to casualties in the amount of RMB1,010 thousand.
Transportation-Related Fixtures
Crude oil, our principal raw material, is transported by pipeline and oil tanker to a crude oil terminal wharf and storage tanks. Our products leave the factory by water, rail, road and pipeline. In 2022, approximately 88.08% of our products by sales volume were picked up by customers from our premises, and the others were delivered by us. Our major ethylene customer is supplied via a pipeline. And some of the products were transported using our facilities.
Wharfs
We own one chemical wharf at Jinshan with five berths of 3,000, 5,000, 10,000, 10,000 and 30,000 tons. We also own a connecting pipeline capable of loading up to approximately 4.6 million tons of chemical products annually onto ocean-going barges and ships. In 2022, products representing 39.07% of total sales volume were shipped from the wharf. We also have a facility to load ships and barges which use the region’s inland waterways. In 2022, products representing 1.08% of total sales volume were shipped from these facilities. We believe that we have a competitive advantage because a greater proportion of our products are shipped by water as opposed to rail and truck, which is subject to capacity constraints on China’s rail and highway networks. Additionally, we own facilities for receiving crude oil and coal at docks that we own and transporting such materials by pipeline or conveyor to our production facilities.
Rail
We own a railroad loading depot with an annual capacity of 500,000 tons. The depot provides access via a spur line to the national Chinese railway system. In 2022, products representing 0.13% of total sales volume were transported from the factory by rail.
Capital Expansion Program
We have planned or started a number of other principal capital expansion projects. In 2020, 2021 and 2022, we invested RMB 2.1 billion, RMB 3.533 billion and RMB 3.452 billion, respectively, in capital expansion projects. We expect that total investment in the projects described below will be approximately RMB 3.7 billion in 2023.
Increasing Quality of Oil Products
In 2016, we launched No. 2 Diesel Hydrogenation Unit Reconstruction and Diesel Quality Upgrading Project so as to further improve the quality of oil products and perfect oil product structure. In 2017, we launched an oil cleaning project with 400,000 tons/year clean gasoline components units, which was completed and put into operation in 2020.
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Expansion of New and Existing Downstream Petrochemical Products
As a large-scale integrated petrochemical enterprise, we produce a wide range of intermediate and downstream petrochemical products. In order to adapt to the changes in the world’s energy market and the development trends in the oil and chemical products market in China, we will seek to further integrate the existing refining, olefin and aromatic processing chains, and further develop our chemical business.
To take advantage of our specialty in producing acrylics fiber and to improve our industrial structure and upgrade certain products, we plan to construct a carbon fiber project with a capacity of 1,500 tons/year. Sinopec Corp. approved the basic design for this project in December 2010; pile foundation construction was commenced in December 2010; civil engineering was commenced in February 2011 and one series of facilities under phase I were launched for trial operation in 2012. Subject to the market conditions, we commenced the construction of Phase II of the Project in April 2019, and completed the mid-term delivery of it in March 2021. We commenced raw silks (24,000 ton/year) and 48K large-tow carbon fiber (12,000 ton/year) project in November 2020, and completed Phase I mid-term delivery of them in August 2022.
Upgrading Environmental Protection Facilities Projects
To enhance our capacity for sustainable development and response to the government requirements of environmental protection, we intend to increase our capital expenditures on a series of environmental projects, mainly including 400,000 tons/year clean gasoline components units, transformation project for “ultra clean discharge” work in cogeneration unit, transformation of No. 2 olefin cracking burner, and Thermoelectric Department’s renovation project involving furnaces Nos. 3 and 4 meeting emission standards. All the projects were completed in 2020.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS. |
None.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS. |
General
You should read the following discussion and analysis in conjunction with our audited financial statements, in each case, together with the accompanying notes included elsewhere in this annual report. Our audited financial statements have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board.
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with IFRS, as issued by the IASB. In doing so, we have to make estimates and assumptions. Our critical accounting estimates are those estimates that involve a significant level of uncertainty at the time the estimate was made, and changes in them have had or are reasonably likely to have a material effect on our financial condition or results of operations. Accordingly, actual results could differ materially from our estimates. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
Classification of Financial Assets
The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows. The Company determines the business model for managing financial assets at the level of the financial asset portfolio. The factors considered include the way to evaluate and report the performance of financial assets to key management personnel, the risks affecting the performance of financial assets and their management methods, and the way for relevant business management personnel to obtain remuneration, etc.
When evaluating whether the contractual cash flow of financial assets is consistent with the basic lending arrangements, the Company has the following main judgments: whether the time distribution or amount of the principal may change in the duration due to prepayment and other reasons; whether the interest only includes the time value of money, credit risk, other basic lending risks and the consideration of cost and profit. For example, does the amount of prepayment only reflect the outstanding principal and the interest based on the outstanding principal, as well as the reasonable compensation paid for the early termination of the contract.
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Net realizable value (“NRV”) of inventories
Inventories are valued at the lower of cost and net realizable value. The net realizable value is determined based on the estimated selling prices in the ordinary course of business less the estimated costs to completion, and other costs necessary to make the sale. These estimates are based on the current market condition and historical experience of selling products of similar nature. It could change significantly as a result of competitor actions in response to changes in market conditions.
Management reassesses these estimations at the end of each reporting period to ensure inventory is measured at the lower of cost and net realizable value.
Impairments for non-current assets
At the end of each reporting period, if any indication of impairment exists, the Company estimates the recoverable amount of an asset or a cash-generating unit (“CGU”) (a portion of which related to certain production facilities), at the higher of its fair value less costs of disposal and its value in use, to determine the impairment losses. If circumstances indicate that the carrying amount of the asset or CGU may not be recoverable, the asset or CGU may be considered “impaired”, and an impairment loss may be recognized.
The recoverable amount of assets or CGUs is the higher of the fair value less costs of disposal and value in use. As the fair value of certain assets or CGUs may not be publicly available, the Company uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions for projections of product sales and operating costs and discount rate. In particular, in determining the value in use of the Company’s specific CGUs, significant judgements are required on the accounting estimates which are based on the assumptions relating to product sales growth rates, related costs growth rates and discount rate applied.
Useful life and residual value of property, plant and equipment
Property, plant and equipment, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives and estimated residual value of the assets annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Company’s historical experience with similar assets, taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
A. Operating Results
The following discussion covers the years ended December 31, 2021 and 2022. For the discussion covering the year ended December 31, 2020, please refer to Item 5A of the Company’s Form 20-F for the year ended December 31, 2021 filed with the SEC on April 28, 2022.
Government Policies
The impact of government economic, fiscal, and monetary policies can materially affect our financial condition, results of operations, and cash flows (see Item 3. Key Information—D. Risk Factors).
In particular, we consume large amounts of crude oil to manufacture our products of which more than 95% is typically imported. We attempt to mitigate the effect of increased costs due to rising crude oil prices. However, our ability to pass on these increased costs to our customers is dependent on government regulations, among other factors. Given that the increase of the sales prices of our products can lag behind the increase of crude oil costs, we sometimes fail to completely cover the increased costs by increasing our sales prices, particularly where government regulations restrict the prices of certain of our fuel products such as gasoline, diesel and jet fuel, and liquefied petroleum gas. In 2020, 2021 and 2022, approximately 43.64%, 47.01% and 51.40% of our net sales were from such products subject to price controls. Although the current price-setting mechanism for refined petroleum products in China allows the Chinese government to adjust price in the PRC market when the average international crude oil price fluctuates beyond certain levels within a certain time period (see Item 4. Information on the Company – B. Business Overview – Product Pricing), the Chinese government still retains discretion as to whether or when to adjust the prices of the refined oil products. The Chinese government generally exercises certain price control over refined oil products once international crude oil prices experience a sustained rise or become significantly volatile. Moreover, the Chinese government controls the distribution of many fuel products in China. For instance, some of our fuel products are required to be sold to designated distributors (such as the subsidiaries of Sinopec Corp.). Because we cannot freely sell our fuel products to take advantage of opportunities for higher prices, we may not be able to fully cover increases in crude oil prices by increases in the sale prices of our products, which has had and will continue to have a material adverse effect on our financial condition, results of operations and cash flows.
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In addition, the exchange rates between the Renminbi and the U.S. Dollar or other foreign currencies are affected by Chinese government policies. In particular, the value of the Renminbi is only permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. The Chinese government continues to receive significant international pressure to liberalize its currency policy. Most of our revenue is denominated in Renminbi, and most of our purchase of crude oil and some equipment and repayment of certain borrowings are made in foreign currencies. Historically, the trend for appreciation of the Renminbi was helpful to us since our imported crude oil purchases constitute such a large portion of our total costs. However, the recent depreciation of the Renminbi increased our costs and affected our capacity of making profits. In addition, any depreciation of the Renminbi could adversely affect the value of the dividends of our H Shares and ADSs, which we pay in foreign currencies.
Further appreciation in the value of Renminbi against foreign currencies (including the U.S. Dollar) may cause a decrease in the value of our cash and cash equivalents that are denominated in foreign currencies.
Summary
In 2022, China’s GDP saw growth of 3%, and such rate of growth is expected to accelerate in 2023.
In 2022, the Company actively responded to the complex and severe domestic and international economic and industry situations. At the same time as pandemic prevention, Sinopec Group focused its attention on resolving main contradictions, system optimization, and pandemic prevention to transform potential crisis into opportunities and to achieve a level of operation results with the joint efforts of all staff.
The following table sets forth our sales volumes and net sales for the years indicated:
| Year ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||||||
| Sales Volume (‘000 tons) |
Net Sales (RMB million) |
% of Total Net Sales |
Sales Volume (‘000 tons) |
Net Sales (RMB million) |
% of Total Net Sales |
Sales Volume (‘000 tons) |
Net Sales (RMB million) |
% of Total Net Sales |
||||||||||||||||||||||||||||
| Synthetic fibers |
151.4 | 1,472.4 | 2.4 | 101.9 | 1,374.8 | 1.8 | 22.4 | 412.5 | 0.6 | |||||||||||||||||||||||||||
| Resins and plastics |
1,365.4 | 9,419.7 | 15.3 | 1,254.9 | 9,962.7 | 13.1 | 889.3 | 7,321.2 | 10.1 | |||||||||||||||||||||||||||
| Intermediate petrochemicals |
2,168.0 | 8,205.8 | 13.3 | 1,989.1 | 10,780.5 | 14.2 | 1,544.2 | 10,537.7 | 14.5 | |||||||||||||||||||||||||||
| Petroleum products |
10,347.7 | 30,139.6 | 49.0 | 10,065.0 | 41,884.4 | 55.2 | 7,211.4 | 41,444.7 | 57.0 | |||||||||||||||||||||||||||
| Trading of petrochemical products |
— | 11,577.3 | 18.8 | — | 11,051.4 | 14.6 | — | 12,007.6 | 16.5 | |||||||||||||||||||||||||||
| Others |
— | 746.1 | 1.2 | — | 835.0 | 1.1 | — | 930.9 | 1.3 | |||||||||||||||||||||||||||
| Total |
14,032.5 | 61,560.9 | 100.0 | 13,410.9 | 75,888.8 | 100.0 | 9,667.3 | 72,654.6 | 100.0 | |||||||||||||||||||||||||||
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The following table sets forth a summary statement of our consolidated statements of operations for the years indicated:
| Year ended December 31, | ||||||||||||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||||||||||
| RMB million |
% of Net sales |
RMB million |
% of Net sales |
RMB million |
% of Net sales |
|||||||||||||||||||
| Synthetic fibers |
||||||||||||||||||||||||
| Net sales |
1,472.4 | 2.4 | 1,374.8 | 1.8 | 412.5 | 0.6 | ||||||||||||||||||
| Operating expenses |
(1,836.6 | ) | (3.0 | ) | (2,228.9 | ) | (2.9 | ) | (1,427.8 | ) | (2.0 | ) | ||||||||||||
| Segment loss |
(364.2 | ) | (0.6 | ) | (854.1 | ) | (1.1 | ) | (1,015.3 | ) | (1.4 | ) | ||||||||||||
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| Year ended December 31, | ||||||||||||||||||||||||
| 2020 | 2021 | 2022 | ||||||||||||||||||||||
| RMB million | % of Net sales |
RMB million | % of Net sales |
RMB million | % of Net sales |
|||||||||||||||||||
| Resins and plastics |
||||||||||||||||||||||||
| Net sales |
9,419.7 | 15.3 | 9,962.7 | 13.1 | 7,321.2 | 10.1 | ||||||||||||||||||
| Operating expenses |
(8,157.6 | ) | (13.3 | ) | (9,910.5 | ) | (13.1 | ) | (8,573.7 | ) | (11.8 | ) | ||||||||||||
| Segment profit/(loss) |
1,262.1 | 2.0 | 52.2 | 0.1 | (1,252.5 | ) | (1.7 | ) | ||||||||||||||||
| Intermediate petrochemicals |
||||||||||||||||||||||||
| Net sales |
8,205.8 | 13.3 | 10,780.5 | 14.2 | 10,537.7 | 14.5 | ||||||||||||||||||
| Operating expenses |
(7,624.2 | ) | (12.4 | ) | (11,415.6 | ) | (15.0 | ) | (11,994.3 | ) | (16.5 | ) | ||||||||||||
| Segment profit/(loss) |
581.6 | 0.9 | (635.1 | ) | (0.8 | ) | (1,456.6 | ) | (2.0 | ) | ||||||||||||||
| Petroleum products |
||||||||||||||||||||||||
| Net sales |
30,139.6 | 49.0 | 41,884.4 | 55.2 | 41,444.7 | 57.0 | ||||||||||||||||||
| Operating expenses |
(32,338.3 | ) | (52.5 | ) | (38,917.4 | ) | (51.3 | ) | (41,443.7 | ) | (57.0 | ) | ||||||||||||
| Segment (loss)/profit |
(2,198.7 | ) | (3.5 | ) | 2,967.0 | 3.9 | 1.0 | 0.0 | ||||||||||||||||
| Trading of petrochemical products |
||||||||||||||||||||||||
| Net sales |
11,577.3 | 18.8 | 11,051.4 | 14.6 | 12,007.6 | 16.5 | ||||||||||||||||||
| Operating expenses |
(11,535.3 | ) | (18.7 | ) | (11,007.7 | ) | (14.5 | ) | (11,994.8 | ) | (16.5 | ) | ||||||||||||
| Segment profit |
42.0 | 0.1 | 43.7 | 0.1 | 12.8 | 0.0 | ||||||||||||||||||
| Others |
||||||||||||||||||||||||
| Net sales |
746.1 | 1.2 | 835.0 | 1.1 | 930.9 | 1.3 | ||||||||||||||||||
| Operating expenses |
(535.1 | ) | (0.9 | ) | (976.5 | ) | (1.3 | ) | (1,063.7 | ) | (1.5 | ) | ||||||||||||
| Segment profit/(loss) |
211.0 | 0.3 | (141.5 | ) | (0.2 | ) | (132.8 | ) | (0.2 | ) | ||||||||||||||
| Total |
||||||||||||||||||||||||
| Net sales |
61,560.9 | 100.0 | 75,888.8 | 100.0 | 72,654.6 | 100.0 | ||||||||||||||||||
| Operating expenses |
(62,027.1 | ) | (100.8 | ) | (74,456.6 | ) | (98.1 | ) | (76,498.0 | ) | (105.3 | ) | ||||||||||||
| (Loss)/profit from operations |
(466.2 | ) | (0.8 | ) | 1,432.2 | 1.9 | (3,843.4 | ) | (5.3 | ) | ||||||||||||||
| Net finance income |
332.3 | 0.5 | 414.6 | 0.5 | 443.3 | 0.6 | ||||||||||||||||||
| Share of profits/(losses) of associates and jointly controlled entities |
724.7 | 1.2 | 874.3 | 1.2 | (173.6 | ) | (0.2 | ) | ||||||||||||||||
| Profit/(loss) before income tax |
590.8 | 0.9 | 2,721.1 | 3.6 | (3,573.7 | ) | (4.9 | ) | ||||||||||||||||
| Income tax |
65.6 | 0.1 | (644.5 | ) | (0.9 | ) | 731.4 | 1.0 | ||||||||||||||||
| Net profit/(loss) |
656.4 | 1.0 | 2,076.6 | 2.7 | (2,842.3 | ) | (3.9 | ) | ||||||||||||||||
| Attributable to: |
||||||||||||||||||||||||
| Equity shareholders of the Company |
645.1 | 1.0 | 2,073.4 | 2.7 | (2,846.2 | ) | (3.9 | ) | ||||||||||||||||
| Non-controlling interests |
11.3 | 0.0 | 3.2 | 0.0 | 3.9 | 0.0 | ||||||||||||||||||
| Net profit/(loss) |
656.4 | 1.0 | 2,076.6 | 2.7 | (2,842.3 | ) | (3.9 | ) | ||||||||||||||||
Net sales represent sales revenue of the respective segments after sales taxes and surcharges. Operating expenses here represent cost of sales, selling and administrative expenses and other operating expenses /income, as allocated to respective segments.
Year ended December 31, 2022 compared with year ended December 31, 2021
Net sales
In 2022, net sales of the Company amounted to RMB72,654.6 million, a decrease of 4.26% from the previous year’s RMB75,888.8 million. As of December 31, 2022, the weighted average prices (excluding tax) of synthetic fibers, resins and plastics, intermediate petrochemical products and petroleum products of the Company increased by 36.31%, 3.58%, 13.97% and 31.94% year-on-year respectively. The total volume of our products was 9.71 million tons in 2022, representing a decrease of 27.81% over the previous year. Our production/sales ratio was 99.83%, and the trade receivables recovery rate was 100%. Our total amount of sales from export was RMB 9.6 billion, an increase of 17.07% compared with 2021.
(i) Synthetic fibers
In 2022, the Company’s net sales of synthetic fiber products amounted to RMB412.5 million, representing a decrease of 70.00% from the previous year’s RMB1,374.8 million, which was mainly due to the price hike of main raw materials and perennial loss of acrylic fiber, and the lower sales during the Reporting Period resulted from the decrease of sales of synthetic fiber products. Sales volume of synthetic fibers decreased by 78.02% year-on-year, while the weighted average sales price increased by 36.31%. Meanwhile, the sales volume of acrylic fibers, the main product of the synthetic fibers segment, decreased by 71.92% year-on-year. Net sales of acrylic fibers and other products accounted for 78.47% and 21.53% of the total sales of synthetic fibers segment respectively.
Net sales of synthetic fibers accounted for 0.60% of the Company’s net sales in the current year, representing a decrease of 1.2 percentage points from the previous year.
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(ii) Resins and plastics
In 2022, the Company’s net sales of resins and plastics products amounted to RMB7,321.2 million, a decrease of 26.51% from the previous year’s RMB9,962.7 million, which was mainly due to the decrease in production resulting from the downturn in the domestic market and the shutdown of production during the Reporting Period. The weighted average sales price of resins and plastics increased by 3.58%, while the sales volume of resins and plastics products decreased by 29.13% year-on-year. Meanwhile, the weighted average sales price of polyethylene and polypropylene decreased by 0.11% and 5.48%, and the weighted average sales price of polyester chips increased by 14.17% year-on-year. The sales of polyethylene, polypropylene, polyester chips and other products accounted for 45.36%, 41.31%, 9.47% and 3.86% of the total sales of resins and plastics segment respectively.
The net sales of resins and plastics accounted for 10.08% of the Company’s net sales in the current year, a decrease of 3 percentage points from the previous year.
(iii) Intermediate petrochemicals
In 2022, the Company’s net sales of intermediate petrochemical products amounted to RMB10,537.7 million, a decrease of 2.25% from the previous year’s RMB10,780.5 million, which was mainly due to the rise in unit price of intermediate petrochemical products driven by the sharp rise in international crude oil prices and due to the decrease in the sales volume resulting from the stagnant market. The weighted average sales price of major intermediate petrochemical products increased by 13.97% year-on-year, and its sales volume decreased by 11.43% year-on-year. The sales of p-xylene, ethylene oxide, pure benzene, ethylene glycol and other products accounted for 41.16%, 11.93%, 19.44%, 2.44% and 25.03% of the total sales of intermediate petrochemical products respectively.
The net sales of intermediate petrochemical products accounted for 14.50% of the Company’s net sales in the current year, an increase of 0.3 percentage points from the previous year.
(iv) Petroleum products
In 2022, the Company’s net sales of petroleum products amounted to RMB41,444.7 million, a decrease of 1.05% from the previous year’s RMB41,884.4 million, which was mainly due to the rise in the price of petroleum products resulted from the hike in international crude oil prices and decrease of sales volume resulted from the downturn in the domestic market. The weighted average sales price of petroleum products increased by 31.94% year-on-year, and sales volume decreased by 30.06%.
The net sales of petroleum products accounted for 57.04% of the Company’s net sales in the current year, an increase of 1.8 percentage points from the previous year.
(v) Trading of petrochemical products
In 2022, the Company’s net sales of trading of petrochemical products amounted to RMB12,007.6 million, an increase of 8.65% from the previous year’s RMB11,051.4 million. This was mainly due to the increase in sales of our second-level subsidiary, Shanghai Jinshan Trading Corporation, by RMB1,439 million.
The net sales of trading of petrochemical products accounted for 16.53% of the Company’s net sales in the current year, an increase of 1.9 percentage points from the previous year.
(vi) Others
In 2022, the Company’s net sales of other products amounted to RMB930.9 million, an increase of 11.48% from the previous year’s RMB835.0 million.
The net sales of other products accounted for 1.28% of the Company’s net sales in the current year, an increase of 0.2 percentage points from the previous year.
Cost of sales and operating expenses
Cost of sales and operating expense consist of cost of sales, sales and administrative expenses, other operating expenses and other operating income, etc.
In 2022, the Company’s cost of sales and expenses amounted to RMB76,498.0 million, an increase of 2.74% from RMB74,456.6 million in 2021. Cost of sales and expenses of synthetic fibers, resins and plastics, intermediate petrochemical products, petroleum products, petrochemical products and other products amounted to RMB1,427.8 million, RMB8,573.7 million, RMB 11,994.3 million, RMB41,443.7 million, RMB11,994.8 million and RMB1,063.7 million respectively, representing a decrease of 35.94%, a decrease of 13.49%, an increase of 5.07%, an increase of 6.49%, an increase of 8.97% and an increase of 8.93% year-on-year respectively.
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Compared with the last year, the cost of sales and expenses of intermediate petrochemical products, petroleum products, trading of petrochemical products and others increased this year, which was mainly due to the sharp increase in crude oil prices and thus the increase in corresponding costs.
| • | Cost of sales |
In 2022, the Company’s cost of sales amounted to RMB76,265.9 million, an increase of 2.65% from previous year’s RMB74,298.0 million, which was mainly due to the increase in cost resulting from the rise in crude oil prices as well as accrual of inventories impairment in cost of sales. Cost of sales accounted for 104.97% of the net sales this year.
| • | Selling and administrative expenses |
In 2022, the Company’s sales and administrative expenses amounted to RMB288.7 million, a decrease of 21.59% from the previous year’s RMB368.2 million. This was primarily due to the overall sales volume drop in the year.
| • | Other operating income |
In 2022, the Company’s other operating income amounted to RMB110.6 million, a decrease of 11.73% from previous year’s RMB125.3 million. This was mainly due to the drop in rental income.
| • | Other operating expenses |
In 2022, the Company’s other operating expenses amounted to RMB25.8 million, a decrease of 42.28% from previous year’s RMB44.7 million. This was primarily due to the decrease of RMB23.2 million for the purchases of rights of carbon emission during the year.
Loss from operations
In 2022, the Company’s operating loss amounted to RMB3,843.4, and the operating profit amounted to RMB1,432.2 million in the previous year. In 2022, the Company’s operating loss was mainly due to the rising cost resulting from higher crude oil prices, the increase in the selling price of products not as high as the rising cost, and a sluggish domestic market.
(i) Synthetic fibers
In 2022, the operating loss of synthetic fibers amounted to RMB1,015.3 million, an increase of RMB161.2 million from the operating loss of RMB854.1 million in the previous year. The increase was mainly due to the weak market demand of the textile industry which is the downstream market of the synthetic fibers segment, together with temporary plant shutdown. Due to a part of production facilities being idle or obsolete the provision for impairment of long-term assets of RMB49.2 million was made for the synthetic fiber segment.
(ii) Resins and plastics
In 2022, the operating loss of resins and plastics amounted to RMB1,252.5million, and the operating profit amounted to RMB52.2 million in the previous year. The decrease in operating profit in the year was mainly because the rise in international crude oil prices resulted in the sharp rise in costs while the demand in the downstream market was weak, and thus the increase in sales price was lower than that in cost price.
(iii) Intermediate petrochemicals
In 2022, the operating loss of intermediate petrochemical products amounted to RMB1,456.6 million, an increase of RMB821.5 million from the operating loss of RMB635.1 million in the previous year. The increase in operating loss of petrochemical products as compared with the previous period was mainly because the rise in international crude oil prices resulted in the sharp rise in costs while the demand in the downstream market was weak, and thus the increase in sales price was lower than that in cost price. In 2022, provision for impairment of long-term assets of RMB212.4 million was made for some devices as increasing production and operation cost is not expected to be covered by the estimated selling price of the products due to deteriorating market conditions.
(iv) Petroleum products
In 2022, the operating profit of petroleum products amounted to RMB1.0 million, a decrease of RMB2,966.0 million from the operating profit of RMB2,967.0 million in the previous year. The decrease in operating profit in the year was mainly due to the rise in international crude oil prices resulted in the sharp rise in costs, and thus the increase in sales price was lower than that in cost price.
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(v) Trading of petrochemical products
In 2022, the operating profit of the trading of petrochemical products amounted to RMB12.8 million, a decrease of RMB30.9 million from the operating profit of RMB43.7 million in the previous year, which was mainly due to the decrease in the gross profit from trading of petrochemical products during the period.
(vi) Others
In 2022, the Company’s other operating loss amounted to RMB132.8 million, a decrease of RMB8.7 million from the other operating loss of RMB141.5 million in the previous year, which was no significant change compared with the previous year.
Net finance income
In 2022, the Company’s net financial income amounted to RMB443.3 million, an increase of RMB28.7 million from the net financial income of RMB414.6 million in the previous year, mainly due to an increase in interest income from time deposits during the Reporting Period, resulting in an increase of our interest income by RMB33 million from RMB508.8 million in 2021 to RMB541.8 million in 2022.
Loss before taxation
In 2022, the Company’s loss before taxation amounted to RMB3,573.7 million, and the profit before taxation amounted to RMB2,721.1 million in the previous year.
Income tax
The income tax benefit of the Company amounted to RMB731.4 million in 2022 and the income tax expense amounted to RMB644.5 million in 2021. This was primarily due to the recognition of deferred income tax assets as a result of the Company’s loss for the year. In accordance with The Enterprise Income Tax Law of the PRC (amended in 2018), the income tax rate applicable to the Company in 2022 is 25% (2021: 25%).
The effective rate for income tax was 20.47% in 2022, as compared to 23.68% in 2021.
Loss for the year
In 2022, the Company’s loss after tax amounted to RMB2,842.3 million, a decrease of RMB4,918.9 million from the profit after tax of RMB2,076.6 million in the previous year.
B. Liquidity and Capital Resources.
We strive to always have sufficient liquidity to meet our liabilities when due, preparing for both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation.
Our primary sources of funding have been cash provided by our operating activities and short term and long term borrowings. Our primary uses of cash have been for cost of sales, other operating expenses and capital expenditures. We prepare monthly cash flow budgets to ensure that we will always have sufficient liquidity to meet our financial obligations as they become due. We arrange and negotiate financing with financial institutions and maintain a certain level of standby credit facilities to reduce liquidity risk. We believe that our current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet our working capital requirements and repay our short term borrowings and obligations when they become due. In addition, we will continue to optimize our fund raising strategy from short and long term perspectives to take advantage of low interest rates by issuing corporate bonds or debts with low financing costs.
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The following table sets forth a condensed summary of our consolidated statement of cash flows for the years ended December 31, 2020, 2021 and 2022.
| Year Ended December 31, | ||||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| (RMB million) | ||||||||||||
| Net cash generated from / (used in) operating activities |
1,679.8 | 3,950.0 | (7,459.4 | ) | ||||||||
| Net cash (used in) / generated from investing activities |
(3,887.5 | ) | (2,359.4 | ) | 4,390.4 | |||||||
| Net cash generated from / (used in) financing activities |
1,681.8 | (3,393.1 | ) | (1,168.9 | ) | |||||||
| Net decrease in cash and cash equivalents |
(525.9 | ) | (1,802.5 | ) | (4,237.9 | ) | ||||||
Net cash generated from operating activities
The net cash used in operating activities amounted to RMB 7,459.4 million in 2022, representing and the net cash inflows amounted to RMB 3,950.0 million in 2021. During the reporting period, with the operating loss, the Company’s cash outflows used in operating activities in 2022 amounted to RMB 6,960.7 million, and the cash inflows generated from operating activities amounted to RMB 4,411.7 million in 2021. The income tax paid in 2022 amounted to RMB 376.8 million, an increase of RMB 25.2 million from the income tax paid of RMB 351.6 million in the previous year.
The net cash generated from operating activities amounted to RMB 3,950.0 million in 2021, representing an increase in cash inflows of RMB 2,270.1 million as compared to the net cash inflows of RMB 1,679.9 million in 2020. During the reporting period, with profitability in operating, the Company’s cash inflows generated from operating activities in 2021 amounted to RMB 4,411.7 million, an increase of RMB 2,416.6 million from the cash inflows generated from operating activities of RMB 1,995.1 million in 2020. The income tax paid in 2021 amounted to RMB 351.6 million, an increase of RMB 107.7 million from the income tax paid of RMB 243.9 million in the previous year.
Net cash used in investing activities
The net cash inflows amounted to RMB4,390.4 million in 2022, and the net cash outflows amounted to RMB2,359.4 million in 2021. This was primarily due to the net cash inflow of time deposits increased in the year as compared with the previous year. .
Our net cash used in investing activities decreased from RMB 3,997.5 million in 2020 to RMB 2,359.4 million in 2021. This was primarily due to the proceeds from capital reduction of an associate. According to the resolution of the Board of Directors on 9 July 2021, the Company, Sinopec Corp., and Sinopec Shanghai Gaoqiao Petrochemical Company Limited approved to reduce their paid-in capital in SECCO, an associate of the Company, by a total amount of RMB 7,300.8 million in proportion to their shareholding ratios of 20%, 30% and 50% respectively. Among them, the Company reduced its investment cost in SECCO by approximately RMB 1,460.3 million and the Company has received the amount of the capital reduction in December 2021.
Net cash used in financing activities
Our net cash used in financing activities was RMB 1,168.9 million in 2022 as compared to RMB 3,393.1 million in 2021. The decrease of net cash outflows was primary because the net cash outflow from the acquisition and repayment of short-term bonds decreased by RMB3,001 million and the net cash outflow from the acquisition and repayment of loans increased by RMB722 million as compared with the previous year.
Our net cash used in financing activities was RMB 3,393.1 million in 2021 as compared to net cash generated from financing activities was RMB 1,681.8million in 2020. The decrease was mainly due to net cash outflow resulted from repayment of short-term bonds and issuance of short-term bonds.
Borrowings and banking facilities
Our total borrowings at the end of 2022 amounted to RMB2,250 million, representing a decrease of RMB 9.8 million as compared to RMB 2,259.8 million at the end of the previous year. See Item 11 Quantitative and Qualitative Disclosures about Market Risk – Interest Rate Risk for more information on the maturity and the interest rate of the borrowings. We have been able to arrange short term loans with several PRC financial institutions as and when needed. The debt obligations as of December 31, 2021 and 2022 were as follows.
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| Debt instruments |
As of December 31, | |||||||
| 2021 | 2022 | |||||||
| (RMB million) | ||||||||
| Short term bank loans (1) |
1,559.8 | 1,550.0 | ||||||
| Long term bank loans |
700.0 | 700.0 | ||||||
|
|
|
|
|
|||||
| 2,259.8 | 2,250.0 | |||||||
|
|
|
|
|
|||||
| (1) | As of December 31, 2022, no borrowings were secured by the way of property, plant and equipment. We obtained a credit rating of AAA- for financing loans, assessed by Shanghai Huajie Credit Rating & Investors Service Co., Ltd., a credit rating agency authorized by the Shanghai Branch of the People’s Bank of China. As of December 31, 2022, the current assets exceeded current liabilities by RMB 1,767.5 million. The liquidity of the Company is primarily dependent on the ability to maintain adequate cash inflow from operations, the renewal of its short-term bank loans and on its ability to obtain adequate external financing to support its working capital and meet its debt obligation when they become due. We assessed that all the facilities could be renewed upon their expiration dates. We have carried out a detailed review of the cash flow forecast for the 12 months ending December 31, 2022. Based on such forecast, we believe that we will be able to renew these facilities when they expire based on our well-established relationships with various lenders and adequate sources of liquidity exist to fund our working capital and capital expenditure requirements. |
In light of our good credit standing and various financing channels, we believe that we will not experience any difficulty in obtaining sufficient financing for our operations.
We managed to maintain our gearing ratio at a safe level by enhancing controls over both liabilities (including borrowings) and financing risks. We generally do not experience any seasonality in borrowings. However, due to the nature of the capital expenditures plan, long term bank loans can be arranged in advance of expenditures while short term borrowings are used to meet operational needs. The terms of our existing borrowings do not restrict our ability to pay dividends on our shares.
Gearing ratio
As of December 31, 2022, our gearing ratio was 35.93%, while as of December 31, 2021, our gearing ratio was 35.26%. The ratio is calculated using this formula: total liabilities divided by total assets.
Capital expenditure
In 2022, our capital expenditure amounted to RMB 3,452 million, representing a decrease of 2.29% as compared to RMB 3,533 million in capital expenditure in 2021. Major projects include the following:
| Major Project | Total amount of project investment RMB million |
Amount of project Investment in 2022 RMB million |
Project progress as of December 31, 2022 | |||||||
| Shanghai Jinshan baling New Material Co., Ltd |
400,000 | 200,000 | Paid in RMB200 million | |||||||
| Sinopec Shanghai 24000 T/A precursor fiber and 12000 T/A 48K large tow carbon fiber project |
3,489,638 | 1,099,999 | Under construction | |||||||
| 100 ton high performance carbon fiber test plant |
566,183 | 326,739 | Under construction | |||||||
| Improvement transformation project of clean water and sewage separation of Sinopec Shanghai |
155,293 | 80,000 | Under construction | |||||||
| Third circuit 220kV incoming power line project of Sinopec Shanghai |
507,120 | 75,000 | Under construction | |||||||
| The compliance transformation project plus the hidden danger rectification project of the control system in the control room of 1#, 2#, 3#, 4# refining combined unit of oil refining department |
97,689 | 70,000 | Interim delivery | |||||||
| Compliance transformation project of control room of the synthetic resin department (the former plastics department) |
121,991 | 60,000 | Under construction | |||||||
| Compliance transformation project of energy consumption of 2xCC100 Turbine (No.5 and No.6) for coal power units |
93,260 | 53,000 | Put into operation | |||||||
Note: In addition to the major capital expenditure items disclosed in the above table, the total capital expenditure of other projects of the Company is RMB1,487 million.
The Company’s capital expenditures for 2023 are estimated at approximately RMB3,700 million.
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Proposed Dividend Distribution
The Board did not recommend the distribution of profit for the year nor Capital Reserve Capitalization. The proposal remains to be approved at our 2022 Annual General Meeting.
C. Research and Development, Patents and Licenses, etc.
We have a number of technology development units, including the Petrochemical Research Institute, the Plastics Research Institute, the Polyester Fiber Research Institute, the Acrylic Fiber Research Institute and the Environmental Protection Research Institute. These units are charged with various research and development tasks with respect to new technology, new products, new production processes and equipment and environmental protection. Our research and development expenditures in 2020, 2021 and 2022 were RMB 110.6 million, RMB 94.30 million and RMB 130.5 million, respectively. The increase was mainly due to the increase in material cost for research and development of technology in equipment and products.
We are not, in any material aspect, dependent on any patents, licenses, industrial, commercial or financial contracts, or new production processes.
D. Trend Information
The International Monetary Fund advised in its April 2023 edition of World Economic Outlook that the global economy grew 3.4 percent in 2022 and is projected to have a continued moderate recovery of about 2.8 percent in 2023 and 3.0 percent in 2024. The global economic recovery is still clouded by the following challenges: rising energy costs, higher than anticipated inflation, prolonged pandemic disruptions due to more variants, supply chain disruptions, geo-political tensions such as the Russia-Ukraine conflict and related sanctions, and ongoing climate emergencies and natural disasters.
The domestic petrochemical industry is currently facing the challenge of a downward economic cycle. During the “14th Five-Year Plan” period, China’s refining and chemical industry is set to enter a full phase of new release in capacity and fierce competition. Industry integration, transformation and upgrading are also phasing in. Oversupply is further seen in the refined oil market. The transformation of chemical products towards the higher end and the more environmentally friendly will become a new trend. Driven by new energy, new materials, and the new economy, clean, digital, and diversified developments are now the key trends in developments upon the phasing in of a new energy regime in social development. These new developments will impact the energy supply from petrochemical companies, which will put severe pressure on petrochemical companies’ profitability.
E. Critical Accounting Estimates
Please refer to discussion on Critical Accounting Estimates in general section of Item 5.
F. Other Information
Purchase, Sale and Investment
Except as disclosed in this report, during the year ended December 31, 2022, we engaged in no material purchase or sale of our subsidiaries or associated companies or any other material investments.
Pledge of Assets
As of December 31, 2022, we did not pledge any of our property or equipment.
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| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. |
A. Directors and Senior Management.
The following table sets forth certain information concerning our directors, executive officers and members of our supervisory committee (“Supervisory Committee”). The current term for our directors, executive officers and members of our Supervisory Committee is three years, which term will end in June 2023.
| Name | Age | Position | ||||
| Directors | ||||||
| Wan Tao | 55 | Executive Director, Chairman of the Board of Directors, Chairman of Strategy Committee, and Member of Nomination Committee | ||||
| Guan Zemin | 59 | Executive Director, Vice-Chairman of the Board of Directors, Vice-Chairman of Strategy Committee, and President | ||||
| Du Jun | 52 | Executive Director, Vice President and Chief Finance Officer | ||||
| Huang Xiangyu | 55 | Executive Director and Vice President | ||||
| Xie Zhenglin | 58 | Non-executive Director and Member of Strategy Committee | ||||
| Peng Kun | 57 | Non-executive Director | ||||
| Li Yuanqin | 50 | Independent Director, and Chairman of Audit Committee | ||||
| Tang Song | 43 | Independent Director, and Member of Audit Committee | ||||
| Chen Haifeng | 49 | Independent Director, Member of Audit Committee and Member of Nomination Committee | ||||
| Yang Jun | 67 | Independent Director, Chairman of Remuneration and Appraisal Committee and Chairman of Nomination Committee | ||||
| Gao Song | 53 | Independent Director, Member of Remuneration and Appraisal Committee and Member of Strategy Committee | ||||
| Supervisory Committee | ||||||
| Ma Yanhui | 52 | Chairman of the Supervisory Committee | ||||
| Zhang Feng | 54 | Employee Supervisor | ||||
| Chen Hongjun | 52 | Employee Supervisor | ||||
| Zhang Xiaofeng | 53 | Supervisor | ||||
| Zheng Yunrui | 58 | Independent Supervisor | ||||
| Choi Tingki | 69 | Independent Supervisor | ||||
| Senior Management | ||||||
| Jin Qiang* | 58 | Vice President | ||||
| Jin Wenmin* | 58 | Vice President | ||||
| Zhou Jijun* | Vice President | |||||
| Huang Fei* | 46 | Vice President | ||||
| Liu Gang | 51 | Secretary of the Board of Directors | ||||
| Wu Haijun* | 61 | Former Executive Director, Chairman of the Board of Directors, Chairman of Strategy Committee, and Member of Nomination Committee | ||||
| * | On February 15, 2022, Mr. Jin Qiang, Mr. Jin Wenmin and Mr. Huang Fei proposed request to the board of directors that they would no longer serve as executive directors and directors due to job change. Mr. Jin Qiang’s, Mr. Jin Wenmin’s and Mr. Huang Fei’s resignations took effect when the resignation reports were delivered to the board of directors of the Company on February 15, 2022. Mr. Zhou Jijun was appointed as the Vice President of the Company by the board of directors of the Company on January 18, 2023. On September 8, 2022, Mr. Wu Haijun proposed to the board of directors that he would no longer serve as Executive Director and Chairman due to job change. Mr. Wu Haijun’s resignation took effect when the resignation report was delivered to the board of directors of the Company on September 8, 2022. |
Directors
Wan Tao, born in January 1968, currently serves as the Company’s Chairman, Executive Director, Chairman of the Strategy Committee and member of the Nomination Committee, Director of Shanghai SECCO and Chairman of Shanghai Chemical Industry Park Development Co., Ltd. From August 2012 to January 2017, he served as deputy director of the Chemical Department of China Petroleum & Chemical Corporation. From March 2013 to January 2017, he served as supervisor of Sinopec Catalyst Co., Ltd. From March 2014 to January 2017, he served as director of Sinopec Great Wall Energy & Chemical (Guizhou) Co. Ltd. From January 2017 to December 2019, he served as general manager of Sinopec Yizheng Chemical Fibre Limited Liability Company and general manager of Yizheng Branch at Sinopec Assets Management Co, Ltd. From January 2017 to January 2018, he served as deputy secretary of the CPC Committee of Sinopec Yizheng Chemical Fibre Limited Liability Company. From January 2018 to July 2022, he served as executive director and secretary of the CPC Committee of Sinopec Yizheng Chemical Fibre Limited Liability Company. In July 2022, he was appointed as secretary of the CPC Committee of the Company and director of Shanghai SECCO. In September 2022, he was appointed as Chairman, Executive Director, Chairman of the Strategy Committee and member of the Nomination Committee of the Company. In October 2022, he was appointed as Chairman of Shanghai Chemical Industry Park Development Co., Ltd. Mr. Wan graduated from Tianjin University in 1992 with an engineering master’s degree in chemical engineering. He is a senior engineer.
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Guan Zemin, born in December 1964, is serving as Vice Chairman, Executive Director, Vice Chairman of the Strategy Committee and President of the Company. Mr. Guan started to work in 1990, and he has successively served as Section Manager of Technology Development Section, Technology Development Department, and Deputy Chief Engineer of Wuhan Petrochemical Works, and Director of Catalyzing Workshop, Deputy Director and Director of Production Scheduling Department, and Deputy Chief Engineer of the Wuhan branch of Sinopec Corp. (“Wuhan Branch”). From December 2012 to December 2018, he served as Deputy General Manager of Wuhan Branch. From May 2016 to December 2019, he served as General Manager and Director of Sinopec-SK (Wuhan) Petrochemical Company Limited. From December 2018 to December 2019, he served as the Director and Deputy Party Secretary and General Manager of Wuhan Branch. In December 2019, he was appointed as Deputy Secretary of the Company. From February 2020, he served as the President of the Company. From June 2020, he served as the Executive Director, Vice Chairman and Vice Chairman of the Strategy Committee of the Company. Mr. Guan graduated from the Fine Chemical Major of School of Chemical Engineering, East China University of Science and Technology with a Master’s degree in Engineering in July 1990. He is a senior engineer by professional title.
Du Jun, born in March 1970, is currently the Executive Director, member of the Strategy Committee, Vice President and Chief Financial Officer of the Company, chairman of Jinshan Associated Trading, and director of Shanghai Chemical Industry Park Development Co., Ltd. Mr. Du stared the work in 1990 and successively served as the chief of the second section of the Secretary of the general manager’s office of Yangzi Petrochemical Co., Ltd., the deputy director of the finance department and the deputy director of the Finance Department of Yangzi Petrochemical Co., Ltd. From August 2004 to July 2007, he served as the director of the Finance Department of Yangzi Petrochemical Co., Ltd. From July 2007 to August 2012, he served as the director of the Finance Department of Yangzi Petrochemical Co., Ltd. From August 2012 to August 2016, he served as the chief accountant of Yangzi Petrochemical Co., Ltd. From December 2015 to September 2020, he served as the supervisor of Yangzi Petrochemical BASF Co., Ltd. From June 2016 to September 2020, he served as a director of Yangzi Petrochemical Co., Ltd. From August 2016 to September 2020, he served as the chief accountant of Yangzi Petrochemical Co., Ltd. From September 2020, he served as the deputy general manager and chief financial officer of the Company. He has been the chairman of Jinshan Associated Trading since December 2020. He has been a director of Shanghai Chemical Industry Park Development Co., Ltd. since December 2020. He has been an Executive Director of the Company since June 2021. He has been a member of the Company’s Strategy Committee since March 2022. Mr. Du graduated from Southeast University in 1990, majoring in industrial enterprise management, and obtained a master’s degree in Business Administration from Southeast University in 2004. He has the title of senior accountant.
Huang Xiangyu, born in March 1968, is the Executive Director and Vice President of the Company. Mr. Huang started his career in 1990 and joined Shanghai Petrochemical Complex in 1992. He served as the Deputy Director of the chemical workshop of Shanghai Jinyang Acrylic Plant, Deputy Director of Jinyang Equipment, Director and Deputy Director of Jinyang Acrylic Equipment of Acrylic Business Unit and Chief Engineer of Acrylic Business Unit. From July 2011 to January 2020, he served as the Director of the Acrylic Fiber Research Institute. From November 2011 to January 2020, he served as the Chief Engineer of the Acrylic Fiber Department. From February 2019 to January 2020, he served as Deputy Chief Engineer of the Company. From February 2020, he served as the Vice President of the Company. He has been an Executive Director of the Company since June 2020. Mr. Huang graduated from the Organic Chemical Major of the School of Chemical Engineering, East China University of Science and Technology with a Bachelor’s degree in Engineering in July 1990. He obtained a Master’s degree in Engineering from Donghua University in May 2004. He graduated from Polymeric Chemistry and Physics Major of Fudan University with a doctor’s degree in Science in June 2013. He is a professorate senior engineer by title.
Xie Zhenglin, born in February 1965, is a Non-Executive Director, member of the Strategy Committee, Vice President of Chemical Service Department of the Sinopec Corp., General Manager of Sinopec Group Assets Management Co., Ltd., a director of Chongqing Yangzijiang Acetyl Chemical Co., Ltd., Chairman of Tianjin Jinpuli Environmental Protection Technology Co., Ltd., and a director of Sinopec Shanghai Gaoqiao Petrochemical Co. Ltd.. Mr. Xie started his work in 1989, served as Principal Staff Member of State Price Control Bureau and State Development Planning Commission. After joined Sinopec Group in September 1995, he successively served as Deputy Director of the Comprehensive Division of the Finance Department, Deputy Director of Capital Management Department, Director of the Capital Management Division of the Finance and Assets Department, Director of the Capital Management Division of the Financial Planning Department, Deputy Director of the Financial Planning Department of Sinopec Corp., Deputy Director of General Accounting Department of Sinopec Assets Management (presided over the work), Deputy Director of Assets Management Department of Sinopec Corp., Deputy General Manager of Sinopec Assets Management, Acting Director of Assets Management Department of Sinopec Corp., and Deputy Executive Director and Deputy General Manager of Sinopec Assets Management. From April 2014 to October 2020, he served as the Vice Chairman and director of China Merchants Energy Shipping Co., Ltd. (listed on the Shanghai Stock Exchange, Stock Code: 601872). From April 2014 to December 2019, Mr. Xie served as Director of Assets Management Department of Sinopec Corp., and Executive Director and General Manager of Sinopec Assets Management. He has been the Deputy President of Chemical Service Department of Sinopec Corp. and General Manager of Sinopec Assets Management since December 2019. From June 2020, he served as the Executive Director and a member of the Strategy Committee of the Company. Mr. Xie obtained a Master’s degree in Economics from Graduate School of Chinese Academy of Social Science in August 1989. He obtained a Master’s degree in Business Administration from University of Houston in May 2007. He is a Senior Accountant by professional title.
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Peng Kun, born in December 1966, is currently a Non-Executive Director, the General Manager of Human Resource Department, Minister of Party Committee Organization Department, Director of the CPC United Front Work Department and Director of the Office of Veteran Cadres of the Company. Mr. Peng joined the Shanghai Petrochemical Complex in 1986 and served as Deputy Director of General Affairs Office, Department of Chemical Engineering, General Research Institute, assistant manager of the life logistics subsidiary of Easy-Art Design, section manager of Coordination Section of Chemical Engineering Institute, section manager of Administration Department, Secretary of Party General Branch and Deputy Director of Quality Center, Deputy Party Secretary and Secretary of Commission for Discipline Inspection of Quality Management Center, Director of Labor Union, and Chairman, Secretary of the Communist Party Committee and Deputy Manager of Labor Union. He served as Director of Human Resources Department of the Company from February 2016 to April 2018, the Head of Human Resources Division of the Company from April 2018 to May 2019, and the Head of Organization and Personnel Division of the Company from May 2019 to March 2020. He was appointed as Director of CPC United Front Work Department and Director of Retired Cadres Office in May 2019, and General Manager of Human Resources Department and Director of CPC Organization Department of the Company from March 2020. From June 2020, he served as the Non-Executive Director of the Company. Mr. Peng graduated from East China University of Science and Technology in Engineering Management Major in July 2004 and obtained senior professional and technical title.
Li Yuanqin, born in July 1973, is an Independent Non-Executive Director, Chairman of the Audit Committee of the Company, Professor of the School of Management and the associate head of the Department of Accountancy at Shanghai University. Ms. Li has been served as an Independent Non-Executive Director of the Company since August 2017. She is currently the independent director of Yunsai Zhilian Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 600602, 900901) and Hengtian Kaima Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 900953). Ms. Li served as an independent director of Shanghai New World Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 600628) from June 2014 to December 2021. From April 2000 to March 2003, Ms. Li served at the Settlement Department of the ICBC headquarters. From June 2006 to September 2009, she was a lecturer of the School of Management of Shanghai University. From September 2009 to March 2020, she was the associate professor of the School of Management of Shanghai University. She has been the professor of the School of Management of Shanghai University since March 2019, and she has been the associate head of the Department of Accountancy of Shanghai University since May 2011. During that period, she was also a visiting scholar at Foster School of Business, University of Washington in the United States between February 2012 and February 2013. She also serves as a member of the eighth and ninth session of the Shanghai Baoshan Committee of the Chinese People’s Political Consultative Conference and a non-practicing member of the Chinese Institute of Certified Public Accountants. She received a PhD in Management from Antai College of Economics and Management (ACEM) at Shanghai Jiao Tong University.
Tang Song, born in December 1980, is the Independent Non-executive Director and a member of the Audit Committee and Remuneration and Appraisal Committee of the Company, Dean Assistant of School of Accountancy, Shanghai University of Finance and Economics, Professor and PH. D supervisor. Mr. Tang obtained a bachelor’s degree in management (accountancy) in June 2003 from the School of Accountancy of the Shanghai University of Finance and Economics, and obtained a doctor’s degree from a successive postgraduate and doctoral program in management (accountancy) in June 2008. Mr. Tang worked in the School of Accounting and Finance, Hong Kong Polytechnic University for collaborative research from August 2008 to August 2009. He worked in China Europe International Business School for collaborative research from August 2009 to June 2010. Mr. Tang served as a lecturer of School of Accountancy, Shanghai University of Finance and Economics from June 2010 to July 2012. He served as associate professor of the School of Accountancy, Shanghai University of Finance and Economics from August 2012 to June 2019. He served as Dean Assistant of Shanghai University of Finance and Economics from January 2019, and as a Professor of the School of Accountancy of the University since August 2019. Mr. Tang served as an independent director of the Shanghai Qifan Cable Co. Ltd. (listed on the Shanghai Stock Exchange, stock code: 605222) from July 2019 to July 2022, served as an independent director of Tibet Dongcai Fund Management Co., Ltd since August 2019, and as an Independent Director for the Shanghai Universal Biotech Co., Ltd. (listed on the Shenzhen Stock Exchange, stock code: 301166) since April 2020. He served as the Independent Non-executive Director, member of the Audit Committee and the Strategy Committee of the Company since June 2020. He served as an independent director for Wuxi Commercial Mansion Grand Orient Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 600327) since November 2020. He served as an independent director for Shanghai Shine-Link International Logistics Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 603648) since November 2022.
Chen Haifeng, born in January 1974, is an Independent Non-Executive Director, member of the Audit Committee and the Nomination committee of the Company, and a Senior Director of the Shanghai MindMotion Microelectronics Co., Ltd. Mr. Chen graduated from Fudan University with a Bachelor’s degree in applied physics in July 1997. He served as clerk, project supervisor, and project manager of Investment Banking Department of CITIC Securities from July 1997 to August 2001. Mr. Chen served as a senior manager of the strategic investment department of SVT Group from September 2002 to February 2006. He served as a senior manager of investment banking department of Orient Securities from August 2006 to March 2008. Mr. Chen served as senior vice president and sponsor deputy of investment banking department of China Jianyin Investment Securities from April 2008 to May 2012. He served as the CEO and sponsor deputy of investment banking department of Caida Securities from June 2012 to June 2015. Mr. Chen served as an independent director of Cnnc Hua Yuan Titanium Dioxide Company Limited (listed on Shenzhen Stock Exchange, stock code: 002145) from February 2015 to October 2018. He served as the CEO and sponsor deputy of investment banking department of Dongxing Securities from July 2015 to September 2017. Mr. Chen has been a non-independent director of Zhejiang Yueling Wheels Corporation from October 2017 to December 2020 (listed on the Shenzhen Stock Exchange, Stock Code: 002725). He served as an Independent Non-executive Director, member of the Audit Committee and member of the Nomination Committee of the Company since June 2020. He served as a senior director of Shanghai MindMotion Microelectronics Co., Ltd. since January 2021.
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Yang Jun, born in August 1957, is an Independent Non-executive Director, Chairman of the Nomination Committee and the Remuneration and Appraisal Committee of the Company, a director (vice president level) of Gansu Gangtai Holding (Group) Co., Ltd., and the chief supervisor of Shanghai Aoqi Science and Technology Development Foundation. Mr. Yang graduated from East China University of Political Science and Law with a degree in Law in September 1979 and from Peking University with a Master’s degree in Civil Law in July 1991. He worked in Shanghai Intermediate Court and Supreme Court from July 1983 to July 2005. He served as an assistant to the president and general legal officer of Shanghai United Assets and Equity Exchange, general manager of Beijing headquarters of Central Enterprise Equity Exchange, operation director of Equity Exchange and general manager of Financial Equity Exchange from July 2005 to September 2017. He served as an arbitrator of China International Economic and Trade Arbitration Commission from March 2007 to March 2015 and served as an arbitrator of Shanghai International Economic and Trade Arbitration Commission and Shanghai Arbitration Commission since March 2007. He served as an independent non-executive Director of China Merchants Securities Co., Ltd. (listed on the Hong Kong stock exchange, stock code: 06099) from June 2011 to January 2018. He has served as an independent director of Shanghai Zhenhua Heavy Industries Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 600320) from April 2015 to March 2021 and a director (vice president level) of Gansu Gangtai Holding (Group) Co., Ltd. since September 2017. He has served as an Independent Non-executive Director, Chairman of the Nomination Committee and Chairman of the Remuneration and Assessment Committee of the Company since June 2020. He served as the chief supervisor of Shanghai Aoqi Science and Technology Development Foundation since January 2022.
Gao Song, born in June 1970, is an Independent Director, member of Remuneration and Appraisal Committee and Strategy Committee of the Company, Professor of Business School of East China University of Science and Technology and Director of China’s Institute for action learning. Mr. Gao graduated from Shandong University with a degree in Computer Software in 1992, from the School of Management of Fudan University with a Master’s degree in Corporate Management in 1998 and from the Antai College of Economics & Management of Shanghai Jiao Tong University with a doctorate in Corporate Management in 2006. He served as a director of marketing department of Shanghai Guanshengyuan Group Co., Ltd. from March 1998 to May 2002 and the general manager of Shanghai Aichu Food Co., Ltd. from May 2002 to March 2007. He has served as a professor of the Business School of East China University of Science and Technology and a director of China’s Institute for Action Learning since May 2009. He was a visiting scholar at the University of Illinois at Urbana-Champaign from 2014 to 2015. From June 2020, he served as the Independent Non-executive Director, Chairman of the Remuneration and Appraisal Committee and a member of the Strategy Committee of the Company.
Supervisors
Ma Yanhui, born in February 1971, is a Supervisor, the Chairman of Supervisory Committee, Secretary of the Communist Party Discipline Supervisory Committee and Chairman of the Labour Union of the Company. Mr. Ma started his career in 1996. He served as the secretary of Office of Yanhua Refinery, office secretary and deputy director of Yanhua Branch of Great Wall Lubricant Oil, supervisor and acting director and deputy director of Integrated Corporate Reform Department of China Petrochemical Corporation, and deputy director and director of Structure Reform Sector, Corporate Reform Department of Sinopec Assets Management Co., Ltd., etc. From June 2008 to August 2017, Mr. Ma was the director of Integrated Corporate Reform Department of China Petrochemical Corporation (Sinopec Group). From August 2017, Mr. Ma was the Deputy Secretary of the Communist Party Committee and Secretary of the Communist Party Discipline Supervisory Committee of the Company. He was appointed as the Supervisor, Chairman of Supervisory Committee and Chairman of the Labour Union of the Company in October 2017. Mr. Ma graduated from East China University of Science and Technology in July 1996, majoring in petroleum processing, and obtained a Bachelor’s degree in engineering. In June 2006, he obtained a Master’s degree in corporate management from Renmin University of China. Mr. Ma is a senior economist by professional title.
Zhang Feng, born in June 1969, is currently a Supervisor and the Auditing Director of the Company. Mr. Zhang started his career in Shanghai Petrochemical Complex in 1991. He served as Assistant of Chief and Deputy Chief of Finance Section of Polyester II Factory, Deputy Chief of Finance Section of Polyester Department, Deputy Chief and Chief of Cost Section of Finance Division of Polyester Department, Deputy Chief and Chief of Finance Division, Director Assistant, Deputy Director, Deputy Director (Hosting Work), Director of Finance Department, and Chief of Finance Division, etc. He worked as Auditing Director of the Company from December 2018 to March 2020, and as Supervisor in October 2019. From March 2020, he worked as the Auditing Director of the Company. Mr. Zhang graduated from Shanghai University of Finance and Economics in 1991, majoring in accounting, and obtained a Bachelor’s degree in Economics. Mr. Zhang is a senior accountant by professional title.
Chen Hongjun, born in January 1971, is currently a Supervisor, Vice-President of Labour Union, Director of the Public Affairs Department, and Vice-President of the Association of Science and Technology of the Company. Mr. Chen started his career in Shanghai Petrochemical Complex in 1996. He served as Vice Party Branch Secretary of Fibre Polymer Office, Deputy Director of Spinning Office, Director of Simulation Office, Section Manager of Scientific Research Management Department, Deputy Secretary and Secretary of Youth League Committee of the Company, Party Secretary and Deputy Director of the Chemical Engineering Department, Party Secretary and Assistant Manager of Fine Chemicals Department and Director of Public Affairs Department. Mr. Chen was appointed as Vice-President of Labour Union of the Company in November 2013. He was appointed as Vice President of the Association of Science and Technology in December 2017. He served as Director of the Public Affairs Department of the Company from April 2018 to March 2020, and he was elected as a Supervisor of the Company in October 2019. He was the Director of Public Affairs of the Company since March 2020. In November 2021, he served as the executive director, general manager and secretary of the general Party branch of Sinopec Shanghai Training Center, general manager of Shanghai Petrochemical training center, executive vice president of the Party school, general manager of Shanghai Convention Center and President of Jinshan Community College. In 1993, Mr. Chen graduated from Chengdu University of Science and Technology, majoring in Dyeing and Finishing Engineering, and obtained a Bachelor’s degree in engineering. In 1996, he obtained a Master’s degree in Chemical Fibre from Sichuan Unite University. Mr. Chen is a senior engineer by professional title.
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Zhang Xiaofeng, born in March 1970, is currently an External Supervisor of the Company, deputy general manager of the Enterprise Reform and Legal Department of Sinopec Group. Mr. Zhang is currently a supervisor of Sinopec Insurance Limited, Sinopec Oilfield Equipment Corporation, Sinopec Petroleum Reserve Company Limited and a director of Sinopec International Energy Investment Co., Ltd. Starting his career in 1995, Mr. Zhang has served as deputy chief of the Office Management Division of the Legal Department of Sinopec Group, deputy chief and chief of the Contract Project Division, chief of the Dispute Management Division, and chief of the General Management Division of Legal Department of Sinopec Group. He served as the deputy director of Legal Department of Sinopec Group from January 2018 to December 2019. He served as the supervisor of Sinopec Insurance Limited from June 2019 to May 2021. He has also served as the deputy general manager of the Enterprise Reform and Legal Department of Sinopec Group since December 2019. In June 2021, he served as a director of Sinopec International Energy Investment Co., Ltd. Mr. Zhang, majoring in international economic law, graduated from China University of Political Science and Law with a Bachelor’s degree in law in July 1995. Mr. Zhang is a senior economist by professional title and the lawyer of the Company.
Zheng Yunrui, born in December 1965, is an Independent Supervisor of the Company, a professor in civil and commercial law at the Faculty of Law of the East China University of Political Science. He has served as the Company’s Independent Supervisor since December 2014. He is currently an independent director of Fuxin Dare Automotive Parts Co, Ltd. (listed on the Shenzhen Stock Exchange, stock code: 300473) and Wuxi New Hongtai Electrical Technology Co., Ltd. (listed on Shanghai Stock Exchange, stock code: 603016). Mr. Zheng graduated from the Shangrao Normal University in Jiangxi Province, majoring in English. Mr. Zheng obtained a Master’s degree in law and a doctorate’s degree in law from the Faculty of Law of Peking University in July 1993 and July 1998, respectively. Mr. Zheng previously worked at the Education Bureau of Shangrao County, Jiangxi Province, Hainan Airport Limited, China Township Enterprise Investment and Development Company Limited and the Legal Affairs Office of the Shanghai Municipal People’s Government. He has been teaching at East China University of Political Science and Law since August 2001. He was a visiting scholar at the Faculty of Law of National University of Singapore between July 2002 and December 2002. From April 2013 to May 2019, he served as independent director of Hangzhou Xianfeng Electronic Technology Co., Ltd. (listed on Shenzhen Stock Exchange, stock code: 002767). From 2019 to February 2021, he served as the external supervisor of Zhejiang Weihai Construction Group Co., Ltd. (listed on Shenzhen Stock Exchange, stock code: 002586). From December 2015 to June 2021, he was an independent director of Jiangxi Xinyu Guoke Technology Co., Ltd. (listed on Shenzhen Stock Exchange, stock code: 300722). From April 2019 to March 2022, he served as an independent director of Dalian Electric Porcelain Group Co., Ltd. (listed on Shenzhen Stock Exchange, stock code: 002606). In November 2019, he served as a member of the second Shareholding Exercise Expert Committee of China Securities Small and Medium Investors Service Center. In September 2020, he was appointed as a legal consultant of Wuxi Intermediate People’s Court. Mr. Zheng has been engaged in trials, teaching and research relating to civil law, property law, contract law, company law, insurance law, social insurance law and government procurement law. He is experienced in the legal affairs on corporate governance and has great academic achievements. He is also an arbitrator at the Arbitration Commission of Shenzhen, Xuzhou, Wuxi and Suzhou. Mr. Zheng was appointed as an advisory expert on civil and administrative cases of the Supreme People’s Procuratorate and the Zhejiang People’s Procuratorate, a member of the second shareholding exercise Committee of CSI small and medium-sized investment service center, a news, public opinion and legal advisory expert of Wuxi intermediate people’s court, a member of the expert advisory Committee of Shanghai Yangpu District People’s Procuratorate and a mediator of Shanghai Second Intermediate People’s court.
Choi Ting Ki, born September 1954, is an Independent Supervisor of the Company and a Fellow of the Hong Kong Institute of Certified Public Accountants. He joined the Company in June 2011. Mr. Choi served as Independent Non-Executive Director of the Company from June 2011 to June 2017 and has been Independent Supervisor of the Company since June 2017. Mr. Choi has been an independent non-executive director of Yangtzekiang Garment Limited (listed on the Main Board of the Hong Kong Stock Exchange, stock code: 00294) and YGM Trading Limited (listed on the Main Board of the Hong Kong Stock Exchange, stock code: 00375) since December 2012. Mr. Choi graduated from the Department of Accounting, Hong Kong Polytechnic in 1978 and joined KPMG in the same year. He has held various positions, including the Partner of the Audit Department of KPMG Hong Kong Office, Executive Partner of KPMG Shanghai Office, Senior Partner of KPMG Huazhen Shanghai Office, as well as Senior Partner of KPMG Huazhen in Eastern and Western China. Mr. Choi retired from KPMG Huazhen in April 2010.
Senior Management
Jin Qiang, born in May 1965, is the Vice President of the Company. Mr. Jin joined Zhenhai General Petrochemical Works in 1986 and has held various positions, including deputy chief of the Utilities Department, deputy director and director of the Machinery and Power Division of Sinopec Zhenhai Refining & Chemical Co., Ltd., and director of the Machinery and Power Division of Sinopec Zhenhai Refining & Chemical Co., Ltd. Mr. Jin was the deputy chief engineer of Sinopec Zhenhai Refining & Chemical Co., Ltd. from March 2007 to October 2011, and was appointed as the Vice President of the Company in October 2011. From June 2014 to February 2022, Mr. Jin served as an Executive Director of the Company. Mr. Jin graduated from the East China Institute of Chemical Technology in 1986 majoring in chemical machinery and graduated from the Graduate School of Central Party School in 2007 majoring in economic management. He is a professorate senior engineer by title.
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Jin Wenmin, born in February 1965, is the Vice President of the Company. Mr. Jin joined Shanghai Petrochemical Complex in 1985 and served as the Secretary of the Communist Party Committee of the Company’s No.1 Oil Refining Device of Refining Unit, Head of Butadiene Device, Manager of the Storage and Transportation Branch, Manager and Deputy Secretary of the Communist Party Committee of Storage and Transportation Department, Manager and Deputy Secretary of the Communist Party Committee of Oil Refining Department etc. From April 2013 to February 2017, Mr. Jin was appointed as the Head of Production Department of the Company. From May 2013 to August 2016, Mr. Jin was appointed as the Assistant to the General Manager of the Company and was appointed as the Vice President of the Company in September 2016. He served as the Executive Director of the Company from June 2018 to February 2022. Mr. Jin graduated from the Shanghai Second Polytechnic University in July 2003. He is a senior engineer by professional title.
Zhou Jijun, born in May 1965, is the Vice President of the Company. Mr. Zhou stated his career in 1987 and served as the deputy director, chief engineer and director of Olefins Department of Sinopec Zhenhai Refining & Chemical Co., Ltd. From January 2015 to 8, 2016, he served as the deputy chief engineer and director of Olefins Department and secretary of Party General Branch of Sinopec Zhenhai Refining & Chemical Co., Ltd. From August 2016 to January 2019, he served as the deputy general manager and member of the Party Committee of Shanghai Gaoqiao Petrochemical Co., Ltd. From January 2019 to November 2022, he served as the vice general manager and member of the Party Committee of Shanghai SECCO Petrochemical Co., Ltd. From February 2023, he served as the Vice President of the Company. Zhou Jijun graduated from Zhejiang Institute of Technology in 1987, majoring in inorganic chemical engineering, and obtained a master’s degree in engineering from East China University of Science and Technology in 1998. He is a senior engineer by professional title.
Huang Fei, born in January 1977, is the Deputy President of the Company. Mr. Huang joined Sinopec Shanghai Petrochemical in 2000, and he has successively served as Polyolefin Plant Deputy Director of Plastic Business Unit and Manager Assistant and Polyolefin Plant Director of Plastic Department. From August 2012 to June 2014, he served as Deputy Manager of the Plastic Department. From June 2014 to February 2017, he served as Director of Statistical Center and Vice Party Secretary. From February 2017 to December 2018, he served as Manager of Olefin Department and Deputy Party Secretary. From December 2018 to January 2019, he served as President’s Assistant and the Director of Production Department. From January 2019 to December 2019, Mr. Huang served as President’s Assistant and Manager of Production Department of Shanghai SECCO. From February 2020, he served as the Vice President of the Company. From June 2020 to April 2021, he served as the Secretary to the Board and Joint Company Secretary. From June 2020 to February 2022, he served as the Executive Director and member of the Strategy Committee of the Company. Mr. Huang graduated from the polymer materials and engineering major of East China University of Science and Technology with a bachelor’s degree of engineering in July 2000. He graduated from chemical engineering major of East China University of Science and Technology with a master’s degree in April 2008. He is a senior engineer by professional title.
Liu Gang, born in September 1972, is currently the Secretary to the Board, the Joint Company Secretary, the Assistant to the General Manager, the General Counsel, and the general manager of the Capital Operation Department and Shanghai Petrochemical Investment Development Co., Ltd. Mr. Liu Gang joined the work in 1995 and successively served as the deputy director and director of the supply management department of the Company’s material supply company and the business operation manager of the Commercial Department of Shanghai SECCO. From November 2015 to August 2018, he served as the Deputy Director of the Company’s Material Procurement Center. From August 2018 to April 2019, he served as the Deputy Director (presiding over the work) of the Company’s Material Procurement Center. From April 2019 to January 2021, he served as the General Manager of the Material Procurement Center of the Company. He has been the Assistant to the General Manager of the Company since December 2019. He has been the General Counsel of the Company since March 2021. He has been the Secretary of the Board and Joint Company Secretary of the Company since April 2021. He has been the General Manager of the Company’s Capital Operation Department and Shanghai Petrochemical Investment Development Co., Ltd. since August 2021. Mr. Liu Gang graduated from China Textile University in 1995, majoring in mechatronics, and obtained a master’s degree in power engineering from East China University of technology in 2007, with the title of senior economist.
B. Compensation.
The aggregate amount of cash compensation we paid to our directors, supervisors and executive officers during the year ended December 31, 2022 was approximately RMB 14.31 million. In addition, directors and supervisors who are also officers or employees receive certain other benefits-in-kind, such as subsidized or free health care services, housing and transportation, which large Chinese enterprises customarily provide to their employees. No benefits are payable to members of the board or the Supervisory Committee or the executive officers upon termination of their relationship with us.
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| Name |
Position with the Company |
Salaries and other benefits |
Retirement scheme contributions* |
Discretionary bonus |
Fees | Total Remuneration in 2022 (excluding share options) |
||||||||||||||||
| (RMB’000) | (RMB’000) | (RMB’000) | (RMB’000) | (RMB’000) | ||||||||||||||||||
| (before tax) | (before tax) | (before tax) | (before tax) | (before tax) | ||||||||||||||||||
| Wan Tao |
Chairman & Executive Director | 177 | 24 | 90 | — | 291 | ||||||||||||||||
| Guan Zemin |
Executive Director, Vice Chairman & President | 412 | 55 | 992 | — | 1,459 | ||||||||||||||||
| Du Jun |
Executive Director Vice President & Chief Financial Officer | 373 | 55 | 894 | — | 1,322 | ||||||||||||||||
| Huang Xiangyu |
Executive Director & Vice President | 250 | 54 | 817 | — | 1,121 | ||||||||||||||||
| Xie Zhenglin |
Independent Director | — | — | — | — | — | ||||||||||||||||
| Peng Kun |
Independent Director | 193 | 52 | 641 | — | 886 | ||||||||||||||||
| Li Yuanqin |
Independent Director | — | — | — | 150 | 150 | ||||||||||||||||
| Tang Song |
Independent Director | — | — | — | 150 | 150 | ||||||||||||||||
| Chen Haifeng |
Independent Director | — | — | — | 150 | 150 | ||||||||||||||||
| Yang Jun |
Independent Director | — | — | — | 150 | 150 | ||||||||||||||||
| Gao Song |
Independent Director | — | — | — | 150 | 150 | ||||||||||||||||
| Ma Yanhui |
Chairman of Supervisory Committee | 343 | 55 | 899 | — | 1,297 | ||||||||||||||||
| Zhang Feng |
Supervisor | 174 | 46 | 560 | — | 780 | ||||||||||||||||
| Chen Hongjun |
Supervisor | 184 | 47 | 603 | — | 834 | ||||||||||||||||
| Zhang Xiaofeng |
Supervisor | — | — | — | — | — | ||||||||||||||||
| Zheng Yunrui |
Independent Supervisor | 100 | — | — | — | 100 | ||||||||||||||||
| Choi Tingki |
Independent Supervisor | 100 | — | — | — | 100 | ||||||||||||||||
| Jin Qiang* |
Vice President | 372 | 55 | 907 | — | 1,334 | ||||||||||||||||
| Jin Wenmin* |
Vice President | 259 | 55 | 812 | — | 1,126 | ||||||||||||||||
| Zhou Jijun* |
Vice President | — | — | — | — | — | ||||||||||||||||
| Huang Fei* |
Vice President | 247 | 52 | 811 | — | 1109 | ||||||||||||||||
| Liu Gang |
Secretary of the Board of Directors | 204 | 55 | 662 | — | 921 | ||||||||||||||||
| Wu Haijun* |
Former Executive Director, Chairman of the Board of Directors, Chairman of Strategy Committee, and Member of Nomination Committee | 207 | 35 | 634 | — | 876 | ||||||||||||||||
| * | On 15 February 2022, Mr. Jin Qiang, Mr. Jin Wenmin and Mr. Huang Fei proposed request to the board of directors that they would no longer serve as executive directors and directors due to job change. Mr. Jin Qiang’s, Mr. Jin Wenmin’s and Mr. Huang Fei’s resignations took effect when the resignation reports were delivered to the board of directors of the Company on 15 February 2022. Mr. Zhou Jijun was appointed as the Vice President of the Company by the board of directors of the Company on 18 January 2023. On 8 September 2022, Mr. Wu Haijun proposed request to the board of directors that he would no longer serve as Executive Director and Chairman due to job change. Mr. Wu Haijun’s resignation took effect when the resignation report was delivered to the board of directors of the Company on 8 September 2022. |
| C. | Board Practices. |
Board of Directors
Our Board of Directors consists of eleven members. Our Directors are elected at meetings of our shareholders, and, unless they resign at an earlier date, are deceased or removed, will serve three-year terms. The Directors shall be eligible for reelection upon expiry of their terms of office; however, the combined tenure of an Independent Non-executive Director may not exceed a total of six years. The term of our current Board of Directors will expire in June 2023. None of our Directors have entered into any service contracts with us or any of our subsidiaries providing for benefits upon termination of appointment or employment (with the exception of compensation required by Chinese labor law).
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Independent Board Committee
We formed an Independent Board Committee on June 18, 2020, which consists of five Independent Non-executive Directors. The current members are Ms. Li Yuanqin, Mr. Tang Song, Mr. Chen Haifeng, Mr. Yang Jun and Mr. Gao Song. The Independent Board Committee advised our shareholders other than Sinopec Corp. and its associates in respect of the terms of the continuing connected transactions under the renewed Mutual Product Supply and Sale Services Framework Agreement with Sinopec Group and Sinopec Corp. and the renewed Comprehensive Services Framework Agreement with Sinopec Group and the proposed caps on annual transaction values thereof for the three years ending December 31, 2022.
Remuneration and Appraisal Committee
We formed a remuneration and appraisal committee on December 25, 2001 which consists of three Directors. As of December 31, 2022, the members of the remuneration committee are Mr. Yang Jun (Chairman of the Committee), Mr. Tang Song and Mr. Gao Song. The key responsibility of the Remuneration Committee is to formulate and review the remuneration policy and plan for the Directors and executive officers, formulate the standards for evaluation of the Directors and executive officers and conduct such evaluations. The members of the remuneration and appraisal committee will hold office for the same term as their directorships which will expire in June 2023.
Audit Committee
We formed an audit committee on June 15, 1999 which consists of three Directors. As of December 31, 2022, the members are Ms. Li Yuanqin (Chairman of the Committee), Mr. Tang Song and Mr. Chen Haifeng. The key responsibility of the Audit Committee is to advise the Board on the appointment, dismissal, remuneration and terms of engagement of external auditors, review and supervise our financial reporting process, internal controls and risk management systems, and review our connected transactions. The members of the audit committee will hold office for the same term as their directorships which will expire in June 2023.
Nomination Committee
We formed a nomination committee on June 27, 2012 which consists of three Directors. As of December 31, 2022, the members are Mr. Yang Jun (Chairman of the Committee), Mr. Chen Haifeng and Mr. Wan Tao. The key responsibility of the Nomination Committee is to review the Board composition, make recommendations to the Board on the procedures and criteria for the selection and appointment of Directors and senior management and assess the independence of Independent Non-executive Directors. The members of the audit committee will hold office for the same term as their directorships which will expire in June 2023.
Strategy Committee
We formed a strategy committee on June 15, 2017 which consists of three Executive Directors, one Non-executive Directors and one Independent Non-executive Director. As of December 31, 2022, the members are Mr. Wan Tao (Chairman of the Committee), Mr. Guan Zemin (Vice-Chairman of the Committee), Mr. Du Jun, Mr. Huang Xiangyu, Mr. Xie Zhenglin, and Mr. Gao Song.] The key responsibility of the Strategy Committee is to conduct researches and give recommendations to the Board on major investment decisions, projects and major issues that affect our development, and monitor our long-term development strategic plan. The members of the audit committee will hold office for the same term as their directorships which will expire in June 2023.
D. Employees.
As of December 31, 2022, we had 8,007 employees.
The following table shows the approximate number of employees we had at the end of the last three years by the principal business function they performed:
| December 31, | ||||||||||||
| 2020 | 2021 | 2022 | ||||||||||
| Management |
1066 | 1044 | 1008 | |||||||||
| Engineers, technicians and factory personnel |
5094 | 5070 | 5077 | |||||||||
| Accounting, marketing and others |
2306 | 2116 | 1922 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
8466 | 8230 | 8007 | |||||||||
|
|
|
|
|
|
|
|||||||
Approximately32.17% of our work force are graduates with a bachelor’s degree or higher. In addition, we offer our employees opportunities for education and training based upon our development plans and requirements and the individual performance of each employee.
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A system of labor contracts has been adopted in our Company. The contract system imposes discipline, provides incentives to adopt better work habits and gives us greater management control over our work force. We believe that by linking remuneration to productivity, the contract system has also improved employee morale. As of December 31, 2022, almost all of the work force was employed pursuant to labor contracts which specify the employee’s position, responsibilities, remuneration and grounds for termination. The contracts generally have short terms of one to five years and may be renewed with the agreement of both parties. The remaining personnel are employed for an indefinite term.
We have a labor union that protects employees’ rights, aims to assist in the fulfillment of our economic objectives, encourages employee participation in management decisions and assists in mediating disputes between us and union members. We have not been subject to any strikes or other labor disturbances which have interfered with our operations, and we believe that our relations with our employees are good.
Total remuneration of our employees includes salary and bonuses. Employees also receive certain benefits in terms of housing, education and health services that we subsidize, and other miscellaneous subsidies. In 2022, we incurred RMB 3,545.72 million in employment costs.
In compliance with Shanghai regulations, we and our employees participate in a defined contribution government pension scheme under which all employees upon retirement are entitled to receive pensions. In order to safeguard and properly enhance the living level of retired employees and improve the medium and long term incentive system, the Company established an enterprise annuity plan. According to the plan, to the extent that the employees volunteer for the related payments and have been with the Company for one year or more, such employees are entitled to participate in the enterprise annuity plan. We will make payments to match the payments made by the employees after giving considerations to our profitability, the employee’s work responsibilities, contributions, and treatments post retirement based on the principle of universal benefits. We have 19454 retired employees under the above retirement insurance plans.
In addition to the pension benefits, pursuant to the relevant laws and regulations of the PRC, we and our employees participate in defined social security contributions for employees, such as a housing fund, basic medical insurance, supplementary medical insurance, unemployment insurance, injury insurance and maternity insurance.
E. Share Ownership.
The table below sets forth information regarding the beneficial ownership of our shares held by our directors, supervisors and executive officers as of March 31, 2023:
| Name |
Position held |
Number of Shares held |
Percentage of total issued shares of the Company (%) |
Percentage of total issued A shares (%) |
||||||||
| Jin Qiang* |
Vice President | 301,000 A shares (L) | 0.002781 | 0.00411 | ||||||||
| Jin Wenmin* |
Vice President | 175,000 A shares (L) | 0.001617 | 0.00239 | ||||||||
| Huang Xiangyu |
Executive Director and Vice President | 140,000 A shares (L) | 0.001293 | 0.001910 | ||||||||
| Zhang Feng |
Supervisor | 10,000 A shares (L) | 0.000092 | 0.00014 | ||||||||
| Chen Hongjun |
Supervisor | 31,400 A shares (L) | 0.000290 | 0.00043 | ||||||||
| (L): | Long position |
Jin Qiang and Jin Wenmin resigned as executive directors on February 15, 2022.
Share Option Incentive Scheme
The Share Option Incentive Scheme of the Company took effect from 23 December 2014, with a validity period of 10 years until 22 December 2024. The first grant of A-share share options under the Share Option Incentive Scheme was on 6 January 2015. For details, please refer to the relevant announcements uploaded on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company on 6 January 2015. All the exercise periods of the first grant have ended on 28 December 2018. For details, please refer to the relevant announcements uploaded on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company on 28 December 2018. At present, the Company has no other granting scheme.
During 2022, the Company did not grant A-share share options under the Share Option Incentive Scheme, nor did the grantees exercise any A-share share options, and no A-share share options were cancelled or lapsed.
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| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. |
A. Major Shareholders.
Sinopec Corp. owns 50.55% of our share capital and is able to exercise all the rights of a controlling shareholder, including the election of directors and voting on amendments to our Articles of Association.
The diagram below sets forth the information on the ownership and controlling relationship between our Company, Sinopec Corp., and Sinopec Group.
*Including 767,916,000 H shares in in Sinopec Group held by Sinopec Century Bright Capital Investment Limited, an overseas wholly-owned subsidiary of Sinopec Group, through HKSCC (Nominees) Limited.
The table below sets forth information regarding ownership of our shares as of March 31, 2023 by all persons who we know own more than five percent of our A shares and our H Shares. Our major shareholders listed below do not have voting rights different from those of our other shareholders.
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| Name of shareholders |
Interests held (shares) |
Percentage of total issued shares of the Company (%) |
Percentage of total issued shares for this category (%) |
|||||||
| Sinopec Corp. |
5,459,455,000 A Shares(L) Shares of legal person |
50.55 | (L) | 74.549 | (L) | |||||
| The Bank of New York Mellon Corporation |
201,171,367 H Shares (L) 174,382,000 H Shares (S) 26,776,667 H Shares (P) |
|
1.86 1.61 0.25 |
|
|
5.76 4.99 0.77 |
| |||
| Corn Capital Company Ltd |
211,008,000 H Shares (L) 200,020,000 H Shares (S) |
|
1.95 1.85 |
|
|
6.04 5.72 |
| |||
| Hung Hin Fai |
211,008,000 H Shares (L) 200,020,000 H Shares (S) |
|
1.95 1.85 |
|
|
6.04 5.72 |
| |||
| Yardley Finance Limited |
200,020,000 H Shares (L) | 1.85 | 5.72 | |||||||
| Chan Kin Sun |
200,020,000 H Shares (L) | 1.85 | 5.72 | |||||||
| (L) | : Long position; (S): Short position; (P): Lending Pool |
| Notes: |
| (1) | 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 owned 67.84% of the issued share capital of Sinopec Corp. as at 31 March 2023. By virtue of such relationship, Sinopec Group is deemed to have an interest in the 5,459,455,000 A shares of the Company directly owned by Sinopec Corp. |
| (2) | All the 201,171,367 H shares (L) and 174,382,000 H shares (S) are deemed to be held by The Bank of New York Mellon Corporation, due to control of multiple companies (among which 174,382,000 H shares (S) are held through physical settlement unlisted derivatives). Below are the companies indirectly or wholly owned by The Bank of New York Mellon Corporation: |
| (2.1) | All the 3,000 H shares (L) are held by BNY Mellon, National Association. Since BNY Mellon, National Association is wholly owned by The Bank of New York Mellon Corporation, The Bank of New York Mellon Corporation is deemed to have an interest in the 3,000 H shares (L) of the Company held by BNY Mellon, National Association. |
| (2.2) | All the 9,700 H shares (L) is directly held by BNY Mellon Corporate Trustee Services Limited. Since BNY Mellon Corporate Trustee Services Limited is wholly owned by BNY International Financing Corporation, BNY International Financing Corporation is wholly owned by The Bank of New York Mellon, and The Bank of New York Mellon is wholly owned by The Bank of New York Mellon Corporation. The Bank of New York Mellon Corporation is deemed to have an interest in the 9,700 H shares (L) of the Company held by BNY Mellon Corporate Trustee Services Limited. |
| (2.3) | All the 201,158,667 H shares (L) and 174,382,000 H shares (S) are directly or indirectly held by The Bank of New York Mellon. Since The Bank of New York Mellon is wholly owned by The Bank of New York Mellon Corporation, The Bank of New York Mellon Corporation is deemed to have an interest in the 201,158,667 H shares (L) and 174,382,000 H shares (S) of the Company held by The Bank of New York Mellon. |
| (3) | These shares were held by Corn Capital Company Limited. Hung Hin Fai held 100% interests in Corn Capital Company Limited. Pursuant to the SFO, Hung Hin Fai was deemed to be interested in the shares held by Corn Capital Company Limited. |
| (4) | These shares were held by Yardley Finance Limited. Chan Kin Sun held 100% interests in Yardley Finance Limited. Pursuant to the SFO, Chan Kin Sun was deemed to be interested in the shares held by Yardley Finance Limited. |
Save as disclosed above, as at 31 March 2023, the Directors have not been notified by any person (other than the Directors, chief executive and Supervisors) who had interests or short positions in the shares and 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.
As of March 31, 2023, a total of 3,470,472,000 H Shares were outstanding, and a total of 7,328,813,500 A Shares were outstanding.
To the best of our knowledge, except as disclosed above, we are not directly or indirectly controlled by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
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We are not aware of any arrangement that may at a subsequent date result in a change of control of our company.
B. Related Party Transactions.
Intercompany service agreements and business-related dealings
The Company entered into the Mutual Product Supply and Sales Services Framework Agreement and Comprehensive Services Framework Agreement (the “Framework Agreement”) with Sinopec Corp., the controlling shareholder of the Company, and Sinopec Group, the actual controller of the Company on 23 October 2019. Pursuant to the Framework Agreement, the Company conducted a series of continuing connected transactions related to daily operation with Sinopec Group, Sinopec Corp. and their associates. The Framework Agreement was valid for three years and expired on 31 December 2022. The Company’s Board of Directors considered and approved on 10 November 2022, the signing of a new Mutual Product Supply and Sales Services Framework Agreement and a new Comprehensive Services Framework Agreement between the Company and Sinopec Group and Sinopec Corp., which are valid for three years until the expiry of 31 December 2025; and the Financial Services Framework Agreement signed with Sinopec Group is valid for one year until the expiry of 31 December 2023. The Company has disclosed the three agreements and each of the continuing connected transactions under the agreements in the announcement dated 10 November 2022, and considered and approved the new Mutual Product Supply and Sales Services Framework Agreement, the new Comprehensive Services Framework Agreement and each of the continuing connected transactions under the agreements, as well as the annual cap for the years 2023 to 2025 at the third extraordinary general meeting of the Company in 2022. For details, please refer to the 6-K of the Company filed with the Commission dated 20 January 2023.
The Company entered into a storage service agreement with Sinopec Commercial Reserve Co., Ltd., a wholly-owned subsidiary of Sinopec Group, the actual controller of the Company, and its subsidiary Baishawan branch (“Baishawan branch”) on 31 December 2020. Accordingly, Baishawan branch provides storage services to the Company, with the service period from 1 January 2021 to 31 December 2023, and the maximum annual storage service fee is RMB114 million (including value-added tax). For details, please refer to the 6-K of the company filed with the Commission dated 8 December 2020.
The Company entered into the Technology Development Contract with Sinopec Corp. on 15 December 2022, pursuant to which Sinopec Corp. entrusted the Company to research and develop the 100 ton level high-performance carbon fiber related devices. The consideration for the Technology Development Contract is RMB44,400,000, of which RMB5,010,000 and RMB39,390,000 shall be paid by Sinopec Corp. in 2022 and 2023, respectively. Sinopec Corp. is the controlling shareholder of the Company and is therefore a connected person of the Company. Related announcements were published on the official websites of the Shanghai Stock Exchange and Hong Kong Stock Exchange on 20 December 2022 and 19 December 2022, respectively.
The purchases by us of crude oil and related materials from, and sales of petroleum products by us to, Sinopec Corp. and its associates were conducted in accordance with the State’s relevant policy and applicable State tariffs or State guidance prices. As long as the State does not lift its control over purchases of crude oil, sales of petroleum products and pricing thereof, such connected transactions will continue to occur. We sell petrochemicals to Sinopec Corp. and its associates and Sinopec Corp. and its associates act as agents for the sales of petrochemicals in order to reduce our inventories, expand their trading, distribution and sales networks and improve our bargaining power with our customers. We lease part of the properties to Sinopec Corp. and its associates in consideration of their good financial background and credit standing. We accept construction and installation, engineering design, insurance agency and financial services relating to the petrochemical industry from Sinopec Group and its associates in order to secure steady and reliable services at reasonable prices.
The prices of the continuing connected (i.e., related-party) transactions conducted between the Company and Sinopec Group, Sinopec Corp. and its associates are determined by the parties involved after consultation pursuant to (1) the fixed price of the state; or (2) the guiding price of the state; or (3) market prices, and the conclusion of agreements for the connected transactions are in compliance with the needs of the Company’s production and operation. Therefore the above continuing connected transactions do not cause a material impact on the Company’s independence.
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The table below sets forth certain relevant information regarding our continuing connected transactions with Sinopec Corp. and Sinopec Group under the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement in 2022.
| Type of major transactions | Connected parties | Annual cap for 2022 |
Transaction Period |
Unit: RMB’000 Percentage Of the total Amount of the (%) |
||||||||||
| Mutual Product Supply and Sales Services Framework Agreement |
|
|||||||||||||
| Purchases of raw materials |
Sinopec Corp., Sinopec Group and their associates | 78,591,000 | 58,502,366 | 80.89 | % | |||||||||
| Sales of petroleum and petrochemical products |
Sinopec Group, Sinopec Corp. and their associates | 71,274,000 | 51,288,425 | 67.66 | % | |||||||||
| Property leasing |
Sinopec Group, Sinopec Corp. and their associates | 37,000 | 33,866 | 45.06 | % | |||||||||
| Agency sales of petrochemical products |
Sinopec Corp. and its associates | 169,000 | 90,341 | 100.00 | % | |||||||||
| Comprehensive Services Framework Agreement |
|
|||||||||||||
| Construction, installation and engineering design services |
Sinopec Group, Sinopec Corp. and their associates | 1,074,000 | 812,516 | 48.79 | % | |||||||||
| Petrochemical industry insurance services |
Sinopec Group and its associates | 130,000 | 109,597 | 100.00 | % | |||||||||
| Financial services |
Associate of Sinopec Group (Sinopec Finance) | 200,000 | 2,917 | 0.54 | % | |||||||||
| Storage services agreement |
||||||||||||||
| Storage services |
Associate of Sinopec Group (Baishawan Branch) | 114,000 | 114,000 | 83.28 | % | |||||||||
The prices of continuing connected transactions between the Company and Sinopec Group, Sinopec Corp. and their associates are based on: 1) national pricing; or 2) national guidance price; or 3) the market price is determined by both parties through negotiation, and the conclusion of the related party transaction agreement is based on the needs of the Company’s production and operation. Therefore, the above continuing connected transactions do not have a significant impact on the independence of the Company.
The independent non-executive director of the Company has reviewed the continuing connected transactions of the Company and confirmed that: the above continuing connected transactions 1) are entered into in the daily business of the Company; 2) generally or better; 3) according to the agreement on the transaction, the terms are fair and reasonable and in line with the overall interests of the shareholders of the Company; and 4) the transaction amount in the Reporting Period was within the annual maximum limit.
HKSE connected transactions rules
We are required by HKSE listing rules to obtain advance shareholder approval for certain transactions with related parties such as Sinopec Group, Sinopec Corp., or its associates. We comply with such HKSE listing rules by obtaining advance shareholder approval at least every three years for the renewal of our framework agreements (e.g., the Mutual Product Supply and Sales Services Framework Agreement and the Comprehensive Services Framework Agreement) with Sinopec Corp. and Sinopec Group for setting maximum aggregated annual values spent on the supply of products and services under these agreements. The independent non-executive directors will need to confirm each year, upon reviewing our continuing connected transaction, that these transactions are conducted in the ordinary and usual course of our business, on normal commercial terms and in accordance with the terms of these agreements.
C. Interests of Experts and Counsel.
Not applicable.
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| ITEM 8. | FINANCIAL INFORMATION. |
A. Consolidated Statements and Other Financial Information.
Please see Item 18. Financial Statements for our audited consolidated financial statements filed as part of this annual report.
Litigation
Neither we nor any of our subsidiaries is a party to, nor is any of our or their property the subject of any legal or arbitration proceedings which may have significant effects on our financial position or profitability or cash flows. We are not aware of any litigation or arbitration proceedings in which any of our directors, any member of our senior management or any of our affiliates is an adverse party or has a material adverse interest.
Dividend Policy
Our Board of Directors may propose dividend distributions subject to the approval of the shareholders. The Articles of Association also provide that, the aggregate profits distributed in cash in the recent three years shall not be less than 30% of the average annual distributable profits within such three-year period. Shareholders receive dividends in proportion to their shareholdings.
The Articles of Association require that cash dividends and other distributions in respect of H Shares be declared in Renminbi and paid by us in Hong Kong Dollars while cash dividends and other distributions in respect of our A Shares be paid in Renminbi. If we record no profit for the year, we may not distribute dividends in such year.
We expect to continue to pay dividends, although there can be no assurance as to the particular amounts that might be paid from year to year. Payment of future dividends will depend upon our revenue, financial condition, future earnings and other factors. See Item 5. Operating and Financial Review and Prospects.
B. Significant Changes.
No significant change has occurred since the date of the financial statements included in this annual report.
| ITEM 9. | THE OFFER AND LISTING. |
A. Offer and Listing Details
The principal trading market for our H Shares is the HKSE. We have also listed our A Shares on the Shanghai Stock Exchange. Prior to our initial public offering on July 26, 1993 and subsequent listings on the HKSE, there was no market for our H Shares. Public trading in our A Shares commenced on November 8, 1993.
B. Plan of Distribution
Not applicable.
C. Markets
Our H Shares are listed for trading on the HKSE (Code: 00338), and our A Shares are listed for trading on the Shanghai Stock Exchange (Code: 600688).
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issuer
Not applicable.
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| ITEM 10. | ADDITIONAL INFORMATION. |
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association.
We are a joint stock limited company established in accordance with the PRC Company Law and certain other laws and regulations of the PRC. We are registered with the Shanghai Administration for Market Regulation with business license number 91310000132212291W.
The following is a summary based upon provisions of our Articles of Association as currently in effect, the PRC Company Law and other selected laws and regulations applicable to us. You should refer to the text of the Articles of Association and to the texts of applicable laws and regulations for further information.
Our Articles of Association provide, at article 12, that our purpose is:
| • | to build and operate a diversified industrial company which will be one of the world’s leading petrochemical companies; |
| • | to promote the development of the petrochemical industry in China through the production of a broad variety of outstanding products; and |
| • | to practice advanced, scientific management and apply flexible business principles, and to develop overseas markets for our products so that we and our shareholders receive reasonable economic benefits. |
Our scope of business is limited to matters approved by Chinese authorities. Article 13 provides that our primary business scope includes:
Refining crude oil, petroleum products, petrochemical products, synthetic fibers and monomers, plastic products, raw materials for knitting and textile products, preparation of catalysts and recover waste catalysts, power, heat, water and gas supply, water treatment, railway cargo loading and unloading, inland water transport, wharf operation, warehousing, design, research and development, technology development, transfer, consultancy and other services, property management, lease of self-owned premises, internal staff training, design and fabrication of various advertisements, release of advertisements on self-owned media and quality technology services (administrative license should be obtained when required). We may adjust these subject to approval by governmental authorities.
The following discussion primarily concerns our shares and the rights of our shareholders. Holders of our ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depositary facility in which the H Shares are held in order to exercise shareholder rights in respect of H Shares.
A Shares and overseas-listed foreign invested H Shares are both ordinary shares in our share capital. A Shares are shares we issue to domestic Chinese investors for subscription in Renminbi, while H Shares are shares we issue for subscription in other currencies to investors from Hong Kong, Macau, Taiwan and outside of China.
Sources of Shareholders’ Rights
China’s legal system is based on written statutes and is a system in which decided legal cases have little precedent value. China’s legal system is similar to civil law systems in this regard. In 1979, China began the process of developing its legal system by undertaking to promulgate a comprehensive system of laws. In December 1993, the Standing Committee of the 8th National People’s Congress adopted the PRC Company Law. Although the PRC Company Law is expected to serve as the core of a body of regulatory measures, which will impose a uniform standard of corporate behavior on companies and their directors and shareholders, only a limited portion of this body of regulatory measures has so far been promulgated.
Currently, the primary sources of shareholder rights are the Articles of Association, the PRC Company Law and the HKSE listing rules, which, among other things, impose standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder. To facilitate the offering and listing of shares of Chinese companies overseas, and to regulate the behavior of companies whose shares are listed overseas, the former State Council Securities Committee and the former State Commission for Restructuring the Economic System issued the Mandatory Provisions for articles of association of Companies Listing Overseas on August 27, 1994. These provisions have been incorporated into our Articles of Association and any amendment to those provisions will only become effective after approval by the companies approval department authorized by the State.
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In addition, upon the listing of and for so long as the H Shares are listed on the HKSE, we will be subject to those relevant ordinances, rules and regulations applicable to companies listed on the HKSE, the Securities and Futures Ordinance and the Codes on Takeovers and Mergers and Share Repurchases.
Unless otherwise specified, all rights, obligations and protections discussed below derive from our Articles of Association and/or the PRC Company Law.
Enforceability of Shareholders’ Rights
There has not been any public disclosure in relation to the enforcement by holders of H Shares of their rights under the charter documents of joint stock limited companies or the PRC Company Law or in the application or interpretation of the Chinese or Hong Kong regulatory provisions applicable to Chinese joint stock limited companies.
In most states of the United States, shareholders may sue a corporation “derivatively.” A derivative suit involves the commencement by a shareholder of a corporate cause of action against persons who have allegedly wronged the corporation, where the corporation itself has failed to enforce the claims directly. This would include suits against corporate officers, directors, or the controlling shareholder. This type of action is brought based upon a primary right of the corporation, but is asserted by a shareholder on behalf of the corporation. In accordance with the PRC Company Law, if a company incurs losses due to the violation of any provision of laws, administrative regulations or the Company’s articles of association by any of its directors, supervisors and officers during his/her discharge of duties entrusted by the Company, or due to any other person’s infringement of the Company’s legal rights or interests, the shareholders of the Company may take legal action before a court under the PRC Company Law.
Our Articles of Association provide that all differences or claims
| • | between a holder of H Shares and us; |
| • | between a holder of H Shares and any of our directors, supervisors, manager or other senior officers; or |
| • | between a holder of H Shares and a holder of A Shares, |
involving any right or obligation provided in the Articles of Association, the PRC Company Law or any other relevant law or administrative regulation which concerns our affairs must, with certain exceptions, be referred to arbitration at either the China International Economic and Trade Arbitration Commission in China or the Hong Kong International Arbitration Center. Our Articles of Association also provide that the arbitration will be final and conclusive. On June 21, 1999, an arrangement was made between Hong Kong and China for the summary mutual enforcement of each other’s arbitration awards in a manner consistent with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and practices that occurred before the handover of Hong Kong to China. This arrangement was approved by the Supreme Court of China and the Hong Kong Legislative Council, and became effective on February 1, 2000.
All of our directors and officers reside outside the United States (principally in China) and substantially all of our assets and of those persons are located outside the United States. Therefore, you may not be able to effect service of process within the United States against any of those persons. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts within the United States or most other countries that are members of the Organization for Economic Cooperation and Development. This means that administrative actions brought by regulatory authorities such as the SEC, and other actions which result in foreign court judgments could only be enforced in China if the judgments or rulings do not violate the basic principles of the law of China or the sovereignty, security and social public interest of the society of China, as determined by a People’s Court of China which has jurisdiction for recognition and enforcement of judgments. We have been advised by our Chinese counsel, Haiwen & Partners, that there is doubt as to the enforceability in China of any actions to enforce judgments of United States courts arising out of or based on the ownership of our H Shares or ADSs, including judgments arising out of or based on the civil liability provisions of United States federal or state securities laws.
Restrictions on Transferability and the Share Register
All fully paid up H Shares will be freely transferable in accordance with the Articles of Association unless otherwise prescribed by law and/or administrative regulations. Under current laws and regulations, H Shares may be traded only among investors who are not Chinese persons, and may not be sold to Chinese investors. Consequences under Chinese law of a purported transfer of H Shares to Chinese investors are unclear.
As provided in our Articles of Association, we may refuse to register a transfer of H Shares without providing any reason unless:
| • | all relevant transfer fees and stamp duties are paid; |
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| • | the instrument of transfer is accompanied by the share certificates to which it relates and any other evidence reasonably required by our board to prove the transferor’s right to make the transfer; |
| • | there are no more than four joint holders as transferees; and |
| • | the H Shares are free from any lien of ours. |
Additionally, no transfers of shares may be registered within the 30 days prior to a shareholders’ general meeting or within five days before we decide on the distribution of dividends.
We are required to keep a register of our shareholders which shall be comprised of various parts, including one part which is to be maintained in Hong Kong in relation to H Shares listed on the HKSE. Shareholders have the right to inspect the share register. For a reasonable fee, shareholders may copy any part of the share register, obtain background information regarding our directors, supervisors, manager and other senior officers, minutes of shareholder general meetings and reports regarding our share capital and any share repurchases in the prior year.
Dividends
Upon approval by ordinary resolution at a shareholders’ meeting, our Board of Directors may propose dividend distribution at any time. The Articles of Association permits dividends issued in the form of cash or shares. Special resolution of the shareholders’ general meeting is required for dividends issued in the form of shares.
Dividends may only be distributed, however, after allowance has been made for:
| • | recovery of losses, if any; |
| • | allocations to the statutory common reserve fund; and |
| • | allocations to a discretionary common reserve fund. |
The Articles of Association require us to appoint on behalf of the holders of H Shares a receiving agent which is registered as a trust corporation under the Trustee Ordinance of Hong Kong to receive dividends we declare in respect of the H Shares on behalf of the H shareholders. The Articles of Association require that cash dividends and other distributions in respect of H Shares be declared in Renminbi and paid by us in Hong Kong Dollars while cash dividends and other distributions of the A Shares shall be paid in Renminbi.
If we record no profit for the year, we may not normally distribute dividends for the year.
Dividend payments may be subject to Chinese withholding tax. See Item 10. Additional Information – E. Taxation.
Voting Rights and Shareholders’ Meetings
Our Board of Directors must convene a shareholders’ annual general meeting once every year within six months from the end of the preceding financial year. Our board must convene an extraordinary general meeting within two months of the occurrence of any one of the following events:
| • | where the number of directors is less than five as required by the PRC Company Law or two-thirds of the number specified in our Articles of Association; |
| • | where our unrecovered losses reach one-third of the total amount of our share capital; |
| • | where shareholder(s) holding 10% or more of our issued and outstanding voting shares request(s) in writing; or |
| • | whenever our board deems necessary or our Supervisory Committee so requests. |
Meetings of a special class of shareholders must be called in specified situations when the rights of the holders of that class of shares may be varied or abrogated, as discussed below. The Board of Directors, the Supervisory Committee, and shareholders individually or collectively holding 3% or more of our total voting shares are entitled to make written proposals to a shareholders’ meeting. Shareholders individually or collectively holding more than 3% of our total shares may submit written interim proposals to the convener of a shareholders’ meeting ten days before the meeting.
All shareholders’ meetings must be convened by our board by notice given to shareholders by personal service, mail or announcement in the newspaper not less than 45 days before the meeting. Based on the written replies we receive 20 days before a shareholders’ meeting, we will calculate the number of voting shares represented by shareholders who have indicated that they intend to attend the meeting. We can convene the shareholders’ general meeting if the number of voting shares represented by those shareholders is more than one-half of our total voting shares. Otherwise, we shall, within five days, inform the shareholders again of the motions to be considered and the date and venue of the meeting by way of public announcement. After the announcement is made, the shareholders’ meeting may be convened. Our accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that shareholders’ meeting. However, an extraordinary shareholders meeting cannot conduct any business not contained in the notice of meeting.
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Shareholders at meetings have the power, among other things, to decide on our operational policies and investment plans, to approve or reject our proposed annual budget, approve our profit distribution plans, an increase or decrease in share capital, the issuance of debentures, our merger or liquidation and any amendment to our Articles of Association. Shareholders also have the right to review any proposals by a shareholder owning 3% or more of our shares.
In general, holders of H Shares and A Shares vote together as a single class at all meetings and on all matters. However, the rights of a class of shareholders may not be varied or abrogated, unless approved by both a special resolution of all shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting. Our Articles of Association specify, without limitation, that the following amendments would be deemed to be a variation or abrogation of the rights of a class of shareholders:
| • | increasing or decreasing the number of shares of a class or of a class having voting or distribution rights or privileges equal or superior to that class; |
| • | removing or reducing rights to receive dividends in a particular currency; |
| • | creating shares with voting or distribution rights superior to shares of that class; |
| • | restricting or adding restrictions to the transfer of ownership of shares of that class; |
| • | allotting and issuing rights to subscribe for, or to convert into, shares of that class or another class; |
| • | increasing the rights or privileges of any other class; or |
| • | modifying the provision of our Articles of Association that specifies which amendments would be deemed a variation or abrogation of the rights of a class of shareholder. |
For votes on any of these matters, or any other matter that would vary or abrogate the rights of the A Shares or H Shares, the holders of A Shares and H Shares are deemed to be separate classes and vote separately. However, “Interested Shareholders” are not entitled to vote at class meetings. The meaning of “Interested Shareholder” depends on the proposal to be voted on at the class meeting:
If the proposal is for us to repurchase our shares either from all shareholders proportionately or by purchasing share on a stock exchange, an “Interested Shareholder” is our controlling shareholder;
| • | If the proposal is for us to repurchase our shares from a shareholder by a private contract, an “Interested Shareholder” is the shareholder whose shares would be repurchased; |
| • | If the proposal is for our restructuring, an “Interested Shareholder” is any shareholder that has an interest in the restructuring different from the other shareholders of the class or who bears a burden under the proposed restructuring that is less than proportionate to his shareholdings of the class. |
Our Articles of Association specifically provide that an issue of up to 20% of A and H Shares would not be a variation or abrogation of the rights of A shareholders or H shareholders, therefore, separate approval of the A shareholders or H Shareholders would not be required.
Each share is entitled to one vote on all matters submitted to a vote of our shareholders at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the affected class.
Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxy authorization forms must be in writing and deposited at our company’s principal offices, or at such other place specified in the notice of shareholders meeting not less than 24 hours before the time that such meeting will be held or the time appointed for passing upon the relevant resolutions. If a proxy authorization form is signed by a third party on behalf of the relevant shareholder, then such proxy authorization form must be accompanied by the signature authorization letter or other such document authorizing such third party to sign on behalf of the shareholder.
Except for those actions discussed below, which require supermajority votes, or special resolutions, resolutions of the shareholders are passed by a simple majority of the voting shares held by shareholders who are present in person or by proxy. Special resolutions must be passed by more than two-thirds of the voting rights represented by shareholders who are present in person or by proxy.
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The following decisions must be adopted by special resolution:
| • | an increase or reduction of our share capital or the issue of shares of any class, warrants and other similar securities; |
| • | the issue of our debentures; |
| • | our division, merger, dissolution and liquidation; |
| • | amendments to our Articles of Association; |
| • | significant acquisition or disposal of material assets or provision of guarantees conducted within the period of one year with a value exceeding 30% of our latest audited total assets; |
| • | share incentive schemes; and |
| • | any other matters considered by the shareholders in a general meeting and which they have resolved by way of an ordinary resolution to be material and should be adopted by special resolution. |
All other actions taken by the shareholders, including the appointment and removal of our directors and independent auditors and the declaration of normal dividend payments, will be decided by an ordinary resolution of the shareholders.
Our listing agreement with the HKSE provides that we may not permit amendments to certain sections of our Articles of Association that are subject to the Mandatory Provisions. These sections include provisions relating to (i) varying the rights of existing classes of shares, (ii) voting rights, (iii) our ability to purchase our own shares, (iv) rights of minority shareholders and (v) procedures on liquidation. In addition, certain amendments to the Articles of Association require the approval and assent of Chinese authorities.
Board of Directors
Our Articles of Association authorize 11 to 15 directors. Directors are elected by shareholders at a general meeting for a three year term from among candidates nominated by the Board of Directors or by shareholders holding 3% or more of our shares (Independent Directors may be nominated by shareholders each holding 1% or more of our shares). Because our directors do not serve staggered terms, the entire Board of Directors will stand for election, and could be replaced, every three years. Our directors are not required to hold any shares in us, and there is no age limit requirement for the retirement or non- retirement of our directors.
In addition to obligations imposed by laws, administrative regulations or the listing rules of the stock exchanges on which our shares are listed, the Articles of Association place on each of our directors, supervisors, manager and any other senior officers a duty to each shareholder, in the exercise of our functions and powers entrusted to them:
| • | not to cause us to exceed the scope of business stipulated in our business license; |
| • | to act honestly in what he considers our best interests; |
| • | not to expropriate our assets in any way, including (without limitation) usurpation of opportunities which may benefit us; and |
| • | not to expropriate the individual rights of shareholders, including (without limitation) rights to distributions and voting rights, except according to a restructuring which has been submitted to the shareholders for their approval in accordance with the Articles of Association. |
Our Articles of Association further place on each of our directors, supervisors, manager and other senior officers:
| • | a duty, in the exercise of their powers and discharge of their duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; |
| • | a fiduciary obligation, in the discharge of his duties, not to place himself or herself in a position where his or her interests may conflict with his or her duty to us; and |
| • | a duty not to cause a person or an organization related or connected to him or her in specified relationships to do what they are prohibited from doing. |
We pay all expenses that our directors incur for their services as directors. Directors also receive compensation for their services under service contracts that are negotiated by the Board of Directors and approved by the shareholders.
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Subject to the stipulations of relevant laws and regulations, the shareholders in a general meeting may by ordinary resolution remove any director before the expiration of his term of office. Except for the restrictions placed on the controlling shareholder, discussed below, our shareholders in general meeting have the power to relieve a director or supervisor from liability for specific breaches of duty.
Cumulative voting is required for a meeting of shareholders held for the election of two or more of our directors or supervisors as long as more than 30% of our outstanding shares are held by a single shareholder. Cumulative voting allows shareholders to cast a number of votes for a candidate equal to the number of shares held multiplied by the number of directors being elected at the shareholders’ meeting. If a shareholder attempts to cast more votes than he is entitled to under this system, all of the shareholder’s votes will be invalid and will be deemed an abstention.
More than one third of our directors of board must be independent from our shareholders and not hold any office with us (each, “Independent Director”). At least one Independent Director must be an accounting professional and all Independent Directors must possess a basic knowledge of the operations of a listed company and be familiar with relevant laws and rules and have at least five years working experience in law, economics or other area required for the fulfillment of responsibilities as an Independent Director. Independent Directors may not serve for terms exceeding six years. In addition, there are specific persons who are disqualified from acting as Independent Director. These include:
| • | immediate family members of persons who work for us or our associated entities; |
| • | persons or their immediate family who hold one percent or more of our shares or are among our ten largest shareholders; |
| • | any persons that satisfied the foregoing conditions within the past one year; |
| • | persons providing financial, legal, consultation or other services to us or our associated entities; |
| • | persons who already serve as Independent Director for five other listed companies; and |
| • | anyone identified by the CSRC as unsuitable for serving as an Independent Director. |
If the resignation of an Independent Director would cause our Board of Directors to have less than one third Independent Directors, the resignation will only become effective after a new Independent Director has been appointed.
Our Board will be required to meet at least four times each year. Directors who miss two consecutive Board meetings without appointing an alternate director to attend on their behalf will be proposed for removal at the next shareholders’ meeting, provided that Independent Directors may miss three consecutive meetings in person before being proposed for removal.
Directors may not vote on any matter in which he has a material interest, nor will he be counted for purposes of forming a quorum on such a matter.
Board resolutions are passed by a simple majority of the Directors except for the following matters which require the consent of more than two thirds of the Directors:
| • | proposals for our financial policies; |
| • | the increase or reduction of our registered capital; |
| • | the issue of securities of any kind and their listing; |
| • | any repurchase of our shares; |
| • | significant acquisitions or disposals; |
| • | our merger, division or dissolution; and |
| • | any amendment to our Articles of Association. |
Our Board of Directors or Supervisory Committee may nominate candidates for our Board of Directors and Supervisory Committee. In addition, shareholders holding one percent or more of our shares have the right to nominate candidates for Independent Director or Independent Supervisor and shareholders holding three percent or more of our shares have the right to nominate other candidates for Director or Supervisor. For candidates for Director, the nominator and candidates will be responsible for providing truthful and complete information about the candidate for disclosure. Candidates for Independent Director must publicly declare that there does not exist any relationship between himself and us that may influence his independent, objective judgment. The CSRC may veto any candidate for Independent Director.
Any material connected transactions are subject to prior approval by our Independent Directors. Connected transactions are those defined by the HKSE and by Chinese rules and regulations, but would generally include transactions with any of the following:
| • | any company that, directly or indirectly, controls us or is under common control with us; |
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| • | any shareholders owning 5% or more of our shares; |
| • | our directors, supervisors and other senior management; |
| • | any of our key technical personnel or key technology suppliers; and |
| • | any close relative or associate of any of the above. |
Our Independent Directors can also propose to the Board of Directors the appointment or removal of our auditors, the convening of a Board meeting, independently appoint external auditors, solicit votes from shareholders and report circumstances directly to shareholders, Chinese securities regulatory authorities or other government departments. Two or more may request that the Board convene an extraordinary meeting of shareholders.
Our Independent Directors will have to express their opinion on specified matters to the Board or to the shareholders at a shareholders’ meeting, either by a single unanimous statement or individually. These matters are:
| • | the nomination, removal and remuneration of directors or senior management; |
| • | any major loans or financial transactions with our shareholders or related enterprises and whether we have taken adequate steps to ensure repayment; |
| • | matters that the Independent Director believes may harm the rights and interests of minority shareholders; and |
| • | any other matter that they are required to opine on by applicable law or rules. |
These opinions must be expressed as either, agree, qualified agreement, opposition or unable to form an opinion. All but agreement must also be accompanied by a supporting explanation. If public disclosure of the matter is required, we must also disclose the opinions of our Independent Directors.
Any Independent Director may engage independent institutions to provide independent opinions as the basis of their decision. We must arrange the engagement and bear any costs.
Supervisory Committee
The Supervisory Committee is responsible for supervising our directors and senior officers and preventing them from abusing their positions and powers or infringing upon the rights and interests of our company or those of our shareholders and employees. The Supervisory Committee has no power over the decisions or actions of our directors or officers except for requesting the directors or officers to correct any acts that are harmful to our interests. The Supervisory Committee is composed of six members appointed for a three year term. It has the right to:
| • | attend the meetings of our Board of Directors; |
| • | inspect our financial affairs; |
| • | supervise and evaluate the conduct of our directors, general manager and other senior officers in order to determine whether they violate any laws, regulations or the Articles of Association in performing their duties; |
| • | require our directors, general manager or other senior officers to correct any act harmful to our interests and those of our shareholders and employees; |
| • | verify financial reports, accounting reports, business reports, profit distribution plans and other financial information proposed to be tabled at the shareholders’ general meeting, and entrust registered accountants and practicing accountants to re-review such documents upon its discovery of any problems; |
| • | require the Board of Directors to convene an extraordinary general meeting of shareholders; |
| • | represent us in negotiations with directors or in initiating legal proceedings against a director on our company’s behalf; |
| • | conduct investigation into any identified irregularities in our operations, and where necessary, to engage accountants, legal advisers or other professionals to assist in the investigation; and |
| • | any other matters authorized by the Articles of Association. |
One third of our Supervisory Committee members must be employee representatives appointed by our employees. The remaining members are appointed by the shareholders in a general meeting, provided that our directors, general manager and senior officers are not eligible to serve as supervisors. The Supervisory Committee must meet at least four times a year. Decisions of the Supervisory Committee can be passed by the consents of over two thirds of all the supervisors. We will pay all reasonable expenses incurred by the Supervisory Committee in appointing professional advisors, such as lawyers, accountants or auditors.
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Liquidation Rights
In the event of our liquidation, payment of borrowings out of our remaining assets will be made in the order of priority prescribed by applicable laws and regulations. After payment of borrowings, we will distribute the remaining property to shareholders according to the class and proportion of their shareholdings. For this purpose, the H Shares will rank equally with the A Shares.
Obligation of Shareholders
Shareholders are not obligated to make any further contributions to our share capital other than as agreed by the subscriber of the relevant shares on subscription. This provision means that holders of ADSs will also not be obligated to make further contributions to our share capital.
Duration
We are organized as a stock limited company of indefinite duration.
Increase in Share Capital
The Articles of Association require that approval by a resolution of the shareholders be obtained prior to issuing new shares. New issues of shares must also be approved by the relevant Chinese authorities.
Reduction of Share Capital and Purchase by Us of Our Shares
We may reduce our registered share capital only upon obtaining the approval of the shareholders and, when applicable, relevant Chinese authorities. Repurchases may be made either by way of a general offer to all shareholders in proportion to their shareholdings, by purchasing our shares on a stock exchange or by an off-market contract with shareholders.
Restrictions on Large or Controlling Shareholders
Our Articles of Association provide that, in addition to any obligation imposed by laws and administrative regulations or required by the listing rules of the stock exchanges on which our shares are listed, a controlling shareholder cannot exercise voting rights in a manner prejudicial to the interests of the shareholders generally or of some part of the shareholders:
| • | to relieve a director or supervisor from his or her duty to act honestly in our best interest; |
| • | to approve the expropriation by a director or supervisor (for his or her own benefit or for the benefit of another person) of our assets in any way, including, without limitation, opportunities which may benefit us; or |
| • | to approve the expropriation by a director or supervisor (for his or her own benefit or for the benefit of another person) of the individual rights of other shareholders, including, without limitation, rights to distributions and voting rights (but not according to a restructuring of our company which has been submitted for approval by the shareholders in a general meeting in accordance with our Articles of Association). |
A controlling shareholder, however, will not be precluded by our Articles of Association or any laws and administrative regulations or the listing rules of the stock exchanges on which our shares are listed from voting on these matters.
A controlling shareholder is defined by our Articles of Association as any person who, acting alone or together with others:
| • | has the power to elect more than one-half of the Board of Directors; |
| • | has the power to exercise, or to control the exercise of, 30% or more of our voting rights; |
| • | holds 30% or more of our issued and outstanding shares; or |
| • | has de facto control of us in any other way. |
Minutes, Accounts and Annual Report
Our shareholders may inspect copies of the minutes of the shareholders’ general meetings during our business hours free of charge. Shareholders are also entitled to receive copies of these minutes within seven days of receipt of the reasonable charges we may require.
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Our fiscal year is the calendar year ending December 31. Each fiscal year, we must mail our financial report to shareholders not less than 21 days before the date of the shareholders’ annual general meeting. These and any interim financial statements must be prepared in accordance with Chinese accounting standards and, for so long as H Shares are listed on the HKSE, must also be prepared in accordance with or reconciled to either Hong Kong accounting standards or international accounting standards. The financial statements must be approved by an ordinary resolution of the shareholders at the annual general meeting.
Independent auditors are appointed each year by the shareholders at the annual meeting.
C. Material Contracts.
We have not entered into any material contracts in the last two years other than in the ordinary course of business and other than those described in Item 4. Information on the Company or elsewhere in this annual report on Form 20-F.
D. Exchange Controls.
Our Articles of Association require that cash dividends on our H Shares be declared in Renminbi and paid in HK Dollars. The Articles of Association further stipulate that unless otherwise provided in law and administrative regulations, such dividends must be converted to HK Dollars at a rate equal to the average of the closing exchange rates for HK Dollars as announced by the Chinese Foreign Exchange Trading Center for the calendar week preceding the date on which the dividends are declared.
The Renminbi currently is not a freely convertible currency. SAFE, under supervision of the People’s Bank of China (“PBOC”), controls the conversion of Renminbi into foreign currency. Chinese governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items. In recent years, the Chinese government has gradually simplified and improved the foreign exchange administration policies in relation to capital items, such as the cancellation of foreign exchange registration and approval for domestic and overseas foreign direct investment. However, foreign exchange control over the capital items is not completely abolished. The limitations on foreign exchange could affect our ability to obtain foreign exchange through borrowings or equity financing, or to obtain foreign exchange for capital expenditures.
On July 21, 2005, the Chinese government changed its policy of pegging the Renminbi to the U.S. Dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Since the adoption of this new policy, the value of the Renminbi has fluctuated daily within a narrow band, but overall has appreciated against the U.S. Dollar. Nevertheless, the Chinese government continues to receive significant international pressure to further liberalize its currency policy which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. Dollar. While the impact of the foregoing developments is not entirely clear, it appears that the trend in the Chinese government’s foreign exchange policy is toward easier convertibility of the Renminbi.
The holders of the ADSs will receive the HK Dollar dividend payments in U.S. Dollars at conversion rates related to market rates and subject to fees as set forth in our Deposit Agreement with The Bank of New York Mellon, as Depositary. The HK Dollar is currently linked to and trades within a narrow band against the U.S. Dollar at a rate that does not deviate significantly from HK$7.80 = U.S.$1.00. The Hong Kong government has stated its intention to maintain such link, although there can be no guarantee that such link will be maintained.
E. Taxation
PRC Taxation
The following is a summary of those taxes, including withholding provisions, to which United States security holders are subject under existing Chinese laws and regulations. The summary is subject to changes in Chinese law, including changes that could have retroactive effect. The summary does not take into account or discuss the tax laws of any country other than China, nor does it take into account the individual circumstances of a security holder. This summary does not purport to be a complete technical analysis or an examination of all potential tax effects under such laws and regulations.
Tax on Dividends
For an Individual Investor
According to the Individual Income Tax Law of the People’s Republic of China, as amended on August 31, 2018 and effective on January 1, 2019 (the “Individual Income Tax Law”) dividends paid by Chinese companies to individual investors are subject to Chinese withholding tax at a flat rate of 20%. As for a foreign individual investor that neither has a domicile nor resides in China, or that has no domicile and has resided in China for no more than one year, the dividends received by such an investor in China are generally subject to a withholding tax at a flat rate of 20% under the individual income tax law, subject to exemption or reduction by an applicable income tax treaty. According to the State Administration of Taxation’s tax treatments with regard to the dividends of H Shares paid by onshore non-foreign invested enterprises listed on the HKSE, we will withhold and pay the individual income tax at the tax rate of 10% for individual shareholders who are residents of Hong Kong, Macau, or countries which have entered into tax treaties with China, which provide for a 10% dividends tax rate, and we will temporarily withhold and pay the individual income tax at the tax rate of 10% for individual shareholders who are residents of countries which have entered into tax treaties with China, which provide for a less than 10% dividends tax rate. Shareholders of H Shares may directly or through our Company apply to the in-charge tax authority for the preferential treatments provided by the relevant tax treaties.
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Upon the approval by the in-charge tax authority, the excessive amount being paid will be refunded. For individual shareholders who are residents of countries which have entered into tax treaties with China providing for a more than 10% but less than 20% dividends tax rate, we will withhold and pay the individual income tax at the specific tax rate required therein. We will withhold and pay the individual income tax at the dividends tax rate of 20% for individual shareholders who are residents of countries which have not entered into any forms of tax treaties with China or in circumstances other than above described.
For a Corporation
According to the Enterprise Income Tax Law of the People’s Republic of China (“Enterprise Income Tax Law”) and its implementation rules, as amended on December 29, 2018, dividends by Chinese resident enterprises to non-resident enterprises are ordinarily subject to a Chinese withholding tax levied at a flat rate of 10%. For purposes of the Enterprise Income Tax Law, a “Chinese resident enterprise” is an enterprise which is either (i) set up in China in accordance with PRC laws or (ii) set up in accordance with the laws of a foreign country (region) but whose actual administrative headquarters is in China. For purposes of the Enterprise Income Tax Law, a “non-resident enterprise” is an enterprise which is set up in accordance with the laws of a foreign country (region) and whose actual administrative headquarters is located outside China but which has either (i) set up a legal presence in China or (ii) has income originating from China despite not having formally set up a legal presence in China. The State Administration of Taxation issued a Circular on Issues Relating to the Withholding of Enterprise Income Tax for Dividends Distributed by Resident Enterprises in China to Non-resident Enterprises Holding H-shares of the Enterprises (Guo Shui Han [2008] No. 897) on November 6, 2008, which further clarifies that Chinese resident enterprises should, in distributing dividends for 2008 or any year hereafter to non-resident enterprises holding H-shares of the Chinese resident enterprise, withhold enterprise income tax for such dividends at a tax rate of 10%. After receiving dividends, non-resident enterprises holding H-shares of any Chinese resident enterprise can, on their own or through an agent, file an application to the relevant taxation authorities for such dividends to be covered by any applicable tax treaty (or other arrangement). The relevant taxation authorities should, upon reviewing and verifying the application and supporting materials to be correct, refund the difference between the tax levied and the tax payable calculated at a tax rate specified by the applicable tax treaty (or other arrangement).
Capital Gains Tax
For an Individual Investor
So far as we are aware, in practice, capital gains derived by a foreign individual investor from the sale of overseas-listed shares are temporarily exempted from individual income tax.
For a Corporation
According to the Enterprise Income Tax Law and its implementation rules, a non-resident enterprise is subject to a 10% withholding tax for capital gains derived from the disposal of overseas-listed shares unless such payment is exempted or deducted pursuant to applicable double taxation treaties or otherwise. According to the Circular issued by the State Administration of Taxation on Issues regarding Income Tax Payable by Foreign Invested Enterprises, Foreign Enterprises and Individuals for Capital Gains Derived from the Disposal of Shares (Equity Interests) and Dividends (Guoshuifa [1993] No. 45), capital gains derived by a non-resident enterprise from the disposal of overseas-listed shares are temporarily exempted from withholding tax in China. However, this circular has been revoked in 2011. Therefore, technically, PRC withholding tax should be applied to non-resident enterprises on capital gains derived from the disposal of overseas-listed shares unless it is tax exempted under the applicable double tax treaty. So far as we are aware, practically, there is no consistent enforcement of the collection of such withholding tax in China at current stage. However, we are aware of cases where the PRC tax authorities try to levy PRC withholding tax when they became aware of the disposal of the overseas- listed shares that the profits from the disposal of shares are derived from China.
Tax Treaties
China has an income tax treaty with the United States that currently limits the rate of Chinese withholding tax to 10% for dividends paid to individuals and corporations that qualify for treaty benefits. However, this treaty does not offer reduced tax rates for capital gains.
However, if certain conditions under the double tax treaty are satisfied (e.g., the shareholding in H-shares is less than 25% and the H-share company is not ‘land rich’), the capital gains may be exempted from the 10% PRC withholding tax.
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Stamp Tax
While no express exemption exists for the imposition of Chinese stamp tax on transfers of Overseas Shares pursuant to the Provisional Regulations of the People’s Republic of China Concerning Stamp Tax, as amended on January 8, 2011, we are not aware of any circumstance under which Chinese stamp tax has actually been imposed on the transfer of Overseas Shares.
Estate or Gift Tax
China does not currently impose any estate or gift tax.
U.S. Taxation
The following is a summary of the material U.S. federal income tax consequences of the ownership and disposition of H Shares or ADSs to U.S. Holders (as defined below). The following discussion is not exhaustive of all possible tax considerations. This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the Internal Revenue Service (“IRS”), and judicial decisions, all as currently available and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences described below.
This discussion does not address state, local, or foreign tax consequences, or the net investment income tax consequences, of the ownership and disposition of H Shares or ADSs. (See “PRC Taxation” above).
This summary is for general information only and does not address all aspects of U.S. federal income taxation that may be important to a particular holder in light of its investment or tax circumstances or to holders subject to special tax rules, such as: banks; financial institutions; insurance companies; dealers in stocks, securities, or currencies; entities treated as partnerships for U.S. federal income taxes or partners therein; traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; tax-exempt organizations; real estate investment trusts; regulated investment companies; qualified retirement plans, individual retirement accounts, and other tax-deferred accounts; expatriates of the United States; individuals subject to the alternative minimum tax; persons holding H Shares or ADSs as part of a straddle, hedge, conversion transaction, or other integrated transaction; persons who acquired H Shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation for services; persons actually or constructively holding 10% or more of the voting power or value of our stock; U.S. Holders (as defined below) whose functional currency is other than the U.S. Dollar; and persons holding our H Shares or ADSs in connection with a trade or business conducted outside the United States.
This discussion is not a comprehensive description of all of the U.S. federal tax consequences that may be relevant with respect to the ownership and disposition of H Shares or ADSs. We urge you to consult your own tax advisor regarding your particular circumstances and the U.S. federal income and estate tax consequences to you of owning and disposing of H Shares or ADSs, as well as any tax consequences arising under the laws of any state, local, or foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.
This summary is directed solely to U.S. Holders (defined below) who hold their H Shares or ADSs as capital assets within the meaning of Section 1221 of the Code, which generally means as property held for investment. For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of H Shares or ADSs that is any of the following:
| • | a citizen or resident of the United States or someone treated as a U.S. citizen or resident for U.S. federal income tax purposes; |
| • | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; or |
| • | a trust or estate, the income of which is subject to U.S. federal income taxation regardless of its source. |
ADSs
Generally, a holder of ADSs will be treated as the owner of the underlying H Shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if the holder exchanges ADSs for the underlying H Shares represented by those ADSs. The holder’s adjusted tax basis in the H Shares will be the same as the adjusted tax basis of the ADSs surrendered in exchange therefor, and the holding period for the H Shares will include the holding period for the surrendered ADSs.
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TAXATION OF U.S. HOLDERS
The discussion in “Distributions on H Shares or ADSs” and “Dispositions of H Shares or ADSs” below is based on the assumption that we will not be treated as a PFIC for U.S. federal income tax purposes. For a discussion of the rules that apply if we are treated as a PFIC, see the discussion in “Passive Foreign Investment Company” below.
Distributions on H Shares or ADSs
General. Subject to the discussion in “Passive Foreign Investment Company” below, if you actually or constructively receive a distribution on H Shares or ADSs, you must include the distribution in gross income as a taxable dividend on the date of your (or in the case of ADSs, the depositary’s) receipt of the distribution, but only to the extent of our current or accumulated earnings and profits, as calculated under U.S. federal income tax principles. Such amount must be included without reduction for any foreign taxes withheld. Dividends paid by us will not be eligible for the dividends received deduction allowed to corporations with respect to dividends received from certain domestic corporations. Dividends paid by us may or may not be eligible for preferential rates applicable to qualified dividend income, as described below.
To the extent a distribution exceeds our current and accumulated earnings and profits, it will be treated first as a non-taxable return of capital to the extent of your adjusted tax basis in the H Shares or ADSs, and thereafter as capital gain. Preferential tax rates for long term capital gain may be applicable to non-corporate U.S. Holders.
We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, you should expect that a distribution generally will be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Qualified Dividend Income. With respect to non-corporate U.S. Holders (i.e., individuals, trusts, and estates), dividends that are treated as qualified dividend income (“QDI”) are taxable at a maximum tax rate of 20%. Among other requirements, dividends generally will be treated as QDI if either (i) our H Shares or ADSs are readily tradable on an established securities market in the United States, or (ii) we are eligible for the benefits of a comprehensive income tax treaty with the United States which includes an information exchange program and which is determined to be satisfactory by the U.S. Treasury. It is expected that our ADSs will be “readily tradable” as a result of being listed on the NYSE.
In addition, for dividends to be treated as QDI, we must not be a PFIC (as discussed below) for either the taxable year in which the dividend was paid or the preceding taxable year. Please see the discussion under “Passive Foreign Investment Company” below. Additionally, in order to qualify for QDI treatment, you generally must have held the H Shares or ADSs for more than 60 days during the 121-day period beginning 60 days prior to the ex-dividend date. However, your holding period will be reduced for any period during which the risk of loss is diminished.
Moreover, a dividend will not be treated as QDI to the extent you are under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Since the QDI rules are complex, you should consult your own tax advisor regarding the availability of the preferential tax rates for dividends paid on H Shares or ADSs.
Foreign Currency Distributions. A dividend paid in foreign currency (e.g., Hong Kong Dollars or Chinese Renminbi) must be included in your income as a U.S. Dollar amount based on the exchange rate in effect on the date such dividend is received, regardless of whether the payment is in fact converted to U.S. Dollars. If the dividend is converted to U.S. Dollars on the date of receipt, you generally will not recognize a foreign currency gain or loss. However, if you convert the foreign currency to U.S. Dollars on a later date, you must include in income any gain or loss resulting from any exchange rate fluctuations. The gain or loss will be equal to the difference between (i) the U.S. Dollar value of the amount you included in income when the dividend was received and (ii) the amount that you receive on the conversion of the foreign currency to U.S. Dollars. Such gain or loss generally will be ordinary income or loss and U.S. source for U.S. foreign tax credit purposes.
Foreign Tax Credits. Subject to certain conditions and limitations, any foreign taxes paid on or withheld from distributions from us and not refundable to you may be credited against your U.S. federal income tax liability or, alternatively, may be deducted from your taxable income. This election is made on a year-by-year basis and applies to all foreign taxes paid by you or withheld from you that year.
Distributions will constitute foreign source income for foreign tax credit limitation purposes. The foreign tax credit limitation is calculated separately with respect to specific classes of income. For this purpose, distributions characterized as dividends distributed by us generally will constitute “passive category income” or, in the case of certain U.S. Holders, “general category income.” Special limitations may apply if a dividend is treated as QDI (as defined above).
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Since the rules governing foreign tax credits are complex, you should consult your own tax advisor regarding the availability of foreign tax credits in your particular circumstances.
Dispositions of H Shares or ADSs
Subject to the discussion in “Passive Foreign Investment Company” below, you generally will recognize taxable gain or loss realized on the sale or other taxable disposition of H Shares or ADSs equal to the difference between the U.S. Dollar value of (i) the amount realized on the disposition (i.e., the amount of cash plus the fair market value of any property received), and (ii) your adjusted tax basis in the H Shares or ADSs. Such gain or loss will be a capital gain or loss. Capital gain from the sale or other taxable disposition of H Shares or ADSs held by certain non-corporate U.S. Holders will be taxed at preferential rates if such H Shares or ADSs have been held for more than one year and certain other requirements are met. The deductibility of capital losses is subject to limitations. Any gain or loss recognized generally will be treated as gain or loss from sources within the United States for U.S. foreign tax credit limitation purposes.
If you receive currency other than U.S. Dollars upon the disposition of H Shares or ADSs, the tax consequences will generally be as described under “—Foreign Currency Distributions” above.
Passive Foreign Investment Company
Generally, if, for any taxable year, at least 75% of our gross income is passive income, or at least 50% of the value of our assets is attributable to assets that produce passive income or are held for the production of passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Since PFIC status depends on the composition of our income and the composition and value of our assets from time to time, there can be no assurance that we will not be considered a PFIC for the current year until its close, or for any future taxable year. If we are characterized as a PFIC, U.S. investors may suffer adverse tax consequences, including increased U.S. tax liabilities and reporting requirements. For further discussion of the adverse U.S. federal income tax consequences of our possible classification as a PFIC, see Item 10. Additional Information – E. Taxation – U.S. Taxation.
Certain “look through” rules apply for purposes of the income and asset tests described above. If we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we generally will be treated as if we (a) held directly a proportionate share of the other corporation’s assets, and (b) received directly a proportionate share of the other corporation’s income. In addition, passive income does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to income of such related person that is not passive income.
Under the income and asset tests, our PFIC status must be determined annually at the end of each year based upon the composition of our income and the composition and valuation of our assets, all of which are subject to change. In determining whether we are a PFIC, we rely on a current valuation of our assets including goodwill, not reflected in our financial statements, and our projection of our income for the current year. We determine the value of our assets in large part by reference to the market value of our ordinary shares at the end of each quarter. We believe this valuation approach is reasonable. However, the IRS may successfully challenge our valuation of our assets, and the market price of our ordinary shares may fluctuate.
Because the PFIC determination is highly fact intensive and made at the end of each taxable year, there can be no assurance that we will not be a PFIC for the current or any future taxable year or that the IRS will not challenge our determination concerning our PFIC status.
Default PFIC Rules under Section 1291 of the Code. If we are treated as a PFIC with respect to a U.S. Holder, the U.S. federal income tax consequences to the U.S. Holder of the ownership and disposition of ordinary shares will depend on whether such U.S. Holder makes an election to treat us as a qualified electing fund (“QEF”) under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder owning ordinary shares while we were or are a PFIC that has not made either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
If you are a Non-Electing U.S. Holder, you will be subject to the default tax rules of Section 1291 of the Code with respect to:
| • | any “excess distribution” paid on ordinary shares, which means the excess (if any) of the total distributions received by you during the current taxable year over 125% of the average distributions received by you during the three preceding taxable years (or during the portion of your holding period for the ordinary shares prior to the current taxable year, if shorter); and |
| • | any gain recognized on the sale or other taxable disposition (including a pledge) of ordinary shares. |
Under these default tax rules:
| • | any excess distribution or gain will be allocated ratably over your holding period for the ordinary shares, |
| • | the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC will be treated as ordinary income in the current year, |
| • | the amount allocated to each of the other years will be treated as ordinary income and taxed at the highest applicable tax rate in effect for that year, and |
| • | the resulting tax liability from any such prior years will be subject to the interest charge applicable to underpayments of tax. |
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In addition, notwithstanding any election you may make, dividends that you receive from us will not be eligible for the preferential tax rates applicable to QDI (as discussed above in “Distributions on H Shares or ADSs”) if we are a PFIC either in the taxable year of the distribution or the preceding taxable year, but will instead be taxable at rates applicable to ordinary income.
Special rules for Non-Electing U.S. Holders will apply to determine U.S. foreign tax credits with respect to foreign taxes imposed on distributions on H Shares or ADSs.
If we are a PFIC for any taxable year during which you hold H Shares or ADSs, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold H Shares or ADSs, regardless of whether we actually continue to be a PFIC.
If we are treated as a PFIC in any year with respect to you, you will be required to file an annual return on IRS Form 8621 regarding distributions received on H Shares or ADSs and any gain realized on the disposition of H Shares or ADSs.
QEF Election. We currently do not intend to prepare or provide you with certain tax information that would permit you to make a QEF Election to mitigate the adverse tax consequences associated with owning PFIC stock.
Mark-to-Market Election. U.S. Holders may make a Mark-to-Market Election, but only if the H Shares or ADSs are marketable stock. The mark- to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange or other market, as defined in the applicable U.S. Treasury regulations. There can be no assurances, however, that our H Shares or ADSs will be treated, or continue to be treated, as marketable stock.
If you own (or owned) H Shares or ADSs while we are (or were) a PFIC and you make a Mark-to-Market Election, you generally will not be subject to the default rules of Section 1291 of the Code discussed above. Rather, you generally will be required to recognize ordinary income for any increase in the fair market value of the H Shares or ADSs for each taxable year that we are a PFIC. You will also be allowed to deduct as an ordinary loss any decrease in the fair market value to the extent of net marked-to-market gain previously included in prior years. Your adjusted tax basis in the H Shares or ADSs will be adjusted to reflect the amount included or deducted.
The Mark-to-Market Election will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the H Shares or ADSs cease to be marketable stock or the IRS consents to the revocation of the election. You should consult your own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Since the PFIC rules are complex, you should consult your own tax advisor regarding them and how they may affect the U.S. federal income tax consequences of the ownership and disposition of H Shares or ADSs.
Information reporting regarding specified foreign financial assets
Certain U.S. Holders who are individuals (and under proposed regulations, certain entities) may be required to report information relating to an interest in our H Shares or ADSs, subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions). U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our H Shares or ADSs. In the event a U.S. Holder does not file such required reports, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. holder for the related tax year will not close before such report is filed.
If you are a U.S. Holder, you are urged to consult with your own tax advisor regarding the application of the specified foreign financial assets information reporting requirements and related statute of limitations tolling provisions with respect to our H Shares and ADSs.
Information Reporting and Backup Withholding
Generally, information reporting requirements will apply to distributions on H Shares or ADSs or proceeds from the disposition of H Shares or ADSs paid within the United States (and, in certain cases, outside the United States) to a U.S. Holder unless such U.S. Holder is an exempt recipient, such as a corporation. Furthermore, backup withholding (currently at 24%) may apply to such amounts unless such U.S. Holder (i) is an exempt recipient that, if required, establishes its right to an exemption, or (ii) provides its taxpayer identification number, certifies that it is not currently subject to backup withholding, and complies with other applicable requirements.
A U.S. Holder may generally avoid backup withholding by furnishing a properly completed IRS Form W-9.
Backup withholding is not an additional tax. Rather, amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability. Furthermore, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
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F. Dividends and Paying Agents.
Not applicable.
G. Statement by Experts.
Not applicable.
H. Documents on Display.
We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four months after the close of each fiscal year, which is December 31 of each year. The SEC also maintains a Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short- swing profit recovery provisions contained in Section 16 of the Exchange Act.
I. Subsidiary Information.
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Our market risk exposures primarily consist of fluctuations in oil and gas prices, exchange rates and interest rates.
Commodity Price Risk
We are exposed to commodity price risk related to price volatility of crude oil and refined oil products.
In 2022, the price of international crude oil market fluctuated and rose. The Company carried out crude oil (lending and return) hedging business in August and December 2021 respectively, and bought 2.15 million barrels of DUBAI SWAP; and positions were closed at the end of May and October 2022. In July, September, November 2021, and February and March 2022, the Company conducted crude oil (high sulfur price difference) hedging business, selling 2.7 million barrels of DTD SWAP and buying 2.7 million barrels of DUBAI SWAP. The position was closed at the end of the second quarter of 2022. The Company is engaged in the hedging business of refined oil products (crack spread of refined oil products), selling 1.653 million barrels of Gasoil 10 ppm Sin and buying 1.653 million barrels of DUBAI SWAP by the end of December; selling 604,000 barrels of Kerosene Sin and buying 604,000 barrels of DUBAI SWAP; and all positions were closed by the end of the fourth quarter. The commodity derivative business carried out belongs to hedging business. The implementation of the above businesses has no risk exposure, and the maximum amount of possible loss is RMB50,000 thousand. In 2022, the Company delivered USD57,876,800 in commodity financial derivatives, equivalent to RMB397,868,000, and the position at the end of the year was USD0. The combination of financial derivatives is matched by the hedged project as a whole, played the role of hedging real price risk.
See Item 3. Key Information – D. Risk Factors—Our operations may be adversely affected by the cyclical nature of the petroleum and petrochemical markets and by the volatility of prices of crude oil and petrochemical products.
Interest Rate Risk
We are subject to risk resulting from fluctuations in interest rates. Our borrowings are fixed and variable rate bank and other borrowings, with original maturities ranging from 1 to 5 years. Accordingly, fluctuations in interest rates can lead to significant fluctuations in the fair value of such debt instruments. We had no program of interest rate hedging activities and did not engage in any such activities in 2021 or 2022.
The following table provides information, by maturity date, regarding our interest rate sensitive financial instruments, which consist of fixed and variable rate short term and long term debt obligations, as of December 31, 2022 and 2021.
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| As of December 31, 2022 | ||||||||||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | 2027 | Total Recorded Amount |
Fair Value | ||||||||||||||||||||||
| (RMB equivalent in thousands, except interest rates) | ||||||||||||||||||||||||||||
| Fixed rate bank and other loans |
||||||||||||||||||||||||||||
| In U.S. Dollars |
— | — | — | — | — | — | — | |||||||||||||||||||||
| Average interest rate |
— | — | — | — | — | — | — | |||||||||||||||||||||
| In RMB |
1,550,000 | — | — | — | — | 1,550,000 | 1,550,000 | |||||||||||||||||||||
| Average interest rate(1) |
2.15 | % | — | — | — | — | 2.15 | % | 2.15 | % | ||||||||||||||||||
| Variable rate bank and other loans |
||||||||||||||||||||||||||||
| In U.S. Dollars |
— | — | — | — | — | — | — | |||||||||||||||||||||
| Average interest rate(1) |
— | — | — | — | — | — | — | |||||||||||||||||||||
| In RMB |
— | 700,000 | — | — | — | 700,000 | 700,000 | |||||||||||||||||||||
| Average interest rate(1) |
— | 1.08 | % | — | — | — | 1.08 | % | 1.08 | % | ||||||||||||||||||
| (1) | The average interest rates for variable rate bank and other loans are calculated based on the year end indices. |
| As of December 31, 2021 | ||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Total Recorded Amount |
Fair Value | ||||||||||||||||||||||
| (RMB equivalent in thousands, except interest rates) | ||||||||||||||||||||||||||||
| Fixed rate bank and other loans |
||||||||||||||||||||||||||||
| In U.S. Dollars |
— | — | — | — | — | — | — | |||||||||||||||||||||
| Average interest rate |
— | — | — | — | — | — | — | |||||||||||||||||||||
| In RMB |
1,500,000 | — | 1,500,000 | 1,500,000 | ||||||||||||||||||||||||
| Average interest rate(1) |
2.70 | % | — | — | — | — | 2.70 | % | 2.70 | % | ||||||||||||||||||
| Variable rate bank and other loans |
||||||||||||||||||||||||||||
| In U.S. Dollars |
— | — | — | — | — | — | — | |||||||||||||||||||||
| Average interest rate(1) |
— | — | — | — | — | — | — | |||||||||||||||||||||
| In RMB |
59,800 | — | 700,000 | — | — | 759,800 | 759,800 | |||||||||||||||||||||
| Average interest rate(1) |
3.70 | % | — | 1.08 | % | — | — | 1.29 | % | 1.29 | % | |||||||||||||||||
| (1) | The average interest rates for variable rate bank and other loans are calculated based on the year end indices. |
Exchange Rate Risk
We are also exposed to foreign currency exchange rate risk as a result of our foreign currency denominated short term borrowing and, to a limited extent, cash and cash equivalents denominated in foreign currencies. The following table provides information, by maturity date, regarding our foreign currency exchange rate sensitive financial instruments, which consist of cash and cash equivalents, short term debt obligations as of December 31, 2022 and 2021.
| As of December 31, 2022 | ||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total Recorded Amount |
Fair Value |
|||||||||||||||||||||||||
| (RMB equivalent in thousands, except interest rates) | ||||||||||||||||||||||||||||||||
| On-balance sheet financial instruments |
||||||||||||||||||||||||||||||||
| Cash and cash equivalents: |
||||||||||||||||||||||||||||||||
| In Hong Kong Dollars |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| In U.S. Dollars |
195,594 | — | — | — | — | — | 195,594 | 195,594 | ||||||||||||||||||||||||
| In Euro |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| In Japanese Yen |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| In Swiss Frank |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Debt: |
||||||||||||||||||||||||||||||||
| Fixed rate bank and other loans in U.S. Dollars |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Average interest rate(1) |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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| As of December 31, 2022 | ||||||||||||||||||||||||||||||||
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total Recorded Amount |
Fair Value |
|||||||||||||||||||||||||
| (RMB equivalent in thousands, except interest rates) | ||||||||||||||||||||||||||||||||
| Variable rate bank and other loans in |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Average interest rate(1) |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| (1) | The average interest rates for variable rate bank and other loans are calculated based on the year end indices. |
| As of December 31, 2021 | ||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total Recorded Amount |
Fair Value |
|||||||||||||||||||||||||
| (RMB equivalent in thousands, except interest rates) | ||||||||||||||||||||||||||||||||
| On-balance sheet financial instruments |
||||||||||||||||||||||||||||||||
| Cash and cash equivalents: |
||||||||||||||||||||||||||||||||
| In Hong Kong Dollars |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| In U.S. Dollars |
165,864 | — | — | — | — | — | 165,864 | 165,864 | ||||||||||||||||||||||||
| In Euro |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| In Japanese Yen |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| In Swiss Frank |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Debt: |
||||||||||||||||||||||||||||||||
| Fixed rate bank and other loans in U.S. Dollars |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Average interest rate(1) |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Variable rate bank and other loans in U.S. Dollars |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Average interest rate(1) |
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| (1) | The average interest rates for variable rate bank and other loans are calculated based on the year end indices. |
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. |
A. Debt Securities.
Not applicable.
B. Warrants and Rights.
Not applicable.
C. Other Securities.
Not applicable.
D. American Depositary Shares.
In connection with our ADR program, a holder of our ADSs may have to pay, either directly or indirectly, certain fees and charges, as described in Item 12.D.3. In addition, we receive fees and other direct and indirect payments from The Bank of New York Mellon that are related to our ADS as described in Item 12.D.4.
On March 15, 2023, we terminated the Restated Deposit Agreement, thereby terminating our ADR program. For one year after such date the Bank of New York Mellon will continue to act as depositary on behalf of the holders of our ADSs to facilitate the exchange of ADSs for underlying H Shares.
12.D.3 Fees and Charges that a holder of our ADSs May Have to Pay
The Bank of New York Mellon collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Bank of New York Mellon also collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The Bank of New York Mellon may collect its annual fee for depositary services by deductions from cash distributions.
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| Persons depositing or withdrawing shares must pay: |
For: | |
| $5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance and withdrawal of ADSs, including issuances resulting from a distribution of shares or rights or other property | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |
Distribution of securities distributed to holders of deposited securities which are distributed by The Bank of New York Mellon to ADS registered holders | |
| A fee of $.05 (or less) per ADS (or portion thereof) Registration or transfer fees |
Any cash distribution made pursuant to the Deposit Agreement Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | |
| Expenses of The Bank of New York Mellon | Cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement); Converting foreign currency to U.S. Dollars | |
| Taxes and other governmental charges The Bank of New York Mellon or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes |
As necessary | |
| Any charges incurred by The Bank of New York Mellon or its agents for servicing the deposited securities | As necessary | |
12.D.4 Fees and Other Payments Made by the Bank of New York Mellon
From January 1, 2022 through March 31, 2023, a total of U.S.$ 0 was paid by the Bank of New York Mellon on our behalf for our ADSs program.
The standard out-of-pocket maintenance costs for our ADSs program were U.S.$ 140,106.94, which have been waived by the Bank of New York Mellon.
PART II
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. |
None.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. |
On May 11, 2011, we entered into an Amended and Restated Deposit Agreement (the “Restated Deposit Agreement”) with The Bank of New York Mellon, as depositary (the “Depositary”) and updated the form of American Depositary Receipt (“ADR”) evidencing the ADSs issued under the terms of the Restated Deposit Agreement. The Restated Deposit Agreement restates our original deposit agreement with The Bank of New York (the predecessor of The Bank of New York Mellon), dated as of July 23, 1993 (as amended, the “1993 Deposit Agreement”), in its entirety.
We and The Bank of New York Mellon entered into the Restated Deposit Agreement to modify the ADSs voting process and to bring our arrangements with The Bank of New York Mellon in line with the current customary market practice regarding depositary arrangements.
By the Restated Deposit Agreement, subject to the Depositary’s obligation to notify the owner of ADSs of any meeting of holders of our shares or other deposited securities, and subject further to certain exceptions as provided therein, to the extent that no instructions are received by the Depositary from an owner of ADSs on or before the date established by the Depositary, the Depositary may deem instructions by the owner of the ADS have been given to give a discretionary proxy to a person designated by us to exercise voting rights in the meeting of holders of our shares or other deposited securities.
In addition, the Restated Deposit Agreement amends the 1993 Deposit Agreement, among other things, to (i) provide the American Depositary Shares may be uncertificated securities or certificated securities evidenced by ADRs, and (ii) change the fees and charges of the Depositary, see Item 12D.3 Fees and Charges that a holder of our ADSs May Have to Pay.
The foregoing descriptions of the Restated Deposit Agreement and ADR do not purport to be complete and are qualified in their entirety by reference to the complete Restated Deposit Agreement and ADR which are incorporated herein by reference to Exhibit 2 and the forms filed on Form F-6 (File number 033-65616) on May 4, 2011.
On March 15, 2023, we terminated the Restated Deposit Agreement, thereby terminating our ADR program. For one year after such date the Bank of New York Mellon will continue to act as depositary on behalf of the holders of our ADSs to facilitate the exchange of ADSs for underlying H Shares.
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| ITEM 15. | CONTROLS AND PROCEDURES. |
(a). Disclosure Controls And Procedures.
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within required time periods. This includes controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our principal executive officer or officers and principal financial officer or officers, to allow timely decisions regarding required disclosure.
We maintain a written policy adopted by our Board of Directors that governs the collection, coordination and disclosure of information to our shareholders, the public and to governmental and other regulatory bodies. All such disclosures are coordinated by the Secretary to our Board of Directors and subject to execution by either the Chairman of our Board of Directors or, for disclosures by our Supervisory Committee, the Chairman of the Supervisory Committee. Under the policy, all material issues must be disclosed and our disclosures must be true, accurate, complete and timely without any false or misleading statements. Each of our departments and subsidiaries has their own supplemental policies which may be both written and unwritten.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the fiscal year covered by this annual report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the fiscal year covered by this annual report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file under the Exchange Act is accumulated and communicated to the management to allow timely decisions to be made regarding required disclosures, and is recorded, processed, summarized and reported as and when required.
| (b). Management’s | Report on Internal Control over Financial Reporting. |
Our management is accountable for establishing and maintaining effective internal control over financial reporting (as defined in Rules 13a-15(f) of the Securities Exchange Act of 1934). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting based upon the criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of December 31, 2022. Based on that evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2022 based on these criteria.
KPMG Huazhen LLP, an independent registered public accounting firm, has audited the consolidated financial statements for the year ended December 31, 2022 included in this annual report on Form 20-F and, as part of the audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting.
(c). Report of Independent Registered Public Accounting Firm.
Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting. This report appears on page F-2.
| (d). Changes | in Internal Control over Financial Reporting. |
For the year ended December 31, 2022, there have been no changes to our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Our Board of Directors has determined that Ms. Li Yuanqin who is currently serving on our audit committee, is an audit committee financial expert and is an Independent Director (under the standards set forth in the NYSE rules and Rule 10A-3 of the Exchange Act).
| ITEM 16B. | CODE OF ETHICS. |
Sinopec Group, the controlling shareholder of Sinopec Corp., adopted a Staff Code in 2014 to provide disciplines and requirements for its staff’s conducts, including legal and ethical matters as well as the sensitivities involved in reporting illegal and unethical matters. The Staff Code covers such areas as health, safety and environment, conflict of interests, anti-corruption, protection and proper use of our assets and properties, as well as reporting requirements. The Staff Code also applies to all directors, officers and employees of each subsidiary of Sinopec Group, including us. We have provided all our directors and senior officers with a copy of the Staff Code and required them to comply with in it order to ensure our operations are proper and lawful. We have posted the Staff Code on the following website: http://www.sinopec.com/listco/en/Resource/Pdf/ygsz2014b.pdf.
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| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The following table summarizes the fees charged by KPMG Huazhen LLP, our principal accountant, for services rendered to us during 2021 and 2022 respectively.
| For the year ended December 31, | ||||||||
| (in thousands of RMB) | ||||||||
| 2021 | 2022 | |||||||
| Audit fees (1) |
6,837 | 6,837 | ||||||
| Audit-Related fees (2) |
— | — | ||||||
| Tax fees (3) |
— | 129 | ||||||
| All other fees (4) |
— | — | ||||||
| Total |
6,837 | 6,966 | ||||||
| (1) | “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements. |
| (2) | “Audit-Related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under audit fees. |
| (3) | “Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by the principal accountant for tax compliance, and tax advice. |
| (4) | “All other fees” means the aggregate fees billed in each of the fiscal years listed for products and services provided by our principal accountant, other than the services reported under audit fees, audit-related fees and tax fees. |
Audit Committee Pre-approval Policies and Procedures
Our audit committee has adopted procedures which set forth the manner in which the committee will review and approve all audit and non-audit services to be provided by KPMG Huazhen LLP. The pre-approval procedures are as follows:
| • | Any audit or non-audit service to be provided to us by the independent accountant must be (i) pre-approved by the audit committee; or (ii) pre-approved by one or several committee members designated by the committee and rectified by the audit committee. |
In 2022, 100% of the services and fees described above were approved by the audit committee, pursuant to its pre-approval policy.
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. |
Not applicable.
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. |
None.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT. |
Not applicable.
| ITEM 16G. | CORPORATE GOVERNANCE. |
Not applicable.
| ITEM 16H. | MINE SAFETY DISCLOSURE. |
Not applicable.
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| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and our auditor was subject to that determination. In May 2022, we were conclusively listed by the SEC as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.
As of the date of this annual report and to our best knowledge:
| (i) | Sinopec Corp., our controlling shareholder, and its concert parties currently hold approximately 50.55% of our outstanding shares. Sinopec Corp. is controlled by China Petrochemical Corporation. The controlling shareholder of China Petrochemical Corporation is Sinopec Group Company, which is in turn controlled by the State-owned Assets Supervision and Administration Commission of the State Council of China. See “Item 4. Information on the Company-C. Organizational Structure.” Sinopec Corp. is operated by separate management and from time to time uses its interest as a shareholder to direct our policies and management; |
| (ii) | none of the members of our Board of Directors is an official of the Chinese Communist Party (the “Party”); and |
| (iii) | the following articles in the Articles of Association of Sinopec Shanghai Petrochemical Company Limited, as currently in effect, contain charters of the Party: |
| (a) | Article 11: In accordance with the Company Law and the Constitution of the Communist Party of China (the “Party”), the Company hereby set up Party organizations. The Party organizations play the role of political core in the Company. The Company shall set up related Party working organs and maintain an adequate level of staffing to handle Party affairs as well as sufficient funding necessary for the activities of the Party organizations; and |
| (b) | Article 126: If any matters to be resolved by the Board involve significant matters such as direction of reform and development, key objectives, and priority operational arrangements of the Company, the board of directors should seek advice from the Party committee. When the board of directors appoints the management personnel of the Company, the Party committee shall consider and provide comments on the candidates for management positions nominated by the board of directors or the president, or recommend candidates to the board of directors and/or president. |
PART III
| ITEM 17. | FINANCIAL STATEMENTS. |
SECCO was deemed a significant equity investee for the fiscal years ended December 31, 2020 and a non-significant equity investee for the fiscal years ended December 31, 2021 and December 31, 2022 under Rule 3-09 of Regulation S-X. As such, the financial statements of SECCO required by Rule 3-09 of Regulation S-X are provided as Exhibit 99.1 to this Annual Report on Form 20-F.
| ITEM 18. | FINANCIAL STATEMENTS. |
See pages F-1 to F-119.
| ITEM 19. | EXHIBITS. |
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| * | Filed with this annual report on Form 20-F |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on Form 20-F on its behalf.
| SINOPEC SHANGHAI PETROCHEMICAL COMPANY LIMITED | ||||||
| Date: April 26, 2023 | /s/ DU JUN | |||||
| Du Jun, Chief Financial Officer | ||||||
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Page |
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| F - 2 | ||||
| F - 5 |
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| F - 6 | ||||
| F - 8 |
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| F - 9 | ||||
| F - 12 | ||||
| F - 15 | ||||
| F - 17 | ||||
Years ended 31 December |
||||||||||||||||
2020 |
2021 |
2022 |
||||||||||||||
Note |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
| Revenue |
5 | |||||||||||||||
| Taxes and surcharges |
( |
) | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Net sales |
||||||||||||||||
| Cost of sales |
10 | ( |
) | ( |
) | ( |
) | |||||||||
| |
|
|
|
|
|
|||||||||||
| Gross (loss)/profit |
( |
) | ( |
) | ||||||||||||
| Selling and administrative expenses |
10 | ( |
) | ( |
) | ( |
) | |||||||||
| Reversal/(provision) of impairment losses on financial assets |
3.1 (c) | ( |
) | ( |
) | |||||||||||
| Other operating income |
6 | |||||||||||||||
| Other operating expenses |
7 | ( |
) | ( |
) | ( |
) | |||||||||
| Other gains/(losses) - net |
8 | ( |
) | |||||||||||||
| |
|
|
|
|
|
|||||||||||
| (Loss) / profit from operations |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|||||||||||
| Finance income |
9 | |||||||||||||||
| Finance expenses |
9 | ( |
) | ( |
) | ( |
) | |||||||||
| |
|
|
|
|
|
|||||||||||
| Finance income – net |
||||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Share of net profits/(losses) of associates and joint ventures accounted for using the equity method |
20 | ( |
) | |||||||||||||
| |
|
|
|
|
|
|||||||||||
| Profit/(loss) before taxation |
( |
) | ||||||||||||||
| Income tax benefits/(expenses) |
12 | ( |
) | |||||||||||||
| |
|
|
|
|
|
|||||||||||
| Profit/(loss) for the year |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
Years ended 31 December |
||||||||||||||||
Note |
2020 RMB’000 |
2021 RMB’000 |
2022 RMB’000 |
|||||||||||||
| Profit/(loss) attributable to: |
||||||||||||||||
| – Equity shareholders of the Company |
|
( |
) | |||||||||||||
| – Non-controlling interests |
||||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Profit/(loss) for the year |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Earnings/(losses) per share attributable to equity shareholders of the Company for the year (expressed in RMB per share) |
||||||||||||||||
| Basic earnings/(losses) per share |
13(a) | RMB |
RMB |
RMB ( |
||||||||||||
| |
|
|
|
|
|
|||||||||||
| Diluted earnings/(losses) per share |
13(b) | RMB |
RMB |
RMB ( |
||||||||||||
| |
|
|
|
|
|
|||||||||||
Years ended 31 December |
||||||||||||||||
Note |
2020 RMB’000 |
2021 RMB’000 |
2022 RMB’000 |
|||||||||||||
| Profit/(loss) for the year |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Other comprehensive income |
||||||||||||||||
| Items that are or may be reclassified subsequently to profit or loss: |
||||||||||||||||
| Share of other comprehensive income of associates accounted for using the equity method |
3 1 |
( |
) | ( |
) | |||||||||||
| Cash flow hedges: net movement in hedging reserve |
3 1 |
|||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Other comprehensive income for the year, net of tax |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Total comprehensive income for the year |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Attributable to: |
||||||||||||||||
| – Equity shareholders of the Company |
( |
) | ||||||||||||||
| – Non-controlling interests |
||||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Total comprehensive income for the year |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
As at 31 December |
||||||||||||
2021 |
2022 |
|||||||||||
Note |
RMB’000 |
RMB’000 |
||||||||||
| Non-current assets |
||||||||||||
| Property, plant and equipment |
16 | |||||||||||
| Right-of-use |
15 | |||||||||||
| Investment properties |
17 | |||||||||||
| Construction in progress |
18 | |||||||||||
| Investments accounted for using the equity method |
20 | |||||||||||
| Financial assets at fair value through other comprehensive income |
25 | |||||||||||
| Time deposits with banks |
24 | |||||||||||
| Deferred tax assets |
12 | |||||||||||
| Other non-current assets |
14 | |||||||||||
| |
|
|
|
|||||||||
| |
|
|
|
|||||||||
| Current assets |
||||||||||||
| Inventories |
21 | |||||||||||
| Financial assets at fair value through other comprehensive income |
25 | |||||||||||
| Derivative financial instruments |
3.1 (a) | |||||||||||
| Trade receivables |
22 | |||||||||||
| Other receivables |
22 | |||||||||||
| Prepayments |
||||||||||||
| Value added tax recoverable |
||||||||||||
| Amounts due from related parties |
22 | |||||||||||
| Cash and cash equivalents |
23 | |||||||||||
| Time deposits with banks |
24 | |||||||||||
| |
|
|
|
|||||||||
| |
|
|
|
|||||||||
| Total assets |
||||||||||||
| |
|
|
|
|||||||||
As at 31 December |
||||||||||||
2021 |
2022 |
|||||||||||
Note |
RMB’000 |
RMB’000 |
||||||||||
| Equity and liabilities |
||||||||||||
| Equity attributable to equity shareholders of the Company |
||||||||||||
| Share capital |
3 0 |
|||||||||||
| Reserves |
3 1 |
|||||||||||
| |
|
|
|
|||||||||
| Non-controlling interests |
||||||||||||
| |
|
|
|
|||||||||
| Total equity |
||||||||||||
| |
|
|
|
|||||||||
| Liabilities |
||||||||||||
| Non-current liabilities |
||||||||||||
| Borrowings |
26 | |||||||||||
| Lease liabilities |
15 | |||||||||||
| Deferred tax liabilities |
12 | |||||||||||
| Deferred income |
2 9 |
|||||||||||
| |
|
|
|
|||||||||
| |
|
|
|
|||||||||
As at 31 December |
||||||||||||
2021 |
2022 |
|||||||||||
Note |
RMB’000 |
RMB’000 |
||||||||||
| Current liabilities |
||||||||||||
| Borrowings |
26 | |||||||||||
| Lease liabilities |
15 | |||||||||||
| Derivative financial instruments |
3.1 (a) | |||||||||||
| Contract liabilities |
2 8 |
|||||||||||
| Trade and other payables |
2 7 |
|||||||||||
| Amounts due to related parties |
2 7 |
|||||||||||
| Current tax liabilities |
||||||||||||
| Staff salaries and welfares payable |
||||||||||||
| Income tax payable |
12 | |||||||||||
| |
|
|
|
|||||||||
| |
|
|
|
|||||||||
| Total liabilities |
||||||||||||
| |
|
|
|
|||||||||
| Total equity and liabilities |
||||||||||||
| |
|
|
|
|||||||||
| Wan Tao |
||
Directors | ||
| Du Jun |
||
Attributable to equity shareholders of the Company |
||||||||||||||||||||||||||||
Share capital |
Other reserves |
Retained earnings |
Non-controlling |
Total |
||||||||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
Total |
interests |
equity |
|||||||||||||||||||||||
Note |
(note 30) |
(note 31) |
(note 31) |
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||||||||||||||
| Balance at 1 January 2020 |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Changes in equity for 2020: |
||||||||||||||||||||||||||||
| Profit for the year |
||||||||||||||||||||||||||||
| Other comprehensive income |
3 1 |
( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total comprehensive income for the year |
( |
) | ||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Dividends proposed and approved |
3 3 |
( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Dividend paid by subsidiaries to non-controlling interests |
( |
) | ( |
) | ||||||||||||||||||||||||
| Appropriation of safety production fund |
3 1 |
( |
) | |||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at 31 December 2020 |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Attributable to equity shareholders of the Company |
||||||||||||||||||||||||||
Note |
Share capital RMB’000 (note 30) |
Other reserves RMB’000 (note 31) |
Retained earnings RMB’000 (note 31) |
Total RMB’000 |
Non-controlling interests RMB’000 |
Total equity RMB’000 |
||||||||||||||||||||
| Balance at 1 January 2021 |
||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Changes in equity for 2021 |
||||||||||||||||||||||||||
| Profit for the year |
||||||||||||||||||||||||||
| Other comprehensive income |
3 1 |
|||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total comprehensive income for the year |
||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Transfer to other reserves |
( |
) | ||||||||||||||||||||||||
| Amounts transferred from hedging reserve to initial carrying amount of hedged items |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Dividends proposed and approved |
3 3 |
( |
) | ( |
) | ( |
) | |||||||||||||||||||
| Dividends paid by subsidiaries to non-controlling interests |
( |
) | ( |
) | ||||||||||||||||||||||
| Appropriation of safety production fund |
3 1 |
( |
) | |||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance at 31 December 2021 |
||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Attributable to equity shareholders of the Company |
Non-controlling interests RMB’000 |
Total equity RMB’000 |
||||||||||||||||||||||||||
Note |
Share capital RMB’000 (note 30) |
Other reserves RMB’000 (note 31) |
Retained earnings RMB’000 (note 31) |
Total RMB’000 |
||||||||||||||||||||||||
| Balance at 1 January 2022 |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Changes in equity for 2022 |
||||||||||||||||||||||||||||
| (Loss)/profit for the year |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| Other comprehensive income |
3 1 |
|||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total comprehensive income for the year |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Amounts transferred from hedging reserve to initial carrying amount of hedged items |
3.1a(iii) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Dividends proposed and approved |
3 3 |
( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Dividends paid by subsidiaries to non-controlling interests |
( |
) | ( |
) | ||||||||||||||||||||||||
| Purchase of own shares |
30(ii) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Appropriation of safety production fund |
3 1 |
( |
) | |||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Balance at 31 December 2022 |
||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Years ended 31 December |
||||||||||||||||
2020 |
2021 |
2022 |
||||||||||||||
Note |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
| Operating activities |
||||||||||||||||
| Cash generated from / (used in) operations |
23 (b) | ( |
) | |||||||||||||
| Interest paid |
( |
) | ( |
) | ( |
) | ||||||||||
| Income tax paid |
( |
) | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Net cash generated from / (used in) operating activities |
( |
) | ||||||||||||||
| |
|
|
|
|
|
|||||||||||
| Cash flows from investing activities |
||||||||||||||||
| Dividends received from joint ventures and associates |
||||||||||||||||
| Interest received from entrusted loans |
||||||||||||||||
| Interest received from structured deposits |
||||||||||||||||
| Interest received from related parties |
||||||||||||||||
| Interest received from banks excluded structured deposits |
||||||||||||||||
| (Payments)/proceeds from settlement of derivative financial instruments |
( |
) | ( |
) | ||||||||||||
| Payment for the purchase of property, plant and equipment and construction in progress |
( |
) | ( |
) | ( |
) | ||||||||||
| Net proceeds from disposal of property, plant and equipment |
||||||||||||||||
| Cash received from time deposits with maturity less than one year |
||||||||||||||||
| Cash received from time deposits with maturity more than one year |
||||||||||||||||
| Cash received from maturity of structured deposits |
||||||||||||||||
| Cash payment for investment in structured deposits |
( |
) | ( |
) | ( |
) | ||||||||||
| Cash payment for investment in entrusted loans |
( |
) | ||||||||||||||
| Cash received from investment in entrusted loans |
||||||||||||||||
| Cash payment for investment deposits |
( |
) | ||||||||||||||
| Payment for investment in associates and a joint venture |
20 | ( |
) | |||||||||||||
| Cash payment for investment in time deposits with maturity less than one year |
( |
) | ( |
) | ||||||||||||
| Cash payment for investment in time deposits with maturity more than one year |
( |
) | ( |
) | ( |
) | ||||||||||
| Acquisition of a subsidiary, net of cash acquired |
( |
) | ||||||||||||||
| Payment for set up of an associate |
20 | ( |
) | ( |
) | |||||||||||
| Payment for set up of a joint venture |
20 | ( |
) | |||||||||||||
| Proceeds from capital reduction of an associate |
||||||||||||||||
| Payment for sales of financial assets at fair value through other comprehensive income |
( |
) | ( |
) | ( |
) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Net cash (used in) / generated from investing activities |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|||||||||||
Years ended 31 December |
||||||||||||||||
2020 |
2021 |
2022 |
||||||||||||||
Note |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
| Financing activities |
||||||||||||||||
| Proceeds from borrowings |
23 | (c) | ||||||||||||||
| Proceeds from short-term bonds |
23 | (c) | ||||||||||||||
| Repayments of borrowings |
23 | (c) | ( |
) | ( |
) | ( |
) | ||||||||
| Repayments of short-term bonds |
23 | (c) | ( |
) | ( |
) | ||||||||||
| Principal elements of lease payments |
( |
) | ( |
) | ( |
) | ||||||||||
| Dividends paid by subsidiaries to non-controlling interests |
( |
) | ( |
) | ( |
) | ||||||||||
| Dividends paid to the Company’s shareholders |
( |
) | ( |
) | ( |
) | ||||||||||
| Payment for repurchase of shares |
( |
) | ||||||||||||||
| Net cash generated from / (used in) financing activities |
( |
) | ( |
) | ||||||||||||
| Net decrease in cash and cash equivalents |
( |
) | ( |
) | ( |
) | ||||||||||
| Cash and cash equivalents at the beginning of the year |
23 | |||||||||||||||
| Exchange (losses) / gains on cash and cash equivalents |
( |
) | ( |
) | ||||||||||||
| |
|
|
|
|
|
|||||||||||
| Cash and cash equivalents at the end of the year |
23 | |||||||||||||||
| |
|
|
|
|
|
|||||||||||
1 |
General Information |
| 2 | Significant accounting policies |
| 2.1 | Statement of compliance and basis of preparation |
| (a) | Statement of compliance |
| (b) | Basis of preparation |
| • | derivative financial instruments (see note 2.13); and |
| • | investment in debt and equity securities (see note 2.11). |
2 |
Significant accounting policies (continued) |
2.1 |
Statement of compliance and basis of preparation (continued) |
| (c) | Changes in accounting policies |
| • | Amendments to IAS 16, Property, plant and equipment: Proceeds before intended use |
| • | Amendments to IAS 37, Provisions, contingent liabilities and contingent assets: Onerous contracts — cost of fulfilling a contract |
| • | Amendments to IFRSs, Annual Improvements to IFRS Standards 2018-2020 |
| • | Amendments to IFRS 3, Reference to the Conceptual Framework |
| 2.2 | Subsidiaries |
| 2.2.1 | Consolidation |
| (a) | Business combinations |
| • | fair values of the assets transferred; |
| • | liabilities incurred to the former owners of the acquired business; |
| • | equity interests issued by the Group; |
| • | fair value of any asset or liability resulting from a contingent consideration arrangement, and |
| • | fair value of any pre-existing equity interest in the subsidiary. |
| • | consideration transferred |
| • | amount of any non-controlling interest in the acquired entity, and |
| • | acquisition-date fair value of any previous equity interest in the acquired entity |
| 2 | Significant accounting policies (continued) |
| 2.2 | Subsidiaries (continued) |
| 2.2.1 | Consolidation (continued) |
| (a) | Business combinations (continued) |
| 2 | Significant accounting policies (continued) |
| 2.2 | Subsidiaries (continued) |
| 2.2.1 | Consolidation (continued) |
| (b) | Changes in ownership interests |
| 2.2.2 | Separate financial statements |
| 2 | Significant accounting policies (continued) |
| 2.3 | Associates |
| 2 | Significant accounting policies (continued) |
| 2.4 | Joint arrangements |
| 2.5 | Segment reporting |
| 2 | Significant accounting policies (continued) |
| 2.6 | Foreign currency translation |
| 2.7 | Property, plant and equipment |
- Buildings |
||||
- Plant and machinery |
||||
- Vehicles and other equipment |
| 2 | Significant accounting policies (continued) |
| 2.8 | Construction in progress |
| 2.9 | Investment properties |
| 2.10 | Other non-current assets |
Intangible assets - patents |
||||
Long-term prepaid expense - catalyst |
||||
Long-term prepaid expense - leasehold improvement |
| 2.11 | Other investments in debt and equity securities |
| 2 | Significant accounting policies (continued) |
| 2.11 | Other investments in debt and equity securities (continued) |
| (a) | Investments other than equity investments |
| • | amortized cost, if the investment is held for the collection of contractual cash flows which represent solely payments of principal and interest. Interest income from the investment is calculated using the effective interest method (see note 2.27). |
| • | fair value through other comprehensive income (FVOCI) - recycling, if the contractual cash flows of the investment comprise solely payments of principal and interest and the investment is held within a business model whose objective is achieved by both the collection of contractual cash flows and sale. Changes in fair value are recognized in other comprehensive income, except for the recognition in profit or loss of expected credit losses, interest income (calculated using the effective interest method) and foreign exchange gains and losses. When the investment is derecognized, the amount accumulated in other comprehensive income is recycled from equity to profit or loss. |
| • | fair value through profit or loss (FVPL) if the investment does not meet the criteria for being measured at amortized cost or FVOCI (recycling). Changes in the fair value of the investment (including interest) are recognized in profit or loss. |
| (b) | Equity investments |
| 2.12 | Credit losses and impairment of assets |
| (a) | Credit losses from financial instruments |
| • | financial assets measured at amortized cost (including cash and cash equivalents, time deposits with banks, trade receivables and other receivables); and |
| • | debt securities measured at FVOCI (recycling); |
| 2 | Significant accounting policies (continued) |
| 2.12 | Credit losses and impairment of assets (continued) |
| (a) | Credit losses from financial instruments (continued) |
| • | fixed-rate financial assets, trade and other receivables: effective interest rate determined at initial recognition or an approximation thereof; |
| • | variable-rate financial assets: current effective interest rate. |
| • | 12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and |
| • | lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies. |
| 2 | Significant accounting policies (continued) |
| 2.12 | Credit losses and impairment of assets (continued) |
| (a) | Credit losses from financial instruments (continued) |
| • | failure to make payments of principal or interest on their contractually due dates; |
| • | an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available); |
| • | an actual or expected significant deterioration in the operating results of the debtor; and |
| • | existing or forecast changes in the technological, market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group. |
| 2 | Significant accounting policies (continued) |
| 2.12 | Credit losses and impairment of assets (continued) |
| (a) | Credit losses from financial instruments (continued) |
| • | significant financial difficulties of the debtor; |
| • | a breach of contract, such as a default or past due event; |
| • | it is becoming probable that the borrower will enter into bankruptcy or other financial reorganization; |
| • | significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or |
| • | the disappearance of an active market for a security because of financial difficulties of the issuer. |
| 2 | Significant accounting policies (continued) |
| 2.12 | Credit losses and impairment of assets (continued) |
| (b) | Impairment of other non-current assets |
| • | property, plant and equipment; |
| • | right-of-use |
| • | investment properties; |
| • | construction in progress |
| • | other non-current assets; and |
| • | investments in subsidiaries, associates and joint ventures in the Company’s statements of financial position. |
| • | Calculation of recoverable amount |
| • | Recognition of impairment losses |
| • | Reversals of impairment losses |
| 2 | Significant accounting policies (continued) |
2.12 |
Credit losses and impairment of assets (continued) |
| 2.13 | Derivative and hedging activities |
| 2 | Significant accounting policies (continued) |
| 2.13 | Derivative and hedging activities (continued) |
| 2.14 | Inventories |
| 2.15 | Contract liabilities |
| 2 | Significant accounting policies (continued) |
| 2.16 | Trade and other receivables |
| 2.17 | Cash and cash equivalents |
| 2.18 | Share capital |
| 2.19 | Safety production fund |
| 2.20 | Trade and other payables |
| 2 | Significant accounting policies (continued) |
| 2.21 | Borrowings |
| 2.22 | Borrowings costs |
| 2.23 | Current and deferred income tax |
| (a) | Current income tax |
| 2 | Significant accounting policies (continued) |
| 2.23 | Current and deferred income tax (continued) |
| (b) | Deferred income tax |
| (c) | Offsetting |
| 2 | Significant accounting policies (continued) |
| 2.24 | Employee benefits |
| (a) | Short-term employee benefits |
| (b) | Pension obligations |
| (c) | Termination benefits |
| 2.25 | Provisions and contingent liabilities |
| 2 | Significant accounting policies (continued) |
| 2.25 | Provisions and contingent liabilities (continued) |
| 2.26 | Revenue recognition |
| (a) | Sales of petroleum and chemical products |
| (b) | Overseas shipping services |
| 2 | Significant accounting policies (continued) |
| 2.27 | Interest income |
| 2.28 | Dividend income |
| 2.29 | Government grants |
| 2.30 | Leases |
| 2 | Significant accounting policies (continued) |
| 2.30 | Leases (continued) |
| • | fixed payments (including in-substance fixed payments), less any lease incentives receivable, |
| • | variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the commencement date, |
| • | amounts expected to be payable by the Group under residual value guarantees, |
| • | the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and |
| • | payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. |
| • | where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received |
| • | uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases held by the Group, which does not have recent third party financing, and |
| • | makes adjustments specific to the lease, e.g., term, country, currency and security. |
• |
the amount of the initial measurement of lease liability, |
• |
any lease payments made at or before the commencement date less any lease incentives received, |
• |
any initial direct costs, and |
• |
restoration costs. |
| 2 | Significant accounting policies (continued) |
| 2.30 | Leases (continued) |
Land use rights |
||||
Buildings |
||||
Equipment |
||||
Others |
| 2.31 | Dividend distribution |
| 2.32 | Research and development costs |
| • | 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; |
| • | 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. |
| 2 | Significant accounting policies (continued) |
| 2.33 | Related parties |
| (a) | A person, or a close member of that person’s family, is related to the Group if that person: |
| (i) | has control or joint control over the Group; |
| (ii) | has significant influence over the Group; or |
| (iii) | is a member of the key management personnel of the Group or the Group’s parent. |
| (b) | An entity is related to the Group if any of the following conditions applies: |
| (iv) | The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). |
| (v) | One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). |
| (vi) | Both entities are joint ventures of the same third party. |
| (vii) | One entity is a joint venture of a third entity and the other entity is an associate of the third entity. |
| (viii) | The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group. (ix) The entity is controlled or jointly controlled by a person identified in (i). |
| (x) | A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). |
| (xi) | The entity, or any member of a Group of which it is a part, provides key management personnel services to the Group or to the Group’s parent. |
| 2.34 | Rounding of amounts |
| 3 | Financial risk management |
| 3.1 | Financial risk factors |
| (a) | Derivatives |
| As at 31 December | ||||||||
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
| Current derivative financial instrument assets |
||||||||
| Commodity swaps contracts applied hedge accounting |
||||||||
| Commodity swaps contracts at fair value through profit or loss |
||||||||
| |
|
|
|
|||||
| Total derivative financial assets |
||||||||
| |
|
|
|
|||||
| Current derivative financial instrument liabilities |
||||||||
| Commodity swaps contracts at fair value through profit or loss |
( |
) | ||||||
| |
|
|
|
|||||
| Total derivative financial liabilities |
( |
) | ||||||
| |
|
|
|
|||||
| (i) | Classification of derivatives |
| (ii) | Fair value measurement |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (a) | Derivatives (continued) |
| (iii) | Hedging reserves |
Pre-tax |
Tax effect | Post-tax |
||||||||||
| amount RMB’000 |
RMB’000 | amount RMB’000 |
||||||||||
| Balance at 1 January 2022 |
( |
) | ||||||||||
| Effective portion of the cash flow hedge recognized in other comprehensive income |
( |
) | ||||||||||
| Amounts reclassified to profit or loss |
( |
) | ( |
) | ||||||||
| Reclassified to inventory |
( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|||||||
| Balance at 31 December 2022 |
||||||||||||
| |
|
|
|
|
|
|||||||
(iv) |
Amounts recognized in the consolidated statements of profit or loss |
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
| Net gains/(losses) on commodity swaps contracts not qualifying as hedges included in other gains / (losses) - net |
( |
) | ||||||
| Net gains on foreign exchange forward contracts not qualifying as hedges included in other gains / (losses) - net |
||||||||
| Net losses on foreign exchange option contracts not qualifying as hedges included in other gains / (losses) - net |
( |
) | ||||||
| |
|
|
|
|||||
| Total |
( |
) | ||||||
| |
|
|
|
|||||
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (a) | Derivatives (continued) |
(iv) |
Amounts recognized in the consolidated statements of profit or loss (continued) |
| (b) | Market risk |
| (i) | Foreign exchange risk |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (b) | Market risk (continued) |
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
| Net foreign exchange (losses)/gains included in Other gains/(losses) - net (note 8) |
( |
) | ||||||
| |
|
|
|
|
|
|
|
|
| (ii) | Cash flow and fair value interest rate risk |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (b) | Market risk (continued) |
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
| Fixed rate: |
||||||||
| Time deposits with maturity less than one year |
||||||||
| Time deposits with maturity more than one year |
||||||||
| Borrowings |
( |
) | ( |
) | ||||
| Lease liabilities |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Variable rate: |
||||||||
| Cash and cash equivalents |
||||||||
| Borrowings |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| (iii) | Commodity price risk |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (c) | Credit risk |
| (i) | Risk management |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (c) | Credit risk (continued) |
| (i) | Risk management (continued) |
| • | internal credit rating; |
| • | external credit rating (as far as available); |
| • | actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the debtors’ ability to meet its obligations; |
| • | actual or expected significant changes in the operating results of the debtors; |
| • | significant increases in credit risk on other financial instruments of the same debtors; |
| • | significant changes in the value of the collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements; |
| • | significant changes in the expected performance and behaviour of the debtors, including changes in the payment status of debtors, etc. |
| (ii) | Impairment of financial assets |
| • | Trade receivables for sales of goods and from the providing services, |
| • | Other financial assets carried at amortized cost, and |
| • | Debt instruments carried at FVOCI. |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (c) | Credit risk (continued) |
| (ii) | Impairment of financial assets (continued) |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (c) | Credit risk (continued) |
| (ii) | Impairment of financial assets (continued) |
(iii) |
Provision of impairment losses on financial assets recognized in the consolidated statements of profit or loss |
| 2021 RMB’000 |
2022 RMB’000 |
|||||||
| Impairment losses |
||||||||
| - provision in loss allowance for trade receivables |
( |
) | ( |
) | ||||
| - provision in loss allowance for other receivables |
( |
) | ( |
) | ||||
| Impairment losses reversed |
||||||||
| |
|
|
|
|||||
| Provision of impairment losses on financial assets |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| (iv) | Financial assets at fair value through profit or loss |
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (d) | Liquidity risk |
As at 31 December 2021 |
||||||||||||||||||||||||
Contractual maturities of financial liabilities |
||||||||||||||||||||||||
Less than 1 year RMB’000 |
Between 1 and 2 years RMB’000 |
Between 2 and 5 years RMB’000 |
Over 5 years RMB’000 |
Total RMB’000 |
Carrying amount |
|||||||||||||||||||
Non-derivatives |
||||||||||||||||||||||||
Borrowings |
||||||||||||||||||||||||
Lease liabilities |
||||||||||||||||||||||||
Bills payables |
||||||||||||||||||||||||
Trade payables |
||||||||||||||||||||||||
Other payables |
||||||||||||||||||||||||
Amounts due to related parties excluded non-financial liabilities |
||||||||||||||||||||||||
Derivatives |
||||||||||||||||||||||||
Derivative financial liabilities |
||||||||||||||||||||||||
| 3 | Financial risk management (continued) |
| 3.1 | Financial risk factors (continued) |
| (d) | Liquidity risk (continued) |
As at 31 December 2022 |
||||||||||||||||||||||||
Contractual maturities of financial liabilities |
||||||||||||||||||||||||
Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
Over 5 years |
Total |
Carrying amount |
|||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||||||||||||
Non-derivatives |
||||||||||||||||||||||||
Borrowings |
||||||||||||||||||||||||
Lease liabilities |
||||||||||||||||||||||||
Bills payables |
||||||||||||||||||||||||
Trade payables |
||||||||||||||||||||||||
Other payables |
||||||||||||||||||||||||
Amounts due to related parties excluded non-financial liabilities |
||||||||||||||||||||||||
Derivatives |
||||||||||||||||||||||||
Derivative financial liabilities |
||||||||||||||||||||||||
| 3.2 | Capital management |
| Note | 2022 RMB’000 |
|||||||
Current liabilities: |
||||||||
Borrowings |
26 | |||||||
Lease liabilities |
15 | |||||||
Non-current liabilities: |
||||||||
Borrowings |
26 | |||||||
Lease liabilities |
15 | |||||||
Total Debt |
||||||||
Less: Cash and cash equivalents |
23 | ( |
) | |||||
Adjusted net debt |
||||||||
Total equity |
||||||||
Less: Hedging reserve |
||||||||
Adjusted capital |
||||||||
Adjusted net debt-to-capital |
% | |||||||
| 3 | Financial risk management (continued) |
| 3.3 | Fair value estimation |
| • | The fair value of financial instruments traded in active markets (such as publicly traded derivatives and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. |
| • | The fair value of financial instruments that are not traded in an active market (for example, over–the–counter derivatives) is determined using valuation techniques that maximize the use of observable market data and rely as little as possible on entity- specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is in |
| • | If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. |
| As at 31 December 2021 | ||||||||||||||||||||
| Note | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||||||
Recurring fair value measurements |
||||||||||||||||||||
Financial assets |
||||||||||||||||||||
Financial assets measured at fair value through profit or loss |
||||||||||||||||||||
- Commodity swaps contracts |
3.1(a) | |||||||||||||||||||
Financial assets at fair value through other comprehensive income |
||||||||||||||||||||
- Trade and bills receivable |
25 | |||||||||||||||||||
- Equity investments |
25 | |||||||||||||||||||
- Commodity swaps contracts |
3.1(a) | |||||||||||||||||||
Financial liabilities |
||||||||||||||||||||
Financial liabilities measured at fair value through profit or loss |
||||||||||||||||||||
- Commodity swaps contracts |
||||||||||||||||||||
Amounts due to related parties – measured at fair value through profit or loss (FVPL) |
||||||||||||||||||||
| As at 31 December 2022 | ||||||||||||||||||||
| Note | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||||||
Recurring fair value measurements |
||||||||||||||||||||
Financial assets |
||||||||||||||||||||
Financial assets measured at fair value through other comprehensive income |
||||||||||||||||||||
- Trade and bills receivable |
25 | |||||||||||||||||||
- Equity investments |
25 | |||||||||||||||||||
| 3 | Financial risk management (continued) |
| 3.3 | Fair value estimation (continued) |
| Equity investments RMB’000 |
Structured deposits RMB’000 |
Total RMB’000 |
||||||||||
As at 31 December 2020 |
||||||||||||
Acquisitions |
||||||||||||
Disposals |
( |
) | ( |
) | ||||||||
Fair value change |
||||||||||||
As at 31 December 2021 |
||||||||||||
Acquisitions |
||||||||||||
Disposals |
( |
) | ( |
) | ||||||||
Fair value change |
||||||||||||
As at 31 December 2022 |
||||||||||||
| 4 | Critical accounting judgement and estimates |
| 4.1 | Critical accounting judgements in applying the Group’s accounting policies |
| (a) | Classification of financial assets |
| 4 | Critical accounting judgement and estimates (continued) |
| 4.1 | Critical accounting judgements in applying the Group’s accounting policies (continued) |
| (a) | Classification of financial assets (continued) |
| 4.2 | Sources of estimation uncertainty |
| (a) | Net realizable value (“NRV”) of inventories |
| 4 | Critical accounting judgement and estimates (continued) |
| 4.2 | Sources of estimation uncertainty (continued) |
| (b) | Impairments for non-current assets |
| (c) | Useful life and residual value of property, plant and equipment |
| 5 | Segment information and revenue |
| 5.1 | Segment information |
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
| (i) | The petroleum products segment is equipped with crude oil refinery facilities used to produce qualified refined gasoline, fuel, diesel oil, heavy oil and liquefied petroleum gas, and provide raw materials for the Group’s downstream petrochemical processing facilities. |
| (ii) | The intermediate petrochemicals segment primarily produces p-xylene, benzene and ethylene oxide. The intermediate petrochemicals produced by the Group are both served as raw materials in the production of other petrochemicals, resins, plastics and synthetic fibres, and sold to external customers. |
| (iii) | The resins and plastics segment produces primarily polyester chips, polyethylene resins, polypropylene resins 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. |
| (iv) | The synthetic fibres segment produces primarily polyester, acrylic fibres and carbon fibres, which are mainly used in the textile and apparel industries. |
| (v) | The trading of petrochemical products segment is primarily engaged in importing and exporting of petrochemical products. The products are sourced from international and domestic suppliers. |
| (vi) | Other operating segments represent the operating segments that do not meet the quantitative threshold for determining reportable segments. These include investment property leasing, service provision and a variety of other commercial activities. |
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
2020 |
Petroleum products RMB’000 |
Intermediate petrochemicals RMB’000 |
Resins and plastics RMB’000 |
Synthetic fibres RMB’000 |
Trading of petrochemical products RMB’000 |
Others RMB’000 |
Total RMB’000 |
|||||||||||||||||||||
Total segment revenue |
||||||||||||||||||||||||||||
Inter segment revenue |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
Revenue from external customers |
||||||||||||||||||||||||||||
Timing of revenue recognition |
||||||||||||||||||||||||||||
- At a point in time |
||||||||||||||||||||||||||||
- Over time |
||||||||||||||||||||||||||||
Segment result – (loss)/profit from operations |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
2021 |
Petroleum products RMB’000 |
Intermediate petrochemicals RMB’000 |
Resins and plastics RMB’000 |
Synthetic fibres RMB’000 |
Trading of petrochemical products RMB’000 |
Others RMB’000 |
Total RMB’000 |
|||||||||||||||||||||
Total segment revenue |
||||||||||||||||||||||||||||
Inter segment revenue |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
Revenue from external customers |
||||||||||||||||||||||||||||
Timing of revenue recognition |
||||||||||||||||||||||||||||
- At a point in time |
||||||||||||||||||||||||||||
- Over time |
||||||||||||||||||||||||||||
Segment result – profit/(loss) from operations |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
2022 |
Petroleum products RMB’000 |
Intermediate petrochemicals RMB’000 |
Resins and plastics RMB’000 |
Synthetic fibres RMB’000 |
Trading of petrochemical products RMB’000 |
Others RMB’000 |
Total RMB’000 |
|||||||||||||||||||||
Total segment revenue |
||||||||||||||||||||||||||||
Inter segment revenue |
( |
) | ( |
) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||
Revenue from external customers |
||||||||||||||||||||||||||||
Timing of revenue recognition |
||||||||||||||||||||||||||||
- At a point in time |
||||||||||||||||||||||||||||
- Over time |
||||||||||||||||||||||||||||
Segment result – profit/(loss) from operations |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
| 2020 RMB’000 |
2021 RMB’000 |
2022 RMB’000 |
||||||||||
Segment result – (loss)/profit from operations |
||||||||||||
Petroleum products |
( |
) | ||||||||||
Intermediate petrochemicals |
( |
) | ( |
) | ||||||||
Resins and plastics |
( |
) | ||||||||||
Synthetic fibres |
( |
) | ( |
) | ( |
) | ||||||
Trading of petrochemical products |
||||||||||||
Others |
( |
) | ( |
) | ||||||||
(Loss)/profit from operations |
( |
) | ( |
) | ||||||||
Finance income – net |
||||||||||||
Share of profit/(loss) of investments accounted for using the equity method |
( |
) | ||||||||||
Profit/(loss) before taxation |
( |
) | ||||||||||
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
| 2020 | 2021 | 2022 | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
Impairment loss and credit loss |
Inventory write-down |
Depreciation and amortization |
Impairment loss and credit loss |
Inventory write-down |
Depreciation and amortization |
Impairment loss and credit loss |
Inventory write-down |
||||||||||||||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | ||||||||||||||||||||||||||||
Petroleum products |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
Intermediate petrochemicals |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
Resins and plastics |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Synthetic fibres |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
Trading of petrochemical products |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Others |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
As at 31 December |
||||||||
| 2021 Total assets RMB’000 |
2022 Total assets RMB’000 |
|||||||
| Allocated assets |
||||||||
| Petroleum products |
|
|
|
|
|
| ||
| Intermediate petrochemicals |
|
|
|
|
|
| ||
| Resins and plastics |
|
|
|
|
|
| ||
| Synthetic fibres |
|
|
|
|
|
| ||
| Trading of petrochemical products |
|
|
|
|
|
| ||
| Others |
|
|
|
|
|
| ||
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| ||
| Allocated assets |
|
|
|
|
|
| ||
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| ||
| Unallocated assets |
|
|
|
|
|
| ||
| Investments accounted for using the equity method |
|
|
|
|
|
| ||
| Cash and cash equivalents |
|
|
|
|
|
| ||
| Time deposits with banks |
|
|
|
|
|
| ||
| Deferred tax assets |
|
|
|
|
|
| ||
| Derivative financial assets |
|
|
|
|
|
| ||
| Value added tax recoverable |
|
|
|
|
|
| ||
| Others |
|
|
|
|
|
| ||
| Unallocated assets |
|
|
|
|
|
| ||
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| ||
| Total assets |
|
|
|
|
|
| ||
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| ||
| 5 | Segment information and revenue (continued) |
| 5.1 | Segment information (continued) |
| As at 31 December | ||||||||
| 2021 Total liabilities RMB’000 |
2022 Total liabilities RMB’000 |
|||||||
| Allocated liabilities |
||||||||
| Petroleum products |
||||||||
| Intermediate petrochemicals |
||||||||
| Resins and plastics |
||||||||
| Synthetic fibres |
||||||||
| Trading of petrochemical products |
||||||||
| Others |
||||||||
| |
|
|
|
|||||
| Allocated liabilities |
||||||||
| |
|
|
|
|||||
| Unallocated liabilities |
||||||||
| Borrowings |
||||||||
| Deferred tax liabilities |
||||||||
| Derivative financial liabilities |
||||||||
| Others |
||||||||
| |
|
|
|
|||||
| Unallocated liabilities |
||||||||
| |
|
|
|
|||||
| Total liabilities |
||||||||
| |
|
|
|
|||||
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
| Additions to property, plant and equipment, construction in progress, right-of-use non-current assets |
||||||||||||
| Petroleum products |
||||||||||||
| Intermediate petrochemicals |
||||||||||||
| Resins and plastics |
||||||||||||
| Synthetic fibres |
||||||||||||
| Trading of petrochemical products |
||||||||||||
| Others |
||||||||||||
| |
|
|
|
|
|
|||||||
| |
|
|
|
|
|
|||||||
| 5 | Segment information and revenue (continued) |
| 5.2 | Revenue |
| 6 | Other operating income |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Government grants (a) |
||||||||||||
Rental income from investment properties (note 17) |
||||||||||||
Others |
||||||||||||
| (a) | Government grants |
| 7 | Other operating expenses |
2020 |
2021 |
2022 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Cost related to lease of investment properties |
( |
) | ( |
) | ( |
) | ||||||
Others |
( |
) | ( |
) | ( |
) | ||||||
| ( |
) | ( |
) | ( |
) | |||||||
8 |
Other gains/(losses) – net |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Net (losses) / gains on disposal of property, plant and equipment and other long-term assets |
( |
) | ( |
) | ||||||||
Gains from structured deposits (note a) |
||||||||||||
Net losses on foreign exchange option contracts |
( |
) | ( |
) | ||||||||
Net gains on foreign exchange forward contracts |
||||||||||||
Net gains/(losses) on commodity swaps contracts not qualified for hedging accounting |
( |
) | ||||||||||
Losses from disposal of a subsidiary |
||||||||||||
Impairment losses for investment in an associate |
( |
) | ||||||||||
Net foreign exchange gains / (losses) |
( |
) | ||||||||||
Losses on sale of FVOCI |
( |
) | ( |
) | ( |
) | ||||||
Gains from entrusted loan receivables |
||||||||||||
Net losses on disposal of inventories |
( |
) | ( |
) | ||||||||
| ( |
) | |||||||||||
| (a) | Gains from structured deposits |
| (b) | The effect of “6.18” No.1 ethylene glycol plant explosion accident |
| 9 | Finance income and expenses |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Interest income from time deposits with maturity more than 3 months |
||||||||||||
Interest income from time deposits with maturity less than 3 months |
||||||||||||
Others |
||||||||||||
Finance income |
||||||||||||
Interest and finance charges paid/payable for lease liabilities and financial liabilities not at fair value through profit or loss |
( |
) | ( |
) | ( |
) | ||||||
Less: interest expense capitalized into construction in progress |
||||||||||||
Net interest expenses |
( |
) | ( |
) | ( |
) | ||||||
Net foreign exchange losses |
( |
) | ||||||||||
Finance expenses |
( |
) | ( |
) | ( |
) | ||||||
Finance income – net |
||||||||||||
| 10 | Expense by nature |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Cost of raw materials |
||||||||||||
Cost of trading products |
||||||||||||
Employee benefit expenses (note 11) |
||||||||||||
Depreciation and amortization: |
||||||||||||
Property, plant and equipment (note 16) |
||||||||||||
Investment properties (note 17) |
||||||||||||
Other non-current assets (note 14) |
||||||||||||
Right-of-use |
||||||||||||
Repairs and maintenance expenses |
||||||||||||
Changes of work in progress and finished goods |
( |
) | ( |
) | ||||||||
Transportation costs |
||||||||||||
Inventory write-down (note 21) |
||||||||||||
External processing fee |
||||||||||||
Commission expense (note 3 2 ) |
||||||||||||
Impairment loss of property, plant and equipment (note 16) |
||||||||||||
Impairment loss of investments accounted for using equity method (note 20) |
||||||||||||
Auditors’ remuneration – audit services |
||||||||||||
Auditors’ remuneration – non-audit services |
||||||||||||
Expenses relating to short - term leases |
||||||||||||
| 11 | Employee benefit expenses |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Wages and salaries |
||||||||||||
Social welfare costs |
||||||||||||
Others |
||||||||||||
Total employee benefit expense |
||||||||||||
(a) |
Employees of the Group’s subsidiaries in the PRC are required to participate in a defined contribution retirement scheme administered and operated by the local municipal government. The Group’s subsidiaries in the PRC contribute funds which are calculated on certain percentages of the average employee salary as stipulated by the local municipal government to the scheme to fund the retirement benefits of the employees. |
| 11 | Employee benefit expenses (continued) |
| (c) | As at 31 December 2020, 31 December 2021 and 31 December 2022, there was |
12 |
Income tax benefits /(expenses) |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Current income tax |
( |
) | ( |
) | ( |
) | ||||||
Deferred taxation |
( |
) | ||||||||||
Income tax benefits / (expenses) |
( |
) | ||||||||||
Years ended 31 December |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Profit / (loss) before income tax |
( |
) | ||||||||||
Expected PRC income tax at the statutory tax rate of 25% |
( |
) | ( |
) | ||||||||
Tax effect of share of net profits / (losses) of investments accounted for using the equity method |
( |
) | ||||||||||
Tax effect of other non-taxable income |
||||||||||||
Tax effect of additional deductions for R&D expenses |
||||||||||||
Tax effect of non-deductible loss, expenses and costs |
( |
) | ( |
) | ( |
) | ||||||
True up for final settlement of enterprise income taxes in respect of previous years |
( |
) | ||||||||||
Tax losses for which no deferred income tax asset was recognized |
( |
) | ( |
) | ( |
) | ||||||
Utilization of previously unrecognized tax losses |
||||||||||||
Tax effect of additional deduction for purchasing environmental protection equipment |
||||||||||||
Derecognition of previously recognized tax losses |
( |
) | ||||||||||
Actual income tax benefits / (expenses) |
( |
) | ||||||||||
12 |
Income tax benefits /(expenses) (continued) |
31 December 2022 determined in accordance with relevant income tax rules and
(a) |
Current taxation in the consolidated statements of financial position represents: |
2021 RMB’000 |
2022 RMB’000 |
|||||||
At the beginning of the year |
||||||||
Provision for current income tax for the year |
||||||||
Payment during the year |
( |
) | ( |
) | ||||
At the end of the year |
( |
) | ||||||
Representing |
||||||||
Income tax |
||||||||
-Payable |
( |
) | ||||||
-Prepaid |
( |
) | ||||||
| (b) | Movements in deferred tax assets and liabilities are as follows: |
| Balance as at 1 January 2021 RMB’000 |
Credited/ (Charged) to profit or loss RMB’000 |
Credited/ (Charged) to reserves RMB’000 |
Balance as at 31 December 2021 RMB’000 |
|||||||||||||
Deferred tax assets: |
||||||||||||||||
Impairment for bad and doubtful debts and provision for inventories |
( |
) | — | |||||||||||||
Provision for impairment losses in property, plant and equipment and construction in progress |
— | |||||||||||||||
Tax losses |
( |
) | — | — | ||||||||||||
Accruals and others |
( |
) | — | |||||||||||||
| ( |
) | — | ||||||||||||||
Deferred tax liabilities: |
||||||||||||||||
Difference in depreciation |
( |
) | ( |
) | — | ( |
) | |||||||||
Capitalization of borrowing costs |
( |
) | — | ( |
) | |||||||||||
Derivative financial instruments |
— | ( |
) | ( |
) | ( |
) | |||||||||
| ( |
) | ( |
) | ( |
) | ( |
) | |||||||||
Deferred tax assets – net |
( |
) | ( |
) | ||||||||||||
Deferred tax liabilities – net |
( |
) | — | ( |
) | |||||||||||
12 |
Income tax benefits /(expenses) (continued) |
| (b) | Movements in deferred tax assets and liabilities are as follows (continued): |
| Balance as at 1 January 2022 RMB’000 |
Credited/ (Charged) to profit or loss RMB’000 |
Credited/ (Charged) to reserves RMB’000 |
Balance as at 31 December 2022 RMB’000 |
|||||||||||||
Deferred tax assets: |
||||||||||||||||
Impairment for bad and doubtful debts and provision for inventories |
— | |||||||||||||||
Provision for impairment losses in property, plant and equipment and construction in progress |
— | |||||||||||||||
Tax losses |
— | |||||||||||||||
Accruals and others |
( |
) | — | |||||||||||||
| — | ||||||||||||||||
Deferred tax liabilities: |
||||||||||||||||
Difference in depreciation |
( |
) | ( |
) | — | ( |
) | |||||||||
Capitalization of borrowing costs |
( |
) | — | ( |
) | |||||||||||
Derivative financial instruments |
( |
) | ||||||||||||||
| ( |
) | ( |
) | ( |
) | |||||||||||
Deferred tax assets – net |
||||||||||||||||
Deferred tax liabilities – net |
( |
) | — | ( |
) | |||||||||||
12 |
Income tax benefits /(expenses) (continued) |
| (c) | Deferred tax assets not recognized: |
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
2022 |
||||||||
2023 |
||||||||
2024 |
||||||||
2025 |
||||||||
2026 |
||||||||
2027 |
||||||||
13 |
Earnings/(losses) per share |
(a) |
Basic earnings/(losses) per share |
2020 |
2021 |
2022 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Net profit/(loss) attributable to equity shareholders of the Company |
( |
) | ||||||||||
Weighted average number of ordinary shares in issue (thousand of shares) |
||||||||||||
Basic earnings/(losses) per share (RMB per share) |
RMB |
RMB |
RMB( |
) | ||||||||
2020 |
2021 |
2022 |
||||||||||
Issued ordinary shares at 1 January |
||||||||||||
Effect of shares repurchased (note 30) |
( |
) | ||||||||||
Weighted average number of ordinary shares at 31 December |
||||||||||||
(b) |
Diluted earnings/(losses) per share |
| 14 | Other non-current assets |
| Intangible assets |
Long-term prepaid expense |
Investment deposits |
Total | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||
As at 1 January 2021 |
||||||||||||||||
Cost |
— | |||||||||||||||
Accumulated amortization |
( |
) | ( |
) | — | ( |
) | |||||||||
Net book amount |
— | |||||||||||||||
Year ended 31 December 2021 |
||||||||||||||||
Opening net book amount |
— | |||||||||||||||
Additions |
— | |||||||||||||||
Charge for the year |
( |
) | ( |
) | — | ( |
) | |||||||||
Closing net book amount |
— | |||||||||||||||
As at 31 December 2021 |
||||||||||||||||
Cost |
— | |||||||||||||||
Accumulated amortization |
( |
) | ( |
) | — | ( |
) | |||||||||
Net book amount |
— | |||||||||||||||
Year ended 31 December 2022 |
||||||||||||||||
Opening net book amount |
— | |||||||||||||||
Additions |
||||||||||||||||
Charge for the year |
( |
) | ( |
) | — | ( |
) | |||||||||
Closing net book amount |
||||||||||||||||
As at 31 December 2022 |
||||||||||||||||
Cost |
||||||||||||||||
Accumulated amortization |
( |
) | ( |
) | — | ( |
) | |||||||||
Net book amount |
||||||||||||||||
15 |
Leases |
(a) |
Amounts recognized in the consolidated statements of financial position |
| As at 31 December | ||||||||
| 202 1 |
202 2 |
|||||||
| RMB’000 | RMB’000 | |||||||
Right-of-use |
||||||||
Land use rights |
||||||||
Buildings |
||||||||
Equipment |
||||||||
Others |
||||||||
Lease liabilities |
||||||||
Current |
||||||||
Non-current |
||||||||
| 2022 | ||||
| RMB’000 | ||||
Within 1 year |
||||
After 1 year but within 2 years |
||||
After 2 years but within 5 years |
||||
| 15 | Leases (continued) |
(b) |
Amounts recognized in the consolidated statement s of profit or loss |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Depreciation charge of right-of-use |
||||||||||||
Land use rights |
( |
) | ( |
) | ( |
) | ||||||
Buildings |
( |
) | ( |
) | ( |
) | ||||||
Equipment |
( |
) | ( |
) | ( |
) | ||||||
Others |
( |
) | ( |
) | ( |
) | ||||||
| ( |
) | ( |
) | ( |
) | |||||||
Interest expense (included in Finance expenses) |
( |
) | ( |
) | ( |
) | ||||||
Expense relating to short-term leases (included in Cost of sales) |
( |
) | ( |
) | ( |
) | ||||||
| 16 | Property, plant and equipment |
| Buildings | Plant and machinery |
Vehicles and other equipment |
Total | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||
Cost: |
||||||||||||||||
At 1 January 2021 |
||||||||||||||||
Additions |
||||||||||||||||
Transferred from construction in progress (note 18) |
||||||||||||||||
Reclassification |
( |
) | ||||||||||||||
Disposals |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Transferred from investment properties (note 17) |
||||||||||||||||
Transferred to construction in progress (note 18) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Transferred to investment properties (note 17) |
( |
) | ( |
) | ( |
) | ||||||||||
At 31 December 2021 and 1 January 2022 |
||||||||||||||||
Additions |
||||||||||||||||
Transferred from construction in progress (note 18) |
||||||||||||||||
Reclassification |
( |
) | ||||||||||||||
Disposals |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Transferred from investment properties (note 17) |
||||||||||||||||
Others |
||||||||||||||||
At 31 December 2022 |
||||||||||||||||
Accumulated depreciation: |
||||||||||||||||
At 1 January 2021 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Charge for the year |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Reclassification |
( |
) | ( |
) | ||||||||||||
Written back on disposals |
||||||||||||||||
Transferred from investment properties (note 17) |
( |
) | ( |
) | ||||||||||||
Transfer to construction in progress (note 18) |
||||||||||||||||
Transferred to investment properties (note 17) |
||||||||||||||||
At 31 December 2021 and 1 January 2022 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Charge for the year |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Reclassification |
( |
) | ( |
) | ||||||||||||
Written back on disposals |
||||||||||||||||
Transferred from investment properties (note 17) |
( |
) | ( |
) | ||||||||||||
At 31 December 2022 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| 16 | Property, plant and equipment (continued) |
| Buildings | Plant and machinery |
Vehicles and other equipment |
Total | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||
Impairment losses: |
||||||||||||||||
At 1 January 2021 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Charge for the year |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Written back on disposals |
||||||||||||||||
Reclassification |
( |
) | ( |
) | ||||||||||||
At 31 December 2021 and 1 January 2022 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Charge for the year |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Written back on disposals |
||||||||||||||||
Reclassification |
( |
) | ( |
) | ||||||||||||
At 31 December 2022 |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net book value: |
||||||||||||||||
At 31 December 2022 |
||||||||||||||||
At 31 December 2021 |
||||||||||||||||
| (i) | The Group recognized impairment loss on property, plant and equipment in relation to certain production facilities of RMB |
| 16 | Property, plant and equipment (continued) |
| (ii) | During the year ended 31 December 2022, a number of production facilities were idle or obsolete. The Group does not expect to have future economic benefits recoverable from the use of those production facilities. There is no alternative use of those production facilities which is specifically designed. The recoverable amounts of property, plant and equipment related to those production facilities are estimated to be their residual value. As a result, impairment loss of RMB |
| 17 | Investment properties |
| RMB’000 | ||||
Cost: |
||||
As at 1 January 2021 |
||||
Transferred from property plant and equipment (note 16) |
||||
Transferred to property plant and equipment (note 16) |
( |
) | ||
At 31 December 2021 and 1 January 2022 |
||||
Transferred to property plant and equipment (note 16) |
( |
) | ||
At 31 December 2022 |
||||
Accumulated depreciation: |
||||
At 1 January 2021 |
( |
) | ||
Charge for the year |
( |
) | ||
Transferred from property plant and equipment (note 16) |
( |
) | ||
Transferred to property plant and equipment (note 16) |
||||
At 31 December 2021 and 1 January 2022 |
( |
) | ||
Charge for the year |
( |
) | ||
Transferred from property plant and equipment (note 16) |
||||
Transferred to property plant and equipment (note 16) |
||||
At 31 December 2022 |
( |
) | ||
Net book value: |
||||
At 31 December 2022 |
||||
At 31 December 2021 |
||||
| 17 | Investment properties (continued) |
| a. | The fair value of the investment properties of the Group as at 31 December 2022 was estimated by the directors to be approximately RMB |
| b. | Rental income of RMB thousand was recognized in other operating income by the Group for the year ended 31 December 2022 (2020: RMB |
| c. | Leasing arrangements |
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Within 1 year |
||||||||
Between 1 and 2 years |
||||||||
Above 2 years |
||||||||
18 |
Construction in progress |
| 202 1 |
202 2 |
|||||||
| RMB’000 | RMB’000 | |||||||
As at 1 January |
||||||||
Additions |
||||||||
Disposal |
( |
) | ||||||
Transferred to property plant and equipment (note 16) |
( |
) | ( |
) | ||||
Transferred from property plant and equipment (note 16) |
||||||||
As at 31 December |
||||||||
19 |
Subsidiaries |
Proportion of ownership interest |
||||||||||||||||||
Name of company |
Place of incorporation and business |
Particulars of paid- up capital ’000 |
Group’s effective interest |
Held by the Company |
Held by a subsidiary |
Principal activity | ||||||||||||
(“Toufa”) |
China |
RMB |
— | management | ||||||||||||||
China |
RMB |
— | export of petrochemical products and equipment | |||||||||||||||
China |
USD |
— | polypropylene compound products | |||||||||||||||
China |
RMB |
— | polyethylene products | |||||||||||||||
China |
RMB |
— | export of petrochemical products | |||||||||||||||
(“Jinlian”) |
China |
RMB |
— | petrochemical products | ||||||||||||||
19 |
Subsidiaries (continued) |
20 |
Investments accounted for using the equity method |
As at 31 December |
||||||||
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Associates |
||||||||
– Share of net assets |
||||||||
Joint ventures |
||||||||
– Share of net assets |
||||||||
As at 31 December |
||||||||
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Associates |
( |
) | ||||||||||
Joint ventures |
||||||||||||
| ( |
) | |||||||||||
20 |
Investments accounted for using the equity method (continued) |
(a) |
Investment in associates |
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
As at 1 January |
||||||||
Additions (note i) |
||||||||
Decrease caused by associate’s capital reduction (note ii) |
( |
) | ||||||
Share of net profits / (losses) |
( |
) | ||||||
Other comprehensive income |
( |
) | ||||||
Cash dividends distribution |
( |
) | ( |
) | ||||
Impairment (note iii) |
( |
) | ||||||
As at 31 December |
||||||||
20 |
Investments accounted for using the equity method (continued) |
(a) |
Investment in associates (continued) |
Proportion of ownership interest |
||||||||||||||||||||||||
Name of company |
Form of business structure |
Place of incorporation and business |
Particulars of paid- up capital ‘000 |
Group’s effective interest |
Held by the Company |
Held by a subsidiary |
Principal activity | |||||||||||||||||
Limited (“Shanghai Secco”) |
China |
RMB |
% | % | and distribution of chemical products | |||||||||||||||||||
Development Company Limited (“Chemical Industry”) |
China |
RMB |
% | % | development and operation of the Chemical Industry Park in Shanghai, PRC | |||||||||||||||||||
Company Limited (“Jinsen”) |
China |
RMB |
% | % | resins products | |||||||||||||||||||
Limited (“Azbil”) |
China |
RMB |
% | % | maintenance of building automation systems and products | |||||||||||||||||||
(“Shidian Energy”) |
China |
RMB |
% | % | supply | |||||||||||||||||||
| 20 | Investments accounted for using the equity method (continued) |
| (a) | Investment in associates (continued) |
| i. | Pursuant to the articles of association of Shidian Energy in August 2019, Toufa agreed to make a capital contribution of RMB thousand as at 31 December 2022 (31 December 202 0 : RMB RMB |
| ii. | According to the resolution of the Board of Directors on 9 July 2021, the Company, Sinopec Corp., and Sinopec Shanghai Gaoqiao Petrochemical Company Limited (“Gaoqiao Company”) approved to reduce their paid-in capital in Shanghai Secco, an associate of the Company, by a total amount of RMB |
| iii. | During the year ended 31 December 2021, the directors of the Company reviewed the carrying value of the Group’s associate and joint ventures. The entire carrying amount of the interests in an associate is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount with its carrying amount. Since the recoverable amount of investment in an associate Jinsen is lower when compared with its carrying amount, impairment loss of RMB |
20 |
Investments accounted for using the equity method (continued) |
(a) |
Investment in associates (continued) |
As at 31 December 2021 |
Shanghai Secco RMB’000 |
Chemical Industry RMB’000 |
Jinsen RMB’000 |
Azbil RMB’000 |
Shidian Energy RMB’000 |
|||||||||||||||
Current |
||||||||||||||||||||
– Current assets |
||||||||||||||||||||
– Current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
Non-current |
||||||||||||||||||||
– Non-current assets |
||||||||||||||||||||
– Non-current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net assets |
||||||||||||||||||||
Group’s effective interest |
% | % | % | % | % | |||||||||||||||
Group’s share of net assets |
||||||||||||||||||||
Unrealized upstream and downstream transaction |
( |
) | ( |
) | ||||||||||||||||
Unentitled portion (note i) |
( |
) | ||||||||||||||||||
Impairment loss |
( |
) | ||||||||||||||||||
Carrying value |
||||||||||||||||||||
| 20 | Investments accounted for using the equity method (continued) |
| (a) | Investment in associates (continued) |
As at 31 December 2022 |
Shanghai Secco RMB’000 |
Chemical Industry RMB’000 |
Jinsen RMB’000 |
Azbil RMB’000 |
Shidian Energy RMB’000 |
|||||||||||||||
Current |
||||||||||||||||||||
– Current assets |
||||||||||||||||||||
– Current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||
Non-current |
||||||||||||||||||||
– Non-current assets |
||||||||||||||||||||
– Non-current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Net assets |
||||||||||||||||||||
Group’s effective interest |
% | % | % | % | % | |||||||||||||||
Group’s share of net assets |
||||||||||||||||||||
Unrealized upstream and downstream transaction |
( |
) | ||||||||||||||||||
Unentitled portion (note i) |
( |
) | ||||||||||||||||||
Impairment loss |
( |
) | ||||||||||||||||||
Carrying value |
||||||||||||||||||||
20 |
Investments accounted for using the equity method (continued) |
(a) |
Investment in associates (continued) |
| Shanghai Secco | Chemical Industry |
Jinsen | Azbil | Shidian Energy | ||||||||||||||||
| 2020 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||||
Revenue |
||||||||||||||||||||
Post-tax profit/(loss) from continuing operations |
( |
) | ||||||||||||||||||
Other comprehensive income |
( |
) | ||||||||||||||||||
Total comprehensive income |
( |
) | ||||||||||||||||||
Dividend received from the associate |
||||||||||||||||||||
| 20 | Investments accounted for using the equity method (continued) |
| (a) | Investment in associates (continued) |
2021 |
Shanghai Secco | Chemical Industry |
Jinsen | Azbil | Shidian Energy | |||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | ||||||||||||||||
Revenue |
||||||||||||||||||||
Post-tax profit/(loss) from continuing operations |
( |
) | ||||||||||||||||||
Other comprehensive income |
||||||||||||||||||||
Total comprehensive income |
( |
) | ||||||||||||||||||
Dividend received from the associate |
||||||||||||||||||||
2022 |
Shanghai Secco | Chemical Industry |
Jinsen | Azbil | Shidian Energy | |||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | ||||||||||||||||
Revenue |
||||||||||||||||||||
Post-tax (loss)/profit from continuing operations |
( |
) | ( |
) | ||||||||||||||||
Other comprehensive income |
( |
) | ||||||||||||||||||
Total comprehensive income |
( |
) | ( |
) | ||||||||||||||||
Dividend received from the associate |
||||||||||||||||||||
20 |
Investments accounted for using the equity method (continued) |
(a) |
Investment in associates (continued) |
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
Aggregate carrying value of investments at 31 December |
||||||||
Aggregate amounts of the Group’s share of those associates: |
||||||||
Profit for the year |
||||||||
Total comprehensive income |
||||||||
Dividend received from the associate |
||||||||
| (b) | Investment in joint ventures |
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
As at 1 January |
||||||||
Addition (note i) |
||||||||
Share of profit |
||||||||
Cash dividends distribution |
( |
) | ( |
) | ||||
As at 31 December |
||||||||
| 20 | Investments accounted for using the equity method (continued) |
| (b) | Investment in joint ventures (continued) |
Name of joint venture |
Form of business structure |
Place of incorporation and business |
Particulars of paid-up capital ’000 |
Proportion of ownership interest |
Principal activity |
|||||||||||||||||||
Group’s effective interest |
Held by the Company |
Held by a subsidiary |
||||||||||||||||||||||
Linde-SPC Gases Company Limited (“Linde”), formerly known as “BOC-SPC Gases Company Limited”) |
USD |
% | % | of industrial gases |
| |||||||||||||||||||
Shanghai Petrochemical Pressure Vessel Testing Center (“JYJC”) |
RMB |
% | % | |
inspection and testing service |
| ||||||||||||||||||
Development Company Limited (“Yangu Gas”) |
USD |
% | % | of industrial gases |
| |||||||||||||||||||
Co., Ltd. (“Baling Materials”) (note i) (“Linde”), formerly known as “BOC-SPC Gases Company Limited”) |
RMB |
% | % | |
of new styrene thermoplastic elastomer materials |
| ||||||||||||||||||
20 |
Investments accounted for using the equity method (continued) |
(b) |
Investment in joint ventures (continued) |
| i. | In September 2021, Sinopec Baling Petrochemical Co., Ltd and the Company jointly established Baling Materials , the Company agreed to make cash contribution of RMB paid-up capital contribution of RMB |
Linde RMB’000 |
JYJC RMB’000 |
Yangu Gas RMB’000 |
Baling Materials RMB’000 |
|||||||||||||
Current |
||||||||||||||||
Cash and cash equivalents |
||||||||||||||||
Other current assets (excluding cash) |
||||||||||||||||
Total current assets |
||||||||||||||||
Total current liabilities |
( |
) | ( |
) | ( |
) | ||||||||||
Non-current |
||||||||||||||||
Total non-current assets |
||||||||||||||||
Total non-current liabilities |
( |
) | ||||||||||||||
Net assets |
||||||||||||||||
Group’s effective interest |
||||||||||||||||
Interest in joint ventures |
||||||||||||||||
Unrealized downstream transactions |
( |
) | ||||||||||||||
Carrying value |
||||||||||||||||
Linde |
JYJC |
Yangu Gas |
Baling Materials |
|||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
Current |
||||||||||||||||
Cash and cash equivalents |
||||||||||||||||
Other current assets (excluding cash) |
||||||||||||||||
Total current assets |
||||||||||||||||
Total current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Non-current |
||||||||||||||||
Total non-current assets |
||||||||||||||||
Total non-current liabilities |
( |
) | ( |
) | ||||||||||||
Net assets |
||||||||||||||||
Group’s effective interest |
||||||||||||||||
Interest in joint ventures |
||||||||||||||||
Unrealized downstream transactions |
( |
) | ||||||||||||||
Carrying value |
||||||||||||||||
| 20 | Investments accounted for using the equity method (continued) |
| (b) | Investment in joint ventures (continued) |
| Linde | JYJC | Yangu Gas | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Revenue |
||||||||||||
Depreciation and amortization |
( |
) | ( |
) | ( |
) | ||||||
Interest income |
||||||||||||
Interest expense |
||||||||||||
Profit from continuing operations |
||||||||||||
Income tax expenses |
( |
) | ( |
) | ||||||||
Post-tax profit from continuing operations |
||||||||||||
Other comprehensive income |
||||||||||||
Total comprehensive income |
||||||||||||
Dividend received from joint venture |
||||||||||||
Linde |
JYJC |
Yangu Gas |
Baling Materials |
|||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
Revenue |
||||||||||||||||
Depreciation and amortization |
( |
) |
( |
) |
( |
) |
||||||||||
Interest income |
||||||||||||||||
Profit from continuing operations |
||||||||||||||||
Income tax (expenses)/benefits |
( |
) |
||||||||||||||
Post-tax profit from continuing operations |
||||||||||||||||
Other comprehensive income |
||||||||||||||||
Total comprehensive income |
||||||||||||||||
Dividend received from joint venture |
||||||||||||||||
20 |
Investments accounted for using the equity method (continued) |
(b) |
Investment in joint ventures (continued) |
Linde |
JYJC |
Yangu Gas |
Baling Materials |
|||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||
Revenue |
||||||||||||||||
Depreciation and amortization |
( |
) |
( |
) |
( |
) |
||||||||||
Interest income |
||||||||||||||||
Profit/ (loss) from continuing operations |
( |
) |
||||||||||||||
Income tax expenses |
( |
) |
( |
) |
||||||||||||
Post-tax profit/ (loss) from continuing operations |
( |
) |
||||||||||||||
Other comprehensive income |
||||||||||||||||
Total comprehensive income |
( |
) |
||||||||||||||
Dividend received from joint venture |
||||||||||||||||
(c) |
For the year ended December 31, 2022, equity method investments held by the Company in aggregate have met the significance criteria as defined under Rule 4-08(g) of Regulation S-X. Shanghai Secco was deemed a significant equity investee for the fiscal years ended December 31, 2020 and a non-significant equity investee for the fiscal years ended December 31, 2021 and December 31, 2022 under Rule 3-09 of Regulation S-X. As such, the financial statements of Shanghai Secco required by Rule 3-09 of Regulation S-X are provided as Exhibit 99.1 to this Annual Report on Form 20-F. Financial information for the Company’s equity method investments other than Shanghai Secco are summarized as a group as follow: |
2020 |
2021 |
2022 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Revenue |
||||||||||||
Gross profit |
||||||||||||
Profit from continuing operations |
||||||||||||
Profit after taxation |
||||||||||||
Profit after taxation attributable to the Group |
||||||||||||
As of 31 December 2022 |
||||||||
2021 |
2022 |
|||||||
RMB’000 |
RMB’ 000 |
|||||||
Current assets |
||||||||
Non-current assets |
||||||||
Current liabilities |
( |
) |
( |
) | ||||
Non-current liabilities |
( |
) |
( |
) | ||||
Non-controlling interests |
||||||||
21 |
Inventories |
(a) |
Inventories in the consolidated statements of financial position comprise: |
As at 31 December 2021 |
As at 31 December 2022 |
|||||||||||||||||||||||
Gross carrying amount |
Provision for diminution in value of inventories |
Carrying amount |
Gross carrying amount |
Provision for diminution in value of inventories |
Carrying amount |
|||||||||||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
RMB’000 |
|||||||||||||||||||
Raw materials |
( |
) | ( |
) | ||||||||||||||||||||
Work in progress |
( |
) | ( |
) | ||||||||||||||||||||
Finished goods |
( |
) | ( |
) | ||||||||||||||||||||
Spare parts and consumables |
( |
) | ( |
) | ||||||||||||||||||||
| ( |
) | ( |
) | |||||||||||||||||||||
| (b) | The analysis of the amount of inventories recognized as expenses and included in profit or loss is as follows: |
| 22 | Trade and other receivables |
As at 31 December 2021 |
As at 31 December 2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Trade receivables |
||||||||
Less: loss allowance |
( |
) | ( |
) | ||||
Amounts due from related parties excluded prepayments and bills receivable (*) |
||||||||
Less: loss allowance (*) |
( |
) | ||||||
Total trade receivables |
||||||||
Other receivables |
||||||||
Less: loss allowance |
( |
) | ( |
) | ||||
Financial assets measured at amortized cost |
||||||||
Amounts due from related parties - prepayments (*) |
||||||||
Amounts due from related parties - bills receivables (*) (note 25) |
||||||||
Amounts due from related parties (summary of *) |
||||||||
As at 31 December 2021 |
As at 31 December 2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Within one year |
||||||||
Over one year but within two years |
||||||||
Over two years |
||||||||
| 22 | Trade and other receivables (continued) |
Years ended 31 December |
||||||||
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Balance at 1 January |
||||||||
Impairment losses recognized during the year |
||||||||
Balance at 31 December |
||||||||
| 23 | Cash and cash equivalents |
| (a) | Cash and cash equivalents comprise: |
| As at | As at | |||||||
| 31 December 2021 | 31 December 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
Cash deposits with a related party (note i) |
||||||||
Cash at bank and on hand |
||||||||
Cash and cash equivalents in the consolidated statements of financial position |
||||||||
| i. | Cash deposits with a related party were cash deposits at Sinopec Finance Company Limited (“Sinopec Finance”). |
23 |
Cash and cash equivalents (continued) |
(b) |
Cash generated from / (used in) cash |
2020 |
2021 |
2022 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Profit/(loss) before taxation |
( |
) | ||||||||||
Adjustments items: |
||||||||||||
Interest income from time deposits with maturity more than 3 months |
( |
) | ( |
) | ( |
) | ||||||
Share of (profits)/losses of investments accounted for using the equity method |
( |
) | ( |
) | ||||||||
Net losses/(gains) on foreign exchange option contracts and commodity swaps contracts not qualifying as hedges |
( |
) | ||||||||||
Gains from structured deposits |
( |
) | ( |
) | ( |
) | ||||||
Gains from entrusted loan receivables |
( |
) | ||||||||||
Losses on sale of FVOCI |
||||||||||||
Interest expense |
||||||||||||
Foreign exchange losses/(gains) |
( |
) | ||||||||||
Depreciation of property, plant and equipment |
||||||||||||
Depreciation of investment property |
||||||||||||
Depreciation of right-of-use |
||||||||||||
Amortization of other non-current assets |
||||||||||||
Impairment loss on property, plant and equipment |
||||||||||||
Impairment loss on investment accounted for using the equity method |
||||||||||||
Losses / (gains) on disposal of property, plant and equipment and other long-term assets-net |
( |
) | ||||||||||
Profit/(loss) on operation before change of working capital |
( |
) | ||||||||||
Decrease/(increase) in inventories |
( |
) | ( |
) | ||||||||
Decrease in operation receivables |
||||||||||||
Decrease in operation payables |
( |
) | ( |
) | ( |
) | ||||||
(Decrease)/increase in balances to related parties – net |
( |
) | ||||||||||
Cash generated from/(used in) operations |
( |
) | ||||||||||
| 23 | Cash and cash equivalents (continued) |
| (c) | Reconciliation of liabilities arising from financing activities |
| Borrowings | Lease liabilities |
Short-term bonds |
Total | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||
As at 31 December 2020 and 1 January 2021 |
||||||||||||||||
Changes from financing cash flows: |
||||||||||||||||
Proceeds from new bank loans |
— | — | ||||||||||||||
Repayment of bank loans |
( |
) | — | — | ( |
) | ||||||||||
Proceeds from short-term bonds |
— | — | ||||||||||||||
Repayments of short-term bonds |
— | — | ( |
) | ( |
) | ||||||||||
Principal elements of lease payments |
— | ( |
) | — | ( |
) | ||||||||||
Total changes from financing cash flows |
( |
) | ( |
) | ( |
) | ||||||||||
Other changes: |
||||||||||||||||
Addition of lease liabilities |
— | — | ||||||||||||||
Issuance costs on short-term bonds |
— | — | ||||||||||||||
Interest expense |
— | — | ||||||||||||||
Others |
— | — | ( |
) | ( |
) | ||||||||||
Total other changes |
( |
) | ( |
) | ||||||||||||
As at 31 December 2021 and 1 January 2022 |
||||||||||||||||
Changes from financing cash flows: |
||||||||||||||||
Proceeds from new bank loans |
— | — | ||||||||||||||
Repayment of bank loans |
( |
) | — | — | ( |
) | ||||||||||
Proceeds from short-term bonds |
— | — | ||||||||||||||
Repayments of short-term bonds |
— | — | ( |
) | ( |
) | ||||||||||
Principal elements of lease payments |
— | ( |
) | — | ( |
) | ||||||||||
Total changes from financing cash flows |
( |
) | ( |
) | ( |
) | ||||||||||
Other changes: |
||||||||||||||||
Addition of lease liabilities |
— | — | ||||||||||||||
Total other changes |
— | |||||||||||||||
As at 31 December 2022 |
||||||||||||||||
| 23 | Cash and cash equivalents (continued) |
| (d) | Total cash outflow for leases |
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Within operating cash flows |
( |
) | ( |
) | ( |
) | ||||||
Within financing cash flows |
( |
) | ( |
) | ( |
) | ||||||
| ( |
) | ( |
) | ( |
) | |||||||
| 2020 | 2021 | 2022 | ||||||||||
| RMB’000 | RMB’000 | RMB’000 | ||||||||||
Lease rentals paid |
( |
) | ( |
) | ( |
) | ||||||
| 24 | Time deposits with banks |
As at 31 December |
||||||||
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
T ime deposits with maturity less than one year |
||||||||
Time deposits with maturity more than one year |
||||||||
| 25 | Financial assets at fair value through other comprehensive income |
| As at 31 December | ||||||||
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
| Trade and bills receivable (i) |
||||||||
| - Amounts due from related parties (note 22) |
||||||||
| - Others |
||||||||
| |
|
|
|
|||||
| Equity investments |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
(i) |
As at 31 December 2021 and 2022, certain trade receivables and bills receivable were classified as financial assets at FVOCI, as the Group’s business model is achieved both by collecting contractual cash flows and selling of these assets. |
| (ii) | As at 31 December 2022, the Group discounted certain bank acceptance bills to banks for cash proceeds and endorsed certain bank acceptance bills to suppliers on a full recourse basis for settling trade payables of the same amount. The Group has derecognized these bills receivable and the payables to suppliers in their entirety. These derecognized bank acceptance bills had a maturity date less than twelve months from the end of the reporting period. In the opinion of the directors, the Group has transferred substantially all the risks and rewards of ownership of these bills to its suppliers, and the Group has limited exposure in respect of the settlement obligation of these bills receivable under the relevant PRC rules and regulations should the issuing banks fail to settle the bills on maturity date. The Group considered the issuing banks of the bills are of good credit rating and the non-settlement of these bills by the issuing banks on maturity is not probable. |
| 26 | Borrowings |
| As at 31 December 2021 |
As at 31 December 2022 |
|||||||
| RMB’000 | RMB’000 | |||||||
| Credit loans due within one year |
||||||||
| - Short term bank loan |
||||||||
| Credit loans due over one year but within three years |
||||||||
| - Long-term borrowing from a related party (note 3 2 (c)) |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| (a) | The analysis of the repayment schedule of borrowings are as follows: |
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
| Within 1 year or on demand |
||||||||
| Over one year but within two years |
||||||||
| Over two years but within three years |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| 27 | Trade and other payables |
As at 31 December |
||||||||
2021 |
2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Trade payables |
||||||||
Bills payable |
||||||||
Amounts due to related parties exclude advances received (*) |
||||||||
Dividends payable |
||||||||
Construction payable |
||||||||
Accrued expenses |
||||||||
Other liabilities |
||||||||
Financial liabilities measured at amortized cost |
||||||||
Amounts due to related parties – advances received (*) |
||||||||
Amounts due to related parties – measured at fair value through profit or loss (FVPL) (*) (note i) |
||||||||
Total amount due to related parties (summary of *) |
||||||||
| 27 | Trade and other payables (continued) |
| As at 31 December | ||||||||
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
Within one year |
||||||||
Over one year within two years |
||||||||
Over two years |
||||||||
| 28 | Contract liabilities |
| As at 31 December | ||||||||
| 2021 | 2022 | |||||||
| RMB’000 | RMB’000 | |||||||
Contract liabilities |
||||||||
| 29 | Deferred income |
2021 |
2022 |
|||||||
| RMB’000 | RMB’000 | |||||||
As at 1 January |
||||||||
Additions |
||||||||
Amortization |
( |
) | ( |
) | ||||
As at 31 December |
||||||||
30 |
Share capital |
(i) |
Issued share captial |
Number of shares |
Amount |
|||||||
| ’000 | RMB’000 | |||||||
As at 31 December 2021, 1 January 2022 and 31 December 2022 |
||||||||
Registered, issued and fully paid: |
||||||||
Ordinary A shares listed in PRC |
||||||||
Foreign invested H shares listed overseas |
||||||||
Total |
||||||||
(ii) |
Purchase of own shares |
Month/year |
Number of shares repurchased |
Highest price paid per share |
Lowest price paid per share |
Aggregate price paid |
||||||||||||
HKD |
HKD |
RMB’000 |
||||||||||||||
October 2022 |
||||||||||||||||
November 2022 |
||||||||||||||||
December 2022 |
||||||||||||||||
| 31 | Reserves |
| Legal surplus |
Capital surplus |
Surplus reserve |
Other reserve |
Hedging reserve |
Share premium |
Safety production fund |
Treasury shares |
Retained earnings |
Total | |||||||||||||||||||||||||||||||
| (note(a)) | (note(b)) | (note(c)) | (note(d)) | (note 3.1(a)) | (note(e)) | (note(f)) | (note 30(ii)) | (note(g)) | ||||||||||||||||||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | |||||||||||||||||||||||||||||||
Balance at 1 January 2021 |
||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year attributable to shareholders of the Company |
||||||||||||||||||||||||||||||||||||||||
Amounts transferred from hedging reserve to initial carrying amount of hedged items |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
Dividends declared and approved in respect of previous year |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
Transfer to legal surplus |
( |
) | ||||||||||||||||||||||||||||||||||||||
Appropriation of safety production fund |
( |
|||||||||||||||||||||||||||||||||||||||
Balance at 31 December 2021 and 1 January 2022 |
||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year attributable to shareholders of the Company |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
Amounts transferred from hedging reserve to initial carrying amount of hedged items |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
Dividends declared and approved in respect of previous year |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
Purchase of own shares |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
Appropriation of safety production fund |
( |
) | ||||||||||||||||||||||||||||||||||||||
Balance at 31 December 2022 |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| 31 | Reserves (continued) |
32 |
Related-party transactions |
| Names of related parties | Relationship with the Company | |||
| China International United Petroleum & Chemicals Co., Ltd. | ||||
| Sinopec Chemical Sales Company Limited | ||||
| Sinopec Chemical Commercial Holding Company Limited | ||||
| Petro-cyberworks Information Technology Co., Ltd. | ||||
| Lianhua (Ningbo) International Logistics Co., Ltd. | ||||
| Zhongke (Guangdong) Refining & Chemical Co., Ltd. | ||||
| Sinopec Marketing Co., Ltd. | ||||
| Sinopec Fuel Oil Sales Co., Ltd. | ||||
| Sinopec Lubricant Co., Ltd. | ||||
| Sinopec Yangzi Petrochemical Co., Ltd. | ||||
| China Petrochemical International (Beijing) Company Limited | ||||
| Sinopec Catalysts Co., Ltd. | ||||
| China Petrochemical International (Shanghai) Co., Ltd. | ||||
| Sinopec Beijing Research Institute of Chemical Industry | ||||
| China Petrochemical International (Ningbo) Co., Ltd. | ||||
| Zhoushan Shihua Crude Oil Terminal Co., Ltd. | ||||
| Dalian Sinopec Material Equip Company | ||||
| Sinopec Material & Equipment (East China) Co., Ltd. | ||||
| China Petrochemical International (Nanjing) Co., Ltd. | ||||
| Sinopec Honeywell (Tianjin) Company Limited | ||||
| China Petrochemical International (Wuhan) Co., Ltd. | ||||
| China Petrochemical International Co., Ltd. | ||||
| China Petrochemical Refinery Sales Co., Ltd. | ||||
| Sinopec Shanghai Gaoqiao Petrochemical Co., Ltd. | ||||
| China Petrochemical International (Tianjin) Co., Ltd. | ||||
| Ningbo East sea Line fan Technology Company Limited | ||||
| Sinopec Petroleum & Chemical Scientific Research Institute Dadi Company |
||||
| Sinopec Shanghai Research Institute of Petrochemical Technology | ||||
| Sinopec Lubricating Oil Shanghai Research Institute Company Limited | ||||
| Dalian Furuipu Technology Co., Ltd. | ||||
| Nantong Donghai Petrochemical Co., Ltd. | ||||
| China Petroleum and Chemical Corporation Qingdao Security Engineering Research Institute |
||||
| Sinopec (Shanghai) Energy Trade Co., Ltd. | ||||
| Storage and Transportation Installation Company of Ningbo Engineering Company Limited |
||||
| Sinopec Chemical Commercial Holding (Hong Kong) Company Limited |
||||
| Sinopec Yizheng Chemical Fibre Limited Liability Company | ||||
| Fujian Gulei Petrochemical Company Limited | ||||
| Sinopec China East Chemical Sales Co., Ltd. |
| 32 | Related-party transactions (continued) |
| Names of related parties | Relationship with the Company | |||
| Unipec Singapore | ||||
| China Yanshan United Foreign Trade Co., Ltd. | ||||
| Sinopec Chemical Commercial Holding (Wuhan) Company Limited | ||||
| Nanjing Yangzi Petrol-chemical Industry Co., Ltd. | ||||
| Sinopec Baling Petrochemical Co., Ltd. | ||||
| Shengli Oil Field Exploration and Development Research Institute | ||||
| Shanghai Lide Catalyst Co., Ltd. | ||||
Ypc-gpro (Nanjing) Rubber Co., Ltd. |
||||
| Fujian Refining & Petrochemical Company Limited | ||||
| Sinopec Dalian (Fushun) Research Institute of Petroleum and Petrochemicals | ||||
| Sinopec Jianghan Salt Chemical Hubei Co., Ltd. | ||||
| Yipaike Business Factoring Co., Ltd. | ||||
| Sinopec Great Wall Energy and Chemical (Ningxia) Co., Ltd. | ||||
| Sinopec (Shenzhen) E-Commerce Company Limited |
||||
| Sinopec Research Institute of Safety Engineering | ||||
| Ningbo Minggang Gas Company Limited | ||||
| Sinopec Zhongyuan Petrol-Chemical Industry Co., Ltd. | ||||
| Epec E-commerce Co., Ltd. |
||||
| Sinopec Oil Refining and Marketing (Shanghai) Co., Ltd. | ||||
| Sinopec Chemical Sales (Guangdong) Co., Ltd. | ||||
| Unipec (Qingdao) International Logistics Company Limited |
32 |
Related-party transactions (continued) |
| Names of related parties | Relationship with the Company | |||
| Qingdao Zhonghua Sunshine Management System Certification Center | ||||
| Zhejiang Baling Hengyi Caprolactam Limited Company | ||||
| Shanghai Sinopec Mitsui Chemicals, Co., Ltd . |
||||
Basf-ypc Company Limited |
||||
| Shanghai Changshi Shipping Co., Ltd. | ||||
| Shanghai KSD Bulk Solids Engineering Co., Ltd. | ||||
| Basf Gao-Qiao Performance Chemicals (Shanghai) Company Limited |
||||
| Sinopec Chemical Commercial Holding (Singapore) Pte. Ltd . |
||||
| Sinopec Finance Co., Ltd. | ||||
| Sinopec Chemical Commercial Holding Company Limited | ||||
| Sinopec Nanjing Chemical Research Institute Co., Ltd. | ||||
| China Economy Phulishing House Co., Ltd. | ||||
| Sinopec Publishing House Co., Ltd. | ||||
| Sinopec International Travel Service Co., Ltd. | ||||
| Sinopec Assets Management Co., Ltd. | ||||
| Ningbo Engineering Company of Sinopec | ||||
| Sinopec Shared Service Co., Ltd. | ||||
| Sinopec Petroleum Engineering Geophysics Ltd. | ||||
| Sinopec Baichuan Economic and Trade Company | ||||
| Sinopec Group Jiangsu Petroleum Exploration Bureau Co., Ltd. | ||||
| Sinopec Newspaper Office | ||||
| Sinopec Energy Saving Technology Service Co., Ltd. | ||||
| Sinopec Group Economic and Technology Research Institute Co., Ltd. |
32 |
Related-party transactions (continued) |
| Names of related parties | Relationship with the Company | |||
| Beijing Petro-Chemical Construction Consulting Co., Ltd. | ||||
| China Economicbooks Co., Ltd. | ||||
| Petrol-Chemical Industry Management Cadre College | ||||
| Sinopec Engineering Quality Supervision Terminal | ||||
| Sinopec Group Shanghai Training Center Ltd. | ||||
| Sinopec Beijing Yanshan Petrochemical Co., Ltd. | ||||
| Sinopec Zhongyuan Petroleum Exploration Bureau Co., Ltd. | ||||
| Sinopec Shengli Petroleum Administration Co., Ltd. | ||||
| The Fourth Construction Company of Sinopec | ||||
| Sinopec Tending Co., Ltd. | ||||
| Sinopec Shanghai Engineering Co., Ltd. | ||||
| Sinopec Engineering Incorporation | ||||
| Sinopec Engineering Quality Monitoring Co., Ltd. | ||||
| Sinopec Engineering(Group)Co.,Ltd. | ||||
| National Petrochemical Project Risk Assessment Technology Center | ||||
| The Tenth Construction Company of Sinopec | ||||
| The Fifth Construction Company of Sinopec | ||||
| Shanghai Petrochemical Machinery Manufacturing Co., Ltd. | ||||
| Sinopec Nanjing Engineering Company Limited | ||||
| Sinopec Luoyang Engineering Company Limited | ||||
| Jiangsu Jinling Opta Polymer Company Limited | ||||
| Shanghai Petro-Chemical Haidi Administration Co., Ltd. | ||||
| Sinopec Sichuan Uinylon Works | ||||
China Petrochemical Corp. Nanjing Chemistry Industrial Co., Ltd. |
| 32 | Related-party transactions (continued) |
| Names of related parties | Relationship with the Company | |||
Sinopec Group International Petroleum Exploration And Production Limited |
||||
| Sinopec Consulting Company Limited | ||||
| China Petrochemical Corp. Engineering Ration Management Station | ||||
| Beijing Victory Hotel Company Limited | ||||
| Maoming Shihua Dongcheng Chemical Co., Ltd. | ||||
| Yihua Tory Polyester Film Company Limited | ||||
| China Sinopec Pipeline Storage and Transportation Co., Ltd. | ||||
| Yihua Bonar Yarns and Fabrics Co., Ltd. | ||||
| Unipec Singapore | ||||
| Unipec America, Inc | ||||
| Sinopec Japan Company Limited | ||||
| Rizhao Shihua Crude Oil Terminal Co., Ltd. | ||||
| Sinopec Europe Company Limited | ||||
| Sinopec Chemical Commercial Holding (North America), Inc. | ||||
| Sinopec International (Australia) Pty. Ltd. | ||||
| Sinopec Easy Joy sales CO., Ltd. | ||||
Sinopec National Petrochemical Project Risk Assessment Technology Center Co., Ltd. |
||||
| Sinopec International (Russia) Pty. Ltd. | ||||
| Sinopec Jianghan Petroleum Administration Co., Ltd. | ||||
| Sinopec America Company Limited | ||||
| Sinopec (Beijing) Chemical Research Institute Co., Ltd. | ||||
Sinopec-Sk(Wuhan)Petrochemical Co., Ltd. |
||||
| Shanghai Petroleum&Natural Gas General Co., Ltd. | ||||
| Beijing Heyuan Jingyi Hotel Co., Ltd. | ||||
| Sinopec Henan Oilfield Training Center | ||||
Sinopec Jiangsu Petroleum Exploration Bureau Co., Ltd. Training Center |
||||
| Sinopec Capital Co., Ltd. |
| 32 | Related-party transactions (continued) |
| (a) | Most of the transactions undertaken by the Group during the year ended 31 December 2022 have been affected on such terms as determined by Sinopec Corp. and relevant PRC authorities. |
| • | 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 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). |
| 2020 RMB’000 |
2021 RMB’000 |
2022 RMB’000 |
||||||||||
Sales of petroleum products |
||||||||||||
Sales other than petroleum products |
||||||||||||
Purchases of crude oil |
||||||||||||
Purchases other than crude oil |
||||||||||||
Commission expense |
||||||||||||
Rental income |
||||||||||||
| 32 | 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 years ended 31 December 2020, 2021 and 2022 were as follows: |
| 2020 RMB’000 |
2021 RMB’000 |
2022 RMB’000 |
||||||||||
| Sales of goods and service fee income |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| - Associates and joint ventures of the Group |
||||||||||||
| |
|
|
|
|
|
|||||||
| |
|
|
|
|
|
|||||||
| Purchases |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| - Associates and joint ventures of the Group |
||||||||||||
| |
|
|
|
|
|
|||||||
| |
|
|
|
|
|
|||||||
| Insurance premium expenses |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| |
|
|
|
|
|
|||||||
| Addition to right-of-use |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense of lease liabilities |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| - Joint ventures of the Group |
||||||||||||
| |
|
|
|
|||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expens e |
|
|
|
|
|
|
|
|
|
|
|
|
| - Sinopec Finance |
| |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest income |
||||||||||||
| - Sinopec Finance |
||||||||||||
| - Joint ventures of the Group |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Construction and installation cost |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Rental income |
||||||||||||
| - Associates and joint ventures of the Group |
||||||||||||
| - Sinopec Group and its subsidiaries |
||||||||||||
| |
|
|
|
|||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term borrowings |
||||||||||||
| - Sinopec Finance |
||||||||||||
| |
|
|
|
|
|
|||||||
| 32 | 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 3 2 (a) and 32 (b), are summarized as follows: |
As at 31 December 2021 |
As at 31 December 2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
| Amounts due from related parties |
||||||||
| - Sinopec Corp., its subsidiaries and joint ventures |
||||||||
| - Associates and joint ventures of the Group |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Amounts due to related parties |
||||||||
| - Sinopec Corp., its subsidiaries and joint ventures |
||||||||
| - Sinopec Group and its subsidiaries |
||||||||
| - Associates and joint ventures of the Group |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Lease liabilities |
||||||||
| - Sinopec Group and its subsidiaries |
||||||||
| - Joint ventures of the Group |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Cash deposits, maturing within three months |
||||||||
| - Sinopec Finance (note d) |
||||||||
| |
|
|
|
|||||
| Long-term borrowings |
||||||||
| - Sinopec Finance |
||||||||
| |
|
|
|
|||||
| (d) | As at 31 December 2021, cash deposits at Sinopec Finance were charged at an interest rate of annum. |
| 32 | Related-party transactions (continued) |
| (e) | Key management personnel compensation, post-employment benefit plans and share options |
Years ended 31 December |
||||||||||||
2020 |
2021 |
2022 |
||||||||||
RMB’000 |
RMB’000 |
RMB’000 |
||||||||||
Short-term employee benefits |
||||||||||||
Post-employment benefits |
||||||||||||
| (f) | Transactions with other state-owned entities in the PRC |
| • | sales and purchases of goods and ancillary materials; |
| • | rendering and receiving services; |
| • | lease of assets, purchase of property, plant and equipment; |
| • | placing deposits and obtaining finance; and |
| • | use of public utilities |
| (g) | Commitments with related parties |
| (i) | Construction and installation cost |
| As at 31 December 2021 RMB’000 |
As at 31 December 2022 RMB’000 |
|||||||
Sinopec Group and its subsidiaries |
||||||||
| 32 | Related-party transactions (continued) |
| (h) | Investment commitments with related parties |
| As at 31 December 2021 RMB’000 |
As at 31 December 2022 RMB’000 |
|||||||
Capital contribution to Shanghai Secco (i) |
||||||||
Capital contribution to Shanghai Shidian Energy Company |
||||||||
Limited (“Shidian Energy”) (ii) |
||||||||
Capital contribution to Baling Materials (iii) |
||||||||
| (i) | Pursuant to the resolution of the 18th meeting of the 7th term of Board of Directors on 5 December 2013, the Group was approved to make a capital contribution of USD |
| (ii) | Pursuant to the articles of association of Shidian Energy in August 2019 , Toufa agreed to make a capital contribution of RMB |
| (iii) | Sinopec Baling Petrochemical Co., Ltd and the Company jointly established Baling Materials on 7 September 2021, each with a cash contribution of RMB paid-up capital contribution of RMB |
| 33 | Dividend |
| (a) | Dividends payable to equity shareholders of the Company attributable to the year: |
2021 RMB’000 |
2022 RMB’000 |
|||||||
(2021: RMB |
||||||||
| 33 | Dividend (continued) |
| (b) | Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year |
| 2021 RMB’000 |
2022 RMB’000 |
|||||||
| Final dividend in respect of the previous financial year, approved and paid during the year, of RMB |
||||||||
| 34 | Commitments |
| As at 31 December 2021 RMB’000 |
As at 31 December 2022 RMB’000 |
|||||||
Property, plant and equipment contracted for |
||||||||
35 |
Statements of financial position and equity movement of the Company |
As at 31 December 2021 |
As at 31 December 2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Non-current assets |
||||||||
Property, plant and equipment |
||||||||
Investment properties |
||||||||
Right-of-use |
||||||||
Construction in progress |
||||||||
Investments in subsidiaries |
||||||||
Investments accounted for using the equity method |
||||||||
Time deposits with banks |
||||||||
Deferred tax assets |
||||||||
Other non-current assets |
||||||||
Current assets |
||||||||
Derivative financial instruments |
||||||||
Inventories |
||||||||
Trade receivables |
||||||||
Other receivables |
||||||||
Amounts due from related parties |
||||||||
Prepayments |
||||||||
Value added tax recoverable |
||||||||
Financial assets at fair value through other comprehensive income (FVOCI) |
||||||||
Time deposits with banks |
||||||||
Cash and cash equivalents |
||||||||
Current liabilities |
||||||||
Trade and other payables |
||||||||
Contract liabilities |
||||||||
Amounts due to related parties |
||||||||
Staff salaries and welfares payable |
||||||||
Borrowings |
||||||||
Lease liabilities |
||||||||
Derivative financial instruments |
||||||||
Income tax payable |
||||||||
Current tax liabilities |
||||||||
Net current assets |
||||||||
35 |
Statements of financial position and equity movement of the Company (continued) |
As at 31 December 2021 |
As at 31 December 2022 |
|||||||
RMB’000 |
RMB’000 |
|||||||
Total assets less current liabilities |
||||||||
Non-current liabilities |
||||||||
Interest-bearing borrowings |
||||||||
Lease liabilities |
||||||||
Deferred income |
||||||||
NET ASSETS |
||||||||
CAPITAL AND RESERVES |
||||||||
Share capital |
||||||||
Reserves |
||||||||
TOTAL EQUITY |
||||||||
) |
||||
) |
||||
Wan Tao |
) |
|||
) |
||||
) |
Directors | |||
) |
||||
Du Jun |
) |
|||
) |
||||
) |
35 |
Statements of financial position and equity moveme nt of the Company (continued) |
(a) |
Movements in components of equity of the Company |
| Share capital RMB’000 |
Legal surplus RMB’000 |
Capital surplus RMB’000 |
Surplus reserve RMB’000 |
Other reserve RMB’000 |
Hedging reserve RMB’000 |
Share premium RMB’000 |
Safety production fund RMB’000 |
Treasury reserve RMB’000 |
Retained earnings RMB’000 |
Total RMB’000 |
||||||||||||||||||||||||||||||||||
Balance at 1 January 2021 |
||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year |
||||||||||||||||||||||||||||||||||||||||||||
Amounts transferred from hedging reserve to initial carrying amount of hedged items |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Dividends declared and approved in respect of previous year |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Transfer to legal surplus |
( |
) | ||||||||||||||||||||||||||||||||||||||||||
Appropriation of safety production fund |
( |
) | ||||||||||||||||||||||||||||||||||||||||||
Balance at 31 December 2021 and 1 January 2022 |
||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income for the year |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||
Amounts transferred from hedging reserve to initial carrying amount of hedged items |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Dividends declared and approved in respect of previous year |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Purchase of own shares |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Appropriation of safety production fund |
( |
) | ||||||||||||||||||||||||||||||||||||||||||
Balance at 31 December 2022 |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
36 |
Comparative figures |
37 |
Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2022 |
Effective for accounting periods beginning on or after |
||||
IFRS 17, Insurance contracts |
||||
Amendments to IAS 1, Presentation of financial statements: Classification of liabilities as current or non-current |
||||
Amendments to IAS 1, Presentation of financial statements and IFRS Practice Statement 2, Making materiality judgements: Disclosure of accounting policies |
||||
Amendments to IAS 8, Accounting policies, changes in accounting estimates and errors: Definition of accounting estimates |
||||
Amendments to IAS 12, Income taxes: Deferred tax related to assets and liabilities arising from a single transaction |
||||