Sinopec sees 200% increase in 1Q16 net profit

China Petroleum & Chemical Corporation (Sinopec) has announced its unaudited results for the three months ended 31 March 2016.

Financial highlights

Amid low oil prices, the company's midstream and downstream segments became the main profit growth drivers. Operating profits from the Refining, Marketing and Distribution, and Chemical segments all recorded significant growth compared to the same period last year, reflecting its integrated advantages.

In accordance with the International Financial Reporting Standards (IFRS), the company's operating profit was RMB13.06 billion, up by 153.4% y/y. Profit for the period was RMB9.56 billion, increased by 267.7% y/y. Net profit attributable to owners of the company was RMB6.66 billion, increased by 206.8% y/y. Basic earnings per share (EPS) were RMB0.055.

In accordance with China Accounting Standards for Business Enterprises (ASBE), the company's operating profit was RMB12.31 billion, significantly increased by four fold y/y. Net profit was RMB9.03 billion, increased by 355.8% y/y. Net profit attributable to equity shareholders of the company was RMB6.19 billion, increased by 267.1% y/y. Basic earnings per share (EPS) were RMB0.051.

The company's financial position continued to improve during the first quarter. In accordance with IFRS, the company's net cash flow from operating activities was RMB 34.35 billion, increased by 414.0% y/y. Net cash used in investing activities decreased RMB11.81 billion compared to same period last year. Cash and cash equivalents at the end of the first quarter was RMB63.15 billion. Liabilities-to-assets ratio at the end of the first quarter was 43.11%, down by 2.55 percentage points from the year end of 2015.

Business review

In the first quarter of 2016, focusing on the growth of quality and profitability, the company intensified its evaluation of macro-economy and market trends and actively responded to these changes. The company emphasised on reform and innovation, stringent management and tight coordination of all aspects of work.

Exploration and Production

Through projects optimisation and implementation of a flexible investment decision making mechanism in response to oil price fluctuations, the company reduced its high-cost oil production. In exploration, the company actively carried forward high efficiency exploration activities, making a number of discoveries in Sichuan Basin, Ordos Basin, and Central Tahe Basin. In terms of development, the Company achieved steady progress in development of Fuling shale gas field (phase II), optimised development programs in mature oilfields and increased development in frontier acreages. In the first quarter, the oil and gas production of the company was 114.7 million bbls of oil equivalent, declined by 2.7%, out of which crude oil output down by 9.3% while natural gas up by 16.7%, compared with the same period last year. Impacted by the sustained low crude oil prices, Exploration and Production Segment had an operating loss of RMB12.53 billion.

Refining

The company adjusted the product mix in response to market demand by increasing production of gasoline and kerosene, maintained safe and stable refinery operations and upgraded refined oil products quality as scheduled. The company optimised resource allocation, controlled costs and took advantage of its strong economies of scale. By tapping well established advantages in specialisation, the company improved its profit margins in LPG, etc. In the first quarter, refinery throughput decreased by 2.4% and refined oil products production dropped by 1.4%, among which gasoline up by 4.7%, jet fuel up by 4.5% and diesel down by 8.0% over the same period last year. Benefited from product mix optimisation and the refined oil product pricing mechanism improvement, the Refining segment had an operating profit of RMB13.44 billion, a reversal from the loss making situation in the same period last year.

Marketing and Distribution

In response to the changes in supply and demand of refined oil products, the company optimised resource allocation and adjusted its marketing strategies and promoted the sales of high-octane gasoline and high value added products. In the transformation from a fuel supplier to a comprehensive service provider, the company optimised marketing network and reinforced mutual promotion between fuel and non-fuel businesses. As a result, total retail volume and throughput per station sustained growth despite of intense market competition. In the first quarter, total sales volume of refined oil products was 47.21 million t, up by 1.6% over the same period last year. Total domestic sales volume of refined oil products was 43.29 million t, up by 3.0%, of which retail volume reached 29.66 million tonnes, up by 2.6% over the same period last year. Transaction of non-fuel business reached RMB8.91 billion, up by 41.4% compared with the same period last year. The operating profit of the Marketing and Distribution segment was RMB7.69 billion, up by 45.6% compared with the same period last year.

Chemicals

The company fine tuned its feedstock mix to lower costs and enhanced the operations of its production facilities by adjusting utilisation rates based on marginal profitability, while keeping sustained safe and stable operations. The company strengthened the links among research and development, production, marketing and sales of new products, and increased production of high value added products tailored to market demands. In the first quarter, ethylene production reached 2.82 million t, up by 2.0% and chemical sales volume was 15.62 million t, up by 6.7% over the same period last year. Benefiting from feedstock mix and product slate adjustment, decreased feedstock costs and upgraded competitiveness of naphtha-based chemicals, the operating profit of the Chemicals Segment was RMB4.58 billion, up by 49.3% compared with the same period last year.

Capital expenditure

The company's capital expenditures were RMB5.53 billion in the first quarter. Capital expenditures for exploration and production segment were RMB1.34 billion, mainly for development in Fuling shale gas field, construction of LNG terminals in Guangxi and Tianjin, and construction of long distance gas pipelines such as the Jinan-Qingdao gas pipeline (phase II), as well as development in overseas projects. Capital expenditures for refining segment were RMB1.40 billion, mainly for gasoline and diesel quality upgrading projects and refinery revamping. Capital expenditures for marketing and distribution segment were RMB1.23 billion, mainly for revamping service stations and building refined oil product pipelines, oil depots and storage facilities, as well as for hazard rectification. Capital expenditures for chemicals segment were RMB1.53 billion, mainly for coal chemical projects, comprehensive utilisation of the resources project and the auxiliary facilities construction project.

Adapted from press release by Rosalie Starling

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