中國石化 (SNP) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Sinopec 2012 annual results announcement.

You have probably noticed that Chairman Fu is not with us today. He sends his regards. But we have a video message from him which will be played shortly. I believe you will like it.

However, first let me introduce our management team, who will present to you our results and address any questions you may have. First, Mr. Wang Tianpu, the Vice Chairman and President of the Company; at his left, Mr. Wang Xinhua, CFO of the Company; and myself, the Secretary to the Board.

Mr. Wang Tianpu will review our business performance, followed by Mr. Wang Xinhua who will present to you our financial details. Before that, let me direct your attention to the screen for the Chairman Fu's video message. Please.

Dear friends, an open communication with you is very important to me and a priority for Sinopec. So I cannot be with you in person today, for which I feel very sorry. I sincerely hope this video message conveys my gratitude for the time you spend with us.

The economic environment in year 2012, both internationally and domestically, has been challenging. The first half of 2012 witnessed an economic slowdown. We managed to maintain our overall growth momentum. In the second half, the domestic market reacted positively to expectations that the Chinese government would implement a series of policies to drive steady economic growth, infrastructure investment and consumer spending. And Sinopec did successfully capture the opportunity with good growth, thanks to our improving production efficiency and business integration.

We are also pleased to announce today that the acquisition of overseas assets from the parent company is underway. This acquisition will further enhance our resources, productivity and profits in upstream, and greatly help vertically balancing our integrated business model and commercial efficiency. I'm a strong believer that bringing these assets into (inaudible) is good for all our shareholders. The transaction has been approved by our independent directors, on advice from independent financial advisors.

Shareholder value remains one of our key priorities and we are confident that Sinopec will continue to grow, thanks to all your trust and support. Today, we also announce an increased dividend, which takes our cash payout ratio up to a historic high of 41%, together with bonus share dividend. This reflects our dividend -- our confidence in the future of our business.

I now leave you to my colleagues, including President Wang Tianpu, who will take you through our presentation in more detail and answer any questions you may have. Thank you very much.

All right. That is the message from my Chairman. Now I would like you to join me inviting Mr. Wang Tianbu to review our business performance for year 2012. President Wang, please.

(Interpreted). Ladies and gentlemen, welcome to Sinopec 2012 results announcement.

Our presentation covers four parts. I will highlight 2012 performance first. Then, CFO Mr. Wang Xinhua will present the operational results by each segment, our 2013 operational plan and acquisition of upstream assets from parent company.

In the first half of 2012, China's economy faced slower growth and a downturn market. In the latter half, macro economy gradually recovered. GDP in 2012 grew by 7.8%. Domestic demand for gasoline grew fast. Demand for diesel grew at a lower rate. Demand for and price of chemicals were both low.

In 2012, domestic consumption of oil products went up 3.3% and that of ethylene equivalent up 2.7%. In 2012, international crude price moved in a wide range, rising high in the first quarter, plummeting in the second quarter, rebounding quickly and remaining high and volatile after that. With domestic oil products price more and more responsive to crude price change, refining margin improved.

In 2012, in response to market change, we implemented operations management, stressing a safe production and emission cutting and continue to expand business scale. Oil and gas production grew by 4.9%. Sales and distribution structure improved. Domestic sales volume of oil products up by 5.2%, higher than consumption growth. Refining and chemical, in light of market conditions, adjusted product mix and facility load. Good results were achieved in all segments.

In 2012, our revenues continued to grow despite slow economic growth, regulated oil product price and a downturn chemical market. We achieved operating profit of CNY98.7b, down 6.5%, with improved performance in the latter half of the year.

On December 31, 2012, total equity attributable to shareholders of the Company was CNY510.9b, growing continually. In 2012, net cash from operating activities was CNY142.4b. Net cash used in investing activities was CNY162.2b. With more low-cost US dollar loan, we reduced financing costs and optimized the financial structure. Net cash from financing activities was CNY5.6b.

The Company's operation keeps good momentum. The management are confident of our sustainable growth and would like to share growth with our shareholders.

The Board proposed a yearend cash dividend of CNY0.2 and a full-year cash dividend of CNY0.1, flat with last year -- and full-year cash dividend of CNY0.3, flat with last year. And in addition, for every 10 existing shares, to distribute 2 bonus shares from retained earnings and 1 bonus share from capital reserve. In recent years we increased dividend payout ratio every year. In 2012, the payout ratio was 40.8%, a big rise year on year. Based on full-year average H share price, dividend yield was 4.65%.

In 2012, focusing on growth and restructuring, we made a CapEx of CNY169b. For CapEx breakdown, E&P was CNY79.1b, with E&P activities in five major areas in China, reserve and output increased, natural gas output grew significantly. Refining was CNY32.2b, with crude throughput growing, quality enhanced, product mix optimized, technical and economic indicators improved. Marketing and distribution was CNY31.7b, mainly in improving marketing network. Chemicals was CNY23.6b, mainly for transition to differentiated products. Corporate and others was CNY2.4b, mainly for R&D facilities, units and IT.

We put in effect HSE accountability in every level, improved hidden hazard control and emergency response, and achieved safe and clean production.

Following low-carbon growth strategy, we stressed on environment production, optimized industrial structure, promoted green technologies, stepped up key energy-saving and emission-cutting projects, and implemented energy management contracts. With business expanding, energy consumption per CNY10,000 output was down 2.2%, COD down 3.67%, SO2 emission down 3.75%, over 95% of industrial water recycled and all hazardous chemicals and industrial wastes properly disposed.

In 2012, while achieving growth, Sinopec made real progress in fulfilling social responsibility. The Company focused on low-carbon growth, produced clean products in a clean process and enhanced service level to satisfy consumers. We made efforts to help the poor, promote local education and cultural and economy. We set a good example as a responsible corporate citizen and motivated our suppliers to follow suit for sustainable growth.

Now I'd like to invite CFO Mr. Wang Xinhua to present our results by each segment. Thank you.

(Interpreted). Thank you, President Wang. Now I will present 2012 operational results.

In E&P, we focused on exploration of key areas, reaching a reserve production balance in China. For crude oil, we sped up development of new areas and enhanced recovery rate of mature oil fields. For natural gas, we paced up capacity building in Sichuan Basin, Ordos Basin and Dawan Block of Puguang Gas Field. For unconventional resources, we built up 1b cubic meters of tight gas capacity in Ordos Basin and initiated the first shale gas demo project in Fuling.

Oil and gas output of 2012 was 428m boe, with crude output up 2% and natural gas output up 15.7%. Lifting cost was $17.51 per barrel, up 6.4% excluding exchange rate effect.

Realized crude price for the year averaged $100.2 per barrel. Realized gas price was $5.79 per 1,000 cubic feet. Operating profit of E&P was CNY70b, down 2.2% year on year.

In 2012, following market change, we increased refining throughput and optimized product mix by producing more gasoline, jet fuel and high value-added products. We sped up fuel quality upgrading, supplying Beijing V standard fuel to Beijing. We enhanced energy efficiency and refinery operation, with major indicators improving every year. Refining throughput was 221m tonnes, up 1.8%. Refined products output was 133m tonnes, up 3.9%.

Operating cost for refining was $3.39 per barrel, up 5.3% excluding exchange rate effect. With domestic oil product price more and more responsive to crude price change, refining margin improved. Refining suffered a big loss in the first half of the year, and in the latter half got better each quarter and turned around.

We actively responded to market changes and adjusted marketing strategies. We focused on product quality and services to secure market share, coordinated and optimized logistics and promoted centralized procurement to reduce procurement costs and logistics expenses, reinforced quality supervision and outsourcing management to ensure refined products quality. Total sales of oil products was 173m tonnes, among which domestic sales rose to 159m tonnes, up 5.2%, and retail business grew by 7.6%.

We expanded one-stop service and non-fuel products. Non-fuel product sales grew by 33.2% year on year. Operating profit of marketing and distribution was CNY42.7b.

Due to demand change, we timely adjusted facility load and production plan, cutting ethylene production by 4.5%. We strengthened combination of production, marketing and research, optimized product mix by developing new products and specialties and increasing output of high value-added products, optimized feedstock structure, reduced feedstock costs, operated a low inventory, implemented a differentiated marketing strategy and played a leading role in the market. Chemical sales reached 54.35m tonnes, up 7%.

Now I will brief on 2013 operational plan. In 2013, world economy will face a slow recovery, with complications and uncertainties. Slow economic growth will continue. Chinese economy is stabilizing. Due to macroeconomic conditions, home and abroad, oil and chemicals markets will be tough.

Crude oil price is expected to remain high and volatile. The government has proposed to pace up industrial restructuring, advance industrialization, urbanization, IT application and agro modernization. Policies and measures will be taken to expand domestic demand and improve oil products and natural gas pricing schemes, creating favorable conditions for the Company.

In 2013, the planned CapEx. In 2013, continuing to focus on development quality and efficiency, the Company will well manage the CapEx. The planned CapEx will be CNY181.7b, among which CNY89.1b for E&P, CNY33.8b for refining, CNY27b for marketing and distribution, CNY25.9b for chemicals and CNY5.9b for corporate and others.

In 2013, focusing on the market and profitability, we plan to well arrange production and operation. In E&P, we plan to produce 436.5m boe. In refining, we plan to upgrade product quality, take both home and overseas markets into account, and adjust facility load based on market. We plan to process 238m tonnes of crude.

In marketing and distribution, we plan to win the market with a mature network and quality products and services. Domestic sales volume of oil products is planned at 165m tonnes. In chemicals, we will leverage our advantage and adjust processing volume based on market. Planned ethylene production is 9.83m tonnes.

Now I will present overseas upstream asset acquisition from the parent company. In order to expand our upstream business scale, lift our profitability and enterprise value, strike balance among business segments, we plan to acquire some overseas upstream assets from Sinopec Group.

A 50/50 joint venture will be set up between Sinopec Group and Sinopec Corp. Sinopec Corp. will have actual control over the JV through contractual arrangements. The JV will acquire equity of three projects in Kazakhstan, Russia and Colombia.

The consideration is $3b. Sale share is $2.559b, $9.91 per barrel for P1 reserve, $8.25 per barrel for 2P reserve. In addition, the JV will give shareholder's loan and a special dividend.

The three assets are stable in production. With high proportion of P1 reserve and rich potential resources, they are expected to bring 310m boe of 2P reserve and 220m boe of 2C reserve. Most of the reserve is crude oil. P1 reserve accounts for 83% of the total. The acquisition will bring substantial potential to the Company.

With this deal, our E&P business scale is expected to expand. Overall profitability and enterprise value further enhanced. P1 reserve for crude oil is expected to exceed 3.1b boe, up by 9.1%. Annual crude oil product output up by 11.2% to 365m boe. Besides, the weighted average lifting cost of these assets is $7.8 per barrel, lower than the global integrated oil companies' average. Lower operating cost will help to lift the overall E&P profitability.

Upon completion of the deal, the pro forma EPS of 2012 is expected to rise to CNY0.747 from CNY0.731, up 2.2%.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call.  The interpreter was provided by the Company sponsoring this Event.