中國石化 (SNP) 2014 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to Sinopec 2014 annual results announcement. My name is Wensheng Huang, the Vice President and the Secretary to the Board of this Company. And those sitting, thank you for being here today. And for those sitting in the back, thank you for your understanding, given the limited space we have here.

Let me start by introducing our management team; Mr. Fu Chengyu, the Chairman of the Company; Mr. Li Chunguang, the President; Mr. Wang Xinhua, the CFO of the Company.

This has been an important year for Sinopec, with important highs, but some challenging times as well. The structural reform we are undertaking in our marketing business, with the introducing of significant investors has just been completed, and will bring a lot of the improvement in our business in this area. And Mr. Li will talk this in part of his presentations.

However, our refining and the marketing business has been heavily impact as global crude oil prices fell a cliff in the fourth quarter of last year.

In the last six months, the falling of the crude price have caused a decline in the retail sales price, while we were still carrying higher costs of crude. This has been hit the profit of the fourth quarter of last year, and the first quarter of this year as well, and you have find it from our announcement in last night.

Looking forward, [this risk] stabilized long-term lower prices are neutral for us, and the profit of the business should return. Mr. Wang Xinhua will discuss this in details in his presentation.

Now without further ado, I would like to please join me to invite Mr. Li Chunguang to deliver his speech, talking about our business. Mr. Li, please.

(interpreted) Ladies and gentlemen, good afternoon. Welcome to the Sinopec 2014 annual results announcement.

The presentation today includes three parts. I will begin with the 2014 performance overview and development orientation under the new normal. CFO, Mr. Wang Xinhua, will then take you through the operational results by segment, and the 2015 operational plan.

In 2014, the global economic recovery remained weak. International crude oil prices fluctuated at a high level in the first half, but tumbled in the second half, with a precipitous drop in the fourth quarter.

China's economy has entered a phase of new normal. The growth of domestic demand for oil products slowed down. Domestic apparent consumption of oil products rose by 2% over the previous year, with gasoline demand up by 8.3%, and diesel demand down by 1.5%.

Domestic demand for chemicals maintained stable growth. Domestic apparent consumption of ethylene equivalent grew by 4.9% over the previous year.

Timely adjustments were made to the domestic oil product prices, according to the changes in international crude oil prices. Our premium pricing policy for high quality oil products has been well implemented.

Regardless of the harsh business environment in 2014, we remained focused on growth quality and efficiency, relentlessly deepening reform, transforming growth pattern and strengthened governance. Through these efforts, we maintained stable operation and achieved a number of highlights.

We accomplished the reform of our marketing and distribution business, introducing public and private capital to achieve mixed-ownership operation. This will enable us to shift from a product supplier to a service provider, and unlock additional value.

We stepped up efforts in transformation. Fuling shale gas field started up ahead of schedule, with a production capacity of 2 billion cubic meters per year, making China the first country outside North America to realize commercial shale gas production. We further upgraded the quality of oil products, significantly increasing the production of high octane gasoline.

The non-fuel business continued robust growth, with revenue increasing by 28% over the previous year.

In governance, we further optimized the resources to unlock maximum value through the industrial chain. Chemical feedstock structure and product mix were further optimized.

We maintained safe operations throughout the year, and effectively controlled the costs of each business segment.

In 2014, the Company's revenue was RMB2,825.9 billion, down by 1.9% over 2013. We took proactive approaches to deal with a precipitous drop of crude oil prices, inventory loss, changes in convertible bond fair value, and the accrued asset impairment.

Our operating profit was RMB73.5 billion, down by 24.1%, and profit attributable to shareholders was RMB46.5 billion, down by 29.7%.

We flexibly adjusted our debt structure, and further lowered the financing costs. Despite the harsh business environment, we maintained stable liability-to-asset ratio of 55.5% at yearend of 2014.

By the end of the reporting period, the total equity attributable to the shareholders of the Company amounted RMB593 billion, up by 4.3% over the previous year.

EBITDA to interest coverage was 15 times, contributing to the solid balance sheet.

We actively responded to the profit drop in the fourth quarter, strengthened management of inventory and account receivables, controlled investment, and generated stable cash flow.

In March 2015, Sinopec marketing company completed its restructuring and capital injection raising RMB105 billion, further strengthening our cash flow and financial position.

Taking into account the Company's profit, shareholders' return and future development, the Board of Directors decided on a 50% or higher dividend payout ratio, despite the Company's lower profit.

We propose a yearend dividend of RMB0.11 per share. Adding the interim dividend of RMB0.09 per share, the full year dividend is RMB0.2 per share.

In investment, we are more focused on improving quality and efficiency. CapEx was RMB154.6 billion, 8.3% lower than a year ago and 4.3% lower than the year [beginning] plan in 2014.

E&P segment CapEx was RMB80.2 billion, mainly for Fuling shale gas project, oil and gas projects in key areas, LNG and pipeline construction.

Refining CapEx was RMB28 billion, largely for refinery expansion and oil product quality upgrading.

CapEx for the marketing and distribution segment was RMB27 billion, mainly for building new service stations, logistics and non-fuel business facilities.

CapEx for the chemical segment was RMB15.9 billion, mainly for key chemical projects and feedstock structure adjustment.

CapEx for corporate and others was RMB3.6 billion, mainly for technology research facilities and IT projects.

Our total CapEx included RMB16 billion spent for the Clear Water, Blue Sky initiative and eliminating [HSE] hazards throughout the year.

We have actively fulfilled our corporate social responsibility, enhanced the social responsibility management throughout our operations, and vigorously implemented the green and low carbon strategy. We continue to push forward; push forward the Clear Water, Blue Sky initiative launched the energy efficiency doubling plan, published China's first shale gas ESG report, and responded to the stakeholders' concerns leading the Chinese companies to combat climate change.

We achieved all our annual emission targets and constantly reduced energy consumption emissions while we expanded operations. Compared with 2013, energy intensity decreased by 0.6%; industrial water consumption decreased by 1.1%; COD in discharged water decreased by 2.5%; ammonia and nitrogen emission decreased by 4.2%; SO2 emission decreased by 8.1%; and NOx emission decreased by 3.9%.

In 2014, we relentlessly strengthened governance, beefed up safety management, eliminated hazards and further improved operational safety. We constantly improved managerial systems and work procedures, leading to well-planned production, better risk management and safer and more reliable operations.

We implemented total cost management and curbed the growth of operational costs of all segments. The lifting cost of the E&P segment grew at a slower rate, and the cash operating cost of both the refining segment and marketing segment was down by 1.5% and 1.7% respectively.

Unit chemical all-in costs dropped for the third consecutive year. We diversified financing channels and lowered financial costs over the past few years.

In 2014, we vigorously promoted technology innovation, explored the future-orientated reform of the R&D system, and encouraged innovation through various channels. Technology was at the very core of our business; production, sales and research was better aligned; new technologies were applied more swiftly.

Breakthrough was made in technologies for shale gas exploration development, coal chemicals, new materials and energy saving and environmental protection.

Technology played a driving role in our business growth. In 2014, we applied for 4,968 patents, both at home and abroad, with 3,011 patents approved, of which 1,978 were invention patents ranking the third in domestic companies. We were granted 12 national science and technology awards, including four first awards and eight second awards.

At the beginning of 2015, we carried out a thorough analysis of the internal and external environment, difficulties and challenges, risks and opportunities for the Company's future development. Focusing on growth quality and efficiency, the strategy for 2015 and the next few years is adapting to the new normal and cultivating new driving force.

Our future growth model, to put it simply, is R&D plus manufacturing plus service. That is, R&D guys manufacturing to create value for our products while service further adds value.

In the future, we will achieve three transformations. Firstly, from the extensive growth model driven by skill, expansion and investment to the intensive growth model, focusing on portfolio optimization and improvement of quality and efficiency through technology advances. Some progress already made in this area.

Secondly, from the oil and gas plus chemical structure to the energy plus materials structure.

Thirdly, from the value creation by processing and manufacturing to value creation by technology and service.

We believe the three transformations will further enhance our strength and sustainable development capability.

Next, CFO Mr. Xinhua Wang, will present the operational results of each segment and the 2015 production and operational plan. Thank you.

(interpreted) Thank you, President Li. Next, I'll discuss 2014 operational results in detail and 2015 operational plan.

Upstream E&P segment; driven by management technology innovation and high efficiency in E&P, we scored many strategic breakthroughs with proven gas reserve up by 3.4%.

We intensified staged exploration reservoir appraisal, maintained growth momentum in crude oil output, accelerated natural gas development. New capacity in Yuanba and [Danudi] was brought on line. Fuling project was commercialized ahead of schedule, daily volume of producing wells exceeding target.

Meanwhile, at yearend, part of overseas assets acquisition transactions was completed, adding large volumes to crude oil production. 2014 total oil and gas output 480 million boe, up by 8.4%, with stable domestic volume and large increase from overseas. Gas production 716.4 bcf, up by 8.5%.

Affected by plummeting of international crude price in second half, particularly Q4, our realized crude price averaged $90.43 per barrel, down 5.2%. Gas $7.41 per 1,000 cubic feet, up 19.1%, becoming a new contributor for profit growth.

Operating profit for E&P RMB47.1 billion, down 14.1%, due to the plummeting of international crude price.

Refining; we adjusted refining product mix to address market changes, increased [fuels] and high value products of robust demand, with gasoline output up 12.4% premium [grease] up 17.2%. Jet fuel output up 19.1% with the diesel to gasoline ratio down further.

We fast tracked product quality upgrading; raised output of GB IV automotive diesel and supplied GB V gasoline diesel to some markets; optimized resources and feed crude allocation strengthened inventory management and cost control; captured advantage in specialized centralized marketing; improved profitability of products such as lube, LPG and asphalt. Total crude run 235 million tonnes, up 1.5%; refined products output 146 million tonnes, up 4.2%.

Second half 2014 crude prices dipped sharply, with a precipitous drop in Q4. As a result, the Q4 inventory loss and asset impairment was significant, refining margin dramatically squeezed. Operating loss for the segment was RMB1.95 billion. Operating cost for refining $3.67 per barrel, down 1.5% year on year, effectively under control.

Oil products marketing 2014; we kick off the marketing segment restructuring to invite public and private investment, carry out the mixed-ownership reform and sign capital injection agreement with 25 investors. Such market oriented and innovative reform paved way for further reshaping of mechanism and systems.

In light of the decelerated growth of demand for oil products, weak diesel demand in particular, we adjusted marketing strategies which focused on premium gasoline and jet fuel sales using our network and brand advantages, improving customer service so as to increase retail volume.

Full year total sales of oil products 189 million tonnes, up by 5.1%; domestic sales 171 million tonnes, up by 3.4%; retail up 3.6%. We responded to demand/supply changes in 2014, expanded total volumes, as well as direct sales and distribution ratio, further developed non-fuel business, provided one-stop services.

The non-fuel business revenue climbed to RMB17.1 billion, up by 28.1%. Due to crude price drop, affected by inventory and crude impairment loss, the segment's operating profit was RMB29.4 billion, down by 16.2%.

Chemicals; we continuously optimized feedstock portfolio by increasing light feedstock ratio and realized annual decline cost of ethylene output, adjusted product mix, intensified efforts in R&D production sales and new products.

The ratio of new polyolefin products and specialty materials reached 54.7%, up 2.1 percentage points. That of high value-added rubber reached 17.4%; synthetic fiber differentiation rate 76.7%.

We configured operation of manufacturing facilities and shut down nearly 100 of chemical facilities, falling short of marginal costs, exerted the businesses of urea and polyester filament. Ethylene output 10.7 million tonnes, up 7.2%. By keeping low inventory level and placing a differentiated marketing strategy, our full year chemical sales volume 60.79 million tonnes, up by 4.4% selling all manufactured chemicals.

With the shutdown of low efficiency units and of crude impairment loss, we recorded RMB2.2 billion loss. Second half, low crude price made naphtha-based chemical business more competitive. Chemicals margin continued to improve. Q3 turned profitable; operating income further expanded in the fourth quarter and the loss are incurred in the first half.

Now, I will present 2015 operational plan. In 2015, China's economy will enter a new normal with growth rate changed, structure optimized and driving force shifted. International crude price are likely to stay low. On the one hand the new normal and low crude price will present challenges to us.

On the other hand, as China is still in the process of industrialization, IT application, urbanization and agriculture modernization, we anticipate domestic demand for both oil products and chemicals will continue to grow, creating favorable conditions for our growth model transformation.

The new work safety law and environment protection law have been carried out, with the 12th five-year development period approaching the end. The public pay more keen attention to putting people first, save development, accelerating ecological civilization. Sinopec has always endorsed the green and low carbon growth strategy.

In 2015, we'll sustain our investment in HSE and push forward the energy efficiency doubling scheme, continue with the implementation of Clear Water, Blue Sky program to attend the energy saving emission reduction target set for the 12th five-year development period.

Production plan for 2015. Amid low oil prices, we will fully leverage our integrated advantage in oil and gas E&P, comprehensive competitive edge in refining chemical and marketing, underpinned by the international trade, improving growth quality and effectiveness while deepening reform. Transforming growth model, implementing rigorous governance, and accentuating structural adjustment, resource optimization, innovation-driven growth and risk control, we plan to focus on the following.

E&P; focus on conventional and non-conventional natural gas development. The gas output is projected to grow 24% year on year. Refining and chemicals, actively push forward oil products quality upgrading, further optimize resource products and facility portfolio to achieve better performance.

Marketing; expand retail scale and maintain a steady growth of oil product sales. At the same time, we build on the existing network strength by growing a professional and market oriented non-fuel business, initiating Internet of vehicles, O2O and Internet finance business in full swing.

CapEx plan for year 2015. We will continue to discipline our investment plan with a budgeted CapEx of RMB135.9 billion, down 12.1% year on year. E&P; align investment flexibility with project return, and invest more in natural gas business.

Refining; focus on oil products quality upgrading and refinery revamping projects. Marketing and distribution; we'll focus on optimizing service stations and logistics, improve gas and non-fuel business facilities, accelerating new business growth. Chemicals; focus on the Jingling PO and LPG utilization project, and PX project in Hainan.

Meanwhile, we will continue to increase input in the Clear Water, Blue Sky energy efficiency doubling programs and potential hazards treatment.

Amid low crude oil prices in 2015, we will continue to strengthen cost control by controlling fuel, power and other OpEx to improve operation efficiency; reforming governance structure to improve workforce efficiency; lower administrative expenses, bringing in inventory level and CapEx, making full use of domestic overseas financing channels to cut cost.

Meanwhile, we'll proactively respond to the fluctuations in crude oil market and cut crude procurement cost.

By and large, looking into the new year, Sinopec is to actively adapt to the new normal, create new driving force, constantly upgrade its comprehensive competitiveness and capability to sustain growth and achieve better results.

Thank you. And now we would be happy to take your questions.

We will now take questions from the floor.

Gordon Kwan, Nomura. Thank you very much giving us a very informative presentation. I have a few questions, all related to upstream E&P. First of all, your yearend reserves for 2014 declined from 2013. What triggered that decline? Is it because of low oil prices or is it because of some projects having to be cancelled?

The second question I have is, you cut your oil production target this year, why is that?

And the third is more of a general question. Given the new oil price environment, how would you prioritize shale gas projects, deepwater exploration and the oil sands? And how would LNG projects rank versus those? Thank you.

(interpreted) Thank you, Gordon. As you know, the reserve is closely related to technology and, in particular, the oil price in terms of booking. So when the price is high, the booked reserve could be bigger. When the price is low, some of those not economical, or hard to recover reserve, will not be booked.

So for the discoveries or reserve made by Sinopec, it could be booked under a $90 to $100 per barrel level. But under $50 to $60 per barrel, those reserves were not booked. This is the reason that the Company's book reserve in 2014 was lower than 2013.

And I'd also like to draw your attention to a large chunk of reserve increase over the past years, mainly come from natural gas, including shale gas. And I would say this natural gas business will represent the Company's future. That means the reserve as well as production potential will come from natural gas.

I would also like to emphasize that natural gas price is relatively less impacted by the fluctuations or decrease in crude prices. So in the future, natural gas will be the main profit contributor in the Company's upstream.

In terms of this, the Company will also prioritize investment for the upstream over natural gas. And we also will take into consideration of the exploration as well as development cost of mature fields.

For some of the mature fields, the cost could even reach $60 to $70, or even higher, so for those parts, we'll shut down those high cost wells. And this also answers your question regarding the Company's production target this year. Because of this, the target was also lowered.

I mentioned about the upstream investment sequence and priority. In the coming year, the Company will prioritize those of low cost or competitive cost productions, regardless from oil fields or gas fields. The only criteria will be the production or exploration and production cost. For instance, if we have producing wells at cost of $60 or $70, we'll prioritize the $60 cost first.

For the natural gas, we see a big potential in the future. By this, I am not only referring to shale gas, but also the conventional gas as well. This has been developing very fast, and the realized price was also relatively good. So in the future, we'll also prioritize investment in natural gas, not only conventional, but also unconventional. Thank you.

(interpreted) CITIC Securities. Two questions. First one is regarding the reserve; is there any impairment, or provision for the impairment for reserve, and if so what's the figure?

Second one is, Company's dividend payout ratio reached 50%; does the Company see this will sustain in the future?

(interpreted) For the reserve impairment, I would have my CFO, Mr. Wang, to elaborate on that, but I'd like to comment on the inventory impairment.

As you know, our refining business keeps a very big inventory, and that's significantly impacted by low oil prices, particularly constant drop in oil prices. The Company buys in crude each day, so if the price drop continuously and we have a high cost inventory which will negatively impact on our Company's financials.

In last year, there were 11 consecutive decreases in oil prices, and up to now there have been 13 oil prices drops. So if that small volatility in the crude oil prices won't affect much of the Company's operations, but if the oil prices continue and consecutively drop, that will significantly impact the Company's financial.

Regarding your second question for payout ratio, this year is relatively higher than last year. And despite of the lowered profit of the Company, what's the reason? On the first hand the Sinopec marketing has raised more than RMB100 billion after the restructuring, which improved our Company financial positions. And on the other hand, the Company doesn't wish to hold too much cash in his hands.

As for whether this is sustainable, I would say this 50% payout ratio is this year's level, and the Company's commitment over the years has been not less than 30% of dividend payout ratio. And since I took office, the dividend payout ratio has been increased constantly.

So I could only say we will try our best to maintain a relatively high level of dividend payout ratio, but I cannot assure a 50% payout ratio to sustain. But we will do our best. Thank you.

(interpreted) Regarding the reserve impairment, the test for impairment will take into account not only today's oil price, but the future cash flow, including the reserves, the oil prices, as well as the producing cost.

And as you can notice, the Company's cost control was very much effective in 2014; we managed to control costs among all segments. In fact, out of the four business segments, we lowered the cost for three business segments and the only one with increased cost, the number was only 0.48%.

Secondly, the Chinese Government also lifted the special oil income levy from a crude price level of the previous $55 to $60; this will also contribute to upstream situation. And in terms of the specific number of the impairment, the [accrued] impairment in last year was RMB2.5 billion, mainly from the mature oilfields of [Jianghan] and Shengli.

Scott Darling, JPMorgan. In your Annual Report, you talked about how you wanted to shift the industry from petroleum and chemicals to energy and materials. What does that mean? Does that mean consolidation of mining-related assets in China; could you give the audience some specifics on that and how that will improve returns for you?

And then, you have done an excellent job last year controlling costs by segment; could we expect that to be sustained this year? If you can give any specific guidance by segment on OpEx cuts you expect, we'd really appreciate it. Thank you.

(interpreted) Regarding the transformation, I believe many people pay a lot of attention to the just concluded NPC and [CBPCC] sessions. And during those sessions, the Chinese Premier, Li Keqiang, delivered a work report. And the core part of this work report is through a deepened reform, China will achieve restructured economic development, and transform its growth pattern.

This is the future direction of China, and I believe, as companies, we should also align ourselves with this direction. So companies like Sinopec should also restructure its business model and transform its growth pattern, so as to improve growth quality and efficiency.

The Chinese Government has raised a slogan that is the China Manufacturing 2025, which is very similar to the Germany slogan, which is Industry 4.0 version. And how does this China Manufacturing 2025 related to the Company? We believe the essence for this is through improved efficiency and upgrade our growth.

How do we achieve that? We analyze what could be our competitive strength in the 20 years to come. That's why we mentioned we need to shift from the traditional industry, which is oil and gas plus chemical, to energy plus materials.

Regarding your question, what does this mean, we believe petroleum, or oil and gas, will continue to be a major energy source in the future. But they won't be the only source; more emphasis will be put on new energy and alternative energies, which are what the society really needs for this transformation.

Sinopec, in the future, will not only provide oil and gas to the society. Oil and gas will be provided, but those low efficient or high cost productions will be stopped; we'll emphasize on high efficiency and high return productions from oil and gas. Also, in this process of industrialization, we anticipate the oil consumption in China will be growing, but the pace will be decelerated.

Our Company's forecast is that the diesel consumption will peak in year 2017. In fact, the consumption for diesel last year was negative increase. And the peak for gasoline consumption will come around 2025. Currently, 84% of China's imported crude [is] processed for the manufacture of fuels. So we believe, in the future, the incremental energy consumption or demand will be from alternatives rather than from coal or petroleum. This is the future direction which Sinopec will focus on.

Going back to the chemicals, currently our manufacturing are also focus on the commodity chemicals, such as ethylene. For ethylene, the added value is not very significant; however, we have a large chunk of investment made in the ethylene facilities, with relatively low return.

And we are pretty weak in producing specialty chemicals or fine chemicals, but the specialty chemicals represent the future potential. For instance, the automotive or even aerospace industries needs new and high tech materials. That's why we mentioned, our strategy will need to shift from the manufacturing to R&D-driven to create value and service-driven to add more value.

This is what we mean by transformation to energy plus materials. Regarding this transformation, the Company has detailed plan to achieve that.

I would also like to comment on your question for cost control. We believe the cost control is where the Company's competitiveness lies, and we did pretty well last year. But I believe there is further room or potential for us to improve, and we can do better in this year. There are some assets which the quality of those assets could be further improved, but it takes time.

Regarding this year, actually we'll review our production and operations assumptions based on a $60 barrel, so I believe we can do better. I cannot share with you a specific number in terms of cost control but we'll try our best and this is what the management should do.

(inaudible), Morgan Stanley. (interpreted) Two questions regarding marketing business segment. We've noticed in China's eastern areas, the C stores for Sinopec stations are being renovated. I'd like to ask the new change of model, which is C store, we believe can contribute to the Company's marketing segment. My question is to what extent will this help?

The second question is a long view of business. Last year, Chairman Fu mentioned in the future there will be five to six new business underpinning this non-fuel business. However, as far as we are concerned, it seems that currently the non-fuel business only refers to the C store business. How long does the Company think the new business areas will be [materially] developed to support the non-fuel business?

(interpreted) Thank you for the question. It's true that some of the stations have been renovated and actually, this was done since the mixed ownership reform last year; we selected some partners, which are specialized retail companies. And through this cooperation, we feel that we are really not professional in this non-fuel business.

I can share with you some examples; we did three tests or experiments. The first is that, in some of the stations, we changed nothing in terms of goods sold on the shelves, but only the sequence of the goods placed on the shelves, and the revenue increase was 10%. Second minor change was through some renovations, as you mentioned, and the contribute -- or the revenue increase in those stations was 30%. Thirdly, some stations also add some new dry goods and the increase in revenue was even above 40%.

So we can really see the C store has a large potential in the future, but we are not professional in this business; we are professional in fuels business. And I can also share with you the latest number for January and February this year; the non-fuel business increase revenue was 60%. So this also reaffirm our position, or commitment, to move towards a more market orientation, professional management by hiring professional management expertise and personnels to run this business.

We believe the value that's captured could far exceed our expectation. I still remember August last year I mentioned this is really a gold mine yet to be dug. You mentioned when we see all this new business in this non-fuel business could be developed, I would say this year the development will take shape; the other new business will be developed and emerged.

We mentioned before that the new business segments, including automotive services, O2O, Internet of vehicles, financial and insurance services and all these new business need to be supported by in-place infrastructure, which are more focus on Internet based. Customer relations management also need those infrastructure, including the payment. In April, we plan to commission this new platform and in the future, the O2O and payment, the infrastructure will be tested in April.

As you know, for now the online payment, or third-party payment, could not be realized due to the lack of infrastructure, but very soon we'll be ready for this. So in terms of future direction, we'll move towards a fuels supplier to a comprehensive self-service provider and, in the future, fuels will become a non-core business of Sinopec for the marketing segment.

So in the future, the main reason for customers visiting our stations would be to spend on goods in the stations rather than to fill their tanks of their cars. So I would say the Internet-based service is really boundless and, in the future, our customers' foods, clothing, transportation needs will all be met by this extended service concept. And a large part of value added would come in the future.

I would also draw your attention to a more broader view. That is, apart from this marketing business, there are some similar business segments under Sinopec which could be further captured. So in the future, we are very confident about this growth in this non-fuel business and this year you'll start to see the effect. Thank you.

(interpreted) A question regarding the CapEx for shale gas for the Company in 2014 and 2015.

(interpreted) According to our plan, the Fuling capacity build up was 5 billion cubic meters, and the total CapEx for this was RMB22 billion. In 2014, the invested capital for this Fuling gas field was RMB12 billion and in 2015, we'll earmark another RMB9 billion.

By the end of 2015, the 5 billion cubic meters capacity will be ready and, by the yearend, production we expect come from Fuling will be 3.5 billion cubic meters. That represents 2.5 billion cubic meters increase over 2014.

(interpreted) Two questions and actually some comments or recommendations. The first one is whether the Company will continue the specialized business units reform in the future. And if, in fact, the fund management company recommend the Company continue to do this, particularly for the refining and the chemical segment, because they see this is a good environment with a deflation environmental pressure.

The refining profitability may be decreasing but chemicals will be good, even those coal chemicals and gas-based chemicals. And they have also noticed that, for instance, the Shanghai Petrochemical PE level has been increased to the Asian peers. So the investor representative proposed, through the specialization restructuring and reform, this could further capture the value hidden in the past. And this also helps the transformation raised by the Company to energy plus new materials or to focus more on the specialty and performance chemicals.

The second question is regarding the investment, or particular the financing plan for the Company. Currently, China's Asia is in a bull cycle, which provides a low financing cost opportunity for the Company, and the Company may seize this opportunity, particularly in this low crude price environment, for its future expansion and transformation.

But this fund management company also holds the Company's convertible bonds, which they have converted to shares, and they are ready to their second batch of convertible bonds issuance. They think the Company could do this, and RMB20 billion won't be much for the market and they are even ready to accept more than RMB100 billion scale.

They believe, as long as there are very promising projects of high return even for the overseas assets, the Company are ready to make investment -- the investors are ready to make investment into the Company because they really see the Company is very committed to control cost and generate good return.

(interpreted) Thank you for the question and I would like to elaborate a little bit more.

First, on the specialization reform and this is for sure that will continue. And this is decided by the China's SOE history and background because, in the past, China's SOE has accumulated a large scale of assets but widely distributed in different business segments.

Ever since I took office in 2011, the management has blueprinted its strategy, which is market-based operations, specialization, differentiated competition, integrated disciplined and a Group-level management and control. So for the market orientation reform, not only the parent company but also listed co has started in this direction.

In the past three years, we have restructured 400,000 employees, which led to the IPOs of Sinopec Engineering Group, SEG, and Sinopec Oilfield Service Corporation, SSC. And we can also continue this work regarding the list co because internally, we have these different four business segments.

The reason for this is that the internally supplied products or services are not priced based on market, and the management cannot evaluate their performance because their prices for supply are distorted. This is why a market-based reform is critically important. For specialization, we have completed the Sinopec marketing business and there are others we're taking consideration of.

But there is a slight difference between the list co reform and a Group-level reform. For the list co, we are under the regulations of domestic Securities Regulatory Commission and there is no such practice, or they do not allow such practice, of splitting business.

In fact, back in 2012 the Company has been in consultation with the China Securities Regulatory Commission trying to persuade them that this could be done so that we can start with business such as lubricants or catalysts. And even for the water treatment business, the total volume of Sinopec accounts for 10% of China's water treatment. So this is a very large scale and, if specialization could be conducted, it could be a very big company.

You also mentioned the reform in the refining and chemical business. Economically, this is [practicable] but regulatory we need to persuade the authorities to give a green light to us. Eventually, our target would be of creating a win-win, not only for the Company but also for the shareholders or the investors.

Regarding the second question for financing, we've been also doing a lot of work in recent years and each year the financing volume is about $7 billion to $8 billion. And over the years, total financing volume has exceeded RMB200 billion.

The average cost for the financing was 3%, including the debts we issued with maturities ranging from 30 years to 10 years and five years. So we really are doing pretty well in this scenario, even though some of the Chinese companies think it's very hard to secure financing or expensive. We're also taking consideration, or thinking, about different options, I can assure you.

You also mentioned the opportunity of issuing debts in China, but I would also like to think about this in a broader scope; that is, maybe we can compare issuing euro debts versus RMB debts. So it's really a matter of weighing different options.

And for the question of issuing A-shares there's a long queue in domestic markets.

Above all, I would really say that our ultimate goal in terms of financing is to achieve the best profit or efficiency with the minimum cost. So the Company is really open to any comments or good ideas either from you analysts or investors. Thank you very much.

Thank you for your questions and support and we know some of you may have further questions. We apologize we cannot take too long time so that any further questions you may have you can just ring our IR representatives, and they're in Beijing, in Hong Kong, in New York. Thank you, once again, and hope to see you next time. Thank you.

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.