中國石化 (SNP) 2015 Q4 法說會逐字稿

Dear friends from the capital market, ladies and gentlemen, welcome to Sinopec 2015 Annual Results Announcement. First, please allow me to introduce the management of the Company. Mr. Wang Yupu, Chairman of Sinopec Corporation; Mr. Li Chunguang, President of the Company; and Madame Wen Dongfen, CFO of the Company.

Today's announcement includes two parts. First, President Li Chunguang will present 2015 performance highlights. Then followed by CFO, Wen Dongfen, who will introduce full year operational results by segment and the operational plan in 2016. Second, Chairman Wang Yupu will elaborate on the corporate strategies. Then the floor will be opened for questions. Now let us give the floor to President, Li Chunguang.

Dear friends, now I would like to present the operational highlights for 2015. In 2015, the global economic recovery remained weak. Chinese economy maintained steady growth with GDP up by 6.9%. International oil prices tumbled, gross optimum for oil products slowed while demand for chemicals was stable. Meanwhile, domestic environmental requirements became more stringent. The Company intensified its evaluation of the macro economy and the market trends, so that we could actively respond to these changes. With the focus on gross quality and profitability, the Company redoubled its emphasis on reform and innovation, stringent management and tight coordination of all aspects of our work.

Despite the oil price plunge in 2015, we took full advantages of our business integration. Our downstream segments especially refining and the chemical segments recorded significant increase in operating profits in year 2015 than the previous year, serving as an important contributor to the profits of the Company and moderating an active effect of lower oil prices on E&P.

Total revenue was RMB2 trillion, the operating profit was RMB57 billion, down by 22.4% from previous year. Net profit for the year was RMB43.7 billion, down by 8.9% and profit attributable to shareholders was RMB32.4 billion. Earnings per share was RMB0.268.

The debt structure of the Company continue to improve. The total debt scale and dollar denominated loans both declined significantly. The working capital employed dropped from 2014, the gearing ratio was 45.66%, down by 9.86 percentage points and interest coverage ratio hit 20 times.

The net asset of the company kept growing to reach RMB674 billion as of the end of the reporting period, up 13.7%. The cash flow generated from operating activities grew by 11.8%. As a result of stringent investment control, the cash flow used in investing activities was down by 11.8%. The ending balance in cash and cash equivalent was RMB67.8 billion, showing a strong cash flow position. Taking into consideration of the Company's profitability, shareholders' interests and future growth, the Board of Directors proposed the full-year dividend. Including the RMB0.09 per share interim dividend, the final full-year dividend for 2015 will be reached RMB0.15. The total cash dividend is expected to reach RMB18.16 billion with a payout ratio 56%; based on the share price at the end of the year, dividend yield is around 4%.

In terms of capital expenditures, the Company focused on the quality in returns of the investment and adjusted the investment plan according to the changing prices. Total CapEx for the year was RMB112.2 billion, down by RMB27.4 billion. CapEx for E&P were RMB54.7 billion, down by 31.8% mainly for building capacity in the Fuling shale gas field, the LNG [cum] terminal projects and construction of natural gas pipelines.

CapEx for refining were RMB15.1 billion, down by 45.9% mainly for gasoline and diesel quality upgrading and refinery revamping. CapEx for marketing and distribution were RMB22.1 billion, down by 18.1% mainly for developing and renovating service stations and building oil product storage and logistics facilities. CapEx for the chemicals were RMB17.5 billion, up 10.2% mainly for equity participation in Sibur, a company based in Russia and Zhenhai ethylene revamping project and co-chemical projects. And CapEx for IT application and research facilities were RMB2.8 billion, down by 22.7%.

In year 2015, the Company insisted on setting innovation as the core of development, further improved mechanism and institution of R&D, reinforce the integration of production, marketing and research and development to drive and support the growth of the Company. In upstream business was successfully completed in-house technology package to support 5 BCM capacity building in Fuling shale gas fields. In refining, we commercialized such technologies as the integrated hydrogenation FCC process and high-octane gasoline from a catalytic diesel process. These technologies provided the guarantees for optimizing products slate and upgrading oil products' quality.

In Chemicals, our high performance and the environmentally friendly aromatics technology was granted a top award for National Science and Technology advancement and newly commercialized chemical products such as optical-film-grade polyester performance compounds and high performance SBR tire helped us yield more high value added products. We applied for a total of 5,246 patents in home and abroad and 3,769 patents were granted.

During the year, we won one top award and one second prize award for National Science and Technology Advancement, two second place awards for Technology Invention, one National Patent Gold award and six awards of excellence, commit to sustainable development and in compliance with the United Nations' Global Compact 10 principles, the standards for senior company members and government requirements for green, low-carbon growth. The Company actively fulfilled corporate social responsibility.

In this year, the Company put emphasis on the safety hazard management, totally invested RMB10 billion and adjusted about 13,132 potential hazards. We have maintained a stable and reliable safety operations situation. We also vigorously push forward environment protection, energy saving and emission reduction, achieved a good result in green growth.

We have totally invested RMB11.1 billion in the environmental campaign and in the 12th 5-year plan period, while growing our operation production volume the total energy intensity was down by 8.3%, industrial water consumption down by 6.1%, COD down by 12.7%, emissions of SO2 down by 27.3%. We have been committed to be a cooperative citizen in a responsible way. In the past 5 years, total investment of about RMB1 billion has been earmarked on poverty reduction, disaster relief, support on Tibet, and also start charity projects like Brightline Express projects.

We have also organized a Public Open Day and cured about 16,000 cataract patients. That's created a very good branding image. In the past 11 years, we have been successfully and continuously awarded by the Special Achievement Award, granted by China House Lifeline Express Foundation and also awarded the Most Responsible Company and also Global Reputation and Branding Achievement Award.

Now let's give floor to CFO, Wen Dongfen.

Thank you, President Li. Next, I will discuss the operational results by each segment in 2015 and operational plan in 2016. In E&P, given the lower oil prices in 2015, we promoted the reforming exploration company model, stepped up our R&D and cost efficiency, optimized production driven by profitability and set up a dynamic operational mechanism responsive to oil prices. In Exploration, we stepped up highly efficient exploration and upgraded E&P plan. New discoveries were made in Beibu Gulf of the South China Sea, and the Central Tahe Basin in Sichuan; success rates for rig drilling exploratory wells greatly improved. In development, we have completed building the first phase production capacity of 5 BCM per year for Fuling shale gas field with the second phase, also 5 BCM per year, already underway. We cut the high cost crude production, lowered the cost for per unit production capacity building and a greatly improved crude production structure.

In 2015, domestic crude production dropped by 4.7%, while overseas production grew by 6.6% and natural gas up by 2.6%. Affected by low oil prices, proven reserves of crude fell year-on-year, while that of natural gas increased by 12.3% mainly due to the growth in the Fuling shale gas reserves.

In 2015, crude realized price for Sinopec averaged $45.55 per barrel, down by 49.6%. Gas realized price averaged $6.98 per 1,000 cubic feet, down by 5.4%. While reducing production, we took great efforts to cut costs. Lifting cost was $17.62 per barrel, down by 4.3%. Due to the tumbling international crude prices, operating loss for E&P segment was RMB17.4 billion.

In refining, we continued to push forward oil products' quality upgrading. We optimized resources based on market demand, pressed ahead with products' late adjustment and produced more gasoline, kerosene and high value-added products which fully demonstrated our advantages in scale, specialization and business integration. We also further implemented safety accountability mechanisms, ensured a safe and reliable operation and production and advanced economic and technical indicators on all fronts. Our crude throughput was 236 million tons, up 0.5%. We produced 148 million tons of oil products, up 1.5%, among which gasoline was 53.98 million tons, up 5.4%; kerosene up by 17.3%. Refining yield registered 94.75%, up 0.09 percentage points.

In 2015, we seized the favorable opportunity of increased refining margin in tapping more potential and efficiency and enhanced cost competitiveness. Refining margin for the year was $6.95 per barrel for the whole year, up 47.2%. Cash operating cost reduced despite increased investment for oil products' quality upgrading. Operating profit in refining segment totaled RMB21 billion, a significant increase.

In marketing and distribution, in light of the slower growth of market demand for oil products and more fierce market competition, we adjusted our marketing strategy and promoted the sales in high-spec and high value-added oil products. We optimized oil products pipelines, developed service stations and extended marketing network. The total retail volume and per station sales increased accordingly. By developing into an integrated service provider, the business model of mutually complementing fuels and non-fuel businesses demonstrated strength.

Sales volume of oil products increased by 0.1% to 189 million tons with domestic retail volume up by 1% to 119 million tons. Non-fuel business achieved operational excellence with specialization and market orientation. We also actively expanded market share by coordinating markets and resources. We achieved effective growth in sales volume despite continuous price drop and with demand for oil products; with retail shares further up, marketing cash operating costs were RMB189.2 per ton, down by 1.9%. Non-fuel business revenue increased to RMB24.8 billion, up by 45.2%. Operating profit remained stable at RMB28.9 million.

In 2015, domestic demand for chemicals rose steadily. We achieved operational excellence and strived for safe and reliable production. We dynamically adjusted feedstock mix and product slate and utilization rates. At first we intensified the R&D production and the marketing of new products, the new products and performance compounds ratio for synthetic resin rose to 59.4% and the differentiation rate of synthetic fiber amounted to 80%, up by 2.0 percentage points and 3.3 percentage points respectively. Operational efficiency for the segment was increased.

Ethylene output grew to 11.12 million tons by 3.9%. Synthetic resin up by 2.9%. Monomer and polymer of synthetic fiber up by 7.3%. Total chemical sales volume grew to 62.87 million tons, up by 3.4%, [all] manufactured chemicals were sold.

In 2015, we adjusted feedstock options and the product slate with a ratio of differentiated and high value added products further up. Though the prices for feedstock and products dropped significantly, we successfully took cost under control. With feedstock costs falling more sharply than products prices, chemical all-in costs continued to decline. Process expenditure per ton of chemicals reduced by 8.53%. Gross margin per ton was up RMB133, an increase of 11.9%. Operating profit for chemicals totaled RMB19.7 billion improved remarkably.

Next I'll introduce the operational plan for the year 2016. Looking into 2016, the world's economy will be in weak recovery. China's economy will keep sound growth while facing downward pressure. Oil prices remain volatile at a low level. The competition in refining and fuels market will be fierce with access for crude imports further deregulated. Quality upgrading for oil products will be pressed ahead with the consumption mix to be further adjusted. Domestic demand for major chemical products will keep steady growth.

Based on the above macro economy situation, we are reinforcing market analysis focusing our returns on investment, transformation of growth model and structural adjustment. We will effectively grow our business by enhancing quality and profitability. In E&P, responding to oil prices where we optimize crude production and ramp up natural gas volume. Oil and gas production is planned to increase by 4 million BOE. In refining, we will fast track quality upgrading for oil products and continue to adjust product slate while stabilizing utilization rate. We plan to add 2 million tons of crude throughput. In marketing, we will further expand oil products market and plan to sell 171 million tons in domestic market flat with 2015. In chemicals, we will continue to adjust the configuration, feedstock and product slates and plan to produce 11.2 million tons of ethylene, up by 80,000 tons year-on-year.

In 2016, we will be guided by the five corporate strategies. We will focus on investment quality and the profitability, we will optimize portfolio to try ROI amid a low oil price environment. CapEx is budgeted at RMB100.4 billion, down by 10.6% year-on-year, among which RMB47.9 billion for E&P mainly for the second phase capacity building for Fuling shale gas project and domestic oil and gas exploration projects. RMB19.5 billion for refining, mainly for quality upgrading of oil products and revamping of refineries. RMB17.9 billion for marketing and distribution mainly for renovating service stations and improving logistics. In CNG stations and non-fuel business, we aim to step up new business and enhance the integrated services. RMB10.8 billion for chemicals mainly for Jinling propylene oxide and [opportunity] utilization Maoming ethylene oxide projects. RMB4.3 billion will be for R&D facilities and IT projects.

In 2016, the Company will leverage the opportunities arising from favorable national policies and economic growth in China to drive quality, profitability growth, industrial upgrading. We are determined to drive internal vitality through reform and innovation, sharpening our competitive edge and forge ahead to adjust the structure and the transform growth pattern to a medium and high level. Thank you.

Thank you, President Li and CFO Wen. Now I'd like to invite Chairman of the Company, Mr. Wang Yupu to elaborate on corporate strategies. First of all, I'll thank you all for your interest and support to Sinopec. In 2015 despite the extremely challenging environment, we made solid steps in structural adjustment, achieved good results in reforms and management and recorded a fairly good performance in operations. Just now President Li and CFO Wen have presented the 2015's operational highlights and 2016's operational plan. In 2015, the upstream business successfully addressed difficult market conditions through optimal investment and production and substantial cost reductions. We saw strong shale gas growth in both reserves and the volume. The net profits in refining and chemical segments grew significantly. And these two segments became important profit drivers of the Company. The marketing segment made sound and stable profit along with expanded market and broadening non-fuel business.

Turning to operations. Although the net profit of the Company was down by 8.9%, we still remarkably outperformed other industrial players home and abroad, proving our integrated risk resilience and sustained competitiveness. In particular, we managed to maintain a stable and positive free cash flow. Our gearing ratio in the year-end was significantly down from 55.6% to 45.7% with a reduction by 9.9 percentage points, making us quite awash in cash. This paved the way for us to enter into a stronger growth in the future growth period.

Looking into the upcoming years in the future, in spite of the slow global economic recovery, the fundamentally strong momentum in the Chinese economy remains unchanged and serves as the power engine for the great [world]. We believe there are more market and development potentials to be further unleashed amid economic growth and serious structural adjustment. Sinopec is strategically well-positioned to embrace the huge growth opportunities. Chatting on the market and competition scenarios and based on a new development concept raised by the central government and the actual situation of the Company, we have set forth the five corporate growth strategies. First, value orientation strategy. We'll focus on value creation in all-round aspects. So all the work will be mainly driven to improve asset quality and value.

Second, innovation-driven development strategy. We will promote innovation in science and technology, management, products development, services and business model, which in combination will drive greater momentum and potentials for growth. Third, integrated resource allocation strategy. We would take advantage of the synergies in our integrated business value chain to improve the allocation, optimization and the efficiency in various energy and resources, which will ensure sufficient, balanced and synergetic resources for quality and profitability growth. Fourth, open cooperation strategy.

We will capture this strategic opportunities arising from belt and road initiative. Participating in overseas oil and gas, E&P, refining and chemical production and trading, improving our international operations worldwide and management excellence. We will take the opportunities of young, (inaudible) adult economic belt and coordinates development in Beijing, Tianjin, and Huabei. To deepen internal institutional reforms of the Company, we are determined to forge ahead with positive and sound progress in mixed ownership reforms to create more vitality, management control, market dominance, risk resilience of the Company.

Five, green and low carbon strategy. We will vigorously implement energy saving, emission reduction and low carbon initiatives, develop clean energy and supply environmentally friendly products. The Company is committed to green growth in harmony with the society and the environment. So the above mentioned five corporate growth strategies are fully in line with the advance of the time and consistent with our strategies in the past years. Looking into next five years. We will apply these five strategies to address structural problems and identify new resources of growth.

In E&P, we aim to boost the natural gas massive development in the areas along the Yangtze River Delta economic belt. And in Sichuan Basin, we aim to double the gas output to 30 billion cubic meters per annum. In addition, we will actively develop natural gas chemical projects and ramp up natural gas sales volume. By 2020, the end of the 13th five-year plan period, our domestic gas production volume is expected to reach 40 billion cubic meters and gas supply capacity to 53 billion cubic meters. So judging from the E&P segment, apart from development of the exploration and production of crude oil, we will put more emphasis on natural gas. In natural gas exploration, we have made a lot of important findings. In addition, these resources are secured in acreage with a huge prospect. Besides exploration of the crude oil, we also achieved good results in Beibu Gulf, the Weizhou well with a daily production of over 1,000 tons. We have drilled such a well with such a daily production volume and this is a very good driving force for our this year's exploration activities.

In refining and chemicals, we will actively build a number of world-class integrated refinery and a chemical complex along the Yangtze River Delta, Pearl River Delta and around the Bohai Bay developing new materials and [fine] chemicals set to sharpen our international competitiveness edge and profitability.

In Jianghan, Jiangsu, Zhongyuan and more areas we have already carved out our roadmap and blueprint along Yangtze River economic belt. Our Sinopec Marketing Company Limited, it has already set up the corporate governance structure. As the controlling shareholder of SMC, we fully support it to promote mixed ownership reform and become more market oriented with more vitality and profitability.

In the meantime, we'll also capture the strategic opportunities arising from the belt and road initiative to be an active player in overseas refinery and chemical corporation, international trade and logistics services. Based on the advanced information technologies, we expect to foster a new Internet class smart energy model, so as to achieve smart management effect. In the 13th five-year plan period, we also aim to consolidate our finance capability and develop finance business so as to achieve complementary synergy between finance and manufacturing.

Hereby, I'd like to point out two aspects for your attention. First of all, the mixed ownership reform in SMC, last year we have already built a Board of Directors, a modern corporate governance structure, for the next step we believe it'll be subject to its Board of Directors to make decision making based on its growth situation and plan. So in general, we will further deepen our reforms and to carry out the market-oriented reforms in a stepwise way.

Second point, based on your interests we have announced that we have a very strong cash flow but will still maintain relatively careful manner in investment. Although we have a very strong cash flow, we will not invest in those projects that have not good high return on investment or good quality. As long as there is such a mature and good quality projects, we will make our investment. Currently, we are now well underway in overseas, especially expanding our overseas presence in the chemicals and refining. Also taking the advantages of the belt and road initiative to build Sinopec's international brand overseas. The central government has initiated that the new development concept must be delivered so deepening reforms. Innovation, synergy and green sharing are major new development concept raised by the government. So in upcoming years, we will determine to build modern [LNG] systems and deepen our reforms. And we would be guided by our five strategies further deepen our reforms focused on supply side restructuring, drive vitality momentum and efficiencies through reforms and innovation. And focus on profit and efficiency growth, industrial upgrading to a higher level. I am convinced that with the support of our shareholders and people from all fabrics of society, Sinopec will further unleash much more vitality and create sustained value for the nation, the shareholders, the employees and greater society. Thank you.

Thank you, Chairman Wang. Now the floor is open to questions. Please identify your organization before raising your questions. (Operator Instructions)

Gordon Kwan of Nomura. I have a couple of questions. First of all, even though the oil prices have collapsed, your earnings, your operating profit declined just by 22%, which I think is the best in the world even compared with Shell, BP and Exxon. But when I looked at your upstream performance, especially on page 15, you have revised down your proven reserves for oil and now your oil reserves, the reserves to production ratio is less than 7 years. Are you at all concerned about your upstream ability compared to your global peers. And the second question I have is, can you describe the competition with the teapot refineries. Thank you.

(Spoken in foreign language).

Thank you very much for the question. Regarding the upstream, as you mentioned the earnings down by 22% this is hard won achievement and there are mainly several reasons for this. First one is we deepened our reform and reduced our cost. In terms of deepening reform that comes from this restructuring. Firstly, with the production restructuring, we cut the low efficiency wells and low profitability wells. And secondly, we also deepened our internal reform, including flattened their management hierarchy and to reform our producing companies towards the oil company model; reduced headcount, which also lead to the reduction in the headcount cost.

So with those measures, we achieved reducing operational costs, as well as management -- administrative expenses. Despite of the declining oil price and also the fall in revenue, we were able to achieve a relatively good earnings, or a good performance for the upstream.

Regarding the reserve, I know this is a very critical issue, which is of your concern and this also concerns the sustainability of any oil companies. When the oil price is high, the reserves are booked as economically recoverable. However, when the oil price falls, the reserves, which are technically recoverable, but not economically sold. According to the SEC standards, we have to write down the reserves. But we believe when the oil price started to pick up, some of the technically recoverable reserves will be written back to the economically recoverable reserves. And on the other hand, we are also making every effort in expanding our exploration activities, including to increase the exploration areas.

So on the one hand, we are cutting the operational cost, but on the other hand we are not reducing a single penny in terms of investment for exploration. We aim through such kind of restructuring to find new premium quality resources and to increase our reserve base for sustainable future. For instance, we had a big discovery in Beibu Gulf for the [wave] number 4 well, which is a high production well. And that good discovery is a result of the maintained or sustained or even increased workload investment, as well as technology advancement. I will also share with you another example, that is the natural gas exploration results we made in the Sichuan Basin. Those are natural gas wells and all showed very promising results.

I'll take the question for competition with the small-scale refinery or teapot refinery. The big picture is that China is over-supplied in terms of refining capacity. Currently China has a 750 million tons of refining capacity and last year's refining throughput was 500 million tons. So the utilization rate, averagely speaking, is less than 70%.

And talking about these teapot refineries, their total refining capacity was 167 million tons. Particularly with the gradual opening up of import crude quota, the refineries are more active. Last year their utilization rate has increased to 42% from the previous year's 35%.

Given the process of more market-based orientation or market-based operation of the China's entire refining business, we'd like to say that the investors should be rest assured that Sinopec's competitiveness will be further demonstrated and our competitiveness lies in the following aspects. The first one is the scale of economy.

Sinopec's total refining processing cost averaged $5.1 per barrel, and this is even competitive compared with the international level, such as $6.03 or $6.11 per barrel. And this is to say Sinopec's refining cost competitiveness is demonstrated not only within China, but also to compare with the international peers. Sinopec's refinery complexity is [11.38]. This is also above international average level and Sinopec's is particularly strong in the capacity for reforming hydrogenation and refining high sulfur content and heavy crude.

Therefore, we believe under a fair competition market environment, with the support of the 30,000 service stations network, Sinopec is well positioned to compete with the teapot refineries. And in fact, we also welcome competition. This will also help improvements in our technology, management as well as market operations. As I've mentioned just now, with the most severe market competition, particularly last year with the opening of crude import quota, as well as the more active business operations from the teapot refineries, we are still very competitive and I'd like to share - pick out two numbers particularly. The first one is our utilization rate last year was 90% rather than the 70% average. We also should note that on the one hand we are competitors, but on the other hand we also seek cooperation to see win-win growth.

So we should not only look at one side of the issue, which is competition. We should also see the prospects for cooperation. Sinopec would also like to combine our event management and technology capabilities to jointly develop with the private investors.

From Morgan Stanley. The first question regarding Chairman Wang's comment, seizing the opportunity of [Belt and Road] initiative and seeking high return projects opportunities. So the question is when the two contradicts with each other, how to balance or how to seek the promising project with good returns?

Second question is regarding the $40 price floor. Since the initiation of this policy in January, the market was a little bit confused as for how the profit will be used or how the reserve funds will be established and used. The Company mentioned CapEx for refining will be RMB19.5 billion. Does any of that investment will come from the reserve?

I'll take the first question and will seek the opportunity of Belt and Road initiative and to make investment on those promising projects. This is actually the implementation of the Company's strategies, as well as to support the national strategy. And it was very correctly pointed out that how to seek the promising project with good returns and how to balance the conflict. This is a critical issue for the investors and for the Company as well. And we believe there's a lot of work involved for this. And this needs thorough work on understanding the international economic situation, the geopolitical situation, as well as the host country's taxation policies and the legal and commercial issues and environment.

So, when it comes to specific projects, we need to conduct a very thorough evaluation, as well as due diligence in response to the respective country's perspectives and specific environment. And this also involves a decision-making, which is well informed. So we really believe this is not an easy task. And I'd like to say that we may not succeed on every decision we make, but we must be very precautious and make every decision thoroughly.

And I would also like to talk about the price flow question. This $40 you mentioned is a policy issued by the government authorities. And there is also related taxation issues. We will comply with the relevant regulations with the national government. But I like to stress that this so-called price flow will be in a relatively short frame of time and the price spread will not be significant. So if we look into the long run this will not affect significantly the revenue or the earnings of the Company, or our corporate development strategy.

Neil Beveridge from Bernstein. Two questions. Firstly, you talk about gas being a strategic priority for the Company. I think for 2016 you're showing gas growth of about 18%, you've got an awful lot of LNG imports I think coming from Australia this year. With the slowdown that we've seen in gas demand in China, do you foresee any bottlenecks in terms of demand, for the plan is to grow gas production, not only this year, but the plan to double gas production over the next five years?

The second question is just around cash, cash management and going back to Gordon's question on the upstream. You're sitting with an awful lot of cash on the balance sheet, RMB67 billion. It's going to be difficult to turn around the upstream oil business from here. Do you have any plans to make overseas acquisitions to try and build up the E&P business for Sinopec, particularly with regards to oil?

The second question is regarding the upstream acquisition?

Relating to strengthening the oil business.

Regarding the natural gas strategy question, Chairman just now mentioned, our plan is to increase the current 13.6 billion cubic meters production to 30 billion cubic meters production, and that's regarding the [Citron and Chongqing] area in the coming five years. And it's also true that the delivery from other resources providers will also come on stream, including Australia and the AP LNG, as well as PNG LNG, which is 2 million tons per annum.

And the demand for natural gas in China is also slowing down in terms of demand growth. Three years ago the average demand growth is double-digit; last year's demand growth is only about 5%. So there is the issue of demand versus supply. On the other hand, Sinopec's natural gas marketing network is improving and we have our core markets in the most economically dynamic regions in China. And currently Sinopec has set up 21 affiliated companies in the gas marketing business with the local governments in the provinces and the cities. And we're improving the infrastructure. This laid a very good foundation for our future business and the market expansion.

So with the strong aspects of the regions or the macro markets, the pipelines, as well as the network and very importantly the joint ventures with local governments for the town gas operation companies, our sales growth in 2015 for natural gas was 9.4% above the national average sales growth. And we are very confident regarding the future of this natural gas business in China. If we take into consideration the future economic growth prospects as well as the more and more stringent environment requirements. Thank you.

And I'll take the question regarding upstream overseas acquisition plan, particularly in this current low price environment. Sinopec does have overseas acquisition planning and we are also positioned with sufficient cash in our hands and the capability to do the due diligence and evaluate those projects. On the other hand, we also believe in the principle of a win-win and cooperation. So, in other words, we have the capability to execute such plan. On the other hand we also aim for a win-win cooperation.

I have two questions. The first one Sinopec is Asia's largest refiner and what was the Company's refining capacity for last year? And what's the progress for the Company's refining and the chemical projects in Ningxia and Zhongtian?

Second question regarding the refined products demand. With this accelerated demand growth for refined products, the Company also exported refined products last year. And according to the number shown on page 19 in the presentation, the Company's 2015 export was lower than 2014. But China's statistics according to the custom show that China's total exports last year was greater than that of 2014. Could the management explain or elaborate on this?

The first question, Sinopec's total refining capacity last year was 276 million tons and the refinery throughput last year was 240 million tons. So the utilization rate was about 90%. And regarding the projects for Ningxia and Zhongtian, most recently the Chairman has also made a trip to those sites. The projects for these two sites were already approved by the national government. The reason for not rushing to build these projects was we were considering the huge optimization as for these specific issues for how optimal would be the capacity for those projects. And that also includes what will be the configuration for the plants and how to integrate the refining and chemical. So these are all the issues we have to consider.

And specifically for the Zhongtian project, after several rounds of optimization, because this is a project concerning dozens of billings of investment, currently we are almost ready for project construction. And this is under the final approval procedure within the Company. When it comes to the project in (inaudible) we have to consider about the current over-supplied market environment in North China. So, we are undergoing very thorough project evaluation.

Regarding the refined products in China, last year's apparent consumption it was 275 million tons, an increase of 1.2% throughout China. Among the 1.2% increase, gasoline was specifically up by 7%. And the increase for the jet fuel was 9.3%, while diesel saw a decrease of 3.7%. In this background, Sinopec over the years have been adjusting the diesel to gasoline ratio. In year 2014, it was [1.5], year 2015, adjusted to [1.3] and in the first quarter this year, it was adjusted to [1.15]. So, in fact, last year Sinopec increased its export to 15.4 million tons of products and this is the reason for restructuring our product slates to adjust the diesel to gasoline ratio. Thank you.

Two questions. First one regarding the CapEx. Last year and also this year, the Company's CapEx largely go to LNG, shale gas and co-chemicals. And if the Company re-addresses business structure and the focus, is there still room to reduce the CapEx for the Company? Second, regarding the dividend payout. The Company's policy has a 40% dividend payout ratio; however, over the past two years, the dividend payout ratio was about 50%. So the question is whether this 50% will become a new normal for the Company.

For CapEx question, our strategy is to focus on the major projects, as well as to dynamically adjust the CapEx structure. This does not mean that the CapEx will be fixed and not be changed. And our focus will be exploration, or in other words, we will focus on how to increase our reserve base. And the second focus will be the new profit contributor, such as the LNG -- such as the natural gas business. And the third focus in terms of investment is the technology or other business that can support our future sustainable growth. And these priorities, as well as investment plans will also be fine-tuned according to market changes, economic situation, as well as the growth scenario of the Company.

On the other hand, if there is any promising project opportunity, such as for the overseas assets, we can also make the decision and make the right move.

Regarding your question for dividend payout, this year's level is 56% and our principle is that we'd like to keep a relatively stable level of dividend payout ratio. And on the other hand, we should also look at our business performance, as well as future needs. It's our goal to increase the return to our shareholders, but we don't have the lip service. We try every means to achieve good performance and we would deliver as good performance as possible to our shareholders.

Thank you very much.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.